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 September 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 N0.)
Code Number)
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 November 1, 2001
Index
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - September 30, 2001 and December
31, 2000
Condensed consolidated statements of operations and retained earnings -
Three months ended September 30, 2001 and 2000; Nine months ended September
30, 2001 and 2000
Condensed consolidated statements of cash flows - Nine months ended
September 30, 2001 and 2000
Notes to condensed consolidated financial statements - September 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)
September 30, December 31,
ASSETS 2001 2000
----------------- ----------------
Current assets:
Cash $ 3,325 $ 5,009
Accounts receivable 205,205 142,768
Inventories 201,425 151,578
Prepaid expenses and other 3,667 2,880
-------- --------
Total current assets 413,622 302,235
Property and equipment, net 66,517 66,100
Net receivable from sole stockholder 5,243 3,452
Goodwill 36,875 37,847
Other intangible assets 4,480 5,263
Other assets 2,319 2,373
-------- --------
$529,056 $417,270
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $186,677 $ 78,634
Accrued payroll and benefits 9,512 10,020
Accrued liabilities 18,189 11,891
Current portion of long-term debt 5,447 6,067
-------- --------
Total current liabilities 219,825 106,612
Long-term debt 250,149 271,480
Contingent liabilities (Note 2)
Stockholder's equity:
Common stock -- --
Additional paid-in capital 3,779 3,779
Retained earnings 55,303 35,399
-------- --------
Total stockholder's equity 59,082 39,178
-------- --------
$529,056 $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 Nine months ended
September 30, September 30,
------------------------------ -------------------------------
2001 2000 2001 2000
------------ ----------- ------------ -----------
Net sales $ 409,262 $ 362,203 $ 1,027,572 $ 941,166
Cost of sales 307,740 275,275 777,174 714,151
----------- ----------- ----------- -----------
Gross profit 101,522 86,928 250,398 227,015
Operating expenses:
Distribution centers 70,289 63,517 190,953 177,759
General and administrative 5,309 5,894 16,512 20,002
Amortization of intangible assets 400 400 1,201 1,201
----------- ----------- ----------- -----------
75,998 69,811 208,666 198,962
----------- ----------- ----------- -----------
Operating income 25,524 17,117 41,732 28,053
Other income (expense):
Interest income 106 60 333 246
Interest expense (4,785) (6,614) (15,455) (19,091)
----------- ----------- ----------- -----------
(4,679) (6,554) (15,122) (18,845)
----------- ----------- ----------- -----------
Income before provision for income taxes and
extraordinary item 20,845 10,563 26,610 9,208
Provision for income taxes 272 68 454 239
----------- ----------- ----------- -----------
Income before extraordinary item 20,573 10,495 26,156 8,969
Extraordinary item (Note 4) -- 1,043 -- 1,043
----------- ----------- ----------- -----------
Net income 20,573 11,538 26,156 10,012
Retained earnings at beginning of period 36,530 20,664 35,399 23,894
Distributions to sole stockholder (1,800) (852) (6,252) (2,556)
----------- ----------- ----------- -----------
Retained earnings at end of period $ 55,303 $ 31,350 $ 55,303 $ 31,350
=========== =========== =========== ===========
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)
Nine months ended September 30,
------------------------------------------
2001 2000
----------------- ---------------
Operating activities
Net income $ 26,156 $ 10,012
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 11,085 10,974
Amortization 1,201 1,201
Amortization of deferred financing costs 554 279
Provision for doubtful accounts 6,702 7,142
Loss on disposal of property and equipment 258 757
Extraordinary item --- (1,043)
Changes in operating assets and liabilities:
Accounts receivable (69,140) (43,285)
Inventories (49,847) (29,866)
Prepaid expenses and other (786) 215
Other assets 54 202
Accounts payable 108,043 76,485
Accrued liabilities 5,790 1,190
----------------- ---------------
Cash provided by operating activities 40,070 34,263
Investing activities
Additions to property and equipment (12,388) (14,180)
Proceeds from disposal of property and equipment 629 1,403
Acquisitions of businesses --- (282)
----------------- ---------------
Cash used in investing activities (11,759) (13,059)
Financing activities
Net repayments under line of credit (4,859) (11,427)
Payments on long-term debt (17,092) (11,370)
Change in net receivable from sole stockholder (1,792) 2,624
Distributions to sole stockholder (6,252) (2,556)
----------------- ---------------
Cash used in financing activities (29,995) (22,729)
----------------- ---------------
Net decrease in cash (1,684) (1,525)
Cash at beginning of period 5,009 4,717
----------------- ---------------
Cash at end of period $ 3,325 $ 3,192
================= ===============
See notes to condensed consolidated financial statements.
4
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 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
nine months ended September 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 September 30, 2001 and December 31, 2000, the Company had guaranteed
debt of the sole stockholder in the amounts of $1,640,000 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 September 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 nine months ended September 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
September 30, 2001
(in thousands)
Subsidiary
ABC Guarantors Eliminations Consolidated
------------- -------------- --------------- ---------------
Assets
Current assets:
Cash $ 3,088 $ 237 $ - $ 3,325
Accounts receivable 204,835 11,426 (11,056) 205,205
Inventories 203,328 1,129 (3,032) 201,425
Intercompany advances (2,521) 2,521 - -
Prepaid expenses and other 2,748 919 - 3,667
------------- -------------- --------------- ---------------
Total current assets 411,478 16,232 (14,088) 413,622
Property and equipment, net 66,051 466 - 66,517
Investment in subsidiaries 3,195 - (3,195) -
Net receivable from sole stockholder 5,243 - - 5,243
Goodwill 36,875 - - 36,875
Other intangible assets 4,480 - - 4,480
Other assets 2,199 120 - 2,319
------------- -------------- --------------- ---------------
$ 529,521 $ 16,818 $ (17,283) $ 529,056
============= ============== =============== ===============
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 188,339 $ 9,394 $ (11,056) $ 186,677
Accrued payroll and benefits 9,327 185 - 9,512
Accrued liabilities 17,177 1,012 - 18,189
Current portion of long-term debt 5,447 - - 5,447
------------- -------------- --------------- ---------------
Total current liabilities 220,290 10,591 (11,056) 219,825
Long-term debt 250,149 - - 250,149
Contingent liabilities
Stockholder's equity:
Common stock - - - -
Additional paid-in capital 3,779 1 (1) 3,779
Retained earnings 55,303 6,226 (6,226) 55,303
------------- -------------- --------------- ---------------
Total stockholder's equity 59,082 6,227 (6,227) 59,082
------------- -------------- --------------- ---------------
$ 529,521 $ 16,818 $ (17,283) $ 529,056
============= ============== =============== ===============
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 September 30, 2001
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
---------------------------------------------------------------------
Net sales $ 408,629 $ 16,935 $ (16,302) $ 409,262
Cost of sales 309,942 14,013 (16,215) 307,740
---------------------------------------------------------------------
Gross profit 98,687 2,922 (87) 101,522
Operating expenses:
Distribution centers 68,962 1,327 - 70,289
General and administrative 5,019 290 - 5,309
Amortization of intangible assets 400 - - 400
---------------------------------------------------------------------
74,381 1,617 - 75,998
---------------------------------------------------------------------
Operating income 24,306 1,305 (87) 25,524
Other income (expense):
Interest income 106 - - 106
Interest expense (4,785) - - (4,785)
---------------------------------------------------------------------
(4,679) - - (4,679)
---------------------------------------------------------------------
Income before provision for income
taxes and equity in earnings of
subsidiaries 19,627 1,305 (87) 20,845
Provision for income taxes 270 2 - 272
---------------------------------------------------------------------
19,357 1,303 (87) 20,573
Equity in earnings of subsidiaries 1,216 - (1,216) -
---------------------------------------------------------------------
Net income $ 20,573 $ 1,303 $ (1,303) $ 20,573
=====================================================================
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 September 30, 2000
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
---------------------------------------------------------------------
Net sales $ 361,572 $ 14,933 $ (14,302) $ 362,203
Cost of sales 277,367 12,424 (14,516) 275,275
---------------------------------------------------------------------
Gross profit 84,205 2,509 214 86,928
Operating expenses:
Distribution centers 62,293 1,224 - 63,517
General and administrative 5,646 248 - 5,894
Amortization of intangible assets 400 - - 400
---------------------------------------------------------------------
68,339 1,472 - 69,811
---------------------------------------------------------------------
Operating income 15,866 1,037 214 17,117
Other income (expense):
Interest income 60 - - 60
Interest expense (6,614) - - (6,614)
---------------------------------------------------------------------
(6,554) - - (6,554)
---------------------------------------------------------------------
Income before provision for income taxes,
extraordinary item and equity in
earnings of subsidiaries 9,312 1,037 214 10,563
Provision for income taxes 62 6 - 68
---------------------------------------------------------------------
Income before extraordinary item and equity
in earnings of subsidiaries 9,250 1,031 214 10,495
Extraordinary item 1,043 - - 1,043
---------------------------------------------------------------------
Income before equity in earnings of
Subsidiaries 10,293 1,031 214 11,538
Equity in earnings of subsidiaries 1,245 - (1,245) -
---------------------------------------------------------------------
Net income $ 11,538 $ 1,031 $ (1,031) $ 11,538
=====================================================================
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 Nine Months ended September 30, 2001
(in thousands)
Subsidiary
ABC Guarantors Eliminations Consolidated
---------------------------------------------------------------
Net sales $ 1,025,276 $ 47,704 $ (45,408) $ 1,027,572
Cost of sales 782,472 39,418 (44,716) 777,174
---------------------------------------------------------------
Gross profit 242,804 8,286 (692) 250,398
Operating expenses:
Distribution centers 186,901 4,052 - 190,953
General and administrative 15,667 845 - 16,512
Amortization of intangible assets 1,201 - - 1,201
---------------------------------------------------------------
203,769 4,897 - 208,666
---------------------------------------------------------------
Operating income 39,035 3,389 (692) 41,732
Other income (expense):
Interest income 333 - - 333
Interest expense (15,455) - - (15,455)
---------------------------------------------------------------
(15,122) - - (15,122)
---------------------------------------------------------------
Income before provision for income taxes
and equity in earnings of subsidiaries 23,913 3,389 (692) 26,610
Provision for income taxes 448 6 - 454
---------------------------------------------------------------
Income before equity in earnings of
subsidiaries 23,465 3,383 (692) 26,156
Equity in earnings of subsidiaries 2,691 - (2,691) -
---------------------------------------------------------------
Net income $ 26,156 $ 3,383 $ (3,383) $ 26,156
===============================================================
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 Nine Months ended September 30, 2000
(in thousands)
Subsidiary
ABC Guarantors Eliminations Consolidated
--------------------------------------------------------------
Net sales $ 939,178 $ 43,611 $ (41,623) $ 941,166
Cost of sales 719,103 36,279 (41,231) 714,151
--------------------------------------------------------------
Gross profit 220,075 7,332 (392) 227,015
Operating expenses:
Distribution centers 174,218 3,541 - 177,759
General and administrative 19,086 916 - 20,002
Amortization of intangible assets 1,201 - - 1,201
---------------------------------------------------------------
194,505 4,457 - 198,962
---------------------------------------------------------------
Operating income 25,570 2,875 (392) 28,053
Other income (expense):
Interest income 246 - - 246
Interest expense (19,091) - - (19,091)
---------------------------------------------------------------
(18,845) - - (18,845)
---------------------------------------------------------------
Income before provision for income taxes,
extraordinary item and equity in
earnings of subsidiaries 6,725 2,875 (392) 9,208
Provision for income taxes 227 12 - 239
---------------------------------------------------------------
Income before extraordinary item and equity
in earnings of subsidiaries 6,498 2,863 (392) 8,969
Extraordinary item 1,043 - - 1,043
---------------------------------------------------------------
Income before equity in earnings of
subsidiaries 7,541 2,863 (392) 10,012
Equity in earnings of subsidiaries 2,471 - (2,471) -
---------------------------------------------------------------
Net income $ 10,012 $ 2,863 $ (2,863) $ 10,012
===============================================================
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 Nine Months ended September 30, 2001
(in thousands)
Subsidiary
ABC Guarantors Eliminations Consolidated
-----------------------------------------------------------
Operating activities
Net income $ 26,156 $ 3,383 $ (3,383) $ 26,156
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 10,923 162 - 11,085
Amortization 1,201 - - 1,201
Amortization of deferred financing costs 554 - - 554
Provision for doubtful accounts 6,691 11 - 6,702
(Gain) loss on disposal of property and equipment 259 (1) - 258
Changes in operating assets and liabilities:
Accounts receivable (69,011) (4,376) 4,247 (69,140)
Inventories (50,741) 202 692 (49,847)
Prepaid expenses and other (834) 48 - (786)
Other assets (1,855) 1,909 - 54
Accounts payable 109,225 3,065 (4,247) 108,043
Accrued liabilities 5,791 (1) - 5,790
-----------------------------------------------------------
Cash provided by operating activities 38,359 4,402 (2,691) 40,070
Investing activities
Additions to property and equipment (12,128) (260) - (12,388)
Proceeds from disposal of property and equipment 614 15 - 629
Investment in subsidiaries (2,691) - 2,691 -
-----------------------------------------------------------
Cash used in investing activities (14,205) (245) 2,691 (11,759)
Financing activities
Net payments under line of credit (4,859) - - (4,859)
Payments on long-term debt (17,092) - - (17,092)
Change in net receivable from sole stockholder (1,792) - - (1,792)
Distributions to sole stockholder (1,974) (4,278) - (6,252)
-----------------------------------------------------------
Cash used in financing activities (25,717) (4,278) - (29,995)
-----------------------------------------------------------
Net decrease in cash (1,563) (121) - (1,684)
Cash at beginning of period 4,651 358 - 5,009
-----------------------------------------------------------
Cash at end of period $ 3,088 $ 237 $ - $ 3,325
===========================================================
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 Nine Months ended September 30, 2000
(in thousands) Subsidiary
ABC Guarantors Eliminations Consolidated
------------------------------------------------------------
Operating activities
Net income $ 10,012 $ 2,863 $(2,863) $ 10,012
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 10,784 190 -- 10,974
Amortization 1,201 -- -- 1,201
Amortization of deferred financing costs 279 -- -- 279
Provision for doubtful accounts 7,142 -- -- 7,142
Loss on disposal of property and equipment 731 26 -- 757
Extraordinary item (1,043) -- -- (1,043)
Changes in operating assets and liabilities:
Accounts receivable (43,216) (5,049) 4,980 (43,285)
Inventories (30,288) 30 392 (29,866)
Prepaid expenses and other 73 142 -- 215
Other assets 2,350 (2,148) -- 202
Accounts payable 77,389 4,076 (4,980) 76,485
Accrued liabilities 1,216 (26) -- 1,190
------------------------------------------------------------
Cash provided by operating activities 36,630 104 (2,471) 34,263
Investing activities
Additions to property and equipment (14,064) (116) -- (14,180)
Proceeds from disposal of property and equipment 1,368 35 -- 1,403
Acquisitions of businesses (282) -- -- (282)
Investment in subsidiaries (2,471) -- 2,471 --
------------------------------------------------------------
Cash used in investing activities (15,449) (81) 2,471 (13,059)
Financing activities
Net payments under line of credit (11,427) -- -- (11,427)
Payments on long-term debt (11,370) -- -- (11,370)
Change in net receivable from sole stockholder 2,624 -- -- 2,624
Distributions to sole stockholder (2,556) -- -- (2,556)
------------------------------------------------------------
Cash used in financing activities (22,729) -- -- (22,729)
------------------------------------------------------------
Net increase (decrease) in cash (1,548) 23 -- (1,525)
Cash at beginning of period 4,648 69 -- 4,717
------------------------------------------------------------
Cash at end of period $ 3,100 $ 92 $ -- $ $ 3,192
============================================================
13
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
4. Extraordinary Item
During the third quarter of 2001, the Company repurchased $15.5 million of
its Senior Subordinated Notes. The difference between par value of the Senior
Subordinated Notes and the repurchase price, net of the applicable portion of
the unamortized deferred financing fees written off, was not material.
During the third quarter of 2000, the Company repurchased $11.6 million of
its Senior Subordinated Notes. The purchase resulted in an extraordinary gain of
$1.0 million net of the amortization of a portion of the original transaction
fees and other expenses.
5. Comprehensive Income
The Company's comprehensive income for the three and nine month periods
ended September 30, 2001 and 2000, as required to be reported by FASB Statement
No. 130, was identical to the actual income reported for those periods.
6. 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 207 distribution centers located in 43 states as of
September 30, 2001. Since January 1, 2001, the Company has opened ten
distribution centers and closed three.
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 nine months ended
September 30, 2001 and 2000:
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ---------- ----------- -----------
Income statement data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 75.2 76.0 75.6 75.9
------------ ---------- ----------- -----------
Gross profit 24.8 24.0 24.4 24.1
Operating expenses:
Distribution centers 17.2 17.6 18.6 18.9
General and administrative 1.3 1.6 1.6 2.1
Amortization of intangible assets 0.1 0.1 0.1 0.1
------------ ---------- ----------- -----------
Total operating expenses 18.6 19.3 20.3 21.1
------------ ---------- ----------- -----------
Operating income 6.2% 4.7% 4.1% 3.0%
============ ========== =========== ===========
15
Comparison of the Three and Nine Month Periods Ended September 30, 2001 to the
Three and Nine Month Periods Ended September 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 September 30, 2001 increased by 13.0%
to $409.3 million from $362.2 million for the three months ended September 30,
2000. Net sales for the nine months ended September 30, 2001 increased by 9.2%
to $1,027.6 million from $941.2 million for the nine months ended September 30,
2000. Comparable distribution center sales growth was 10.8% and 7.8% for the
three and nine months ended September 30, respectively. Increases in comparable
distribution center sales are due primarily to increases in volume.
Gross profit for the three months ended September 30, 2001 increased by
16.8%, to $101.5 million from $86.9 million for the three months ended September
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 September
30, increased to 24.8% in 2001, from 24.0% in 2000. Gross profit for the nine
months ended September 30, 2001 increased by 10.3% to $250.4 million from $227.0
million for the nine months ended September 30, 2000, primarily as a result of
profits associated with increased sales. Gross profit, as a percent of net
sales, for the nine months ended September 30, increased to 24.4% in 2001 from
24.1% in 2000.
Distribution center operating expenses increased by $6.8 million to $70.3
million from $63.5 million for the three months ended September 30, 2001 and
2000, respectively. As a percent of net sales, distribution center operating
expenses for the three months ended September, decreased to 17.2% in 2001 from
17.6% in 2000. For the nine months ended September 30, distribution center
operating expenses increased by $13.2 million to $191.0 million in 2001, from
$177.8 million in 2000. As a percent of net sales, distribution center operating
expenses for the nine months ended September 30, decreased to 18.6% in 2001 from
18.9% in 2000.
General and administrative expenses for the three months ended September
30, decreased by $0.6 million to $5.3 million in 2001 from $5.9 million in 2000.
General and administrative expenses as a percent of net sales decreased to 1.3%
in 2001 from 1.6% in 2000. For the nine months ended September 30, general and
administrative expenses decreased by $3.5 million to $16.5 million in 2001 from
$20.0 million in 2000. General and administrative expenses as a percent of net
sales decreased to 1.6% in 2001 from 2.1% in 2000. The principle reason for the
decrease in general and administrative expenses is due to non-recurring
professional fees incurred in 2000 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 September 30, 2001 increased by
$8.4 million to $25.5 million from $17.1 million for the same period in 2000.
Operating income for the nine months ended September 30, increased by $13.6
million to $41.7 million in 2001 from $28.1 million in 2000. The increase for
the three and nine months ended September 30, is a result of the factors
discussed above.
Interest expense for the three months ended September 30, 2001 decreased by
$1.8 million or 27.7% to $4.8 million from $6.6 million for the three months
ended September 30, 2000. For the nine months ended September 30, interest
expense decreased by $3.6 million or 19.0% to $15.5 million in 2001 from $19.1
million in 2000. The decrease for the three and nine month periods is due to
both decreased rates on the Company's LIBOR and prime rate borrowings, as well
as a reduction in the Company's borrowing levels.
16
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash provided by operating
activities was $40.1 million and $34.3 million for the nine months ended
September 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
decreased to $11.8 million from $13.1 million for the nine months ended
September 30, 2001 and 2000, respectively, due to fewer purchases of property
and equipment, partially offset by lower proceeds from disposals of property and
equipment as a result of fewer disposals.
Cash Flows from Financing Activities. Net cash used in financing activities
was $30.0 million and $22.7 million for the nine months ended September 30, 2001
and 2000, respectively, due primarily to increased distributions to the sole
stockholder under the Tax Allocation Agreement.
During the third quarter of 2001, the Company repurchased $15.5 million of
its Senior Subordinated Notes. The difference between par value of the Senior
Subordinated Notes and the repurchase price, net of the applicable portion of
the unamortized deferred financing fees written off, was not material.
During the third quarter of 2000, the Company repurchased $11.6 million of
its Senior Subordinated Notes. The purchase resulted in an extraordinary gain of
$1.0 million net of the amortization of a portion of the original transaction
fees and other expenses. The funds to repurchase the Senior Subordinated Notes
were obtained primarily through additional borrowings under the Company's
revolving credit agreement.
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.
17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2001.
18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Builders & Contractors Supply
Co., Inc.
November 9, 2001 /s/ Kendra A. Story
- ------------------------- ---------------------------------------
Date: Kendra A. Story
Chief Financial Officer and Director
19