<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-21448
NATIONAL HOME CENTERS, INC.
(Exact name of registrant as specified in its charter)
Arkansas 71-0403343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 265 North
Springdale, Arkansas 72765
(Address of principal executive offices, including zip code)
(501) 756-1700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
As of June 10, 1997 National Home Centers, Inc. had 7,142,251 shares of
$0.01 par value Common Stock outstanding.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
===========================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, JANUARY 31,
1997 1997
ASSETS (Unaudited) (1)
- ---------------------------------------------------------------------------
Current Assets:
Cash $ 130,312 134,086
Accounts Receivable 13,064,194 11,346,279
Income Tax Refunds Receivable 1,591,679 1,333,892
Inventories 31,700,858 30,809,531
Other 1,107,314 1,266,852
- ---------------------------------------------------------------------------
Total Current Assets 47,594,357 44,890,640
- ---------------------------------------------------------------------------
Property, Plant and Equipment 49,258,867 49,353,036
Less Accumulated Depreciation 12,645,872 12,086,745
- ---------------------------------------------------------------------------
Net Property, Plant and Equipment 36,612,995 37,266,291
- ---------------------------------------------------------------------------
Other Assets, Net of Amortization 2,890,961 2,680,855
- ---------------------------------------------------------------------------
$ 87,098,313 84,837,786
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term
Debt $ 8,390,212 11,513,475
Trade Accounts Payable 18,085,942 14,994,945
Accrued Expenses and Other 3,065,750 3,351,420
- ---------------------------------------------------------------------------
Total Current Liabilities 29,541,904 29,859,840
- ---------------------------------------------------------------------------
Long-Term Debt, Excluding Current
Installments 32,727,337 29,320,227
Deferred Income Taxes 212,226 497,739
Stockholders' Equity 24,616,846 25,159,980
- ---------------------------------------------------------------------------
$ 87,098,313 84,837,786
===========================================================================
</TABLE>
(1) January 31, 1997 balances are condensed from the audited consolidated
balance sheet.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
-----------------------------
(Unaudited) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 36,215,726 42,523,492
COST OF SALES 27,661,937 32,214,030
- --------------------------------------------------------------------------------
GROSS PROFIT 8,553,789 10,309,462
- --------------------------------------------------------------------------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and Benefits 5,532,153 6,435,699
Rent 580,157 596,354
Depreciation and Amortization 818,449 810,348
Other 1,549,625 2,359,178
- --------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,480,384 10,201,579
- --------------------------------------------------------------------------------
OPERATING INCOME 73,405 107,883
Interest Expense 896,337 827,833
- --------------------------------------------------------------------------------
Loss Before Income Taxes (822,932) (719,950)
Income Taxes (279,798) (266,382)
- --------------------------------------------------------------------------------
NET LOSS $ (543,134) (453,568)
================================================================================
LOSS PER SHARE $ (0.08) (0.06)
================================================================================
Weighted Average Number of
Common Shares Outstanding 7,142,251 7,142,251
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
---------------------------
(Unaudited) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (543,134) (453,568)
Adjustments to Reconcile Net Loss to
Net Cash
Provided by (Used in) Operating
Activities:
Depreciation and Amortization 818,449 810,348
Gain on Disposal of Property,
Plant and Equipment (34,536) (22,556)
Increase in Cash Surrender
Value of Life Insurance (12,000) (63,978)
Deferred Income Tax Benefit (22,028) (39,356)
Changes in Assets and
Liabilities:
Accounts Receivable (1,717,915) (2,963,151)
Inventories (891,327) (1,961,721)
Other Current Assets (361,734) (218,086)
Accounts Payable 3,090,997 1,701,974
Other Current Liabilities (285,670) 473,598
- ---------------------------------------------------------------------
Net Cash Provided by (Used 41,102 (2,736,496)
in) Operating Activities
- ---------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and
Equipment (111,691) (245,021)
Proceeds from Sale of Property,
Plant and Equipment 62,314 28,250
Increase in Other Assets (279,346) (262,336)
- ---------------------------------------------------------------------
Net Cash Used in Investing
Activities (328,723) (479,107)
- ---------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 2,668,755 4,921,714
Repayments of Long-Term Debt (2,384,908) (1,704,945)
- ---------------------------------------------------------------------
Net Cash Provided by
Financing Activities 283,847 3,216,769
- ---------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (3,774) 1,166
Cash at Beginning of Period 134,086 130,051
- ---------------------------------------------------------------------
Cash at End of Period $ 130,312 131,217
=====================================================================
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 904,856 663,203
=====================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
APRIL 30, 1997
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, the financial statements do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for the three
months ended April 30, 1997, are not necessarily indicative of the results
to be expected for the fiscal year ending January 31, 1998. For further
information, refer to the consolidated financial statements and related
notes thereto included in the Company's Annual Report on Form 10-K filed
--------------------------
with the Commission on May 1, 1997.
2. Income Taxes
------------
Income taxes for the three months ended April 30, 1997 and 1996, do not
bear a normal relationship to the statutory federal income tax rate of 34%,
primarily because of state income taxes.
ITEM 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
GENERAL
-------
National Home Centers, Inc. is a full line retailer of home improvement products
and building materials. The Company believes it is unique in its ability to
serve both retail consumers and professional contractors by operating large home
center superstores in tandem with complete building supply operations.
Over the last year, the Company has experienced increased competition in its
markets from other national and/or regional chains who are seeking to gain or
retain market share by reducing prices. This has continued to place pressure on
all of the Company's stores and their respective sales, gross margins and
operating income. The increased competition may continually and adversely
affect the Company's earnings. There can be no assurance that other larger
national or regional chains will not enter the Company's present or planned
markets which could possibly have an adverse effect on the Company. During
fiscal 1996, Lowe's opened stores in Russellville and Conway, Arkansas, and Home
Depot opened stores in North Little Rock and west Little Rock, Arkansas. The
opening of these stores has adversely affected the Company's sales and profit
levels in these markets.
5
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RESULTS OF OPERATIONS
---------------------
Three Months Ended April 30, 1997 and 1996
- ------------------------------------------
Net sales for the first quarter of fiscal 1997 were down 15% to $36.2 million,
compared to $42.5 million for the first quarter of fiscal 1996. Comparable
store sales in the first quarter of fiscal 1997 were down 13% over the same
period of fiscal 1996. Increased competition has affected sales volume and
pricing. Net loss for the first quarter of fiscal 1997 was $543,000 or $0.08
per share, compared with a net loss for the first quarter of fiscal 1996 of
$454,000, or $0.06 per share.
Gross profit as a percentage of net sales for the first quarter of fiscal 1997
decreased to 23.6% from 24.2% for the same period last year. Increased
competition and promotional pricing led to the decrease in gross margin.
Selling, general and administrative expenses decreased to 23.4% of net sales for
the first quarter of fiscal 1997 compared to 24.0% of net sales for the same
period last year. A continuing emphasis has been placed on reducing expenses,
which have been higher than normal due to the opening of four new superstores
over the past four years.
Net interest expense as a percentage of net sales was 2.5% for the quarter ended
April 30, 1997, compared to 1.9% for the same period last year, primarily due to
increased borrowings and increased interest rates.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital at April 30, 1997 increased to $18.1 million from
$15.0 million at January 31, 1997, due to increases in accounts receivable and
inventories. Accounts payable have also increased, which is offset by a
reduction in current installments of long-term debt because of a note which was
classified as a current maturity at January 31, 1997 has been refinanced and
reclassified to long-term at April 30, 1997.
The Company's primary capital needs are to finance inventories, accounts
receivable and store expansion. During the three months ended April 30, 1997,
operating activities provided net cash of $0.04 million. Primary sources of
cash from operating activities included approximately $0.3 million from net
earnings and depreciation and approximately $3.1 million from increases in
accounts payable. The primary uses of cash were approximately $1.7 million to
finance increases in accounts receivable and $0.9 million to finance increases
in inventory.
Net cash used in investing activities for the first three months of fiscal 1997
was approximately $0.3 million, principally due to purchases of equipment and
increases in other assets. Net cash provided by financing activities during the
first three months of fiscal 1997 totaled approximately $0.3 million, primarily
from long-term borrowings.
At April 30, 1997, the Company owed a bank $23.1 million under its revolving
credit agreement, which expires in December, 1998. The agreement provides the
Company with the option of borrowing rates based on either (a) the London
Interbank Offered Rate ("LIBOR") plus 2.5%, or
6
<PAGE>
(b) the bank's Reference Rate, which reflects the bank's prime rate. The
facility limits availability to a borrowing base of 85% and 55% of eligible
accounts receivable and inventory, respectively, with inventories capped at $20
million. As of April 30, 1997, the Company had approximately $2.1 million of
additional available borrowing capacity under the revolving credit agreement.
Borrowings under the revolving credit agreement are collateralized by the
Company's accounts receivable and inventory. In addition, the agreement requires
the Company to comply with the following financial covenants: (i) minimum
interest coverage ratio, (ii) minimum adjusted tangible net worth, and (iii)
debt-to-adjusted tangible net worth ratio. As a result of defaults with respect
to items (i) and (ii) at January 31, 1997, the bank has raised the LIBOR and
Reference rate by 1% effective February 1, 1997. The bank agreed to waive the
defaults as of January 31, 1997, and to restate the interest coverage ratio and
the tangible net worth covenants for future periods. As of April 30, 1997, the
Company was not in compliance with item (i) and has obtained a waiver for this
default. As a result of these waivers, the Company has agreed to assign to the
bank a collateral interest in the Company's undeveloped land in Fayetteville,
Arkansas.
Dynamic changes are occurring in the home improvement industry and most building
supply retailers are experiencing pressure on sales and profitability. National
Home Centers, Inc. has engaged Arthur Andersen LLP to assist in reviewing
various long-term strategies. Arthur Andersen LLP is a business unit of
Andersen Worldwide, the world's largest professional services provider.
Forward-looking statements in this Form 10-Q are made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. There
are various factors that could cause results to differ materially from those
anticipated by some statements made in this Form 10-Q. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Factors that
could cause actual results to differ materially include, but are not limited to
the following: the strength and extent of new and existing competition; the
Company's ability to maintain competitive pricing in its markets; the Company's
ability to maintain adequate levels of vendor support; the ability of the
Company to increase sales; the Company's ability to attract, train and retain
experienced, quality employees; the Company's ability to dispose of excess real
estate and other assets; general economic conditions; housing turnover; interest
rates; weather; and other factors described from time to time in the Company's
Securities and Exchange Commission filings.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8K.
(a) Exhibits Description of Exhibit Sequentially Numbered
Exhibits No. ---------------------- Page
------------ ---------------------
10.1 Waiver letter from BankAmerica
Business Credit, Inc. 10
27.1 Financial Data 11-12
Schedule
(b) Reports on Form 8-K.
Not applicable.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
NATIONAL HOME CENTERS, INC.
Date: June 10, 1997 /s/ Dwain A. Newman
--------------------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: June 10, 1997 /s/ Brent A. Hanby
---------------------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
9
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EXHIBIT 10.1
[BANKAMERICA LETTERHEAD APPEARS HERE
April 8, 1997
Brent A. Hanby, EVP & CFO
National Home Centers, Inc.
Highway 265 North
P.O. Box 789
Springdale, Arkansas 72765
Dear Brent,
The requested waivers of the FYE 1/31/97 Interest Coverage Covenant default and
the waiver of the Tangible Net Worth Covenant default, have been approved by
BankAmerica Business Credit, Inc.
The requested restating of the Interest Coverage Covenant and the Tangible Net
Worth Covenant, has been approved by BankAmerica Business Credit, Inc. (See
attached for new covenants)
With the approval of the abovementioned waivers and restatement of the noted
covenants, the Libor and Reference Rate on all loans outstanding will increase
by one percent (1%) over the stated rate in the Loan and Security Agreement,
effective February 1, 1997.
National Home Centers, Inc. also agrees to assign to BankAmerica Business
Credit, Inc. a First Deed of Trust on raw land located in Fayetteville, Arkansas
and a First Deed of Trust on raw land located in Fort Smith, Arkansas if said
land falls out of its current escrow.
Formal documentation of the above mentioned "actions" will follow.
Your concurrence is requested.
Yours sincerely,
/s/ FRANCESCA M. GASTIL
Francesca M. Gastil
Senior Account Executive
BankAmerica Business Credit, Inc.
/s/ BRENT A. HANBY, EVP & CFO
- --------------------------------------
I Concur - Brent A. Hanby, EVP & CFO
National Home Centers, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 130,312
<SECURITIES> 0
<RECEIVABLES> 13,064,194
<ALLOWANCES> 0
<INVENTORY> 31,700,858
<CURRENT-ASSETS> 47,594,357
<PP&E> 49,258,867
<DEPRECIATION> 12,645,872
<TOTAL-ASSETS> 87,098,313
<CURRENT-LIABILITIES> 29,541,904
<BONDS> 0
0
0
<COMMON> 74,660
<OTHER-SE> 24,542,186
<TOTAL-LIABILITY-AND-EQUITY> 87,098,313
<SALES> 36,215,726
<TOTAL-REVENUES> 36,215,726
<CGS> 27,661,937
<TOTAL-COSTS> 8,480,384
<OTHER-EXPENSES> 8,480,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 896,337
<INCOME-PRETAX> (822,932)
<INCOME-TAX> (279,798)
<INCOME-CONTINUING> (543,134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543,134)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0
</TABLE>
