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 June 30, 2002 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. ----------------------------------------------------------------------- (Exact name of registrant as specified in its charter)

~~September~~Delaware ~~30,~~5033 ~~December 31, ASSETS 2001 2000~~ 39-~~----------------~~1413708 ~~----------------~~(State ~~Current~~or ~~assets: Cash $ 3,325 $ 5,009 Accounts receivable 205,205 142,768 Inventories 201,425 151,578 Prepaid expenses and~~ other ~~3,667~~jurisdiction ~~2,880~~of ~~--------~~(Primary ~~--------~~Standard Total current assets 413,622 302,235 Property and equipment, net 66,517 66,100 Net receivable from sole stockholder 5,243 3,452 Goodwill 36,875 37,847 Other intangible assets 4,480 5,263 Other assets 2,319 2,373 -------- -------- $529,056 $417,270 ======== ======== LIABILITIES AND STOCKHOLDER'(I.R.S. ~~EQUITY~~Employer ~~Current~~Identification ~~liabilities:~~No.) ~~Accounts~~incorporation ~~payable~~or ~~$186,677~~organization) $Industrial ~~78,634~~Classification ~~Accrued~~Code ~~payroll~~Number) ~~and~~One ~~benefits~~ABC ~~9,512~~Parkway 10Beloit,~~020~~ ~~Accrued~~Wisconsin ~~liabilities~~53511 ~~18,189~~(Address ~~11,891 Current portion~~ of ~~long-term~~principal ~~debt~~executive ~~5,447~~offices) ~~6,067 -------- -------- Total current liabilities 219,825 106,612 Long-term debt 250,149 271,480 Contingent liabilities~~ (~~Note~~Zip 2Code) Stockholder's equity: Common stock -- -- Additional paid-in capital 3,779 3,779 Retained earnings 55,303 35,399 -------- -------- Total stockholder's equity 59,082 39,178 -------- -------- $529,056 $417,270 ======== ========

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 August 1, 2002 Index American Builders & Contractors Supply Co., Inc. and Subsidiaries Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - June 30, 2002 and December 31, 2001 Condensed consolidated statements of income and retained earnings - Three months ended June 30, 2002 and 2001; Six months ended June 30, 2002 and 2001 Condensed consolidated statements of cash flows - Six months ended June 30, 2002 and 2001 Notes to condensed consolidated financial statements - June 30, 2002 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)

~~Three~~June ~~months ended Nine months ended September~~ 30, ~~September~~December 3031, ~~------------------------------~~ASSETS ~~-------------------------------~~2002 2001 ~~2000 2001 2000~~ ------------ ----------- -~~-----------~~ ~~-----------~~Current ~~Net~~assets: ~~sales~~Cash $ ~~409~~3,~~262~~143 $ ~~362~~6,~~203~~114 $Accounts 1receivable 201,~~027~~363 167,~~572~~253 $Inventories ~~941~~226,~~166~~650 ~~Cost~~157,810 ofPrepaid ~~sales~~expenses ~~307,740~~and ~~275,275~~other ~~777~~2,~~174~~905 ~~714~~3,~~151~~017 ----------- ----------- -~~----------~~ ~~-----------~~Total ~~Gross~~current ~~profit~~assets ~~101~~434,~~522~~061 86334,~~928~~194 ~~250~~Property and equipment,~~398~~ ~~227~~net 77,~~015~~832 ~~Operating~~66,965 ~~expenses:~~Net ~~Distribution~~receivable ~~centers~~from 70affiliates 11,~~289~~928 634,~~517~~907 ~~190~~Goodwill 36,~~953~~551 ~~177~~36,~~759~~551 ~~General~~Other ~~and~~intangible ~~administrative~~assets 54,~~309~~849 54,~~894~~875 ~~16,512~~Security ~~20,002~~deposits ~~Amortization~~869 of796 ~~intangible~~Other assets ~~400 400~~ 1,~~201~~525 1,~~201~~345 ----------- ----------- -~~----------~~ ~~-----------~~$ 75567,~~998~~615 ~~69,811~~$ ~~208~~449,~~666~~633 ~~198,962~~=========== ~~-----------~~============ ~~-----------~~LIABILITIES ~~-----------~~AND ~~-----------~~STOCKHOLDER'S ~~Operating~~EQUITY ~~income~~Current ~~25,524~~liabilities: ~~17,117~~Accounts ~~41,732~~payable 28$ 191,~~053~~044 ~~Other~~$ ~~income~~99,646 ~~(expense):~~Accrued ~~Interest~~payroll ~~income~~and ~~106~~benefits 6010,810 ~~333~~12,569 ~~246~~Accrued ~~Interest~~liabilities ~~expense (4~~18,~~785)~~313 ~~(6,614) (~~15,~~455)~~082 ~~(19,091)~~Current ~~-----------~~portion ~~-----------~~of long-~~----------~~term ~~-----------~~debt (45,~~679)~~507 (610,~~554)~~245 ~~(15,122) (18,845)~~ ----------- ----------- -~~----------~~ ~~-----------~~Total ~~Income~~current ~~before~~liabilities ~~provision~~225,674 ~~for~~137,542 ~~income~~Long-term ~~taxes~~debt ~~and extraordinary item 20~~265,~~845~~283 10236,~~563~~929 ~~26,610~~Contingent ~~9,208~~liabilities ~~Provision~~(Note ~~for~~2) ~~income~~Stockholder's ~~taxes~~equity: ~~272~~Common 68stock ~~454 239~~ ---~~--------~~ ---~~--------~~ ~~-----------~~Additional paid-~~----------~~in ~~Income~~capital ~~before extraordinary item 20~~3,~~573~~779 103,~~495~~779 ~~26,156~~Retained ~~8,969~~earnings ~~Extraordinary item (Note 4) -- 1~~72,~~043~~879 ~~-- 1~~71,~~043~~383 ----------- ----------- -~~----------~~ ~~-----------~~Total ~~Net income 20,573 11,538 26,156 10,012 Retained earnings at beginning of period 36,530 20,664 35,399 23,894 Distributions to sole~~ stockholder's ~~(1,800)~~equity ~~(852) (6~~76,~~252)~~658 (275,~~556)~~162 ----------- ----------- -~~----------~~ ~~----------- Retained earnings at end of period~~ $ 55567,~~303~~615 $ 31449,~~350~~633 ~~$ 55,303 $ 31,350~~ =========== =========== =~~========== ===========~~

See notes to unaudited condensed consolidated financial statements. Note: The balance sheet at December 31, 2001 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 Income and Retained Earnings (Unaudited) (in thousands)

~~Nine~~Three months ended ~~September~~June 30, Six months ended June 30, ---------------------------- ---------------------------- 2002 2001 ~~2000~~2002 2001 ----------- ----------- ----------- ----------- ~~Operating activities~~ Net ~~income~~sales $ 26390,~~156~~312 $ 10370,~~012~~828 ~~Adjustments~~$ ~~to reconcile net income to cash provided by operating activities: Depreciation 11~~656,~~085~~675 ~~10,974~~$ ~~Amortization 1~~618,~~201~~311 ~~1,201~~Cost ~~Amortization~~ of ~~deferred~~sales ~~financing~~292,102 ~~costs~~281,504 ~~554 279 Provision for doubtful accounts 6~~492,~~702~~424 7469,~~142~~434 ~~Loss~~----------- on------------ ~~disposal~~----------- ~~of property and equipment 258 757 Extraordinary item~~ ----------- ~~(1,043)~~Gross ~~Changes~~profit in98,210 ~~operating~~89,324 ~~assets~~164,251 ~~and~~148,877 ~~liabilities:~~Operating ~~Accounts~~expenses ~~receivable (69~~81,~~140)~~995 ~~(43~~71,~~285)~~849 ~~Inventories (49~~148,~~847)~~667 ~~(29~~131,~~866)~~868 ~~Prepaid~~Amortization ~~expenses~~of ~~and~~intangible ~~other (786) 215 Other~~ assets 5492 ~~202~~400 ~~Accounts~~184 ~~payable~~800 ~~108,043 76,485 Accrued liabilities 5,790 1,190~~ ----------- ------------ ----------- ----------- ~~Cash provided by operating activities 40~~82,~~070~~087 3472,~~263~~249 ~~Investing activities Additions to property and equipment (12~~148,~~388)~~851 ~~(14~~132,~~180)~~668 ~~Proceeds from disposal of property and equipment 629 1,403 Acquisitions of businesses~~ --- ~~(282)~~ -------- ------------ ----------- ----------- ~~Cash~~Operating ~~used~~income in16,123 ~~investing~~17,075 ~~activities~~15,400 ~~(11~~16,~~759)~~209 Other income (~~13,059~~expense): ~~Financing~~Interest ~~activities~~income ~~Net~~164 ~~repayments~~117 ~~under~~279 ~~line~~226 ofInterest ~~credit~~expense (43,~~859~~588) (114,~~427~~996) ~~Payments on long-term debt~~ (177,~~092~~015) (1110,~~370~~671) ~~Change~~----------- in----------- ~~net~~----------- ~~receivable~~----------- ~~from sole stockholder~~ (13,~~792~~424) 2(4,~~624~~879) ~~Distributions to sole stockholder~~ (6,~~252~~736) (210,~~556~~445) ----------- ----------- ----------- ----------- ~~Cash~~Income ~~used~~before inprovision ~~financing~~for ~~activities~~income ~~(29~~taxes 12,~~995)~~699 ~~(22~~12,~~729)~~196 8,664 5,764 Provision for income taxes 154 51 368 181 ----------- ----------- ----------- ----------- Net ~~decrease~~income in12,545 ~~cash~~12,145 (18,~~684)~~296 (15,~~525)~~583 ~~Cash~~Retained earnings at beginning of period 567,~~009~~134 27,985 71,383 35,399 Distributions to sole stockholder (6,800) (3,600) (6,800) (4,~~717~~452) ----------- ----------- ----------- ----------- ~~Cash~~Retained earnings at end of period $ 372,~~325~~879 $ 336,~~192~~530 $ 72,879 $ 36,530 =========== =========== =========== ===========

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

~~Subsidiary~~Six ~~ABC~~months ~~Guarantors~~ended ~~Eliminations~~June ~~Consolidated~~30, ------------- -------------- --- 2002 2001 ---------~~---~~ ----------~~-----~~ ~~Assets~~Operating ~~Current~~activities ~~assets:~~Net ~~Cash~~income $ 38,~~088~~296 $ ~~237~~5,583 $Adjustments -to $reconcile ~~3,325~~net ~~Accounts~~income ~~receivable~~to ~~204,835~~cash ~~11,426~~provided ~~(11,056)~~by ~~205,205~~operating ~~Inventories~~activities: ~~203,328~~Depreciation 17,~~129~~434 (37,~~032)~~387 ~~201,425~~Amortization ~~Intercompany~~184 ~~advances~~800 ~~(2,521)~~Amortization ~~2,521~~of -deferred -financing ~~Prepaid~~costs ~~expenses~~154 ~~and~~163 ~~other~~Provision ~~2,748~~for ~~919~~doubtful -accounts 34,~~667~~585 ~~-------------~~4,024 ~~--------------~~Loss ~~---------------~~on ~~---------------~~disposal ~~Total~~of ~~current~~property ~~assets~~and ~~411,478~~equipment ~~16,232~~128 ~~(14,088)~~160 ~~413,622~~Changes ~~Property~~in operating assets and ~~equipment~~liabilities, net ~~66,051~~of ~~466~~acquisitions: -Accounts ~~66,517~~receivable ~~Investment in subsidiaries 3~~(36,~~195~~469) - (355,~~195~~298) -Inventories ~~Net receivable from sole stockholder 5~~(66,~~243~~102) ~~- - 5~~(47,~~243~~130) ~~Goodwill~~Prepaid ~~36,875~~expenses -and -other ~~36,875~~112 3 Other ~~intangible~~ assets ~~4,480~~(245) -15 -Accounts 4payable 91,~~480~~398 ~~Other assets 2~~108,~~199~~314 ~~120~~Accrued -liabilities 21,~~319~~441 ~~-------------~~1,372 ---------~~-----~~ ----------~~-----~~ ~~---------------~~Cash $provided ~~529,521~~by $operating ~~16,818~~activities ~~$ (17~~10,~~283)~~916 ~~$ 529~~25,~~056~~393 ~~=============~~Investing ~~==============~~activities ~~===============~~Additions ~~===============~~to ~~Liabilities~~property and ~~stockholder's~~equipment ~~equity Current liabilities: Accounts payable $ 188,339 $ 9,394 $~~ (1113,~~056~~859) ~~$ 186,677 Accrued payroll and benefits~~ (9,~~327~~029) ~~185~~Proceeds -from ~~9,512~~disposal ~~Accrued~~of ~~liabilities~~property ~~17,177~~and ~~1,012~~equipment -331 ~~18,189~~418 ~~Current~~Acquisitions ~~portion~~ of ~~long-term~~businesses ~~debt~~ (5,~~447~~892) - - ~~5,447~~ -~~------------~~ ---------~~-----~~ ----------~~-----~~ ~~---------------~~Cash ~~Total~~used ~~current~~in ~~liabilities~~investing ~~220,290~~activities 10(19,~~591~~420) (118,~~056~~611) ~~219,825~~Financing ~~Long-term~~activities ~~debt~~Net ~~250,149~~borrowings -(payments) -under ~~250,149~~line ~~Contingent~~of ~~liabilities~~credit ~~Stockholder's~~21,778 ~~equity:~~(10,774) ~~Common~~Payments ~~stock~~on long-term -debt -(2,111) -(1,296) ~~Additional~~Change ~~paid-~~in ~~capital~~net ~~3,779~~receivable 1from affiliates (17,021) 3(2,~~779~~122) ~~Retained~~Distributions ~~earnings~~to ~~55,303~~stockholder (6,~~226~~800) (64,~~226~~452) ~~55,303~~Payments of debt financing costs (313) --- ---------- ----------~~----~~ Cash provided by (used in) financing activities 5,533 (18,644) ---------~~------~~ ----------~~-----~~ ~~Total~~Net ~~stockholder's~~decrease ~~equity~~in ~~59,082~~cash 6(2,~~227~~971) (61,~~227~~862) 59Cash at beginning of period 6,~~082~~114 ~~-------------~~5,009 ---------~~-----~~ ----------~~-----~~ ~~---------------~~Cash $at ~~529,521~~end $of ~~16,818~~period $ ~~(17~~3,~~283)~~143 $ ~~529~~3,~~056~~147 =========~~====~~ ==========~~==== =============== ===============~~

See notes to unaudited condensed consolidated financial statements. 4 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 2002 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 six months ended June 30, 2002 are not indicative of the results that may be expected for the year ending December 31, 2002 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, 2001. 2. Contingent Liabilities At June 30, 2002 and December 31, 2001, the Company had guaranteed debt of the stockholder in the amounts of $1,298,000 and $1,602,000, 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 $5,064,000 at June 30, 2002 and December 31, 2001, with respect to debt of the Company's stockholder and affiliates. 3. Guarantor Subsidiaries The following tables present condensed consolidating financial information for the three months and six months ended June 30, 2002 and 2001 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 ~~December~~June 3130, ~~2000~~2002 (in thousands) Subsidiary ABC Guarantors Eliminations Consolidated ------------------------------------------------------------------- Assets Current assets: Cash $ 43,~~651~~222 $ ~~358~~(79) $ -- $ 53,~~009~~143 Accounts receivable ~~142~~198,~~516~~175 715,~~060~~742 (612,~~808~~554) ~~142~~201,~~768~~363 Inventories ~~152~~227,~~588~~025 12,~~331~~479 (2,~~341~~854) ~~151~~226,~~578~~650 Intercompany advances 363 (~~4,519~~363) ~~4,519~~ -- -- Prepaid expenses and other 1,~~913~~728 ~~967~~1,177 -- 2,~~880~~905 ---------------------------------------------------------~~----~~ Total current assets ~~297~~430,~~149~~513 1418,~~235~~956 (915,~~149~~408) ~~302~~434,~~235~~061 Property and equipment, net 6571,~~718~~573 ~~382~~6,259 -- 6677,~~100~~832 Investment in subsidiaries 43,~~782~~956 -- (43,~~782~~956) -- ~~Net~~Receivable ~~receivable~~ from ~~sole~~affiliates ~~stockholder 3~~11,~~452~~928 -- -- 311,~~452~~928 Goodwill 3736,~~847~~551 -- -- 3736,~~847~~551 Other intangible assets 54,~~263~~342 --507 -- 54,~~263~~849 Security deposits 1,372 (503) - 869 Other assets 21,~~341~~239 32286 -- 21,~~373~~525 ---------------------------------------------------------~~----~~ $ ~~416~~561,~~552~~474 $ 1425,~~649~~505 $ (1319,~~931~~364) $ ~~417~~567,~~270~~615 =========================================================~~====~~ Liabilities and stockholder's equity Current liabilities: Accounts payable $ 79192,~~114~~203 $ 611,~~328~~395 $ (612,~~808~~554) $ 78191,~~634~~044 Accrued payroll and benefits 910,~~801~~271 ~~219~~539 -- 10,~~020~~810 Accrued liabilities 1016,~~912~~460 ~~979~~1,853 -- 1118,~~891~~313 Current portion of long-term debt 64,~~067~~257 --1,250 -- 65,~~067~~507 ---------------------------------------------------------~~----~~ Total current liabilities ~~105~~223,~~894~~191 715,~~526~~037 (612,~~808~~554) ~~106~~225,~~612~~674 Long-term debt ~~271~~261,~~480~~625 --3,658 -- ~~271~~265,~~480~~283 Contingent liabilities Stockholder's equity: Common stock -- -- -- -- Additional paid-in capital 3,779 1 (1) 3,779 Retained earnings 3572,~~399~~879 76,~~122~~809 (76,~~122~~809) 3572,~~399~~879 ---------------------------------------------------------~~----~~ Total stockholder's equity 3976,~~178~~658 76,~~123~~810 (76,~~123~~810) 3976,~~178~~658 ---------------------------------------------------------~~----~~ $ ~~416~~561,~~552~~474 $ 1425,~~649~~505 $ (1319,~~931~~364) $ ~~417~~567,~~270~~615 =========================================================~~====~~

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

Condensed Consolidating ~~Statement~~Balance ofSheet ~~Operations~~December ~~for the Three Months ended September 30~~31, 2001 (in thousands) Subsidiary ABC Guarantors Eliminations Consolidated --------------------------------------------------------------~~-------~~ ~~Net~~Assets ~~sales~~Current assets: Cash $ ~~408~~6,~~629~~040 $ ~~16,935~~74 $ - $ 6,114 Accounts receivable 166,746 8,337 (167,~~302~~830) ~~$ 409~~167,~~262~~253 ~~Cost~~Inventories of158,067 ~~sales~~2,183 ~~309~~(2,~~942~~440) 14157,~~013~~810 Intercompany advances (161,~~215~~880) ~~307~~1,~~740~~880 - - Prepaid expenses and other 2,042 975 - 3,017 ---------------------------------------------------------~~---------~~ ~~Gross~~Total ~~profit~~current 98assets 331,~~687~~015 213,~~922~~449 (8710,270) ~~101~~334,~~522~~194 ~~Operating~~Property ~~expenses:~~and ~~Distribution~~equipment, ~~centers~~net 6865,~~962~~318 1,~~327~~647 - 7066,~~289~~965 ~~General~~Investment ~~and~~in ~~administrative~~subsidiaries 54,~~019~~186 ~~290~~ - 5(4,~~309~~186) ~~Amortization~~- ofReceivable ~~intangible~~from ~~assets~~affiliates ~~400~~4,907 - - ~~400~~4,907 Goodwill 36,551 - - 36,551 Other intangible assets 4,336 539 - 4,875 Security deposits 796 - -~~----------------------------------------------------------------~~ ~~74,381~~796 Other assets 1,~~617~~310 35 - 751,~~998~~345 ---------------------------------------------------------~~------------~~ ~~Operating~~$ ~~income 24~~448,~~306~~419 1$ 15,~~305~~670 $ (8714,456) 25$ 449,~~524~~633 ~~Other~~========================================================= ~~income~~Liabilities and stockholder's equity Current liabilities: Accounts payable $ 100,908 $ 6,568 $ (~~expense~~7,830): ~~Interest~~$ ~~income~~99,646 ~~106~~Accrued -payroll and benefits 12,161 408 - ~~106~~12,569 ~~Interest~~Accrued ~~expense~~liabilities (414,~~785)~~014 1,068 - 15,082 Current portion of long-term (4debt 9,~~785)~~245 1,000 - 10,245 ---------------------------------------------------------~~-----------~~ Total current liabilities 136,328 9,044 (47,~~679~~830) -137,542 Long-term (4debt 236,~~679)~~929 - -~~-------------------------------------------------------------------~~ ~~Income~~236,929 ~~before~~Commitments ~~provision~~and ~~for~~contingent ~~income~~liabilities ~~taxes~~Stockholder's ~~and~~ equity: inCommon ~~earnings~~stock of- ~~subsidiaries~~- 19- - Additional paid-in capital 3,~~627~~779 1~~,305~~ (871) 203,~~845~~779 ~~Provision~~Retained ~~for~~earnings ~~income~~71,383 ~~taxes~~6,625 ~~270~~(6,625) 271,383 - ~~272~~ --------------------------------------------------------~~-------------~~ ~~19,357~~Total ~~1,303~~stockholder's ~~(87)~~equity 2075,~~573~~162 ~~Equity in earnings of subsidiaries 1~~6,~~216~~626 - (16,~~216~~626) -75,162 ---------------------------------------------------------~~------------~~ ~~Net income~~ $ 20448,~~573~~419 $ 115,~~303~~670 $ (114,~~303~~456) $ 20449,~~573~~633 =========================================================~~============~~

7 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~~Income for the Three Months ended ~~September~~June 30, ~~2000~~2002 (in thousands) Subsidiary ABC Guarantors Eliminations Consolidated --------------------------------------------------------------------- Net sales $ ~~361~~384,~~572~~578 $ 1424,~~933~~582 $ (1418,~~302~~848) $ ~~362~~390,~~203~~312 Cost of sales ~~277~~289,~~367~~869 1220,~~424~~732 (1418,~~516~~499) ~~275~~292,~~275~~102 --------------------------------------------------------------------- Gross profit 8494,~~205~~709 23,~~509~~850 ~~214~~(349) 8698,~~928~~210 Operating expenses: ~~Distribution centers 62~~79,~~293~~317 12,~~224~~748 -(70) 6381,~~517~~995 ~~General and administrative 5,646 248 - 5,894~~ Amortization of intangible assets ~~400~~76 -16 - ~~400~~92 --------------------------------------------------------------------- 6879,~~339~~393 12,~~472~~764 -(70) 6982,~~811~~087 --------------------------------------------------------------------- Operating income 15,~~866~~316 1,~~037~~086 ~~214~~(279) 1716,~~117~~123 Other income (expense): Interest income 60164 - - 60164 Interest expense (63,~~614~~547) -(41) - (63,~~614~~588) --------------------------------------------------------------------- (63,~~554~~383) -(41) - (63,~~554~~424) --------------------------------------------------------------------- Income before provision for income taxes, ~~extraordinary item~~ and equity in earnings of subsidiaries 911,~~312~~933 1,~~037~~045 ~~214~~(279) 1012,~~563~~699 Provision for income taxes 62153 ~~6 - 68 --------------------------------------------------------------------- Income before extraordinary item and equity in earnings of subsidiaries 9,250~~ 1~~,031~~ ~~214 10,495 Extraordinary item 1,043~~ - -154 ~~1,043~~ --------------------------------------------------------------------- ~~Income before equity in earnings of Subsidiaries 10~~11,~~293~~780 1,~~031~~044 ~~214~~(279) 1112,~~538~~545 Equity in earnings of subsidiaries ~~1,245~~765 - (~~1,245~~765) - --------------------------------------------------------------------- Net income $ 1112,~~538~~545 $ 1,~~031~~044 $ (1,~~031~~044) $ 1112,~~538~~545 =====================================================================

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

Condensed Consolidating Statement of Income for the Three Months ended June 30, 2001 (in thousands) Subsidiary ABC Guarantors Eliminations Consolidated --------------------------------------------------------------------- Net sales $ 1369,~~025,276~~850 $ 4717,~~704~~661 $ (4516,~~408~~683) $ 1370,~~027,572~~828 Cost of sales ~~782~~283,~~472~~126 3914,~~418~~569 (4416,~~716~~191) ~~777~~281,~~174~~504 --------------------------------------------------------------------- Gross profit ~~242~~86,~~804~~724 83,~~286~~092 (~~692~~492) ~~250~~89,~~398~~324 Operating expenses: ~~Distribution centers 186~~70,~~901~~093 41,~~052~~756 - ~~190~~71,~~953~~849 ~~General and administrative 15,667 845 - 16,512~~ Amortization of intangible assets ~~1,201~~400 - - ~~1,201~~400 --------------------------------------------------------------------- ~~203~~70,~~769~~493 41,~~897~~756 - ~~208~~72,~~666~~249 --------------------------------------------------------------------- Operating income 3916,~~035~~231 31,~~389~~336 (~~692~~492) 4117,~~732~~075 Other income (expense): Interest income ~~333~~117 - - ~~333~~117 Interest expense (154,~~455~~996) - - (154,~~455~~996) --------------------------------------------------------------------- (154,~~122~~879) - - (154,~~122~~879) --------------------------------------------------------------------- Income before provision for income taxes and equity in earnings of subsidiaries 2311,~~913~~352 31,~~389~~336 (~~692~~492) 2612,~~610~~196 Provision for income taxes ~~448~~46 65 - ~~454~~51 --------------------------------------------------------------------- ~~Income before equity in earnings of subsidiaries 23~~11,~~465~~306 31,~~383~~331 (~~692~~492) 2612,~~156~~145 Equity in earnings of subsidiaries ~~2,691~~839 - (~~2,691~~839) - --------------------------------------------------------------------- Net income $ 2612,~~156~~145 $ 31,~~383~~331 $ (31,~~383~~331) $ 2612,~~156~~145 =====================================================================

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 Income for the Six Months ended June 30, 2002 (in thousands) Subsidiary ABC Guarantors Eliminations Consolidated --------------------------------------------------------------------- Net sales $ ~~939~~649,~~178~~352 $ 4339,~~611~~750 $ (4132,~~623~~427) $ ~~941~~656,~~166~~675 Cost of sales ~~719~~490,~~103~~895 3633,~~279~~472 (4131,~~231~~943) ~~714~~492,~~151~~424 --------------------------------------------------------------------- Gross profit ~~220~~158,~~075~~457 76,~~332~~278 (~~392~~484) ~~227~~164,~~015~~251 Operating expenses: ~~Distribution centers 174~~143,~~218~~864 34,~~541~~873 -(70) ~~177~~148,~~759~~667 ~~General and administrative 19,086 916 - 20,002~~ Amortization of intangible assets ~~1,201~~152 -32 - ~~1,201~~184 --------------------------------------------------------------------- ~~194~~144,~~505~~016 4,~~457~~905 -(70) ~~198~~148,~~962~~851 --------------------------------------------------------------------- Operating income 2514,~~570~~441 21,~~875~~373 (~~392~~414) 2815,~~053~~400 Other income (expense): Interest income ~~246~~279 - - ~~246~~279 Interest expense (196,~~091~~951) -(64) - (197,~~091~~015) --------------------------------------------------------------------- (186,~~845~~672) -(64) - (186,~~845~~736) --------------------------------------------------------------------- Income before provision for income taxes, ~~extraordinary item~~ and equity in earnings of subsidiaries 67,~~725~~769 21,~~875~~309 (~~392~~414) 98,~~208~~664 Provision for income taxes ~~227~~367 121 - ~~239~~368 --------------------------------------------------------------- ~~Income before extraordinary item and equity in earnings of subsidiaries 6,498 2,863 (392) 8,969 Extraordinary item 1,043~~ - - ~~1,043~~ ----~~-----------------------------------------------------------~~ ~~Income before equity in earnings of subsidiaries~~ 7,~~541~~402 21,~~863~~308 (~~392~~414) 108,~~012~~296 Equity in earnings of subsidiaries ~~2,471~~894 - (~~2,471~~894) - --------------------------------------------------------------------- Net income $ 108,~~012~~296 $ 21,~~863~~308 $ (21,~~863~~308) $ 108,~~012~~296 =====================================================================

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 Income for the Six Months ended June 30, 2001 (in thousands) Subsidiary ABC Guarantors Eliminations Consolidated --------------------------------------------------------------------- ~~Operating activities~~ Net ~~income~~sales $ 26616,~~156~~647 $ 330,~~383~~769 $ (329,~~383~~105) $ 26618,~~156~~311 ~~Adjustments~~Cost toof ~~reconcile~~sales ~~net~~472,530 ~~income to cash provided by operating activities: Depreciation 10~~25,~~923~~405 ~~162 - 11~~(28,~~085~~501) ~~Amortization 1~~469,~~201~~434 - - ~~1,201 Amortization of deferred financing costs 554~~ - - ~~554 Provision for doubtful accounts 6,691 11~~ - ~~6,702 (Gain) loss on disposal of property and equipment 259 (1)~~ ---------------------------------------------------------------- ~~258~~Gross ~~Changes~~profit ~~in operating assets and liabilities: Accounts receivable (69~~144,~~011)~~117 (45,~~376)~~364 ~~4,247~~ (~~69,140~~604) ~~Inventories (50~~148,~~741)~~877 ~~202~~Operating ~~692 (49,847) Prepaid~~ expenses ~~and other (834) 48 - (786) Other assets (1~~128,~~855)~~587 13,~~909~~281 - ~~54 Accounts payable 109~~131,~~225~~868 ~~3,065~~Amortization ~~(4,247)~~of ~~108,043~~intangible ~~Accrued~~assets ~~liabilities~~800 ~~5,791~~- ~~(1)~~ - ~~5,790~~800 --------------------------------------------------------------------- ~~Cash provided by operating activities 38~~129,~~359~~387 43,~~402~~281 ~~(2,691) 40,070 Investing activities Additions to property and equipment (12,128) (260)~~ - ~~(12~~132,~~388)~~668 ~~Proceeds from disposal of property and equipment 614 15~~ - ~~629 Investment in subsidiaries (2,691)~~ - ~~2,691~~ - ------------------------------------------------------------------ ~~Cash~~Operating ~~used~~income ~~in investing activities (~~14,~~205)~~730 ~~(245)~~ 2,~~691~~083 (~~11,759~~604) ~~Financing activities Net payments under line of credit (4~~16,~~859)~~209 -Other -income (~~4,859~~expense): ~~Payments~~Interest onincome ~~long-term~~226 ~~debt (17,092)~~ - - ~~(17,092)~~226 ~~Change~~Interest inexpense ~~net receivable from sole stockholder~~ (110,~~792~~671) - - (110,~~792~~671) ~~Distributions~~--------------------------------------------------------------------- ~~to sole stockholder~~ (110,~~974~~445) ~~(4,278)~~- - (610,~~252~~445) --------------------------------------------------------------------- ~~Cash~~Income ~~used~~before provision for income taxes and equity in ~~financing~~earnings ~~activities~~of ~~(25,717)~~subsidiaries (4,~~278)~~285 -2,083 (~~29,995~~604) 5,764 Provision for income taxes 177 4 - 181 --------------------------------------------------------------------- ~~Net~~4,108 ~~decrease in cash (1~~2,~~563)~~079 (~~121~~604) ~~- (1~~5,~~684)~~583 ~~Cash~~Equity atin ~~beginning~~earnings of ~~period~~subsidiaries 41,~~651~~475 ~~358~~ - 5(1,~~009~~475) - --------------------------------------------------------------------- ~~Cash~~Net atincome ~~end of period~~ $ 35,~~088~~583 $ ~~237~~2,079 $ -(2,079) $ 35,~~325~~583 =====================================================================

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~~Six Months ended ~~September~~June 30, ~~2000~~2002 (in thousands) Subsidiary ABC Guarantors Eliminations Consolidated -------------------------------------------------------------- Operating activities Net income $ 108,~~012~~296 $ 21,~~863~~308 $ (21,~~863~~308) $ 108,~~012~~296 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 107,~~784~~180 ~~190~~254 -- 107,~~974~~434 Amortization ~~1,201~~152 --32 -- ~~1,201~~184 Amortization of deferred financing costs ~~279~~154 -- -- ~~279~~154 Provision for doubtful accounts 74,~~142~~585 -- -- 74,~~142~~585 Loss on disposal of property and equipment ~~731~~123 265 -- ~~757~~128 ~~Extraordinary~~Change ~~item (1,043) -- -- (1,043) Changes~~ in operating assets and liabilities: Accounts receivable (4333,~~216~~788) (57,~~049~~405) 4,~~980~~724 (4336,~~285~~469) Inventories (3066,~~288~~220) 30(296) ~~392~~414 (2966,~~866~~102) Prepaid expenses and other 73314 ~~142~~(202) -- ~~215~~112 Other assets (2,~~350~~741) (2,~~148)~~496 -- ~~202~~(245) Accounts payable 7791,~~389~~295 4,~~076~~827 (4,~~980~~724) 7691,~~485~~398 Accrued liabilities ~~1,216~~525 ~~(26)~~916 -- 1,~~190~~441 -------------------------------------------------------------- Cash provided by operating activities 369,~~630~~875 ~~104~~1,935 (~~2,471~~894) 3410,~~263~~916 Investing activities Additions to property and equipment (1412,~~064~~908) (~~116~~951) -- (1413,~~180~~859) Proceeds from disposal of property and equipment ~~1,368~~302 3529 -- ~~1,403~~331 Acquisitions of businesses (~~282~~5,892) -- -- (~~282~~5,892) Investment in subsidiaries (~~2,471~~894) -- ~~2,471~~894 -- -------------------------------------------------------------- Cash used in investing activities (1519,~~449~~392) (81922) ~~2,471~~894 (1319,~~059~~420) Financing activities Net ~~payments~~borrowings under line of credit ~~(11~~21,~~427)~~778 -- -- ~~(11~~21,~~427)~~778 Payments on long-term debt (112,~~370~~069) --(42) -- (112,~~370~~111) Change in net receivable from ~~sole~~affiliates ~~stockholder 2~~(7,~~624~~021) -- -- 2(7,~~624~~021) Distributions to sole stockholder (25,~~556~~676) (1,124) - (6,800) Payments of debt financing costs (313) - -- (~~2,556~~313) -------------------------------------------------------------- Cash provided by (used in) financing activities 6,699 (221,~~729~~166) -- ~~-- (22~~5,~~729)~~533 -------------------------------------------------------------- Net ~~increase (~~decrease) in cash (12,~~548~~818) 23(153) -- (12,~~525~~971) Cash at beginning of period 46,~~648~~040 6974 -- 46,~~717~~114 -------------------------------------------------------------- Cash at end of period $ 3,~~100~~222 $ 92(79) $ -- $ $ 3,~~192~~143 ==============================================================

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

~~Three~~Condensed ~~months~~Consolidating ~~ended~~Statement ~~Nine~~of ~~months~~Cash Flows for the Six Months ended ~~September~~June 30, ~~September~~2001 ~~30,~~(in thousands) Subsidiary ABC Guarantors Eliminations Consolidated ------------------------------ ----------------------------- Operating activities Net income $ 5,583 $ 2,079 $ (2,079) $ 5,583 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 7,282 105 - ~~2001~~7,387 ~~2000~~Amortization ~~2001~~800 ~~2000~~- - 800 Amortization of deferred financing costs 163 - - 163 Provision for doubtful accounts 4,016 8 - 4,024 Loss on disposal of property and equipment 160 - - 160 Change in operating assets and liabilities: Accounts receivable (54,970) (4,930) 4,602 (55,298) Inventories (47,910) 176 604 (47,130) Prepaid expenses and other (88) 91 - 3 Other assets (2,702) 2,717 - 15 Accounts payable 109,397 3,519 (4,602) 108,314 Accrued liabilities 1,421 (49) - 1,372 --- ---------- ----------- ------------------------------------ ~~Income~~Cash ~~statement~~provided ~~data:~~by ~~Net~~operating ~~sales~~activities ~~100.0%~~23,152 ~~100.0%~~3,716 ~~100.0%~~(1,475) ~~100.0%~~25,393 ~~Cost~~Investing ofactivities ~~sales~~Additions ~~75.2~~to ~~76.0~~property ~~75.6~~and ~~75.~~equipment (8,960) (69) - (9,029) Proceeds from disposal of property and equipment 418 - - 418 Investment in subsidiaries (1,475) - 1,475 - -------- ---------- ----------- ------------------------------- ~~Gross~~Cash ~~profit~~used ~~24.8~~in ~~24.0~~investing ~~24.4~~activities ~~24.~~(10,017) (69) 1,475 ~~Operating~~(8,611) ~~expenses:~~Financing ~~Distribution~~activities ~~centers~~Net ~~17.2~~payments ~~17.6~~under ~~18.6~~line ~~18.9~~of ~~General~~credit ~~and~~(10,774) ~~administrative~~- ~~1.3~~- (10,774) Payments on long-term debt (1.6,296) - - (1.6,296) Change in net receivable from affiliates (2.1,122) ~~Amortization~~- of- ~~intangible~~(2,122) ~~assets~~Distributions ~~0.1~~to ~~0.1~~sole ~~0.1~~stockholder ~~0.1~~(535) (3,917) - (4,452) ----------- ---------- ----------- ---------------------------- ~~Total~~Cash ~~operating~~used ~~expenses~~in ~~18.6~~financing ~~19.3~~activities ~~20.~~(14,727) (3,917) ~~21.1~~- (18,644) ------------ ---------- ----------- --------------------------- ~~Operating~~Net ~~income~~decrease ~~6.2%~~in ~~4.7%~~cash 4.(1%,592) (270) - (1,862) Cash at beginning of period 4,651 358 - 5,009 ------------------------------------------------------------ Cash at end of period $ 3~~.0%~~,059 $ 88 $ - $ 3,147 ============ ========== =========== ===========================

13 American Builders & Contractors Supply Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 4. Comprehensive Income The Company's comprehensive income for the three and six month periods ended June 30, 2002 and 2001, as required to be reported by Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 130, was identical to the actual income reported for those periods. 5. Goodwill and Other Intangible Assets In June 2001, the FASB issued SFAS 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 has adopted the new rules on accounting for goodwill and other intangible assets as of January 1, 2002. As required by SFAS No. 142, the results of operations for periods prior to its adoption have not been restated. Had these provisions been adopted effective January 1, 2001, the proforma net income would have been $12,469,000 and $6,231,000 for the three and six month periods ended June 30, 2001, respectively. In connection with the adoption of SFAS No. 142, the Company completed the first step of the transitional goodwill impairment test, which requires the Company to compare the fair value of its reporting units to the carrying value of the net assets of the respective reporting units as of January 1, 2002. Based on this analysis, the Company has concluded that no impairment existed at the time of adoption, and, accordingly, no impairment charge is necessary. The gross carrying value and accumulated amortization by major class of other intangible assets are as follows (in thousands):

The Company does not have any intangible assets deemed to have indefinite lives. Amortization expense expected to be recognized for each of the next five years ending December 31, is as follows: 2002 $ 682,000 2003 695,000 2004 695,000 2005 639,000 2006 558,000 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company. ABC is a distributor of exterior building products and is the largest wholesale distributor of roofing products and one of the largest wholesale distributors of vinyl siding materials in the United States, operating 235 distribution centers located in 44 states as of June 30, 2002. Since January 1, 2002, the Company has completed three acquisitions with eleven locations net of consolidations, opened ten distribution centers and closed one distribution center. 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. 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 continued effectiveness of the Company's sales and marketing strategy; and (iii) 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 six months ended June 30, 2002 and 2001: Three months ended Six months ended June 30, June 30, -------------------- ------------------ 2002 2001 2002 2001 -------- ------- -------- ------- Income statement data: Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 74.9 75.9 75.0 75.9 -------- ------- -------- ------- Gross profit 25.1 24.1 25.0 24.1 Operating expenses 21.0 19.4 22.7 21.4 Amortization of intangible assets 0.0 0.1 0.0 0.1 -------- ------- -------- ------- Total operating expenses 21.0 19.5 22.7 21.5 -------- ------- -------- ------- Operating income 4.1% 4.6% 2.3% 2.6% ======== ======= ======== ======= 15 Comparison of the Three and Six Month Periods Ended June 30, 2002 to the Three and Six Month Periods Ended June 30, 2001 The Company's results of operations are affected by the seasonal nature of the roofing and siding business. See "Seasonality." Net sales for the three months ended June 30, 2002 increased by 5.3% to $390.3 million from $370.8 million for the three months ended June 30, 2001. Net sales for the six months ended June 30, 2002 increased by 6.2% to $656.7 million from $618.3 million for the six months ended June 30, 2001. Comparable distribution center sales were level for the three months ended June 30, and increased 1.9% for the six months ended June 30. Gross profit for the three months ended June 30, 2002 increased by 9.9%, to $98.2 million from $89.3 million for the three months ended June 30, 2001, primarily as a result of profits associated with increased sales. Gross profit, as a percent of net sales, for the three months ended June 30, increased to 25.1% in 2002, from 24.1% in 2001. Gross profit for the six months ended June 30, 2002 increased by 10.3% to $164.3 million from $148.9 million for the six months ended June 30, 2001, primarily as a result of profits associated with increased sales. Gross profit, as a percent of net sales, for the six months ended June 30, increased to 25.0% in 2002 from 24.1% in 2001. For both the three and six month periods, gross profit, as a percentage of net sales, increased primarily due to a higher percentage of distribution center warehouse sales versus "direct" sales (product shipped from the vendor directly to the customer's job site), which have significantly lower gross profit margins. Operating expenses increased by $10.2 million to $82.0 million from $71.8 million for the three months ended June 30, 2002 and 2001, respectively. As a percent of net sales, distribution center operating expenses for the three months ended June 30, increased to 21.0% in 2002 from 19.4% in 2001. For the six months ended June 30, distribution center operating expenses increased by $16.8 million to $148.7 million in 2002, from $131.9 million in 2001. As a percent of net sales, distribution center operating expenses for the six months ended June 30, increased to 22.7% in 2002 from 21.4% in 2001. The increase in operating expenses for both the three and six month periods is primarily due to the higher percentage of distribution center warehouse sales, which require greater operating expenses. Operating income for the three months ended June 30, 2002 decreased by $1.0 million to $16.1 million from $17.1 million for the same period in 2001. Operating income for the six months ended June 30, decreased by $0.8 million to $15.4 million in 2002 from $16.2 million in 2001. The decrease for the three and six months ended June 30, is a result of the factors discussed above. Interest expense for the three months ended June 30, 2002 decreased by $1.4 million or 28.2% to $3.6 million from $5.0 million for the three months ended June 30, 2001. For the six months ended June 30, interest expense decreased by $3.7 million or 34.3% to $7.0 million in 2002 from $10.7 million in 2001. The decrease for the three and six month periods is due primarily to decreased rates on the Company's LIBOR and prime rate borrowings, as well as a reduction in the Company's average borrowing levels. 16 Liquidity and Capital Resources Cash Flows from Operating Activities. Net cash provided by operating activities was $10.9 million and $25.4 million for the six months ended June 30, 2002 and 2001, respectively. The decrease was due primarily to increases in inventory purchases related to the increased number of distribution centers, partially offset by an increase in net income and a smaller increase in accounts receivable and accounts payable due to slower sales growth during the second quarter of 2002 as compared to 2001. Cash Flows from Investing Activities. Net cash used in investing activities increased to $19.4 million from $8.6 million for the six months ended June 30, 2002 and 2001, respectively, due to the acquisitions of businesses as well as an increase in additions to property and equipment. Cash Flows from Financing Activities. Net cash provided by (used in) financing activities was $5.5 million and $(18.6) million for the six months ended June 30, 2002 and 2001, respectively, primarily due to increased borrowings made under the line of credit being partially offset by the increases in receivables from affiliates and distributions made to the stockholder. 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 June 30, 2002. 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. August 12, 2002 /s/ Kendra A. Story --------------------- ---------------------------------------- Date: Kendra A. Story Chief Financial Officer and Director 19

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