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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: |
For the period ended June 30, 2003
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 33-26991
American Builders & Contractors Supply Co., Inc.
(Exact name of registrant as specified in its charter)
Delaware | 5033 | 39-1413708 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
One ABC Parkway Beloit, Wisconsin | 53511 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (608) 362-7777
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 filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
Common Stock, $0.01 par value, 147.04 shares as of August 1, 2003
The Registrant is filing this report pursuant to certain of its indenture obligations and not as required under Section 13 or 15(d) of the Securities Exchange Act of 1934
Table of Contents
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Part I. Financial Information | ||||
Item 1. | Financial Statements (Unaudited) | |||
Condensed consolidated balance sheets—June 30, 2003 and December 31, 2002 | ||||
Condensed consolidated statements of income and retained earnings—Three months ended June 30, 2003 and 2002; Six | ||||
Condensed consolidated statements of cash flows—Six months ended June 30, 2003 and 2002 | ||||
Notes to condensed consolidated financial statements—June 30, 2003 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
Item 4. | Controls and Procedures | |||
Part II. Other Information | ||||
Item 6. | Exhibits and Reports on Form 8-K | |||
Signatures |
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Financial Information
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
ASSETS
| June 30, 2003 | December 31, 2002 | ||||
Current assets: | ||||||
Cash | $ | 3,042 | $ | 6,801 | ||
Accounts receivable | 252,875 | 209,813 | ||||
Inventories | 262,195 | 191,049 | ||||
Prepaid expenses and other | 3,890 | 3,188 | ||||
Total current assets | 522,002 | 410,851 | ||||
Property and equipment, net | 91,199 | 90,875 | ||||
Net receivable from affiliates | 14,284 | 15,692 | ||||
Goodwill | 38,951 | 38,851 | ||||
Other intangible assets | 4,428 | 4,534 | ||||
Security deposits | 1,094 | 1,011 | ||||
Other assets | 615 | 826 | ||||
$ | 672,573 | $ | 562,640 | |||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 199,071 | $ | 119,941 | ||
Accrued payroll and benefits | 13,293 | 15,586 | ||||
Accrued liabilities | 17,594 | 19,864 | ||||
Current portion of long-term debt | 9,029 | 8,721 | ||||
Total current liabilities | 238,987 | 164,112 | ||||
Long-term debt | 348,118 | 296,857 | ||||
Contingent liabilities (Note 2) | ||||||
Stockholder’s equity: | ||||||
Common stock | — | — | ||||
Additional paid-in capital | 3,779 | 3,779 | ||||
Retained earnings | 81,689 | 97,892 | ||||
Total stockholder’s equity | 85,468 | 101,671 | ||||
$ | 672,573 | $ | 562,640 | |||
See notes to unaudited condensed consolidated financial statements.
Note: The balance sheet at December 31, 2002 has been derived from the audited balance sheet at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Retained Earnings (Unaudited)
(in thousands)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Net sales | $ | 469,962 | $ | 390,312 | $ | 796,733 | $ | 656,675 | ||||||||
Cost of sales | 352,464 | 292,102 | 597,098 | 492,424 | ||||||||||||
Gross profit | 117,498 | 98,210 | 199,635 | 164,251 | ||||||||||||
Operating expenses | 96,100 | 81,995 | 178,286 | 148,667 | ||||||||||||
Amortization of intangible assets | 92 | 92 | 184 | 184 | ||||||||||||
96,192 | 82,087 | 178,470 | 148,851 | |||||||||||||
Operating income | 21,306 | 16,123 | 21,165 | 15,400 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 183 | 164 | 369 | 279 | ||||||||||||
Interest expense | (3,993 | ) | (3,588 | ) | (7,854 | ) | (7,015 | ) | ||||||||
(3,810 | ) | (3,424 | ) | (7,485 | ) | (6,736 | ) | |||||||||
Income before provision for income taxes | 17,496 | 12,699 | 13,680 | 8,664 | ||||||||||||
Provision for income taxes | 320 | 154 | 483 | 368 | ||||||||||||
Net income | 17,176 | 12,545 | 13,197 | 8,296 | ||||||||||||
Retained earnings at beginning of period | 87,113 | 67,134 | 97,892 | 71,383 | ||||||||||||
Distributions to sole stockholder | (22,600 | ) | (6,800 | ) | (29,400 | ) | (6,800 | ) | ||||||||
Retained earnings at end of period | $ | 81,689 | $ | 72,879 | $ | 81,689 | $ | 72,879 | ||||||||
See notes to unaudited condensed consolidated financial statements.
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six months ended June 30, | ||||||||
2003 | 2002 | |||||||
Operating activities | ||||||||
Net income | $ | 13,197 | $ | 8,296 | ||||
Adjustments to reconcile net income to cash provided by (used in) operating activities: | ||||||||
Depreciation | 8,291 | 7,434 | ||||||
Amortization | 184 | 184 | ||||||
Amortization of deferred financing costs | 189 | 154 | ||||||
Provision for doubtful accounts | 5,412 | 4,585 | ||||||
Loss on disposal of property and equipment | 199 | 128 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (46,829 | ) | (36,469 | ) | ||||
Inventories | (70,586 | ) | (66,102 | ) | ||||
Prepaid expenses and other | (701 | ) | 112 | |||||
Other assets | 127 | (245 | ) | |||||
Accounts payable | 77,682 | 91,398 | ||||||
Accrued liabilities | (4,562 | ) | 1,441 | |||||
Cash provided by (used in) operating activities | (17,397 | ) | 10,916 | |||||
Investing activities | ||||||||
Additions to property and equipment | (9,161 | ) | (13,859 | ) | ||||
Proceeds from disposal of property and equipment | 395 | 331 | ||||||
Acquisitions of businesses | (904 | ) | (5,892 | ) | ||||
Cash used in investing activities | (9,670 | ) | (19,420 | ) | ||||
Financing activities | ||||||||
Net borrowings under line of credit | 49,302 | 21,778 | ||||||
Proceeds from long-term debt | 6,750 | — | ||||||
Payments on long-term debt | (4,484 | ) | (2,111 | ) | ||||
Change in net receivable from affiliates | 1,408 | (7,021 | ) | |||||
Distributions to stockholder | (29,400 | ) | (6,800 | ) | ||||
Payments of debt financing costs | (268 | ) | (313 | ) | ||||
Cash provided by financing activities | 23,308 | 5,533 | ||||||
Net decrease in cash | (3,759 | ) | (2,971 | ) | ||||
Cash at beginning of period | 6,801 | 6,114 | ||||||
Cash at end of period | $ | 3,042 | $ | 3,143 | ||||
See notes to unaudited condensed consolidated financial statements.
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2003
1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2003 are not indicative of the results that may be expected for the year ending December 31, 2003 due to the seasonality of the business. For further information, refer to the consolidated financial statements and footnotes thereto included in American Builders & Contractors Supply Co., Inc.’s (ABC, or together with its subsidiaries, the Company) Annual Report on Form 10-K for the year ended December 31, 2002.
2. | Contingent Liabilities |
At June 30, 2003 and December 31, 2002, the Company had guaranteed debt of the stockholder in the amounts of $1,228,000 and $1,264,000, respectively. Certain assets owned by the Company serve as collateral as part of an overall guaranty of this debt by the Company. The Company also had outstanding letters of credit in the amounts of $4,562,000 and $5,064,000 at June 30, 2003 and December 31, 2002, with respect to debt of the Company’s stockholder and affiliates.
3. | Guarantor Subsidiaries |
The following tables present condensed consolidating financial information for the three months and six months ended June 30, 2003 and 2002 for: (a) ABC and (b) on a combined basis, the guarantors of the Senior Subordinated Notes, which include all of the wholly owned subsidiaries of the Company (Subsidiary Guarantors). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors.
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. Guarantor Subsidiaries (continued)
Condensed Consolidating Balance Sheet June 30, 2003 | ||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash | $ | 3,116 | $ | (74 | ) | $ | — | $ | 3,042 | |||||
Accounts receivable | 249,994 | 20,111 | (17,230 | ) | 252,875 | |||||||||
Inventories | 262,532 | 3,147 | (3,484 | ) | 262,195 | |||||||||
Intercompany advances | 6,615 | (6,615 | ) | — | — | |||||||||
Prepaid expenses and other | 1,647 | 2,243 | — | 3,890 | ||||||||||
Total current assets | 523,904 | 18,812 | (20,714 | ) | 522,002 | |||||||||
Property and equipment, net | 84,794 | 6,405 | — | 91,199 | ||||||||||
Investment in subsidiaries | 4,705 | — | (4,705 | ) | — | |||||||||
Receivable from affiliates | 14,284 | — | — | 14,284 | ||||||||||
Goodwill | 38,951 | — | — | 38,951 | ||||||||||
Other intangible assets | 3,985 | 443 | — | 4,428 | ||||||||||
Security deposits | 1,594 | (500 | ) | — | 1,094 | |||||||||
Other assets | 10 | 605 | — | 615 | ||||||||||
$ | 672,227 | $ | 25,765 | $ | (25,419 | ) | $ | 672,573 | ||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable | $ | 205,127 | $ | 11,174 | $ | (17,230 | ) | $ | 199,071 | |||||
Accrued payroll and benefits | 12,583 | 710 | — | 13,293 | ||||||||||
Accrued liabilities | 15,553 | 2,041 | — | 17,594 | ||||||||||
Current portion of long-term debt | 8,762 | 267 | — | 9,029 | ||||||||||
Total current liabilities | 242,025 | 14,192 | (17,230 | ) | 238,987 | |||||||||
Long-term debt | 344,734 | 3,384 | — | 348,118 | ||||||||||
Contingent liabilities | ||||||||||||||
Stockholder’s equity: | ||||||||||||||
Common stock | — | — | — | — | ||||||||||
Additional paid-in capital | 3,779 | 1 | (1 | ) | 3,779 | |||||||||
Retained earnings | 81,689 | 8,188 | (8,188 | ) | 81,689 | |||||||||
Total stockholder’s equity | 85,468 | 8,189 | (8,189 | ) | 85,468 | |||||||||
$ | 672,227 | $ | 25,765 | $ | (25,419 | ) | $ | 672,573 | ||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. | Guarantor Subsidiaries (continued) |
Condensed Consolidating Balance Sheet December 31, 2002 | ||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash | $ | 6,897 | $ | (96 | ) | $ | — | $ | 6,801 | |||||
Accounts receivable | 207,849 | 11,242 | (9,278 | ) | 209,813 | |||||||||
Inventories | 190,971 | 2,703 | (2,625 | ) | 191,049 | |||||||||
Intercompany advances | 2,873 | (2,873 | ) | — | — | |||||||||
Prepaid expenses and other | 1,656 | 1,532 | — | 3,188 | ||||||||||
Total current assets | 410,246 | 12,508 | (11,903 | ) | 410,851 | |||||||||
Property and equipment, net | 84,491 | 6,384 | — | 90,875 | ||||||||||
Investment in subsidiaries | 4,927 | — | (4,927 | ) | — | |||||||||
Receivable from affiliates | 15,692 | — | — | 15,692 | ||||||||||
Goodwill | 38,851 | — | — | 38,851 | ||||||||||
Other intangible assets, net | 4,059 | 475 | — | 4,534 | ||||||||||
Security deposits | 1,511 | (500 | ) | — | 1,011 | |||||||||
Other assets | 741 | 85 | — | 826 | ||||||||||
$ | 560,518 | $ | 18,952 | $ | (16,830 | ) | $ | 562,640 | ||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable | $ | 124,068 | $ | 5,151 | $ | (9,278 | ) | $ | 119,941 | |||||
Accrued payroll and benefits | 14,834 | 752 | — | 15,586 | ||||||||||
Accrued liabilities | 18,147 | 1,717 | — | 19,864 | ||||||||||
Current portion of long-term debt | 8,460 | 261 | — | 8,721 | ||||||||||
Total current liabilities | 165,509 | 7,881 | (9,278 | ) | 164,112 | |||||||||
Long-term debt | 293,338 | 3,519 | 296,857 | |||||||||||
Commitments and contingent liabilities | ||||||||||||||
Stockholder’s equity: | ||||||||||||||
Common stock | — | — | — | — | ||||||||||
Additional paid-in capital | 3,779 | 1 | (1 | ) | 3,779 | |||||||||
Retained earnings | 97,892 | 7,551 | (7,551 | ) | 97,892 | |||||||||
Total stockholder’s equity | 101,671 | 7,552 | (7,552 | ) | 101,671 | |||||||||
$ | 560,518 | $ | 18,952 | $ | (16,830 | ) | $ | 562,640 | ||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. | Guarantor Subsidiaries (continued) |
Condensed Consolidating Statement of Income for the Three Months ended June 30, 2003 | ||||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||
Net sales | $ | 464,862 | $ | 29,562 | $ | (24,462 | ) | $ | 469,962 | |||||||
Cost of sales | 351,129 | 24,992 | (23,657 | ) | 352,464 | |||||||||||
Gross profit | 113,733 | 4,570 | (805 | ) | 117,498 | |||||||||||
Operating expenses | 92,981 | 3,214 | (95 | ) | 96,100 | |||||||||||
Amortization of intangible assets | 76 | 16 | — | 92 | ||||||||||||
93,057 | 3,230 | (95 | ) | 96,192 | ||||||||||||
Operating income | 20,676 | 1,340 | (710 | ) | 21,306 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 183 | — | — | 183 | ||||||||||||
Interest expense | (3,960 | ) | (33 | ) | — | (3,993 | ) | |||||||||
(3,777 | ) | (33 | ) | — | (3,810 | ) | ||||||||||
Income before provision for income taxes and equity in earnings of subsidiaries | 16,899 | 1,307 | (710 | ) | 17,496 | |||||||||||
Provision for income taxes | 320 | — | — | 320 | ||||||||||||
16,579 | 1,307 | (710 | ) | 17,176 | ||||||||||||
Equity in earnings of subsidiaries | 597 | — | (597 | ) | — | |||||||||||
Net income | $ | 17,176 | $ | 1,307 | $ | (1,307 | ) | $ | 17,176 | |||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. | Guarantor Subsidiaries (continued) |
Condensed Consolidating Statement of Income for the Three Months ended June 30, 2002 | ||||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||
Net sales | $ | 384,578 | $ | 24,582 | $ | (18,848 | ) | $ | 390,312 | |||||||
Cost of sales | 289,869 | 20,732 | (18,499 | ) | 292,102 | |||||||||||
Gross profit | 94,709 | 3,850 | (349 | ) | 98,210 | |||||||||||
Operating expenses | 79,317 | 2,748 | (70 | ) | 81,995 | |||||||||||
Amortization of intangible assets | 76 | 16 | — | 92 | ||||||||||||
79,393 | 2,764 | (70 | ) | 82,087 | ||||||||||||
Operating income | 15,316 | 1,086 | (279 | ) | 16,123 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 164 | — | — | 164 | ||||||||||||
Interest expense | (3,547 | ) | (41 | ) | — | (3,588 | ) | |||||||||
(3,383 | ) | (41 | ) | — | (3,424 | ) | ||||||||||
Income before provision for income taxes and equity in earnings of subsidiaries | 11,933 | 1,045 | (279 | ) | 12,699 | |||||||||||
Provision for income taxes | 153 | 1 | — | 154 | ||||||||||||
11,780 | 1,044 | (279 | ) | 12,545 | ||||||||||||
Equity in earnings of subsidiaries | 765 | — | (765 | ) | — | |||||||||||
Net income | $ | 12,545 | $ | 1,044 | $ | (1,044 | ) | $ | 12,545 | |||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. | Guarantor Subsidiaries (continued) |
Condensed Consolidating Statement of Income for the Six Months ended June 30, 2003 | ||||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||
Net sales | $ | 786,624 | $ | 52,358 | $ | (42,249 | ) | $ | 796,733 | |||||||
Cost of sales | 593,698 | 44,652 | (41,252 | ) | 597,098 | |||||||||||
Gross profit | 192,926 | 7,706 | (997 | ) | 199,635 | |||||||||||
Operating expenses | 172,356 | 6,068 | (138 | ) | 178,286 | |||||||||||
Amortization of intangible assets | 152 | 32 | — | 184 | ||||||||||||
172,508 | 6,100 | (138 | ) | 178,470 | ||||||||||||
Operating income | 20,418 | 1,606 | (859 | ) | 21,165 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 369 | — | — | 369 | ||||||||||||
Interest expense | (7,787 | ) | (67 | ) | — | (7,854 | ) | |||||||||
(7,418 | ) | (67 | ) | — | (7,485 | ) | ||||||||||
Income before provision for income taxes and equity in earnings of subsidiaries | 13,000 | 1,539 | (859 | ) | 13,680 | |||||||||||
Provision for income taxes | 483 | — | — | 483 | ||||||||||||
12,517 | 1,539 | (859 | ) | 13,197 | ||||||||||||
Equity in earnings of subsidiaries | 680 | — | (680 | ) | — | |||||||||||
Net income | $ | 13,197 | $ | 1,539 | $ | (1,539 | ) | $ | 13,197 | |||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. | Guarantor Subsidiaries (continued) |
Condensed Consolidating Statement of Income for the Six Months ended June 30, 2002 | ||||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||
Net sales | $ | 649,352 | $ | 39,750 | $ | (32,427 | ) | $ | 656,675 | |||||||
Cost of sales | 490,895 | 33,472 | (31,943 | ) | 492,424 | |||||||||||
Gross profit | 158,457 | 6,278 | (484 | ) | 164,251 | |||||||||||
Operating expenses | 143,864 | 4,873 | (70 | ) | 148,667 | |||||||||||
Amortization of intangible assets | 152 | 32 | — | 184 | ||||||||||||
144,016 | 4,905 | (70 | ) | 148,851 | ||||||||||||
Operating income | 14,441 | 1,373 | (414 | ) | 15,400 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 279 | — | — | 279 | ||||||||||||
Interest expense | (6,951 | ) | (64 | ) | — | (7,015 | ) | |||||||||
(6,672 | ) | (64 | ) | — | (6,736 | ) | ||||||||||
Income before provision for income taxes and equity in earnings of subsidiaries | 7,769 | 1,309 | (414 | ) | 8,664 | |||||||||||
Provision for income taxes | 367 | 1 | — | 368 | ||||||||||||
7,402 | 1,308 | (414 | ) | 8,296 | ||||||||||||
Equity in earnings of subsidiaries | 894 | –— | (894 | ) | — | |||||||||||
Net income | $ | 8,296 | $ | 1,308 | $ | (1,308 | ) | $ | 8,296 | |||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. | Guarantor Subsidiaries (continued) |
Condensed Consolidating Statement of Cash Flows for the Six Months ended June 30, 2003 | ||||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||
Operating activities | ||||||||||||||||
Net income | $ | 13,197 | $ | 1,539 | $ | (1,539 | ) | $ | 13,197 | |||||||
Adjustments to reconcile net income to cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation | 7,916 | 375 | — | 8,291 | ||||||||||||
Amortization | 152 | 32 | — | 184 | ||||||||||||
Amortization of deferred financing costs | 189 | — | — | 189 | ||||||||||||
Provision for doubtful accounts | 5,412 | — | — | 5,412 | ||||||||||||
Loss on disposal of property and equipment | 194 | 5 | — | 199 | ||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (47,361 | ) | (8,868 | ) | 9,400 | (46,829 | ) | |||||||||
Inventories | (71,001 | ) | (444 | ) | 859 | (70,586 | ) | |||||||||
Prepaid expenses and other | 9 | (710 | ) | — | (701 | ) | ||||||||||
Other assets | (3,093 | ) | 3,220 | — | 127 | |||||||||||
Accounts payable | 81,059 | 6,023 | (9,400 | ) | 77,682 | |||||||||||
Accrued liabilities | (4,845 | ) | 283 | — | (4,562 | ) | ||||||||||
Cash provided by (used in) operating activities | (18,172 | ) | 1,455 | (680 | ) | (17,397 | ) | |||||||||
Investing activities | ||||||||||||||||
Additions to property and equipment | (8,719 | ) | (442 | ) | — | (9,161 | ) | |||||||||
Proceeds from disposal of property and equipment | 354 | 41 | — | 395 | ||||||||||||
Acquisitions of businesses | (904 | ) | — | — | (904 | ) | ||||||||||
Investment in subsidiaries | (680 | ) | — | 680 | — | |||||||||||
Cash used in investing activities | (9,949 | ) | (401 | ) | 680 | (9,670 | ) | |||||||||
Financing activities | ||||||||||||||||
Net borrowings under line of credit | 49,302 | — | — | 49,302 | ||||||||||||
Proceeds from long-term debt | 6,750 | — | — | 6,750 | ||||||||||||
Payments on long-term debt | (4,354 | ) | (130 | ) | — | (4,484 | ) | |||||||||
Change in net receivable from affiliates | 1,408 | — | — | 1,408 | ||||||||||||
Distributions to sole stockholder | (28,498 | ) | (902 | ) | — | (29,400 | ) | |||||||||
Payments of debt financing costs | (268 | ) | — | — | (268 | ) | ||||||||||
Cash provided by (used in) financing activities | 24,340 | (1,032 | ) | — | 23,308 | |||||||||||
Net increase (decrease) in cash | (3,781 | ) | 22 | — | (3,759 | ) | ||||||||||
Cash at beginning of period | 6,897 | (96 | ) | — | 6,801 | |||||||||||
Cash at end of period | $ | 3,116 | $ | (74 | ) | $ | — | $ | 3,042 | |||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. | Guarantor Subsidiaries (continued) |
Condensed Consolidating Statement of Cash Flows for the Six Months ended June 30, 2002 | ||||||||||||||||
(in thousands) | ABC | Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||
Operating activities | ||||||||||||||||
Net income | $ | 8,296 | $ | 1,308 | $ | (1,308 | ) | $ | 8,296 | |||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||
Depreciation | 7,180 | 254 | — | 7,434 | ||||||||||||
Amortization | 152 | 32 | — | 184 | ||||||||||||
Amortization of deferred financing costs | 154 | — | — | 154 | ||||||||||||
Provision for doubtful accounts | 4,585 | — | — | 4,585 | ||||||||||||
Loss on disposal of property and equipment | 123 | 5 | — | 128 | ||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (33,788 | ) | (7,405 | ) | 4,724 | (36,469 | ) | |||||||||
Inventories | (66,220 | ) | (296 | ) | 414 | (66,102 | ) | |||||||||
Prepaid expenses and other | 314 | (202 | ) | — | 112 | |||||||||||
Other assets | (2,741 | ) | 2,496 | — | (245 | ) | ||||||||||
Accounts payable | 91,295 | 4,827 | (4,724 | ) | 91,398 | |||||||||||
Accrued liabilities | 525 | 916 | — | 1,441 | ||||||||||||
Cash provided by operating activities | 9,875 | 1,935 | (894 | ) | 10,916 | |||||||||||
Investing activities | ||||||||||||||||
Additions to property and equipment | (12,908 | ) | (951 | ) | — | (13,859 | ) | |||||||||
Proceeds from disposal of property and equipment | 302 | 29 | — | 331 | ||||||||||||
Acquisitions of businesses | (5,892 | ) | — | — | (5,892 | ) | ||||||||||
Investment in subsidiaries | (894 | ) | — | 894 | — | |||||||||||
Cash used in investing activities | (19,392 | ) | (922 | ) | 894 | (19,420 | ) | |||||||||
Financing activities | ||||||||||||||||
Net borrowings under line of credit | 21,778 | — | — | 21,778 | ||||||||||||
Payments on long-term debt | (2,069 | ) | (42 | ) | — | (2,111 | ) | |||||||||
Change in net receivable from affiliates | (7,021 | ) | — | — | (7,021 | ) | ||||||||||
Distributions to sole stockholder | (5,676 | ) | (1,124 | ) | — | (6,800 | ) | |||||||||
Payments of debt financing costs | (313 | ) | — | — | (313 | ) | ||||||||||
Cash provided by (used in) financing activities | 6,699 | (1,166 | ) | — | 5,533 | |||||||||||
Net decrease in cash | (2,818 | ) | (153 | ) | — | (2,971 | ) | |||||||||
Cash at beginning of period | 6,040 | 74 | — | 6,114 | ||||||||||||
Cash at end of period | $ | 3,222 | $ | (79 | ) | $ | — | $ | 3,143 | |||||||
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American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
4. | Comprehensive Income |
The Company’s comprehensive income for the three and six month periods ended June 30, 2003 and 2002, as required to be reported by Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 130, was identical to the actual income reported for those periods.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company. ABC is a distributor of exterior building products and is the largest wholesale distributor of roofing products and one of the largest wholesale distributors of vinyl siding materials in the United States, operating 258 distribution centers located in 43 states and the District of Columbia as of June 30, 2003. Since January 1, 2003, the Company has completed one acquisition with two locations which were consolidated into existing ABC centers, opened six distribution centers, consolidated three other distribution centers and closed one distribution centers.
Provision for Income Taxes. ABC and its subsidiaries are operated as Subchapter S corporations under the Internal Revenue Code. As a result, these entities do not incur federal and state income taxes (except with respect to certain states) and, accordingly, no discussion of income taxes is included in “Results of Operations” below. Federal and state income taxes (except with respect to certain states) on the income of such corporations are incurred and paid directly by the Company’s sole stockholder. Such corporations have historically made periodic distributions to the stockholder with respect to such tax liabilities. The Company entered into the Tax Allocation Agreement with the sole stockholder, pursuant to which he will receive distributions from the Company with respect to taxes associated with the Company’s income.
Special Note Regarding Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements are based on the beliefs of the Company’s management as well as on assumptions made by and information currently available to the Company at the time such statements were made. When used in this MD&A, the words “anticipate,” “believe,” “estimate,” “expect,” “intends” and similar expressions, as they relate to the Company are intended to identify forward-looking statements, which include statements relating to, among other things: (i) the ability of the Company to continue to successfully compete in the roofing and vinyl siding products market; (ii) the continued effectiveness of the Company’s sales and marketing strategy; and (iii) the ability of the Company to continue to successfully develop and launch new distribution centers. Actual results could differ materially from those projected in the forward-looking statements as a result of the matters discussed herein and certain economic and business factors, some of which may be beyond the control of the Company.
Results of Operations
The following table summarizes the Company’s historical results of operations as a percentage of net sales for the three and six months ended June 30, 2003 and 2002:
Three months ended June 30, | Six months ended June 30, | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||
Income statement data: | ||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of sales | 75.0 | 74.9 | 74.9 | 75.0 | ||||||||
Gross profit | 25.0 | 25.1 | 25.1 | 25.0 | ||||||||
Operating expenses | 20.5 | 21.0 | 22.4 | 22.7 | ||||||||
Operating income | 4.5 | % | 4.1 | % | 2.7 | % | 2.3 | % | ||||
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Comparison of the Three and Six Month Periods Ended June 30, 2003 to the Three and Six Month Periods Ended June 30, 2002
The Company’s results of operations are affected by the seasonal nature of the roofing and siding business. See “Seasonality.”
Net sales for the three months ended June 30, 2003 increased by 20.4% to $470.0 million from $390.3 million for the three months ended June 30, 2002. Net sales for the six months ended June 30, 2002 increased by 21.3% to $796.7 million from $656.7 million for the six months ended June 30, 2002. Increases for both the three and six months are primarily due to the 2002 acquisition activity. Comparable distribution center sales growth was 4.6% for the three months ended June 30, and 4.1% for the six months ended June 30. Increases in comparable distribution center sales are due primarily to increases in volume.
Gross profit for the three months ended June 30, 2003 increased by 19.7%, to $117.5 million from $98.2 million for the three months ended June 30, 2002, primarily as a result of profits associated with increased sales. Gross profit, as a percent of net sales, for the three months ended June 30, decreased to 25.0% in 2003, from 25.1% in 2002. Gross profit for the six months ended June 30, 2003 increased by 21.5% to $199.6 million from $164.3 million for the six months ended June 30, 2002, primarily as a result of profits associated with increased sales. Gross profit, as a percent of net sales, for the six months ended June 30, increased to 25.1% in 2003 from 25.0% in 2002.
Operating expenses increased by $14.1 million to $96.1 million from $82.0 million for the three months ended June 30, 2003 and 2002, respectively. As a percent of net sales, operating expenses for the three months ended June 30, decreased to 20.4% in 2003 from 21.0% in 2002. For the six months ended June 30, operating expenses increased by $29.6 million to $178.3 million in 2003, from $148.7 million in 2002. As a percent of net sales, operating expenses for the six months ended June 30, decreased to 22.4% in 2003 from 22.7% in 2002. The decrease in operating expenses as a percent of net sales for both the three and six months ended June 30 is primarily due to the Company’s ability to administer continued growth without incrementally increasing general and administrative expenses at both the corporate and regional levels, as well as improving operations from the 2002 acquisition activity that was consolidated into existing ABC distribution centers.
Operating incomefor the three months ended June 30, 2003 increased by $5.2 million to $21.3 million from $16.1 million for the same period in 2002. Operating income for the six months ended June 30, increased by $5.8 million to $21.2 million in 2003 from $15.4 million in 2002. The increase for the three and six months ended June 30, is a result of the factors discussed above.
Interest expense for the three months ended June 30, 2003 decreased by $0.4 million or 11.3% to $4.0 million from $3.6 million for the three months ended June 30, 2002. For the six months ended June 30, interest expense increased by $0.8 million or 12.0% to $7.8 million in 2003 from $7.0 million in 2002. The increase for the three and six month periods is due primarily to an increase in the Company’s average borrowing levels, being partially offset by reduced rates on the Company’s LIBOR and prime rate borrowings.
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Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash provided by (used in) operating activities was $(17.4) million and $10.9 million for the six months ended June 30, 2003 and 2002, respectively. The change was due primarily to increases in accounts receivables, associated with increased sales, a smaller increase in accounts payable, and increased inventory related to the increased number of distribution centers.
Cash Flows from Investing Activities. Net cash used in investing activities decreased to $9.7 million from $19.4 million for the six months ended June 30, 2003 and 2002, respectively, due to reductions in additions to property and equipment as well as a reduction in acquisitions of businesses.
Cash Flows from Financing Activities. Net cash provided by financing activities was $23.3 million and $5.5 million for the six months ended June 30, 2003 and 2002, respectively, primarily due to increased borrowings made under the line of credit as well as proceeds from long-term debt and net change in receivables from affiliates, being partially offset by increased distributions made to the stockholder.
Liquidity. The Company’s principal sources of funds are anticipated to be cash flows from operating activities and borrowings under its revolving credit agreement. Effective June 4, 2003, the Company increased the maximum amount it may borrow under its revolving credit agreement from $275 million to $325 million under terms similar to those previously in place. The Company believes that these funds will provide the Company with sufficient liquidity and capital resources for the Company to meet its financial obligations, as well as to provide funds for the Company’s working capital, capital expenditures and other needs for the foreseeable future. No assurances can be given, however, that this will be the case.
Seasonality
Because of cold weather conditions in many of the markets in which the Company does business and the seasonal nature of the roofing and siding business generally, the Company’s revenues vary substantially throughout the year, with its lowest revenues typically occurring in the months of December through February.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and have not materially changed since that report was filed.
Item 4. | Controls and Procedures |
Evaluation of disclosure controls and procedures. The Company’s chief executive officer and chief financial officer have performed an evaluation of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) issued under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2003. Based on that evaluation, the chief executive officer and chief financial officer each have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the Company’s periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and regulation.
Changes in internal controls. No changes in the Company’s internal controls over financial reporting occurred during the quarter ended June 30, 2003 that have materially affected, or are reasonable likely to materially affect, the Company’s internal controls over financial reporting.
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Part II. Other Information
Item 6. | Exhibits and Reports on Form 8-K |
(a) Exhibits
10.1 | Second Amendment to Third Amended and Restated Loan and Security Agreement among American Builders & Contractors Supply Co., Inc. as Borrower, Bank of America, National Association as Agent and a Lender, and the Other Lenders Party Hereto dated as of June 4, 2003. | |
31.1 | Rule 15d-14(a) Certifications of CEO | |
31.2 | Rule 15d-14(a) Certifications of CFO |
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months ended June 30, 2003.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. | ||
August 14, 2003 | /s/ KENDRA A. STORY | |
Date: | Kendra A. Story Chief Financial Officer and Director |
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