<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 October 31, 2000.
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 December 12, 2000 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>
---------------------------------------------------------------------------------------
October 31, January 31,
2000 2000
Assets (Unaudited) (1)
---------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 36,947 43,847
Accounts Receivable 9,530,509 9,994,939
Inventories 13,484,346 14,675,988
Other 551,394 541,606
---------------------------------------------------------------------------------------
Total Current Assets 23,603,196 25,256,380
---------------------------------------------------------------------------------------
Property, Plant and Equipment 19,170,987 18,342,462
Less Accumulated Depreciation 10,795,571 10,611,433
---------------------------------------------------------------------------------------
Net Property, Plant and Equipment 8,375,416 7,731,029
---------------------------------------------------------------------------------------
Other Assets, Net of Amortization 2,953,115 2,908,675
---------------------------------------------------------------------------------------
$ 34,931,727 35,896,084
---------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
---------------------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 698,136 988,832
Accounts Payable 6,899,824 6,491,277
Accrued Expenses 1,981,675 3,079,971
---------------------------------------------------------------------------------------
Total Current Liabilities 9,579,635 10,560,080
---------------------------------------------------------------------------------------
Long-Term Debt, Excluding Current Installments 14,401,948 15,030,208
Stockholders' Equity 10,950,144 10,305,796
---------------------------------------------------------------------------------------
$ 34,931,727 35,896,084
---------------------------------------------------------------------------------------
</TABLE>
(1) January 31, 2000 balances are condensed from the audited consolidated
balance sheet.
See accompanying notes to Condensed Consolidated Financial Statements.
2
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 31, October 31,
---------------------------------------------------------------
(Unaudited) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 25,230,850 29,968,492 77,876,456 83,788,200
Cost of Sales 19,014,433 23,588,025 59,350,070 65,514,855
-----------------------------------------------------------------------------------------------------------
Gross Profit 6,216,417 6,380,467 18,526,386 18,273,345
-----------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses:
Salaries and Benefits 3,952,973 3,761,462 11,489,563 10,826,994
Rent 327,075 292,354 922,871 855,477
Depreciation and Amortization 312,338 271,623 946,779 955,383
Other 1,183,130 1,335,208 3,393,619 3,584,708
-----------------------------------------------------------------------------------------------------------
Total Selling, General and
Administrative Expenses 5,775,516 5,660,647 16,752,832 16,222,562
-----------------------------------------------------------------------------------------------------------
Operating Income 440,901 719,820 1,773,554 2,050,783
Interest Expense 372,893 373,097 1,129,206 1,042,882
-----------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 68,008 346,723 644,348 1,007,901
Income Taxes 0 0 0 0
-----------------------------------------------------------------------------------------------------------
Net Earnings $ 68,008 346,723 644,348 1,007,901
-----------------------------------------------------------------------------------------------------------
Earnings Per Share
(basic and diluted) $ 0.01 0.05 0.09 0.14
-----------------------------------------------------------------------------------------------------------
Weighted Average Number of
Common Shares Outstanding 7,142,251 7,142,251 7,142,251 7,142,251
-----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
3
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
October 31,
-----------------------------------
(Unaudited) 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Earnings $ 644,348 1,007,901
Adjustments to Reconcile Net Earnings to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 946,779 955,383
Loss (Gain) on Disposal of Property, Plant and Equipment (74,554) 91,742
Decrease in Cash Surrender Value of Life Insurance 0 63,404
Changes in Assets and Liabilities:
Accounts Receivable 464,430 (4,158,669)
Inventories 1,191,642 24,271
Other Current Assets (9,788) 31,385
Accounts Payable 408,547 2,266,611
Accrued Expenses (1,098,296) (1,368,021)
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 2,473,108 (1,085,993)
----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (1,060,776) (741,722)
Proceeds from Sale of Property, Plant and Equipment 80,279 14,400
Increase in Other Assets (180,075) (359,134)
----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,160,572) (1,086,456)
----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt 2,187,109 3,821,729
Repayments of Long-Term Debt (3,506,545) (1,658,300)
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (1,319,436) 2,163,429
----------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash (6,900) (9,020)
Cash at Beginning of Period 43,847 57,984
----------------------------------------------------------------------------------------------------------------------
Cash at End of Period $ 36,947 48,964
======================================================================================================================
Supplemental Disclosures:
======================================================================================================================
Interest Paid $ 1,143,387 1,025,842
Acquisition of equipment for notes payable 400,480 0
======================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
4
<PAGE>
NATIONAL HOME CENTERS, INC. ("THE COMPANY") AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
October 31, 2000
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 and nine months ended October 31, 2000, are not necessarily
indicative of the results to be expected for the fiscal year ending January
31, 2001. 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, 2000.
-------------------
2. Income Taxes
------------
No income tax provision was recorded for the three months or nine months
ended October 31, 2000 or 1999 due to the realization of previously
unrecognized NOL carryforwards.
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
General
-------
National Home Centers, Inc., an Arkansas corporation, ("the Company") is a full
line retailer of home improvement products and building materials, with eight
locations in Arkansas. The Company serves retail consumers and professional
contractors primarily in Arkansas and also in Oklahoma, Missouri and Kansas.
Over the past several years, the Company has experienced increased competition
in its markets from other national and/or regional chains that 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.
5
<PAGE>
Results of Operations
---------------------
Three Months Ended October 31, 2000 and 1999
--------------------------------------------
Net sales for the third quarter of fiscal 2000 decreased 16% to $25.2 million,
compared to $30.0 million for the third quarter of fiscal 1999. Comparable
store sales in the third quarter of fiscal 2000 decreased 16% over the same
period of fiscal 1999. Deflation in the prices of lumber and other building
materials has adversely affected the Company's sales revenues, as it has most
companies in the industry. For example, composite prices for framing lumber
fell approximately 30% in the third quarter. In addition, higher mortgage
interest rates have slowed the growth of residential housing developments in
some markets. Net income for the third quarter of fiscal 2000 was $68,000 or
$0.01 income per share, compared with net income for the third quarter of fiscal
1999 of $347,000 or $0.05 income per share. EBITDA (earnings before interest,
taxes, depreciation and amortization) was $753,000 versus $991,000 in the third
quarter last year. The Company operated eight stores at the end of the quarter.
For the quarter, the Company's revenues consisted of 81% to professional
contractors and 19% to retail customers versus 83% and 17%, respectively, in the
third quarter last year.
Gross profit as a percentage of net sales for the third quarter of fiscal 2000
increased to 24.6% from 21.3% for the same period last year. Gross margins have
increased as a result of management's efforts to increase margins in all
categories of products.
Selling, general and administrative expenses increased to 22.9% of net sales for
the third quarter of fiscal 2000 compared to 18.9% of net sales for the same
period last year. Expenses as a percentage of sales were higher due to the lower
sales dollars. However, certain expenses were lower as a percentage of net
sales for the period compared to last year, while certain others reflect
increases. The increase in salaries and benefits reflects the higher costs
associated with the tight labor markets in which the Company operates. In
addition, transportation expenses (included in other selling, general and
administrative expenses) were higher as a percentage of net sales due to the
large increase in fuel costs.
Net interest expense as a percentage of net sales was 1.5% for the quarter ended
October 31, 2000, compared to 1.2% for the same period last year, primarily due
to the increase in interest rates.
Nine Months Ended October 31, 2000 and 1999
-------------------------------------------
Net sales for the nine months ended October 31, 2000 were down 7% to $77.9
million, compared to $83.8 million for the same period of fiscal 1999.
Comparable store sales for the nine months ended October 31, 2000 were also down
7% over the same period of fiscal 1999. Net income for the nine months ended
October 31, 2000 was $644,000 or $0.09 income per share, compared with net
income for the same period in 1999 of $1,008,000 or $0.14 income per share.
EBITDA (earnings before interest, taxes, depreciation and amortization) was
$2,720,000 versus $3,006,000 in the same period last year. For the nine months
ended October 31, 2000, the Company's revenues consisted of 80% to professional
contractors and 20% to retail customers versus 83% and 17%, respectively, in the
same period last year.
6
<PAGE>
Gross profit as a percentage of net sales for the first nine months of fiscal
2000 increased to 23.8% from 21.8% for the same period last year. Gross margins
have increased as a result of management's efforts to increase margins in all
categories of products.
Selling, general and administrative expenses increased to 21.5% of net sales for
the first nine months of fiscal 2000, compared to 19.4% of net sales for the
same period last year. Expenses as a percentage of sales were higher due to the
lower sales dollars. Certain expenses were lower as a percentage of net sales
for the period compared to last year, while certain others reflect increases.
The increase in salaries and benefits reflects the higher costs associated with
the tight labor markets in which the Company operates. In addition,
transportation expenses (included in other selling, general and administrative
expenses) were higher as a percentage of net sales due to the large increase in
fuel costs.
Net interest expense as a percentage of net sales was 1.5% for the nine months
ended October 31, 2000, compared to 1.2% for the same period last year,
primarily due to the increase in interest rates.
Liquidity and Capital Resources
-------------------------------
The Company's working capital at October 31, 2000 decreased to $14.0 million
from $14.7 million at January 31, 2000, primarily due to lower inventories and
lower accrued expenses.
The Company's primary capital needs are to finance operations. During the nine
months ended October 31, 2000, operating activities provided net cash of $2.5
million. Primary sources of cash from operating activities included
approximately $1.2 million from decreases in inventories and $1.6 million from
net income, adjusted for depreciation and amortization.
Net cash used in investing activities for the first nine months of fiscal 2000
was approximately $1.2 million, principally due to purchases of equipment. Net
cash used by financing activities during the first nine months of fiscal 2000
totaled approximately $1.3 million, resulting from net repayments of long-term
debt.
On July 15, 1998, the Company entered into a loan and security agreement
providing a $20 million revolving line of credit. This agreement expires in July
2002. On October 1, 2000, the bank providing the line of credit closed its
commercial lending division and transferred and assigned all rights and
obligations under the agreement to another lender. All terms and conditions
continued as they were under the original agreement. The agreement provides for
interest to be charged at .50% per annum in excess of the Prime Rate. The
agreement limits availability to a borrowing base of 85% of eligible accounts
receivable and 65% of inventory, with each capped at $10 million. The agreement
does not contain any financial covenants. The Company had additional available
borrowing capacity of approximately $1.3 million under the revolving line of
credit as of October 31, 2000. On November 1, 2000, the Company entered into an
amendment to the agreement, which reduced the interest rate to 0.375% per annum
in excess of the Prime Rate.
As of October 31, 2000, the Company is generally current with all accounts
payable vendors and is utilizing discounts on payments made to vendors that
supply inventory to the Company.
7
<PAGE>
Forward-looking Statements
--------------------------
Many issues discussed in this annual report are forward-looking statements made
under Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These statements involve known
and unknown risks, uncertainties and other factors that may cause actual events
or results, levels of activity, growth, performance, earnings per share or
achievements to be materially different from any future results, levels of
activity, growth, performance, earning per share or achievements expressed or
implied by such forward-looking statements. Investors are cautioned that all
forward-looking statements involve risks and uncertainties. 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 in such statements 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 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.
Impact of Inflation and Changing Prices
---------------------------------------
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe inflation has had a material effect on
sales or results of operations.
ITEM 3
------
Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
The Company is exposed to changes in interest rates on a majority of its total
debt. Any increases in interest rates could also affect the ability of the
Company to collect accounts receivable from customers. The Company depends on
the market for favorable long-term mortgage rates to help generate sales and
create housing turnover. Should mortgage rates increase substantially, the
Company could have difficulty generating sales. The Company's exposure to
commodity markets for lumber, plywood and other building materials does
fluctuate in pricing but is limited to what is held in inventory as the Company
does not trade commodity futures or options. Quotes to customers for proposed
products to be sold are short-term and increases or decreases in commodity
pricing are generally passed on to the customer. The Company has no foreign
sales and accepts payment only in US dollars; therefore it is not subject to any
currency exchange rate risk.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 24, 2000, Raeleen Ann Barnes Matlock, acting as administratrix for the
estate of Jimmy Ray Barnes, filed a lawsuit in the Circuit Court of Pulaski
County, Arkansas against W.M. Barr
8
<PAGE>
& Co., Inc., Ring Can Corporation, and the Company. The lawsuit alleges
negligence, breach of warranty, and product liability claims against the
defendants in connection with the manufacture, distribution, and sale of an
allegedly defective container of paint thinner. The plaintiff is seeking actual
damages in the amount of $6,000,000 and punitive damages in the same amount. On
June 20, 2000, the Company filed an answer to the complaint, generally denying
the allegations with regard to the Company and requesting that the court dismiss
the complaint as against the Company.
On November 3, 2000, a judgment was entered against the Company in the
Washington County, Arkansas Circuit Court, Case Number CIV 97-1553, in favor of
James and Patricia Larson in the amount of $235,000 for damages suffered in a
1997 accident. The Company, along with its insurance provider as surety, has
filed an appeal with the Arkansas Court of Appeals and has posted the
appropriate supersedeas bond. The final amount of any potential judgment will be
covered by insurance.
The Company is also, at times, a party to routine litigation incidental to its
business. In the opinion of the Company's management, such proceedings should
not, individually or in the aggregate, have a material adverse effect on the
Company's results of operations or financial condition. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable.
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
Sequentially
------------
Exhibits No. Description of Exhibit Numbered Page
------------ ---------------------- -------------
10.1 Amendment No. 1 to Loan Documents 11-14
27.1 Financial Data Schedule 15-16
(b) Reports on Form 8-K.
Not applicable.
9
<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 thereunto duly authorized.
National Home Centers, Inc.
Date: December 12, 2000 /s/ Dwain A. Newman
-------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: December 12, 2000 /s/ Brent A. Hanby
------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
10
