-----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, Q+UVBqZKMinDdEkD7jBcpqVJqCSjNwjZoxXtfvd0lMDMk3VfaMUH2KxQMWGgFgwk 8K3emCAnPm5uJPBTnmAn8g== 0000950152-99-004431.txt : 19990517 0000950152-99-004431.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950152-99-004431 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIY HOME WAREHOUSE INC CENTRAL INDEX KEY: 0000899595 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-LUMBER & OTHER BUILDING MATERIALS DEALERS [5211] IRS NUMBER: 382560752 STATE OF INCORPORATION: OH FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21768 FILM NUMBER: 99621753 BUSINESS ADDRESS: STREET 1: 5811 CANAL RD STE 180 CITY: VALLEY VIEW STATE: OH ZIP: 44125 BUSINESS PHONE: 2163285100 MAIL ADDRESS: STREET 1: 5811 CANAL ROAD STREET 2: SUITE 180 CITY: VALLEY VIEW STATE: OH ZIP: 44125 10-Q 1 D.I.Y. HOME WAREHOUSE 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 3, 1999 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 0-21768 D.I.Y. Home Warehouse, Inc. --------------------------- (Exact name of registrant as specified in its charter) State of Ohio 38-2560752 (State of Incorporation) (I.R.S. Employer I.D. No.) 5811 Canal Road Valley View, Ohio 44125 (216) 328-5100 (Address of principal executive offices and telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 3, 1999 - -------------------------- ---------------------------- Common Stock, no par value 7,276,059 2 DIY HOME WAREHOUSE, INC.
INDEX PAGE NO. ----- -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheet - April 3, 1999 and January 2, 1999.............................................. 3 Condensed Statement of Income - Three Months Ended April 3, 1999 and April 4, 1998............................. 4 Condensed Statement of Shareholders' Equity - Three Months Ended April 3, 1999...................................... 5 Condensed Statement of Cash Flows - Three Months Ended April 3, 1999 and April 4, 1998............................. 6 Notes to Condensed Financial Statements........................................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 8 - 11 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................................... 12 - 13
2 3 PART I - FINANCIAL INFORMATION DIY HOME WAREHOUSE, INC. CONDENSED BALANCE SHEET
April 3, 1999 January 2, 1999 ------------- --------------- Assets (Unaudited) Current assets: Cash and cash equivalents $ 514,731 $ 128,149 Refundable federal income taxes 706,545 706,545 Merchandise inventories 39,041,030 31,261,721 Deferred income taxes 1,542,590 1,542,590 Prepaid expenses and other assets 859,974 780,086 ------------ ------------ Total current assets 42,664,870 34,419,091 ------------ ------------ Property and equipment, at cost 53,903,946 53,750,759 Less accumulated depreciation and amortization 18,762,752 17,878,455 ------------ ------------ Property and equipment, net 35,141,194 35,872,304 Other assets 359,637 385,910 ------------ ------------ Total assets $ 78,165,701 $ 70,677,305 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Note payable, affiliate $ 300,000 $ 300,000 Current maturities of long-term debt 1,319,350 1,288,330 Accounts payable 13,119,357 8,462,635 Accrued expenses and other 4,129,541 5,527,386 ------------ ------------ Total current liabilities 18,868,248 15,578,351 ------------ ------------ Revolving credit 15,501,562 10,134,153 Long-term debt 4,002,962 4,438,867 Deferred income taxes 2,887,269 2,887,269 ------------ ------------ Total liabilities 41,260,041 33,038,640 Shareholders' equity: Preferred stock, authorized 1,000,000 shares, none issued -- -- Common stock, no par value, authorized 10,000,000 shares, 7,276,059 shares outstanding as of April 3, 1999 and January 2, 1999 22,955,462 22,955,462 Retained earnings 14,151,639 14,884,644 ------------ ------------ 37,107,101 37,840,106 Less common stock in treasury, at cost: 357,800 shares (201,441) (201,441) ------------ ------------ Total shareholders' equity 36,905,660 37,638,665 ------------ ------------ Total liabilities and shareholders' equity $ 78,165,701 $ 70,677,305 ============ ============
See accompanying notes to condensed financial statements. 3 4 DIY HOME WAREHOUSE, INC. CONDENSED STATEMENT OF INCOME (Unaudited)
For the three months ended April 3, 1999 April 4, 1998 ------------- ------------- Net sales $ 29,162,507 $ 37,412,172 Cost of sales 20,752,216 26,727,920 ------------ ------------ Gross profit 8,410,291 10,684,252 Store operating, general and administrative expenses 9,060,924 11,271,427 Store closing and development costs 259,656 205,773 ------------ ------------ Operating loss (910,289) (792,948) Other expense, net (332,080) (557,979) ------------ ------------ Loss before income taxes (1,242,369) (1,350,927) Income tax benefit (509,364) (553,882) ------------ ------------ Net loss $ (733,005) $ (797,045) ============ ============ Earnings (loss) per common share, basic and diluted $ (0.10) $ (0.10) ============ ============ Weighted average common shares outstanding 7,276,059 7,633,859 ============ ============
See accompanying notes to condensed financial statements. 4 5 DIY HOME WAREHOUSE, INC. CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED APRIL 3, 1999 (Unaudited)
Common Stock Retained Treasury Shareholders' Shares Amount Earnings Stock Equity ------ ------ -------- ----- ------ Balances, January 2, 1999 7,276,059 $22,955,462 $14,884,644 $(201,441) $37,638,665 Net loss (733,005) (733,005) --------- ----------- ----------- --------- ----------- Balances, April 3, 1999 7,276,059 $22,955,462 $14,151,639 $(201,441) $36,905,660 ========= =========== =========== ========== ===========
See accompanying notes to condensed financial statements. 5 6 DIY HOME WAREHOUSE, INC. CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
For the three months ended April 3, 1999 April 4, 1998 ------------- ------------- Cash flows from operating activities: Net loss $ (733,005) $ (797,045) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 884,297 953,741 Loss (gain) on sale of property and equipment -- 2,752 Changes in operating assets and liabilities: Refundable federal income taxes -- 365,963 Merchandise inventories (7,779,309) (3,882,301) Prepaid expenses and other assets (53,615) 48,232 Accounts payable 4,656,722 2,499,951 Accrued expenses and other current liabilities (1,397,845) (1,223,386) ----------- ----------- Net cash (used in) operating activities (4,422,755) (2,032,093) ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (153,187) (1,006,475) ----------- ----------- Net cash (used in) provided by investing activities (153,187) (1,006,475) ----------- ----------- Cash flows from financing activities: Principal payments under capital lease obligations (45,421) (43,699) Proceeds from revolving credit 5,367,409 3,625,000 Principal payments of long-term debt (359,464) (191,410) ----------- ----------- Net cash provided by financing activities 4,962,524 3,389,891 ----------- ----------- Net increase in cash and cash equivalents 386,712 351,323 Cash and cash equivalents, beginning of period 128,149 141,401 ----------- ----------- Cash and cash equivalents, end of period $ 514,731 $ 492,724 =========== ===========
See accompanying notes to condensed financial statements. 6 7 D.I.Y. HOME WAREHOUSE, INC. Notes to Condensed Financial Statements (Unaudited) 1. Basis of Presentation: In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of April 3, 1999 and the results of operations and cash flows for the three months ended April 3, 1999 and April 4, 1998 The condensed financial statements should be read in conjunction with the financial statements and notes contained in the Company's Annual Report filed on Form 10-K. The results of operations for any interim period should not necessarily be considered indicative of the results of operations for the full year. 2. Earnings Per Share: Earnings per share are computed using the weighted average number of shares of common stock outstanding for the periods. Basic and fully diluted earnings per common share are identical. COMPUTATION OF EARNINGS PER COMMON SHARE (BASIC AND DILUTED) (UNAUDITED)
Three Months Ended April 3, 1999 April 4, 1998 ----------- ----------- (Unaudited) Net loss applicable to common shares $ (733,005) $ (797,045) =========== =========== Weighted average common shares outstanding for the period 7,276,059 7,633,859 Dilutive effect of exercise of stock options -- -- ----------- ----------- Weighted average common shares, assuming issuance of the above securities 7,276,059 7,633,859 =========== =========== Earnings (loss) per common share: Basic $ (0.10) $ (0.10) Diluted $ (0.10) $ (0.10)
7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATIONS - Three Months Ended April 3, 1999 Compared to Three Months Ended April 4, 1998 Net sales for the quarter ended April 3, 1999 were $29,163,000 compared to $37,412,000 for the quarter ended April 4, 1998. Excluding the closing of the Company's two stores in the fourth quarter of 1998, comparable store sales for the quarter decreased $5,843,000 or 17.1% resulting from additional national warehouse competition in the Company's markets. Gross profit decreased by $2,274,000, or 21.3%, from $10,684,000 in the first quarter of fiscal 1998 to $8,410,000 in the first quarter of fiscal 1999. Gross profit, as a percentage of net sales, was 28.8% in the first quarter of fiscal 1999 compared to 28.6% in the first quarter of fiscal 1998. Store operating, general and administrative expenses decreased $2,210,000, or 19.6%, to $9,061,000 in the quarter ended April 3, 1999 from $11,271,000 in the quarter ended April 4, 1998. The decrease is due to the Company's ongoing efforts to reduce operating costs. As a percentage of net sales, these expenses increased slightly to 31.1% in the first quarter of fiscal 1999 compared to 30.1% in the comparable quarter of fiscal 1998 due to lower sales on which to leverage expenses. During the first quarter of fiscal 1999, the Company incurred approximately $260,000 in operating costs related to the two stores closed in the fourth quarter of fiscal 1998. During the first quarter of fiscal 1998, the Company incurred $206,000 in store development costs as part of completing new merchandising, marketing and other strategic initiatives implemented in fiscal year 1997. Other expense, net, was $332,000 for the quarter ended April 3, 1999 compared to $558,000 for the quarter ended April 4,1998. The net decrease is primarily due to a net reduction in interest expense of $182,000. LIQUIDITY AND CAPITAL RESOURCES During the three months ended April 3, 1999 and April 4, 1998, operating activities used net cash of approximately $4,423,000 and $2,032,000, respectively. The primary use of cash from operating activities for the three months ended April 3, 1999 and April 4, 1998 was $7,779,000 and $3,882,000 to fund seasonal increases in inventories offset by an increase in accounts payable of $4,657,000 and $2,500,000, respectively. The Company continues to focus on its balance sheet. Inventories were reduced by $4,998,000 in the first quarter of fiscal 1999 compared to the comparable quarter of fiscal 1998 primarily due to the closing of its two stores. 8 9 Net cash used in investing activities was $153,000 for the three months ended April 3, 1999 for the acquisition of computer hardware and software compared to $1,006,000 for the three months ended April 4, 1998 due to store development capital expenditures associated with the comprehensive renovation of certain store locations. Net cash provided by financing activities was $4,963,000 and $3,390,000 for the three months ended April 3, 1999 and April 4, 1998, respectively, reflecting net borrowings primarily under the revolving credit facility to fund seasonal increases in inventories. Total current and long-term debt was $21,124,000 at April 3, 1999 compared to $25,520,000 at April 4, 1998. Management believes cash on hand, cash from operations and cash available through the Company's financing agreements will be sufficient to meet short-term and long-term working capital requirements. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q may contain statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors. Accordingly, actual results may differ materially from those expressed in the forward-looking statements and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved. Important risk factors include, but are not limited to, the following: general economic conditions; consumer spending and debt levels; housing turnover; weather; impact on sales and margins from both existing and new competition; changes in operating expenses; changes in product mix; interest rates; changes in and the application of accounting policies and practices; adverse results in significant litigation matters; adverse state and federal regulations and legislation; the occurrence of extraordinary events including events and acts of nature or accidents; and the risks described from time to time in the Company's Securities and Exchange Commission filings. Competition The home improvement, hardware and garden businesses are all highly competitive. The Company competes against traditional hardware, plumbing, electrical and home supply retailers, as well as warehouse-format and discount retail stores and many of the Company's competitors have substantially greater resources than the Company. Builders Square and Lowe's Company have had stores in the Company's markets since 1985 and 1994, respectively. However, Builders Square announced in the first quarter of 1999 that it will exit the marketplace in Northeastern Ohio. Lowe's continued to expand with additional locations in 1996, 1997 and 1998. Beginning in the fourth quarter of 1997 and in 1998, Home Depot began operations in several of the Company's markets. Home Depot and Lowe's have announced further expansion plans in 1999 and 2000. In addition, there has been increasing consolidation within the home improvement 9 10 industry, which may provide certain entities increased competitive advantages. Specifically, increased competition including, but not limited to, additional competitors' store locations, price reductions, and advertising and marketing campaigns could have a material adverse effect on the Company's business, recoverability of asset values, financial condition and operating results. Year 2000 Issue BACKGROUND. Some computers, software, and other equipment include programming code in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or fail to produce correct results if "00" is interpreted to mean 1900, rather than 2000. These problems are widely expected to increase in frequency and severity as the year 2000 approaches, and are commonly referred to as the "Millennium Bug" or "Year 2000 Problem." ASSESSMENT. The Company has reviewed its internal computer programs and systems to ensure that the programs and systems will be Year 2000 compliant. The Company presently believes that its computer systems will be Year 2000 compliant in a timely manner. The Company has incurred approximately $300,000 and does not expect to incur additional material costs to complete these efforts. INTERNAL INFRASTRUCTURE. The Company believes that it has identified substantially all of the major computers, software applications, and related equipment used in connection with its internal operations that must be modified, upgraded, or replaced to minimize the possibility of a material disruption to its business. The Company has commenced the process of modifying, upgrading, and replacing those systems that have been identified as affected, and expects to complete this process by the middle of the third quarter of fiscal 1999. SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers and related systems, the operation of office and facilities equipment, such as fax machines, photocopiers, telephone switches, security systems, and other common devices may be affected by the Year 2000 Problem. The Company is currently assessing the potential effect of, and costs of remediating, the Year 2000 Problem on its office and facilities equipment. The Company does not expect to incur any material costs to complete these efforts. Such costs are included in the estimate discussed above under "Assessments." SUPPLIERS. The Company has initiated communications with third party suppliers of the major computers, software, and other equipment used, operated, or maintained by the Company to identify and, to the extent possible, to resolve issues involving the Year 2000 Problem. However, the Company has limited or no control over the actions of these third party suppliers. Thus, while the Company expects that it will be able to resolve any significant Year 2000 Problems with these systems, there can be no assurance that these suppliers will resolve any or all Year 2000 Problems with these systems before the occurrence of a material disruption to the business of the Company or any of its customers. Any failure of these third parties to resolve 10 11 Year 2000 problems with their systems in a timely manner could have a material adverse effect on the Company's business, financial condition, and results of operation. Based on the progress the Company has made in addressing its Year 2000 issues and the Company's plan and timeline to complete its compliance program, the Company does not foresee significant risks associated with its Year 2000 compliance at this time. As the Company's plan is to address its significant Year 2000 issues prior to being affected by them, it has not developed a comprehensive contingency plan. The Company expects to be complete its Year 2000 compliance testing by the middle of the Company's 1999 third quarter. At that time, the Company will assess the need for a contingency plans as deemed necessary. 11 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this Form 10-Q is shown on the "Exhibit Index" filed herewith. (b) Reports on Form 8-K: None Signature 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. D.I.Y. HOME WAREHOUSE, INC. (Registrant) DATED: May 13, 1999 ------------ By: Eric I. Glassman -------------------------------------- Vice President-Chief Financial Officer 12 13 EXHIBIT INDEX Exhibit Number Description of Exhibit - ------ ---------------------- 27 Financial Data Schedule: ------------------------ 27.1 Financial Data Schedule for the quarter ended April 3, 1999 13 EX-27 2 EXHIBIT 27
5 1,000 3-MOS JAN-01-2000 JAN-03-1999 APR-03-1999 515 0 0 0 39,041 42,665 53,904 18,763 78,166 18,868 19,505 0 0 22,754 14,152 78,166 29,163 29,163 20,752 9,321 (60) 0 392 (1,242) (509) (733) 0 0 0 (733) (0.10) (0.10)
-----END PRIVACY-ENHANCED MESSAGE-----