-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIRL/uwJrERUKCamMzOSAsK7pceMCLdUY3DW9Baw5vLrJmuNGtAI05EVtbpw7gtC mGkjK/I8Kxwjcr8fmCRm9Q== 0000950134-96-006088.txt : 19961115 0000950134-96-006088.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950134-96-006088 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMRE INC CENTRAL INDEX KEY: 0000809572 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 752041737 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09632 FILM NUMBER: 96662071 BUSINESS ADDRESS: STREET 1: 8585 N STEMMONS FRWY STREET 2: SOUTH TOWER CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2148197000 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 29, 1996 1 ================================================================================ 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 SEPTEMBER 29, 1996 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 1-9632 AMRE, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2041737 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 8585 N. STEMMONS FREEWAY, SOUTH TOWER 75247 DALLAS, TEXAS (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (214) 658-6300 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 ---------- --------- As of October 27, 1996, there were 21,237,728 shares of the registrant's stock, $.01 par value, outstanding. ================================================================================ 2 INDEX PART I. FINANCIAL INFORMATION
PAGE NO. -------- ITEM 1. FINANCIAL STATEMENTS (UNAUDITED): Consolidated Balance Sheet - September 29, 1996 and December 31, 1995 . . . . . . . . . . 1 Consolidated Statement of Operations - Quarterly periods ended September 29, 1996 and October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statement of Operations - Nine-month periods ended September 29, 1996 and October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statement of Cash Flows - Nine-month periods ended September 29, 1996 and October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statement of Changes in Stockholders' Equity - Nine-month period ended September 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
_____________ Note: Items 2 through 5 of Part II are omitted because they are not applicable. 3 ITEM 1. FINANCIAL STATEMENTS AMRE, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
SEPTEMBER 29, DECEMBER 31, 1996 1995 ----------- ----------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 24,921 $ 13,177 Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . 2,660 9,523 Accounts receivable - Trade, net of allowance for doubtful accounts of $1,182 and $891 . 9,854 8,806 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 938 913 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3,987 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,284 7,370 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,824 3,983 ----------- ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . 48,506 47,759 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 9,134 9,291 Goodwill, less accumulated amortization of $2,343 and $2,164 . . . . . 9,045 9,768 Notes receivable - related parties . . . . . . . . . . . . . . . . . . -- 469 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,552 1,499 ----------- ----------- $ 68,237 $ 68,786 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,547 $ 16,516 Wages, commissions and bonuses . . . . . . . . . . . . . . . . . . . 6,130 5,698 Accrued workers' compensation . . . . . . . . . . . . . . . . . . . . 1,901 2,076 Current portion - long-term debt and capital lease obligations . . . 1,199 2,283 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 18,627 20,678 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . . . . . 54,404 47,251 ----------- ----------- Long-term debt and capital lease obligations . . . . . . . . . . . . . 5,884 6,120 ----------- ----------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 60,288 53,371 ----------- ----------- Commitments and contingencies Senior Convertible Redeemable Preferred Stock - $.10 par value; 300,000 shares issued and outstanding, liquidation value of $10 per share . . . . . . . . . . . . . . . . . . . . 3,181 3,000 Stockholders' equity: Preferred stock - $.10 par value, 1,000,000 shares authorized; 300,000 Senior Convertible shares outstanding . . . . . -- -- Common stock - $.01 par value, 40,000,000 shares authorized, 21,780,213 and 18,872,039 shares issued; 21,225,120 and 17,649,841 shares outstanding . . . . . . . . . . . . . . . . . 218 189 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 62,944 34,293 Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (48,375) (6,446) ----------- ----------- 14,787 28,036 Less: Treasury stock, at cost (555,093 and 1,222,198 shares) . . . . (4,955) (10,301) Unearned ESOP compensation . . . . . . . . . . . . . . . . . (5,064) (5,320) ----------- ----------- Total stockholders' equity . . . . . . . . . . . . . . . . . . 4,768 12,415 ----------- ----------- $ 68,237 $ 68,786 =========== ===========
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 1 4 AMRE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED ----------------------------------- SEPTEMBER 29, OCTOBER 1, 1996 1995 ----------- ------------ Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,020 $ 96,891 Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 21,961 31,825 ----------- ------------ Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,059 65,066 ----------- ------------ Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 5,975 6,235 Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 22,029 22,892 Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 12,960 15,867 License and finance fees . . . . . . . . . . . . . . . . . . . . . 6,077 11,493 General and administrative expenses . . . . . . . . . . . . . . . . 6,879 6,548 Provision for plant closing . . . . . . . . . . . . . . . . . . . . -- 1,065 ----------- ------------ 53,920 64,100 ----------- ------------ Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . (10,861) 966 Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 135 415 Other income (expense), net . . . . . . . . . . . . . . . . . . . . (149) 278 ----------- ------------ Income (loss) before income taxes . . . . . . . . . . . . . . . . . (10,875) 1,659 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 549 ----------- ------------ Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ (10,875) $ 1,110 =========== ============ Net income (loss) per share . . . . . . . . . . . . . . . . . . . . $ (.55) $ .07 =========== ============ Weighted average shares outstanding . . . . . . . . . . . . . . . . 20,059 17,146 =========== ============
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 2 5 AMRE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE-MONTH PERIODS ENDED ----------------------------------- SEPTEMBER 29, OCTOBER 1, 1996 1995 ----------- ------------ Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 186,496 $ 261,931 Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 66,577 87,590 ----------- ------------ Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,919 174,341 ----------- ------------ Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 18,137 17,823 Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 67,217 66,730 Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 38,604 46,229 License and finance fees . . . . . . . . . . . . . . . . . . . . . 14,680 31,075 General and administrative expenses . . . . . . . . . . . . . . . . 21,094 20,122 Provision for plant closing . . . . . . . . . . . . . . . . . . . . -- 1,065 Non-recurring charges . . . . . . . . . . . . . . . . . . . . . . . 2,500 -- ----------- ------------ 162,232 183,044 ----------- ------------ Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . (42,313) (8,703) Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 606 1,151 Other income (expense), net . . . . . . . . . . . . . . . . . . . . (154) 225 ----------- ------------ Loss before income taxes . . . . . . . . . . . . . . . . . . . . . (41,861) (7,327) Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (2,085) ----------- ------------ Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (41,911) $ (5,242) =========== ============ Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . $ (2.20) $ (.31) =========== ============ Cash dividends declared per share . . . . . . . . . . . . . . . . . $ -- $ .05 =========== ============ Weighted average shares outstanding . . . . . . . . . . . . . . . . 19,128 17,128 =========== ============
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 3 6 AMRE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE-MONTH PERIODS ENDED ---------------------------------------- SEPTEMBER 29, 1996 OCTOBER 1, 1995 ------------------ --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (41,911) $ (5,242) --------- --------- Adjustments to reconcile net loss to net cash used in operating activities: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 50 (2,085) Depreciation and amortization . . . . . . . . . . . . . . . . . 2,503 2,947 Provision for doubtful accounts . . . . . . . . . . . . . . . . 1,138 477 Other non-cash items . . . . . . . . . . . . . . . . . . . . . 1,335 550 Cash receipts of (payments for) income taxes . . . . . . . . . 3,918 (289) Changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . (2,212) (5,179) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 1,086 (241) Prepaid expenses and other assets . . . . . . . . . . . . . . (319) 1,013 Accounts payable . . . . . . . . . . . . . . . . . . . . . . 10,031 (2,667) Other liabilities . . . . . . . . . . . . . . . . . . . . . . (1,799) 5,306 --------- --------- Total adjustments . . . . . . . . . . . . . . . . . . . . 15,731 (168) --------- --------- Net cash used in operating activities . . . . . . . . . . . . . . (26,180) (5,410) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of marketable securities . . . . . . . . . . . . . . . . . 15,850 24,790 Purchase of marketable securities . . . . . . . . . . . . . . . (9,031) (17,332) Notes receivable . . . . . . . . . . . . . . . . . . . . . . . 469 137 Capital expenditures . . . . . . . . . . . . . . . . . . . . . (2,391) (2,180) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 13 --------- --------- Net cash provided by investing activities . . . . . . . . . . . . 5,134 5,428 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable . . . . . . . . . . . . . . . . . . -- 521 Payments on long-term debt . . . . . . . . . . . . . . . . . . (1,399) (724) Issuance of common stock . . . . . . . . . . . . . . . . . . . 34,207 81 Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (18) (822) --------- --------- Net cash provided by (used in) financing activities . . . . . . . 32,790 (944) --------- --------- Net change in cash and cash equivalents . . . . . . . . . . . . . 11,744 (926) Cash and cash equivalents at beginning of period . . . . . . . . 13,177 9,344 --------- --------- Cash and cash equivalents at end of period . . . . . . . . . . . $ 24,921 $ 8,418 ========= =========
See accompanying Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 4 7 AMRE, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS)
ADDITIONAL UNEARNED COMMON STOCK PAID-IN RETAINED ESOP TREASURY STOCK --------------------- ------------------- SHARES AMOUNT CAPITAL DEFICIT COMPENSATION SHARES AMOUNT -------- ------ -------- -------- -------- ------ -------- Balance, December 31, 1995 . 18,872 $ 189 $ 34,293 $ ( 6,446) $ (5,320) (1,222) $ (10,301) Net loss . . . . . . . . . . -- -- -- (41,911) -- -- -- Preferred stock dividends . . -- -- (181) -- -- -- -- Common stock dividends . . . -- -- -- (18) -- -- -- Issuance of stock . . . . . 1,989 20 29,507 -- -- -- -- Exercise of options . . . . . 919 9 (675) -- -- 667 5,346 Compensation expense for ESOP shares released . . . -- -- -- -- 256 -- -- -------- ----- -------- --------- -------- ------ -------- Balance, September 29, 1996 . 21,780 $ 218 $ 62,944 $ (48,375) $ (5,064) (555) $ (4,955) ======== ===== ======== ========= ======== ====== ========
5 8 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 29, 1996 NOTE 1 - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation - The accompanying interim consolidated financial statements of AMRE, Inc. (the "Company" or "AMRE") and its subsidiaries, American Remodeling, Inc., Facelifters Home Systems, Inc., Congressional Construction Corporation and Century 21 Home Improvements, Inc. as of September 29, 1996 and for the three-month and nine-month periods ended September 29, 1996 and October 1, 1995 are unaudited; however, in the opinion of management, these interim statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows. These financial statements should be read in conjunction with the consolidated annual financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and the post-merger consolidated annual financial statements and related notes included in the Company's Registration Statement on Form S-3 filed on September 3, 1996. On April 25, 1996, the Company consummated a merger with Facelifters Home Systems, Inc. ("Facelifters"). The merger is accounted for as a pooling of interests. The accompanying unaudited consolidated financial statements give retroactive effect to this transaction. On May 28, 1996, the Company consummated a merger with Congressional Construction Corporation ("Congressional"). The merger is accounted for as a pooling of interests. The accompanying unaudited consolidated financial statements give retroactive effect to this transaction. Fiscal period - The Company's quarterly periods end on the Sunday nearest to the last day in the calendar quarter except at year end which is December 31. NOTE 2 - COMMITMENTS AND CONTINGENCIES Litigation - AMRE has been named as a defendant in a proceeding filed on February 29, 1996 in the Superior Court of California by a party who claims ownership of a service mark registered only in the State of California styled "21st Century Home Improvement." AMRE has been advised by Century 21 Real Estate Corporation, the owner of the CENTURY 21(R) Home Improvements(SM) name, that the action has been moved from state court to federal court. The plaintiff alleges, among other things, that the CENTURY 21 Home Improvements name is an infringement of the plaintiff's trade name and registered mark and constitutes an unfair business practice. The plaintiff seeks a preliminary and permanent injunction enjoining AMRE from operating under the CENTURY 21 Home Improvements name in California, general damages according to proof, all profits realized by AMRE from operating under the CENTURY 21 Home Improvements name in California and costs and attorneys' fees. AMRE has been advised by Century 21 Real Estate Corporation that it gave notice to counsel for the owner of the "21st Century Home Improvement" mark that the latter mark infringed on Century 21 Real Estate Corporation's federally registered mark. AMRE has further been advised by Century 21 Real Estate Corporation that: (i) it is its policy and practice to vigorously defend its trade name, (ii) Century 21 Real Estate Corporation has successfully litigated in the past to protect its trade name and federally registered mark, and (iii) it has obtained a number of judgments against such entities which had used "21st CENTURY" or marks containing the word "CENTURY" in connection with remodeling or home construction services. In addition, Century 21 Real Estate Corporation has advised AMRE that Century 21 Real Estate Corporation's federal trademark registration predates the use of the "21st 6 9 Century Home Improvement" mark, and for the above-listed reasons, AMRE believes at this time that it is legally entitled to use the CENTURY 21 Home Improvements mark in California. The Company is a party to certain other legal proceedings arising in the ordinary course of business, none of which is believed to be material to the financial position of the Company. Credit Agreement - AMRE has an agreement with a financial institution which makes financing available to its customers. The agreement provides the financial institution with a right of first refusal on substantially all of AMRE's customer credit applications and provides AMRE with a minimum acceptance rate of customer credit applications based on specified criteria. AMRE's risk under the agreement is limited to its normal warranties and representations regarding materials and workmanship. AMRE has experienced lower customer credit ratings during 1996 which, during the first four months of the year, resulted in higher sales credit rejects than in prior years and lower net sales closing rates. On May 8, 1996, the agreement was amended to provide for (i) an increased minimum acceptance rate regardless of the specified credit criteria and (ii) a fee to be paid by AMRE on every customer loan provided by the financial institution. The fee amount, which was set initially at 5.45 percent of the loan amount, is tied to the specified credit criteria and is subject to adjustment every six months. AMRE estimates that approximately 75 to 80 percent of its contract revenues are financed under this agreement. While the amendment is designed to provide increased revenue dollars, net of the fee, and therefore increased profitability, there can be no assurance that revenues will increase. Prior to 1995, the Company assumed some recourse liability, or credit risk in certain customer financing agreements, if customer defaults exceed specified levels. The Company has provided a reserve for estimated losses under the recourse liability. However, customer defaults may differ from the estimated amount and therefore the reserve may be adjusted in future periods. NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION The Company recorded non-cash items as follows:
NINE-MONTH PERIODS ENDED ------------------------------------- SEPTEMBER 29, OCTOBER 1, 1996 1995 --------------- ------------- Amortization of investment premium and discounts . . . $ 44 $ 159 Compensation expense for ESOP shares released . . . . . 256 402 Leaseholds and other assets written off . . . . . . . . 990 -- Other . . . . . . . . . . . . . . . . . . . . . . . . . 45 (11) --------------- ------------- $ 1,335 $ 550 =============== =============
7 10 NOTE 4 - NON-RECURRING CHARGES AND PROVISION FOR PLANT CLOSING AMRE incurred a non-recurring charge to operations of approximately $2.5 million during the first quarter of 1996 to reflect costs associated with the mergers, and the integration of Facelifters and Congressional. This estimate is subject to change based upon additional information. In the third quarter of 1995, Facelifters decided to consolidate all manufacturing at one facility and accordingly recorded a provision for plant closing of $1,065,000. NOTE 5 - INCOME TAXES The Company has recorded a valuation allowance to reflect the uncertainties associated with the ultimate realization of its deferred tax asset. Management periodically reviews the expected realization of the deferred tax asset and makes adjustments to the valuation allowance, as appropriate, when existing conditions change the probability of ultimate realization. The Company established a valuation allowance of $6.4 million at December 31, 1995 which equaled 100% of its deferred tax asset. Management's evaluation as to the realizability of the deferred tax asset took into consideration available evidence, both positive and negative, regarding ultimate realization. Negative evidence considered by management included (1) a significant loss in 1995, (2) operating losses in two of the last three years, (3) the expected decline in revenues in 1996, (4) the uncertainties associated with the time and cost to build awareness of the CENTURY 21 Home Improvements name and generate significant amounts of cost-effective leads and the process of integrating the companies when the mergers were consummated made it difficult to estimate when the Company would return to profitability and (5) costs relating to the brand transition and the mergers. Positive evidence considered by management included (1) a 3.0% license fee (subject to an $11.0 million minimum relating to 1996) to be paid for use of the CENTURY 21 Home Improvements name as compared to a 12.0% license fee paid to Sears in 1995 and (2) expanded geographic and product opportunities under the Century 21 License Agreement. Until the Century 21 License Agreement is in operation for a period of time, there is insufficient historical or objective evidence to determine its impact on future taxable income. Therefore, based on the lack of existing objective evidence, management believes it is more likely than not that the Company will be unable to generate sufficient taxable income to utilize the deferred tax asset and that a reserve should be provided for the entire deferred tax asset. No tax benefit has been provided for the pre-tax loss of the current period ended September 29, 1996. Management will review the valuation allowance in the future as the results and impact of the CENTURY 21 Home Improvements license arrangement are known. NOTE 6 - CAPITALIZATION Revolving credit facility - At September 29, 1996, no loans had been made under the credit facility. Long-term debt and capital lease obligations - The balance of the ESOP loan at September 29, 1996 was approximately $5,064,000, of which $799,000 was classified as current in the accompanying balance sheet. The Company will terminate the ESOP as soon as practicable and is cooperating with the ESOP Trustee to determine the most appropriate means to accomplish the termination. The ESOP owns 599,998 shares of AMRE common stock, of which 434,515 shares have not been allocated to participants' accounts. Upon termination of the ESOP, the unallocated shares will be sold and the proceeds applied to the balance of the ESOP loan. Any excess of such proceeds after repayment of the ESOP loan would be for the account of the participants. Any shortfall between the proceeds and the ESOP loan balance would be provided by the Company. The lender has requested that a restricted cash collateral account be funded with an amount equal to 100% of the unpaid balance of the ESOP loan. The 8 11 Company funded the cash collateral account with an amount equal to approximately $2,227,000 on October 17, 1996 and will fund the remaining balance of approximately $2,837,000, less monthly principal payments, in November, 1996. Senior Convertible Redeemable Preferred Stock - At September 29, 1996, $181,000 of dividends have been accrued on the Senior Convertible Redeemable Preferred Stock. Amendment to Certificate of Incorporation - In connection with the Facelifters merger, on April 25, 1996, the stockholders of the Company approved an amendment to the Certificate of Incorporation to increase the number of authorized shares of common stock of the Company from 20 million to 40 million shares. Common Stock Issued - On April 30, 1996, the Company completed a private placement with institutional investors pursuant to which the Company issued 800,500 shares of its common stock. The purchasers had not previously owned any common stock of the Company. The common stock was sold at a discount to the then current market price in exchange for an agreement with the investors not to sell the shares for a minimum of 180 days. The Company received approximately $12 million of net proceeds after transaction expenses. On September 13, 1996, the Company completed a public offering of 1,621,250 shares of its common stock. Of the shares sold in the offering, 1,100,000 shares were newly issued shares sold on behalf of the Company and 521,250 shares were sold for the accounts of two former executives of Facelifters. The Company received approximately $17 million net of offering expenses, from the sales of the shares offered by Company, which will be used for working capital and general corporate purposes. NOTE 7 - MERGERS WITH FACELIFTERS AND CONGRESSIONAL On October 31, 1995, the Company and Facelifters entered into an agreement whereby a newly formed subsidiary of the Company would be merged with and into Facelifters. Facelifters designs, manufactures, markets, sells and installs kitchen cabinet refacing products utilized in kitchen remodeling, directly to consumers in 23 markets, primarily markets in which the Company did not operate. On April 25, 1996, the stockholders of the Company and Facelifters approved the merger ("Facelifters Merger") and Facelifters became a direct, wholly-owned subsidiary of AMRE. Each outstanding share of common stock of Facelifters, $.01 par value per share (the "Facelifters Common Stock"), was converted into one share of AMRE Common Stock. Based on the number of shares of Facelifters Common Stock outstanding upon consummation of the Facelifters Merger, approximately 3,578,439 shares of AMRE Common Stock were issued to holders of Facelifters Common Stock. In addition, AMRE reserved approximately 368,255 shares of AMRE Common Stock for issuance upon the exercise of outstanding options to acquire Facelifters Common Stock. On December 30, 1995, the Company and Congressional entered into an agreement whereby a newly formed subsidiary of the Company would be merged with and into Congressional. Congressional markets, sells, furnishes and installs home improvement products, including siding, fencing, wooden decks, replacement vinyl windows, roofing and patio enclosures directly to consumers in certain markets, primarily markets in which the Company does not currently operate. In connection with the merger, which was consummated on May 28, 1996, 899,998 shares of AMRE Common Stock were issued to the existing stockholders of Congressional. 9 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is engaged through direct consumer marketing, in the in-home sale and installation of siding and related exterior home improvement products, kitchen cabinet refacing and custom countertops, replacement windows, and in certain of its territories, exterior coating, wooden decks, fencing, roofing and patio enclosures. The business of the Company is characterized by the need to continuously generate prospective customer leads, and in this respect, marketing and selling expenses constitute a substantial portion of the overall expense of the Company. To assist in understanding the Company's operating results, the following table indicates the percentage relationship of various income and expense items included in the Statement of Operations for the three-month and nine- month periods ended September 29, 1996 and October 1, 1995.
PERCENTAGE OF CONTRACT REVENUES ---------------------------------------------------------------- THREE-MONTH PERIODS ENDED NINE-MONTH PERIODS ENDED -------------------------- ---------------------------- SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1, 1996 1995 1996 1995 ---------- --------- -------- -------- Contract revenues . . . . . . . . . . . 100.0 % 100.0% 100.0 % 100.0 % Contract costs . . . . . . . . . . . . 33.8 32.8 35.7 33.4 ---------- --------- -------- -------- Gross profit . . . . . . . . . . . . . 66.2 67.2 64.3 66.6 ---------- --------- -------- -------- Branch operating expenses . . . . . . . 9.2 6.4 9.7 6.8 Marketing expenses . . . . . . . . . . 33.9 23.6 36.0 25.5 Selling expenses . . . . . . . . . . . 19.9 16.4 20.7 17.6 License and finance fees . . . . . . . 9.3 11.9 7.9 11.9 General and administrative expenses . . 10.6 6.8 11.4 7.7 Non-recurring and plant closing charges -- 1.1 1.3 .4 ---------- --------- -------- -------- Income (loss) from operations . . . . . (16.7) 1.0 (22.7) (3.3) Other income and (expense), net . . . . -- .7 .3 .5 ---------- --------- -------- -------- Income (loss) before income taxes . . . (16.7) 1.7 (22.4) (2.8) Income taxes . . . . . . . . . . . . . -- .6 .1 (.8) ---------- --------- -------- -------- Net income (loss) . . . . . . . . . . . (16.7)% 1.1% (22.5)% (2.0)% ========== ========= ======== ========
10 13 RESULTS OF OPERATIONS NINE-MONTH PERIOD ENDED SEPTEMBER 29, 1996 COMPARED WITH THE NINE-MONTH PERIOD ENDED OCTOBER 1, 1995 On October 17, 1995, the Company, TM Acquisition Corporation and Century 21 Real Estate Corporation, subsidiaries of HFS Incorporated, entered into an agreement, effective January 1, 1996, pursuant to which the Company was granted an exclusive 20-year license to operate under the name CENTURY 21 Home Improvements in the marketing, sale, and installation of certain home improvement products in the United States, Canada, and Mexico. The Company also has the right to grant sublicenses under the agreement. The Company did not renew its license agreement with Sears, Roebuck and Co. ("Sears") when it expired on December 31, 1995. By switching from the Sears to the CENTURY 21 Home Improvements name, AMRE implemented a strategic decision to alter significantly the marketing and distribution focus of its existing home improvements operations as well as to expand into new product lines and geographical territories. The Company realized that the Sears brand name is widely accepted in the home improvement industry and has significant brand name appeal to a wide variety of customers. However, the Company believes that, over the long term, the CENTURY 21 Home Improvements name provides the Company with a better opportunity for growth and profitability, including access to additional geographic markets, a larger array of licensed products, the ability to expand through sublicensing, a significantly lower royalty obligation and a 20-year term, facilitating long-term planning. AMRE's conversion to the CENTURY 21 Home Improvements brand is taking a longer period of time and requiring greater capital than initially anticipated, however, management is encouraged by customer receptivity of the brand as measured by the number of leads generated, and remains optimistic about the ultimate prospects of both the Company's core product operations as well as the Company's franchise opportunities. As discussed below, the Company is addressing a number of challenges as it simultaneously continues to develop the CENTURY 21 Home Improvements name, adapts to a new marketing model involving new marketing media and customer demographics and begins franchising the name into new product lines. These challenges include, but are not limited to, building consumer awareness of the brand, developing cost-effective sources of sales leads, integrating the operations of Facelifters and Congressional and maintaining liquidity throughout the transition. Although management remains confident that AMRE's long-term business strategy is sound, it is not possible to estimate when the Company will return to profitability in light of the transitional challenges and uncertainties which lie ahead. As discussed below under "Liquidity," the Company will require outside sources of capital to fund its working capital requirements during 1997. AMRE now conducts its advertising using the CENTURY 21 Home Improvements name. There is no way to estimate the time required to build brand awareness of the CENTURY 21 Home Improvement name. Although the CENTURY 21 Home Improvements name was not used in the home improvement industry before 1996, at which time AMRE began using the name, AMRE's management continues to believe such brand name should also be well recognized; however, there can be no assurance that revenues under the CENTURY 21 Home Improvements name will be similar to or greater than those under the Sears brand name. If the CENTURY 21 Home Improvements name does not result in advertising response rates and sales rates equal to or better than those experienced under the Sears brand name, it will likely have an adverse effect on the business, operating results and financial condition of AMRE. Leads on potential customers are critically important to AMRE's business. Under the Sears brand name, AMRE generated approximately 20% of its leads through AMRE-staffed kiosks located inside of Sears stores and 80% of its leads through television, radio, direct mail, telemarketing and alternative media sources. AMRE's transition strategy was to replace its prior Sears in-store lead source with a multi-faceted field marketing program consisting of free standing kiosks located in malls across the country, increased AMRE presence in home shows and a cooperative referral program with the CENTURY 21 real estate broker network. AMRE opened more than 200 11 14 kiosks during the first nine months of 1996, and during the third quarter was generating approximately 20% of its appointments from its kiosks, although the appointments are not yet as cost-effective as those previously obtained under the Sears in-store program. In addition to the mall kiosks, in July 1996, the Company announced an agreement with Montgomery Ward & Co., Inc. to operate branded kiosks in certain Montgomery Ward stores and to market its products and services to all Montgomery Ward charge card holders and other Montgomery Ward mailing and marketing lists. As of September 29, 1996, the Company operated kiosks in 40 Montgomery Ward stores. AMRE's marketing strategy also included substantially increasing its reliance on telemarketing as a lead source and AMRE opened two outbound telemarketing centers during the brand transition in order to accomplish this objective. While management continues to be optimistic about the ultimate prospects for AMRE's new marketing strategy, there can be no assurances that AMRE's new lead sources will produce a quantity and quality of leads comparable to that produced under the Sears name at an equivalent per-lead cost, and the failure to obtain a sufficient number of quality, cost- effective leads could have a material adverse impact on AMRE's business, operating results and financial condition. Among the challenges in switching from the Sears to the CENTURY 21 Home Improvements name, the Company was required to deliver to Sears in January 1996, all of the leads it generated under the Sears name through December 31, 1995. Thus, in January 1996, the Company had to quickly generate as many leads as possible and had to do so without in- store leads, a major 1995 lead source. Since the new outbound telemarketing centers, the in-mall kiosk program and the CENTURY 21 lead referral program were not anticipated to produce any significant amount of cost-effective leads for several months, lead generation in early 1996 emphasized quick response media, such as television and radio, as well as telemarketing leads purchased from a third party vendor, which increased lead generation costs and resulted in fewer leads at higher costs. Furthermore, the significant increase in the mix of telemarketing leads and new lead generation programs, and an inability to achieve adequate sales staffing levels, all reduced the number of appointments during the first nine months as compared to the prior year period. In addition to the above factors, the Company experienced a decline in the sales dollars generated per appointment during the first nine months resulting from lower sales closing rates coupled with selling price discounting in connection with launching the CENTURY 21 Home Improvements brand name. The lower number of appointments and lower sales dollars generated per appointment resulted in a 30% decline in the dollar amount of sales orders as compared to the prior year period and consequently contract revenues declined from $261,931,000 to $186,496,000 in the current year. Production backlog was approximately $29 million at September 29, 1996, approximately 26% below the same period last year. Gross profit as a percentage of contract revenues declined from 66.6% in the prior year period to 64.3% in the current year. The Company discounted its selling prices heavily in launching the CENTURY 21 Home Improvements brand name throughout most of the current year period, as it had also discounted prices on jobs sold in late 1995 but installed in 1996 under the Sears name in order to maximize the revenue generated from the remaining available Sears leads. Branch operating expenses increased from 6.8% of contract revenues in the prior year period to 9.7% in 1996. Branch operating expenses are primarily fixed costs, and as such, increased in percentage terms largely due to lower contract revenues. Branch operating expenses increased in dollar terms approximately $314,000 from the prior year period largely due to increased staffing. 12 15 Marketing expense increased from $66,730,000 or 25.5% of contract revenues to $67,217,000 or 36.0% of contract revenues. The increase in marketing expenses principally reflects the transition to the CENTURY 21 Home Improvements brand name during which the Company has experienced a decline in the sales dollars generated per appointment as well as a higher marketing cost per appointment. As discussed above, the Company initially concentrated its advertising efforts in quick response media, such as television and radio, as well as telemarketing leads purchased from a third party vendor, all of which are higher cost media as compared to the Company's other lead generation sources. Additionally, the in-mall kiosk programs, the two telemarketing call centers, and the CENTURY 21 real estate broker referral program increased marketing expenditures but were not expected to generate either a significant quantity of, or cost-effective leads during the period. In the Company's normal operating cycle, advertising expenses can precede the securing of sales orders by up to two months, and precede completion of installations by up to four months, depending upon the responsiveness of the advertising media selected and the production cycle time of the product. This also contributes to a higher level of marketing expense as a percent of contract revenues when the production backlog increases. Selling expenses increased to 20.7% of contract revenues as compared to 17.6% in the prior year period. Sales compensation, excluding management salaries, was approximately 11.8% in both periods. Other selling expenses, which include sales manager salaries, and training, insurance costs, recruiting and travel, all of which are primarily fixed expenses in nature, increased in percentage terms due to the decline in contract revenues from the prior year period. License and finance fees decreased to 7.9% of contract revenues as compared to 11.9% in the same period last year. The decrease in percentage terms reflects the lower license fee rate under the Century 21 License Agreement partially offset by financing fees under the Company's new customer financing credit agreement. In addition, a portion of the contracts installed in the current year period were sold late in 1995 under the Sears License Agreement which had a 12% license fee. General and administrative expenses increased from 7.7% of contract revenues in the prior year to 11.4% in the current year. In 1996, the Company incurred increases in bad debt and legal expenses as compared to the prior year and therefore, in the aggregate, the dollar amount of general and administrative expenses increased a net $972,000 from the prior year period. The Company had recorded a 100% valuation allowance at December 31, 1995 to reflect the uncertainties associated with the ultimate realization of its deferred tax asset. Management periodically reviews the expected realization of the deferred tax asset and makes adjustments to the valuation allowance, as appropriate, when existing conditions change the probability of ultimate realization. Until the Century 21 License Agreement is in operation for a period of time, there is insufficient historical or objective evidence to determine its impact on future taxable income. Therefore, based on the lack of existing objective evidence, management believes it is more likely than not that the Company will be unable to generate sufficient taxable income to utilize the deferred tax asset. No tax benefit has been provided for the pre-tax loss of the current period ended September 29, 1996. THREE-MONTH PERIOD ENDED SEPTEMBER 29, 1996 COMPARED WITH THE THREE-MONTH PERIOD ENDED OCTOBER 1, 1995 Overall for the third quarter, the Company's performance failed to meet management's expectations and plans. The planned increases in operating efficiencies as compared to the second quarter of the year did not occur in the third quarter, as the Company experienced a weak sales trend due to lower-than-expected sales closing rates. The decrease in sales closing rates was attributable to the hiring of a large number of new, inexperienced sales personnel during the quarter. Weak sales were compounded by the Company's increased dependence on telemarketing leads during the quarter, which generally require a higher level of sales skills to close. The lack of adequate sales staffing combined with the lower sales dollars generated per appointment resulted in lower than planned contract revenues for the quarter and a lower than planned production backlog entering the fourth quarter. 13 16 The dollar amount of sales orders in the third quarter declined approximately 26% from the prior year period due to fewer appointments because of inadequate sales staffing levels, and lower sales dollars generated per appointment resulting from selling price discounting as well as lower sales closing rates. As a result of the lower amount of sales orders, contract revenues declined from $96,891,000 in the prior year period to $65,020,000 in the current year period. The operating loss was $10,861,000 as compared to operating income of $966,000 in the prior year period. Gross profit as a percentage of contract revenues declined from 67.2% in the prior year period to 66.2% in the current year. Contract installations during the period included sales orders received in the prior quarter in which the Company had discounted its selling prices in launching the CENTURY 21 Home Improvements brand name. Early in the third quarter, the Company selectively increased prices in certain markets and modified its sales compensation program in order to discourage excessive sales price discounting. Consequently, while margins declined from the prior year period, margins improved over the second quarter of 1996. Branch operating expenses increased from 6.4% of contract revenues in the prior year period to 9.2% in 1996. Branch operating expenses are primarily fixed costs, and as such, increased in percentage terms largely due to lower contract revenues. The Company generated 9% fewer appointments than in the prior year period and spent 4% less in dollar terms. However, because of the lower sales dollars generated per appointment, marketing expense increased from 23.6% of contract revenues to 33.9% of contract revenues. The Company's marketing programs consist primarily of costs which are relatively fixed in nature. The Company attempted to reduce marketing spending as the sales shortfall became apparent, however, only a small portion of field marketing, telemarketing, appointment scheduling or committed media spending is variable. Additionally, the Company was testing and will continue to test a number of new marketing programs for 1997. In the fourth quarter, the Company plans to produce several new television commercials for use in the 1997 advertising campaign as well as run a significant year-end sales promotion in its kiosks and telemarketing programs. AMRE has historically reduced media spending during the holiday season in the fourth quarter and seen a corresponding substantial fall-off in sales staffing. The plan for the fourth quarter of 1996 is to continue to generate leads for the sales organization throughout the holiday season in an effort to retain more of the sales force for 1997. Selling expenses increased to 19.9% of contract revenues as compared to 16.4% in the prior year period. Sales compensation as a percent of contract revenues, excluding management salaries, increased from 11.4% to 11.8% of contract revenues reflecting modifications of the sales compensation plan during the period. Other selling expenses, which include sales manager salaries, and training, insurance costs, recruiting and travel, all of which are primarily fixed expenses in nature, increased in percentage terms largely due to lower contract revenues. License and finance fees decreased to 9.3% of contract revenues as compared to 11.9% in the same period last year. The decrease in percentage terms reflects the lower license fee rate under the Century 21 License Agreement partially offset by financing fees under the Company's new customer financing agreement. General and administrative expenses increased from 6.8% of contract revenues in the prior year to 10.6% in the current year. The increase in percentage terms principally reflects the lower contract revenues in the period. General and administration expenses increased in dollar terms largely resulting from higher legal and bad debt expenses. LIQUIDITY AND CAPITAL RESOURCES Prior to 1996, the Company financed substantially all its liquidity needs with internally generated funds. Due to the magnitude of the operating loss resulting from the transition to the CENTURY 21 Home Improvements name for the first nine months of 1996, the Company has had to resort to outside sources of funds to meet its liquidity 14 17 needs. Net cash used in operations during the nine-month period ended September 29, 1996 was $26,180,000 principally due to the operating loss. Capital expenditures totaled $2,391,000 and consisted primarily of in-mall kiosk units. The Company received proceeds of approximately $33,307,000 from the issuance of common stock, including the exercise of stock options and the sale of 1,938,500 common shares. In addition, in connection with the Montgomery Ward agreement discussed above, the Company received, on August 2, 1996, approximately $900,000 from the sale of 50,000 shares of AMRE Common Stock and a Warrant to acquire up to 150,000 additional shares of AMRE Common Stock at an agreed price of $18 per share (the closing price of AMRE Common Stock on the New York Stock Exchange on July 17, 1996). In the aggregate, cash and marketable securities totaled approximately $27,581,000 at September 29, 1996. The Company had negative working capital at September 29, 1996 and, under the terms of its license agreement with HFS, made its initial cash payment of license fees of approximately $1,400,000 during the fourth quarter and is required to pay the balance of the $11,000,000 minimum fee no later than January 31, 1997. In addition, as discussed in Note 6 of the Notes to Consolidated Financial Statements, the Company will fund a restricted cash collateral account related to the ESOP loan in the amount of approximately $5,000,000 during the fourth quarter. Based on the lower than expected level of installable backlog carried into the fourth quarter and continued high marketing expense, the Company expects to incur a substantial operating loss during the fourth quarter. In addition, given the historical trend toward lower sales and installations in the weather-affected first quarter, the Company would expect to incur a significant operating loss in the first quarter of 1997, although management anticipates the magnitude of the operating loss would be substantially less than the operating loss incurred in the first quarter of 1996. As a result, the Company expects to utilize significant amounts of cash during the remainder of 1996 and 1997 to fund such anticipated losses, and therefore the Company anticipates the need for substantial additional working capital no later than the first quarter of 1997. As noted above, the execution of the Company's conversion to the CENTURY 21 Home Improvements brand and launch of its franchise system have taken longer and required greater capital than initially anticipated. In order to return to profitability, the Company must improve its sales performance (in terms of sales dollars generated per appointment), further lower its marketing cost per appointment and expand its franchising system. Consequently, it is not possible to estimate the timing of the Company's return to profitability. In order to meet the Company's increased working capital needs, management has engaged Bear Stearns & Co., Inc. to serve as financial advisor with respect to an anticipated financing transaction by the Company, involving either debt or equity, which would be intended to provide the Company with sufficient cash to meet the Company's anticipated working capital needs. In this regard, the Company is currently engaged in discussions relating to possible financing strategies with several groups, including HFS Incorporated, and the Company anticipates finalizing plans for raising additional capital in the fourth quarter. Notwithstanding these discussions, no assurance can be given that the Company will successfully complete any financing transaction or otherwise maintain adequate liquidity, and any such failure would have a material adverse effect on the Company's overall financial condition and would severely constrain the Company's ability to operate its business as currently conducted. In addition to its proposed capital raising efforts, management is also reviewing operational options for addressing the Company's working capital situation. These options include, among other things, accelerating the expansion of its franchise operations, aggressively divesting or closing certain marginal sales offices and further reducing overhead. In this regard, the Company is evaluating the cash flow and profit impact of such options. If these options are implemented before the end of 1996, it will result in a one-time charge in the fourth quarter. Since the decisions on cost reduction options have not been finalized, it is difficult to estimate the amount of the related one-time charge, however, it is expected to be in the range of $4,000,000 to $6,000,000. Management believes that this combination of aggressive cost reduction, focus on franchising and contemplated infusion of additional capital will enhance the Company's ability to complete the successful implementation of its business plan. 15 18 SEASONALITY Generally, because of the holiday season and weather conditions, the Company's revenues and net income decline during the cold weather months (especially in the first quarter). The following table sets forth the Company's unaudited quarterly financial information:
QUARTER ENDED ----------------------------------------------------------------- APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31, --------- --------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1995 Contract revenues . . . . . . . . . . . . . . $ 74,831 $ 90,209 $ 96,891 $ 77,976 Gross profit . . . . . . . . . . . . . . . . 48,764 60,511 65,066 50,255 Nonrecurring charges . . . . . . . . . . . . -- -- -- 11,800 Operating income (loss) . . . . . . . . . . . (7,067) (2,602) 966 (18,260) Net income (loss) . . . . . . . . . . . . . . (4,515) $ (1,837) $ 1,110 $ (18,620) Net income (loss) per share . . . . . . . . . $ (.26) $ (.11) $ .07 $ (1.07)
MARCH 31, JUNE 30, SEPTEMBER 29, --------- --------- ------------- YEAR ENDED DECEMBER 31, 1996 Contract revenues . . . . . . . . . . . . . . $ 58,601 $ 62,875 $ 65,020 Gross profit . . . . . . . . . . . . . . . . 37,216 39,644 43,059 Nonrecurring charges . . . . . . . . . . . . 2,500 -- -- Operating loss . . . . . . . . . . . . . . . (19,015) (12,437) (10,861) Net loss . . . . . . . . . . . . . . . . . . $ (18,942) $ (12,094) $ (10,875) Net loss per share . . . . . . . . . . . . . $ (1.05) $ (.63) $ (.55)
16 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to Note 2 of Notes to Consolidated Financial Statements herein for a discussion of legal proceedings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: NUMBER AND DESCRIPTION OF EXHIBIT 10.1 Amendment No. 5 to the AMRE, Inc. Savings Investment Plan, effective January 1, 1996. 11. Calculations of weighted average common shares outstanding for the three-month and nine-month periods ended September 29, 1996 and October 1, 1995. 27. Financial Data Schedule. __________________________ (B) REPORTS ON FORM 8-K: There were no current reports on Form 8-K filed by the Company during the quarter ended September 29, 1996. 17 20 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. AMRE, Inc. DATE: November 13, 1996 /s/ John S. Vanecko ---------------------------------- John S. Vanecko Vice President and Chief Financial Officer (Principal financial officer and duly authorized officer of registrant) 18 21 EXHIBIT INDEX EXHIBIT NUMBER NUMBER AND DESCRIPTION OF EXHIBIT - ------- --------------------------------- 10.1 - Amendment No. 5 to the AMRE, Inc. Savings Investment Plan, effective January 1, 1996. 11 - Calculations of weighted average common shares outstanding for the three-month and nine-month periods ended September 29, 1996 and October 1, 1995. 27 - Financial Data Schedule. EX-10.1 2 AMENDMENT NO. 5 TO AMRE SAVINGS INVESTMENT PLAN 1 EXHIBIT 10.1 AMENDMENT NO. 5 TO THE AMRE, INC. SAVINGS INVESTMENT PLAN WHEREAS, AMRE, Inc., a Delaware corporation (the "Company"), has heretofore adopted The AMRE, Inc. Savings Investment Plan (the "Plan"); and WHEREAS, pursuant to those provisions of the Plan permitting the Company to amend the Plan from time to time, the Company desires to amend the Plan in certain respects as hereinafter provided; NOW, THEREFORE, the Company does hereby amend the Plan in the following particulars, effective January 1, 1996, except as otherwise provided herein: 1. SECTION 3.01 OF THE PLAN IS HEREBY AMENDED TO BE AND TO READ AS FOLLOWS: "3.01 Participation (a) In General -- Subject to the provisions of Section 3.03 hereof and except for any Employee (i) who is a member of a collective bargaining unit, the recognized representative of which has not agreed to Participation in the Plan by its members or (ii) except to the extent that paragraph (c) of this Section 3.01 is effective, who is a leased employee, an Employee shall become a Participant in this Plan as follows: (1) Any Employee as of the Effective Date who was included under the provisions of the Prior Plan shall continue to participate in accordance with the provisions of this Plan. (2) Any other Employee as of the Effective Date who has completed one (1) year of Service shall become a Participant on the Effective Date. (3) The Participation of any Employee who is eligible to become a Participant thereafter shall commence on the first day of the calendar quarter as of which he has completed one (1) year of Service. Any active Participant who, on or after the Effective Date, incurs a Severance from Service and who is subsequently re-employed by a Participating Employer shall, subject to the provisions of Section 3.03 hereof, immediately 2 re-enter the Plan as an active Participant on his Re-employment Commencement Date. An Employee who completes one (1) year of Service and, prior to Participation hereunder, incurs a Severance from Service shall, upon re-employment, be credited with such prior Service and be entitled to commence Participation on the first day of the next following calendar quarter, if he is employed on such date. For purposes of this Section 3.01, an Employee shall be credited with Service for periods of employment with an Affiliate (determined as if such Affiliate were an Employer), but, subject to the provisions of Section 3.03 hereof, shall not commence Participation hereunder prior to the date on which he commences employment with an Employer. (b) Special Rule re Predecessor Employers -- In the case of any Employee who became an Employee as a result of the acquisition by the Company of Facelifters Home Systems, Inc. (hereinafter "FI"): (1) if such Employee is employed by a Participating Employer immediately following the closing date of such acquisition; and (2) if such Employee was a participant under the Facelifters, Inc. 401(k) Plan; then such Employee shall become a participant in this Plan as of such closing date. Former employees of FI who do not satisfy the requirements of subparagraph (2) of this paragraph (b) shall be eligible to participate in the Plan as provided under paragraph (a), above. (c) Leased Employees -- Effective as of the date of approval of this paragraph (c) by the Internal Revenue Service, leased employees shall be eligible to participate in the Plan. For purposes of this paragraph (c), the term "leased employee" shall be defined as provided in Code Section 414(n)(2) and shall specifically include any "direct seller," as defined in Code Section 3508, who, (i) pursuant to such Section 3508, is not otherwise treated as an Employee, (ii) receives compensation from a Participating Employer and (iii) agrees in writing to participate in this Plan. Subject to the provisions of Code Section 401(a)(4), determinations of any such direct seller's Service shall include all periods, prior to the effective date of this paragraph (c), during which such direct seller received compensation from, for services rendered to, a Participating Employer. No such direct seller shall become a Participant hereunder earlier than the first day of the calendar quarter on, or immediately following, the effective date of this paragraph (c)." 2 3 2. SECTION 3.02 OF THE PLAN IS HEREBY AMENDED BY ADDING AT THE END THEREOF THE FOLLOWING NEW PARAGRAPH (d) TO BE AND TO READ AS FOLLOWS: "(d) Special Rule re Predecessor Employers -- In the case of any Employee who became an Employee as a result of the acquisition by the Company of FI, if such Employee is employed by a Participating Employer immediately following the closing date for such acquisition, all determinations of such Employee's Service shall include his period of employment with FI as though it were employment with a Participating Employer under this Plan." 3. THE FIRST PARAGRAPH OF SECTION 4.04 OF THE PLAN IS HEREBY AMENDED TO BE AND TO READ AS FOLLOWS: "With the approval of the Committee, any Employee who was a participant in another plan of deferred compensation which is qualified under Section 401(a) of the Code may contribute to this Plan a portion or all of the amount of any "qualifying rollover distribution" received by him from such other plan. In the event that any amount is so contributed prior to the time that such Employee becomes eligible to participate in the Plan, pursuant to Section 3.01 hereof, then, until such eligibility requirements have been satisfied, such Employee shall be treated as a Participant hereunder only to the extent of his interest in such contribution and for no other Plan purposes. Any amounts contributed to the Plan under this Section shall be held in a subaccount of the Participant's Employer Contribution Account. Such subaccount shall be 100% vested in the Participant, shall share in Income allocations in accordance with Section 5.02(a), but shall not share in Employer contribution or Forfeiture allocations. The total amount in such subaccount shall be distributed in accordance with Article VI. The term "qualifying rollover distribution" is herein defined as any amount which, pursuant to Section 402(c)(4) of the Code, may be transferred to this Plan and thereby not be includible in the gross income of the recipient for the taxable year in which paid." 4. THE SECTION 5.02(a) OF THE PLAN IS HEREBY AMENDED TO BE AND TO READ AS FOLLOWS: "(a) Income -- The Income of the Trust Fund for each calendar quarter shall be allocated in the following manner: (1) The Income (hereinafter, the "Fund Income") attributable to each investment fund (hereinafter, "Fund") established pursuant to Article VII hereof (including, as a separate investment fund, assets, if any, invested at the discretion of the Trustee) shall first be determined. 3 4 (2) Fund Income for such calendar quarter shall then be allocated to the accounts of Participants, Former Participants and Beneficiaries who had unpaid balances in their accounts invested in such Fund on the last day of such calendar quarter in proportion to the balances in such accounts invested in such Fund at the beginning of the calendar quarter increased by (i) one-half (1/2) of all Salary Reduction Contributions contributed to the Trust during such calendar quarter and invested in such Fund, and (ii) one-half (1/2) of all Matching Employer Contributions contributed to the Trust during such calendar quarter and invested in such Fund, plus (iii) a pro rata portion (based on actual days invested in such Fund) of all qualifying rollover distributions contributed to the Trust during such calendar quarter pursuant to Section 4.04 hereof and invested in such Fund, and decreased by all amounts withdrawn and distributed during such calendar quarter from such accounts but only to the extent theretofore invested in such Fund for such calendar quarter. If, upon a Participant's Severance from Service, a significant change (as determined by the Committee) in the value of the assets has occurred since the last Valuation Date, the Committee shall instruct the Trustee to determine the Income since the last Valuation Date, in which event the accounts of such Participant, if he incurs a Severance from Service prior to the next Valuation Date, shall be adjusted to reflect this determination. Each valuation shall be based on the fair market value of assets in the Trust Fund on the Valuation Date." IN WITNESS WHEREOF, the Company, AMRE, INC., has caused this Amendment No. 5 to be executed in its name and on its behalf on this 30th day of September, 1996, effective as of the dates set forth above. AMRE, INC. By: /s/ ROBERT M. SWARTZ --------------------------------- Name: Robert M. Swartz -------------------------------- Title: President & CEO ------------------------------- ATTEST: /s/ JOHN H. KARNES - ------------------------------ Corporate Secretary 4 5 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on the 30th day of September, 1996, by Robert M. Swartz, President & CEO of AMRE, Inc., a Delaware corporation, on behalf of said corporation. /s/ CAROLYN L. LOOS ------------------------------------- Notary Public in and for the State of Texas My Commission Expires: Printed Name of Notary: October 26, 1996 Carolyn L. Loos - ---------------------- -------------------------------------- 5 EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 AMRE, INC. COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING (IN THOUSANDS)
QUARTER ENDED ------------------------------------ SEPTEMBER 29, OCTOBER 1, 1996 1995 ------------- ---------- Common Stock outstanding . . . . . . . . . . . . 20,059 17,146 Common Stock equivalents . . . . . . . . . . . . -- -- --------- --------- Weighted average number of shares outstanding . . 20,059 17,146 ========= =========
NINE-MONTH PERIODS ENDED ----------------------------------- SEPTEMBER 29, OCTOBER 1, 1996 1995 ------------- ---------- Common Stock outstanding . . . . . . . . . . . . 19,128 17,128 Common Stock equivalents . . . . . . . . . . . . -- -- --------- --------- Weighted average number of shares outstanding . . 19,128 17,128 ========= =========
EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1996 SEP-29-1996 24,921 2,660 11,036 1,182 6,284 48,506 26,622 17,488 68,237 54,404 5,884 3,181 0 218 4,550 68,237 65,020 65,020 21,961 21,961 0 579 336 (10,875) 0 (10,875) 0 0 0 (10,875) (.55) (.55)
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