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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-21448
NATIONAL HOME CENTERS, INC.
(Exact name of registrant as specified in its charter)
Arkansas 71-0403343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 265 North
Springdale, Arkansas 72765
(Address of principal executive offices, including zip code)
(501) 756-1700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report(s), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No .
--------- ---------
As of September 13, 2000 National Home Centers, Inc. had 7,142,251 shares of
$0.01 par value Common Stock outstanding.
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PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
July 31, January 31,
2000 2000
Assets (Unaudited) (1)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 33,328 43,847
Accounts Receivable 9,814,136 9,994,939
Inventories 12,927,227 14,675,988
Other 616,389 541,606
--------------------------------------------------------------------------------------------------------------
Total Current Assets 23,391,080 25,256,380
--------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 18,979,370 18,342,462
Less Accumulated Depreciation 10,791,042 10,611,433
--------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 8,188,328 7,731,029
--------------------------------------------------------------------------------------------------------------
Other Assets, Net of Amortization 2,818,252 2,908,675
--------------------------------------------------------------------------------------------------------------
$ 34,397,660 35,896,084
--------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 1,326,535 988,832
Accounts Payable 6,421,563 6,491,277
Accrued Expenses 3,139,938 3,079,971
--------------------------------------------------------------------------------------------------------------
Total Current Liabilities 10,888,036 10,560,080
--------------------------------------------------------------------------------------------------------------
Long-Term Debt, Excluding Current Installments 12,627,488 15,030,208
Stockholders' Equity 10,882,136 10,305,796
--------------------------------------------------------------------------------------------------------------
$ 34,397,660 35,896,084
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) January 31, 2000 balances are condensed from the audited consolidated
balance sheet.
See accompanying notes to Condensed Consolidated Financial Statements.
2
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<TABLE>
<CAPTION>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
--------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 31, July 31,
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Unaudited) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 26,063,586 28,479,666 52,645,606 53,819,708
Cost of Sales 19,919,426 22,287,760 40,335,637 41,926,830
--------------------------------------------------------------------------------------------------------------------------------
Gross Profit 6,144,160 6,191,906 12,309,969 11,892,878
--------------------------------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses:
Salaries and Benefits 3,809,408 3,537,548 7,536,590 7,065,532
Rent 296,978 289,511 595,796 563,123
Depreciation and Amortization 319,996 334,965 634,441 683,760
Other 1,032,147 1,235,152 2,210,489 2,249,500
--------------------------------------------------------------------------------------------------------------------------------
Total Selling, General and
Administrative Expenses 5,458,529 5,397,176 10,977,316 10,561,915
--------------------------------------------------------------------------------------------------------------------------------
Operating Income 685,631 794,730 1,332,653 1,330,963
Interest Expense 373,660 345,256 756,313 669,785
--------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 311,971 449,474 576,340 661,178
Income Taxes 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 311,971 449,474 576,340 661,178
--------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
(basic and diluted) $ 0.04 0.06 0.08 0.09
--------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of
Common Shares Outstanding 7,142,251 7,142,251 7,142,251 7,142,251
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------
Six Months Ended
July 31,
-------------------------------------------
<S> <C> <C>
(Unaudited) 2000 1999
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Earnings $ 576,340 661,178
Adjustments to Reconcile Net Earnings to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 634,441 683,760
Loss (Gain) on Disposal of Property, Plant and Equipment (34,568) 92,738
Decrease in Cash Surrender Value of Life Insurance 0 31,702
Changes in Assets and Liabilities:
Accounts Receivable 180,803 (4,264,150)
Inventories 1,748,761 (238,619)
Other Current Assets (74,783) (124,719)
Accounts Payable (69,714) 2,565,347
Accrued Expenses 59,967 (346,556)
---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 3,021,247 (939,319)
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (654,519) (286,254)
Proceeds from Sale of Property, Plant and Equipment 36,250 9,800
Increase in Other Assets 0 (183,323)
---------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (618,269) (459,777)
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt 367,179 2,815,242
Repayments of Long-Term Debt (2,780,676) (1,429,345)
---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (2,413,497) 1,385,897
---------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash (10,519) (13,199)
Cash at Beginning of Period 43,847 57,984
---------------------------------------------------------------------------------------------------------------------
Cash at End of Period $ 33,328 44,785
---------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Interest Paid $ 765,458 661,653
Acquisition of equipment for notes payable 348,480 0
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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NATIONAL HOME CENTERS, INC. ("THE COMPANY") AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 2000
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, the financial statements do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for the three
months and six months ended July 31, 2000, are not necessarily indicative
of the results to be expected for the fiscal year ending January 31, 2001.
For further information, refer to the consolidated financial statements and
related notes thereto included in the Company's Annual Report on Form 10-K
--------------------------
filed with the Commission on May 1, 2000.
2. Income Taxes
------------
No income tax provision was recorded for the three months or six months
ended July 31, 2000 or 1999 due to the realization of previously
unrecognized NOL carryforwards.
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
General
-------
National Home Centers, Inc., an Arkansas corporation, ("the Company") is a full
line retailer of home improvement products and building materials, with eight
locations in Arkansas. The Company serves retail consumers and professional
contractors primarily in Arkansas and also in Oklahoma, Missouri and Kansas.
Over the past several years, the Company has experienced increased competition
in its markets from other national and/or regional chains that are seeking to
gain or retain market share by reducing prices. This has continued to place
pressure on all of the Company's stores and their respective sales, gross
margins and operating income. In 1997 and 1998, the Company sold certain real
estate and other assets related to closed retail stores in Conway, Rogers,
Little Rock and Fayetteville, Arkansas. By closing these stores, the Company
has eliminated recurring losses at those locations, and the sale of assets
related to such stores, including real estate, provided the Company with cash
for operations.
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Results of Operations
---------------------
Three Months Ended July 31, 2000 and 1999
-----------------------------------------
Net sales for the second quarter of fiscal 2000 decreased 8% to $26.1 million,
compared to $28.5 million for the second quarter of fiscal 1999. Comparable
store sales in the second quarter of fiscal 2000 decreased 8% over the same
period of fiscal 1999. Higher mortgage interest rates have slowed the growth of
residential housing developments in some markets. Also, lower costs on several
common commodity products bring in less sales dollars even though the same or
higher quantity of materials may be sold. Net income for the second quarter of
fiscal 2000 was $312,000 or $0.04 income per share, compared with net income for
the second quarter of fiscal 1999 of $449,000 or $0.06 income per share. EBITDA
(earnings before interest, taxes, depreciation and amortization) was $1,006,000
versus $1,130,000 in the second quarter last year. The Company operated eight
stores at the end of the quarter. For the quarter, the Company's revenues
consisted of 78% to professional contractors and 22% to retail customers versus
83% and 17%, respectively, in the second quarter last year.
Gross profit as a percentage of net sales for the second quarter of fiscal 2000
increased to 23.6% from 21.7% for the same period last year. Gross margins have
increased as a result of a combination of improved commodity markets and
management's efforts to increase margins in all categories of products.
Selling, general and administrative expenses increased to 20.9% of net sales for
the second quarter of fiscal 2000 compared to 18.9% of net sales for the same
period last year. Certain expenses were lower as a percentage of net sales for
the period compared to last year, while certain others reflect increases. The
increase in salaries and benefits reflects the higher costs associated with the
tight labor markets in which the Company operates. In addition, transportation
expenses (included in other selling, general and administrative expenses) were
higher as a percentage of net sales due to the large increase in fuel costs.
Net interest expense as a percentage of net sales was 1.4% for the quarter ended
July 31, 2000, compared to 1.2% for the same period last year, primarily due to
the increase in interest rates.
Six Months Ended July 31, 2000 and 1999
---------------------------------------
Net sales for the six months ended July 31, 2000 were down 2% to $52.6 million,
compared to $53.8 million for the same period of fiscal 1999. Comparable store
sales for the six months ended July 31, 2000 were also down 2% over the same
period of fiscal 1999. Net income for the six months ended July 31, 2000 was
$576,000 or $0.08 income per share, compared with net income for the same period
in 1999 of $661,000 or $0.09 income per share. EBITDA (earnings before interest,
taxes, depreciation and amortization) was $1,967,000 versus $2,015,000 in the
same period last year. For the six months ended July 31, 2000, the Company's
revenues consisted of 79% to professional contractors and 21% to retail
customers versus 82% and 18%, respectively, in the same period last year.
Gross profit as a percentage of net sales for the first six months of fiscal
2000 increased to 23.4% from 22.1% for the same period last year. Gross margins
have increased as a result of a
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combination of improved commodity markets and management's efforts to increase
margins in all categories of products.
Selling, general and administrative expenses increased to 20.9% of net sales for
the first six months of fiscal 2000, compared to 19.6% of net sales for the same
period last year. Certain expenses were lower as a percentage of net sales for
the period compared to last year, while certain others reflect increases. The
increase in salaries and benefits reflects the higher costs associated with the
tight labor markets in which the Company operates. In addition, transportation
expenses (included in other selling, general and administrative expenses) were
higher as a percentage of net sales due to the large increase in fuel costs.
Net interest expense as a percentage of net sales was 1.4% for the six months
ended July 31, 2000, compared to 1.2% for the same period last year, primarily
due to the increase in interest rates.
Liquidity and Capital Resources
-------------------------------
The Company's working capital at July 31, 2000 decreased to $12.5 million from
$14.7 million at January 31, 2000, primarily due to lower inventories.
The Company's primary capital needs are to finance operations. During the six
months ended July 31, 2000, operating activities provided net cash of $3.0
million. Primary sources of cash from operating activities included
approximately $1.7 million from decreases in inventories and $1.2 million from
net income, adjusted for depreciation and amortization.
Net cash used in investing activities for the first six months of fiscal 2000
was approximately $0.6 million, principally due to purchases of equipment. Net
cash used by financing activities during the first six months of fiscal 2000
totaled approximately $2.4 million, resulting from net repayments of long-term
debt.
On July 15, 1998, the Company entered into a loan and security agreement for a
new $20 million revolving credit agreement, which expires in July, 2002. The
agreement provides for interest to be charged at .50% per annum in excess of the
Prime Rate. The agreement limits availability to a borrowing base of 85% of
eligible accounts receivable and 65% of inventory, with each capped at $10
million. The credit facility does not contain any financial covenants. The
Company had additional available borrowing capacity of approximately $2.4
million under the revolving credit agreement as of July 31, 2000.
As of July 31, 2000, the Company is generally current with all accounts payable
vendors and is utilizing discounts on payments made to vendors that supply
inventory to the Company.
Forward-looking Statements
--------------------------
Many issues discussed in this annual report are forward-looking statements made
under Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These statements involve known
and unknown risks, uncertainties and other factors that may cause actual events
or results, levels of activity, growth, performance,
7
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earnings per share or achievements to be materially different from any future
results, levels of activity, growth, performance, earning per share or
achievements expressed or implied by such forward-looking statements. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties. The Company does not undertake to publicly update or revise its
forward looking statements even if experience or future changes make it clear
that any projected results expressed or implied in such statements will not be
realized. Factors that could cause actual results to differ materially include,
but are not limited to the following: the strength and extent of new and
existing competition; the Company's ability to maintain competitive pricing in
its markets; the Company's ability to increase sales; the Company's ability to
attract, train and retain experienced, quality employees; the Company's ability
to dispose of excess real estate and other assets; general economic conditions;
housing turnover; interest rates; weather; and other factors described from time
to time in the Company's Securities and Exchange Commission filings.
Impact of Inflation and Changing Prices
---------------------------------------
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe inflation has had a material effect on
sales or results of operations.
ITEM 3
------
Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
The Company is exposed to changes in interest rates on a majority of its total
debt. Any increases in interest rates could also affect the ability of the
Company to collect accounts receivable from customers. The Company depends on
the market for favorable long-term mortgage rates to help generate sales and
create housing turnover. Should mortgage rates increase substantially, the
Company could have difficulty generating sales. The Company's exposure to
commodity markets for lumber, plywood and other building materials does
fluctuate in pricing but is limited to what is held in inventory as the Company
does not trade commodity futures or options. Quotes to customers for proposed
products to be sold are short-term and increases or decreases in commodity
pricing are generally passed on to the customer. The Company has no foreign
sales and accepts payment only in US dollars; therefore it is not subject to any
currency exchange rate risk.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 24, 2000, Raeleen Ann Barnes Matlock, acting as administratrix for the
estate of Jimmy Ray Barnes, filed a lawsuit in the Circuit Court of Pulaski
County, Arkansas against W.M. Barr & Co., Inc., Ring Can Corporation, and the
Company. The lawsuit alleges negligence, breach of warranty, and product
liability acts by the defendants in connection with the manufacture,
distribution, and sale of a defective container of paint thinner. The plaintiff
is seeking actual damages in an amount of $6,000,000 and punitive damages in the
same amount. On June 20, 2000, the Company filed an answer to the complaint,
generally denying the allegations with regard to National Home Centers and
requesting that the court dismiss the complaint as against the Company. The
Company is also, at times, a party to routine litigation incidental to its
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business. In the opinion of the Company's management, such proceedings should
not, individually or in the aggregate, have a material adverse effect on the
Company's results of operations or financial condition. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on June 8, 2000. For
purposes of voting for the election of Directors and upon such other business as
may have properly come before the meeting, there were 7,142,251 shares of
outstanding Common Stock entitled to vote at the meeting. Of those outstanding
shares, 6,811,348 were represented either in person or by proxy at the meeting.
The stockholders voted on the following items:
<TABLE>
<CAPTION>
Election of Directors:
----------------------
Name For Authority Withheld
---- --- ------------------
<S> <C> <C>
Richard D. Denison 6,797,139 14,209
Danny R. Funderburg 6,796,139 15,209
Brent A. Hanby 6,796,089 15,259
Roger A. Holman 6,796,319 15,029
Dwain A. Newman 6,796,785 14,563
David W. Truetzel 6,797,139 14,209
</TABLE>
No other matters to be voted upon were brought before the meeting.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8K.
<TABLE>
<CAPTION>
(a) Exhibits
Sequentially
------------
Exhibits No. Description of Exhibit Numbered Page
------------ ---------------------- -------------
<S> <C> <C>
27.1 Financial Data Schedule 11-12
(b) Reports on Form 8-K.
Not applicable.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Home Centers, Inc.
Date: September 13, 2000 /s/ Dwain A. Newman
--------------------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: September 13, 2000 /s/ Brent A. Hanby
--------------------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
10
