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, 2001
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.
Amcraft Building Products Co., Inc.
Mule-Hide Products Co., Inc.
- --------------------------------------------------------------------------------
(Exact names of registrant as specified in is charter)
Delaware 5033 39-1413708
Delaware 5033 39-1701778
Texas 5033 62-1277211
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification
Code Number) 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 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, 2001
Index
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - June 30, 2001 and December 31, 2000
Condensed consolidated statements of operations and retained earnings -
Three months ended June 30, 2001 and 2000; Six months ended June 30, 2001
and 2000
Condensed consolidated statements of cash flows - Six months ended
June 30, 2001 and 2000
Notes to condensed consolidated financial statements - June 30, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
1
Part I. Financial Information
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
June 30, December 31,
ASSETS 2001 2000
----------------- ------------------
Current assets:
Cash $ 3,147 $ 5,009
Accounts receivable 194,042 142,768
Inventories 198,707 151,578
Prepaid expenses and other 2,796 2,880
----------------- ------------------
Total current assets 398,692 302,235
Property and equipment, net 67,165 66,100
Net receivable from sole stockholder 5,574 3,452
Goodwill 37,199 37,847
Other intangible assets 4,948 5,263
Other assets 2,440 2,373
----------------- ------------------
$516,018 $417,270
================= ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $186,949 $ 78,634
Accrued payroll and benefits 8,775 10,020
Accrued liabilities 14,507 11,891
Current portion of long-term debt 5,447 6,067
----------------- ------------------
Total current liabilities 215,678 106,612
Long-term debt 260,031 271,480
Contingent liabilities (Note 2)
Stockholder's equity:
Common stock --- ---
Additional paid-in capital 3,779 3,779
Retained earnings 36,530 35,399
----------------- ------------------
Total stockholder's equity 40,309 39,178
----------------- ------------------
$516,018 $417,270
================= ==================
See notes to condensed consolidated financial statements.
Note: The balance sheet at December 31, 2000 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.
2
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Retained Earnings
(Unaudited)
(in thousands)
Three months ended June 30, Six months ended June 30,
------------------------------------- -------------------------------------
2001 2000 2001 2000
--------------- ---------------- --------------- ----------------
Net sales $370,828 $336,719 $618,311 $578,963
Cost of sales 281,504 255,036 469,434 438,876
--------------- ---------------- --------------- ----------------
Gross profit 89,324 81,683 148,877 140,087
Operating expenses:
Distribution centers 65,876 60,807 120,664 114,243
General and administrative 5,973 7,547 11,204 14,107
Amortization of intangible assets 400 400 800 800
--------------- ---------------- --------------- ----------------
72,249 68,754 132,668 129,150
--------------- ---------------- --------------- ----------------
Operating income 17,075 12,929 16,209 10,937
Other income (expense):
Interest income 117 69 226 186
Interest expense (4,996) (6,521) (10,671) (12,477)
--------------- ---------------- ---------------- ----------------
(4,879) (6,452) (10,445) (12,291)
--------------- ---------------- --------------- ----------------
Income (loss) before provision for income
taxes 12,196 6,477 5,764 (1,354)
Provision for income taxes 51 68 181 172
--------------- ---------------- --------------- ----------------
Net income (loss) 12,145 6,409 5,583 (1,526)
Retained earnings at beginning of period 27,985 15,959 35,399 23,894
Distributions to sole stockholder (3,600) (1,704) (4,452) (1,704)
--------------- ---------------- ---------------- ----------------
Retained earnings at end of period $ 36,530 $ 20,664 $ 36,530 $ 20,664
=============== ================ =============== ================
See notes to condensed consolidated financial statements.
3
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six months ended June 30,
---------------------------------------------
2001 2000
-------------------- -------------------
Operating activities
Net income (loss) $ 5,583 $ (1,526)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation 7,387 7,319
Amortization 800 800
Amortization of deferred financing costs 163 186
Provision for doubtful accounts 4,024 4,332
Loss on disposal of property and equipment 160 573
Changes in operating assets and liabilities:
Accounts receivable (55,298) (35,400)
Inventories (47,130) (48,141)
Prepaid expenses and other 3 (702)
Other assets 15 60
Accounts payable 108,314 59,268
Accrued liabilities 1,372 (2,875)
-------------------- -------------------
Cash provided by (used in) operating activities 25,393 (16,106)
Investing activities
Additions to property and equipment (9,029) (9,060)
Proceeds from disposal of property and equipment 418 1,098
-------------------- -------------------
Cash used in investing activities (8,611) (7,962)
Financing activities
Net borrowings (payments) under line of credit (10,774) 21,870
Payments on notes payable (1,296) (779)
Change in net receivable from sole stockholder (2,122) 3,126
Distributions to sole stockholder (4,452) (1,704)
-------------------- -------------------
Cash provided by (used in) financing activities (18,644) 22,513
-------------------- -------------------
Net decrease in cash (1,862) (1,555)
Cash at beginning of period 5,009 4,717
-------------------- -------------------
Cash at end of period $ 3,147 $ 3,162
==================== ===================
See notes to condensed consolidated financial statements.
4
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
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, 2001 are not indicative of the results that may be expected for the
year ending December 31, 2001 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, 2000.
2. Contingent Liabilities
At June 30, 2001 and December 31, 2000, the Company had guaranteed debt of
the sole stockholder in the amounts of $1,674,000 and $1,742,000, 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 amount of $3,664,000 at June 30, 2001 and December 31, 2000,
with respect to debt of the Company's sole stockholder and his affiliates.
3. Guarantor Subsidiaries
The following tables present condensed consolidating financial information
for the three and six months ended June 30, 2001 and 2000 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.
5
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, 2001
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
--------------------------------------------------------------------
Assets
Current assets:
Cash $ 3,059 $ 88 $ - $ 3,147
Accounts receivable 193,469 11,984 (11,411) 194,042
Inventories 200,497 1,155 (2,945) 198,707
Intercompany advances (1,745) 1,745 - -
Prepaid expenses and other 1,919 877 - 2,796
--------------------------------------------------------------------
Total current assets 397,199 15,849 (14,356) 398,692
Property and equipment, net 66,819 346 - 67,165
Investment in subsidiaries 2,340 - (2,340) -
Net receivable from sole stockholder 5,574 - - 5,574
Goodwill 37,199 - - 37,199
Other intangible assets 4,948 - - 4,948
Other assets 2,353 87 - 2,440
--------------------------------------------------------------------
$ 516,432 $ 16,282 $ (16,696) $516,018
====================================================================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 188,512 $ 9,848 $ (11,411) $ 186,949
Accrued payroll and benefits 8,556 219 - 8,775
Accrued liabilities 13,577 930 - 14,507
Current portion of long-term debt 5,447 - - 5,447
--------------------------------------------------------------------
Total current liabilities 216,092 10,997 (11,411) 215,678
Long-term debt 260,031 - - 260,031
Contingent liabilities
Stockholder's equity:
Common stock - - - -
Additional paid-in capital 3,779 1 (1) 3,779
Retained earnings 36,530 5,284 (5,284) 36,530
--------------------------------------------------------------------
Total stockholder's equity 40,309 5,285 (5,285) 40,309
--------------------------------------------------------------------
$ 516,432 $ 16,282 $ (16,696) $ 516,018
====================================================================
6
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, 2000
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
--------------------------------------------------------------
Assets
Current assets:
Cash $ 4,651 $ 358 $ - $ 5,009
Accounts receivable 142,516 7,060 (6,808) 142,768
Inventories 152,588 1,331 (2,341) 151,578
Intercompany advances (4,519) 4,519 - -
Prepaid expenses and other 1,913 967 - 2,880
-------------------------------------------------------------
Total current assets 297,149 14,235 (9,149) 302,235
Property and equipment, net 65,718 382 - 66,100
Investment in subsidiaries 4,782 - (4,782) -
Net receivable from sole stockholder 3,452 - - 3,452
Goodwill 37,847 - - 37,847
Other intangible assets 5,263 - - 5,263
Other assets 2,341 32 - 2,373
-------------------------------------------------------------
$ 416,552 $ 14,649 $ (13,931) $ 417,270
=============================================================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 79,114 $ 6,328 $ (6,808) $ 78,634
Accrued payroll and benefits 9,801 219 - 10,020
Accrued liabilities 10,912 979 - 11,891
Current portion of long-term debt 6,067 - - 6,067
-------------------------------------------------------------
Total current liabilities 105,894 7,526 (6,808) 106,612
Long-term debt 271,480 - - 271,480
Contingent liabilities
Stockholder's equity:
Common stock - - - -
Additional paid-in capital 3,779 1 (1) 3,779
Retained earnings 35,399 7,122 (7,122) 35,399
-------------------------------------------------------------
Total stockholder's equity 39,178 7,123 (7,123) 39,178
-------------------------------------------------------------
$ 416,552 $ 14,649 $ (13,931) $ 417,270
=============================================================
7
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. Guarantor Subsidiaries (continued)
Condensed Consolidating Statement of Operations
for the Three Months ended June 30, 2001
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
------------------------------------------------------------------------------
Net sales $369,850 $17,661 $(16,683) $370,828
Cost of sales 283,126 14,569 (16,191) 281,504
------------------------------------------------------------------------------
Gross profit 86,724 3,092 (492) 89,324
Operating expenses:
Distribution centers 64,484 1,392 - 65,876
General and administrative 5,609 364 - 5,973
Amortization of intangible assets 400 - - 400
------------------------------------------------------------------------------
70,493 1,756 - 72,249
------------------------------------------------------------------------------
Operating income 16,231 1,336 (492) 17,075
Other income (expense):
Interest income 117 - - 117
Interest expense (4,996) - - (4,996)
------------------------------------------------------------------------------
(4,879) - - (4,879)
------------------------------------------------------------------------------
Income before provision for income
taxes and equity in earnings of 11,352 1,336 (492) 12,196
subsidiaries
Provision for income taxes 46 5 - 51
------------------------------------------------------------------------------
11,306 1,331 (492) 12,145
Equity in earnings of subsidiaries 839 - (839) -
------------------------------------------------------------------------------
Net income $ 12,145 $ 1,331 $ (1,331) $ 12,145
==============================================================================
8
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. Guarantor Subsidiaries (continued)
Condensed Consolidating Statement of Operations
for the Three Months ended June 30, 2000
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
-----------------------------------------------------------------------------
Net sales $335,757 $16,099 $(15,137) $336,719
Cost of sales 256,477 13,473 (14,914) 255,036
-----------------------------------------------------------------------------
Gross profit 79,280 2,626 (223) 81,683
Operating expenses:
Distribution centers 59,634 1,173 - 60,807
General and administrative 7,212 335 - 7,547
Amortization of intangible assets 400 - - 400
-----------------------------------------------------------------------------
67,246 1,508 - 68,754
-----------------------------------------------------------------------------
Operating income 12,034 1,118 (223) 12,929
Other income (expense):
Interest income 69 - - 69
Interest expense (6,521) - - (6,521)
-----------------------------------------------------------------------------
(6,452) - - (6,452)
-----------------------------------------------------------------------------
Income before provision for income taxes
and equity in earnings of subsidiaries 5,582 1,118 (223) 6,477
Provision for income taxes 68 - - 68
-----------------------------------------------------------------------------
5,514 1,118 (223) 6,409
Equity in earnings of subsidiaries 895 - (895) -
-----------------------------------------------------------------------------
Net income $ 6,409 $ 1,118 $ (1,118) $ 6,409
=============================================================================
9
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. Guarantor Subsidiaries (continued)
Condensed Consolidating Statement of Operations
for the Six Months ended June 30, 2001
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
--------------------------------------------------------------
Net sales $ 616,647 $ 30,769 $ (29,105) $ 618,311
Cost of sales 472,530 25,405 (28,501) 469,434
--------------------------------------------------------------
Gross profit 144,117 5,364 (604) 148,877
Operating expenses:
Distribution centers 117,939 2,725 - 120,664
General and administrative 10,648 556 - 11,204
Amortization of intangible assets 800 - - 800
--------------------------------------------------------------
129,387 3,281 - 132,668
--------------------------------------------------------------
Operating income 14,730 2,083 (604) 16,209
Other income (expense):
Interest income 226 - - 226
Interest expense (10,671) - - (10,671)
--------------------------------------------------------------
(10,445) - - (10,445)
--------------------------------------------------------------
Income before provision for income taxes
and equity in earnings of subsidiaries 4,285 2,083 (604) 5,764
Provision for income taxes 177 4 - 181
--------------------------------------------------------------
4,108 2,079 (604) 5,583
Equity in earnings of subsidiaries 1,475 - (1,475) -
--------------------------------------------------------------
Net income $ 5,583 $ 2,079 $ (2,079) $ 5,583
==============================================================
10
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. Guarantor Subsidiaries (continued)
Condensed Consolidating Statement of Operations
for the Six Months ended June 30, 2000
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
---------------------------------------------------------------------
Net sales $ 577,606 $ 28,678 $(27,321) $578,963
Cost of sales 441,736 23,855 (26,715) 438,876
---------------------------------------------------------------------
Gross profit 135,870 4,823 (606) 140,087
Operating expenses:
Distribution centers 111,925 2,318 - 114,243
General and administrative 13,440 667 - 14,107
Amortization of intangible assets 800 - - 800
---------------------------------------------------------------------
126,165 2,985 - 129,150
---------------------------------------------------------------------
Operating income 9,705 1,838 (606) 10,937
Other income (expense):
Interest income 186 - - 186
Interest expense (12,477) - - (12,477)
---------------------------------------------------------------------
(12,291) - - (12,291)
---------------------------------------------------------------------
Income (loss) before provision for income
taxes and equity in earnings of subsidiaries (2,586) 1,838 (606) (1,354)
Provision for income taxes 166 6 - 172
---------------------------------------------------------------------
(2,752) 1,832 (606) (1,526)
Equity in earnings of subsidiaries 1,226 - (1,226) -
---------------------------------------------------------------------
Net income (loss) $ (1,526) $ 1,832 $ (1,832) $ (1,526)
=====================================================================
11
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, 2001
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
-------------------------------------------------------------------
Operating activities
Net income $ 5,583 $ 2,079 $(2,079) $ 5,583
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 7,282 105 - 7,387
Amortization 800 - - 800
Amortization of deferred financing costs 163 - - 163
Provision for doubtful accounts 4,016 8 - 4,024
Loss on disposal of property and equipment 160 - - 160
Change in operating assets and liabilities:
Accounts receivable (54,970) (4,930) 4,602 (55,298)
Inventories (47,910) 176 604 (47,130)
Prepaid expenses and other (88) 91 - 3
Other assets (2,702) 2,717 - 15
Accounts payable 109,397 3,519 (4,602) 108,314
Accrued liabilities 1,421 (49) - 1,372
----------------------------------------------------------------
Cash provided by operating activities 23,152 3,716 (1,475) 25,393
Investing activities
Additions to property and equipment (8,960) (69) - (9,029)
Proceeds from disposal of property and equipment 418 - - 418
Investment in subsidiaries (1,475) - 1,475 -
----------------------------------------------------------------
Cash used in investing activities (10,017) (69) 1,475 (8,611)
Financing activities
Net payments under line of credit (10,774) - - (10,774)
Payments on long-term debt (1,296) - - (1,296)
Change in net receivable from sole stockholder (2,122) - - (2,122)
Distributions to sole stockholder (535) (3,917) - (4,452)
----------------------------------------------------------------
Cash used in financing activities (14,727) (3,917) - (18,644)
----------------------------------------------------------------
Net decrease in cash (1,592) (270) - (1,862)
Cash at beginning of period 4,651 358 - 5,009
----------------------------------------------------------------
Cash at end of period $ 3,059 $ 88 $ - $ 3,147
================================================================
12
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, 2000
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
---------------------------------------------------------------
Operating activities
Net income (loss) $ (1,526) $ 1,832 $(1,832) $ (1,526)
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
Depreciation 7,176 143 - 7,319
Amortization 800 - - 800
Amortization of deferred financing costs 186 - - 186
Provision for doubtful accounts 4,332 - - 4,332
Loss on disposal of property and equipment 547 26 - 573
Change in operating assets and liabilities:
Accounts receivable (35,163) (4,345) 4,108 (35,400)
Inventories (49,056) 309 606 (48,141)
Prepaid expenses and other (816) 114 - (702)
Other assets 2,366 (2,306) - 60
Accounts payable 58,987 4,389 (4,108) 59,268
Accrued liabilities (2,856) (19) - (2,875)
-------------------------------------------------------------
Cash provided by (used in) operating activities (15,023) 143 (1,226) (16,106)
Investing activities
Additions to property and equipment (8,949) (111) - (9,060)
Proceeds from disposal of property and equipment 1,063 35 - 1,098
Investment in subsidiaries (1,226) - 1,226 -
-------------------------------------------------------------
Cash used in investing activities (9,112) (76) 1,226 (7,962)
Financing activities
Net borrowings under line of credit 21,870 - - 21,870
Payments on long-term debt (779) - - (779)
Change in net receivable from sole stockholder 3,126 - - 3,126
Distributions to sole stockholder (1,704) - - (1,704)
-------------------------------------------------------------
Cash provided by (used in) financing activities 22,513 - - 22,513
-------------------------------------------------------------
Net increase (decrease) in cash (1,622) 67 - (1,555)
Cash at beginning of period 4,648 69 - 4,717
-------------------------------------------------------------
Cash at end of period $ 3,026 $ 136 $ - $ 3,162
=============================================================
13
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
4. Comprehensive Income
The Company's comprehensive income (loss) for the three and six month periods
ended June 30, 2001 and 2000, as required to be reported by FASB Statement No.
130, was identical to the actual income (loss) reported for those periods.
5. Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed
to have indefinite lives will no longer be amortized but will be subject to
annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of approximately $1.3 million per year. During 2002, the Company
will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company. ABC is the largest wholesale distributor of roofing products and
one of the largest wholesale distributors of vinyl siding materials in the
United States, operating 205 distribution centers located in 43 states as of
June 30, 2001. Since January 1, 2001, the Company has opened seven distribution
centers and closed two.
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 (the Securities Act). 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 anticipated benefits from its
comprehensive evaluation of new operating and administrative processes (iii) the
continued effectiveness of the Company's sales and marketing strategy; and (iv)
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, 2001
and 2000:
Three months ended Six months ended
June 30, June 30,
----------------------------------- -----------------------------------
2001 2000 2001 2000
------------- ------------ ------------- -------------
Income statement data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 75.9 75.8 75.9 75.8
--------- --------- -------- --------
Gross profit 24.1 24.2 24.1 24.2
Operating expenses:
Distribution centers 17.8 18.0 19.5 19.7
General and administrative 1.6 2.3 1.9 2.5
Amortization of intangible assets 0.1 0.1 0.1 0.1
--------- --------- -------- --------
Total operating expenses 19.5 20.4 21.5 22.3
--------- --------- -------- --------
Operating income 4.6% 3.8% 2.6% 1.9%
========= ========= ======== ========
15
Comparison of the Three and Six Month Periods Ended June 30, 2001 to the Three
and Six Month Periods Ended June 30, 2000
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, 2001 increased by 10.1% to
$370.8 million from $336.7 million for the three months ended June 30, 2000.
Net sales for the six months ended June 30, 2001 increased by 6.8% to $618.3
million from $579.0 million for the six months ended June 30, 2000. Comparable
distribution center sales growth were 9.0% and 5.7% for the three and six months
ended June 30, respectively. Increases in comparable distribution center sales
are due primarily to increases in volume.
Gross profit for the three months ended June 30, 2001 increased by 9.3%, to
$89.3 million from $81.7 million for the three months ended June 30, 2000,
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 24.1% in 2001, from 24.2% in 2000. Gross profit for the six months ended
June 30, 2001 increased by 6.3% to $148.9 million from $140.1 million for the
six months ended June 30, 2000, 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, decreased to 24.1% in 2001 from 24.2% in 2000.
Distribution center operating expenses increased by $5.1 million to $65.9
million from $60.8 million for the three months ended June 30, 2001 and 2000,
respectively. As a percent of net sales, distribution center operating expenses
for the three months ended June 30, decreased to 17.8% in 2001 from 18.0% in
2000. For the six months ended June 30, distribution center operating expenses
increased by $6.5 million to $120.7 million in 2001, from $114.2 million in
2000. As a percent of net sales, distribution center operating expenses for the
six months ended June 30, decreased to 19.5% in 2001 from 19.7% in 2000.
General and administrative expenses for the three months ended June 30,
decreased by $1.5 million to $6.0 million in 2001 from $7.5 million in 2000.
General and administrative expenses as a percent of net sales decreased to 1.6%
in 2001 from 2.3% in 2000. For the six months ended June 30, general and
administrative expenses decreased by $2.9 million to $11.2 million in 2001 from
$14.1 million in 2000. General and administrative expenses as a percent of net
sales decreased to 1.9% in 2001 from 2.5% in 2000. A large portion of the
expense in 2000 was due to non-recurring professional fees incurred in
connection with management's evaluation of the Company's operating procedures,
as well as its needs for a next generation of computer system.
Operating income for the three months ended June 30, 2001 increased by $4.2
million to $17.1 million from $12.9 million for the same period in 2000.
Operating income for the six months ended June 30, increased by $5.3 million to
$16.2 million in 2001 from $10.9 million in 2000. 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, 2001 decreased by $1.5
million or 23.1% to $5.0 million from $6.5 million for the three months ended
June 30, 2000. For the six months ended June 30, interest expense decreased by
$1.8 million or 14.4% to $10.7 million in 2001 from $12.5 million in 2000. The
decrease for the three and six month periods is due to both a reduction in the
Company's borrowing levels as well as decreased 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 $25.4 million and $(16.1) million for the six months
ended June 30, 2001 and 2000, respectively. The increase was due primarily to
improved net income and increases in accounts payable related to inventory
purchases, partially offset by increases in accounts receivable related to
higher sales.
Cash Flows from Investing Activities. Net cash used in investing activities
increased to $8.6 million from $8.0 million for the six months ended June 30,
2001 and 2000, respectively, due to lower proceeds from disposals of property
and equipment as a result of fewer disposals.
Cash Flows from Financing Activities. Net cash provided by (used in)
financing activities was $(18.6) million and $22.5 million for the six months
ended June 30, 2001 and 2000, respectively, due primarily to the net payments
made under the line of credit as a result of improved operating cash flows
discussed above.
Liquidity. The Company's principal sources of funds are anticipated to be
cash flows from operating activities and borrowings under its revolving credit
agreement. 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.
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