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 March 31, 1999
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.
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(Exact names of registrant as specified in is charter)
Delaware 5033 39-1413708
Delaware 5033 39-1701778
Texas 5033 62-1277211
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(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification No.)
organization) 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 April 30,1999
Index
American Builders and Contractors Supply Co., Inc. and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 1999 and December 31,
1998
Condensed consolidated statements of operations and retained earnings -
Three months ended March 31, 1999 and March 31, 1998
Condensed consolidated statements of cash flows - Three months ended
March 31, 1999 and March 31, 1998
Notes to condensed consolidated financial statements - March 31, 1999
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)
March 31, December 31,
1999 1998
------------ ------------
ASSETS
Current Assets:
Cash $ 3,092,000 $ 4,682,000
Accounts receivable 144,497,000 149,102,000
Inventories 177,072,000 130,802,000
Prepaid expenses and other 4,659,000 4,596,000
------------ ------------
Total current assets 329,320,000 289,182,000
Property and equipment, net 67,755,000 69,190,000
Net receivable from sole stockholder 6,374,000 4,840,000
Goodwill 40,115,000 40,439,000
Other intangible assets 6,986,000 7,211,000
Security deposits 904,000 992,000
Other assets 1,944,000 1,047,000
------------ ------------
$453,398,000 $412,901,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $153,935,000 $ 84,978,000
Accrued liabilities 18,342,000 22,061,000
Current portion of long-term debt 5,057,000 5,057,000
------------ ------------
Total current liabilities 177,334,000 112,096,000
Long-term debt 263,590,000 281,658,000
Contingent liabilities (Note 2)
Stockholder's equity:
Common stock 0 0
Additional paid-in capital 1,864,000 1,864,000
Retained earnings 10,610,000 17,283,000
------------ ------------
Total stockholder's equity 12,474,000 19,147,000
------------ ------------
$453,398,000 $412,901,000
============ ============
See notes to condensed consolidated financial statements.
Note: The balance sheet at December 31, 1998 has been derived from the audited
balance sheet at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Retained Earnings
(Unaudited)
Three months ended
March 31,
------------------------------
1999 1998
------------------------------
Net sales $232,178,000 $215,365,000
Cost of sales 178,442,000 166,371,000
------------ ------------
Gross profit 53,736,000 48,994,000
Operating expenses:
Distribution centers 50,164,000 52,218,000
General and administrative 4,181,000 4,177,000
Amortization of intangibles 441,000 439,000
------------ ------------
54,786,000 56,834,000
------------ ------------
Operating loss (1,050,000) (7,840,000)
Other income (expense):
Interest income 118,000 161,000
Interest expense (5,699,000) (6,231,000)
------------ ------------
(5,581,000) (6,070,000)
------------ ------------
Loss before provision for income taxes (6,631,000) (13,910,000)
Provision for income taxes 42,000 27,000
------------ ------------
Net loss (6,673,000) (13,937,000)
Retained earnings at beginning of period 17,283,000 19,928,000
Distributions to sole stockholder --- ---
------------ ------------
Retained earnings at end of period $ 10,610,000 $ 5,991,000
============ ============
See notes to condensed consolidated financial statements.
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31
1999 1998
------------ ------------
Operating activities
Net loss $ (6,673,000) $(13,937,000)
Adjustments to reconcile net loss to cash provided by
operating activities net of acquisitions:
Depreciation 3,545,000 3,344,000
Amortization 441,000 439,000
Amortization of deferred financing costs 107,000 106,000
Provision for doubtful accounts 1,826,000 1,486,000
(Gain) loss on disposal of property and equipment 76,000 (18,000)
Changes in operating assets and liabilities:
Accounts receivable 2,986,000 3,441,000
Inventories (45,833,000) (47,917,000)
Prepaid expenses and other (57,000) (215,000)
Security deposits 88,000 (43,000)
Other assets (896,000) (323,000)
Accounts payable 68,957,000 57,449,000
Accrued liabilities (3,719,000) 3,970,000
------------ ------------
Cash provided by operating activities 20,848,000 7,782,000
Investing activities
Additions to property and equipment (2,418,000) (3,816,000)
Proceeds from disposal of property and equipment 232,000 144,000
Acquisitions of business (650,000) (2,273,000)
------------ ------------
Cash used in investing activities (2,836,000) (5,945,000)
Financing activities
Net payments under line of credit (17,849,000) (3,642,000)
Proceeds from notes payable --- ---
Payments on notes payable (219,000) (1,995,000)
Net change in receivable from sole stockholder (1,534,000) (98,000)
Distributions to sole stockholder --- ---
Cash used in financing activities ------------ ------------
(19,602,000) (5,735,000)
------------ ------------
Net decrease in cash (1,590,000) (3,898,000)
Cash at beginning of period 4,682,000 4,140,000
Cash at end of period ------------ ------------
$ 3,092,000 $ 242,000
============ ============
See notes to condensed consolidated financial statements.
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
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 primarily of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999 are not indicative
of the results that may be expected for the year ending December 31, 1999 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 the Company) Annual Report on
Form 10-K for the year ended December 31, 1998.
2. Contingent Liabilities
At March 31, 1999 and December 31, 1998, the Company had guaranteed debt of
the sole stockholder in the amounts of $1,962,000 and $1,939,000, 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 of $2,764,000 at both March 31, 1999 and December 31, 1998, with
respect to debt of the Company's sole stockholder and his affiliates.
In connection with the purchase of certain assets of Viking Building
Products, Inc. in 1997, the Company entered into a five year supply agreement
with Viking Aluminum Products, Inc. (VAP), a company owned by the former owners
of Viking Building Products, Inc. The supply agreement specified minimum annual
purchase commitments and damages for short falls. The Company has not met the
minimum level of purchases required under the agreement and legal actions have
been initiated by both the Company and VAP. The ultimate outcome of such actions
is uncertain.
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.
March 31, 1999 December 31, 1998
-------------- -----------------
Current assets:
Accounts receivable from ABC $ 7,755,000 $ 3,596,000
Other current assets - third parties 3,273,000 3,633,000
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Total 11,028,000 7,229,000
Noncurrent assets 725,000 655,000
Current liabilities (9,236,000) (5,821,000)
Noncurrent liabilities -- --
American Builders & Contractors Supply Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Continued)
Three months ended March 31,
1999 1998
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Net sales:
To ABC $11,219,000 $10,395,000
To third parties 467,000 1,673,000
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Total 11,686,000 12,068,000
Gross profit 2,031,000 2,216,000
Net income 455,000 381,000
4. Comprehensive Income
The Company's comprehensive loss for the three months ended March 31, 1999
and 1998, 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 199 distribution centers located in 40 states as of
March 31, 1999. Since January 1, 1999, the Company has acquired 2 distribution
centers, consolidated 4 distribution centers and closed 3.
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 ended March 31,
1999 and 1998:
Three Months ended
March 31
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1999 1998
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Income statement data:
Net sales 100.0% 100.0%
Cost of sales 76.9 77.3
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Gross profit 23.1 22.7
Operating expenses:
Distribution centers 21.6 24.2
General and administrative 1.8 1.9
Amortization .2 .2
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Total operating expenses 23.6 26.3
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Operating loss (0.5)% (3.6)%
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Comparison of the Three-Month Period Ended March 31, 1999 to the Three-Month
Period Ended March 31, 1998
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 March 31, 1999 increased by 7.8% to
$232.2 from $215.4 million for the three months ended March 31, 1998. Comparable
distribution centers sales growth was 7.4%. Increases in comparable distribution
center sales are almost entirely due to increases in volume as opposed to price
increases. Such volume increases are due in part to the introduction of new
products such as commercial roofing and siding into certain distribution
centers.
Gross profit for the three months ended March 31, 1999 increased by 9.7%,
to $53.7 from $49.0 million for the three months ended March 31, 1999, primarily
as a result of profits associated with increased sales. Gross profit, as a
percent of net sales, increased to 23.1% in 1999, from 22.7% in 1998,
principally due to management's focus on improving gross profit through
increased sales of higher profit margin products.
Distribution center operating expenses decreased by $2.0 million to $50.2
million from $52.2 for the three months ended March 31, 1999 and 1998,
respectively. As of percent of net sales, distribution center operating expenses
for the three months ended March 31, decreased to 21.6 % in 1999 from 24.2% in
1998.
This improvement is the result of two factors. The first factor is an
increased focus on controlling operating expenses at all distribution centers.
This effort began in mid 1998 and continues today. The majority of the focus is
being placed on controlling payroll expenses which comprise more than 50 percent
of the operating expenses. Second, the Company has historically selected
acquisition candidates based, in part, on the opportunity to improve their
operating results. As a result of over 50 distribution center acquisitions in
1997, the 1998 distribution center operating expenses included distribution
centers that were not yet fully integrated into the Company's operations.
General and administrative expenses for the three months ended March 31,
1999 and 1998 remained at $4.2 million, while decreasing as a percentage of net
sales to 1.8% in 1999 from 1.9% in 1998.
Operating loss for the three months ended March 31, 1999 was reduced by
$6.7 million to a loss of $1.1 million for the three months ended March 31,
1999, from a $7.8 million loss for the same period in 1998. This improvement is
a result of both increased gross profit, as well as the reduction in
distribution center operating expenses.
Interest expense for the three months ended March 31, 1999 decreased by
$0.5 million or 8.5% to $5.7 million from $6.2 million for the three months
ended March 31, 1998. This reduction is due to decreased interest rates on the
Company's LIBOR based borrowings, a reduction in the Company's average
borrowings, and the refinancing of several equipment and other notes.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash provided by operating
activities was $20.8 and $7.8 million for the three months ended March 31, 1999
and 1998, respectively. The increase was due primarily to the reduction in net
loss, and the increase in accounts payable partially offset by the reduction of
accrued liabilities.
Cash Flows from Investing Activities. Net cash used in investing
activities was $2.8 million and $5.9 million for the three months ended March
31, 1999 and 1998, respectively, due principally to reduced expenditures for
acquisitions and fewer additions to property and equipment.
Cash Flows from Financing Activities. Net cash used in financing activities
was $19.6 million and $5.7 million for the three months ended March 31, 1999 and
1998, respectively, due primarily to the net paydown of the Revolver.
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.
Year 2000 Compliance
The Company utilizes information technology and a number of computer
programs in its internal operations including financial systems and various
administrative functions ("IT" systems). The Company also uses a variety of
equipment in its business which contain embedded technology such as
microcontrollers ("Non-IT" systems).
To the extent that the source code of the software applications of these IT
systems or the embedded technologies of these Non-IT systems are unable to
appropriately interpret and process the upcoming calendar year 2000 ("Year
2000"), some level of modification or possible replacement of such applications
would be necessary for proper continuous performance. Without such modification
or replacement, the normal course of the Company's business could be disrupted
or otherwise adversely impacted.
State of readiness. The Company has developed a four step plan to modify
or replace its IT and Non-IT systems. The four steps include assessment,
remediation, testing, and implementation.
Assessment Remediation Testing Implementation
------------- ------------- -------------- --------------
IT System 100% complete 100% complete 75% complete 70% complete
Expected completion Complete Complete July 1999 September 1999
Non-IT System 100% complete 100% complete 60% complete 50% complete
Expected completion Complete Complete September 1999 October 1999
The Company has queried its significant suppliers. To date, the Company is
not aware of any supplier with a Year 2000 issue that would materially impact
the Company's results of operations, liquidity, or capital resources. However,
the Company has no means of ensuring that all suppliers will be Year 2000 ready.
Due to the availability of alternative suppliers, the inability of any one
supplier to complete their Year 2000 resolution process in a timely fashion is
not expected to have a material impact on the Company.
Risks. The Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. Management
believes that expenditures to complete the Year 2000 compliance will not be
material to its operations. In the event that the Company does not complete any
additional phases, the Company would have to manually process customer orders,
invoice customers and collect payments. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
Contingency plans. The Company has developed contingency plans for certain
applications and is working on such plans for others. These plans include, among
other actions, manual work arounds, increasing staffing, increasing inventories,
and shifting processes to compliant locations.
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
(a) Exhibits
10.1 Consent and Second Amendment to Second Amended and Restated Loan
and Security Agreement
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 March 31, 1999.
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.
April 30, 1999 /s/ Kendra A. Story
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Date: Kendra A. Story
Chief Financial Officer and Director
Exhibit Index
Exhibit No. Description
- ----------- -----------
10.1 Consent and Second Amendment to Second Amended and Restated Loan
and Security Agreement
27 Financial Data Schedule