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, 2001
[ ] 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 14, 2001, 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, 2001
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 2001 and December 31, 2000............ 3
Condensed Statements of Operations -
Three Months Ended March 31,
2001 and 2000.................................... 4
Condensed Statements of Cash Flows -
Three Months Ended March 31,
2001 and 2000.................................... 5
Notes to Condensed Financial Statements............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................. 10
Signature......................................... 11
2
ITEM 1. FINANCIAL STATEMENTS
DIAMOND TRIUMPH AUTO GLASS, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands except per share amounts)
December 31,
March 31, 2001 2000
---------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $3,135 $25
Accounts receivable, net 15,424 13,977
Other receivables 378 373
Inventories 13,287 14,581
Prepaid expenses 1,159 1,084
Deferred income taxes 2,915 3,285
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Total current assets 36,298 33,325
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Equipment and leasehold improvements, net 6,089 6,154
Deferred loan costs and senior notes discount, net 5,888 6,073
Deferred income taxes 41,087 42,039
Other assets 492 404
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Total assets $89,854 $87,995
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $9,099 $11,952
Accrued expenses:
Payroll and related items 5,001 4,226
Accrued interest 4,630 2,329
Accrued income taxes 1,267 1,322
Other 700 492
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Total accrued expenses 11,598 8,369
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Total current liabilities 20,697 20,321
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Long-term debt:
Credit facility - 500
Senior notes 100,000 100,000
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Total long-term debt 100,000 100,500
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Total liabilities 120,697 120,821
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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 2001 and 2000, at liqudation
preference value 49,902 48,449
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Stockholders' equity (deficit):
Common stock, 2001 and 2000 par value $0.01 per share;
authorized 1,100,000 shares; issued and
outstanding 1,000,000 shares 10 10
Additional paid-in capital 45,891 47,344
Retained earnings (accumulated deficit) (126,646) (128,629)
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Total stockholders' equity (deficit) (80,745) (81,275)
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Total liabilities and stockholders' equity (deficit) $89,854 $87,995
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See notes to condensed financial statements
3
DIAMOND TRIUMPH AUTO GLASS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in Thousands except per share amounts)
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
------------------- -------------------
Net sales $50,057 $44,665
Cost of sales 14,331 13,864
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Gross profit 35,726 30,801
Operating expenses 29,845 26,039
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Income from operations 5,881 4,762
Other (income) expense:
Interest income (11) (38)
Interest expense 2,587 2,806
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2,576 2,768
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Income before provision for income taxes and
extraordinary loss on extinguishment of debt 3,305 1,994
Provision for income taxes 1,322 797
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Net income before extraordinary item 1,983 1,197
Extraordinary loss on extinguishment of debt,
net of income taxes of $336 - 504
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Net income 1,983 693
Preferred stock dividends 1,453 1,292
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Net income (loss) applicable to common stockholders $530 ($599)
============= ==============
See notes to condensed financial statements
4
DIAMOND TRIUMPH AUTO GLASS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands except per share amounts)
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
------------------- -------------------
OPERATING ACTIVITIES
Net cash provided by operating activities $4,229 $5,383
------------------- -------------------
INVESTING ACTIVITIES
Capital expenditures
(656) (193)
Proceeds from sale of equipment
175 14
Decrease in other assets
(88) 11
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Net cash used in investing activities
(569) (168)
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FINANCING ACTIVITIES
Net proceeds from credit facility
1,000 2,500
Payments on credit facility
(1,500) (7,500)
Deferred loan cost
(50) (270)
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Net cash used in financing activities
(550) (5,270)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
3,110 (55)
Cash and cash equivalents, beginning of period
25 94
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Cash and cash equivalents, end of period $3,135 $39
=================== ===================
See notes to condensed financial statements
5
Diamond Triumph Auto Glass, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
(Dollars in thousands except per share amounts)
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, 2000. Diamond's results
for interim periods are not normally indicative of results to be
expected for the fiscal year. Weather has historically affected
Diamond's sales, net income and EBITDA, with severe weather
generating increased sales, net income and EBITDA and mild
weather resulting in lower sales, net income and EBITDA. In
addition, Diamond's business is somewhat seasonal, with the first
and fourth calendar quarters traditionally its slowest periods of
activity.
Preferred Stock - At March 31, 2001 and December 31, 2000, the
liquidation value of the Preferred Stock recorded on Diamond's
Balance Sheet was $49,902 and $48,449, respectively, which
includes dividends of $14,902 and $13,449, respectively, added to
the liquidation value.
Long-Term Debt:
Credit Facility - On March 27, 2000, Diamond entered into a
revolving credit facility (the "Credit Facility"). The 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 Credit Facility) plus 85% of Diamond's Eligible Inventory
(as defined in the Credit Facility), less certain reserves; or
(3) an amount equal to 1.5 times Diamond's EBITDA (as defined in
the Credit Facility) for the prior twelve months. A portion of
the Credit Facility, not to exceed $3,000 is available for the
issuance of letters of credit, which generally have an initial
term of one year or less. Borrowings under the Credit Facility
bear interest, at Diamond's discretion, at either the Chase
Manhattan Bank Rate (as defined in the Credit Facility) or LIBOR,
plus a margin of 0.25% for the Chase Manhattan Rate and 2.0% for
the LIBOR Rate. In addition, a commitment fee of 0.25% is charged
against any unused balance of the credit facility. Interest rates
are subject to increases or reductions based upon Diamond meeting
certain EBITDA levels. The proceeds of the Credit Facility are
available for working capital requirements and for general
corporate purposes. The Credit Facility is secured by first
priority security interests in all of Diamond's tangible and
intangible assets. In addition, the 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. Diamond was
in compliance with these covenants at March 31, 2001.
Note 2. Recent Accounting Pronouncements
In January 2001, Diamond implemented Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires all
derivatives be measured at fair value and recorded on a company's
balance sheet as an asset or liability, depending on the
company's underlying rights or obligations associated with the
derivative instruments. During the quarter ended March 31, 2001,
Diamond had no derivatives and there was no financial statement
effect of implementing SFAS No. 133.
6
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, 2001 and 2000.
Three Months Ended March 31,
---------------------------------
2001 2000
---------------- ----------------
$ % $ %
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(dollars in millions)
Net Sales............................................ 50.0 100.0 44.7 100.0
Cost of Sales........................................ 14.3 28.6 13.9 31.1
------- -------- ------- -------
Gross Profit......................................... 35.7 71.4 30.8 68.9
Operating Expenses................................... 29.8 59.6 26.0 58.2
------- -------- ------- -------
Income From Operations............................... 5.9 11.8 4.8 10.7
Interest Income...................................... - - - -
Interest Expense..................................... 2.6 5.2 2.8 6.3
------- -------- ------- -------
2.6 5.2 2.8 6.3
------- -------- ------- -------
Income before provision for income taxes
and extraordinary loss on extinguishment
of debt.......................................... 3.3 6.6 2.0 4.5
Provision for income taxes........................... 1.3 2.6 0.8 1.8
------- -------- ------- -------
Net income before extraordinary item................. 2.0 4.0 1.2 2.7
Extraordinary loss on extinguishment of debt,
net of taxes - - 0.5 1.1
------- -------- ------- -------
Net income........................................... 2.0 4.0 0.7 1.6
======= ======== ======= =======
EBITDA (1) 6.5 13.0 5.5 12.3
- -------------------
(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, 2001 Compared to Three Months Ended
March 31, 2000
Net Sales. Net sales for the three months ended March 31,
2001 increased by $5.3 million, or 11.9%, to $50.0 million from
$44.7 million for the three months ended March 31, 2000. Although
installation units increased only 2.0%, revenue per installation
unit increased an average of 12.0%. The increase in Diamond's
average revenue per installation unit is attributable to
stabilization of price compression and to its sales mix.
Gross Profit. Gross profit for the three months ended
March 31, 2001 increased by $4.9 million, or 15.9%, to $35.7
million from $30.8 million for the three months ended March 31,
2000. Gross profit increased as a percentage of sales to 71.4%
for the three months ended March 31, 2001 from 68.9% for the
three months ended March 31, 2000. The increase in gross profit
for the three months ended March 31, 2001 was primarily due to
the increased level of sales and average revenue per installation
unit compared to the three months ended March 31, 2000.
7
Operating Expenses. Operating expenses for the three
months ended March 31, 2001 increased by $3.8 million, or 14.6%,
to $29.8 million from $26.0 million for the three months ended
March 31, 2000. Operating expenses increased as a percentage of
sales to 59.6% for the three months ended March 31, 2001 from
58.2% for the three months ended March 31, 2000. The increase in
operating expense during the three months ended March 31, 2001
compared to the three months ended March 31, 2000 was due to
higher wage expense caused by certain wage rate pressures,
including increased medical insurance and workers compensation
insurance costs, primarily at the service center level. The
increase in aggregate operating expenses was also due to an
increase in vehicle related expenses, increased promotional
activity and higher auto insurance and utility costs.
Depreciation and amortization expense for the period
ending March 31, 2001 decreased by $0.1 million, or 14.3%, to
$0.6 million from $0.7 million for the three months ended March
31, 2000. This decrease is primarily related to a continuing
decrease in owned vehicles in favor of a vehicle lease program.
Income From Operations. Income from operations for the
three months ended March 31, 2001 increased by $1.1 million, or
22.9%, to $5.9 million from $4.8 million for the three months
ended March 31, 2000. This increase was primarily due to the
increase in average revenue per installation unit and was
partially offset by an increase in operating expenses as
discussed above.
Interest Expense. Interest expense for the three months
ended March 31, 2001 decreased $0.2 million to $2.6 million from
$2.8 million for the three months ended March 31, 2000. Cash
interest expense was $2.3 million for the three months ended
March 31, 2001 compared to $2.6 million for the three months
ended March 31, 2000. The decrease was primarily due to a
reduction in outstanding borrowings under the credit facility
during the three months ended March 31, 2001 compared to the
three months ended March 31, 2000.
Net Income. Net income for the three months ended March
31, 2001 increased by $1.3 million to $2.0 million from $0.7
million for the three months ended March 31, 2000. Net income as
a percentage of sales increased to 4.0% for the three months
ended March 31, 2001 from 1.6% for the three months ended March
31, 2000. The increase in net income and net income margin during
the three months ended March 31, 2001 compared to the three
months ended March 31, 2000 was primarily due to the impact of
higher average revenue per installation unit that was partially
offset by an increase in operating expenses and in the provision
for income taxes.
EBITDA. EBITDA for the three months ended March 31, 2001
increased by $1.0 million, or 18.2%, to $6.5 million from $5.5
million for the three months ended March 31, 2000. EBITDA as a
percentage of sales increased to 13.0% for the three months ended
March 31, 2001 from 12.3% for the three months ended March 31,
2000. The increase in EBITDA and EBITDA margin for the three
months ended March 31, 2001 was primarily due to the impact of
higher average revenue per installation unit that was partially
offset by an increase in operating expenses as discussed above.
Liquidity and Capital Resources
Diamond's need for liquidity will arise primarily from the
interest payable on its 9 1/4% Senior Notes (the "Notes"), the
credit facility and the funding of Diamond's capital expenditures
and working capital requirements. There are no mandatory
principal payments on the Notes prior to their maturity on April
1, 2008 and, except to the extent that the amount outstanding
under the credit facility exceeds the borrowing base, no required
payments of principal on the credit facility prior to its
expiration on March 27, 2004.
8
Net Cash Provided by Operating Activities. Net cash
provided by operating activities for the three months ended March
31, 2001 decreased by $1.2 million to $4.2 million from $5.4
million for the three months ended March 31, 2000. The decrease
was primarily attributable to a $2.9 million decrease in accounts
payable and a $1.6 million increase in accounts receivable which
was partially offset by an increase in Diamond's net earnings and
a $1.3 million decrease in inventory.
Net Cash Used in Investing Activities. Net cash used in
investing activities for the three months ended March 31, 2001
increased $0.4 million to $0.6 million used from $0.2 million
used in investing activities for the three months ended March 31,
2000. The primary reason for the variance was an increase in
capital expenditures.
Net Cash Used in Financing Activities. Net cash used by
financing activities for the three months ended March 31, 2001
decreased $4.8 million to $0.5 million from $5.3 million for the
three months ended March 31, 2000. The primary reason for this
variance was a decrease in credit facility payments over proceeds
for the three months ended March 31, 2001 to $0.5 million from
$5.0 million for the three months ended March 31, 2000.
Capital Expenditures. Capital expenditures for the three
months ended March 31, 2001 were $0.7 million, as compared to
$0.2 million for the three months ended March 31, 2000. Capital
expenditures for the three months ended March 31, 2001 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 and distribution centers for the
foreseeable future through the life of its debt agreements.
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. Our annual report on Form
10-K in respect of the fiscal year ended December 31, 2000
discusses certain of these risks and uncertainties under the
caption "Factors Affecting Future Performance."
9
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K.
Not applicable.
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 14, 2001 By: /s/ Michael A. Sumsky
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Name: Michael A. Sumsky
Title: Executive Vice President
Chief Financial Officer and
General Counsel (Principal
Financial and Chief Accounting
Officer)
11