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, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-26991
American Builders & Contractors Supply Co., Inc.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1413708
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 such filing
requirements for the past 90 days. [ ] Yes [X] 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, no par value, 147.04 shares as of July 31, 1997
Index
AMERICAN BUILDERS AND CONTRACTORS SUPPLY CO., INC. AND AFFILIATES
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1997 and December 31, 1996
Condensed consolidated statements of income--Three months ended June 30, 1997
and 1996; Six months ended June 30, 1997 and 1996
Condensed consolidated statements of cash flows--Six months ended June 30, 1997
and 1996
Notes to condensed consolidated financial statements-- June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part 11. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I. Financial Information
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheet (Unaudited)
December 31, June 30,
1996 1997
------------ ------------
ASSETS
Current assets:
Cash $ 2,630,000 $ 398,000
Accounts receivable 92,360,000 127,394,000
Inventories 95,779,000 144,641,000
Prepaid expenses and other 1,544,000 2,823,000
------------ ------------
Total current assets 192,313,000 275,256,000
------------ ------------
Property and equipment, net $ 49,944,000 $ 58,020,000
Net receivable from sole stockholder 5,149,000 1,917,000
Intangible assets, net 3,311,000 13,752,000
Security deposits 1,118,000 1,514,000
Other assets 113,000 42,000
------------ ------------
$251,948,000 $350,501,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Trade accounts payable $ 57,700,000 $134,009,000
Other payables and accrued liabilities 14,104,000 17,507,000
Current portion of long-term debt 8,520,000 8,360,000
------------ ------------
Total current liabilities 80,324,000 159,876,000
------------ ------------
Long-term debt 139,664,000 174,904,000
Contingent liabilities (Note 2)
Stockholder's equity:
Common stock 109,000 109,000
Additional paid-in capital 1,215,000 1,755,000
Retained earnings 30,636,000 13,857,000
------------ ------------
Total stockholder's equity 31,960,000 15,721,000
------------ ------------
$251,948,000 $350,501,000
============ ============
See notes to condensed consolidated financial statements.
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements Of Operations And Retained Earnings
(Unaudited)
Three months ended Six months ended
June 30 June 30
-------------------------------------------------
1996 1997 1996 1997
------------- ------------ ------------ ------------
Net sales $212,959,000 $248,511,000 $341,662,000 $411,283,000
Cost of sales 166,843,000 192,139,000 267,538,000 318,928,000
------------ ------------ ------------ ------------
Gross profit 46,116,000 56,372,000 74,124,000 92,355,000
Operating expenses:
Distribution centers 35,781,000 45,010,000 64,889,000 81,666,000
General and administrative 3,586,000 3,905,000 6,482,000 7,471,000
------------ ------------ ------------ ------------
39,367,000 48,915,000 71,371,000 89,137,000
------------ ------------ ------------ ------------
Operating income 6,749,000 7,457,000 2,753,000 3,218,000
Other income (expense):
Interest income 164,000 79,000 300,000 245,000
Interest expense (2,890,000) (3,869,000) ( 5,462,000) ( 6,768,000)
------------ ------------ ------------ ------------
(2,726,000) (3,790,000) ( 5,162,000) ( 6,523,000)
------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes 4,023,000 3,667,000 ( 2,409,000) ( 3,305,000)
Provision for income taxes 136,000 124,000 187,000 156,000
------------ ------------ ------------ ------------
Net income (loss) 3,887,000 3,543,000 ( 2,596,000) ( 3,461,000)
------------ ------------ ------------ ------------
Retained earnings at beginning
of period 17,687,000 23,575,000 24,200,000 30,636,000
Distributions to sole stockholder (3,847,000) (13,261,000) ( 3,877,000) (13,318,000)
------------ ------------ ------------ ------------
Retained earnings at end of period $ 17,727,000 $ 13,857,000 $ 17,727,000 $ 13,857,000
============ ============ ============ ============
See notes to condensed consolidated financial statements.
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheet (Unaudited)
Six months ended
June 30
------------------------------
1996 1997
----------- ------------
Operating activities
Net loss $ ( 2,596,000) $( 3,461,000)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation 3,935,000 5,017,000
Amortization 179,000 196,000
Amortization of Bond Issuance Costs 0 53,000
Provision for doubtful accounts 1,696,000 2,190,000
Loss on disposal of property and
equipment 18,000 130,000
Change in operating assets and liabilities:
Accounts receivable (26,231,000) ( 28,583,000)
Inventories (28,054,000) ( 37,070,000)
Prepaid expenses and other 119,000 ( 1,279,000)
Security deposits ( 344,000) ( 262,000)
Other assets 97,000 (3,420,000)
Trade accounts payable 53,079,000 72,754,000
Other payables and accrued liabilities ( 2,038,000) 3,053,000
------------- -------------
Cash provided by operating activities 3,936,000 9,318,000
Investing activities
Additions to property and equipment ( 8,077,000) ( 10,992,000)
Proceeds from disposal of property and equipment 166,000 293,000
Acquisitions of businesses (11,714,000) ( 23,386,000)
------------- -------------
Cash used in investing activities (19,625,000) ( 34,085,000)
Financing activities
Net borrowings (payments) under line of credit 19,881,000 ( 63,461,000)
Proceeds from notes payable 907,000 100,107,000
Payments on notes payable ( 2,655,000) ( 4,565,000)
Net change in receivable from sole stockholder ( 523,000) 3,772,000
Distributions to sole stockholder ( 3,877,000) ( 13,318,000)
------------- -------------
Cash provided by financing activities 13,733,000 22,535,000
------------- -------------
Net decrease in cash ( 1,956,000) ( 2,232,000)
Cash at beginning of period 2,743,000 2,630,000
------------- -------------
Cash at end of period $ 787,000 $ 398,000
============= =============
See notes to condensed consolidated financial statements.
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
June 30, 1997
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1997 are not
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the combined financial statements and
footnotes thereto included in American Builders & Contractors Supply Co., Inc.'s
(ABC or the Company) registration statement on Form S-4 filed in July 1997.
2. Contingent Liabilities
At December 31, 1996 and June 30, 1997, the Company had guaranteed
debt of the sole stockholder in the amounts of $3,616,000 and $3,585,000,
respectively. Certain assets owned by the Company are utilized as collateral as
part of an overall guaranty of this debt by the Company. The Company also had
outstanding letters of credit of $711,000 at both December 31, 1996 and June 30,
1997, with respect to debt of the Company's sole stockholder and his affiliates.
3. Issuance of Senior Subordinated Notes and Related Transactions
On May 1, 1997, all of the capital stock of Mule-Hide Products Co.,
Inc. (Mule-Hide) and Amcraft Building Products Co., Inc. (Amcraft), companies
previously wholly-owned by the sole stockholder, was contributed to ABC.
Thereafter, Mule-Hide and Amcraft will operate as wholly-owned subsidiaries of
the Company. In addition, Hendricks Real Estate Properties, Inc. (HREP), whose
capital stock also was wholly-owned by the sole stockholder, merged with and
into the Company. Such reorganization was accounted for as a combination of
entities under common control, which is similar to a pooling of interests.
On May 7, 1997, ABC issued $100,000,000 principal amount of 10 5/8%
Senior Subordinated Notes due 2007, for which it received net proceeds of
approximately $96,500,000 after deducting expenses and commissions. Net proceeds
of $10,000,000 were distributed to ABC's sole stockholder, who simultaneously
repaid to the Company approximately $8,300,000 of net borrowings. The remainder
of the net proceeds combined with the repayment of the net stockholder advances
approximated $94,800,000 and was used to repay indebtedness outstanding under
the Company's revolving credit agreement.
4. Acquisition
On May 19, 1997, ABC acquired certain assets and assumed a portion of
the liabilities of Viking Building Products, Inc. and certain assets of Viking
Aluminum Products, Inc. (collectively
Viking). The purchase price was paid with a combination of cash and a $3,000,000
seller note payable over two years. Viking was a regional distributor of
residential roofing, siding and window products with 12 distribution centers
located in the Northeastern portion of the United States. A preliminary
allocation of the purchase price of Viking is as follows:
Accounts receivable $ 8,534,000
Inventories 11,314,000
Property and equipment 2,439,000
Goodwill and other intangible assets 7,200,000
Other assets 263,000
Liabilities assumed ( 3,928,000)
-----------
Cost of purchase $ 25,822,000
============
The Viking acquisition was accounted for as a purchase; accordingly, the
results of operations of Viking are included with those of ABC from the date of
acquisition (May 19, 1997) forward. Unaudited pro forma financial information is
not presented for the Viking acquisition because the acquisition did not meet
the significance threshold used for Regulation S-X purposes.
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 174 distribution centers located in 40 states as of
June 30, 1997. Since January 1, 1997, the Company has opened 5 distribution
centers and acquired an additional 12 distribution centers (net of
consolidations) in connection with its acquisition program.
Recent Acquisitions. The Company completed 3 acquisitions in the six
months ended June 30, 1997, which resulted in the addition of 12 distribution
centers (net of consolidations). The results of operations reported herein do
not include the results of operations of such acquired businesses prior to their
acquisition dates.
The Company completed the Viking Acquisition(see Note 4 of notes to Condensed
Consolidated Financial Statements) on May 19, 1997. The purchase price in the
Viking Acquisition was $25.8 million, which is net of approximately $3.9 million
of assumed liabilities. The purchase price was paid with a combination of cash
and a $3.0 million seller note payable over two years. Viking was a regional
distributor of roofing, siding and window products with 12 distribution centers
located in the northeastern portion of the United States and reported pre-tax
income of $1.4 million on net sales of $84.1 million for its fiscal year ended
February 28, 1997. In connection with the Viking Acquisition, the Company
entered into a purchase agreement with Viking Aluminum Products, Inc. (VAP),
previous owner of Viking, pursuant to which the Company agreed to purchase a
minimum of $98.2 million of VAP products for sale in the Company's distribution
centers over the next five years.
Effects of Acquisitions. The Company has historically selected acquisition
candidates based, in part, on the opportunity to improve their operating
results. The Company seeks to leverage its purchasing power, broad product
selection and management expertise to improve the financial performance of its
acquired distribution centers while maintaining the acquired customer bases.
Results of operations reported herein for each period only include results of
operations for acquired businesses from their respective dates of acquisition.
Full-year operating results, therefore, could differ materially from that
presented. In addition, there has typically been a period following each
acquisition in which the acquired business does not perform at the same level as
the Company's existing distribution centers. As a result of the Company's
ongoing acquisition program, its results of operations have historically
reflected, and are likely to continue to reflect, the periodic inclusion of
underperforming businesses.
The Company has accounted for its acquisitions to date using the purchase
method of accounting. As a result, these acquisitions have affected, and will
prospectively affect, the Company's results of operations in certain significant
respects. The aggregate acquisition costs are allocated to the tangible and
intangible assets acquired and liabilities assumed by the Company based upon
their respective fair values as of the acquisition date. The cost of such assets
is then amortized according to the classes of assets acquired and the useful
lives thereof. The Company has begun to acquire larger distributors with better
operating results, necessitating payment of purchase prices in excess of the
fair value of net assets acquired resulting in goodwill, which is amortized over
a period of 25 years. Similar future acquisitions may result in additional
amortization expense. In addition, due to the effects of the increased borrowing
to finance future acquisitions, the Company's interest expense may increase in
future periods.
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.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of operations
as a percentage of net sales for the three months and six months ended June 30,
1996 and 1997:
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
---------------------------------------------------------
1996 1997 1996 1997
---------------------------------------------------------
Income Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 78.3 77.3 78.3 77.5
---------------------------------------------------------
Gross profit 21.7 22.7 21.7 22.5
Operating expenses:
Distribution centers 16.8 18.1 19.0 19.9
General and administrative 1.7 1.6 1.9 1.8
---------------------------------------------------------
Total operating expense 18.5 19.7 20.9 21.7
---------------------------------------------------------
Operating income 3.2% 3.0% 0.8% 0.8%
=========================================================
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 TO THE THREE
AND SIX MONTH PERIODS ENDED JUNE 30, 1996
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, 1997 increased by $35.5 million,
or 16.7%, to $248.5 million from $213.0 million for the three months ended June
30, 1996. Net sales for the six months ended June 30, 1997 increased by $69.6
million, or 20.4%, to $411.3 million from $341.7 million for the six months
ended June 30, 1996. Components of the change in net sales are as follows:
Three Months Ended June 30 % Six Months Ended June 30 %
-------------------------------------------------------------------------------
DISTRIBUTION CENTERS 1996 1997 Increase Increase 1996 1997 Increase Increase
- -------------------- -------------------------------------------------------------------------------
In operation prior to January 1, 1994 $176.1 $182.3 $ 6.2 3.5% $288.5 $311.0 22.5 7.8%
Acquired in 1994 4.8 4.5 (0.3) (6.3) 7.0 6.7 (0.3) (4.3)
Opened by the Company in 1994 8.1 11.1 3.0 37.0 12.9 17.3 4.4 34.1
Acquired in 1995 8.9 11.6 2.7 30.3 12.8 18.0 5.2 40.6
Opened by the Company in 1995 4.5 5.5 1.0 22.2 7.7 9.7 2.0 26.0
Acquired in 1996 8.9 13.8 4.9 55.1 10.3 23.6 13.3 129.1
Opened by the Company in 1996 1.7 6.8 5.1 300.0 2.5 11.2 8.7 348.0
Acquired in 1997 - 10.1 10.1 - - 10.1 10.1 -
Opened by the Company in 1997 - 2.8 2.8 - - 3.7 3.7 -
-------------------------------------------------------------------------------
Total $213.0 $248.5 $35.5 16.7% $341.7 $411.3 $69.6 20.4%
===============================================================================
Increases in comparable distribution center sales are almost entirely due to
increases in volumes as opposed to price increases. Such volume increases are in
part due to introduction of new products such as commercial roofing and siding
into certain distribution centers. The larger percentage increase in net sales
during the first quarter of 1997 versus the second quarter (as compared to the
1996 same periods) was the result of favorable weather factors in 1997 that
allowed the Company to accelerate certain sales into the first quarter.
Cost of sales for the three months ended June 30, 1997 increased by $25.3
million, or 15.2%, to $192.1 million from $166.8 million for the three months
ended June 30, 1996, primarily as a result of costs associated
with increased sales. Cost of sales decreased as a percentage of net sales over
the same period to 77.3% in 1997 from 78.3% in 1996, primarily due to increased
sales of higher margin products such as vinyl siding and windows. Cost of sales
for the six months ended June 30, 1997 increased $51.4 million, or 19.2%, to
$318.9 million from $267.5 million for the six months ended June 30, 1996, again
with the increase mainly due to the relatively same percentage increase in net
sales. Cost of sales as a percentage of net sales for the six months ended June
30, 1997 decrease slightly to 77.5% from 78.3% for the same period in 1996 due
to the reasons cited above for the quarter.
Distribution center operating income, which consists of net sales less cost of
sales and operating expenses for the distribution centers, is a key measure that
the Company uses to evaluate individual distribution center performance.
Distribution center operating income for the three months ended June 30, 1997
increased by $1.1 million to $11.4 million from $10.3 million for the same
period in 1996. For the six months ended June 30, distribution center operating
income increased by $1.5 million to $10.7 million in 1997 as compared to $9.2
million for the same period in 1996. The increase in distribution center
operating income for both the three and six month periods was primarily due to
increased sales at existing centers. As a percentage of net sales, distribution
center expenses increased in 1997 compared to the same periods in 1996 (1.3
percentage points increase for the three month period and .9 percentage points
increase for the six month period) due mainly to various costs associated with
new locations and new product lines introduced to exiting locations. Components
of distribution center operating income and the change therein are as follows:
Three months ended June 30, Six months ended June 30,
------------------------------ ---------------------------
DISTRIBUTION CENTERS 1996 1997 Change 1996 1997 Change
- --------------------
-----------------------------------------------------------
In operation prior to January 1, 1994 10.0 10.9 0.9 10.3 11.8 1.5
Acquired in 1994 0.2 0.0 (0.2) (0.1) (0.3) (0.2)
Opened by the Company in 1994 0.2 0.3 0.1 (0.1) 0.0 0.1
Acquired in 1995 0.4 0.6 0.2 0.1 0.4 0.3
Opened by the Company in 1995 (0.1) 0.0 0.1 (0.3) (0.2) 0.1
Acquired in 1996 0.0 (0.3) (0.3) (0.1) (0.5) (0.4)
Opened by the Company in 1996 (0.4) (0.2) 0.2 (0.6) (0.6) 0.0
Acquired in 1997 - 0.2 0.2 - 0.2 0.2
Opened by the Company in 1997 - (0.1) (0.1) - (0.1) (0.1)
-----------------------------------------------------------
Total 10.3 11.4 1.1 9.2 10.7 1.5
===========================================================
For the three months ended June 30, 1997, general and administrative expenses
increased $0.3 million to $3.9 million in 1997 from $3.6 million in the same
period of 1996, while decreasing as a percentage of net sales to 1.6% in 1997
compared to 1.7% in 1996. For the six months ended June 30, 1997, general and
administrative expenses increased $1.0 million to $7.5 million from $6.5 million
for the same period in 1996. Similar to the quarter, general and administrative
expenses as a percentage of net sales decreased slightly.
Interest expense for the three months ended June 30, 1997 increased by $1.0
million, or 33.9%, to $3.9 million from $2.9 million for the three months ended
June 30, 1996, primarily as a result of higher interest costs associated with
the Company's issuance in May 1997 of $100 million in senior subordinated notes
(Notes) -- (see Note 3 of notes to condensed consolidated financial statements),
which also accounts for the $1.3 million increase in interest expense for the
six months ended June 30, 1997 compared to the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities. Net cash provided by operations was $3.9
million and $9.3 million for the six months ended June 30, 1996 and 1997,
respectively. The increase was due primarily to changes in working capital
caused by the timing of payments received or made for trade receivables and
payables and inventories.
Cash Flows from Investing Activities. Net cash (used in) investing activities
was $(19.6) million and $(34.1) million for the six months ended June, 1996 and
1997, respectively. The increased use of cash in 1997 was due mainly to the
Viking acquisition previously described and a $2.9 million increase in property
plant and equipment additions in the first six months of 1997 as compared to
1996.
Cash Flows from Financing Activities. Net cash provided by financing
activities was $13.7 million and $22.5 million for the six months ended June 30,
1996 and 1997, respectively with the changes in individual items due largely to
the effects of issuing the Notes including the use of the proceeds, and debt
incurred in connection with acquisitions.
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, including the payment of principal and interest on the Notes, as
well as to provide funds for the Company's working capital, capital expenditures
and other needs for the foreseeable future. No assurance can be given, however,
that this will be the case. The Company's future operating performance and
ability to service or refinance the Notes and to repay, extend or refinance its
credit agreement will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
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.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K -- the Company did not file any
reports on Form 8-K during the three months ended June 30,
1997.
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 and Contractors Supply Co., Inc.
August 14, 1997 /s/ Kendra A. Story
_____________________________ ____________________________________
Date: Kendra A. Story
Chief Financial Officer and Director
Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule