<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, 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 June 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>
<S> <C> <C>
April 30, January 31,
2000 2000
Assets (Unaudited) (1)
--------------------------------------------------------------------------------------------------------------
Current Assets:
Cash $ 44,870 43,847
Accounts Receivable 10,010,273 9,994,939
Inventories 14,219,450 14,675,988
Other 402,184 541,606
--------------------------------------------------------------------------------------------------------------
Total Current Assets 24,676,777 25,256,380
--------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 18,573,341 18,342,462
Less Accumulated Depreciation 10,779,636 10,611,433
--------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 7,793,705 7,731,029
--------------------------------------------------------------------------------------------------------------
Other Assets, Net of Amortization 2,863,463 2,908,675
--------------------------------------------------------------------------------------------------------------
$ 35,333,945 35,896,084
--------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 935,850 988,832
Accounts Payable 7,148,325 6,491,277
Accrued Expenses 2,920,399 3,079,971
--------------------------------------------------------------------------------------------------------------
Total Current Liabilities 11,004,574 10,560,080
--------------------------------------------------------------------------------------------------------------
Long-Term Debt, Excluding Current Installments 13,759,206 15,030,208
Stockholders' Equity 10,570,165 10,305,796
--------------------------------------------------------------------------------------------------------------
$ 35,333,945 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
April 30,
(Unaudited) 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 26,582,020 25,340,042
Cost of Sales 20,416,211 19,639,070
-------------------------------------------------------------------------------------------------------
Gross Profit 6,165,809 5,700,972
-------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses:
Salaries and Benefits 3,727,182 3,527,984
Rent 298,818 273,612
Depreciation and Amortization 314,445 343,795
Other 1,178,342 1,019,348
-------------------------------------------------------------------------------------------------------
Total Selling, General and
Administrative Expenses 5,518,787 5,164,739
-------------------------------------------------------------------------------------------------------
Operating Income 647,022 536,233
Interest Expense 382,653 324,529
-------------------------------------------------------------------------------------------------------
Income Before Income Taxes 264,369 211,704
Income Taxes 0 0
-------------------------------------------------------------------------------------------------------
Net Income $ 264,369 211,704
=======================================================================================================
Earnings Per Share (basic and diluted) $ 0.04 0.03
=======================================================================================================
Weighted Average Number of
Common Shares Outstanding 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>
=====================================================================================================================
Three Months Ended
April 30,
--------------------------------
<S> <C> <C>
(Unaudited) 2000 1999
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Earnings $ 264,369 211,704
Adjustments to Reconcile Net Earnings to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 314,445 343,795
Gain on Disposal of Property, Plant and Equipment (2,000) (3,000)
Changes in Assets and Liabilities:
Accounts Receivable (15,334) (1,890,256)
Inventories 456,538 (109,615)
Other Current Assets 139,422 (82,450)
Accounts Payable 657,048 951,836
Accrued Expenses (159,572) (47,057)
---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 1,654,916 (625,043)
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (331,909) (138,744)
Proceeds from Sale of Property, Plant and Equipment 2,000 9,800
Increase in Other Assets 0 (264,075)
---------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (329,909) (393,019)
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt 271,537 1,514,414
Repayments of Long-Term Debt (1,595,521) (510,753)
---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (1,323,984) 1,003,661
---------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 1,023 (14,401)
Cash at Beginning of Period 43,847 57,984
---------------------------------------------------------------------------------------------------------------------
Cash at End of Period $ 44,870 43,583
=====================================================================================================================
Supplemental Disclosures:
Interest Paid $ 385,165 341,502
=====================================================================================================================
</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
April 30, 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
ended April 30, 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-month periods ended April
30, 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. In 1997 and 1998, the Company sold certain real
estate and other assets related to closed retail stores in Conway, Rogers,
Little Rock and Fayetteville, Arkansas. By closing these stores, the Company
has eliminated recurring losses at those locations, and the sale of assets
related to such stores, including real estate, provided the Company with cash
for operations.
5
<PAGE>
Results of Operations
---------------------
Three Months Ended April 30, 2000 and 1999
------------------------------------------
Net sales for the first quarter of fiscal 2000 increased 5% to $26.6 million,
compared to $25.3 million for the first quarter of fiscal 1999. Comparable
store sales in the first quarter of fiscal 2000 increased 5% over the same
period of fiscal 1999. Net income for the first quarter of fiscal 2000 was
$264,000 or $0.04 income per share, compared with net income for the first
quarter of fiscal 1999 of $212,000 or $0.03 income per share. EBITDA (earnings
before interest, taxes, depreciation and amortization) was $961,000 versus
$880,000 in the first quarter last year, an improvement of $81,000. The Company
operated eight stores at the end of the quarter. For the quarter, the Company's
revenues consisted of 80% to professional contractors and 20% to retail
customers versus 82% and 18%, respectively, in the first quarter last year.
Gross profit as a percentage of net sales for the first quarter of fiscal 2000
increased to 23.2% from 22.5% for the same period last year. Gross margins have
increased as a result of a combination of improved commodities markets and
management's efforts to increase margins in all categories of products.
Selling, general and administrative expenses increased to 20.8% of net sales for
the first quarter of fiscal 2000 compared to 20.4% of net sales for the same
period last year. The Company continues to work at reducing these expenses.
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 1.4% for the quarter ended
April 30, 2000, compared to 1.3% for the same period last year.
Liquidity and Capital Resources
-------------------------------
The Company's working capital at April 30, 2000 decreased to $13.7 million from
$14.7 million at January 31, 2000, primarily due to lower inventories and higher
payables. Accounts payable have increased due to new and extended terms with
certain primary vendors.
The Company's primary capital needs are to finance operations. During the three
months ended April 30, 2000, operating activities provided net cash of $1.7
million. Primary sources of cash from operating activities included
approximately $0.7 million from increases in accounts payable, $0.5 million from
decreases in inventories and $0.6 million from net income, adjusted for
depreciation and amortization. The primary uses of cash were $0.2 million for
increases in accrued expenses.
6
<PAGE>
Net cash used in investing activities for the first three months of fiscal 2000
was approximately $0.3 million, principally due to purchases of equipment. Net
cash used by financing activities during the first three 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 for a
new $20 million revolving credit agreement, which expires in July, 2002. 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 credit facility does not contain any financial covenants. The
Company had additional available borrowing capacity of approximately $2.7
million under the revolving credit agreement as of April 30, 2000.
As of April 30, 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.
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 risk 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 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 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.
7
<PAGE>
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.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any material pending legal proceedings. The
Company is, 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
<TABLE>
<CAPTION>
Sequentially
------------
Exhibits No. Description of Exhibit Numbered Page
------------ ---------------------- -------------
<S> <C> <C>
27.1 Financial Data Schedule 11-12
</TABLE>
(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: June 12, 2000 /s/ Dwain A. Newman
-------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: June 12, 2000 /s/ Brent A. Hanby
------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
10
