SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-33572
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DIAMOND TRIUMPH AUTO GLASS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2758853
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 DIVISION STREET, KINGSTON, PENNSYLVANIA 18704
(Address, including zip code of principal executive offices)
(570) 287-9915
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports to be filed by Section 13 or Section 15(d)
of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
As of May 10, 2000, there were 1,000,000 shares
outstanding of Diamond's Common Stock ($.01 par value) and
35,000 shares outstanding of Diamond's Series A 12% Senior
Redeemable Cumulative Preferred Stock ($.01 par value).
DIAMOND TRIUMPH AUTO GLASS, INC.
Form 10-Q
For the Quarter Ended March 31, 2000
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 2000 and December 31, 1999................... 3
Condensed Statements of Operations - Three Months Ended
March 31, 2000 and 1999................................ 4
Condensed Statements of Cash Flows - Three Months Ended
March 31, 2000 and 1999............................... 5
Notes to Condensed Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation...................... 7
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.............. 10
Item 6. Exhibits and Reports on Form 8-K....................... 10
Signature.............................................. 11
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAMOND TRIUMPH AUTO GLASS, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $39 $94
Accounts receivable, net 13,851 10,895
Other receivables 498 189
Inventories 12,214 12,620
Prepaid expenses 930 962
Deferred income taxes 3,081 3,081
--------- --------
Total current assets 30,613 27,841
--------- --------
Equipment and leasehold improvements, net 7,173 7,693
Deferred loan costs and senior notes discount, net 6,708 7,502
Deferred income taxes 43,692 44,082
Other assets 389 401
--------- -------
Total assets $88,575 $87,519
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $10,252 $7,950
Accrued expenses:
Payroll and related items 3,838 3,314
Accrued interest 4,633 2,363
Accrued income taxes 1,253 1,216
Other 592 362
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Total accrued expenses 10,316 7,255
--------- -------
Total current liabilities 20,568 15,205
--------- -------
Long-term debt:
Credit facility 2,500 7,500
Senior notes 100,000 100,000
--------- -------
Total long-term debt 102,500 107,500
--------- -------
Total liabilities 123,068 122,705
--------- -------
Series A 12% senior redeemable cumulative preferred stock -
par value $0.01 per share; authorized 100,000 shares;
issued and outstanding 35,000 shares in 2000 and 1999,
at liqudation preference value 44,338 43,046
--------- -------
Stockholders' equity (deficit):
Common stock, 2000 and 1999 par value $0.01 per share;
authorized 1,100,000 shares; issued and outstanding
1,000,000 shares 10 10
Additional paid-in capital 51,455 52,747
Retained earnings (accumulated deficit) (130,296) (130,989)
--------- -------
Total stockholders' equity (deficit) (78,831) (78,232)
--------- -------
Total liabilities and stockholders' equity (deficit) $88,575 $87,519
========= =======
See notes to condensed financial statements
3
DIAMOND TRIUMPH AUTO GLASS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in Thousands)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------ ------------------
Net sales $44,665 $41,412
Cost of sales 13,864 12,842
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Gross profit 30,801 28,570
Operating expenses 26,039 23,766
------------- -----------
Income from operations 4,762 4,804
Other (income) expense:
Interest income (38) (11)
Interest expense 2,806 2,718
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2,768 2,707
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Income before provision for income taxes and
extraordinary loss on extinguishment of debt 1,994 2,097
Provision for income taxes 797 838
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Net income before extraordinary item 1,197 1,259
Extraordinary loss on extinguishment of
debt, net of income taxes of $336 504 -
------------- -----------
Net income 693 1,259
Preferred stock dividends 1,292 1,147
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Net (loss) income applicable to common
stockholders ($599) $112
============= ===========
See notes to condensed financial statements
4
DIAMOND TRIUMPH AUTO GLASS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
OPERATING ACTIVITIES
Net cash provided by operating activities $5,383 $3,507
---------- --------
INVESTING ACTIVITIES
Capital expenditures (193) (726)
Proceeds from sale of equipment 14 31
Decrease in other assets 11 83
---------- --------
Net cash used in investing activities (168) (612)
---------- --------
FINANCING ACTIVITIES
Net proceeds from credit facility 2,500 3,000
Payments on credit facility (7,500) (6,000)
Deferred loan cost (270) -
---------- --------
Net cash used in financing activities ($5,270) ($3,000)
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (55) (105)
Cash and cash equivalents, beginning of period 94 301
---------- --------
Cash and cash equivalents, end of period $39 $196
========== ========
See notes to condensed financial statements
5
Diamond Triumph Auto Glass, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Note 1. Significant Accounting Policies
These interim financial statements are unaudited but, in the
opinion of management, reflect all adjustments (consisting
only of normal recurring adjustments) necessary to present
fairly the data for these periods. The interim financial
statements should be read in conjunction with the audited
financial statements and notes thereto contained in Diamond's
Annual Report on Form 10-K for the fiscal year ended December
31, 1999. Diamond's results for interim periods are not
normally indicative of results to be expected for the fiscal
year. Diamond's business is somewhat seasonal, with the first
and fourth calendar quarters of each year traditionally being
its slowest periods of activity. This reduced level of sales
has historically resulted in less operating income during the
first and fourth calendar quarters of each year. The severity
of weather also has an impact on Diamond's sales and operating
income, with severe winter weather generating increased sales
and income and mild winters generating lower sales and income.
Deferred Loan Costs - Unamortized deferred loan costs of $504
(net of income taxes of $336) related to the old revolving
credit facility were recorded as an extraordinary loss on the
extinguishment of outstanding debt under the old credit
facility, which was repaid with borrowings under the new
credit facility.
Preferred Stock - At March 31, 2000 and December 31, 1999, the
liquidation value of the Preferred Stock recorded on Diamond's
Balance Sheet was $44,338 and $43,046, respectively, which
includes dividends of $9,338 and $8,046, respectively, added
to the liquidation value.
Long-Term Debt:
Credit Facility - On March 27, 2000, Diamond entered into a
new credit facility. The new credit facility has an initial
term of four years and provides for revolving advances of up
to the lesser of: (1) $25,000; (2) the sum of 85% of Diamond's
Eligible Accounts Receivable (as defined in the new credit
facility) plus 85% of Diamond's Eligible Inventory (as defined
in the new credit facility), less certain reserves; or (3) an
amount equal to 1.5 times Diamond's EBITDA (as defined in the
new credit facility) for the prior twelve months. A portion of
the new credit facility, not to exceed $3,000, is available
for the issuance of letters of credit. Borrowings under the
new credit facility bear interest, at Diamond's discretion, at
either the Chase Manhattan Bank Rate (as defined in the new
credit facility) or LIBOR, plus a margin of 0.50% for the
Chase Manhattan Rate and 2.25% for the LIBOR Rate. In
addition, a commitment fee of 0.25% is charged against any
unused balance of the new credit facility. Interest rates are
subject to increases or reductions based upon Diamond meeting
certain EBITDA levels. The proceeds of the new credit facility
are available for working capital requirements and for general
corporate purposes. The new credit facility is secured by
first priority security interests in all of Diamond's tangible
and intangible assets. In addition, the new credit facility
contains certain restrictive covenants including, among other
things, the maintenance of a minimum EBITDA level for the
prior twelve months, as well as restrictions on additional
indebtedness, dividends and certain other significant
transactions.
Senior Notes - On April 27, 2000, Diamond commenced an offer
to exchange up to $100,000,000 in aggregate principal amount
of its new 9 1/4% Senior Notes due 2008 (the "New Notes") for
any and all of its outstanding 9 1/4% Senior Notes due 2008
(the "Old Notes"). The terms of the New Notes are
substantially identical to the terms of the Old Notes, except
for certain transfer restrictions and registration rights
relating to the Old Notes. The exchange offer relating to the
New Notes has been registered under the Securities Act of
1933, as amended, pursuant to a registration statement that
was declared effective by the Securities and Exchange
Commission on April 27, 2000. The exchange offer is scheduled
to expire on June 12, 2000, unless extended by Diamond.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table summarizes Diamond's historical results of
operations and historical results of operations as a
percentage of sales for the three months ended March 31, 2000
and 1999.
Three Months Ended March 31,
2000 1999
------------ ---------------
$ % $ %
------------ --------------
(dollars in millions)
Sales..................................... 44.7 100.0 41.4 100.0
Cost of Sales............................. 13.9 31.1 12.8 30.9
----- ----- ----- -----
Gross Profit.............................. 30.8 68.9 28.6 69.1
Operating Express......................... 26.0 58.2 23.8 57.5
----- ----- ----- -----
Income From Operations.................... 4.8 10.7 4.8 11.6
Interest Income........................... - - - -
Interest Expense.......................... 2.8 6.3 2.7 6.5
----- ----- ----- -----
2.8 6.3 2.7 6.5
----- ----- ----- -----
Income before provisions for income taxes
and extraorinary loss on etinguishment
of debt................................. 2.0 4.5 2.1 5.1
Provision for income taxes................ 0.8 1.8 0.8 1.9
----- ----- ----- -----
Net income before extraordinary item...... 1.2 2.7 1.3 3.1
Extraordinary loss on extinguishment of
debt, net of taxes...................... 0.5 1.1 - -
----- ----- ----- -----
Net income................................ 0.7 1.6 1.3 3.1
===== ===== ===== =====
EBITDA (1)............................... 5.5 12.3 5.4 13.0
---------------------
(1) EBITDA represents income before taxes, interest expense,
depreciation and amortization expense. While EBITDA is not
intended to represent cash flow from operations as defined by
GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by
GAAP) as a measure of liquidity, it is included herein to
provide additional information with respect to Diamond's
ability to meet its future debt service, capital expenditure
and working capital requirements.
Three Months Ended March 31, 2000 Compared to Three Months
Ended March 31, 1999
Sales. Net sales for the three months ended March 31,
2000 increased by $3.3 million, or 8.0%, to $44.7 million from
$41.4 million for the three months ended March 31, 1999.
Replacement unit volume increased 3.5% during the three months
ended March 31, 2000 compared to the three months ended March
31, 1999. The increase in sales and replacement unit volume
was primarily attributable to service centers opened in 1998
and 1999. Diamond experienced a slight increase in its average
revenue per replacement unit for the three months ended March
31, 2000 compared to the three months ended March 31, 1999.
The increase in Diamond's average revenue per replacement unit
was primarily attributable to an increase in demand related to
inclement weather conditions experienced throughout a large
portion of Diamond's network. In addition, during the three
months ended March 31, 2000, there was a net opening of two
new service centers.
Gross Profit. Gross profit for the three months ended
March 31, 2000 increased by $2.2 million, or 7.7%, to $30.8
million from $28.6 million for the three months ended March
31, 1999. The increase in gross profit for the three months
ended March 31, 2000 was due to an increase in average revenue
per unit and net sales discussed above. Gross profit as a
percentage of net sales for the three months ended March 31,
2000
7
decreased to 68.9% from 69.1% for the three months ended March
31, 1999. The decrease in gross profit percentage for the
three months ended March 31, 2000 was due to an increase in
product costs compared to the three months ended March 31,
1999.
Operating Expenses. Operating expenses for the three
months ended March 31, 2000 increased by $2.2 million, or
9.2%, to $26.0 million from $23.8 million for the three months
ended March 31, 1999. The increase in operating expenses for
the three months ended March 31, 2000 was primarily
attributable to the continued expansion of capacity within
Diamond's service center and distribution center network and
an increase in gasoline and vehicle related expenses.
Operating expenses as a percentage of sales increased to 58.2%
for the three months ended March 31, 2000 from 57.5% for the
three months ended March 31, 1999. The increase in operating
expenses as a percentage of sales is primarily attributable to
increased gasoline and vehicle related expenses, primarily due
to rising gas prices and an increase in service center wage
rates in the three months ended March 31, 2000 compared to the
three months ended March 31, 1999.
Depreciation and amortization expense for the period
ending March 31, 2000 increased by $0.1 million, or 16.7%, to
$0.7 million from $0.6 million for the same period in 1999.
This increase is attributable to an increase in amortization
expense related to the implementation of certain sales,
billing and financial systems software.
Income From Operations. Income from operations was
$4.8 million for the three months ended March 31, 2000 and
1999. The increase in gross profit for the three months ended
March 31, 2000 was offset by the increase in operating
expenses for the same period. Income from operations as a
percentage of sales decreased to 10.7% for the three months
ended March 31, 2000 from 11.6% for the three months ended
March 31, 1999. This decrease is attributable to the slight
reduction in gross margin and increase in operating expenses
as a percentage of sales due to the factors discussed above.
Interest Expense. Interest expense for the three
months ended March 31, 2000 increased by $0.1 million, or
3.7%, to $2.8 million from $2.7 million for the three months
ended March 31, 1999. Cash interest expense was $2.6 million
for the three months ended March 31, 2000 compared to $2.5
million for the three months ended March 31, 1999.
Net Income Before Extraordinary Item. Net income
before the extraordinary item for the three months ended March
31, 2000 decreased by $0.1 million, or 7.7%, to $1.2 million
from $1.3 million for the three months ended March 31, 1999.
This decrease was due to a $0.1 million increase in interest
expense as discussed above.
Net Income. Net income for the three months ended
March 31, 2000 decreased by $0.6 million, or 46.2%, to $0.7
million from $1.3 million for the three months ended March 31,
1999. Net income as a percentage of sales decreased to 1.6%
for the three months ended March 31, 1999 from 3.1% for the
three months ended March 31, 1999. The decrease in net income
and net income margin during the three months ended March 31,
2000 compared to the three months ended March 31, 1999 was
primarily due to a $0.5 million, net of taxes, extraordinary
loss related to the extinguishment of debt under the old
credit facility, which was repaid with borrowings under the
new credit facility.
EBITDA. EBITDA was $5.5 million for the three months
ended March 31, 2000, representing an increase of $0.1
million, or 1.9%, as compared to $5.4 million for the three
months ended March 31, 1999. EBITDA as a percentage of sales
decreased to 12.3% for the three months ended March 31, 2000
from 13.0% for the three months ended March 31, 1999. The
increase in EBITDA for the three months ended March 31, 2000
was due to the increase in sales compared to the three months
ended March 31, 1999. The decrease in EBITDA margin for the
three months ended March 31, 2000 compared to the three months
ended March 31, 1999 was due to a reduction in gross margin
percentage and an increase in operating expenses as a
percentage of sales due to the factors discussed above.
Liquidity and Capital Resources
Diamond's need for liquidity will arise primarily
from the interest payable on the senior notes, the new credit
facility and the funding of Diamond's capital expenditures and
working capital requirements. There are no mandatory principal
payments on the senior notes prior to their maturity on April
1, 2008 and,
8
except to the extent that the borrowing base under the new
credit facility exceeds the amount outstanding thereunder, no
required payments of principal on the new credit facility
prior to its expiration on March 27, 2004.
Net Cash Provided by Operating Activities. Net cash
provided by operating activities for the three months ended
March 31, 2000 increased by $1.9 million to $5.4 million from
$3.5 million for the three months ended March 31, 1999. The
increase was primarily attributable to lower working capital
requirements in the three months ended March 31, 2000 compared
to the three months ended March 31, 1999. In particular, the
increase in accounts receivable for the three months ended
March 31, 2000 was $3.3 million compared to $4.5 million for
the three months ended March 31, 1999. In addition, inventory
decreased $0.4 million for the three months ended March 31,
2000 compared to an increase of $0.1 million for the three
months ended March 31, 1999.
Net Cash Used in Investing Activities. Net cash used
in investing activities for the three months ended March 31,
2000 was $0.2 million compared to $0.6 million in the three
months ended March 31, 1999. The primary reason for the
variance was a decrease in capital expenditures.
Net Cash Used in Financing Activities. Net cash used
by financing activities in the three months ended March 31,
2000 increased $2.3 million to $5.3 million compared to $3.0
million in the three months ended March 31, 1999. During the
three months ended March 31, 2000, Diamond repaid $5.0
million, net, of outstanding borrowings under its credit
facility and paid $0.3 million in loan costs.
Capital Expenditures. Capital expenditures for the
three months ended March 31, 2000 were $0.2 million, as
compared to $0.7 million for the three months ended March 31,
1999. Capital expenditures for the three months ended March
31, 2000 were made primarily to fund the continued upgrade of
Diamond's management information systems.
Liquidity. Management believes that Diamond will have
adequate capital resources and liquidity to satisfy its debt
service obligations, working capital needs and capital
expenditure requirements, including those related to the
opening of new service centers for the foreseeable future.
Diamond's capital resources and liquidity are expected to be
provided by Diamond's net cash provided by operating
activities and borrowings under the credit facility.
Forward-Looking Statements
Readers are cautioned that there are statements
contained in this report which are "forward-looking"
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act"). Forward-looking
statements include statements which are predictive in nature,
which depend upon or refer to future events or conditions,
which include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," or similar
expressions. In addition, any statements concerning future
financial performance (including future revenues, earnings or
growth rates), ongoing business strategies or prospects, and
possible future actions, which may be provided by management,
are also forward-looking statements as defined by the Act.
Forward-looking statements are based on current expectations
and projections about future events and are subject to risks,
uncertainties, and assumptions about Diamond, economic and
market factors and the industries in which Diamond does
business, among other things. These statements are not
guarantees of future performance and Diamond has no specific
intention to update these statements.
These forward-looking statements, like any
forward-looking statements, involve risks and uncertainties
that could cause actual results to differ materially from
those projected or anticipated. The risks and uncertainties
include the effect of overall economic and business
conditions, the demand for Diamond's products and services,
regulatory uncertainties, the impact of competitive products
and pricing, changes in customers' ordering patterns and
potential system interruptions. This list should not be
construed as exhaustive.
9
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On March 31, 1998: (1) Diamond declared and paid a
dividend of 3,500 shares of Series A 12% Senior Redeemable
Cumulative Preferred Stock to each of Kenneth Levine and
Richard Rutta; (2) Kenneth Levine and Richard Rutta
transferred all of the issued and outstanding shares of each
of Diamond's affiliated entities to Diamond in consideration
for which Diamond issued 6,950,000 shares of Common Stock to
Kenneth Levine and Richard Rutta (which shares of Common Stock
were subsequently redeemed by Diamond other than 100,000
shares of Common Stock owned by each of Kenneth Levine and
Richard Rutta); (3) Green Equity Investors II, L.P. purchased
(A) 770,000 shares of Common Stock for aggregate consideration
equal to $15.4 million, and (B) 28,000 shares of Series A 12%
Senior Redeemable Cumulative Preferred Stock for an aggregate
consideration of $28.0 million; and (4) Norman Harris and
Michael A. Sumsky purchased an aggregate of 30,000 shares of
Common Stock for aggregate consideration of $600,000. The
securities issued in these transactions were not registered
under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to the exemption provided under Section 4(2)
thereof for transactions not involving a public offering.
On March 31, 1998, Diamond sold $100.0 million in
aggregate principal amount of its 9 1/4% Senior Notes Due 2008
in a private offering to First Union Capital Markets, BT Alex.
Brown Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation. The securities issued in this transaction were
not registered under the Securities Act pursuant to the
exemption provided under Section 4(2) thereof for transactions
not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed
during the quarter ended March 31, 2000.
10
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.
DIAMOND TRIUMPH AUTO GLASS, INC.
Date: May 15, 2000 By: /s/ Michael A. Sumsky
-----------------------
Name: Michael A. Sumsky
Title: Executive Vice President
Chief Financial Officer and
General Counsel (Principal
Financial and Chief
Accounting Officer)
11