<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, 1998.
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 12, 1998 National Home Centers, Inc. had 7,142,251 shares of
$0.01 par value Common Stock outstanding.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==================================================================================================
APRIL 30, JANUARY 31,
1998 1998
ASSETS (Unaudited) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 98,295 111,543
Accounts Receivable 10,131,915 9,970,843
Income Tax Refunds Receivable 517,118 517,118
Inventories 17,332,997 19,173,468
Other 549,451 593,901
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Total Current Assets 28,629,776 30,366,873
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Property, Plant and Equipment 39,011,813 42,030,892
Less Accumulated Depreciation 13,121,461 12,745,131
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Net Property, Plant and Equipment 25,890,352 29,285,761
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Other Assets, Net of Amortization 2,465,506 2,137,770
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$ 56,985,634 61,790,404
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 8,075,993 9,113,391
Trade Accounts Payable 12,966,948 13,200,065
Accrued Expenses and Other 3,928,087 4,003,643
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Total Current Liabilities 24,971,028 26,317,099
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Long-Term Debt, Excluding Current Installments 21,507,879 23,323,447
Stockholders' Equity 10,506,727 12,149,858
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$ 56,985,634 61,790,404
==================================================================================================
</TABLE>
(1) January 31, 1998 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) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 29,185,813 36,215,726
COST OF SALES 23,001,645 27,661,937
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GROSS PROFIT 6,184,168 8,553,789
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SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and Benefits 4,494,024 5,532,153
Rent 437,178 580,157
Depreciation and Amortization 543,142 818,449
Other 1,576,046 1,549,625
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TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,050,390 8,480,384
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OPERATING INCOME (LOSS) (866,222) 73,405
Interest Expense 776,909 896,337
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Loss Before Income Taxes (1,643,131) (822,932)
Income Taxes 0 (279,798)
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NET LOSS $ (1,643,131) (543,134)
================================================================================
LOSS PER SHARE $ (0.23) (0.08)
================================================================================
Weighted Average Number of
Common Shares Outstanding 7,142,251 7,142,251
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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THREE MONTHS ENDED
APRIL 30,
-----------------------------------------
(Unaudited) 1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,643,131) (543,134)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 543,142 818,449
Loss (Gain) on Disposal of Property, Plant and 144,363 (34,536)
Equipment
Increase in Cash Surrender Value of Life Insurance (77,960) (12,000)
Deferred Income Tax Benefit 0 (22,028)
Changes in Assets and Liabilities:
Accounts Receivable (161,072) (1,717,915)
Inventories 1,840,471 (891,327)
Other Current Assets 44,450 (361,734)
Accounts Payable (233,117) 3,090,997
Other Current Liabilities (75,556) (285,670)
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Net Cash Provided by Operating Activities 381,590 41,102
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment (21,216) (111,691)
Proceeds from Sale of Property, Plant and Equipment 2,771,961 62,314
Increase in Other Assets (292,617) (279,346)
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Net Cash Provided by (Used in) Investing 2,458,128 (328,723)
Activities
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 1,126,961 2,668,755
Repayments of Long-Term Debt (3,979,927) (2,384,908)
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Net Cash Provided by (Used in) Financing (2,852,966) 283,847
Activities
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NET DECREASE IN CASH (13,248) (3,774)
Cash at Beginning of Period 111,543 134,086
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Cash at End of Period $ 98,295 130,312
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SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 771,250 904,856
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
APRIL 30, 1998
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, 1998, are not necessarily indicative of the results
to be expected for the fiscal year ending January 31, 1999. 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 April 30, 1998, as amended on May 28, 1998.
2. Income Taxes
------------
As a result of the uncertainty associated with the future realization of
deferred tax assets, which include the tax effects of net operating loss
(NOL) and other tax carryforwards, no income tax benefit has been recorded
for the three months ended April 30, 1998.
ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
-------
National Home Centers, Inc. ("the Company") is a full line retailer of home
improvement products and building materials, with nine locations in Arkansas.
The Company serves retail consumers and professional contractors primarily in
Arkansas, Oklahoma, Missouri and Kansas.
Over the last year, the Company has experienced increased competition in its
markets from other national and/or regional chains which 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. During 1997, the Company announced plans to restructure its
operations which included closing several stores. During 1997, the Company
closed stores in Conway and Rogers. During the first quarter of 1998, the
Company closed two additional stores in Little Rock and Fayetteville. In
addition, management has announced plans to reduce the home center portion of
the Russellville store and plans to sell the West Rogers store. Closing these
stores will eliminate the continued losses which these stores have incurred and
will provide cash as a result of selling the related assets, including real
estate.
5
<PAGE>
RESULTS OF OPERATIONS
---------------------
Three Months Ended April 30, 1998 and 1997
- ------------------------------------------
Net sales for the first quarter of fiscal 1998 were down 19% to $29.2 million,
compared to $36.2 million for the first quarter of fiscal 1997. Comparable store
sales in the first quarter of fiscal 1998 were down 10% over the same period of
fiscal 1997. Net loss for the first quarter of fiscal 1998 was $1,643,000 or
$0.23 per share, compared with a net loss for the first quarter of fiscal 1997
of $543,000 or $0.08 per share. The decrease in sales was primarily due to
increased competition and the closing of the four stores discussed above.
Gross profit as a percentage of net sales for the first quarter of fiscal 1998
decreased to 21.2% from 23.6% for the same period last year. Increased
competition and promotional pricing led to the decrease in gross margin .
Selling, general and administrative expenses increased to 24.2% of net sales for
the first quarter of fiscal 1998 compared to 23.4% of net sales for the same
period last year. The increase in expenses as a percent of sales is primarily
due to the lower sales volume.
Net interest expense as a percentage of net sales was 2.7% for the quarter ended
April 30, 1998, compared to 2.5% for the same period last year, primarily due to
increased interest rates.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital at April 30, 1998 decreased to $3.7 million from
$4.0 million at January 31, 1998, due to a decrease in inventories. Accounts
payable have also decreased as a result of the lower inventory purchases and
current installments of long-term debt have decreased due to early retirement of
debt.
The Company's primary capital needs are to finance operations. During the three
months ended April 30, 1998, operating activities provided net cash of $0.4
million. Primary sources of cash from operating activities included
approximately $1.8 million from decreases in inventories. The net loss for the
period, adjusted for depreciation and amortization, used approximately $1.1
million in cash.
Net cash provided by investing activities for the first three months of fiscal
1998 was approximately $2.5 million, principally due to proceeds from the sale
of equipment at the closed stores and sales of real estate. Net cash used in
financing activities during the first three months of fiscal 1998 totaled
approximately $2.9 million, primarily from repayments of long-term borrowings
with the proceeds from the equipment and real estate sales.
At April 30, 1998, the Company owed a bank $15.0 million under its revolving
credit agreement, which expires in December, 1999. Borrowings under the
agreement are based on the bank's Reference Rate, which reflects the bank's
prime rate, plus 1.5%. The facility limits availability to a borrowing base of
85% and 60% of eligible accounts receivable and inventory, respectively, with
inventories capped at $14 million. As of April 30, 1998, the Company had
approximately $1.9 million of additional available borrowing capacity under the
revolving credit agreement.
6
<PAGE>
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. The Company was in default with
respect to each of these covenants at January 31, 1998; however, the bank has
agreed to permanently waive compliance with respect to such defaults and to
amend the covenants. As of April 1, 1998, the financial covenants were amended
requiring: (i) minimum earnings before interest, income taxes, depreciation and
amortization (EBITDA), (ii) minimum adjusted tangible net worth, and (iii)
minimum availability. On June 11, 1998, the Company signed a commitment letter
with a new lender for a four year, $20 million revolving line of credit. This
transaction is expected to close prior to July 15, 1998.
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. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized. 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 consummate pending real estate transactions; the implementation of
the results of the previously disclosed Arthur Andersen engagement; the Co
mpany'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 and Use of Proceeds.
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 Commitment letter from NationsCredit 10 - 14
Commercial Funding
27.1 Financial Data Schedule 15 - 16
(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 12, 1998 /s/ Dwain A. Newman
--------------------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: June 12, 1998 /s/ Brent A. Hanby
--------------------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 98,295
<SECURITIES> 0
<RECEIVABLES> 10,131,915
<ALLOWANCES> 0
<INVENTORY> 17,332,997
<CURRENT-ASSETS> 28,629,776
<PP&E> 39,011,813
<DEPRECIATION> 13,121,461
<TOTAL-ASSETS> 56,985,634
<CURRENT-LIABILITIES> 24,971,028
<BONDS> 0
0
0
<COMMON> 74,660
<OTHER-SE> 10,432,067
<TOTAL-LIABILITY-AND-EQUITY> 56,985,634
<SALES> 29,185,813
<TOTAL-REVENUES> 29,185,813
<CGS> 23,001,645
<TOTAL-COSTS> 23,001,645
<OTHER-EXPENSES> 7,050,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 776,909
<INCOME-PRETAX> (1,643,131)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,643,131)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,643,131)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
</TABLE>
