10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: For the period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 33-26991 American Builders & Contractors Supply Co., Inc. Amcraft Building Products Co., Inc. Mule-Hide Products Co., Inc. ---------------------------------------------------------- (Exact names of registrant as specified in is charter) Delaware 5033 39-1413708 Delaware 5033 39-1701778 Texas 5033 62-1277211 -------------------------------------------------------------------------------- (State or other jurisdiction of (Primary Standard (I.R.S. Employer incorporation or organization) Industrial Classification Identification N0.) Code Number) One ABC Parkway Beloit, Wisconsin 53511 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (608) 362-7777 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. [X] Yes [_] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $0.01 par value, 147.04 shares as of November 1, 2001 Index American Builders & Contractors Supply Co., Inc. and Subsidiaries Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - September 30, 2001 and December 31, 2000 Condensed consolidated statements of operations and retained earnings - Three months ended September 30, 2001 and 2000; Nine months ended September 30, 2001 and 2000 Condensed consolidated statements of cash flows - Nine months ended September 30, 2001 and 2000 Notes to condensed consolidated financial statements - September 30, 2001 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures 1 Part I. Financial Information American Builders & Contractors Supply Co., Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (in thousands)

See notes to condensed consolidated financial statements. Note: The balance sheet at December 31, 2000 has been derived from the audited balance sheet at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. 2 American Builders & Contractors Supply Co., Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Retained Earnings (Unaudited) (in thousands)

See notes to condensed consolidated financial statements. 3 American Builders & Contractors Supply Co., Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)

See notes to condensed consolidated financial statements. 4 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2001 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2001 are not indicative of the results that may be expected for the year ending December 31, 2001 due to the seasonality of the business. For further information, refer to the consolidated financial statements and footnotes thereto included in American Builders & Contractors Supply Co., Inc.'s (ABC, or together with its subsidiaries, the Company) Annual Report on Form 10-K for the year ended December 31, 2000. 2. Contingent Liabilities At September 30, 2001 and December 31, 2000, the Company had guaranteed debt of the sole stockholder in the amounts of $1,640,000 and $1,742,000, respectively. Certain assets owned by the Company serve as collateral as part of an overall guaranty of this debt by the Company. The Company also had outstanding letters of credit in the amount of $3,664,000 at September 30, 2001 and December 31, 2000, with respect to debt of the Company's sole stockholder and his affiliates. 3. Guarantor Subsidiaries The following tables present condensed consolidating financial information for the three and nine months ended September 30, 2001 and 2000 for: (a) ABC and (b) on a combined basis, the guarantors of the Senior Subordinated Notes, which include all of the wholly owned subsidiaries of the Company (Subsidiary Guarantors). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. 5 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued) Condensed Consolidating Balance Sheet September 30, 2001 (in thousands)

6 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued)

7 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued)

8 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued)

9 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued) Condensed Consolidating Statement of Operations for the Nine Months ended September 30, 2001 (in thousands)

10 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued) Condensed Consolidating Statement of Operations for the Nine Months ended September 30, 2000 (in thousands)

11 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued) Condensed Consolidating Statement of Cash Flows for the Nine Months ended September 30, 2001 (in thousands)

12 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Guarantor Subsidiaries (continued)

13 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 4. Extraordinary Item During the third quarter of 2001, the Company repurchased $15.5 million of its Senior Subordinated Notes. The difference between par value of the Senior Subordinated Notes and the repurchase price, net of the applicable portion of the unamortized deferred financing fees written off, was not material. During the third quarter of 2000, the Company repurchased $11.6 million of its Senior Subordinated Notes. The purchase resulted in an extraordinary gain of $1.0 million net of the amortization of a portion of the original transaction fees and other expenses. 5. Comprehensive Income The Company's comprehensive income for the three and nine month periods ended September 30, 2001 and 2000, as required to be reported by FASB Statement No. 130, was identical to the actual income reported for those periods. 6. Goodwill and Other Intangible Assets In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $1.3 million per year. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company. ABC is the largest wholesale distributor of roofing products and one of the largest wholesale distributors of vinyl siding materials in the United States, operating 207 distribution centers located in 43 states as of September 30, 2001. Since January 1, 2001, the Company has opened ten distribution centers and closed three. Provision for Income Taxes. ABC and its subsidiaries are operated as Subchapter S corporations under the Internal Revenue Code. As a result, these entities do not incur federal and state income taxes (except with respect to certain states) and, accordingly, no discussion of income taxes is included in "Results of Operations" below. Federal and state income taxes (except with respect to certain states) on the income of such corporations are incurred and paid directly by the Company's sole stockholder. Such corporations have historically made periodic distributions to the stockholder with respect to such tax liabilities. The Company entered into the Tax Allocation Agreement with the sole stockholder, pursuant to which he will receive distributions from the Company with respect to taxes associated with the Company's income. Special Note Regarding Forward-Looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act). Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by and information currently available to the Company at the time such statements were made. When used in this MD&A, the words "anticipate," "believe," "estimate," "expect," "intends" and similar expressions, as they relate to the Company are intended to identify forward-looking statements, which include statements relating to, among other things: (i) the ability of the Company to continue to successfully compete in the roofing and vinyl siding products market; (ii) the anticipated benefits from its comprehensive evaluation of new operating and administrative processes (iii) the continued effectiveness of the Company's sales and marketing strategy; and (iv) the ability of the Company to continue to successfully develop and launch new distribution centers. Actual results could differ materially from those projected in the forward-looking statements as a result of the matters discussed herein and certain economic and business factors, some of which may be beyond the control of the Company. Results of Operations The following table summarizes the Company's historical results of operations as a percentage of net sales for the three and nine months ended September 30, 2001 and 2000:

15 Comparison of the Three and Nine Month Periods Ended September 30, 2001 to the Three and Nine Month Periods Ended September 30, 2000 The Company's results of operations are affected by the seasonal nature of the roofing and siding business. See "Seasonality." Net sales for the three months ended September 30, 2001 increased by 13.0% to $409.3 million from $362.2 million for the three months ended September 30, 2000. Net sales for the nine months ended September 30, 2001 increased by 9.2% to $1,027.6 million from $941.2 million for the nine months ended September 30, 2000. Comparable distribution center sales growth was 10.8% and 7.8% for the three and nine months ended September 30, respectively. Increases in comparable distribution center sales are due primarily to increases in volume. Gross profit for the three months ended September 30, 2001 increased by 16.8%, to $101.5 million from $86.9 million for the three months ended September 30, 2000, primarily as a result of profits associated with increased sales. Gross profit, as a percent of net sales, for the three months ended September 30, increased to 24.8% in 2001, from 24.0% in 2000. Gross profit for the nine months ended September 30, 2001 increased by 10.3% to $250.4 million from $227.0 million for the nine months ended September 30, 2000, primarily as a result of profits associated with increased sales. Gross profit, as a percent of net sales, for the nine months ended September 30, increased to 24.4% in 2001 from 24.1% in 2000. Distribution center operating expenses increased by $6.8 million to $70.3 million from $63.5 million for the three months ended September 30, 2001 and 2000, respectively. As a percent of net sales, distribution center operating expenses for the three months ended September, decreased to 17.2% in 2001 from 17.6% in 2000. For the nine months ended September 30, distribution center operating expenses increased by $13.2 million to $191.0 million in 2001, from $177.8 million in 2000. As a percent of net sales, distribution center operating expenses for the nine months ended September 30, decreased to 18.6% in 2001 from 18.9% in 2000. General and administrative expenses for the three months ended September 30, decreased by $0.6 million to $5.3 million in 2001 from $5.9 million in 2000. General and administrative expenses as a percent of net sales decreased to 1.3% in 2001 from 1.6% in 2000. For the nine months ended September 30, general and administrative expenses decreased by $3.5 million to $16.5 million in 2001 from $20.0 million in 2000. General and administrative expenses as a percent of net sales decreased to 1.6% in 2001 from 2.1% in 2000. The principle reason for the decrease in general and administrative expenses is due to non-recurring professional fees incurred in 2000 in connection with management's evaluation of the Company's operating procedures, as well as its needs for a next generation of computer system. Operating income for the three months ended September 30, 2001 increased by $8.4 million to $25.5 million from $17.1 million for the same period in 2000. Operating income for the nine months ended September 30, increased by $13.6 million to $41.7 million in 2001 from $28.1 million in 2000. The increase for the three and nine months ended September 30, is a result of the factors discussed above. Interest expense for the three months ended September 30, 2001 decreased by $1.8 million or 27.7% to $4.8 million from $6.6 million for the three months ended September 30, 2000. For the nine months ended September 30, interest expense decreased by $3.6 million or 19.0% to $15.5 million in 2001 from $19.1 million in 2000. The decrease for the three and nine month periods is due to both decreased rates on the Company's LIBOR and prime rate borrowings, as well as a reduction in the Company's borrowing levels. 16 Liquidity and Capital Resources Cash Flows from Operating Activities. Net cash provided by operating activities was $40.1 million and $34.3 million for the nine months ended September 30, 2001 and 2000, respectively. The increase was due primarily to improved net income and increases in accounts payable related to inventory purchases, partially offset by increases in accounts receivable related to higher sales. Cash Flows from Investing Activities. Net cash used in investing activities decreased to $11.8 million from $13.1 million for the nine months ended September 30, 2001 and 2000, respectively, due to fewer purchases of property and equipment, partially offset by lower proceeds from disposals of property and equipment as a result of fewer disposals. Cash Flows from Financing Activities. Net cash used in financing activities was $30.0 million and $22.7 million for the nine months ended September 30, 2001 and 2000, respectively, due primarily to increased distributions to the sole stockholder under the Tax Allocation Agreement. During the third quarter of 2001, the Company repurchased $15.5 million of its Senior Subordinated Notes. The difference between par value of the Senior Subordinated Notes and the repurchase price, net of the applicable portion of the unamortized deferred financing fees written off, was not material. During the third quarter of 2000, the Company repurchased $11.6 million of its Senior Subordinated Notes. The purchase resulted in an extraordinary gain of $1.0 million net of the amortization of a portion of the original transaction fees and other expenses. The funds to repurchase the Senior Subordinated Notes were obtained primarily through additional borrowings under the Company's revolving credit agreement. Liquidity. The Company's principal sources of funds are anticipated to be cash flows from operating activities and borrowings under its revolving credit agreement. The Company believes that these funds will provide the Company with sufficient liquidity and capital resources for the Company to meet its financial obligations, as well as to provide funds for the Company's working capital, capital expenditures, and other needs for the foreseeable future. No assurances can be given, however, that this will be the case. Seasonality Because of cold weather conditions in many of the markets in which the Company does business and the seasonal nature of the roofing and siding business generally, the Company's revenues vary substantially throughout the year, with its lowest revenues typically occurring in the months of December through February. 17 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended September 30, 2001. 18 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. American Builders & Contractors Supply Co., Inc. November 9, 2001 /s/ Kendra A. Story ------------------------- --------------------------------------- Date: Kendra A. Story Chief Financial Officer and Director 19

AMERICAN BUILDERS & CONTRACTORS SUPPLY CO INC 10-Q