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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 2000.
[_] 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 Identification No.)
incorporation or organization)
Highway 265 North
Springdale, Arkansas 72765
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 756-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value traded on the Nasdaq Small Cap Market
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment of this Form 10-K [_]
On April 14, 2000, there were outstanding 7,142,251 shares of the
registrant's Common Stock, $.01 par value.
The aggregate market value of the 2,470,219 shares of Common Stock held by
non-affiliates of the registrant as of April 14, 2000 was $3,319,974.
DOCUMENTS INCORPORATED BY REFERENCE
National Home Centers, Inc. Annual Report for fiscal year ended January 31,
2000 (certain portions incorporated by reference into Part II)
Proxy Statement for Annual Meeting of Stockholders, June 8, 2000 and
Adjournments (certain portions incorporated by reference into Part III)
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PART I
Items 1 and 2. Business and Properties.
THE COMPANY
Background
General. National Home Centers, Inc. ("NHC" or the "Company") started its
building supply operations in 1972 and opened its first store, serving primarily
professional contractors, in 1977. In 1983, NHC began implementing a dual-
customer strategy, serving both professional contractors and retail consumers.
Since 1998, NHC has shifted its focus back to professional contractors. Today,
the Company operates seven contractor sales locations and one appliance sales
warehouse in the State of Arkansas, and approximately 83% of its sales are to
contractor consumers.
The Company operates its stores in four Arkansas markets: Northwest
Arkansas (2 stores); Little Rock (3 stores); Russellville (2 stores); and Fort
Smith (1 store). NHC also operates fabrication facilities for value-added
conversion products such as countertops, pre-hung door units, and window units.
Executive Offices. The Company's executive offices are located at Highway
265 North, Springdale, Arkansas 72765. The Company's telephone number is (501)
756-1700.
BUSINESS
General
The Company is a retailer of home improvement products and building
materials with an established core market primarily in Arkansas, but including
Oklahoma and Missouri. The Company operates large building supply operations
serving both retail consumers and professional contractors. NHC's business
strategy capitalizes on professional contractor sales by providing a broad
product assortment and a full range of services in each of its four Arkansas
markets.
The Company operates in the highly competitive home improvement industry.
NHC's primary competition comes from other lumberyards, as well as home centers,
discount retail stores, supermarkets, warehouse stores, certain specialty
stores, traditional hardware, and plumbing and electrical suppliers. The
introduction of national and/or regional home improvement stores to NHC's
markets has significantly increased competition for market share in recent
years. In an attempt to gain market share, these new competitors have offered
reduced prices on products similar to those carried by NHC. This has placed
pressure on NHC's stores and its prospective sales, gross margins, and operating
income. Although NHC's markets are fairly saturated and few national or
regional chains are aggressively expanding, it is possible that competition will
continue to increase in those markets served by NHC. Such additional
competition may adversely affect the Company's future earnings.
Reduction in Exposure of Retail Assets
The Company initially entered the retail segment of the market in the early
1980's primarily as a hedge against rising interest rates and reduced housing
starts. As a result of the recent drastic increase in competition for the retail
home improvement dollar and a non-inflationary economic environment, NHC has
reevaluated its niche in the industry. The Company has reduced its exposure to
the retail segment of the home improvement industry. Because regional
contractors have long recognized NHC as a quality operation and because the
Company has developed a strong, loyal following of contractors, NHC has
reemphasized and refocused its efforts on becoming the leader in the
professional contractor market. In
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the year ended January 31, 2000 (fiscal 1999), sales revenues from professional
contractors were approximately 83% of the Company's total revenues. The Company
expects sales to professional contractors to be over 80% of future revenues. NHC
continues to explore industry consolidation possibilities including, but not
limited to, acquisition of other contractor-related companies.
Capitalization of the Company
On July 15, 1998, the Company entered into a loan and security agreement
with a financial institution 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 eligible
inventory, with each capped at $10 million. The facility does not contain any
financial covenants. The Company had additional available borrowing capacity of
approximately $1.3 million under the revolving credit agreement as of January
31, 2000.
Reduction of Accounts Payable and Long-Term Debt
The Company has made significant strides to pay down debt since 1998. By
doing so, NHC is now able to focus its efforts on implementing a long-term
strategy for continued competition in the home improvement industry. The
following highlight these efforts:
. Outside of normal operating activities, NHC generated approximately
$28,000,000 during fiscal 1998 by refinancing existing debt, reducing
inventory balances, and monetizing non-producing assets. The majority of
this amount was used to reduce accounts payable and other long-term debt.
. Since July, 1998, the Company has been current with all of its trade
vendors, has reestablished credit lines, and is taking advantage of
vendor discounts.
. NHC has improved its capital structure by obtaining more favorable terms
on its debt instruments with no financial covenants.
Store Properties
The following table shows the location, opening date, size,
retail/contractor sales mix and approximate number of SKUs of each of the
Company's stores:
<TABLE>
<CAPTION>
Area in Square Feet
Opening ------------------- Retail/Contractor Fabrication
Store Location Date Acreage Retail Warehouse Mix (%) SKUs Operations
-------------- ---- ------- ------ --------- ------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
I. Northwest
Arkansas
Springdale 11/83 21 49,300 190,000 20/80 14,000 door, window
Bentonville 06/92 6 20,200 18,000 0/100 5,000 door, window
II. Fort Smith
Fort Smith 12/77 10 31,100 110,000 0/100 8,000 door, window
</TABLE>
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<TABLE>
<CAPTION>
Area in Square Feet
Opening ------------------- Retail/Contractor Fabrication
Store Location Date Acreage Retail Warehouse Mix (%) SKUs Operations
-------------- ---- ------- ------ --------- ------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
III. Little Rock
North Little Rock 10/85 13 96,200 150,000 40/60 27,000 door, window
Conway Contractor 05/93 4 0 30,000 0/100 4,000 door, window
Maumelle 06/93 3 0 20,000 0/100 900
IV. Russellville
Russellville 06/93 14 30,000 80,000 0/100 12,000 door, window
Clarksville 09/95 1 0 14,000 0/100 5,000 --
------- -------
Total area 226,800 612,000
</TABLE>
The Springdale, Bentonville, Fort Smith and North Little Rock stores are
leased from the Company's chairman and/or his spouse. The Clarksville, Maumelle
and a portion of the Russellville properties are leased from third parties.
Lease terms for these properties range from 10 to 15 years and provide for
renewal options. The Conway contractor and a portion of the Russellville
property are owned by the Company.
The Company owns the land and building for the closed Conway retail store
and leases approximately one-third of the store to Office Depot, Inc. The Rodney
Parham store is leased from an unaffiliated third party. The Company subleases
approximately one-half of the store to SteinMart, Inc. The lease currently
expires June 30, 2003, however, the Company has signed a letter of intent to buy
out the lease which is expected to occur prior to June 30, 2000.
On July 15, 1998, the Company sold the real property and improvements
associated with its closed Fayetteville, Arkansas, supercenter to Home Depot,
Inc. On July 30, 1998, the Company sold the real property, improvements and
certain fixed assets associated with its closed Rogers, Arkansas, supercenter to
Lowe's Companies, Inc. Proceeds of the sales were used to reduce indebtedness
associated with the properties and for general working capital.
The Company owns a thirty (30) acre parcel in Branson, Missouri. The parcel
is owned free of debt and has been placed on the market for sale.
Fabrication Facilities
NHC maintains fabrication facilities in Springdale, Bentonville, Fort
Smith, Russellville, Conway and North Little Rock for value-added conversion
products, such as counter tops, pre-hung door units and window units. Management
believes that this vertical integration provides an advantage in serving
professional contractors by offering them a wide variety of products at
competitive prices, thus encouraging increased sales. The Company's door shops
are equipped with modern, automated machinery and are capable of producing high-
quality interior and exterior door units at competitive prices. The Company
manufactures over 9,000 pre-hung door units per month. Door shops, which also
are equipped and staffed to custom cut and produce laminated kitchen and bath
counter tops, serve both retail customers and professional contractors and
enable the Company to provide prompt, local service at lower costs. Management
believes that its fabrication facilities are adequate to meet existing and
foreseeable needs.
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Products
The Company's stores offer a large selection of lumber, building materials,
hardware and tools, electrical and plumbing supplies, paint, lighting, home
decor, pre-hung doors, windows, appliances, cabinets, garden supplies and
seasonal items. Each store currently stocks between 900 and 27,000 SKUs. Many of
the items sold in the Company's stores are nationally advertised, brand-name
products. NHC classifies its product offerings into five categories:
Building Materials--Dimensional lumber, plywood, roofing, trusses, siding,
windows, finish lumber, pre-hung doors and mouldings.
Hardware/Plumbing/Electrical--Electrical wire and wiring materials, lighting
fixtures, plumbing materials, power and hand tools, and door locks.
Home Decor--Paint, wall and floor coverings and housewares.
Appliances/Cabinets--Kitchen appliances, washers, dryers, cabinets and
fireplaces.
Lawn and Garden--Plants, fertilizer, mowers, garden tools and outdoor
furniture.
The percentage of sales accounted for by the merchandise categories for
each of the Company's three most recent fiscal years were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending January 31,
Products 2000 1999 1998
- -------- ---- ---- ----
<S> <C> <C> <C>
Building Materials 71 61 54
Hardware/Plumbing/Electrical 11 15 18
Home Decor 8 9 10
Appliances/Cabinets 8 10 10
Lawn and Garden 2 5 8
---- ---- ----
Total 100% 100% 100%
</TABLE>
Purchasing
Except for pre-hung doors which are fabricated by the Company, NHC
purchases its merchandise from more than 650 manufacturers and suppliers. No
single supplier accounted for more than 10% of NHC's total purchases in fiscal
1999. The Company believes it has good relationships with its suppliers and does
not consider itself dependent upon any single source for its merchandise.
Management does not believe that the loss of any single supplier would have a
material adverse effect on the Company.
The Company's corporate merchandise buyers, located in the Springdale
corporate office, make all decisions on new products to be sold in NHC stores.
Once the corporate buyers have selected a new product, they issue initial
purchase orders for all NHC stores where that product will be sold. Buyers in
each store are responsible for making subsequent orders for all in-stock
merchandise. Each store's computer system tracks the quantity of any product
sold and automatically generates recommended purchase orders which are edited by
store buyers who then issue purchase orders directly to the vendor. Merchandise
is typically shipped directly to the store that will stock the product. In
addition, sales volumes resulting from successful implementation of the
Company's dual-customer strategy permit NHC to maximize economies available from
discount purchases. These large volume purchases may be shipped to the Company's
Springdale or North Little Rock stores for subsequent distribution to other NHC
stores in those markets.
Credit
NHC offers credit for professional contractors which allows those customers
to make purchases at any NHC store. Professional contractors make the majority
of their purchases on credit. Subcontractors
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hired by a professional contractor, as well as the property owner, may charge
materials purchased for that job to the professional contractor's account.
Credit policies and procedures are established by the Company's credit
department, and all professional contractor sales representatives are trained in
those policies and procedures. Each of NHC's market areas has a dedicated credit
manager who interacts with sales representatives, management and credit agencies
to manage and monitor customer credit. The Company also has a Corporate Credit
Manager who oversees five area credit managers and activities and policies
relating to contractor receivables. NHC's credit policies are designed to
maximize extension of credit to professional contractors without unduly risking
bad credit. Credit sales accounted for substantially all of NHC's total sales to
professional contractors in fiscal 1999, while the Company's credit loss was
0.24% of contractor sales. In addition, NHC accepts third-party credit cards
such as MasterCard, Visa, American Express and Discover. Approximately 38% of
NHC's retail sales were made on third-party and proprietary credit cards in
fiscal 1999.
Marketing
NHC offers various volume-oriented price levels to professional contractors
to promote larger purchases. The Company's computerized pricing system permits
sales personnel to provide consistent quantity discounts and immediate response
to customer requests for discounts on volume purchases.
For over 20 years, the Company has offered professional contractors a
travel incentive program in which customers earn, through their purchases,
credit toward trips arranged each year by the Company. The program, which has
been highly successful in helping the Company increase its share of the
professional contractor business, gives the Company an opportunity to present
product seminars during each trip. There are currently 340 participants signed
up for a November, 2000 trip to an all-inclusive Caribbean resort. Builders
qualify for the travel incentive program by purchasing certain volumes of
materials and by making timely payments each month.
Management believes that its strongest marketing tools are exceptional
customer service and everyday low prices. Because many retail customers make
buying decisions in the store, NHC focuses its marketing efforts on maintaining
a well-stocked inventory and superior service to encourage add-on sales which
augment the average purchase. As a result of this approach, NHC spent 0.27% of
sales on advertising in fiscal 1999, primarily on seasonal direct mail
advertising for special promotions and to reinforce customer awareness of its
everyday low pricing.
Management Information Systems
NHC's management information systems have been designed and developed to
address a wide range of functions including sales analysis, merchandise ordering
and processing, merchandise management and presentation and financial
management. Through these systems, management has access to concise, relevant
information on performance that includes the daily individual store and
department information necessary for financial and merchandising decisions,
strategic planning and analysis.
The Company maintains a fully computerized point-of-sale retail management
system and custom-designed software. The Company utilizes IBM RS-6000 hardware
and special building materials software developed by Triad/Computer System
Dynamics. NHC's system provides (1) point-of-sale scanning, (2) sales and
inventory tracking, compiling data by store, employee, product category and
individual SKU, (3) receivables tracking, (4) computer generated purchase
orders, and (5) other operating and management reports. NHC is currently
utilizing Electronic Data Interchange ("EDI") with selected vendors.
NHC's point-of-sale system is a fully integrated sales, credit,
receivables, inventory, purchasing and data collection system. This system
includes UPC scanning for all items sold at NHC stores and provides automatic
price check at the register as well as sales audit reporting, advertised item
reporting, item sales performance and history, daily computer review and
suggested purchase orders. The system also tracks professional contractor
receivables and requires management approval for any transaction which would
exceed the customer's account credit limit. Accounting software handles the
Company's payroll, accounts payable and general ledger. These functions are
centralized at the Company's corporate office. During fiscal
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1999, the Company implemented CSD software for accounts payable and general
ledger. This system allows continued integration of the point-of-sale system and
the accounting system. The Company has entered into service contracts with third
parties for service and upgrades of computer software. Company policies require
daily backup at each store which is maintained at secure off-site locations. In
addition, the Company maintains a standby mainframe unit to operate as backup
for its primary system.
Year 2000 Compliance
The Company has not experienced any adverse effects related to the ability
of the Company's programs and systems to recognize and process the year 2000 and
beyond.
Competition
NHC operates its stores in four Arkansas markets. The Company's principal
competitors in these markets are Lowe's, Home Depot, Sutherlands, Cameron
Ashley, One Source, Meeks, Ridout, and 84 Lumber.
Patents and Trademarks
The Company has obtained federal trademark registration for the service
mark National Home Centers(R). The federal registration covers NHC's use of the
mark for retail lumber, building materials and hardware store services, but does
not contemplate use of the mark on other products.
Employees and Labor Relations
As of January 31, 2000, the Company employed 460 persons, consisting of 426
full-time and 34 part-time personnel. Generally, the Company believes that
relations with its employees are excellent. None of the Company's employees are
represented by a union or covered by a collective bargaining group.
Forward Looking Statements
Forward-looking statements contained herein are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. There
are various factors that could cause results to differ materially from those
anticipated by such statements. 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 made 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
excess 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.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings. The
Company at times does have 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 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company is authorized to issue 25,000,000 shares of Common Stock, $.01
par value of which 7,142,251 shares were outstanding as of April 14, 2000, and
5,000,000 shares of Preferred Stock, $1.00 par value, of which no shares were
outstanding as of April 14, 2000.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences applicable to any outstanding Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock have no preemptive or subscription rights and there are no redemption or
conversion rights with respect to such shares. The outstanding shares of Common
Stock are fully paid and non-assessable. As of January 31, 2000, the Company's
Chairman beneficially owned approximately 63% of the outstanding Common Stock.
The Company has not previously paid any cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the future. See "Dividend
Policy."
At April 14, 2000, the 7,142,251 shares of Common Stock then outstanding
were held by approximately 567 persons (excluding persons holding shares in
nominee names). The Transfer Agent and Registrar for the Common Stock is UMB
Bank of Kansas City.
The Company's Common Stock is currently traded on The Nasdaq Small Cap
Market under the symbol "NHCI." The following table sets forth the quarterly
high and low sales price for the Common Stock as reported on The Nasdaq Small
Cap Market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1998
- -----------
First Quarter $2.50 $1.00
Second Quarter 2.38 1.13
Third Quarter 2.00 1.25
Fourth Quarter 1.94 1.00
Fiscal 1999
- -----------
First Quarter 1.63 1.00
Second Quarter 1.44 1.06
Third Quarter 1.28 1.00
Fourth Quarter 1.31 1.00
Fiscal 2000
- -----------
First Quarter (through April 14, 2000) 1.88 1.00
</TABLE>
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the dividend rate, conversion
rights, voting rights, rights and terms of redemption, redemption price or
prices, liquidation preferences and qualifications, limitations and restrictions
thereof with respect to each series. Although the Company has no present
intention to issue shares of Preferred Stock, the issuance of shares of
Preferred Stock or the issuance of rights to purchase such shares could have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder
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might consider in his or her best interest, including attempts that might result
in a premium over the market price for the shares held by such stockholder.
DIVIDEND POLICY
The Company has not previously paid cash dividends on its Common Stock. The
Company intends to retain any earnings for use in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future.
Item 6. Selected Financial Data.
Incorporated by reference from the section captioned "Selected Consolidated
Financial Data," page 2 of the National Home Centers, Inc. 1999 Annual Report
(the "1999 Annual Report").
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference from the sections captioned "Management's
Discussion and Analysis," pages 3 through 5 of the 1999 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference from the section captioned "Management's
Discussion and Analysis," page 4 of the 1999 Annual Report.
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference from the sections captioned "Consolidated Balance
Sheets, "Consolidated Statements of Operations and Retained Earnings
(Accumulated Deficit)," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements," and "Report of Independent Public
Accountants," pages 6 through 17 of the 1999 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated by reference from the sections captioned "Election of
Directors," "Executive Officers" and "Section 16 Requirements" contained in the
Company's Proxy Statement for Annual Meeting of Stockholders, June 8, 2000 and
Adjournments (the "Proxy Statement").
Item 11. Executive Compensation.
Incorporated by reference from the section captioned "Executive
Compensation" contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference from the section captioned "Principal
Stockholders" contained in the Proxy Statement.
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Item 13. Certain Relationships and Related Transactions.
Incorporated by reference from the sections captioned "Executive
Compensation--Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" contained in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as a part of this report.
1. Financial Statements.
The following consolidated financial statements of National Home Centers,
Inc. and Subsidiary have been incorporated by reference from the 1999 Annual
Report into Item 8 of this Report.
Description
Consolidated Balance Sheets
Consolidated Statements of Operations and Retained Earnings
(Accumulated Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules.
The information required to be presented in Schedule II Valuation and
Qualifying Accounts is presented in Note 9 of the Notes to Consolidated
Financial Statements.
3. Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the
Company./1/
3.2 Amended and Restated By-Laws of the Company./1/
4.1 Form of the Company's Common Stock Certificate./1/
4.2 Amended and Restated Articles of Incorporation of the
Company, Sections 5 through 7./1/
10.1 Split Dollar Insurance Agreement dated September 24, 1999
between the Company and the Newman 1994 Family Trust
10.2 Assignment of Policy dated September 24, 1999 between the
Company and the Newman 1994 Family Trust
10.3 Amendment to Guaranty dated September 24, 1999, amending
Guaranty Agreement dated May 20, 1994
10.4 Lease Agreement dated September 1, 1992 between Dwain A.
Newman and Glenda R. Newman and the Company for the
Springdale, Arkansas store./1/
</TABLE>
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<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.5 Lease Agreement dated September 1, 1992 between Dwain A.
Newman and Glenda R. Newman and the Company for the North
Little Rock, Arkansas store./1/
10.6 Lease Agreement dated September 1, 1992 between Dwain A.
Newman and Glenda R. Newman and the Company for the Fort
Smith, Arkansas store./1/
10.7 Lease Agreement dated June 1, 1992 between Dwain A. Newman
and Glenda R. Newman and the Company for the Bentonville,
Arkansas store./1/
10.8 Lease Agreement dated July 1, 1993 between Parham
Properties, Inc. and the Company for the Little Rock,
Arkansas store./2/
10.9 Lease Agreements dated December 22, 1992 between Valley
Park Limited Partnership and the Company for the
Russellville, Arkansas store./1/
10.10 Subordination, Attornment and Non-Disturbance Agreement and
Estoppel Certificate dated September 10, 1992 between ATRS,
the Company, and Dwain A. Newman and Glenda R. Newman for
the Springdale, North Little Rock and Fort Smith Leases./1/
10.11 Form of the 1993 Employee Stock Purchase Plan of National
Home Centers, Inc./1/
10.12 Form of the Company's 1993 Incentive Compensation Plan./1/
10.13 Loan and Security Agreement dated December 29, 1992 between
the Company and MetLife Capital Corporation./1/
10.14 Guaranty Agreement effective May 20, 1994./3/
10.15 Supplemental Security Agreement and Term Promissory Note
No. 1 dated December 6, 1994 between the Company and
MetLife Capital Corporation./4/
10.16 Promissory Note and Mortgage dated May 5, 1995 to Simmons
First Bank of Arkansas for Conway, Arkansas Store./5/
10.17 Form of the Company's 401(k) Adoption Agreement with First
Tennessee National Bank as Trustee./6/
10.18 1996 Long-Term Performance Plan./7/
10.19 Loan and Security Agreement with NationsCredit Commercial
Funding./8/
11.1 Computation of Earnings (loss) Per Share.
13.1 National Home Centers, Inc. 1999 Annual Report (only those
portions specifically incorporated herein by reference
shall be deemed filed with the Commission).
</TABLE>
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<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
21.1 Subsidiaries of the Company./1/
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule.
</TABLE>
/1/ Incorporated by reference from National Home Centers, Inc. Form S-1
Registration Statement No. 33-60078, as amended, filed with the Securities
and Exchange Commission on March 26, 1993.
/2/ Incorporated by reference from National Home Centers, Inc. Annual Report on
Form 10-K for the fiscal year ended January 31, 1994, filed with the
Securities and Exchange Commission on April 29, 1994.
/3/ Incorporated by reference from National Home Centers, Inc. Quarterly Report
on Form 10-Q for the period ended October 31, 1994, filed with the
Securities and Exchange Commission on December 15, 1994.
/4/ Incorporated by reference from National Home Centers, Inc. Annual Report on
Form 10-K for the fiscal year ended January 31, 1995, filed with the
Securities and Exchange Commission on April 29, 1995.
/5/ Incorporated by reference from National Home Centers, Inc. Quarterly Report
on Form 10-Q for the period ended April 30, 1995, filed with the Securities
and Exchange Commission on June 12, 1995.
/6/ Incorporated by reference from National Home Centers, Inc. Annual Report on
Form 10-K for the period ending January 31, 1996, filed with the Securities
and Exchange Commission on April 30, 1996.
/7/ Incorporated by reference from National Home Centers, Inc. Annual Report on
Form 10-K for the period ending January 31, 1997, filed with the Securities
and Exchange Commission on May 1, 1997.
/8/ Incorporated by reference from National Home Centers, Inc. Quarterly Report
on Form 10-Q for the period ending July 31, 1998, filed with the Securities
and Exchange Commission on September 15, 1998.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during fiscal
1999.
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
April 27, 2000 By: /s/ DWAIN A. NEWMAN
------------------------------
Dwain A. Newman
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
April 27, 2000 By: /s/ DWAIN A. NEWMAN
------------------------------
Dwain A. Newman
Chairman of the Board and Chief
Executive Officer
April 27, 2000 By: /s/ DANNY R. FUNDERBURG
------------------------------
Danny R. Funderburg
President, Chief Operating Officer and
Director
April 27, 2000 By: /s/ ROGER A. HOLMAN
------------------------------
Roger A. Holman
Vice President, Purchasing - Marketing
and Director
April 27, 2000 By: /s/ BRENT A. HANBY
------------------------------
Brent A. Hanby
Executive Vice President, Chief
Financial Officer and Director
April 27, 2000 By: /s/ RICHARD D. DENISON
------------------------------
Richard D. Denison
Director
April 27, 2000 By: /s/ DAVID W. TRUETZEL
------------------------------
David W. Truetzel
Director
13
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company./1/
3.2 Amended and Restated By-Laws of the Company./1/
4.1 Form of the Company's Common Stock Certificate./1/
4.2 Amended and Restated Articles of Incorporation of the Company,
Sections 5 through 7./1/
10.1 Split Dollar Insurance Agreement dated September 24, 1999 between
the Company and the Newman 1994 Family Trust
10.2 Assignment of Policy dated September 24, 1999 between the Company
and the Newman 1994 Family Trust
10.3 Amendment to Guaranty dated September 24, 1999, amending Guaranty
Agreement dated May 20, 1994
10.4 Lease Agreement dated September 1, 1992 between Dwain A. Newman
and Glenda R. Newman and the Company for the Springdale, Arkansas
store./1/
10.5 Lease Agreement dated September 1, 1992 between Dwain A. Newman
and Glenda R. Newman and the Company for the North Little Rock,
Arkansas store./1/
10.6 Lease Agreement dated September 1, 1992 between Dwain A. Newman
and Glenda R. Newman and the Company for the Fort Smith, Arkansas
store./1/
10.7 Lease Agreement dated June 1, 1992 between Dwain A. Newman and
Glenda R. Newman and the Company for the Bentonville, Arkansas
store./1/
10.8 Lease Agreement dated July 1, 1993 between Parham Properties, Inc.
and the Company for the Little Rock, Arkansas store./2/
10.9 Lease Agreements dated December 22, 1992 between Valley Park
Limited Partnership and the Company for the Russellville, Arkansas
store./1/
10.10 Subordination, Attornment and Non-Disturbance Agreement and
Estoppel Certificate dated September 10, 1992 between ATRS, the
Company, and Dwain A. Newman and Glenda R. Newman for the
Springdale, North Little Rock and Fort Smith Leases./1/
10.11 Form of the 1993 Employee Stock Purchase Plan of National Home
Centers, Inc./1/
10.12 Form of the Company's 1993 Incentive Compensation Plan./1/
10.13 Loan and Security Agreement dated December 29, 1992 between the
Company and MetLife Capital Corporation./1/
14
<PAGE>
10.14 Guaranty Agreement effective May 20, 1994./3/
10.15 Supplemental Security Agreement and Term Promissory Note No. 1
dated December 6, 1994 between the Company and MetLife Capital
Corporation./4/
10.16 Promissory Note and Mortgage dated May 5, 1995 to Simmons First
Bank of Arkansas for Conway, Arkansas Store./5/
10.17 Form of the Company's 401(k) Adoption Agreement with First
Tennessee National Bank as Trustee./6/
10.18 1996 Long-Term Performance Plan./7/
10.19 Loan and Security Agreement with NationsCredit Commercial
Funding./8/
11.1 Computation of Earnings (loss) Per Share.
13.1 National Home Centers, Inc. 1999 Annual Report (only those
portions specifically incorporated herein by reference shall be
deemed filed with the Commission).
23.1 Consent of Arthur Andersen LLP
21.1 Subsidiaries of the Company./1/
27.1 Financial Data Schedule.
15
<PAGE>
EXHIBIT 10.1
GLENDA R. NEWMAN
SPLIT DOLLAR INSURANCE AGREEMENT
CONSECO LIFE INSURANCE COMPANY POLICY
NO. 1090545711
THIS SPLIT DOLLAR INSURANCE AGREEMENT is made and entered into the
24th day of September, 1999, by and between JEFF ALAN NEWMAN and BRENT ASHLEY
HANBY, and their successors in office, as Co-Trustees of the NEWMAN 1994 FAMILY
TRUST (the "Policy Owner") and NATIONAL HOME CENTERS, INC., an Arkansas
corporation (the "Company"). Dwain A. Newman and Glenda R. Newman join in
signing this Agreement in their capacities as Employee and Employee's Spouse.
RECITALS:
--------
Dwain A. Newman and Glenda R. Newman are both valued employees of the
Company. The Policy Owner is a trust created by Employee and Employee's Spouse
for the benefit of descendants of Employee and Employee's Spouse. In order to
provide an incentive to the Employees to continue in the employment of the
Company, and to provide greater financial security for the Employee's family,
the Company desires to assist the Policy Owner in providing life insurance for
the benefit and protection of the Employee's family by the payment of Premiums
in accordance with the terms and conditions of this Agreement. The Policy,
together with the Policy Proceeds, will be collaterally assigned to the Company
for the sole purpose of providing security for repayment of the Premiums paid by
the Company. The parties desire to define and limit the extent of the Company's
security interest in the Policy and the Policy Proceeds to the Secured Amount.
The Policy shall be owned by and legal and equitable title shall be held by the
Policy Owner. The interest of the Company in the Policy and the Policy Proceeds
arising pursuant to the Collateral Assignment shall be limited to that of lien
holder and holder of a security interest.
NOW, THEREFORE, in consideration of the premises and the promises contained
herein, and each intending to be legally bound hereby, the parties agree as
follows:
1. Definitions. For all purposes of this Agreement (including the
RECITALS) and any amendment hereto (except as herein otherwise expressly
provided or unless the context otherwise requires), the terms defined in this
Section 1 shall have the following meanings (terms defined in the singular to
have the same meanings when used in the plural, and vice versa, and references
to one gender shall include the other):
"Agreement" means this Split Dollar Life Insurance Agreement, as
the same may be modified, amended, supplemented, restated or extended from time
to time.
"Claimant" has the meaning assigned to such term in Section 9(c)
of this Agreement.
"Collateral Assignment" means that certain Assignment of Policy
for Collateral Security, dated the date hereof, by and from the Policy Owner to
the Company, as the same may be modified, amended, supplemented, restated or
extended from time to time, pursuant to which the Policy Owner assigns the
Policy and the Policy Proceeds to the Company to secure the Policy Owner's
obligation to repay the Secured Amount to the Company.
"Disability" with respect to the Employee means that, as a result
of sickness or injury, Employee
1
<PAGE>
is unable to perform his material and substantial duties as the senior executive
officer of the Company.
"Employee" means Dwain A. Newman.
"Employee's Spouse" means Glenda R. Newman.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations issued thereunder
"Insurance Company" means Conseco Life Insurance Company, a stock
company incorporated in the State of Indiana, and its successors and assigns
"Named Fiduciary" means the Company.
"One Year Term Cost" means the portion of each Premium that is
equal to the one-year term cost of the insurance protection being provided
pursuant to the Policy.
"Person" means any individual, joint venture, corporation,
company, limited liability company, voluntary association, partnership, trust,
joint stock company, unincorporated organization, association, government, or
any agency, instrumentality, or political subdivision thereof, or any other form
of entity or organization.
"Plan" has the meaning assigned to such term in Section 9(a) of
this Agreement.
"Plan Administrator" means the company.
"Policy" means the policy or policies of life insurance issued by
the Insurance Company on the life of the Employee and/or the employee's Spouse
and owned by the Policy Owner, together with any and all supplements,
endorsements and amendments thereto, that are made subject to the terms of this
Agreement. The Policy initially issued is Policy No. 1090545711, issued
September 24, 1999, in the principal amount of $20,000,000.
"Policy Anniversary" means any anniversary of the Policy
Effective Date.
"Policy Effective Date" means the effective date of the P6licy as
set forth in the Policy.
"Policy Proceeds" means any and all proceeds of any type of, from
or under the Policy, including, without limitation, (i) the cash surrender value
of the Policy, (ii) any and all proceeds of the Policy payable when it becomes a
claim at death, maturity or otherwise, (iii) any and all proceeds of any loans
or advances on or against the Policy, either from the Insurance Company or, at
any time, other Persons, and (iv) distributions or shares of surplus, dividends,
deposits or additions to the Policy, now or hereafter made thereunder or
apportioned thereto.
"Premium" means any premium payment required to be made under the
terms of the Policy or called for and due under this Agreement.
"Required Payment" means an amount equal to the lesser of the
Secured Amount or the cash surrender value of the Policy.
2
<PAGE>
"Secured Amount" at any time means the sum of (A) minus (13)
where: (A) is the aggregate sum of all Premiums then or theretofore paid by the
Company to the Insurance Company and credited to the Policy; and (13) is the
aggregate of all amounts then or theretofore paid to the Company pursuant to
Section 6(e) of this Agreement by or on behalf of the Policy Owner as repayment
of all or any portion of the amounts included in (A).
2. Application for Policy. The Policy Owner has applied to the Insurance
Company for the Policy, and with the assistance of the Company, will take all
reasonable steps to cause the Policy to be issued. When the Policy is issued,
the policy number, effective date, face amount and plan of insurance shall be
recorded on Schedule One to be attached hereto, and the Policy shall become
subject to the terms of this Agreement.
3. Ownership of Policy. The Policy shall be owned by and legal and
equitable title shall be held by the Policy Owner. The Company shall have no
legal, equitable or beneficial right, title, or interest in the Policy, except
to the extent of the lien on and security interest in the Policy and the Policy
Proceeds created under the Collateral Assignment. The interest of the Company in
the Policy and the Policy Proceeds shall be limited to that of lienholder and
holder of a security interest.
4. Payment of Premiums; Assignments; Borrowings.
(a) Payment of Premiums. The Policy Owner shall be responsible for
the payment of each Premium. As a matter of convenience to the Policy Owner,
during that period of time in which Glenda R. Newman is employed by the Company,
and during any additional period described in Section 4(c), the Company may
remit each Premium to the Insurance Company on or before the due date of the
Premium, or within the grace period, if any, allowed by the Policy for the
payment of such Premium. If requested by the Policy Owner, the Company shall
provide proof to the Policy Owner of timely payment of each Premium.
(b) Funding of Premiums. The Policy Owner shall be responsible for
paying the One Year Term Cost, to be remitted to the Insurance Company in behalf
of the Policy Owner. Such amount shall be paid in cash by the Policy Owner to
the company not later than the due date of each Premium, or alternatively and
with the consent of Glenda R. Newman and the Policy Owner, the Company, prior to
or as of the due date of each Premium, shall deduct from the compensation
otherwise payable to Glenda R. Newman an amount equal to the One Year Term Cost.
Glenda R. Newman acknowledges that the amount deducted will be included in her
taxable compensation from the Company. The Company shall advance the balance of
the funds required for the payment of each Premium.
(c) Death or Disability of Employee. If Glenda R. Newman becomes
Disabled and is survived by Employee, and at the time of her Disability Glenda
R. Newman was employed by the Company, the Company will continue to pay the
portion of the Premiums it would have paid had Glenda R. Newman not become
Disabled and remained in the employ of the Company until the first to occur of
(i) the death of Glenda R. Newman, or (ii) the Tenth Policy Anniversary.
(d) Collateral Assignment. The Policy Owner and the Company shall
execute the Collateral Assignment pursuant to which the Policy Owner will assign
the Policy and the Policy Proceeds to the Company to secure the Policy Owner's
obligation under Section 10 of this Agreement to repay the Secured Amount to the
Company.
5. Company Rights and Restrictions.
(a) Rights as Lienholder. The rights of the Company as collateral
assignee shall be that of a holder of a lien on and security interest in the
Policy and Policy Proceeds, securing the Policy Owner's obligations to the
Company under this Agreement.
3
<PAGE>
(b) Right to Assign. The Company shall have the right, without the
Policy owner's consent, to assign, pledge, hypothecate or otherwise transfer any
or all of its right, title and interest in, to and under this Agreement, the
Collateral Assignment, the Policy and the Policy Proceeds, absolutely or as
collateral security only, to any Person (any such Person is referred to herein
as a "Permitted Assignee" and any such Person to whom such an assignment or
transfer shall have been so made is referred to herein as an "Assignee"). Any
assignment of this Agreement and the Collateral Assignment shall place the
Assignee in the same position as its predecessor, except to the extent the
assignment provides otherwise. Within ten (10) days of making such an
assignment, the assigning party shall give notice of such assignment to the
Policy Owner and, if the Insurance Company is not the Assignee, to the Insurance
Company; provided that, the failure to do so shall not limit or impair the
rights or remedies of the Company or any Assignee under this Agreement or the
Collateral Assignment or the rights or remedies of any Assignee under any such
assignment. The Policy Owner agrees to treat any Assignee the same as if this
Agreement and the Collateral Assignment were made between the Policy Owner and
such Assignee insofar as the Assignee's rights in the Policy and the Policy
Proceeds are concerned. An assignment by the Company will not terminate the
Company's obligation under Section 4(1)) to pay a portion of the Premium. No
assignment shall be binding upon the Insurance Company until the notice required
by this Section 5(1)) is given to the Insurance Company. Neither the Company nor
any Assignee shall have the right to borrow against the Policy.
(c) Right to Repayment. Subject to the limitations of Section 10 of
this Agreement, upon the termination of this Agreement the Company shall have
the right to repayment by the Policy Owner of the aggregate of all Premiums paid
by the Company pursuant to this Agreement (to the extent that the Policy Owner
has not repaid such Premiums and amounts to the Company prior to such
termination).
(d) Restrictions on Actions Taken. The Company shall not take any
action that might endanger the interests and rights of the Policy Owner in the
Policy, subject, however, to the Company's right to exercise any right, power or
remedy available to it hereunder or under the Collateral Assignment for the
enforcement of the Policy Owner's obligations hereunder and thereunder.
6. Rights of Policy Owner. Subject to the provisions of this Agreement
and the Collateral Agreement, the Policy owner shall possess all rights in the
Policy, including, but not limited to, the following:
(a) the right to surrender the Policy and receive the cash surrender
value;
(b) the right to designate and change the beneficiary (or
beneficiaries) of the Policy;
(c) the right to select optional methods of settlement with regard to
the death benefit provided for in the Policy, subject to the provisions of
Section 8 of this Agreement;
(d) the right to effect a partial surrender of or partial withdrawal
from the Policy or to borrow from the Insurance Company on the Policy to the
extent (and only to the extent) that the cash surrender value exceeds the
Secured Amount. In no event, however, shall the Policy Owner take any action,
including borrowing from the Policy, which will cause the cash surrender value
of the Policy to fall below the Secured Amount. The Insurance Company shall
administer any Policy loans pursuant to the terms of the Policy. In the event
that a Policy loan is made pursuant to the Policy and this Section 6(d), any
interest charges on such loan which are unpaid when due shall be added to the
outstanding indebtedness of the Policy loan account of the Policy Owner;
provided that, no addition of any unpaid interest shall be made which shall
cause the cash surrender value of the
4
<PAGE>
Policy to fall below the Secured Amount. In no event shall an interest payment
or loan repayment constitute a premium payment;
(e) the right from time to time to repay the Company, prior to the
termination of this Agreement, the aggregate amount of the portion of all
Premiums paid by the Company pursuant to this Agreement not previously repaid
plus all amounts required to be repaid by the Policy Owner pursuant to the
Collateral Assignment; provided, however, to the extent the interest of the
Company as a holder of a lien on and security interest in the Policy and Policy
Proceeds hereunder or under the Collateral Assignment shall have been assigned
to a Permitted Assignee, such repayment shall be made to the Assignee, to the
extent of the Assignee's interest therein, if notice of the Assignment shall
have been given to the Policy Owner.
(f) all other rights contained in the Policy.
7. Surrender of Policy. In the event the Policy is surrendered, the
Policy Owner shall be entitled to' receive the cash surrender value as defined
in the Policy, subject to the Company's lien on and security interest in the
Policy and Policy Proceeds under the Collateral Assignment and the obligation of
the Policy Owner to repay the Secured Amount in accordance with Section 10 of
this Agreement. The sole and exclusive right to surrender the Policy is vested
in the Policy Owner.
8. Death Claims Under the Policy. Provided that the Policy Owner shall
not have theretofore satisfied his obligations under Section 10 of this
Agreement to repay the Secured Amount, the Policy owner hereby directs the
Insurance Company, upon written demand therefor by the Company (or its Assignee)
following the death of the survivor of the Employee and the Employee's Spouse
(which demand shall constitute the Company's certification, on which the
Insurance Company may conclusively rely, that such obligations have not been
theretofore satisfied), to pay to the Company (or its Assignee) from the Policy
Proceeds an amount equal to the Secured Amount, notwithstanding the settlement
option selected by the Policy owner under the Policy;
9. ERISA Requirements.
(a) Named Fiduciaries. For purposes of ERISA, the Company will
be the Named Fiduciary and Plan Administrator with respect to the plan of split
dollar life insurance provided for under this Agreement. This plan of split
dollar life insurance (the "Plan") is intended to qualify as a life insurance
employee benefit plan as described in Revenue Ruling 64-328.
This Agreement shall constitute the written plan instrument required by ERISA.
The Company shall be responsible for the general administration, operation and
interpretation of the Plan and for carrying out its provisions, except to the
extent all or any such obligations specifically are imposed on another person or
persons or entity. The Company may engage an actuary, attorney, accountant,
insurance company or similar entity, consultant or any other technical advisor
on matters regarding the operation of the Plan and to assist in the
administration of the Plan, and to perform such other duties as are required in
connection therewith. The Company may allocate its responsibilities for the
operation and administration of the Plan, including the designation of persons
who are not named fiduciaries to carry out fiduciary responsibilities under the
Plan. The Company shall effect such allocation of its responsibilities by
adopting resolutions specifying the nature and extent of the responsibilities
allocated; including, if appropriate, the persons who are not named fiduciaries,
but who are designated to carry out fiduciary responsibilities under the Plan.
Subject to the claims procedures set forth in Section 9(c) hereof, and except as
otherwise provided in this Section 9, the Company shall have the duty and
discretionary authority to interpret and construe the provisions of the Plan and
decide any dispute which may arise regarding the rights of the Policy Owner.
Determinations by the Company shall
5
<PAGE>
be binding and conclusive upon all interested persons. The Plan shall be
administered and the records of the Plan shall be maintained on the basis of the
plan year. The plan year shall be the twelve month period ending on December 31
of each year.
(b) Funding Policy. All premiums due on the Policy shall be
remitted to the Insurance Company when due. The benefits provided by the Policy
shall be paid by the Insurance Company in accordance with the terms of the
Policy. The payment of such benefits is predicated on the payment of the
required premiums.
(c) Claims and Review Procedures. The following claims procedure
shall apply for purposes of this Agreement. The claims procedure in subparagraph
(c)(l) below shall be followed with respect to benefits provided by the
Insurance Company under the terms of the Policy. The claims procedure in
subparagraph (c)(2) below shall be followed with respect to benefits, if any,
provided directly by the Company. The Policy Owner, the Policy Owner's heirs,
successors, beneficiaries or personal representatives (individually or
collectively, "Claimant") must follow both procedures, if necessary.
(1) Filing a Claim for Insurance Benefits. A Claimant shall make a claim
for benefits provided by the Insurance Company by submitting a written
claim and proof of claim to the Insurance Company in accordance with
procedures and guidelines established from time to time by the Insurance
Company. On written request, the Plan Administrator shall provide copies
of any claim forms or instructions, or advise the Claimant how to obtain
such forms or instructions. The Insurance Company shall decide whether the
claim shall be allowed. If a claim is denied in whole or in part, the
Insurance Company shall notify the Claimant and explain the procedure for
reviewing a denied claim.
(2) Filing a Claim for Any Other Benefit. The following claims procedure
shall apply with respect to all benefits other than those provided by the
Insurance Company.
(A) Filing a Claim: Notification to Claimant of Decision: The
Claimant shall make a claim in writing in accordance with procedures
and guidelines established from time to time by the Plan
Administrator, which claim shall be delivered to the Plan
Administrator. The Plan Administrator shall review and make the
decision with respect to any claim. If a claim is denied in whole or
in part, written notice thereof shall be furnished to the Claimant
within thirty (30) days after the claim has been filed. Such notice
shall set forth:
(i) the specific reason or reasons for the denial;
(ii) specific reference to the provisions of this Agreement or
the Collateral Assignment on which denial is based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect a claim and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the procedure for review of the denied
claim.
(B) Procedure for Review. Any Claimant whose claim has been
denied in full or in any part may individually, or through the Claimant's duly
authorized representative, request a review of the claim
6
<PAGE>
denial by delivering a written application for review to the Plan Administrator
at any time within sixty (60) days after receipt by the Claimant of written
notice of the denial of the claim. Such request shall set forth in reasonable
detail:
(i) the grounds upon which the request for review is based and
any facts in support thereof; and
(ii) any issues or comments which the Claimant considers
pertinent to his claim.
Following such request for review, the Plan Administrator fully and fairly
shall review the decision denying the claim. Prior to the decision of the
Plan Administrator, the Claimant shall be given an opportunity to review
pertinent documents.
(C) Decision on Review: A decision on the review of a claim denied in
whole or in part shall be made in the following manner:
(i) The decision on review shall be made by the Plan
Administrator, which shall consider the application and any written
materials submitted by the Claimant in connection therewith. The Plan
Administrator, in its sole discretion, may require the Claimant to submit
such additional documents or evidence, as the Plan Administrator may deem
necessary or advisable in making such review.
(ii) The Plan Administrator will render a decision upon a review
of a denied claim within sixty (60) days after receipt of a request for
review. If special circumstances (such as the need to hold a hearing on any
matter pertaining to the denied claim) warrant additional time, the
decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of a request for review. Written
notice of any such extension will be furnished to the Claimant prior to the
commencement of the extension.
(iii) The decision on review shall be in writing and shall
include specific reasons for the decision, written in a manner calculated
to be understood by the Claimant, and the specific references to the
provisions of this Agreement or to the Collateral Assignment on which the
decision is based. The decision of the Plan Administrator on review shall
be final and conclusive upon all persons. If the decision on review is not
furnished to the Claimant within the time limits prescribed in subparagraph
(ii) above, the claim will be deemed denied on review.
10. Termination and Repayment. This Agreement shall terminate upon the
occurrence of any of the following events:
(a) surrender of the Policy by the Policy Owner;
(b) on or after the Tenth Policy Anniversary, upon thirty (30) days
notice of termination by either the Company or the Policy Owner to the other
party, such notice to be given in accordance with the provisions of Section 18
of this Agreement;
7
<PAGE>
(c) termination of the Employee's employment with the Company for any
reason other than death or Disability of the Employee;
(d) the bankruptcy (voluntary or involuntary) of the Company;
(e) the occurrence of a "Default" as defined and specified in Section
11 of the Collateral Assignment; or
(f) the death of the Employee and the Employee's Spouse.
Subject to the limitations of this Section 10 and Section 8 hereof, the Policy
Owner shall, and hereby agrees to, repay to the Company on the termination of
this Agreement the aggregate amount of all Premiums paid by the Company (to the
extent that the Policy Owner has not paid such Premiums to the Company prior to
such termination). Upon termination of this Agreement as a result of any one of
the events described in Section 10, the Policy Owner shall satisfy such
repayment obligation as follows: (x) by directing the Insurance Company (and the
Policy Owner hereby directs the Insurance Company, without the necessity of any
further direction) to pay, upon written demand therefor, the Required Payment to
the Company (or the then current Assignee) from the Policy Proceeds (including
the cash surrender value of the Policy) or (y) in the Policy Owner's discretion,
by transferring ownership of the Policy to the Company (or such Assignee). In
the case of any termination of this Agreement, in the event the cash surrender
value of the Policy (or, if the same shall have been paid by the Insurance
Company in accordance with the foregoing provisions, the amount of the Required
Payment) at the time of termination shall be less than the Secured Amount, then,
notwithstanding anything herein to the contrary, the Policy Owner shall not be
liable to the Company (or its Assignee) for the payment of the remaining balance
of the Secured Amount or any other amount hereunder.
11. Actions of Insurance Company. The Insurance Company shall not be
deemed to be a party to this Agreement for any purpose nor in any way be
responsible for its validity. Any payments made or action taken by the Insurance
Company in accordance with the provisions of the Policy, this Agreement or the
Collateral Assignment shall fully discharge the Insurance Company from all
claims, suits and demands of all persons whatsoever.
12. Heirs and Assigns. This Agreement shall inure to the benefit of and
bind the heirs, legal representatives, successors and assigns of the parties
hereto.
13. Recitals. The Recitals to this Agreement are incorporated herein and
shall constitute an integral part of this Agreement.
14. Amendment of Agreement. None of the terms and provisions of this
Agreement or of the Collateral Assignment may be waived, limited or amended
except by written agreement, signed by both the Policy Owner and the Company.
15. Governing Law. This Agreement shall be subject to and governed by the
laws of the State of Arkansas, without regard to choice of law or conflict of
law principles, except to the extent such laws shall be superseded by the
provisions of ERISA or other applicable federal laws.
16. Company Not Liable. Although the Company, by this Agreement, is
assisting the Policy Owner in obtaining certain life insurance coverage, the
Company is not responsible for paying any life insurance benefits which are not
paid by the Insurance Company, whether such nonpayment is caused by refusal of
the Insurance
8
<PAGE>
Company to pay by virtue of a legal reason for nonpayment (such as, but not by
way of limitation, suicide or fraud in the inducement), inability of the
Insurance Company to pay, or any other reason.
17. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
18. Notices. All notices, requests and other communications to any party
under this Agreement shall be in writing (including telefacsimile transmission
or similar writing) and shall be given to such party at its address or
telefacsimile number set forth below or such other address or telefacsimile
number as such party may hereafter specify for the purpose of notice to the
other party and a copy of any such notice, request or communication shall be
sent to the Insurance Company at its address or telefacsimile number set forth
below or such other address or telefacsimile number as the Insurance Company may
specify to the parties:
(a) If to Policy Owner:
The Newman 1994 Family Trust
Attention: Jeff Alan Newman and
Brent Ashley Hanby, Co-Trustees
Highway 265 North
P.O. Box 789
Springdale, Arkansas 72765-0789
Fax Number: 501/756-9122
(b) If to Company:
National Home Centers, Inc.
Highway 265 North
P.O. Box 789
Springdale, Arkansas 72765-0789
Attention: President
Fax Number: 501/756-9122
(c) If to Insurance Company:
Conseco Life Insurance Comp
P.O. Box 1963
Carmel, Indiana 46032
Each such notice, request or other communication shall be effective (i) if given
by mail, 48 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid, or (ii) if given by any other
means, when delivered at the address specified in this Section 18.
19. Headings. Section headings herein are for the convenience of reference
only and shall not affect the construction or interpretation of or alter or
modify the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the year and day first
9
<PAGE>
above written.
COMPANY,
NATIONAL HOME CENTERS, INC.
By:
-----------------------------------
Dwain A. Newman, Chairman, CEO
By:
-----------------------------------
Danny R. Funderburg, President, COO
POLICY OWNER:
THE NEWMAN 1994 FAMILY TRUST
By:
-----------------------------------
Jeff Alan Newman, Co-Trustee
By:
-----------------------------------
Brent Ashley Hanby, Co-Trustee
-----------------------------------
Dwain A. Newman, Employee
-----------------------------------
Glenda R. Newman, Employee's Spouse
10
<PAGE>
EXHIBIT 10.2
ASSIGNMENT OF POLICY
FOR COLLATERAL SECURITY
This Assignment of Policy for Collateral Security (this "Collateral
Assignment"), is made and entered into this 24th day of September, 1999, by JEFF
ALAN NEWMAN and BRENT ASHLEY HANBY, as Co-Trustees of the NEWMAN 1994 FAMILY
TRUST (the "Policy Owner"), as owner of life insurance policy number 1090545711
(the "Policy") issued by Conseco Life Insurance Company (the "Insurance
Company"), a company incorporated in the State of Indiana, insuring the lives of
Dwain A. Newman (the "Employee") and/or Glenda R. Newman (the "Employee's
Spouse"), and NATIONAL HOME CENTERS, INC., an Arkansas corporation
(the"Company").
RECITALS
In consideration of the agreement by the Company to make the Premium payments
provided for in Section 4 of that certain Split Dollar Insurance Agreement (as
the same may be modified, amended, supplemented, restated or extended from time
to time, the "Split Dollar Insurance Agreement"), dated the date hereof, by and
between the Policy Owner and the Company, the Policy Owner has agreed to grant
to the Company a security interest in and lien on the Policy and the Policy
Proceeds (as such terms are defined in the Split Dollar Agreement) as collateral
security for the repayment of the amounts to be paid by the Policy Owner to the
Company pursuant to the Split Dollar Insurance Agreement.
NOW, THEREFORE, for value received, the Policy Owner hereby assigns, pledges,
hypothecates and sets over to the Company, its successors and assigns, and
grants to the Company, its successors and assigns, a security interest in and
lien on the Policy and the Policy Proceeds in accordance with the following
terms and conditions:
1. Definitions. Capitalized terms used without definition in this Collateral
Assignment (including terms used in the Recitals) shall have the meanings
afforded them in Section 1 of the Split Dollar Insurance Agreement.
References herein to one gender shall include the other. In addition, for
all purposes of this Collateral Assignment and any amendment hereto (except
as herein otherwise expressly provided or unless the context otherwise
requires), the terms deemed in this Section 1 shall have the meanings set
forth herein:
"Default" shall have the meaning assigned to such term in Section 10 of
this Collateral Assignment.
"Notice Default" shall mean any Default (i) described in
Section 10(a), or (ii) described in Section 10(c) which shall have
resulted from a termination of the Agreement on the basis of an event
described in Section l0(b) of the Agreement.
2. Collateral Security. This Collateral Assignment is made as collateral
security for the payment by the Policy Owner to the Company of the Secured
Amount and for the performance of all obligations of the Policy Owner under
the Agreement, presently existing or hereafter arising, direct or indirect.
To the extent applicable, this Collateral Assignment shall be deemed to be
a security agreement for purposes of any applicable Uniform Commercial
Code, similar laws of any
1
<PAGE>
jurisdiction, or any applicable laws relating to creation and perfection of
security interests or liens (collectively the "UCC"), and the Company shall
have all remedies granted to it by the UCC, in addition to other remedies
available. Upon the request of the Company (or an Assignee), the Policy
Owner agrees that he will execute one or more financing statements or
similar documents pursuant to the UCC, in a form satisfactory to the
Company (and each Assignee).
3. Ownership of Policy. The Policy Owner shall retain all incidents of
ownership in the Policy. The parties intend that this Collateral Assignment
creates only a security interest in and a lien on the Policy in favor of
the Company. Neither the Company nor any Assignee shall have any ownership
interest in the Policy or the Policy Proceeds, whether legal, equitable or
otherwise, except that the Company and any Assignee shall have the rights,
remedies and powers set forth in Section 11 hereof.
4. Restrictions on Borrowings. Neither the Company nor any Assignee may borrow
any part of the Policy's loan value or cash surrender value. The Policy
Owner may not borrow any part of the Policy's loan value or cash surrender
value except as permitted pursuant to the terms of the Agreement.
5. Payment of Premiums. Advances or Other Charges. The Company shall have no
obligation to pay Premiums other than as may be required by the Agreement.
In the event any payment, advance or other charge is paid by the Company
with respect to the Policy, the amount so paid by the Company shall be
repaid by the Policy Owner to the Company as provided in the Agreement. In
the event the amount so paid by the Company is not repaid by the Policy
Owner within ten (10) business days after demand by the Company for the
repayment thereof, such amount (i) shall become indebtedness of the Policy
Owner to the Company under the Agreement, and (ii) shall be added to the
Secured Amount.
6. Right to Assign. The Company shall have the right, without the Policy
Owner's consent, to assign, pledge, hypothecate or otherwise transfer this
Collateral Assignment and any or all of its rights, title and interest in,
to and under the Agreement, the Policy and the Policy Proceeds, absolutely
or collateral security only, to a Permitted Assignee. Within ten (10) days
of making such an assignment, the assigning party shall give notice of the
assignment to the Policy Owner and, if the Insurance Company is not the
Assignee, to the Insurance Company; provided that, the failure to do so
shall not limit or impair the rights or remedies hereunder of the Company
or any Assignee or the rights or remedies of any Assignee under any such
assignment. The Policy Owner agrees to treat any Assignee as if this
Collateral Assignment were made between
2
<PAGE>
the Policy Owner and such Assignee.
7. Insurance Companv. The Insurance Company is not a party to this Collateral
Assignment and does not assume any responsibility for its validity.
8. Release. The Company (or any Assignee) shall, when the obligations of the
Policy Owner to the Company under the Agreement have been indefeasibly paid
and satisfied in full, release this Collateral Assignment, notify the
Insurance Company of such release, execute such release documents as the
Policy Owner or the Insurance Company may reasonably require and take any
other action as is necessary to terminate its security interest in and lien
on the Policy and the Policy Proceeds.
9. Policy Proceeds. The Policy Proceeds, whether paid by reason of the death
of the Policy Owner, surrender of the Policy, withdrawal from or
cancellation of the Policy (whether pursuant to the provisions of this
Collateral Assignment, the Agreement, or otherwise), termination of the
Agreement, or otherwise, shall first be paid, on behalf of the Policy
Owner, to the Company (or if any assignment shall have been made pursuant
to Section 6 hereof, to the then Assignee) in an amount not in excess of
the Required Payment. The balance of such Policy Proceeds, if any, shall be
paid by the Insurance Company to the Policy Owner (or, in the case of the
death of the Employee and the Employee's Spouse, and any other properly
designated beneficiary of the Policy).
10. Events of Default. Each of the following shall be a "Default" under this
Collateral Assignment:
a. the making of any representation or warranty by the Policy Owner which
is contained in this Collateral Assignment or in the Agreement and
which shall have been incorrect in any material respect when made; or
b. a failure of the Policy Owner to observe or perform any obligation
contained in this Collateral Assignment or the Agreement which failure
(i) in the case of a failure to pay any sum when the same shall be due
and payable, shall not have been cured within five (5) business days
after notice from the Company or any Assignee, or (ii) in the case of
a nonmonetary failure, shall not have been cured within ten (10)
business days after notice from the Company or any Assignee; or
C. any event resulting in a termination of the Agreement pursuant to
Section 10 of the Split Dollar Agreement; or
d. any event which shall cause, directly or indirectly, any of the
obligations secured hereby to cease to be in full force and effect; or
e. the contest, repudiation or denial in writing by the Policy Owner of
the validity or enforceability of any of his obligations under this
Collateral Assignment or the Agreement; or
3
<PAGE>
f. the levy on, execution against or attachment or distraint of the
Policy or all or any portion of the Policy Proceeds, or the Policy or
all or any portion of the Policy Proceeds becoming subject at any time
to any mandatory court order or other legal process.
11. Remedies in Event of Default. In the event of any Default hereunder, the
Company (or an Assignee) shall have the following remedies:
a. the Company (or any Assignee) may declare all amounts owning by the
Policy Owner under this Collateral Assignment and the Agreement to be
immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Policy
Owner;
b. the Company (or an Assignee), at its sole option, may seek repayment
of the Secured Amount by realizing on its security interest in the
Policy and the Policy Proceeds; and
C. anything herein or in the Agreement to the contrary notwithstanding the
Company (or an Assignee) may cancel the Policy so long as:
(1) if such Default is not a Notice Default,
(a) the Company (or any Assignee) shall have given notice of
such Default to the Policy Owner, and
(b) the Required Payment shall not have been paid to the Company
(or the then current Assignee) within five (5) business days
following the effective date of such notice of Default; or
(2) if such Default is a Notice Default, the Required Payment shall
not have been paid to the Company (or the then current Assignee)
within five (5) business days following the occurrence of such
Default.
To effect such cancellation of the Policy, the Company (or an
Assignee) must give written notice of cancellation to the Insurance
Company, a copy of which shall be given to the Policy Owner. The
notice of cancellation shall include a request by the Company for the
return to the Company of any unused or unearned premiums under the
Policy plus the net cash surrender value of the Policy (the "Returned
Amount"). In the event that the Returned Amount is greater than the
Secured Amount, the Company (or such Assignee) shall pay any such
surplus to the Policy Owner. The Policy Owner hereby appoints the
Company and each Assignee as the Policy Owner's true and lawful
attorneys-in-fact with the power to do those acts set forth in this
Section 11(c), including, but not limited to, canceling the Policy,
demanding, collecting and receiving the Returned Amount and settling
or compromising of claims related to the Policy or the Policy
Proceeds, such appointment being coupled with an interest
and being irrevocable, granting unto the Policy Owner's said
attorneys full power to do any and all things
4
<PAGE>
necessary to be done with respect to the above transactions as fully,
and effectively as the Policy Owner might or could do, and hereby
ratifying all its said attorneys shall lawfully do or cause to be
done by virtue hereof.
Notwithstanding anything to the contrary in this Collateral
Assignment or the Agreement, if, under the terms of this Collateral
Assignment and the Agreement, the amount received by the Company (or
its Assignee) with respect to the Policy and the Policy Proceeds in
the event of a Default shall be less than the Secured Amount, the
Policy Owner shall not be liable to the Company (or any Assignee) for
any such deficiency.
12. Rights of Policy Owner. The Policy Owner shall retain all rights under the
Policy, including but not limited to, the right to designate and change the
beneficiary of the Policy and the right to exercise all settlement options
permitted by the terms of the Policy; provided, however, that all rights
retained by the Policy Owner shall be subject to the terms and conditions of the
Agreement and this Collateral Assignment.
13. Representations and Warranties. The Policy Owner hereby represents and
warrants to the Company (which representations and warranties shall survive the
execution of this Collateral Assignment) that no proceedings in bankruptcy or
insolvency are pending against the Policy Owner, that the Policy Owner's
property is not subject to any assignment for the benefit of creditors, and that
the Policy Owner is legally capable of and authorized to execute this Collateral
Assignment and the Agreement.
14. Authorization of Insurance Company. The Insurance Company shall have no
duty or obligation to inquire into or investigate the reason or validity of a
request from either the Company or the Policy Owner to exercise any of their
rights hereunder, or whether the other party has notice of such request. The
Insurance Company may treat any such request as an affirmation that the request
conforms to this Collateral Assignment, and that the Insurance Company is hereby
authorized to act upon such request without further investigation. The Insurance
Company, in its sole discretion, may make checks payable under the Policy either
to the requesting party or jointly to the Policy Owner and the Company, and to
the extent amounts are so paid, the Insurance Company is fully released from any
further liability to the parties to the Agreement, their successors, assigns or
heirs.
15. Counterparts. This Collateral Assignment may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
16. Recitals. The Recitals to this Collateral Assignment are incorporated
herein and shall constitute an integral part of this Collateral Assignment.
17. Notices. All notices, requests and other communications to any party and to
the Insurance Company shall be in writing (including telefacsimile transmission
or similar writing) and shall be given to such party at its address or
telefacsimile number set forth below or such other address or telefacsimile
number as such party may hereafter specify for the purpose by notice to the
other party and, in the event any notice, request or other communication is not
otherwise required to be given to the Insurance Company, a copy of any such
notice, request or communication shall be sent to the Insurance Company at its
address or telefacsimile number set forth below or such other address or
telefacsimile number as the Insurance Company may otherwise specify.
5
<PAGE>
a. If to Policy Owner:
The Newman 1994 Family Trust
Attention: Jeff Alan Newman and
Brent Ashley Hanby, Co-Trustees
Highway 265 North, P.O. Box 789
Springdale, Arkansas 72765-0789
Fax Number: 501/756-9122
b. If to Company:
National Home Centers, Inc.
Highway 265 North, P.O. Box 789
Springdale, Arkansas 72765-0789
Attention: President
Fax Number: 501/756-9122
c. If to Insurance Company:
Conseco Life Insurance Company
P.O. Box 1963
Carmel, Indiana 46032
Each such notice, request or other communication shall be effective (i) if
given by mail, seventy-two hours after such communication is deposited in
the mails with first class postage prepaid, addressed as aforesaid, or (ii)
if given by any other means, when delivered at the address specified in
this Section 17.
18. Headings. Section headings herein are for the convenience of reference only
and shall not affect the construction or interpretation of or alter or
modify the provisions of this Collateral Assignment.
19. Governing Law. This Collateral Assignment shall be subject to and governed
by the laws of the State of Arkansas, without regard to choice of law or
conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have caused this Collateral
Assignment to be executed on the year and day first above written.
POLICY OWNER:
THE NEWMAN 1994 FAMILY TRUST
By:
-----------------------------------
Jeff Alan Newman, Co-Trustee
6
<PAGE>
By:
-----------------------------------
Brent Ashley Hanby, Co-Trustee
COMPANY:
NATIONAL HOME CENTERS, INC.
By:
-----------------------------------
Dwain A. Newman, Chairman, CEO
By:
-----------------------------------
Danny R. Funderburg, President, COO
7
<PAGE>
INSURANCE COMPANY'S ACKNOWLEDGEMENT
-----------------------------------
The undersigned Insurance Company hereby acknowledges receipt of an
original counterpart of this Collateral Assignment and that the same has been
filed at its home office and noted on its records.
CONSECO LIFE INSURANCE
COMPANY
Dated: ____________, 1999 By:
-----------------------------------
-----------------------------------
President or Authorized Officer
8
<PAGE>
EXHIBIT 10.3
AMENDMENT TO GUARANTY
The Guaranty Agreement (the "Agreement") entered into as of the 20th day of
May, 1994, by and between DWAIN A. NEWMAN ("Guarantor") and NATIONAL HOME
CENTERS, INC., an Arkansas corporation (the "Company"), is hereby amended as
follows:
1. As of September 24, 1999, the two Split Dollar Life Insurance Agreements
are superseded by a single Split Dollar Life Insurance Agreement, and the
Plans involving Metropolitan Life Insurance Policy No. 940450248A and John
Hancock Mutual Life Insurance Company Policy No. 80081383 are both
superseded by a single Plan involving Conseco Life Insurance Company Policy
No. 1090545711.
2. All other provisions of the original Guaranty Agreement remain in full
force and effect.
EXECUTED as of the 24th day of September, 1999, but signed the ____ day of
September, 1999.
-----------------------------------
DWAIN A. NEWMAN, Guarantor
1
<PAGE>
EXHIBIT 11.1
NATIONAL HOME CENTERS, INC.
AND SUBSIDIARY
Computation of Earnings (Loss) Per Share
Years ended January 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Year Ended January 31
-----------------------------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) $1,115,381 $(2,959,443) $(13,010,122)
========== =========== ============
Weighted average number of common 7,142,251 7,142,251 7,142,251
shares outstanding ========== =========== ============
Earnings (loss) per share $ 0.16 $ (0.41) $ (1.82)
========== =========== ============
</TABLE>
1
<PAGE>
Exhibit 13.1
LETTER TO SHAREHOLDERS
With four consecutive profitable quarters in fiscal 1999, National Home Centers
is delivering on our promise to move back to our roots and refocus on our main
customer, the contractor. We applaud our driver, warehouse, operations, sales
and management teams for responding to customer needs. For fiscal 1999, 83% of
revenues were derived from contractors versus 69% last year.
For the fiscal year ending January 31, 2000, the Company enjoyed net income of
$1.12 million versus a loss of $2.96 million last year. Net sales increased to
$110.0 million compared to $104.7 million last year. Comparable store sales
increased 16%. We ended the year operating the same eight facilities as we did a
year ago. EBITDA (earnings before interest, taxes, depreciation and
amortization) improved to $3,783,000 in fiscal 1999 from $962,000 last year, an
improvement of over $2.8 million.
Beginning almost three years ago, we began an extensive examination of our
business and operations and knew we needed to change the direction of where we
were going. We completed the following with regard to our main strategies:
* Closed under-performing retail facilities and sold off certain assets
* Recapitalized the Company
We reduced exposure to slower turning inventory and improved our turns to 6.3
last year from 5.7 in fiscal 1998. Our working capital went from $11 million at
1/31/99 to almost $15 million at 1/31/2000.
Our labor market is very tight, with an extreme shortage of workers, which leads
towards higher payroll costs in order to attract and retain quality employee
talent. We are also watching long-term mortgage rates and while they have been
increasing, we believe there will be continued pressure on the government for
fewer increases. If rates hold steady, we have an opportunity to again be
profitable in 2000. As the Company continues to improve its cash flow and income
statement, we plan to continue to explore industry consolidation possibilities,
including, but not limited to, purchases of other contractor-related companies,
which was our primary growth vehicle in the 1970's and 1980's.
Please visit our website at www.nhci.com which has been significantly expanded.
------------
Some examples of the site can be seen on the inside back cover of this annual
report.
We will continue to stay the course on servicing the builders to help complete
their projects. This focus has allowed us to carry on the tradition of being a
reliable supplier of building materials at a competitive level. Thank you for
the continued interest in your Company.
Sincerely,
/s/ Dwain A. Newman
Dwain A. Newman
Chairman, CEO
/s/ Danny R. Funderburg
Danny R. Funderburg
President, COO
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1999 National Home Centers, Inc. Annual Report . Page 1
<PAGE>
National Home Centers, Inc.
Selected Consolidated Financial Data
(in thousands, except selected operating and per share data)
<TABLE>
<CAPTION>
For Fiscal Year Ending January 31,
Statement of Operations Data: 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 110,041 104,746 150,756 177,001 154,659
Cost of sales 85,320 81,121 117,072 134,104 115,369
-----------------------------------------------------------------
Gross profit 24,721 23,625 33,684 42,897 39,290
Selling, general and administrative
expenses 22,168 24,422 43,375 44,023 39,039
-----------------------------------------------------------------
Operating income (loss) 2,553 (797) (9,691) (1,126) 251
Interest expense, net (1,438) (2,162) (3,660) (3,583) (2,787)
-----------------------------------------------------------------
Earnings (loss) before income taxes 1,115 (2,959) (13,351) (4,709) (2,536)
Income tax benefit 0 0 (341) (1,601) (938)
-----------------------------------------------------------------
Net earnings (loss) $ 1,115 (2,959) (13,010) (3,108) (1,598)
-----------------------------------------------------------------
Earnings (loss) per share $ 0.16 (0.41) (1.82) (0.44) (0.22)
-----------------------------------------------------------------
Weighted average number of common
shares outstanding 7,142 7,142 7,142 7,142 7,142
-----------------------------------------------------------------
Selected Financial Data:
Total assets $ 35,896 32,193 61,790 84,838 86,761
Long-term debt 15,030 12,427 23,323 29,320 30,808
Net property, plant and equipment 7,731 7,899 29,286 37,266 39,699
Stockholders' equity 10,306 9,190 12,150 25,160 28,268
Selected Operating Data:
Number of stores at end of period 8 8 10 13 13
Average total sales per square foot -
Retail and Contractor (1) $ 485 250 202 229 238
Comparable store sales increase
(decrease) 16.2% (12.5)% (12.3)% 4.9% (3.6)%
</TABLE>
(1) Net sales divided by average retail square feet for the period.
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 2
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the related notes thereto and the Company's
audited financial statements and the related notes thereto appearing elsewhere
in this annual report.
RESULTS OF OPERATIONS
Net sales for the three fiscal years ended January 31, 2000, and the respective
total and comparable store percentage increases (decreases) were:
<TABLE>
<CAPTION>
Total Company Comparable Store
Fiscal Year Ended January 31, Net Sales Increases (Decreases) Increases (Decreases)
<S> <C> <C> <C>
2000 $ 110,040,562 5% 16%
1999 104,745,826 (31)% (13)%
1998 150,756,393 (15)% (12)%
</TABLE>
YEAR ENDED JANUARY 31, 2000 COMPARED TO YEAR ENDED JANUARY 31, 1999
NET SALES - The Company's net sales increased 5.1% to $110.0 million for the
year ended January 31, 2000 (fiscal 1999) from $104.7 million for the year ended
January 31, 1999 (fiscal 1998). Comparable store sales in fiscal 1999 increased
16.2% from fiscal 1998. The overall sales volume increase was primarily due to
attractive mortgage rates and strong housing demand. The Company had no
substantive increase in the variety of products offered or its sales territory.
The average annual sales per store for fiscal 1999 was $13.8 million compared to
$15.8 million for fiscal 1998. Competition has become very intense over the past
few years and is expected to continue.
GROSS PROFIT - Gross profit as a percentage of net sales for fiscal 1999
decreased to 22.5% from 22.6% in fiscal 1998, due to increased competition and
continuing competitive pricing pressures in central and northwest Arkansas.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses as a percentage of net sales decreased to 20.2% in
fiscal 1999 versus 23.3% in fiscal 1998. This decrease as a percentage of net
sales is primarily due to the closing of the two large retail stores which
incurred higher operating expenses (including salaries) and as a result of
reduced rent expense and depreciation expense.
INTEREST EXPENSE - Net interest expense as a percentage of net sales in fiscal
1999 decreased to 1.3% from 2.1% in fiscal 1998, primarily as a result of
retirement of indebtedness (which led to decreased interest expense) on the
Fayetteville and west Rogers retail stores. See Note 3 of Notes to Consolidated
Financial Statements for additional information on debt and interest.
INCOME TAXES - No income tax expense was recorded in fiscal 1999, as the tax
effects of previously unrecognized NOL carryforwards utilized in 1999 were
included in the net decrease in the valuation allowance for deferred tax assets
for the year. No income tax benefit was recorded in fiscal 1998, as the tax
effects of NOL's generated in 1998 were included in the net increase in the
valuation allowance for deferred tax assets for the year. See Note 4 of Notes to
Consolidated Financial Statements for additional information on income taxes.
YEAR ENDED JANUARY 31, 1999 COMPARED TO YEAR ENDED JANUARY 31, 1998
NET SALES - The Company's net sales decreased 30.5% to $104.7 million for the
year ended January 31, 1999 (fiscal 1998) from $150.8 million for the year ended
January 31, 1998 (fiscal 1997). Comparable store sales in fiscal 1998 decreased
12.5% from fiscal 1997. The overall
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 3
<PAGE>
sales volume decrease was primarily due to the increased competition, and the
closing of the Rodney Parham retail store (Little Rock) in late fiscal 1997 and
the closing of the Fayetteville and west Rogers retail stores in fiscal 1998.
The Company had no substantive increase in the variety of products offered or
its sales territory. The average annual sales per store for fiscal 1998 was
$15.8 million compared to $15.9 million for fiscal 1997. Competition has become
very intense over the past few years and is expected to continue.
GROSS PROFIT - Gross profit as a percentage of net sales for fiscal 1998
increased to 22.6% from 22.3% in fiscal 1997, even though increased competition
exists in the contractor division and there are continuing competitive pricing
pressures in central and northwest Arkansas. Additionally, in its recent efforts
to reduce retail inventory to increase inventory turnover, the Company had less
closeout merchandise which has contributed to higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses as a percentage of net sales decreased to 23.3% in
fiscal 1998 versus 28.8% in fiscal 1997. This decrease as a percentage of net
sales is primarily due to the closing of the two large retail stores which
incurred higher operating expenses and as a result of the $6.7 million
non-recurring charge for the store closings in fiscal 1997.
INTEREST EXPENSE - Net interest expense as a percentage of net sales in fiscal
1998 decreased to 2.1% from 2.4% in fiscal 1997, primarily as a result of paying
off the debt (which led to decreased interest expense) on the Fayetteville and
west Rogers retail stores. See Note 3 of Notes to Consolidated Financial
Statements for additional information on debt and interest.
INCOME TAXES - No income tax benefit was recorded in fiscal 1998, as the tax
effects of NOL's generated in 1998 were included in the net increase in the
valuation allowance for deferred tax assets for the year The effective tax rate
of (2.5)% for fiscal year 1997 results primarily from the benefits of NOL's
which were carried back to previous years. See Note 4 of Notes to Consolidated
Financial Statements for additional information on income taxes.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to changes in interest rates on a majority of its total
debt. See Note 3 to the consolidated financial statements for discussion of the
Company's 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 continue to
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at January 31, 2000 increased to $14.7 million
from $10.9 million at January 31, 1999, primarily due to store closings and
increased cash which allowed the Company to increase current assets while
maintaining the same level of current liabilities. Since July 1998, the Company
has been paying current and discounting with its accounts payable vendors.
The Company's primary capital needs are to finance inventories and accounts
receivable. During the year ended January 31, 2000, operating activities used
net cash of $1.0 million. Primary uses of cash from operating activities
included approximately $1.3 million from increases in inventories, $2.8 million
from an increase in accounts receivable and $1.2 million from a decrease in
accrued expenses. The primary sources of cash was an approximate $1.5 million
increase in accounts payable and $2.2 million from net income including
depreciation.
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 4
<PAGE>
Net cash used in investing activities for the year ended January 31, 2000 was
approximately $1.3 million, principally due to additions of property, plant and
equipment of $0.9 million.
Net cash provided by financing activities during fiscal 1999 totaled
approximately $2.3 million, primarily from proceeds under the revolving credit
facility.
At January 31, 2000, the Company owed $14.3 million under its revolving credit
agreement with a bank. This agreement provides a revolving credit loan
commitment not to exceed the lesser of (i) $20 million, or (ii) a borrowing base
of 85% and 65% of eligible accounts receivable and eligible inventory,
respectively, with receivable and inventory availability each capped at $10
million. Based upon eligible accounts receivable and eligible inventory as of
January 31, 2000, the Company had approximately $1.3 million of additional
borrowing capacity under the revolving credit agreement. The current revolving
credit agreement expires July 14, 2002. Borrowings under the revolving credit
agreement are collateralized by the Company's accounts receivable and inventory.
The Company was in compliance with all covenants at January 31, 2000.
The Company's current ratio was 2.4 to 1 at January 31, 2000 versus 2.0 to 1 at
January 31, 1999. The Company's total debt to equity ratio remained the same at
2.5 to 1 at the end of fiscal 1999. Return on average investment for the three
years ended January 31, 2000, 1999 and 1998 was 11.5%, (28.5)% and (59.3)%,
respectively.
YEAR 2000 ISSUES
The Company has not yet experienced any adverse effects related to the ability
of the Company's programs and systems to recognize and process the year 2000 and
beyond. Information systems and programs processed data properly. The Company
upgraded various hardware and software which allowed the Company to be prepared.
The Company's main third party software provider installed new Y2K compliant
software at the end of the third quarter of fiscal 1999.
All costs and expenses associated with the Y2K project were expensed as
incurred. There is no guarantee of continued compliance of the hardware or
software nor can there be assurance that such other financial institutions,
suppliers, customers or other third parties will continue to be in compliance. A
failure by one or more of these entities could adversely affect the Company's
business and its ability to generate invoices and orders and could also impede
collection of accounts receivable or tracking of inventory.
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 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 maintain its
management information systems year 2000 compliant; the Company's ability to
maintain adequate levels of vendor support; the Company's ability to maintain
adequate levels of lender 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. Actual events or results may differ materially from
those described above and those further set forth by the Form 10-K and in the
Definitive Proxy Statement.
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 5
<PAGE>
NATIONAL HOME CENTERS, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
January 31, 2000 and 1999
<TABLE>
<CAPTION>
Assets 2000 1999
- ------ ---- ----
Current assets:
<S> <C> <C>
Cash $ 43,847 57,984
Accounts receivable, less allowance for doubtful accounts of
$210,000 in 2000 and $730,000 in 1999 9,994,939 7,447,984
Inventories 14,675,988 13,414,136
Prepaid expenses and other 541,606 525,518
---------- ----------
Total current assets 25,256,380 21,445,622
---------- ----------
Property, plant and equipment:
Land 1,433,846 1,433,846
Buildings and improvements 6,025,280 5,864,697
Machinery and equipment 10,883,336 10,308,362
---------- ----------
18,342,462 17,606,905
Less accumulated depreciation 10,611,433 9,707,900
---------- ----------
Net property, plant and equipment 7,731,029 7,899,005
---------- ----------
Other assets, at cost less amortization of $471,200 in 2000 and
$287,700 in 1999 2,908,675 2,848,046
---------- ----------
Total assets $ 35,896,084 32,192,673
---------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 988,832 1,259,463
Accounts payable 6,491,277 5,013,027
Accrued expenses 3,079,971 4,302,926
---------- ----------
Total current liabilities 10,560,080 10,575,416
---------- ----------
Long-term debt, excluding current installments 15,030,208 12,426,842
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized 5,000,000 shares;
no shares issued -- --
Common stock, $.01 par value. Authorized 25,000,000 shares;
issued 7,465,958 shares 74,660 74,660
Additional paid-in capital 20,831,739 20,831,739
Accumulated deficit (9,337,159) (10,452,540)
---------- ----------
11,569,240 10,453,859
Treasury stock, 323,707 common shares at cost (1,263,444) (1,263,444)
---------- ----------
Total stockholders' equity 10,305,796 9,190,415
---------- ----------
Total liabilities and stockholders' equity $ 35,896,084 32,192,673
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 6
<PAGE>
NATIONAL HOME CENTERS, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
and Retained Earnings (Accumulated Deficit)
Years ended January 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net sales $ 110,040,562 104,745,826 150,756,393
Cost of sales 85,319,586 81,121,118 117,072,346
---------- ---------- -----------
Gross profit 24,720,976 23,624,708 33,684,047
---------- ---------- -----------
Operating expenses:
Salaries and benefits 14,619,424 15,506,681 22,498,438
Rent 1,143,206 1,704,078 2,074,527
Depreciation and amortization 1,235,639 1,759,353 3,233,046
Nonrecurring charges -- -- 6,730,000
Other 5,169,877 5,451,981 8,839,205
---------- ---------- -----------
22,168,146 24,422,093 43,375,216
---------- ---------- -----------
Operating income (loss) 2,552,830 (797,385) (9,691,169)
Interest expense 1,437,449 2,162,058 3,659,573
---------- ---------- -----------
Earnings (loss) before income taxes 1,115,381 (2,959,443) (13,350,742)
Income taxes -- -- (340,620)
---------- ---------- -----------
Net earnings (loss) 1,115,381 (2,959,443) (13,010,122)
Retained earnings (accumulated deficit):
Beginning of year (10,452,540) (7,493,097) 5,517,025
---------- ---------- -----------
End of year $ (9,337,159) (10,452,540) (7,493,097)
---------- ---------- -----------
Earnings (loss) per share (basic and diluted) $ 0.16 (0.41) (1.82)
---- ---- ----
</TABLE>
The accompanying notes are an integral part of these statements.
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 7
<PAGE>
NATIONAL HOME CENTERS, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended January 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) $ 1,115,381 (2,959,443) (13,010,122)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Provision for losses on accounts receivable 223,037 389,828 404,762
Depreciation 1,052,166 1,586,899 2,870,479
Amortization of other assets 183,473 172,454 362,567
Loss (gain) on sale of property, plant and equipment 91,391 (311,547) 138,028
Decrease (increase) in cash surrender value of life insurance 95,105 (107,960) (23,984)
Nonrecurring charges -- -- 6,100,000
Deferred income tax expense -- -- 176,498
Changes in assets and liabilities:
Accounts receivable (2,769,992) 2,133,031 970,674
Income tax refunds receivable -- 517,118 816,774
Inventories (1,261,852) 5,759,332 10,711,063
Prepaid expenses and other (16,088) 68,383 (1,286)
Accounts payable 1,478,250 (8,187,038) (400,104)
Accrued expenses (1,222,955) 299,283 11,276
----------- ----------- ----------
Net cash provided by (used in) operating activities (1,032,084) (639,660) 9,126,625
----------- ----------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (937,720) (144,420) (399,255)
Proceeds from sale of property, plant and equipment 14,750 20,255,824 837,225
Decrease (increase) in other assets (339,207) (774,770) 204,502
----------- ----------- ----------
Net cash provided by (used in) investing activities (1,262,177) 19,336,634 642,472
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 5,423,743 14,267,636 4,836,176
Repayments of long-term debt (3,143,619) (33,018,169) (14,627,816)
----------- ----------- ----------
Net cash provided by (used in) financing activities 2,280,124 (18,750,533) (9,791,640)
----------- ----------- ----------
Net decrease in cash (14,137) (53,559) (22,543)
Cash at beginning of year 57,984 111,543 134,086
----------- ----------- ----------
Cash at end of year $ 43,847 57,984 111,543
----------- ----------- ----------
Supplemental disclosures:
Interest paid $ 1,417,724 2,301,535 3,713,342
Income taxes refunded -- 517,118 1,333,892
Noncash investing and financing activities:
Acquisition of fixed assets for notes payable 52,611 -- --
Settlement of accounts payable for note payable -- -- 1,394,776
</TABLE>
The accompanying notes are an integral part of these statements.
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 8
<PAGE>
NATIONAL HOME CENTERS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
January 31, 2000, 1999 and 1998
(1) Summary of Significant Accounting Policies
------------------------------------------
National Home Centers, Inc. ("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, Oklahoma and Missouri.
(a) Basis of Presentation
---------------------
The consolidated financial statements include the financial statements of
National Home Centers, Inc. and its wholly-owned subsidiary, Crystal Valley
Properties, Inc., whose operations are insignificant. All intercompany
balances and transactions have been eliminated in consolidation.
(b) Inventories
-----------
Inventories, which are comprised primarily of merchandise purchased for
resale, are stated at the lower of average cost or market.
(c) Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Equipment under capital
leases is stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value at the inception
of the lease. Depreciation is calculated on the straight-line method over
the estimated useful lives of the assets as follows: buildings, 40 years;
improvements, 10 years; and machinery and equipment, 3 to 10 years.
Equipment under capital leases is amortized using the straight-line method
over the shorter of the lease term or estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term, including renewal options, or the estimated
useful lives of the assets. The Company capitalizes interest as part of the
cost of assets which it constructs for its own use; however, no interest
was capitalized in fiscal year 2000 or 1999.
(d) Long-Lived Assets
-----------------
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
--------------------------------
Long-Lived Assets and for Long-Lived Assets Expected to be Disposed of,
----------------------------------------------------------------------
which requires impairment losses to be recorded on long-lived assets used
in operations when indications of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Management has evaluated the Company's
long-lived assets for purposes of SFAS No. 121 and has recognized related
impairment losses of $100,000 and $4,534,000 in fiscal years 1999 and 1998,
respectively (none in 2000). The impairment losses recognized in fiscal
year 1998 are directly related to the Company's restructuring activities
discussed in note 7, and are therefore included in nonrecurring charges in
the accompanying consolidated statement of operations.
(e) Other Assets
------------
Other assets include cash surrender values of life insurance policies,
covenants not to compete, notes receivable, deferred loan costs, premiums
advanced on life insurance policies (note 8) and miscellaneous other
assets. Amortization of covenants not to compete and deferred loan costs is
provided on the straight-line method, which in the case of deferred loan
costs is not significantly different from the interest method, over the
terms of the agreements.
(f) Advertising Costs
-----------------
Advertising costs are accounted for in accordance with American Institute
of Certified Public Accountants' Statement of Position (SOP) No. 93-7,
Reporting of Advertising Costs, which requires all advertising costs to be
------------------------------
expensed in the year in which those costs are incurred, or the first time
the advertising takes place, except for certain direct response
advertising.
(g) Accrued Expenses
----------------
Accrued expenses include the estimated costs of the Company's uninsured
portion of unpaid claims incurred for workers' compensation and employee
medical expenses. Management believes that the amount at year-end is
adequate to cover unpaid expenses relating to these claims.
(Continued)
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 9
<PAGE>
Notes to Consolidated Financial Statements
(h) Income Taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) Earnings (Loss) Per Share
-------------------------
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share, effective January 31, 1998, and all earnings
------------------
(loss) per share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements. Basic
earnings (loss) per share were computed by dividing the earnings (loss) by
the weighted average number of common shares outstanding during the period
(7,142,251 for the years ended January 31, 2000, 1999 and 1998). Diluted
and basic earnings (loss) per share were computed in the same manner for
the years ended January 31, 2000, 1999 and 1998.
(j) Credit Risk
-----------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables.
Substantially all of the Company's receivables are from a large number of
building contractors located in Arkansas. Accordingly, the Company's credit
risk is affected by general economic conditions in Arkansas and in the
construction industry.
(k) Fair Value of Financial Instruments
-----------------------------------
The carrying value of accounts receivable, accounts payable and accrued
expenses approximated fair value as of January 31, 2000 and 1999, because
of the relatively short-term maturity of these instruments. The fair value
of long-term debt, including current installments, is calculated by
discounting future principal and interest payments at the interest rate
currently available to the Company for debt with similar terms and
remaining maturities. The fair value of long-term debt does not
significantly differ from its carrying value.
(l) Use of Estimates
----------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
(2) Business Conditions
-------------------
Prior to 1993, the majority of the Company's sales were from professional
contractor customers. Beginning in 1993, the Company undertook significant
efforts to expand the retail portion of its business. Over a three-year
period, the Company established four large-format retail building
material/home improvement stores, which increased sales to retail customers
to 48% of the Company's total sales during fiscal year 1997. However, the
Company's profitability during this period decreased dramatically,
primarily due to high operating costs associated with these new stores and
the erosion of retail sales volumes and margins attributable to competition
from large national retail chains, which entered the Company's markets
during this period.
The Company incurred losses of $2,959,443 and $13,010,122, for the years
ended January 31, 1999 and 1998, respectively, the majority of which were
attributable to its retail operations. In fiscal year 1998, the Company
made decisions to restructure its operations, which ultimately involved the
closing or selling of four of its retail stores and substantially
reformatting another. The objectives of the restructuring were to (1)
eliminate those stores with high recurring operating losses, (2) generate
cash from the liquidation of the related assets, and (3) return to a
primarily contractor-oriented business.
As described in note 7, during fiscal year 1999, the Company completed the
majority of its restructuring efforts by closing certain retail-oriented
stores. In addition, certain real estate and equipment associated with the
closed stores, and certain other real estate, were sold, and inventory
levels were significantly reduced. Total cash provided from these sales of
approximately $21 million was used to reduce debt and accounts payable. The
reduction in debt resulted in substantially lower interest expense for each
of fiscal years 2000 and 1999 compared to the previous year. In addition,
subsequent to the restructuring, a substantially higher percentage of
accounts payable balances became current. This resulted in improved vendor
relations, with fewer required prepayments on inventory purchases, and more
early-payment discounts.
(Continued)
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 10
<PAGE>
Notes to Consolidated Financial Statements
Management believes that the significant improvements in operating results for
the current fiscal year are the direct result of the return of the Company to a
principally contractor-oriented operation and reflect the culmination of the
restructuring efforts described above. Specifically, more consistent sales
volumes and margins, which are reflective of a strong contractor market and
economy in general, and lower operating costs associated with contractor
operations, have been key contributors to the Company's earnings of $1,115,381
for the year ended January 31, 2000. Sales to contractor customers increased to
approximately 83% of the Company's total sales for this period, compared to 70%
and 55% for fiscal years 1999 and 1998, respectively. Management's plans involve
continuing to pursue its strategy of focusing on the contractor segment of the
market, as it believes that this is in the best interest of the Company and its
shareholders.
(3) Long-Term Debt
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Notes payable under revolving credit agreements $14,289,335 10,762,351
Notes payable-principal and interest payable monthly:
9% note, secured by real property in Conway, AR, balance due May 2001 1,284,078 1,884,038
Secured by equipment:
8.31% notes, final payment due December 2000 217,165 433,204
9.42% notes, final payment due August 1999 -- 197,914
7.46% notes, final payment due June 1999 -- 94,829
Other notes payable, weighted average interest rate of 8.37%, due at various dates 228,462 313,969
----------- ----------
16,019,040 13,686,305
Less current installments 988,832 1,259,463
----------- ----------
Long-term debt, excluding current installments $15,030,208 12,426,842
=========== ==========
</TABLE>
The Company's revolving credit agreement with a financial institution provides a
revolving credit loan commitment not to exceed the lesser of (a) $20 million or
(b) a borrowing base of 85% and 65% of eligible accounts receivable and eligible
inventory, respectively, with sublimits on advances of $10 million each.
Borrowings under the agreement are based on prime (8.50% at January 31, 2000)
plus 0.50%. The Company also pays a commitment fee of 0.25% based on the average
unused amount of the line. Borrowings under the revolving credit agreement are
collateralized by the Company's accounts receivable and inventory. Based upon
eligible accounts receivable and eligible inventory as of January 31, 2000, the
Company had approximately $1.3 million of additional available borrowing
capacity under the revolving credit agreement as of that date. The current
revolving credit agreement expires on July 14, 2002.
Borrowings under the real estate loan agreement at January 31, 2000, are secured
by a first real estate mortgage on real estate located in Conway, Arkansas.
Substantially all of the Company's furniture, fixtures, machinery and equipment,
as well as certain real estate, are pledged as collateral under the Company's
long-term debt agreements.
The aggregate annual maturities of long-term debt for the five years subsequent
to January 31, 2000, are as follows: 2001, $988,832; 2002, $715,191; 2003,
$14,315,017; 2004, none; and 2005, none. Annual maturities for fiscal year 2003
include borrowings under the Company's revolving credit agreement described
above.
(4) Income Taxes
------------
Income taxes consist of the following:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ -- -- (516,144)
State -- -- (974)
--------- --------- ---------
-- -- (517,118)
--------- --------- ---------
Deferred:
Federal -- -- 227,595
State -- -- (51,097)
--------- --------- ---------
-- -- 176,498
--------- --------- ---------
$ -- -- (340,620)
========= ========= =========
</TABLE>
(Continued)
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 11
<PAGE>
Notes to Consolidated Financial Statements
Income taxes differ from the amounts computed by applying the U.S. Federal
income tax rate of 34% to pretax earnings (losses) from operations as a result
of the following:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income taxes $ 379,230 (1,006,210) (4,539,252)
State income taxes, net of Federal income tax effect 52,947 (124,064) (34,367)
Increase (decrease) in valuation allowance (462,363) 1,135,001 4,209,171
Other, net 30,186 (4,727) 23,828
---------- ---------- ----------
$ -- -- (340,620)
========== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at January 31, 2000 and 1999, are
presented below:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 80,409 279,517
Inventories, due to costs not currently deductible for tax purposes 124,587 145,370
Accrued expenses not currently deductible 327,843 521,641
Valuation allowance for property, plant and equipment 702,029 758,632
Net operating loss and other carryforwards 4,344,657 4,444,330
Other 78,262 57,392
----------- -----------
Total gross deferred tax assets 5,657,787 6,206,882
Valuation allowance for deferred tax assets (5,642,311) (6,104,673)
----------- -----------
Deferred tax assets 15,476 102,209
Deferred tax liabilities:
Property, plant and equipment, due to differences in depreciation 15,476 102,209
----------- -----------
Net deferred tax asset $ -- --
=========== ===========
</TABLE>
At January 31, 2000, the Company had Federal and state net operating loss (NOL)
and other tax carryforwards which expire as follows:
Year ending January 31,
2001 $ 222,628
2002 310,075
2003 449,858
2004 326,709
2005 through 2012 32,359
2013 4,495,103
2019 5,132,536
2020 7,957
Indefinite expiration (alternative minimum tax credit) 208,501
----------
Total $11,185,726
==========
Ultimate realization of deferred tax assets, which include these tax
carryforwards and deductible temporary differences, is dependent upon many
factors, including the Company's ability to generate adequate future taxable
income in specific taxing jurisdictions within the carryforward periods.
Management has considered these factors in reaching its conclusion as to the
valuation allowance for financial reporting purposes. As a result of the
uncertainty regarding future realization, the Company maintains a valuation
allowance in order to fully reserve net deferred tax assets. During the year
ended January 31, 2000, as a result of the utilization of NOL carryforwards, the
valuation allowance has been decreased by $462,363.
(Continued)
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 12
<PAGE>
Notes to Consolidated Financial Statements
(5) Leases
------
The Company's principal stockholder, together with his wife
("stockholders"), own certain real property which is leased to the Company
under various operating lease agreements. The following table summarizes
these related party leases:
<TABLE>
<CAPTION>
Rent expense for
year ended January 31,
Property Lease Monthly ---------------------------------------------
location expiration rental 2000 1999 1998
- -------- ---------- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Springdale August, 2002 $ 36,000 264,000 390,000 408,000
Fort Smith August, 2002 20,000 144,000 216,000 228,000
North Little Rock August, 2002 52,000 504,000 594,000 624,000
Bentonville May, 2002 9,500 84,000 106,500 98,000
Cabinet facility-
Springdale Terminated -- -- 20,000 118,000
Rogers Terminated -- -- -- 66,000
---------- --------- ---------- ---------
$ 117,500 996,000 1,326,500 1,542,000
========== ========= ========== =========
</TABLE>
The leases for the Springdale and North Little Rock properties are assigned as
collateral under a loan agreement between the stockholders and the Arkansas
Teacher Retirement System ("ATRS"). Proceeds from this loan were used by the
stockholders to finance the purchase of the Springdale and Fort Smith properties
from the Company, to retire their mortgage indebtedness on the North Little Rock
property and to pay off other loans to the Company for various real estate
financing. The ATRS loan is also secured by a mortgage and security agreement on
these properties and an assignment of a $1 million life insurance policy on the
principal stockholder.
During fiscal years 2000 and 1999, the stockholders granted the Company certain
reductions in monthly rental payments totaling $414,000 and $103,500,
respectively, which have been reflected in the schedule above. Monthly rentals
per the table above reflect amounts per the lease agreements as of January 31,
2000. As of that date, the monthly concession granted the Company amounted to
$34,500. The stockholders reserve the right to increase monthly payments to the
amounts per the lease agreements, but have waived any claims with respect to
past rent reductions.
During fiscal year 1997, the Company ceased operations at the cabinet facility.
Beginning in fiscal year 1998, the Company subleased the cabinet facility to a
third party for $19,000 per month. The Company received $38,000 and $95,000 for
the years ended January 31, 1999 and 1998, respectively, under the sublease
agreement. During fiscal year 1999, the stockholders and the Company agreed to
terminate the lease agreements for the cabinet facility as well as the Rogers
property, and the stockholders agreed to release the Company from all
obligations with respect to these leases. In conjunction with the termination of
the cabinet facility lease, the Company sold the related leasehold improvements
to the stockholders for $525,000 (resulting in a pre-tax loss of $18,500).
The Company also leases properties from unrelated parties under noncancellable
operating lease agreements, which expire at various dates through 2008, with
options to extend the lease terms for additional periods of up to ten years. The
lease agreements with the stockholders contain options to extend the lease terms
for additional periods of up to twenty years. Future minimum lease payments
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year as of January 31, 2000, are as follows:
Related
party Other Total
----- ----- -----
Year ending January 31,
2001 $1,410,000 459,700 1,869,700
2002 1,410,000 377,800 1,787,800
2003 794,000 374,800 1,168,800
2004 -- 275,600 275,600
2005 -- 210,000 210,000
Later years -- 822,500 822,500
---------- --------- ---------
Total minimum lease payments $3,614,000 2,520,400 6,134,400
========== ========= =========
(Continued)
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 13
<PAGE>
Notes to Consolidated Financial Statements
(6) Capital Stock
-------------
The Company's Articles of Incorporation authorize the Board of Directors to
issue shares of preferred stock in series, to determine the number of
shares in each series and to fix the designation, preferences, rights,
voting powers, restrictions, dividends, qualifications and terms and
conditions thereof. As of January 31, 2000, the Company has issued no
shares of its preferred stock.
The Company has an employee stock purchase plan, a long-term performance
plan and an incentive compensation plan. Under the employee stock purchase
plan, employees are eligible, through payroll deductions up to a maximum of
$2,400 annually, to purchase shares of the Company's common stock at the
current market price of the stock. The Company contributes an amount equal
to ten percent (in cash or stock) of the amounts contributed by employees.
Under the long-term performance plan, certain directors and key employees
are eligible for awards granted under the plan in the form of, or
combination thereof, stock options, stock appreciation rights, or
restricted shares of the Company's common stock. The Company has authorized
300,000 shares to be awarded under the plan, of which 85,000 shares are
available for granting at January 31, 2000. The amount, terms and
conditions of any award under the plan are subject to certain limitations
set forth therein. The following summarizes stock option activity for years
ended January 31, 1999 and 2000:
Exercise
Shares price
------ -----
Outstanding at January 31, 1998 -- $ --
Granted 280,000 1.75
Canceled (50,000) 1.75
-------- ----
Outstanding at January 31, 1999 230,000 1.75
Granted -- --
Canceled (15,000) 1.75
-------- ----
Outstanding at January 31, 2000 215,000 $ 1.75
-------- ----
Exercisable at January 31, 2000 86,000 $ 1.75
--------
Options granted during fiscal year 1999 were 20% vested upon issuance, with
an increase in vesting of 20% per year beginning one year after the date of
issuance, and have remaining contractual lives of 3.3 years. There were no
options granted during fiscal year 2000. As permissible under Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
--------------------------
Compensation, the Company accounts for stock options granted under the
------------
provisions of Accounting Principles Board Opinion No. 25, Accounting for
--------------
Stock Issued to Employees, which recognizes compensation cost based upon the
-------------------------
intrinsic value of the equity award. Accordingly, no compensation expense
was recognized in the consolidated statements of operations during fiscal
years 2000 or 1999. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards
for fiscal years 2000 and 1999 consistent with the provisions of SFAS No.
123, the effect on the Company's net earnings (loss) and earnings (loss) per
share would not be materially different from the amounts reported.
Under the incentive compensation plan, certain salaried employees of the
Company are eligible to receive a bonus each fiscal year based on the
Company's performance in that year. Bonuses may be paid, at the Company's
option, either in cash or stock units. Bonuses awarded in the form of stock
units will be converted into cash or common stock upon termination of the
participant's employment. As of January 31, 2000, no awards had been made
under the incentive compensation plan.
(7) Nonrecurring Charges
--------------------
During fiscal year 1999, the Company completed the restructuring plans
which had been announced in the previous year by closing several stores,
selling real estate and equipment associated with the closed stores, and
selling certain other real estate. These sales resulted in total cash
proceeds of approximately $10.8 million and losses of approximately $2.3
million, which have been charged against the related valuation allowances.
In addition, in July 1998, the Company sold the real estate and equipment
of the Rogers, Arkansas, home center store to Lowe's Home Centers, Inc. for
cash totaling approximately $10.5 million. This transaction resulted in
gains of approximately $1.3 million, which are included in income for the
year ended January 31, 1999.
In conjunction with the Company's restructuring, certain charges and other
transactions have been charged against the valuation allowances and store
closing accruals rather than to current period income or expense. The
following is a reconciliation of activity with respect to these accounts:
(Continued)
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 14
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Valuation Accrued
allowances expenses Totals
---------- -------- ------
<S> <C> <C> <C>
Balances, January 31, 1998 $ 5,459,000 641,000 6,100,000
Activity, fiscal year 1999:
Additions-writedown of land to
estimated realizable value 100,000 -- 100,000
Inventory losses (780,567) -- (780,567)
Losses on sales of fixed assets (2,230,637) -- (2,230,637)
Depreciation (298,791) -- (298,791)
Cash payments-severance benefits and rent -- (366,232) (366,232)
Other noncash credits (charges) (267,726) 49,920 (217,806)
----------- -------- ----------
Net activity (3,477,721) (316,312) (3,794,033)
----------- -------- ----------
Balances, January 31, 1999 1,981,279 324,688 2,305,967
Activity, fiscal year 2000:
Cash payments-rent -- (166,912) (166,912)
Other noncash charges -- (78,604) (78,604)
----------- -------- ----------
Net activity -- (245,516) (245,516)
----------- -------- ----------
Balances, January 31, 2000 $ 1,981,279 79,172 2,060,451
=========== ======== ==========
</TABLE>
The valuation allowances represent differences between the carrying amounts and
estimated fair market values of the related assets, all of which are considered
to be held for sale. Assets held for sale include real property with carrying
amounts of $5,131,279 and fair values of $3,150,000 at both January 31, 2000 and
1999.
During fiscal year 1998, the Company announced plans to restructure its
operations which included closing several stores. The stores involved consisted
primarily of home center locations which had incurred continuing operating
losses in recent years. During fiscal year 1998, the Company closed two stores
(in Conway and Rogers, Arkansas), and subsequent to January 31, 1998, closed two
additional stores (in Little Rock and Fayetteville, Arkansas). In addition, in
March 1998, management announced plans to restructure the home center portion of
the Russellville, Arkansas, store. As a result of these store closings, the
Company recorded a pre-tax nonrecurring charge of $6,730,000 for the year ended
January 31, 1998 (of which $6,100,000 was recorded in the fourth quarter), as
follows:
Charges relating to stores closed subsequent to January 31, 1998:
Writedowns of assets to net realizable values:
Inventories $ 925,000
Equipment 1,030,000
Buildings 1,885,500
Leasehold improvements 1,618,500
----------
Total writedowns of assets 5,459,000
----------
Accrued charges:
Severance benefits 127,000
Lease obligations 397,000
Other 117,000
----------
Total accrued charges 641,000
----------
Total noncash charges 6,100,000
Losses, primarily on inventory and equipment,
for stores closed during fiscal year 1998 630,000
----------
Total nonrecurring charge-year ended
January 31, 1998 $6,730,000
==========
Writedowns of assets to net realizable values represent noncash charges for
asset impairments and disposals of assets directly associated with store
closings. Writedowns of inventories, equipment and buildings represent
differences between estimated realizable values and carrying values. Leasehold
improvements associated with stores being closed were evaluated based upon
expected future cash flows
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 15
<PAGE>
(Continued)
Notes to Consolidated Financial Statements
(noncancellable lease payments net of projected sublease income) and were
written down to recognize impairment.
Accrued severance benefits represent incremental payroll costs directly
associated with store closings. Accrued lease obligations (which include
noncancellable operating lease payments, net of projected sublease income) and
other accrued charges (taxes, insurance and other continuing costs) represent
costs which were expected to be incurred subsequent to the dates the stores
ceased operations.
(8) Commitments and Contingencies
-----------------------------
The Company advances premiums under a split-dollar life insurance agreement with
a trust which owns a $20 million insurance policy on the life of the Company's
principal stockholder's wife. During the year ended January 31, 2000, the trust
renegotiated the policies which previously covered both the principal
stockholder and his wife under two $10 million second-to-die policies. The trust
moved to a new insurance company for the same $20 million of coverage for
approximately half of the previous annual premiums. The Company has a security
interest in the policy's cash surrender value and death benefits and, upon
termination of the policy, is entitled to reimbursement of the amounts advanced,
without interest. The period of recovery of premiums advanced by the Company
under the new policy is expected to be approximately the same as under the
previous policies. The Company has a guarantee from the stockholder securing any
deficiency in cash surrender value if the policy is terminated before cash
surrender value exceeds actual premiums advanced. The Company has advanced
premiums of $2,012,277 and $1,645,378 as of January 31, 2000 and 1999,
respectively (included in other assets in the accompanying consolidated balance
sheets).
The Company sponsors the National Home Centers, Inc. 401 (k) Retirement Plan, in
which employees are eligible to participate after they complete one year of
service and reach age 21. Company contributions to the plan each year are made
at a discretionary amount determined by the Company's Board of Directors. The
Company's contributions to the plan were $37,570, $36,920 and $48,736 for the
years ended January 31, 2000, 1999 and 1998, respectively.
The Company is involved in certain claims and pending litigation arising from
the normal conduct of business. Based on the present knowledge of the facts,
management believes the resolution of claims and pending litigation will not
have a material adverse effect on the Company's consolidated financial position
or the results of its operations.
(9) Valuation and Qualifying Accounts
---------------------------------
The following provides an analysis of the Company's allowances for doubtful
trade accounts receivable for the years ended January 31, 2000, 1999 and 1998:
Balance at Additions Write-offs, Balance at
beginning charged net of end of
of period to expense recoveries period
--------- ---------- ---------- ------
Year ended January 31, 2000 $730,000 223,037 743,037 210,000
-------- ------- ------- -------
Year ended January 31, 1999 281,000 389,828 (59,172) 730,000
-------- ------- ------- -------
Year ended January 31, 1998 174,250 404,762 298,012 281,000
-------- ------- ------- -------
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 16
<PAGE>
NATIONAL HOME CENTERS, INC.
AND SUBSIDIARY
Consolidated Financial Statements
January 31, 2000, 1999 and 1998
Together with Report of Independent Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
National Home Centers, Inc.:
We have audited the accompanying consolidated balance sheets of National Home
Centers, Inc. and subsidiary as of January 31, 2000 and 1999, and the related
consolidated statements of operations and retained earnings (accumulated
deficit) and cash flows for each of the three years in the period ended January
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National Home
Centers, Inc. and subsidiary as of January 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 2000, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Fayetteville, Arkansas
March 23, 2000
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 17
<PAGE>
National Home Centers Board of Directors
Richard D. Denison
President, First San Francisco Corporation
Danny R. Funderburg
President and Chief Operating Officer
National Home Centers, Inc.
Brent A. Hanby
Executive Vice-President and Chief Financial Officer
National Home Centers, Inc.
Roger A. Holman
Senior Vice-President, Purchasing & Marketing
National Home Centers, Inc.
Dwain A. Newman
Chairman and Chief Executive Officer,
National Home Centers, Inc.
David W. Truetzel
Managing Director, Gryphon Holdings
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 18
<PAGE>
Transfer Agent
Shareholders of record who wish to change the ownership or address of stock;
report lost, stolen or destroyed certificates; or who have questions about their
accounts should contact:
UMB Bank
P.O. Box 410064
Kansas City, MO 64141-0064
800-884-4225
Common Stock Information
The common stock of National Home Centers is traded on the NASDAQ SmallCap
Market under the symbol NHCI. The following table indicates the quarterly high
and low sales price of the Company's Common Stock as reported by NASDAQ for the
fiscal years ended January 31, 2000 and 1999.
Fiscal 1999 High Low
First Quarter 1.63 1.00
Second Quarter 1.44 1.06
Third Quarter 1.28 1.00
Fourth Quarter 1.31 1.00
Fiscal 1998 High Low
First Quarter 2.50 1.00
Second Quarter 2.38 1.13
Third Quarter 2.00 1.25
Fourth Quarter 1.94 1.00
As of April 14, 2000, there were 567 shareholders of record and 2,000 persons or
entities who held Common Stock in nominee name. The Company has never declared
or paid cash dividends on its Common Stock and does not expect to pay cash
dividends in the foreseeable future.
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 19
<PAGE>
Corporate Address
Highway 265 North
P.O. Box 789
Springdale, AR 72765
Phone 501/756-1700
Auditors
Arthur Andersen LLP
Fayetteville, Arkansas
Counsel
Wright, Lindsey & Jennings LLP
Little Rock, Arkansas
Corporate Officers
Dwain A. Newman
Chairman and Chief Executive Officer
Danny R. Funderburg
President and Chief Operating Officer
Roger A. Holman
Senior Vice-President, Purchasing & Marketing
Brent A. Hanby
Executive Vice-President and Chief Financial Officer
C. Belle Reed
Secretary and Controller
Robert H. Storment, CPA
Vice-President, Accounting
John Collins
Vice-President, Merchandising & Store Development
[LOGO OF NHCI]
1999 National Home Centers, Inc. Annual Report . Page 20
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 333-84097 and 333-25646.
ARTHUR ANDERSEN LLP
Fayetteville, Arkansas
April 28, 2000
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JAN-31-2000 JAN-31-2000
<PERIOD-START> NOV-01-1999 FEB-01-1999
<PERIOD-END> JAN-31-2000 JAN-31-2000
<CASH> 43,847 43,847
<SECURITIES> 0 0
<RECEIVABLES> 9,994,939 9,994,939
<ALLOWANCES> 0 0
<INVENTORY> 14,675,988 14,675,988
<CURRENT-ASSETS> 25,256,380 25,256,380
<PP&E> 18,342,462 18,342,462
<DEPRECIATION> 10,611,433 10,611,433
<TOTAL-ASSETS> 35,896,084 35,896,084
<CURRENT-LIABILITIES> 10,560,080 10,560,080
<BONDS> 0 0
0 0
0 0
<COMMON> 74,660 74,660
<OTHER-SE> 10,231,136 10,231,136
<TOTAL-LIABILITY-AND-EQUITY> 35,896,084 35,896,084
<SALES> 26,252,362 110,040,562
<TOTAL-REVENUES> 26,252,362 110,040,562
<CGS> 19,804,731 85,319,586
<TOTAL-COSTS> 19,804,731 85,319,586
<OTHER-EXPENSES> 5,945,584 22,168,146
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 394,567 1,437,449
<INCOME-PRETAX> 107,480 1,115,381
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 107,480 1,115,381
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 107,480 1,115,381
<EPS-BASIC> .02 .16
<EPS-DILUTED> .02 .16
</TABLE>
