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, 1998
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 its 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 No.)
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, no par value, 147.04 shares as of July 31, 1998
Index
AMERICAN BUILDERS AND CONTRACTORS SUPPLY CO., INC. AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-June 30, 1998 and December 31, 1997
Condensed consolidated statements of operations and retained earnings-
Three months ended June 30, 1998 and 1997; Six months ended June 30, 1998
and 1997
Condensed consolidated statements of cash flows-Six months ended June 30,
1998 and 1997
Notes to condensed consolidated financial statements- June 30, 1998
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
Part 1. Financial Information
American Builders & Contractors Supply Co., Inc. And Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
June 30, December 31,
ASSETS 1998 1997
---------------------- ----------------------
Current Assets:
Cash $ 3,191,000 $ 4,140,000
Accounts receivable 171,689,000 143,106,000
Inventories 168,382,000 128,847,000
Prepaids expenses and other 5,376,000 3,763,000
---------------------- ----------------------
Total current assets 348,638,000 279,856,000
Property and equipment, net 73,012,000 71,614,000
Net receivable from sole stockholder 5,771,000 7,328,000
Intangible assets, net 7,647,000 7,988,000
Goodwill 41,087,000 41,732,000
Security deposits 1,185,000 1,026,000
Other assets 1,022,000 78,000
---------------------- ----------------------
$478,362,000 $409,622,000
====================== ======================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $ 136,588,000 $ 78,489,000
Other payables and accrued labilities 24,204,000 21,994,000
Current portion of long-term debt 5,244,000 6,141,000
---------------------- ----------------------
Total current liabilities 166,036,000 106,624,000
Long-term debt 299,713,000 281,206,000
Contingent liabilities (Note 2)
Stockholders's equity:
Common stock 109,000 109,000
Additional paid-in capital 1,755,000 1,755,000
Retained earnings 10,749,000 19,928,000
---------------------- ----------------------
Total stockholder's equity 12,613,000 21,792,000
---------------------- ----------------------
$478,362,000 $409,622,000
====================== ======================
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
---------------------------------------- ------------------------------------------
1998 1997 1998 1997
------------------ ---------------- ------------------ ------------------
Net sales $ 314,287,000 $ 248,511,000 $ 529,652,000 $ 411,283,000
Cost of sales 240,883,000 192,139,000 407,254,000 318,928,000
---------------------------------------------------------------------------------------
Gross profit 73,404,000 56,372,000 122,398,000 92,355,000
Operating expenses:
Distribution centers 57,627,000 44,914,000 109,845,000 81,524,000
General and administrative 4,212,000 3,885,000 8,388,000 7,417,000
Amortization of intangibles 427,000 116,000 867,000 196,000
---------------------------------------------------------------------------------------
62,266,000 48,915,000 119,100,000 89,137,000
Operating income 11,138,000 7,457,000 3,298,000 3,218,000
Other income (expense):
Interest income 159,000 79,000 321,000 245,000
Interest expense (6,490,000) (3,869,000) (12,722,000) (6,768,000)
------------------ ---------------- ------------------ ------------------
(6,331,000) (3,790,000) (12,401,000) (6,523,000)
---------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 4,807,000 3,667,000 (9,103,000) (3,305,000)
Provision for income taxes 49,000 124,000 76,000 156,000
---------------------------------------------------------------------------------------
Net income (loss) 4,758,000 3,543,000 (9,179,000) (3,461,000)
Retained earnings at
beginning of period 5,991,000 23,575,000 19,928,000 30,636,000
Distributions to sole stockholder 0 (13,261,000) 0 (13,318,000)
---------------------------------------------------------------------------------------
Retained earnings at end of
period $ 10,749,000 $ 13,857,000 $ 10,749,000 $ 13,857,000
================== ================ ================== ==================
See notes to condensed consolidated financial statements.
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30
1998 1997
---------------------- ----------------------
OPERATING ACTIVITIES
Net loss $ (9,179,000) $ (3,461,000)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation 6,887,000 5,017,000
Amortization of intangibles 867,000 196,000
Amortization of deferred financing costs 220,000 53,000
Provision for doubtful accounts 2,883,000 2,190,000
Loss on disposal of property and equipment 148,000 130,000
Changes in operating assets and liabilities:
Accounts receivable (31,083,000) (28,583,000)
Inventories (38,930,000) (37,070,000)
Prepaid expenses and other (1,613,000) (1,279,000)
Security deposits (159,000) (262,000)
Other assets (1,043,000) (3,420,000)
Trade accounts payable 58,098,000 72,754,000
Accrued liabilities 2,209,000 3,053,000
---------------------- ----------------------
Cash provided by (used in) operating activities (10,695,000) 9,318,000
Investing activities
Additions to property and equipment (7,458,000) (10,992,000)
Proceeds from disposal of property and equipment 308,000 293,000
Acquisitions of businesses (2,273,000) (23,386,000)
---------------------- ----------------------
Cash used in investing activities (9,423,000) (34,085,000)
Financing activities
Net borrowings (payments) under line of credit 17,230,000 (63,461,000)
Proceeds from notes payable 3,684,000 100,107,000
Payments on notes payable (3,302,000) (4,565,000)
Net change in receivable from sole stockholder 1,557,000 3,772,000
Distributions to sole stockholder 0 (13,318,000)
---------------------- ----------------------
Cash provided by financing activities 19,169,000 22,535,000
---------------------- ----------------------
Net decrease in cash (949,000) (2,232,000)
Cash at beginning of period 4,140,000 2,630,000
---------------------- ----------------------
Cash at end of period $ 3,191,000 $ 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, 1998
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, 1998 are not
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in American Builders & Contractors Supply Co.,
Inc.'s (ABC or the Company) Annual Report on Form 10-K for the year ended
December 31, 1997.
2. CONTINGENT LIABILITIES
At June 30, 1998, and December 31, 1997 the company had guaranteed debt of
the sole stockholder in the amounts of $1,983,000 and $2,029,000 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 $2,408,000 and $1,626,000 at June 30, 1998 and December 31,
1997, respectively, with respect to debt of the Company's sole stockholder and
his affiliates.
3. GUARANTOR SUBSIDIARIES
Amcraft Building Products, Co., Inc. and Mule-Hide Products Co., Inc. (the
Guarantor Subsidiaries) are wholly owned subsidiaries of ABC and have fully and
unconditionally guaranteed the Senior Subordinated Notes on a joint and several
basis. The Guarantor Subsidiaries comprise all of the company's direct and
indirect subsidiaries. The separate financial statements of the Guarantor
Subsidiaries have not been included herein because management has concluded that
such financial statements would not provide additional information that is
material to investors.
The following is summarized consolidated financial information of the
wholly owned subsidiaries.
JUNE 30, 1998 DECEMBER 31, 1997
----------------------- -----------------------
Current assets:
Accounts receivable from ABC 6,601,000 2,355,000
Other current assets-third parties 4,277,000 3,950,000
---------------------- ----------------------
Total 10,878,000 6,305,000
Noncurrent assets 643,000 707,000
Current liabilities (10,059,000) (6,895,000)
Noncurrent liabilities -- --
American Builders & Contractors Supply co., Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Continued)
3. GUARANTOR SUBSIDIARIES (CONTINUED)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------------- ----------------------
Net Sales:
To ABC $ 24,227,000 $ 19,367,000
To third parties 3,232,000 2,871,000
---------------------- ----------------------
Total 27,459,000 22,238,000
Gross profit 4,867,000 4,000,000
Net income 1,344,000 1,023,000
4. Comprehensive Income
The Company's comprehensive loss/profit for the six months ended June 30,
1998 and 1997, as required to be reported by FASB Statement No. 130, was
identical to the actual losses reported for those periods.
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 204 distribution centers located in 40 states as of
June 30, 1998.
Since January 1, 1998, the company has opened 6 distribution centers and
acquired an additional 3 (net of 1 consolidation), as well as consolidating 5
additional distribution centers from previous acquisitions. Also, 5 distribution
centers were closed. The results reported herein do not include the results of
acquired businesses prior to their acquisition dates.
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 those
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
under performing 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 to 35 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-
looking statements can generally be identified as such because the context of
the statement will include words such as the Company "believes," "anticipates,"
"expects" or words of similar import. Similarly, statements that describe the
Company's future plans, objectives or goals are forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties which
are described in close proximity to such statements and which could cause actual
results to differ materially from those currently anticipated. Readers are urged
to consider these factors carefully in evaluating the forward- looking
statements and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are only made as of the
date of this report and the Company undertakes no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances.
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, 1998 and 1997:
Three Months ended June 30 Six Months ended June 30
----------------------------------------------------------------------------
1998 1997 1998 1997
----------------------------------------------------------------------------
Income statement data:
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 76.6 77.3 76.9 77.5
----------------------------------------------------------------------------
Gross profit 23.4 22.7 23.1 22.5
Operating expenses:
Distribution centers 18.3 18.1 20.7 19.9
General and administrative 1.4 1.6 1.6 1.8
Amortization 0.2 0.0 0.2 0.0
----------------------------------------------------------------------------
Total operating expenses 19.9 19.7 22.5 21.7
----------------------------------------------------------------------------
Operating income 3.5 % 3.0 % 0.6 % 0.8 %
============================================================================
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 TO THE THREE
AND SIX MONTH PERIODS ENDED JUNE 30, 1997
The Company's results of operations are affected by the seasonal nature of
the roofing and siding business. See "Seasonality." Financial results for the
three and six month periods ending June 30, 1998 met management's expectations
and forecasted amounts.
Net sales for the three months ended June 30, 1998 increased by $65.7
million, or 26.4% to $314.2 million from $248.5 million for the three months
ended June 30, 1997. Net sales for the six months ended June 30, 1998 increased
by $118.3 million, or 28.8%, to $529.6 from $411.3 million for the six months
ended June 30, 1997. Components of the change in net sales are as follows:
Three Months Ended June 30 Six Months Ended June 30
----------------------------------------------------------------------------------------------------
Distribution % %
Centers 1998 1997 Increase Increase 1998 1997 Increase Increase
- ------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
In operation prior to
January 1, 1997 $ 246.9 $ 235.6 $ 11.3 4.8% $413.2 $ 397.5 $ 15.7 3.9%
Acquired in 1997 48.7 10.1 38.6 382.2% 85.8 10.1 75.7 749.5%
Opened in 1997 15.1 2.8 12.3 439.3% 25.3 3.7 21.6 583.8%
Acquired in 1998 1.6 -- 1.6 -- 2.8 -- 2.8 --
Opened in 1998 2.0 -- 2.0 -- 2.6 -- 2.6 --
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
Total $ 314.3 $ 248.5 $ 65.8 26.5% $529.7 $ 411.3 $ 118.4 28.8%
=========== =========== =========== =========== =========== =========== =========== ============
Increases in comparable distribution center sales are almost entirely due
to increases in volume 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.
Cost of sales for the three months ended June 30, 1998 increased by $ 48.8
million, or 25.4%, to $240.9 million from $192.1 million for the three months
ended June 30, 1997, primarily as a result of costs associated with increased
sales. Cost of sales decreased as a percentage of new sales over the same period
to 76.6% in 1998 from 77.3% in 1997 principally due to a higher percentage of
warehouse sales versus "direct" sales (direct sales are shipped from ABC's
vendors directly to job sites and carry a high cost of sales percentage), and to
a lesser degree due to increased sales of high margin products, such as vinyl
siding and windows. Cost of sales for the six months ended June 30, 1998
increased $88.4 million, or 27.7%, to $407.3 million from $318.9 million for the
six months ended June 30, 1997, 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, 1998 decreased to 76.9% from
77.5% for the same period in 1997 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, 1998
increased by $4.3 million, or 37.4%, to $15.8 million from $11.5 million for the
same period in 1997. For the six months ended June 30, distribution center
operating income increased by $1.7 million, or 15.6%, to $12.6 million in 1998
as compared to $10.9 million in 1997. As a percentage of net sales, distribution
center expenses increased 0.2% for the three month period and 0.8% for the six
month period in 1998 compared to the same periods in 1997, due mainly to various
costs associated with new locations and new product lines introduced to existing
locations. As well as, the higher percentage of warehouse sales, which require
greater distribution center operating expenses. 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 1998 1997 Change 1998 1997 Change
- -------------------- -------------------------------------------------------------------------------
In operation prior to January 1, 1997 13.8 11.3 2.5 12.8 10.7 2.1
Acquired in 1997 1.2 0.3 0.9 (0.8) 0.3 (1.1)
Opened by the Company in 1997 0.7 (0.1) 0.8 0.6 (0.1) 0.7
Acquired in 1998 0.1 -- 0.1 0.1 -- 0.1
Opened by the Company in 1998 0.0 -- 0.0 (0.1) -- (0.1)
-------------------------------------------------------------------------------
Total 15.8 11.5 4.3 12.6 10.9 1.7
===============================================================================
For the three months ended June 30, 1998, general and administrative
expenses increased by $0.3 million to $4.2 million in 1998 from $3.9 million in
the same period in 1997, while decreasing as a percentage of net sales to 1.4%
in 1998 compared to 1.6% in 1997. For the six months ended June 30, 1998,
general and administrative expenses increased $1.0 million to $8.4 million in
1998 from $7.4 million for the same period in 1997. Similar to the quarter,
general and administrative expenses as a percentage of net sales decreased to
1.6% in 1998 compared to 1.8% in 1997.
Interest expense for the three months ended June 30, 1998 increased by $2.6
million or 67.7%, to $6.5 million from $3.9 million for the three months ended
June 30, 1997, primarily as a result of additional borrowings necessary to fund
both 1997 acquisitions and internal growth. The higher interest costs associated
with the Company's issuance in May 1997 of $100 million in senior subordinated
notes also account for some of the increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities. Net cash provided by (used in)
operations was $(10.7) million and $9.3 million for the six months ended June
30, 1998 and 1997, respectively. The decrease was due primarily to changes in
working capital caused by the timing of payments received or made for trade
receivables and payables and inventories, as well as a larger net loss.
Cash Flows from Investing Activities. Net cash used in investing activities
was $(9.4)million and $(34.1) million for the six months ended June 30, 1998 and
1997, respectively. The decreased use of cash in 1998 was due mainly to less
acquisitions of companies in 1998 compared to 1997.
Cash Flows from Financing Activities. Net cash provided by financing
activities was $19.2 million and $22.5 million for the six months ended June 30,
1998 and 1997, respectively, due principally to additional debt.
Liquidity. The Company's principal source of funds for the foreseeable
future 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 to meet its
financial obligations, including the payment of principal and interest on the
Notes, as well as to provide funds for working capital, capital expenditures and
other needs for the foreseeable future. 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 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 through 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
(a) Exhibits
10.1 Employment Agreement, dated as of May 19, 1998, between the
Company and David Luck.
27 Financial Data Schedule
(b) Reports on Form 8-K
The company did not file any reports on Form 8-K during the three
months ended June 30, 1998.
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, 1998 /s/ Kendra A. Story
- ------------------ ---------------------------------------
Date: Kendra A. Story
Chief Financial Officer and Director
Exhibit Index
Exhibit No. Description
- ----------- -----------
10.1 Employment Agreement, dated as of May 19, 1998,
between the Company and David Luck
27 Financial Data Schedule