THE SECURITIES EXCHANGE ACT OF 1934
Delaware | 23-2874736 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
10590 Hamilton Avenue | ||
Cincinnati, Ohio | 45231 | |
(Address of principal executive offices) | (Zip Code) |
Title of Class | Name of Each Exchange on Which Registered | |
11.6% Junior Subordinated Debentures | None | |
Preferred Securities Guaranty | None |
Large accelerated filero Accelerated filero Non-accelerated filerþ
Page 1 of 44
PAGE(S) | ||||||
PART I. | FINANCIAL INFORMATION | |||||
Item 1. | Condensed Consolidated Financial Statements (Unaudited) | |||||
Condensed Consolidated Balance Sheets | 3-4 | |||||
Condensed Consolidated Statements of Operations | 5-6 | |||||
Condensed Consolidated Statements of Cash Flows | 7 | |||||
Condensed Consolidated Statement of Changes in Stockholders’ Equity | 8 | |||||
Notes to Condensed Consolidated Financial Statements | 9-26 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Conditions and Results of Operations | 27-38 | ||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 39 | ||||
Item 4. | Controls and Procedures | 39-41 | ||||
PART II. | OTHER INFORMATION | |||||
Item 1. | Legal Proceedings | 42 | ||||
Item 1A. | Risk Factors | 42 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42 | ||||
Item 3. | Defaults upon Senior Securities | 42 | ||||
Item 4. | Submission of Matters to a Vote of Security Holders | 42 | ||||
Item 5. | Other Information | 42 | ||||
Item 6. | Exhibits | 43 | ||||
SIGNATURES | 44 |
Page 2 of 44
September 30, | December 31, | |||||||
2005 | 2004 | |||||||
(as restated, | ||||||||
see Note 2) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 12,244 | $ | 29,613 | ||||
Restricted investments | 138 | 75 | ||||||
Accounts receivable, net | 53,295 | 37,370 | ||||||
Inventories, net | 81,059 | 65,835 | ||||||
Deferred income taxes, net | 8,347 | 6,712 | ||||||
Other current assets | 3,353 | 2,820 | ||||||
Total current assets | 158,436 | 142,425 | ||||||
Property and equipment, net | 60,930 | 61,111 | ||||||
Goodwill | 241,934 | 242,267 | ||||||
Other intangibles, net | 162,314 | 167,842 | ||||||
Restricted investments | 4,546 | 4,148 | ||||||
Deferred financing fees, net | 5,980 | 6,786 | ||||||
Investment in trust common securities | 3,261 | 3,261 | ||||||
Other assets | 660 | 1,059 | ||||||
Total assets | $ | 638,061 | $ | 628,899 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 19,567 | $ | 21,172 | ||||
Current portion of senior term loans | 2,175 | 2,175 | ||||||
Current portion of capitalized lease obligations | 44 | 43 | ||||||
Accrued expenses: | ||||||||
Salaries and wages | 4,976 | 4,299 | ||||||
Pricing allowances | 8,840 | 9,681 | ||||||
Income and other taxes | 2,020 | 1,520 | ||||||
Interest | 3,824 | 3,362 | ||||||
Deferred compensation | 138 | 75 | ||||||
Other accrued expenses | 11,235 | 12,407 | ||||||
Total current liabilities | 52,819 | 54,734 | ||||||
Long term senior term loans | 212,062 | 213,694 | ||||||
Long term capitalized lease obligations | 66 | 99 | ||||||
Long term unsecured subordinated notes | 48,911 | 48,090 | ||||||
Junior subordinated debentures | 117,394 | 117,690 | ||||||
Mandatorily redeemable preferred stock (Note 8) | 67,737 | 62,232 | ||||||
Management purchased options (Note 9) | 3,953 | 3,577 | ||||||
Deferred compensation | 4,546 | 4,148 | ||||||
Deferred income taxes, net | 38,817 | 33,221 | ||||||
Other non-current liabilities | 17,653 | 9,770 | ||||||
Total liabilities | 563,958 | 547,255 | ||||||
Page 3 of 44
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
September 30, | December 31, | |||||||
2005 | 2004 | |||||||
(as restated, | ||||||||
see Note 2) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (CONTINUED) | ||||||||
Common stock with put options: | ||||||||
Class A Common stock, $.01 par, 23,141 shares authorized, 407.6 issued and outstanding | 407 | 407 | ||||||
Class B Common stock, $.01 par, 2,500 shares authorized, 1,000 issued and outstanding | 1,426 | 1,000 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred Stock: | ||||||||
Class A Preferred stock, $.01 par, 238,889 shares authorized, 82,104.8 issued and outstanding | 1 | 1 | ||||||
Common Stock: | ||||||||
Class A Common stock, $.01 par, 23,141 shares authorized, 5,805.3 issued and outstanding | — | — | ||||||
Class C Common stock, $.01 par, 30,109 shares authorized, 2,787.1 issued and outstanding | — | — | ||||||
Additional paid-in capital | 72,415 | 80,330 | ||||||
Accumulated deficit | (144 | ) | — | |||||
Accumulated other comprehensive loss | (2 | ) | (94 | ) | ||||
Total stockholders’ equity | 72,270 | 80,237 | ||||||
Total liabilities and stockholders’ equity | $ | 638,061 | $ | 628,899 | ||||
Page 4 of 44
September 30, | ||||||||
2005 | 2004 | |||||||
(as restated, | ||||||||
see Note 2) | ||||||||
Net sales | $ | 102,593 | $ | 97,032 | ||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 48,118 | 43,744 | ||||||
Gross profit | 54,475 | 53,288 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative expenses | 35,282 | 33,836 | ||||||
Depreciation | 3,912 | 3,706 | ||||||
Amortization | 1,808 | 2,676 | ||||||
Management and transaction fees to related party | 255 | 291 | ||||||
Total operating expenses | 41,257 | 40,509 | ||||||
Other income, net | 222 | 531 | ||||||
Income from operations | 13,440 | 13,310 | ||||||
Interest expense, net | 5,457 | 4,464 | ||||||
Interest expense on mandatorily redeemable preferred stock and management purchased options | 2,035 | 1,826 | ||||||
Interest expense on junior subordinated debentures | 3,153 | 3,152 | ||||||
Investment income on trust common securities | (95 | ) | (94 | ) | ||||
Income before income taxes | 2,890 | 3,962 | ||||||
Income tax provision | 2,671 | 5,134 | ||||||
Net income (loss) | $ | 219 | $ | (1,172 | ) | |||
Page 5 of 44
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands)
Successor | Predecessor | ||||||||||||
Nine months | Six months | Three months | |||||||||||
ended | ended | ended | |||||||||||
September 30, | September 30, | March 31, | |||||||||||
2005 | 2004 | 2004 | |||||||||||
(As restated, | (As restated, | ||||||||||||
see Note 2) | see Note 2) | ||||||||||||
Net sales | $ | 293,127 | $ | 190,352 | $ | 78,190 | |||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 133,797 | 85,611 | 35,383 | ||||||||||
Gross profit | 159,330 | 104,741 | 42,807 | ||||||||||
Operating expenses: | |||||||||||||
Selling, general and administrative expenses | 106,401 | 66,623 | 30,996 | ||||||||||
Non-recurring expense (Note 11) | — | — | 30,707 | ||||||||||
Depreciation | 11,799 | 7,610 | 3,799 | ||||||||||
Amortization | 5,420 | 5,355 | 321 | ||||||||||
Management and transaction fees to related party | 788 | 547 | 524 | ||||||||||
Total operating expenses | 124,408 | 80,135 | 66,347 | ||||||||||
Other income (expense), net | 35 | 397 | (140 | ) | |||||||||
Income (loss) from operations | 34,957 | 25,003 | (23,680 | ) | |||||||||
Interest expense, net | 15,361 | 9,055 | 3,841 | ||||||||||
Interest expense on mandatorily redeemable preferred stock and management purchased options | 5,880 | 3,583 | — | ||||||||||
Interest expense on junior subordinated debentures | 9,458 | 6,305 | 3,152 | ||||||||||
Investment income on trust common securities | (284 | ) | (189 | ) | (94 | ) | |||||||
Income (loss) before income taxes | 4,542 | 6,249 | (30,579 | ) | |||||||||
Income tax provision (benefit) | 4,686 | 8,547 | (10,213 | ) | |||||||||
Net loss | $ | (144 | ) | $ | (2,298 | ) | $ | (20,366 | ) | ||||
Page 6 of 44
Successor | Predecessor | ||||||||||||
Nine months | Six months | Three months | |||||||||||
ended | ended | ended | |||||||||||
September 30, | September 30, | March 31, | |||||||||||
2005 | 2004 | 2004 | |||||||||||
(As restated, | (As restated, | ||||||||||||
see Note 2) | see Note 2) | ||||||||||||
Cash flows from operating activities: | |||||||||||||
Net loss | $ | (144 | ) | $ | (2,298 | ) | $ | (20,366 | ) | ||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||||||||
Depreciation and amortization | 17,219 | 12,965 | 4,120 | ||||||||||
Deferred income tax (benefit) | 3,807 | 8,078 | (11,608 | ) | |||||||||
Stock option grant | — | — | 24,353 | ||||||||||
PIK interest on unsecured subordinated notes | 821 | 315 | 506 | ||||||||||
Interest on mandatorily redeemable preferred stock and management purchased options | 5,880 | — | — | ||||||||||
Prepayment penalty | — | (1,097 | ) | — | |||||||||
Changes in operating items, net of effects of acquisitions: | |||||||||||||
Increase in accounts receivable, net | (15,925 | ) | (8,550 | ) | (4,599 | ) | |||||||
(Increase) decrease in inventories, net | (15,224 | ) | 800 | (1,121 | ) | ||||||||
(Increase) decrease in other assets | (134 | ) | 1,665 | 1,464 | |||||||||
(Decrease) increase in accounts payable | (1,605 | ) | (2,802 | ) | 6,613 | ||||||||
Increase (decrease) in other accrued liabilities | 305 | (4,148 | ) | 670 | |||||||||
Other items, net | 945 | 4,644 | 6 | ||||||||||
Net cash (used in) provided by operating activities | (4,055 | ) | 9,572 | 38 | |||||||||
Cash flows from investing activities: | |||||||||||||
Capital expenditures | (11,541 | ) | (5,510 | ) | (2,586 | ) | |||||||
Other, net | (109 | ) | 47 | (23 | ) | ||||||||
Net cash used in investing activities | (11,650 | ) | (5,463 | ) | (2,609 | ) | |||||||
Cash flows from financing activities: | |||||||||||||
Borrowings of senior term loans | — | 217,500 | — | ||||||||||
Repayments of senior term loans | (1,632 | ) | (61,646 | ) | — | ||||||||
Borrowings of revolving credit loans | — | 4,728 | 2,680 | ||||||||||
Repayments of revolving credit loans | — | (50,402 | ) | — | |||||||||
Borrowings of unsecured subordinated notes | — | 47,500 | — | ||||||||||
Repayments of unsecured subordinated notes | — | (44,569 | ) | — | |||||||||
Principal payments under capitalized lease obligations | (32 | ) | (28 | ) | (14 | ) | |||||||
Financing fees, net | — | (7,592 | ) | — | |||||||||
Purchase of predecessor common stock | — | (239,077 | ) | — | |||||||||
Receipt of successor equity proceeds | — | 147,980 | — | ||||||||||
Merger transaction costs | — | (2,171 | ) | — | |||||||||
Net cash (used in) provided by financing activities | (1,664 | ) | 12,223 | 2,666 | |||||||||
Net (decrease) increase in cash and cash equivalents | (17,369 | ) | 16,332 | 95 | |||||||||
Cash and cash equivalents at beginning of period | 29,613 | 1,258 | 1,163 | ||||||||||
Cash and cash equivalents at end of period | $ | 12,244 | $ | 17,590 | $ | 1,258 | |||||||
Page 7 of 44
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Class A | Compre- | Other | Total | ||||||||||||||||||||||||||||
Common Stock | Paid-in | Preferred | Accumulated | hensive | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||
Class A | Class C | Capital | Stock | Deficit | Income(Loss) | Income | Equity | |||||||||||||||||||||||||
Balance at December 31, 2004 (as previously reported) | — | $ | 81,452 | $ | 1 | $ | (1,274 | ) | $ | (128 | ) | $ | 80,051 | |||||||||||||||||||
Effect of restatement (see note 2) | — | — | (1,122 | ) | — | 1,274 | 34 | 186 | ||||||||||||||||||||||||
Balance at December 31, 2004 (as restated) | — | — | 80,330 | 1 | — | (94 | ) | 80,237 | ||||||||||||||||||||||||
Dividends to shareholders | — | — | (2,536 | ) | — | — | — | (2,536 | ) | |||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net loss (as restated) (2) | — | — | — | — | (324 | ) | $ | (324 | ) | — | (324 | ) | ||||||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||||||||
Change in cumulative foreign translation adjustment (1) | — | — | — | — | 10 | 10 | 10 | |||||||||||||||||||||||||
Change in derivative security value, net of tax (1) | — | — | — | — | 141 | 141 | 141 | |||||||||||||||||||||||||
Other comprehensive income | 151 | |||||||||||||||||||||||||||||||
Comprehensive loss | $ | (173 | ) | |||||||||||||||||||||||||||||
Balance at March 31, 2005 (as restated) | — | — | 77,794 | 1 | (324 | ) | 57 | 77,528 | ||||||||||||||||||||||||
Dividends to shareholders | — | — | (2,637 | ) | — | — | (2,637 | ) | ||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (39 | ) | $ | (39 | ) | — | (39 | ) | ||||||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||||||||
Change in cumulative foreign translation adjustment (1) | — | — | — | — | 21 | 21 | 21 | |||||||||||||||||||||||||
Change in derivative security value, net of tax (1) | — | — | — | — | (65 | ) | (65 | ) | (65 | ) | ||||||||||||||||||||||
Other comprehensive loss | (44 | ) | ||||||||||||||||||||||||||||||
Comprehensive loss | $ | (83 | ) | |||||||||||||||||||||||||||||
Balance at June 30, 2005 | — | — | 75,157 | 1 | (363 | ) | 13 | 74,808 | ||||||||||||||||||||||||
Dividends to shareholders | — | — | (2,742 | ) | — | — | (2,742 | ) | ||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | 219 | $ | 219 | — | 219 | |||||||||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||||||||
Change in cumulative foreign translation adjustment (1) | — | — | — | — | (56 | ) | (56 | ) | (56 | ) | ||||||||||||||||||||||
Change in derivative security value, net of tax (1) | — | — | — | — | 41 | 41 | 41 | |||||||||||||||||||||||||
Other comprehensive loss | (15 | ) | ||||||||||||||||||||||||||||||
Comprehensive income | $ | 204 | ||||||||||||||||||||||||||||||
Balance at September 30, 2005 | $ | — | $ | — | $ | 72,415 | $ | 1 | $ | (144 | ) | $ | (2 | ) | $ | 72,270 | ||||||||||||||||
(1) | The cumulative foreign translation adjustment, change in derivative security value, and unrealized gains and losses on investments, net of taxes, represent the only items of other comprehensive income. | |
(2) | The net loss as previously reported of $2,209 was reduced by $1,923 for the impact of a change in the estimated annual effective tax rate used for the computation of the interim period tax provision and increased by $38 to properly recognize revenue in accordance with SAB No. 104, “Revenue Recognition”. See Note 2 to Condensed Consolidated Financial Statements. |
Page 8 of 44
Page 9 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Accounts receivable | $ | 37,750 | ||
Inventory | 66,958 | |||
Property and equipment | 63,230 | |||
Goodwill | 241,934 | |||
Intangible assets | 173,162 | |||
Other assets | 8,924 | |||
Total assets acquired | 591,958 | |||
Less: | ||||
Liabilities assumed | 42,948 | |||
Deferred taxes, net | 21,773 | |||
Junior subordinated debentures | 117,986 | |||
Total assumed liabilities | 182,707 | |||
Total purchase price | $ | 409,251 | ||
Nine Months Ended | ||||
September 30, 2004 | ||||
(as restated, | ||||
see Note 2) | ||||
Net sales | $ | 268,542 | ||
Net loss | (25,354 | ) |
Page 10 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 11 of 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Successor | Predecessor | ||||||||||||
Six months | Three months | Three months | |||||||||||
ended | ended | ended | |||||||||||
Sept. 30, | Sept. 30, | March 31, | |||||||||||
2004 | 2004 | 2004 | |||||||||||
Net income (loss) as originally reported | $ | 1,901 | $ | 1,690 | $ | (19,316 | ) | ||||||
Revenue recognition, before tax (1) | 86 | (282 | ) | (461 | ) | ||||||||
Other matters, before tax: | |||||||||||||
Outstanding checks (2) | — | — | — | ||||||||||
Volume rebates (3) | 120 | 65 | 51 | ||||||||||
Trust de-consolidation (4) | — | — | — | ||||||||||
Stock option grant (5) | — | — | — | ||||||||||
Insurance demutualization (6) | — | — | — | ||||||||||
Income tax effects on the above | (84 | ) | 90 | 168 | |||||||||
Other adjustments relating to income tax matters | : | ||||||||||||
Interim tax provisions (7) | (4,062 | ) | (2,735 | ) | — | ||||||||
Tax rate (8) | — | — | (340 | ) | |||||||||
Axxess intangible amortization and transaction fees (9) | — | — | 104 | ||||||||||
1998 Stock Option exercises (10) | — | — | (2,001 | ) | |||||||||
2001 Stock Option exercises (11) | — | — | — | ||||||||||
Indefinite lived intangibles (12) | — | — | — | ||||||||||
Valuation allowance adjustments (13) | — | — | 982 | ||||||||||
Uncertain tax position adjustments (14) | (259 | ) | — | 406 | |||||||||
G-C Note (15) | — | — | — | ||||||||||
State income and franchise tax (16) | — | — | 41 | ||||||||||
Provision to return adjustments (17) | — | — | — | ||||||||||
Other tax corrections (18) | — | — | — | ||||||||||
Total adjustments | (4,199 | ) | (2,862 | ) | (1,050 | ) | |||||||
Net loss as restated | $ | (2,298 | ) | $ | (1,172 | ) | $ | (20,366 | ) | ||||
(1) | The Company’s standard freight terms are FOB shipping point and historically revenue was recognized upon shipment. However, the Company arranges for the shipment of product, selects the carrier and maintains responsibility for lost or damaged product. Accordingly, management has determined that the risk of loss is not fully transferred to the customer until shipments are received by the customer which is generally within two days of product shipment. Therefore, the Company concluded that revenue was not recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.” | |
(2) | At the end of each fiscal period the Company has historically reclassified all checks issued but still outstanding between accounts payable and cash or, for outstanding payroll checks, between accrued salaries and cash. Generally accepted accounting principles allow only the portion of the outstanding checks in excess of available deposits to be classified as a liability. In the accompanying condensed consolidated balance sheet as of December 31, 2004 an adjustment has been made to reclassify the outstanding checks to accounts payable or accrued salaries and wages. |
Page 12 of 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 13 of 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 14 of 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 15 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Condensed Consolidated Balance Sheet | ||||||||||||||||||||||||||||
As | Adjustments | |||||||||||||||||||||||||||
Previously | Revenue | Income | As | |||||||||||||||||||||||||
As of December 31, 2004: | Reported | Recognition | Taxes | Other (1) | Dividends | Other | Restated | |||||||||||||||||||||
Cash and cash equivalents | $ | 33,032 | $ | — | $ | — | $ | (3,419 | ) | $ | — | — | $ | 29,613 | ||||||||||||||
Accounts receivable, net | 39,903 | (2,533 | ) | — | — | — | — | 37,370 | ||||||||||||||||||||
Inventories, net | 64,627 | 1,208 | — | — | — | — | 65,835 | |||||||||||||||||||||
Deferred tax assets- current | 6,520 | 613 | (328 | ) | (93 | ) | — | — | 6,712 | |||||||||||||||||||
Goodwill | 219,051 | 974 | 22,499 | (257 | ) | — | — | 242,267 | ||||||||||||||||||||
Investment in trust common | ||||||||||||||||||||||||||||
securities | — | — | — | 3,261 | — | — | 3,261 | |||||||||||||||||||||
Investments | — | — | — | 432 | — | — | 432 | |||||||||||||||||||||
Accounts payable | 24,367 | — | — | (3,195 | ) | — | — | 21,172 | ||||||||||||||||||||
Accrued salaries and wages | 4,523 | — | — | (224 | ) | — | — | 4,299 | ||||||||||||||||||||
Accrued pricing allowances | 9,909 | — | — | (228 | ) | — | — | 9,681 | ||||||||||||||||||||
Accrued income and other taxes | 2,137 | — | (617 | ) | — | — | — | 1,520 | ||||||||||||||||||||
Other accrued expenses | 11,724 | 27 | 656 | — | — | — | 12,407 | |||||||||||||||||||||
Junior subordinated debentures | 114,429 | — | — | 3,261 | — | — | 117,690 | |||||||||||||||||||||
Deferred tax liabilities-non current | 10,730 | 56 | 22,264 | 171 | — | — | 33,221 | |||||||||||||||||||||
Additional paid-in capital | 81,452 | — | — | — | (1,122 | ) | — | 80,330 | ||||||||||||||||||||
Accumulated deficit | (1,274 | ) | 179 | (132 | ) | 105 | 1,122 | — | — | |||||||||||||||||||
Accumulated other comprehensive loss | (128 | ) | — | — | 34 | — | — | (94 | ) |
Page 16 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Condensed Consolidated Statement of Operations | ||||||||||||||||||||
As | Adjustments | |||||||||||||||||||
For the three months | Previously | Revenue | Income | As | ||||||||||||||||
ended September 30, 2004: | Reported | Recognition | Taxes | Other (1) | Restated | |||||||||||||||
Net sales | $ | 97,463 | $ | (496 | ) | $ | — | $ | 65 | $ | 97,032 | |||||||||
Cost of sales | 43,958 | (214 | ) | — | — | 43,744 | ||||||||||||||
Gross profit | 53,505 | (282 | ) | — | 65 | 53,288 | ||||||||||||||
Income from operations | 13,527 | (282 | ) | — | 65 | 13,310 | ||||||||||||||
Interest expense on junior subordinated debentures | 3,058 | — | — | 94 | 3,152 | |||||||||||||||
Investment income on trust common securities | — | — | — | (94 | ) | (94 | ) | |||||||||||||
Income before income taxes | 4,179 | (282 | ) | — | 65 | 3,962 | ||||||||||||||
Income tax provision | 2,489 | (116 | ) | 2,735 | 26 | 5,134 | ||||||||||||||
Net income (loss) | 1,690 | (166 | ) | (2,735 | ) | 39 | (1,172 | ) |
Condensed Consolidated Statement of Operations | ||||||||||||||||||||
As | Adjustments | |||||||||||||||||||
For the six months | Previously | Revenue | Income | As | ||||||||||||||||
ended September 30, 2004: | Reported | Recognition | Taxes | Other (1) | Restated | |||||||||||||||
Net sales | $ | 190,099 | $ | 133 | $ | — | $ | 120 | $ | 190,352 | ||||||||||
Cost of sales | 85,564 | 47 | — | — | 85,611 | |||||||||||||||
Gross profit | 104,535 | 86 | — | 120 | 104,741 | |||||||||||||||
Selling, general and administrative expenses | 66,523 | — | 100 | — | 66,623 | |||||||||||||||
Income from operations | 24,897 | 86 | (100 | ) | 120 | 25,003 | ||||||||||||||
Interest expense on junior subordinated debentures | 6,116 | — | — | 189 | 6,305 | |||||||||||||||
Investment income on trust common securities | — | — | — | (189 | ) | (189 | ) | |||||||||||||
Income before income taxes | 6,143 | 86 | (100 | ) | 120 | 6,249 | ||||||||||||||
Income tax provision | 4,242 | 35 | 4,221 | 49 | 8,547 | |||||||||||||||
Net income (loss) | 1,901 | 51 | (4,321 | ) | 71 | (2,298 | ) |
Condensed Consolidated Statement of Operations | ||||||||||||||||||||
Adjustments | ||||||||||||||||||||
For the three months | As Previously | Revenue | Income | |||||||||||||||||
ended March 31, 2004: | Reported | Recognition | Taxes | Other (1) | As Restated | |||||||||||||||
Net sales | $ | 78,997 | $ | (858 | ) | $ | — | $ | 51 | $ | 78,190 | |||||||||
Cost of sales | 35,780 | (397 | ) | — | — | 35,383 | ||||||||||||||
Gross profit | 43,217 | (461 | ) | — | 51 | 42,807 | ||||||||||||||
Selling, general and administrative | 30,999 | — | (3 | ) | — | 30,996 | ||||||||||||||
Loss from operations | (23,273 | ) | (461 | ) | 3 | 51 | (23,680 | ) | ||||||||||||
Interest expense on junior subordinated debentures | 3,058 | — | — | 94 | 3,152 | |||||||||||||||
Investment income on trust common securities | — | — | — | (94 | ) | (94 | ) | |||||||||||||
Loss before income taxes | (30,172 | ) | (461 | ) | 3 | 51 | (30,579 | ) | ||||||||||||
Income tax benefit | (10,856 | ) | (189 | ) | 811 | 21 | (10,213 | ) | ||||||||||||
Net loss | (19,316 | ) | (272 | ) | (808 | ) | 30 | (20,366 | ) |
Page 17 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(1) | Other adjustments include the cash overdraft, gross up of the junior subordinated debentures, and volume rebates. See discussion above for details. |
Condensed Consolidated Statement of Cash Flows | ||||||||
For the six months ended | As Previously | As | ||||||
September 30, 2004: | Reported | Restated | ||||||
Net cash (used for) provided by operating activities | $ | (13,147 | ) | $ | 9,572 | |||
Net cash used for investing activities | (5,463 | ) | (5,463 | ) | ||||
Net cash provided by financing activities | 35,479 | 12,223 | ||||||
Net increase in cash and equivalents | 16,869 | 16,332 | ||||||
Cash and cash equivalents at beginning of period | 2,915 | 1,258 | ||||||
Cash and cash equivalents at end of period | $ | 19,784 | $ | 17,590 | ||||
Condensed Consolidated Statement of Cash Flows | ||||||||
For the three months ended | As Previously | As | ||||||
March 31, 2004: | Reported | Restated | ||||||
Net cash (used for) provided by operating activities | $ | (699 | ) | $ | 38 | |||
Net cash used for investing activities | (2,609 | ) | (2,609 | ) | ||||
Net cash provided by financing activities | 4,695 | 2,666 | ||||||
Net increase in cash and equivalents | 1,387 | 95 | ||||||
Cash and cash equivalents at beginning of period | 1,528 | 1,163 | ||||||
Cash and cash equivalents at end of period | $ | 2,915 | $ | 1,258 | ||||
Page 18 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Estimated | ||||||||||
Useful Life | September 30, | December 31, | ||||||||
(Years) | 2005 | 2004 | ||||||||
Customer Relationships | 23 | $ | 114,790 | $ | 114,897 | |||||
Trademarks | Indefinite | 44,670 | 44,670 | |||||||
Patents | 9 | 7,960 | 7,960 | |||||||
Non Compete Agreements | 4 | 5,742 | 5,742 | |||||||
Intangible assets, gross | 173,162 | 173,269 | ||||||||
Less: Accumulated amortization | 10,848 | 5,427 | ||||||||
Other Intangibles, net | $ | 162,314 | $ | 167,842 | ||||||
Page 19 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 20 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 21 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 22 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
10. | Guaranteed Preferred Beneficial Interest in the Company’s Junior Subordinated Debentures: |
Page 23 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
10. | Guaranteed Preferred Beneficial Interest in the Company’s Junior Subordinated Debentures (continued): |
Non-current assets — junior subordinated debentures — preferred | $ | 114,133 | ||
Non-current assets — junior subordinated debentures — common | 3,261 | |||
Total assets | $ | 117,394 | ||
Non-current liabilities — Trust Preferred Securities | $ | 114,133 | ||
Stockholder’s equity — Trust Common Securities | 3,261 | |||
Total liabilities and stockholder’s equity | $ | 117,394 | ||
Page 24 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 25 of 44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 26 of 44
AND RESULTS OF OPERATIONS
Page 27 of 44
Page 28 of 44
(dollars in thousands) | ||||||||||||||||
2005 | 2004 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Total | Amount | Total | |||||||||||||
(As restated) | ||||||||||||||||
Net sales | $ | 102,593 | 100.0 | % | $ | 97,032 | 100.0 | % | ||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 48,118 | 46.9 | % | 43,744 | 45.1 | % | ||||||||||
Gross profit | 54,475 | 53.1 | % | 53,288 | 54.9 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Selling | 17,774 | 17.3 | % | 17,575 | 18.1 | % | ||||||||||
Warehouse & delivery | 12,208 | 11.9 | % | 11,549 | 11.9 | % | ||||||||||
General & Administrative | 4,748 | 4.6 | % | 4,712 | 4.9 | % | ||||||||||
Stock compensation expense | 552 | 0.5 | % | — | 0.0 | % | ||||||||||
Total SG&A | 35,282 | 34.4 | % | 33,836 | 34.9 | % | ||||||||||
Depreciation | 3,912 | 3.8 | % | 3,706 | 3.8 | % | ||||||||||
Amortization | 1,808 | 1.8 | % | 2,676 | 2.8 | % | ||||||||||
Management and transaction fees | 255 | 0.2 | % | 291 | 0.3 | % | ||||||||||
Total operating expenses | 41,257 | 40.2 | % | 40,509 | 41.7 | % | ||||||||||
Other income | 222 | 0.2 | % | 531 | 0.5 | % | ||||||||||
Income from operations | 13,440 | 13.1 | % | 13,310 | 13.7 | % | ||||||||||
Interest expense, net | 5,457 | 5.3 | % | 4,464 | 4.6 | % | ||||||||||
Interest expense on mandatorily redeemable preferred stock & management purchased options | 2,035 | 2.0 | % | 1,826 | 1.9 | % | ||||||||||
Interest expense on junior subordinated notes | 3,153 | 3.1 | % | 3,152 | 3.2 | % | ||||||||||
Investment income on trust common securities | (95 | ) | -0.1 | % | (94 | ) | -0.1 | % | ||||||||
Income before income taxes | 2,890 | 2.8 | % | 3,962 | 4.1 | % | ||||||||||
Page 29 of 44
Page 30 of 44
Page 31 of 44
(dollars in thousands) | ||||||||||||||||
2005 | 2004 (b) | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Total | Amount | Total | |||||||||||||
(As restated) | ||||||||||||||||
Net sales | $ | 293,127 | 100.0 | % | $ | 268,542 | 100.0 | % | ||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 133,797 | 45.6 | % | 120,994 | 45.1 | % | ||||||||||
Gross profit | 159,330 | 54.4 | % | 147,548 | 54.9 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Selling | 54,247 | 18.5 | % | 50,349 | 18.7 | % | ||||||||||
Warehouse & delivery | 35,804 | 12.2 | % | 33,140 | 12.3 | % | ||||||||||
General & Administrative | 15,066 | 5.1 | % | 14,130 | 5.3 | % | ||||||||||
Stock compensation expense | 1,284 | 0.4 | % | — | 0.0 | % | ||||||||||
Total SG&A | 106,401 | 36.3 | % | 97,619 | 36.4 | % | ||||||||||
Non-recurring expense (a) | — | 0.0 | % | 30,707 | 11.4 | % | ||||||||||
Depreciation | 11,799 | 4.0 | % | 11,409 | 4.2 | % | ||||||||||
Amortization | 5,420 | 1.8 | % | 5,676 | 2.1 | % | ||||||||||
Management and transaction fees | 788 | 0.3 | % | 1,071 | 0.4 | % | ||||||||||
Total operating expenses | 124,408 | 42.4 | % | 146,482 | 54.5 | % | ||||||||||
Other income | 35 | 0.0 | % | 257 | 0.1 | % | ||||||||||
Income from operations | 34,957 | 11.9 | % | 1,323 | 0.5 | % | ||||||||||
Interest expense, net | 15,361 | 5.2 | % | 12,896 | 4.8 | % | ||||||||||
Interest expense on mandatorily redeemable preferred stock & management purchased options | 5,880 | 2.0 | % | 3,583 | 1.3 | % | ||||||||||
Interest expense on junior subordinated notes | 9,458 | 3.2 | % | 9,457 | 3.5 | % | ||||||||||
Investment income on trust common securities | (284 | ) | -0.1 | % | (283 | ) | -0.1 | % | ||||||||
Income (loss) before income taxes | 4,542 | 1.5 | % | (24,330 | ) | -9.1 | % | |||||||||
(a) | Represents one-time charges for stock options, management bonuses, investment banking, and legal fees incurred in connection with the March 31, 2004 Merger Transaction. | |
(b) | For the purpose of comparing the Company’s results of operations for the nine months ended September 30, 2005, the results of the Predecessor Operations for the three months ended March 31, 2004 have been combined with the results of the Successor Operations for the six months ended September 30, 2004. |
Page 32 of 44
Page 33 of 44
Page 34 of 44
Page 35 of 44
Payments Due | ||||||||||||||||||||
Less Than 1 | More Than 5 | |||||||||||||||||||
Contractual Obligations | Total | Year | 1 to 3 Years | 3 to 5 Years | Years | |||||||||||||||
Junior Subordinated Debentures (1) | $ | 117,394 | $ | — | $ | — | $ | — | $ | 117,394 | ||||||||||
Long Term Senior Term Loans | 214,238 | 2,175 | 4,350 | 105,488 | 102,225 | |||||||||||||||
Long Term Unsecured Subordinated Notes | 48,911 | — | — | — | 48,911 | |||||||||||||||
Interest Payments (2) | 113,467 | 21,787 | 43,763 | 40,700 | 7,217 | |||||||||||||||
Operating Leases | 49,830 | 6,583 | 9,819 | 7,871 | 25,557 | |||||||||||||||
Mandatorily Redeemable Preferred Stock | 67,737 | 67,737 | ||||||||||||||||||
Management Purchased Options | 3,953 | 3,953 | ||||||||||||||||||
Deferred Compensation Obligations | 4,684 | 138 | 276 | 276 | 3,994 | |||||||||||||||
Capital Lease Obligations | 110 | 44 | 66 | — | — | |||||||||||||||
Other Long Term Obligations | 5,140 | 1,781 | 800 | 165 | 2,394 | |||||||||||||||
Total Contractual Cash Obligations | $ | 625,464 | $ | 32,508 | $ | 59,074 | $ | 154,500 | $ | 379,382 | ||||||||||
(1) | The junior subordinated debentures liquidation value is approximately $108,707. | |
(2) | Interest payments for Long Term Senior Term Loans and Long Term Unsecured Subordinated Notes. Interest payments on the variable rate Long Term Senior Loans were calculated using actual interest rates through December 31, 2005 and a LIBOR rate plus applicable margin of 7.6875% thereafter. |
Page 36 of 44
Page 37 of 44
Page 38 of 44
Page 39 of 44
• | Deferred income tax balances related to purchase business combinations were not appropriately determined to ensure that deferred income tax liabilities and allocated goodwill were fairly stated in accordance with GAAP; | ||
• | Quarterly income tax provisions were not appropriately determined utilizing an estimate of the annual effective tax rate; | ||
• | The annual income tax provision was calculated using an inappropriate estimate of federal and state statutory tax rates; | ||
• | Deferred tax balances were not accurate; | ||
• | The income tax provision did not appropriately reflect the tax effect of stock option exercises in accordance with GAAP; | ||
• | Valuation allowances for state tax operating loss carryforwards were overstated based on loss carryforward periods and estimates of future state taxable income; | ||
• | Changes in valuation allowances and reserves for uncertain tax positions established in purchase business combinations were incorrectly charged to income tax expense instead of goodwill; | ||
• | State income and franchise tax provisions and the related tax payable accounts were incorrectly calculated; | ||
• | Certain book versus tax basis differences were based on estimates which were not updated on a timely basis and certain temporary differences were incorrectly treated as permanent items; and | ||
• | State franchise taxes were incorrectly included as a component of income tax expense instead of operating expenses. |
Page 40 of 44
• | Investment in trust common securities; | ||
• | Capitalized interest on construction of Cincinnati distribution facility; | ||
• | Accrued pricing allowances; and, | ||
• | Insurance demutualization. |
• | Increase our training and resources in the income tax accounting area; | ||
• | Expand review procedures and controls related to unique and specialized transactions; | ||
• | Increase review procedures and controls related to income tax accounting; | ||
• | Increase review procedures and controls related to sales and marketing initiatives as well as sales contracts and agreements; and | ||
• | Review the disclosure committee process and increase the frequency of such meetings from quarterly to monthly. |
Page 41 of 44
OTHER INFORMATION
Page 42 of 44
a) | Exhibits, Including Those Incorporated by Reference. | |||
31.1 | * | Certification of Chief Executive Officer pursuant to rule 13a-14(a) or 15d- 14(a) under the Securities Exchange Act of 1934. | ||
31.2 | * | Certification of Chief Financial Officer pursuant to rule 13a-14(a) or 15d-14(a) under Securities Exchange Act of 1934. | ||
32.1 | + | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | + | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith. | |
+ | Submitted herewith. |
Page 43 of 44
/s/ James P. Waters | /s/ Harold J. Wilder | |||||
James P. Waters | Harold J. Wilder | |||||
Vice President - Finance | Controller | |||||
(Chief Financial Officer) | (Chief Accounting Officer) |
Page 44 of 44