10-Q 1 d10q.txt FORM 10-Q -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2001. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-21448 NATIONAL HOME CENTERS, INC. (Exact name of registrant as specified in its charter) Arkansas 71-0403343 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Highway 265 North Springdale, Arkansas 72765 (Address of principal executive offices, including zip code) (501) 756-1700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____. ------ As of June 12, 2001 National Home Centers, Inc. had 7,142,251 shares of $0.01 par value Common Stock outstanding. -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS NATIONAL HOME CENTERS, INC. CONDENSED BALANCE SHEETS

(1) January 31, 2001 balances are condensed from the audited balance sheet. See accompanying notes to Condensed Financial Statements. NATIONAL HOME CENTERS, INC. CONDENSED STATEMENTS OF EARNINGS

See accompanying notes to Condensed Financial Statements. NATIONAL HOME CENTERS, INC. CONDENSED STATEMENTS OF CASH FLOWS

See accompanying notes to Condensed Financial Statements. NATIONAL HOME CENTERS, INC. ("THE COMPANY") NOTES TO CONDENSED FINANCIAL STATEMENTS April 30, 2001 1. Basis of Presentation --------------------- The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the three months ended April 30, 2001, are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2002. For further information, refer to the financial statements and related notes thereto included in the Company's Annual Report on Form 10-K filed with the -------------------------- Commission on April 27, 2001, and Form 10-K/A filed with the Commission on June 1, 2001. 2. Income Taxes ------------ No income tax provision was recorded for the three months ended April 30, 2001 or 2000 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. Results of Operations --------------------- Three Months Ended April 30, 2001 and 2000 ------------------------------------------ Net sales for the first quarter of fiscal 2001 decreased 6% to $25.1 million, compared to $26.6 million for the first quarter of fiscal 2000. Net income for the first quarter of fiscal 2001 was $209,000 or $0.03 income per share, compared with net income for the first quarter of fiscal 2000 of $264,000 or $0.04 income per share. EBITDA (earnings before interest, taxes, depreciation and amortization) was $863,000 versus $961,000 in the first quarter last year. The Company operated eight stores at the end of the quarter. For the first quarter of 2001 and 2000, the Company's revenues consisted of 79% to professional contractors and 21% to retail customers. Gross profit as a percentage of net sales for the first quarter of fiscal 2001 increased to 25.1% from 23.2% for the same period last year. Gross margins have increased as a result of a combination of improved commodities markets and management's efforts to increase margins in all categories of products. Selling, general and administrative expenses increased to 23.0% of net sales for the first quarter of fiscal 2001 compared to 20.8% of net sales for the same period last year. 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 1.3% for the quarter ended April 30, 2001, compared to 1.4% for the same period last year. Liquidity and Capital Resources ------------------------------- The Company's working capital at April 30, 2001 increased to $14.2 million from $12.9 million at January 31, 2001, primarily due to increased accounts receivable resulting from higher sales, partially offset by an increase in accounts payable. The Company's primary capital needs are to finance operations. During the three months ended April 30, 2001, operating activities used net cash of $0.9 million. Primary sources of cash from operating activities included approximately $2.0 million from increases in accounts payable and $0.5 million from net income, adjusted for depreciation and amortization. The primary use of cash was $3.2 million increase in accounts receivable. Net cash provided by investing activities for the first three months of fiscal 2001 was approximately $0.5 million. $1.0 million was provided by a decrease in other assets and $0.5 million used for purchases of equipment. Net cash provided by financing activities during the first three months of fiscal 2001 totaled approximately $0.3 million, resulting from net proceeds of long-term debt. The Company has a loan and security agreement with a financial institution providing a $20 million revolving line of credit. This agreement expires in July 2002. The agreement provides for interest to be charged at .375% per annum in excess of the Prime Rate (7.5% at April 30, 2001). The agreement limits availability to a borrowing base of 85% of eligible accounts receivable and 65% of inventory, with each capped at $10 million. The agreement does not contain any financial covenants. The Company had additional available borrowing capacity of approximately $3.8 million under the revolving line of credit as of April 30, 2001. As of April 30, 2001, 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 report are forward-looking statements made under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors that may cause actual events or results, levels of activity, growth, performance, earnings per share or achievements to be materially different from any future results, levels of activity, growth, performance, earning per share or achievements expressed or implied by such forward-looking statements. Investors are cautioned that all forward-looking statements involve risk and uncertainties. The Company does not undertake to publicly update or revise its forward looking statements even if experience or future changes make it clear that any projected results expressed or implied 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 claims against the defendants in connection with the manufacture, distribution, and sale of an allegedly defective container of paint thinner. The plaintiff is seeking actual damages in the amount of $6,000,000 and punitive damages in the same amount. On June 20, 2000, the Company filed an answer to the complaint, generally denying the allegations with regard to the Company and requesting that the court dismiss the complaint as against the Company. On November 3, 2000, a judgment was entered against the Company in the Washington County, Arkansas Circuit Court, Case Number CIV 97-1553, in favor of James and Patricia Larson in the amount of $235,000 for damages suffered in a 1997 accident. The Company, along with its insurance provider as surety, has filed an appeal with the Arkansas Court of Appeals and has posted the appropriate supersedeas bond. The final amount of any potential judgment will be covered by insurance. The Company is also, at times, a party to routine litigation incidental to its business. In the opinion of the Company's management, such proceedings should not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. The Company maintains insurance in such amounts and with such coverage and deductibles as management believes are reasonable. Item 2. Changes in Securities. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8K. Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. National Home Centers, Inc. Date: June 12, 2001 /s/ Dwain A. Newman -------------------------------- Dwain A. Newman Chief Executive Officer and Chairman Date: June 12, 2001 /s/ Brent A. Hanby -------------------------------- Brent A. Hanby Executive Vice President and Chief Financial Officer

NATIONAL HOME CENTERS INC 10-Q