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, 2002
[ ] 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 15, 2002, 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, 2002
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 2002 and December 31, 2001 .......... 3
Condensed Statements of Operations -
Three Months Ended March 31, 2002 and 2001 .... 4
Condensed Statements of Cash Flows -
Three Months Ended March 31, 2002 and 2001 .... 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 ................. 11
Signature ........................................ 12
2
DIAMOND TRIUMPH AUTO GLASS, INC.
CONDENSED Balance Sheets
(Dollars in Thousands except per share amounts)
March 31, 2002 December 31, 2001
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,873 $ 6,592
Accounts receivable, net 13,728 11,596
Other receivables 271 387
Inventories 16,255 16,757
Prepaid expenses 1,681 1,383
Deferred income taxes 3,501 3,540
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Total current assets 42,309 40,255
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Equipment and leasehold improvements, net 8,346 7,799
Deferred loan costs and senior notes discount, net 4,998 5,183
Deferred income taxes 38,030 38,111
Other assets 499 498
------------ ------------
Total assets $ 94,182 $ 91,846
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 8,853 $ 10,640
Accrued expenses:
Payroll and related items 5,909 4,678
Accrued interest 4,630 2,317
Accrued income taxes 1,609 1,679
Other 872 389
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Total accrued expenses 13,020 9,063
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Total current liabilities 21,873 19,703
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Long-term debt:
Credit facility -- --
Senior notes 100,000 100,000
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Total long-term debt 100,000 100,000
------------ ------------
Total liabilities 121,873 119,703
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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 2002 and 2001,
at liquidation preference value 56,165 54,530
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Stockholders' equity (deficit):
Common stock, 2002 and 2001 par value $0.01 per share;
authorized 1,100,000 shares; issued and outstanding
1,000,000 shares 10 10
Additional paid-in capital 39,628 41,263
Retained earnings (accumulated deficit) (123,494) (123,660)
------------ ------------
Total stockholders' equity (deficit) (83,856) (82,387)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 94,182 $ 91,846
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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, 2002 March 31, 2001
------------------ ------------------
Net sales $ 48,157 $ 50,057
Cost of sales 13,637 14,331
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Gross profit 34,520 35,726
Operating expenses 31,723 29,845
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Income from operations 2,797 5,881
Other (income) expense:
Interest income (61) (11)
Interest expense 2,572 2,587
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2,511 2,576
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Income before provision for income taxes 286 3,305
Provision for income taxes 120 1,322
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Net income 166 1,983
Preferred stock dividends 1,635 1,453
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Net (loss) income applicable to common stockholders $ (1,469) $ 530
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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, 2002 March 31, 2001
------------------ ------------------
OPERATING ACTIVITIES
Net cash provided by operating activities $ 1,514 $ 4,229
------------ ------------
INVESTING ACTIVITIES
Capital expenditures (1,217) (656)
Proceeds from sale of equipment 35 175
Decrease in other assets (1) (88)
------------ ------------
Net cash used in investing activities (1,183) (569)
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FINANCING ACTIVITIES
Net proceeds from credit facility -- 1,000
Payments on credit facility -- (1,500)
Deferred loan cost (50) (50)
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Net cash used in financing activities $ (50) $ (550)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 281 3,110
Cash and cash equivalents, beginning of period 6,592 25
------------ ------------
Cash and cash equivalents, end of period $ 6,873 $ 3,135
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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, 2001. 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, 2002 and December 31, 2001, the
liquidation value of the Preferred Stock recorded on Diamond's
Balance Sheet was $56,165 and $54,530, respectively, which includes
dividends of $21,165 and $19,530, 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 $5,000, is available for the issuance of
letters of credit, which generally have an initial term of one year
or less. Diamond had $3,546 in outstanding letters of credit at
March 31, 2002. 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 2.00% 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, 2002.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In 2001, Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment of Disposition of Long-Lived
Assets" was issued. This standard establishes one accounting model
to be used for measuring impairment of long-lived assets. The
Company does not expect adoption of SFAS No. 144 to have a material
impact on its financial statements.
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, 2002 and 2001.
THREE MONTHS ENDED MARCH 31,
---------------------------------
2002 2001
-------------- --------------
$ % $ %
---- ----- ---- -----
(DOLLARS IN MILLIONS)
Net Sales 48.2 100.0 50.0 100.0
Cost of Sales 13.7 28.4 14.3 28.6
---- ----- ---- -----
Gross Profit 34.5 71.6 35.7 71.4
Operating Expenses 31.7 65.8 29.8 59.6
---- ----- ---- -----
Income From Operations 2.8 5.8 5.9 11.8
Interest Income (0.1) (0.2) -- --
Interest Expense 2.6 5.4 2.6 5.2
---- ----- ---- -----
2.5 5.2 2.6 5.2
---- ----- ---- -----
Income before provision for income taxes 0.3 0.6 3.3 6.6
Provision (Benefit) for income taxes 0.1 0.2 1.3 2.6
---- ----- ---- -----
Net income 0.2 0.4 2.0 4.0
==== ===== ==== =====
EBITDA(1) 3.5 7.3 6.5 13.0
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(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, 2002 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2001
Net Sales. Net sales for the three months ended March 31, 2002
decreased by $1.8 million, or 3.6%, to $48.2 million from $50.0
million for the three months ended March 31, 2001. During the three
months ended March 31, 2002, installation units decreased by 4.9%
and revenue per installation unit increased an average of 1.2%. The
decrease in units sold is primarily due to the historically mild
winter weather conditions experienced throughout a large portion of
the United States and the recessionary economic climate experienced
in the aftermath of the events of September 11th , which has
resulted in weaker industry demand. 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, 2002 decreased by $1.2 million, or 3.4%, to $34.5 million from
$35.7 million for the three months ended March 31, 2001. Gross
profit increased as a percentage of sales to 71.6% for the three
months ended March 31, 2002 from 71.4% for the three months ended
March 31, 2001. The decrease in gross profit for the three months
ended March 31, 2002 was primarily due to a decrease in net sales
compared to the three months ended March 31, 2001 , which was
partially offset by the increased average revenue per installation
unit.
7
Operating Expenses. Operating expenses for the three months
ended March 31, 2002 increased by $1.9 million, or 6.4%, to $31.7
million from $29.8 million for the three months ended March 31,
2001. Operating expenses increased as a percentage of sales to 65.8%
for the three months ended March 31, 2002 from 59.6% for the three
months ended March 31, 2001. The increase in operating expenses
during the three months ended March 31, 2002 compared to the three
months ended March 31, 2001 was primarily due to an increase in
service center and distribution center costs related to expansion,
primarily for wages and wage related expenses, advertisement and
promotional expenses and occupancy costs. The increase in operating
expenses was also due to a general increase in wages and wage
related expenses experienced primarily at service centers combined
with an increase in sales and marketing expenses, insurance expense
due to increase in insurance premiums and advertisement and
promotional expense.
Depreciation and amortization expense for the period ended
March 31, 2002 increased by $0.1 million, or 16.7%, to $0.7 million
from $0.6 million for the three months ended March 31, 2001. This
increase was primarily due to the amortization and depreciation
expense related to certain sales, billing and financial systems
software and computer hardware implemented in 2001 and 2002. This
increase was partially offset by a decrease in expense due to the
increased use of a master fleet leasing program for the lease of
mobile installation and distribution service vehicles.
Income From Operations. Income from operations for the three
months ended March 31, 2002 decreased by $3.1 million, or 52.5%, to
$2.8 million from $5.9 million for the three months ended March 31,
2001. This decrease was primarily due to the decrease in net sales
and increase in operating expenses as discussed above.
Interest Expense. Interest expense remained at $2.6 million
for the three months ended March 31, 2002 and 2001. Cash interest
expense also remained at $2.3 million for the three months ended
March 31, 2002 and 2001.
Net Income. Net income for the three months ended March 31,
2002 decreased by $1.8 million to $0.2 million from $2.0 million for
the three months ended March 31, 2001. Net income as a percentage of
sales decreased to 0.4% for the three months ended March 31, 2002
from 4.0% for the three months ended March 31, 2001. The decrease in
net income and net income margin during the three months ended March
31, 2002 compared to the three months ended March 31, 2001 was
primarily due to the impact of decreased net sales and increased
operating expenses.
EBITDA. EBITDA for the three months ended March 31, 2002
decreased by $3.0 million, or 46.2%, to $3.5 million from $6.5
million for the three months ended March 31, 2001. The decrease in
EBITDA for the three months ended March 31, 2002 was primarily due
to the decrease in net sales and 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.
Net Cash Provided by Operating Activities. Net cash provided
by operating activities for the three months ended March 31, 2002
decreased by $2.7 million to $1.5 million from $4.2 million for the
three months ended March 31, 2001. The change was primarily
attributable to a decrease in Diamond's net earnings and related
decrease in deferred income taxes.
8
Net Cash Used in Investing Activities. Net cash used in
investing activities for the three months ended March 31, 2002
increased $0.6 million to $1.2 million from $0.6 million used in
investing activities for the three months ended March 31, 2001. The
primary reason for the increase was an increase in capital
expenditures.
Net Cash Used in Financing Activities. Net cash used in
financing activities for the three months ended March 31, 2002
decreased $0.5 million from $0.5 million used for the three months
ended March 31, 2001. The primary reason for this decrease was the
lack of borrowing on the credit facility during the three months
ended March 31, 2002.
Capital Expenditures. Capital expenditures for the three
months ended March 31, 2002 were $1.2 million, as compared to $0.7
million for the three months ended March 31, 2001. Capital
expenditures for the three months ended March 31, 2002 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.
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. See " -- Significant
Accounting Policies - Income Tax" in Diamond's annual report on Form
10-K for the year-ended December 31, 2001, for a discussion of the
Internal Revenue Service's proposed adjustments with respect to
Diamond's tax treatment of the Transaction (as such term is defined
in the annual report on Form 10-K).
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following summarizes Diamond's contractual cash
obligations and other commercial commitments as of March 31, 2002.
PAYMENTS DUE BY PERIOD (DOLLARS IN THOUSANDS)
---------------------------------------------
CONTRACTUAL CASH OBLIGATIONS TOTAL LESS THAN 1 YEAR AFTER 5 YEARS
----- ---------------- -------------
Long Term Debt $ 100,000 -- 100,000
Operating Leases 812 812 --
--------------------------------------------
Total Contractual Cash Obligations $ 100,812 812 100,000
========= ======== =======
AMOUNT OF COMMITMENT
EXPIRATION PER PERIOD
(DOLLARS IN THOUSANDS)
-----------------------
OTHER COMMERCIAL COMMITMENTS TOTAL AMTS
COMMITTED 1-3 YEARS
--------- ---------
Standby Letters of Credit $ 3,546 3,546
Operating Lease - Contingent 8,157 8,157
Guaranteed Residual Value
-----------------------
Total Commercial Commitments $11,703 11,703
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9
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, 2001 discusses certain of these risks and
uncertainties under the caption "Factors Affecting Future
Performance."
10
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K.
There were no reports on form 8-K filed during the quarter ended March 31,
2002.
11
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, 2002 By: /s/ Michael A. Sumsky
--------------------------------
Name: Michael A. Sumsky
Title: President,
Chief Financial Officer and
General Counsel (Principal
Financial and Chief Accounting
Officer)
12