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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FROM TO
Commission File Number 0-21728
BARNETT INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 59-1380437
(State of Incorporation) (I.R.S. Employer
Identification Number)
3333 LENOX AVENUE
JACKSONVILLE, FLORIDA 32254
(Address of Principal Executive Offices) (Zip Code)
(904)384-6530
(Registrant's Telephone Number Including Area Code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
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 ninety (90) days.
Yes X No
16,192,941 shares of Common Stock, $.01 par value, were issued and outstanding
as of April 30, 1998.
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BARNETT INC.
INDEX TO FORM 10-Q
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PAGE
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PART I FINANCIAL INFORMATION
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Item 1 Financial Statements
Condensed Balance Sheets as of March 31, 1998 and June 30, 1997 3-4
Condensed Statements of Income for the Nine Months and Three Months Ended
March 31, 1998 and 1997 5
Condensed Statements of Cash Flows for the Nine Months Ended
March 31, 1998 and 1997 6
Notes to Condensed Financial Statements 7-8
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-11
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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EXHIBIT INDEX 13
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
BARNETT INC.
------------
CONDENSED BALANCE SHEETS
------------------------
MARCH 31, 1998 AND JUNE 30, 1997
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
MARCH 31, JUNE 30,
1998 1997
---- ----
(UNAUDITED)
CURRENT ASSETS:
Cash $ 745 $ 4,429
Accounts receivable, net 26,002 21,734
Inventories 41,974 33,772
Prepaid expenses 3,277 1,336
-------- --------
Total current assets 71,998 61,271
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PROPERTY AND EQUIPMENT:
Leasehold Improvements 6,488 4,961
Machinery and Equipment 17,892 13,672
Construction in Progress 2,722 444
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27,102 19,077
Less accumulated depreciation and amortization (11,098) (8,692)
-------- --------
Property and equipment, net 16,004 10,385
COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED, NET 4,706 3,452
DEFERRED TAX ASSETS, NET 351 351
OTHER ASSETS 1,538 1,556
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$ 94,597 $ 77,015
======== ========
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
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CONDENSED BALANCE SHEETS
------------------------
MARCH 31, 1998 AND JUNE 30, 1997
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, JUNE 30,
1998 1997
---- ----
(UNAUDITED)
CURRENT LIABILITIES:
Accounts payable $ 15,036 $ 13,557
Accrued liabilities 2,488 2,366
Accrued income taxes 0 481
Short-term debt 5,251 0
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Total current liabilities 22,775 16,404
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share: Authorized 40,000 shares; Issued and
outstanding 16,180 shares at March 31, 1998 and 16,142 at
June 30, 1997 161 160
Paid-in capital 47,276 46,471
Retained earnings 24,385 13,980
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Total stockholders' equity 71,822 60,611
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$ 94,597 $ 77,015
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The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
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CONDENSED STATEMENTS OF INCOME
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(UNAUDITED)
FOR THE NINE MONTHS AND THREE MONTHS ENDED MARCH 31, 1998 AND 1997
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine months Ended Three Months Ended
MARCH 31 MARCH 31
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1998 1997 1998 1997
---- ---- ---- ----
Net sales $148,001 $117,112 $ 49,465 $ 40,750
Cost of sales 98,003 77,184 32,847 26,812
-------- -------- -------- --------
Gross profit 49,998 39,928 16,618 13,938
Selling, general and
administrative expenses 32,976 25,530 11,159 8,840
-------- -------- -------- --------
Operating income 17,022 14,398 5,459 5,098
Interest expense 96 87 89 52
-------- -------- -------- --------
Income before income taxes 16,926 14,311 5,370 5,046
Provision for income taxes 6,521 5,506 2,069 1,944
-------- -------- -------- --------
Net income $ 10,405 $ 8,805 $ 3,301 $ 3,102
======== ======== ======== ========
Basic earnings per share $ 0.64 $ 0.61 $ 0.20 $ 0.22
Diluted earnings per share $ 0.64 $ 0.55 $ 0.20 $ 0.20
Weighted average shares outstanding:
Basic 16,174 14,398 16,179 14,398
Diluted 16,353 15,892 16,396 15,892
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
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CONDENSED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
($ IN THOUSANDS)
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,405 $ 8,805
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,895 1,855
Changes in assets and liabilities:
Increase in accounts receivable, net (3,324) (2,344)
Increase in inventories (6,215) (6,226)
Increase in prepaid expenses (1,891) (383)
Increase in accounts payable 1,047 2,285
Decrease in accrued liabilities (466) (408)
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Net Cash Provided by Operating Activities 2,451 3,584
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (7,967) (5,385)
Change in other assets (425) (801)
Acquisition of LeRan Gas Products (3,200) -
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Net Cash Used in Investing Activities (11,592) (6,186)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit agreements 27,893 27,735
Repayments under credit agreements (22,642) (25,182)
Net proceeds from issuance of common stock-stock options, grants 206 -
-------- --------
Net Cash Provided by Financing Activities 5,457 2,553
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NET DECREASE IN CASH (3,684) (49)
BALANCE, BEGINNING OF PERIOD 4,429 1,707
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BALANCE, END OF PERIOD $ 745 $ 1,658
======== ========
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(UNAUDITED)
MARCH 31, 1998
NOTE 1 - BASIS OF PRESENTATION
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The condensed financial statements include the accounts of Barnett Inc. (the
"Company"). The condensed statements of income for the nine months and three
months ended March 31, 1998 and 1997, the condensed balance sheet as of March
31, 1998 and the condensed statements of cash flows for the nine months ended
March 31, 1998 and 1997 have been prepared by the Company without audit, while
the condensed balance sheet as of June 30, 1997 was derived from audited
financial statements. In the opinion of management, these financial statements
include all adjustments, all of which are normal and recurring in nature,
necessary to present fairly the financial position, results of operations and
cash flows as of March 31, 1998 and for all periods presented. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the disclosures
included are adequate and provide a fair presentation of interim period results.
Interim financial statements are not necessarily indicative of financial
position or operating results for an entire year. It is suggested that these
condensed interim financial statements be read in conjunction with the audited
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 filed with the
Securities and Exchange Commission.
NOTE 2 - BUSINESS
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The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to a broad base of customers in the
United States and Puerto Rico. The Company's customer base consists primarily of
professional plumbing and electrical repair and remodeling contractors,
independent hardware stores and maintenance managers. The Company distributes
its products to approximately 64,000 active customers.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
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Cash payments during the nine months ended March 31, 1998 and 1997 included
income taxes of $7.5 million and $6.1 million, respectively, and interest of
$80,000 and $95,000, respectively.
NOTE 4 - BUSINESS ACQUISITION
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On July 1, 1997, the Company acquired certain of the assets of LeRan Gas
Products, an operating unit of Waxman Industries, Inc ("Waxman"). The
acquisition price was $3.8 million, of which $3.2 million was paid in cash and
the remainder was paid by the issuance to Waxman of 24,730 shares of the common
stock of the Company. The operations related to these assets are not material to
the Company's financial statements.
NOTE 5 - IMPACT OF ACCOUNTING STANDARDS
------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS No.
128 replaces the presentation of Primary Earnings Per Share with a presentation
of Basic Earnings Per Share, which represents net income divided by the weighted
average number of common shares outstanding. Diluted Earnings Per Share
continues to utilize the weighted average number of common shares outstanding
and common stock equivalents, which include outstanding stock options and
warrants. The Company adopted SFAS No. 128 during the second quarter of fiscal
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1998. All prior period earnings per share amounts have been restated to comply
with SFAS No. 128.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
This Quarterly Report contains certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 that are based
on the beliefs of the Company and its management. When used in this document,
the words "expect", "believe", "intend", "may", "should", "anticipate", and
similar expressions are intended to identify forward looking statements. Such
forward looking statements reflect the current view of the Company with respect
to future events and are subject to certain risks, uncertainties and assumptions
including, but not limited to, the risk that the Company may not be able to
implement its growth strategy in the intended manner, risks associated with
currently unforeseen competitive pressures and risks affecting the Company's
industry such as increased distribution costs and the effects of general
economic conditions. In addition, the Company's business, operations, and
financial condition are subject to the risks, uncertainties and assumptions
which are described in the Company's reports and statements filed from time to
time with the Securities and Exchange Commission, including this Report. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
OVERVIEW
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The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to approximately 64,000 active
customers throughout the United States and Puerto Rico. The Company offers
approximately 11,600 name brand and private label products through its
industry-recognized Barnett(R) catalogs and telesales operations. The Company
markets its products through five distinct, comprehensive catalogs that target
professional contractors, independent hardware stores and maintenance managers.
The Company's staff of over 114 knowledgeable telesales, customer service and
technical support personnel work together to serve customers by assisting in
product selection and offering technical advice. To provide rapid delivery and a
strong local presence, the Company has established a network of 32 distribution
centers strategically located in 32 major metropolitan areas throughout the
United States and Puerto Rico. Through these local distribution centers,
approximately 70% of the Company's orders are shipped to the customer on the
same day the order is received. The remaining 30% of the orders are picked up by
the customer at one of the Company's local distribution centers. The Company's
strategy of being a low-cost, competitively priced supplier is facilitated by
its volume of purchases and offshore sourcing of a significant portion of its
private label products. Products are purchased from over 400 domestic and
foreign suppliers.
On July 1, 1997, the Company acquired certain of the assets of LeRan Gas
Products, an operating unit of Waxman. The acquisition price was $3.8 million,
of which $3.2 million was paid in cash and the remainder was paid by the
issuance to Waxman of 24,730 shares of the common stock of the Company. The
operations related to these assets are not material to the Company's financial
statements.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH
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NINE MONTHS ENDED MARCH 31, 1997
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NET SALES
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Net sales increased $30.9 million, or 26.4%, to $148.0 million in the nine
months ended March 31, 1998 from $117.1 million in the corresponding prior year
period. Approximately 72.0% of the increase in the Company's net sales is
attributable to the Company's telesales operations, primarily resulting from
increased sales by existing telesalespersons and the addition of 18
telesalespersons compared to the prior year period. Also contributing to the
overall increase in net sales was a net increase of 1,875 in the total number of
products offered by the Company over the past twelve months of which 1,365 were
introduced in the
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current nine month period. Sales from new product introductions over the last
twelve months contributed approximately $11.3 million to the net sales increase
during the period. Additionally, as a result of an expanded promotional flyer
campaign, coupled with the acquisition of LeRan Gas Products, active customers
grew to 64,000 from 49,000 in the comparable prior year period and contributed
approximately $12.6 million to the net sales increase during the nine month
period. Also contributing to the Company's net sales increase was a 61.2%
increase in export sales, representing approximately $3.2 million in export
revenue increases for the nine month period. This increase in international
sales, which currently represents approximately 6% of net sales, was primarily
attributable to the Company's establishment of a small, dedicated international
telesales staff in the prior year to complement the Company's international
promotional flyer mailings. Also, the Company opened its thirtieth, thirty-first
and thirty-second distribution centers in Milwaukee, Wisconsin, Puerto Rico and
Nashville, Tennessee on July 1, 1997, October 1, 1997 and December 1, 1997,
respectively. The sales contribution from these new distribution centers was not
significant for the current nine month period.
GROSS PROFIT
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Gross profit increased by 25.2% to $50.0 million in the nine months ended March
31, 1998 from $39.9 million in the corresponding prior year period. Gross profit
margins decreased to 33.8% for the nine months ended March 31, 1998 from 34.1%
for the same period last year, primarily as a result of the acquisition of LeRan
Gas Products whose historic margins have been lower due to their product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
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Selling, general and administrative ("SG&A") expenses increased 29.2% to $33.0
million for the nine months ended March 31, 1998, from $25.5 million for the
comparable prior year period. The increase is primarily due to increased
variable selling expenses, primarily attributable to personnel costs related to
the above mentioned addition of 18 telesalespersons, together with increased
promotional flyer mailings. Also contributing to increased SG&A expenses were
increased freight and delivery costs associated with the United Parcel Service
strike in the first quarter of the current fiscal year. Occupancy costs
associated with the expansion of several distribution centers in the prior year
and the opening of three new distribution centers in the past nine months were
also contributing factors to the SG&A increase. SG&A expenses represented 22.3%
of net sales in the nine months ended March 31, 1998, compared to 21.8% of net
sales in the comparable period of fiscal 1997.
PROVISION FOR INCOME TAXES
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The provision for income taxes increased $1.0 million or 18.4% to $6.5 million
for the nine months ended March 31, 1998 from $5.5 million for the nine months
ended March 31, 1997, primarily as a result of increased operating income.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH
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THREE MONTHS ENDED MARCH 31, 1997
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NET SALES
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Net sales increased $8.7 million, or 21.4%, to $49.5 million in the three months
ended March 31, 1998, from $40.8 million in the corresponding prior year period.
An unusually mild and wet winter had an adverse affect on the Company's revenue
growth for the three months ended March 31, 1998. The unseasonably mild winter
led to depressed sales in the plumbing repair segment of the business primarily
in the months of January and February.
Approximately 73.0% of the increase in the Company's net sales is attributable
to the Company's telesales operations, primarily resulting from increased sales
by existing telesalespersons and the addition of 18 telesalespersons compared to
the prior year period. Also contributing to the overall increase in net sales
was a net increase of 1,875 in the total number of products offered by the
Company over the past twelve months. Net sales from new product introductions
over the last twelve months contributed approximately $3.1 million to the net
sales increase during the period. Additionally, as a result of an expanded
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promotional flyer campaign, active customers grew to 64,000 from 49,000 in the
comparable prior year period and contributed approximately $2.6 million to the
net sales increase during the three month period. Also contributing to the
Company's net sales increase was a 45.9% increase in export sales, representing
approximately $1.0 million in export revenue increases for the three month
period. This increase in international sales, which currently represents
approximately 6% of net sales, was primarily attributable to the Company's
establishment of a small, dedicated international telesales staff in the prior
year to complement the Company's international promotional flyer mailings. Also,
the Company opened its thirty-first and thirty-second distribution centers in
Puerto Rico and Nashville, Tennessee on October 1, 1997 and December 1, 1997,
respectively. The sales contribution from these new distribution centers was not
significant for the current three month period.
GROSS PROFIT
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Gross profit increased by 19.2% to $16.6 million in the three months ended March
31, 1998 from $13.9 million in the corresponding prior year period. Gross profit
margins decreased to 33.6% for the three months ended March 31, 1998 from 34.2%
for the same period last year, primarily as a result of the acquisition of LeRan
Gas Products whose historic margins have been lower due to their product mix,
coupled with an atypical sales mix for the quarter, resulting from the
aforementioned depressed sales in the plumbing repair segment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
SG&A expenses increased 26.2% to $11.2 million for the three months ended March
31, 1998 from $8.8 million for the comparable prior year period. The increase is
primarily due to increased variable selling expenses, primarily attributable to
personnel costs related to the above mentioned addition of 18 telesalespersons,
together with increased promotional flyer mailings. Occupancy costs related to
the expansion of several distribution centers in the prior year and the opening
of three new distribution centers in the past nine months, were also
contributing factors to the SG&A increase for the current quarter. SG&A expenses
represented 22.6% of net sales in the three months ended March 31, 1998,
compared to 21.7% of net sales in the comparable period of 1997.
PROVISION FOR INCOME TAXES
- --------------------------
The provision for income taxes increased $.1 million or 6.4% to $2.1 million for
the three months ended March 31, 1998 from $1.9 million for the three months
ended March 31, 1997, primarily as a result of increased operating income.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
(27) Financial Data Schedule
b) No reports on Form 8-K were filed.
All other items in Part II are either inapplicable to the Company during the
quarter ended March 31, 1998, the answer is negative or a response has been
previously reported and an additional report of the information need not be made
pursuant to the instructions to Part II.
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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.
BARNETT INC.
REGISTRANT
DATE: MAY 1, 1998 By: /s/ Andrea M. Luiga
Andrea M. Luiga
Chief Financial Officer
(principal financial and
accounting officer)
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