<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of
1934 No Fee Required for the fiscal year ended December 27, 1996 or
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of
1934 No Fee Required for the transition period from ________ to ________
COMMISSION FILE NUMBER 0-27424
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WILMAR INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New Jersey 22-2232386
- ------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
303 Harper Drive 08057
Moorestown, New Jersey ----------
- ------------------------------------------ (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (609)439-1222
-------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, without par value Nasdaq National Market
- -------------------------------------- --------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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 90 days.
Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this annual report on Form 10-K or any amendment to
this annual report on Form 10-K. [_]
As of March 3, 1997, the aggregate market value of the Common Stock held by non-
affiliates of the registrant was $166,127,151. Such aggregate market value was
computed by reference to the closing sale price of the Common Stock as reported
on the National Market segment of The Nasdaq Stock Market on such date. For
purposes of making this calculation only, the registrant has defined affiliates
as including all directors and beneficial owners of more than ten percent of the
Common Stock of the Company.
As of March 3, 1997, there were 13,048,371 shares of the registrant's Common
Stock outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
As stated in Part III of this annual report on Form 10-K, portions of the
definitive proxy statement to be filed within 120 days after the end of the
fiscal year covered by this annual report on Form 10-K are incorporated herein
by reference.
<PAGE>
WILMAR INDUSTRIES, INC.
FORM 10-K ANNUAL REPORT
For Fiscal Year Ended December 27, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 4
Item 3. Legal proceedings................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............... 5
PART II
Item 5. Market for registrant's common equity and related stockholder
matters.......................................................... 6
Item 6. Selected financial data .......................................... 7
Item 7. Management's discussion and analysis of financial condition and
results of operations............................................ 7
Item 8. Financial statements and supplementary data...................... 13
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure............................................ 13
PART III
Item 10. Directors and executive officers of the registrant .............. 13
Item 11. Executive compensation........................................... 13
Item 12. Security ownership of certain beneficial owners and management... 13
Item 13. Certain relationships and related transactions................... 13
PART IV
Item 14. Exhibits, financial statement schedules, and reports on Form 8-K... 13
</TABLE>
<PAGE>
This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to future growth plans of the Company and its ability to compete with
its competitors, as well as information contained elsewhere in this Report where
statements are preceded by, followed by or include the words "believes,"
"expects," "anticipates" or similar expressions. For such statements the Company
claims the protection of the safe harbor for forward-looking statements
contained in the private Securities Litigation Reform Act of 1995. Actual events
or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation, those
discussed elsewhere in this Report and in the documents incorporated herein by
reference.
PART I
ITEM 1. BUSINESS.
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OVERVIEW
Wilmar Industries, Inc. ("Wilmar" or the "Company") is a national marketer
and direct distributor of repair and maintenance products, principally to the
apartment housing market. Through its 1,000+ page Wilmar Master Catalog, the
Company has become a "one-stop shopping" resource for maintenance managers by
offering the industry's most extensive selection of over 15,000 standard and
specialty plumbing, hardware, electrical, janitorial and related products. By
purchasing directly from domestic and foreign manufacturers in relatively large
volumes, Wilmar is able to offer customers competitive prices on both name brand
and private label products. The Company seeks to win new accounts and increase
sales to existing accounts through direct sales force, outbound telesales
representatives, a national accounts sales program, and monthly direct mail
flyers. Customer service representatives located at Wilmar's centralized call
center use the Company's proprietary software applications to quickly process
orders and answer customer inquiries. The Company provides free, next-day
delivery in local markets served by its distribution centers and ships by parcel
delivery services to other areas. Since 1991, Wilmar has expanded from four
distribution centers located in Philadelphia, Washington, D.C., Houston and
Indianapolis to 16 distribution centers located throughout the United States.
From 1992 to 1996, the Company's net sales increased at a compound annual rate
of 42.3%. From November 1995 through January 1997, Wilmar has acquired six
regional repair and maintenance supply companies with total annualized net sales
of approximately $55 million. References in this report to 1994, 1995 and 1996
mean the fiscal years ended December 30, 1994, December 29, 1995, and December
27, 1996, respectively.
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<PAGE>
ACQUISITIONS
An important element of the Company's growth strategy has been to take
advantage of the highly fragmented nature of its industry by continuing to
explore strategic acquisitions. The Company made several acquisitions in 1996,
as described below.
The Company acquired 100% of the capital stock of HMA Enterprises Inc.
("HMA"), a distributor of repair and maintenance supplies, based in Houston,
Texas, in July 1996. The base purchase price of this acquisition was
approximately $7.6 million, including costs of acquisition, with contingent
consideration of up to $750,000 based on the future performance of HMA.
Also during 1996, the Company completed three additional acquisitions: Mile
High Maintenance Supply, Inc. ("Mile High"), Sun Valley Maintenance Supply Inc.
("Sun Valley") and Aaron Supply ("Aaron") for an aggregate base purchase price
of approximately $4.3 million, including costs of acquisition, with contingent
consideration of up to $250,000 based on the future performance of Mile High.
Each of the acquisitions described above have been accounted for using the
purchase method. No amounts related to the contingent consideration have been
recorded in the accompanying consolidated financial statements. Goodwill
recorded in these transactions totaled approximately $3.9 million and are being
amortized on a straight-line basis over 30 years.
The Company believes that there are additional attractive acquisition
candidates in both new and existing markets. Acquisitions in new geographic
markets should permit the Company to acquire established accounts and gain
market presence quickly. In addition to increasing sales, the Company believes
the acquisition of companies serving Wilmar's newly targeted end markets will
accelerate the Company's growth in these end markets. It is the Company's
strategy to implement its business model at each acquired company as soon as
practical after each acquisition is completed.
PRODUCTS AND MERCHANDISING
Wilmar markets over 15,000 repair and maintenance products. These items
constitute a full range of standard and specialty products in the following
product categories: plumbing, hardware, electrical, chemical and janitorial,
appliance parts, window and floor coverings, heating, ventilating and air
conditioning ("HVAC"), and paint and paint accessories. Wilmar offers a broad
range of name brands such as Kwikset, Insinkerator, Delta Faucet, Moen, Philips
Lighting, and Briggs Plumbingware. In fiscal 1996, excluding HMA, private label
products marketed under the "Wilmar" and "Wilflo" names accounted for 18.3% of
net sales, and no single product accounted for more than 1.3% of the Company's
net sales. Through its inventory management system, the Company is able to
identify sales trends and adjust the Company's merchandise mix accordingly.
Product Categories. For the periods presented, the approximate percentages
of the Company's net sales by product category were as follows:
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<TABLE>
<CAPTION>
FISCAL YEAR
-------------------
PRODUCT CATEGORY 1994 1995 1996
- ----------------------------- ----- ----- -----
<S> <C> <C> <C>
Plumbing..................... 35% 34% 29%
Electrical................... 20 19 20
Hardware..................... 16 18 16
Chemical and janitorial...... 6 6 6
Appliance parts.............. 5 5 7
Window and floor coverings... 6 7 6
HVAC......................... 4 5 7
Paint and paint accessories.. 3 3 3
Other........................ 5 3 6
---- ---- ----
100% 100% 100%
</TABLE>
SALES AND MARKETING
The Company markets and sells through a direct sales force to all levels of
the customer's organization, including senior managers of property management
companies, local and regional property managers and, most importantly, on-site
maintenance managers. The Company's sales and marketing efforts are designed to
establish and solidify customer relationships through frequent contact, and to
emphasize on the Company's broad product selection, reliable next-day delivery,
high level of customer service and competitive pricing. The Company's base of
active customers (customers that have purchased in the preceding 12 months) has
grown to 28,000 at December 27, 1996. No single property accounted for as much
as 1.0% of the Company's net sales during fiscal 1996 although approximately
1,800 properties managed by two large property management companies accounted
for an aggregate of 10.5% of Wilmar's net sales during this period.
Wilmar maintains one of the largest direct sales forces in its industry.
The Company currently has 150 field sales representatives covering 80 markets
nationwide. The Company has found that it garners a greater percentage of its
customers' overall spending on repair and maintenance supplies in markets
serviced by local Wilmar sales representatives, particularly where local sales
representatives are supported by a nearby distribution center, enabling free,
next-day delivery of the Company's entire product line. To generate new
customers, the Company provides its sales representatives with lists of
prospective customers and generally expects them to call on existing customers
approximately every two weeks. In servicing existing customers, local sales
representatives are expected not only to generate orders but also to be problem
solvers. Typical problem solving services include shop organization, special
orders, part identification and complaint resolution. Local sales
representatives are compensated based on a combination of salary and commission.
The Company's sales force is managed by Wilmar's Vice President of Sales and
five regional sales managers. The Company also employs seven telesales
representatives whose responsibility is to obtain new customers and maintain
regular contact with active customers, principally in territories where the
Company does not employ a local field sales representative.
OPERATIONS
The Company receives all orders placed by customers or customers' local
sales representatives at its centralized customer service center within the
Company's New Jersey headquarters via telephone through the Company's toll-free
"800" number and by fax. Calls are received by customer service representatives
who utilize on-line terminals to enter customer orders into a fully computerized
order processing system. Through this system, customer service representatives
access product availability, product location, pricing and promotions
information. Customer service personnel determine immediately whether the
product is available at the distribution center closest to the customer and, if
not, the closest distribution center with availability. As a result, the
customer service representative informs the customer immediately as to when the
product can be delivered. Customer service lines are open from 8:00 am to 8:00
pm Eastern Standard Time. Once an order is entered into the computer system by a
customer service representative, a picking slip is generated at the
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<PAGE>
appropriate distribution center. Items on the picking slip are automatically
arranged by warehouse location sequence to facilitate ease of picking within the
distribution center. Distribution center personnel pick items from 8:00 am to
6:00 pm and all orders received before 3:00 pm are readied for shipment on the
same day. Wilmar uses bar-coding on all orders to track shipment and delivery
status. Most sales are billed on net 30 day terms, with the balance paid by
credit card at the time of sale. The Company seeks to carefully manage inventory
to assure product availability and minimize inventory shrinkage. The Company
regularly cycle counts key inventory items.
Wilmar attempts to ship its products in the most cost-effective and
efficient manner. For customers located within the local delivery radius of a
distribution center (typically 50 miles), Wilmar's own trucks or a contract
delivery service will deliver the products directly to the customer the next
day, at no charge for orders over $25. For customers located outside the local
delivery radius of a distribution center, the Company will deliver products via
UPS or another parcel delivery company or, in the case of large orders, by less-
than-truckload common carrier. For these customers, the Company imposes a $25
minimum order size and does not charge delivery costs if the customer's order
exceeds $50, except for heavy or oversized products marked in the catalog with a
"plus freight" symbol.
The Company arranges for pick-up of returns at no charge to the customer in
local delivery areas. For customers outside local delivery zones, the Company
provides parcel service pick-up of the returns at no charge plus full refund if
the return is the result of Company error. In 1996, the Company's return rate
was approximately 4% of sales. The company offers 12-year warranties on its
"Wilflo" faucets and one-year warranties on its "Wilmar" ceiling fans and
"Wilmar" garbage disposals.
COMPETITION
The Company believes that the principal competitive factors in the
distribution of repair and maintenance products to the apartment housing market
and similar markets are the breadth and quality of products offered, reliability
of delivery, customer service, product pricing and sales relationships. The
Company believes it competes favorably with respect to these factors.
Although there are a large number of repair and maintenance distributors in
the United States, based on industry reports and its own experience, the Company
believes that most of them operate in a single region (often with a single
distribution center) and have significantly less annual sales than the Company.
In addition, the Company competes with mail order catalog companies, retail
stores including superstores, specialty suppliers and industrial suppliers.
Certain of these companies have greater financial resources and sell more
products than Wilmar.
EMPLOYEES
The Company employed 606 people as of March 1, 1997. Of these, 150 were in
sales, 7 in telesales, 59 in customer service, 289 in operations and 101 in
management and administration. Fifty-six of the Company's distribution center
employees and truck drivers at the Philadelphia distribution center are covered
by a collective bargaining agreement with Highway Truck Drivers and Helpers
Local 107, which is affiliated with the International Brotherhood of Teamsters.
This agreement expires in May 1998. The Company has never experienced a work
stoppage. The Company believes its relations with its employees are good.
ITEM 2. PROPERTIES
- ------ ----------
The Company leases approximately 12,500 square feet of office space in
Moorestown, New Jersey from William Green, Chairman, President, and Chief
Executive Officer of the Company, for its headquarters. See Note 11 to the
Consolidated Financial Statements. The Company leases the following
distribution centers:
-4-
<PAGE>
<TABLE>
<CAPTION>
CURRENT YEAR
DISTRIBUTION CENTER SQUARE FOOTAGE OPENED/ACQUIRED
- ------------------- --------------- ---------------
<S> <C> <C>
Washington, D.C.................... 28,500 1982
Houston, TX........................ 25,000 1987
Indianapolis, IN................... 16,000 1991
Fresno, CA......................... 14,400 1992
Atlanta, GA........................ 12,200 1993
Tampa, FL.......................... 36,700 1994
Columbus, OH....................... 20,800 1995
Seattle, WA........................ 16,200 1995
Miami, FL (One Source)............. 37,000 1995*
Denver, CO (Mile High)............ 27,100 1996*
Las Vegas, NV (Sun Valley)......... 5,400 1996*
Dallas, TX (HMA)................... 26,900 1996*
Houston, TX (HMA).................. 55,000 1996*
San Antonio, TX (HMA).............. 5,700 1996*
Philadelphia, PA................... 70,000 1996(1)
Chicago, IL (Pier-Angeli).......... 18,800 1997*
Dallas, TX......................... 50,400 1997
</TABLE>
______________________________________
* Distribution center acquired.
(1) In September 1996, the Company moved its Philadelphia distribution
center opened in 1978 to a new 70,000 square foot facility which also
houses the Company's national call center. This distribution center is
leased from 804 Eastgate Associates LLC, a related party. See Notes 11
and 13 to the Consolidated Financial Statements.
These properties are leased for periods of three to ten years and
generally do not include tenant renewal options. The Company believes its
current facilities are adequate for its current and reasonably foreseeable needs
and that suitable additional or alternative space will be available as needed to
accommodate future growth and to open additional distribution centers.
ITEM 3. LEGAL PROCEEDINGS.
- ------ -----------------
The Company is involved in various legal proceedings in the ordinary
course of its business which are not anticipated to have a materially adverse
effect on the Company's results of operations or financial condition.
The Company collects sales tax in the 31 states where it has the
required contacts. From time to time, various states have sought to impose on
direct marketers the burden of collecting use taxes on the sale of products
shipped to residents of these states. The United States Supreme Court held that
it is unlawful for a state to impose use tax collection obligations on an
out-of-state company whose only contacts with the state were the distribution of
catalogs and other advertising materials through the mail and subsequent
delivery of purchased goods by mail or common carrier. In the event legislation
is passed to overturn the Supreme Court's decision, the imposition of a use tax
collection obligation on the Company in states into which it ships products but
with which it has no other contacts would result in additional administrative
expense to the Company and higher prices to customers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------ ---------------------------------------------------------------------
Since completing its initial public offering of Common Stock in the
first quarter of 1996, the Company's Common Stock has been listed on the
National Market segment of The Nasdaq Stock Market ("Nasdaq National Market")
under the symbol "WLMR." The following table sets forth the high and low sales
prices for each quarter in 1996 as quoted on The Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal Year 1996 High Low
- ---------------- ---- ---
<S> <C> <C>
First Quarter $22.50 $15.00
Second Quarter $28.25 $19.50
Third Quarter $26.25 $17.75
Fourth Quarter $27.75 $20.25
</TABLE>
On March 3, 1997, the closing sale price for a share of Common Stock
as reported by The Nasdaq National Market was $18.50. As of March 3, 1997, there
were approximately 1,750 holders of the Company's Common Stock.
The Company did not declare dividends on its Common Stock in 1996 and
does not intend to declare dividends on its Common Stock in the foreseeable
future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
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The selected financial and operating data set forth below should be
read in conjunction with the Consolidated Financial Statements of the Company,
including the notes thereto included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected financial data for the fiscal years 1993, 1994, 1995 and 1996 have been
derived from the Company's financial statements which have been audited by
independent auditors. The selected financial data for fiscal 1992 have been
derived from the Company's unaudited financial statements which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for this period.
<TABLE>
<CAPTION>
FISCAL YEAR (1)
---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.............................. $24,517 $35,640 $47,679 $ 60,823 $100,644
Cost of sales (2)...................... 16,847 24,735 32,787 41,835 70,853
------ ------ ------- ------ ------
Gross Profit...................... 7,670 10,905 14,892 18,988 29,791
Operating and selling expenses......... 3,909 5,400 7,068 9,099 14,168
Corporate general and administrative
expenses.......................... 2,054 2,393 2,895 3,985 6,718
Bonuses to S Corporation
shareholders (3).................. 644 1,463 --- --- ---
----- ----- ----- ----- -----
Operating income.................. 1,063 1,649 4,929 5,904 8,905
Interest expense (income), net......... 49 173 289 1,164 (551)
----- ----- ----- ----- -----
Income before income taxes........ 1,014 1,476 4,640 4,740 9,456
----- ----- ----- ----- -----
PRO FORMA DATA (4):
Income tax provision................... 403 586 1,860 1,896 3,593
------- ------- ------- ----- -----
Net income........................ $ 611 $ 890 $ 2,780 2,844 5,863
======= ======= ======= ===== =====
Net income per common share............ $0.31 $0.36 $0.51
===== ===== =====
Weighted average common shares
outstanding (5)................... 9,071 7,937 11,557
===== ===== ======
BALANCE SHEET DATA:
Working capital (deficit).............. $ 2,880 $ 3,818 $ 4,367 $ (54) $ 65,300
Total assets........................... 7,192 9,866 14,561 26,871 88,309
Long-term debt, less current portion... 290 1,817 2,693 5,667 ---
Mandatorily redeemable preferred stock. 25,058 ---
Total shareholders' equity (deficit)... 3,064 2,468 2,719 (27,062) 75,500
</TABLE>
(1) The Company's fiscal year is based on a 52/53 week fiscal period ending on
the last Friday in December. Fiscal 1993 was a 53 week year while all other
fiscal years consist of 52 weeks.
(2) Cost of sales includes merchandise, freight, distribution center occupancy
and delivery costs.
(3) In 1993 and 1992, the Company's stockholder received S Corporation
stockholder bonuses of approximately $1,463 and $644,000, respectively,
primarily to pay income taxes on S Corporation Income.
(4) Prior to March 1, 1995, the Company elected to be taxed as an S Corporation
for federal (and certain state) income tax purposes. Pro forma information
has been computed as if the Company had been subject to federal income
taxes and all applicable state corporate income taxes for each period
presented. The income tax provision and net income for 1996 are actual
amounts.
(5) See Note 3 of Notes to Consolidated Financial Statements for description of
the determination of weighted average common shares outstanding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OVERVIEW
Wilmar was founded in 1978 by its current Chief Executive Officer,
William Green, and his father, Martin Green, to provide reliable, next-day
delivery of repair and maintenance products to customers in its original
Philadelphia market. Since its inception, the Company has experienced
significant growth. The Company opened its second distribution center
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in Washington, D.C. in 1982 and its third in Houston in 1987. Since 1991, the
Company has accelerated its growth, opening seven distribution centers:
Indianapolis (1991), Fresno (1992), Atlanta (1993), Tampa (December 1994),
Columbus (July 1995), Seattle (October 1995), and Dallas (February 1997). From
November 1995, through December 1996, the Company has acquired six additional
distribution centers through acquisitions: Miami (November 1995), Denver (May
1996), Las Vegas (May 1996), Houston (July 1996), San Antonio (July 1996), and
Dallas (July 1996). Additionally, in 1997, the Company acquired certain assets
of Pier-Angeli Company, including a distribution center in Chicago.
The 1995 Recapitalization. In March 1995, the Company effected a
recapitalization (the "1995 Recapitalization"). As an integral part of the 1995
Recapitalization, the Company made a dividend distribution to William Green, the
sole shareholder of the Company at that time, in the form of 105,914 shares of
Series B Junior Preferred Stock with a redemption value of $10.6 million, to be
amended as described below. The Company issued 129,450 shares of its Series A
Senior Preferred Stock to Summit Ventures III, L.P., Summit Investors II, L.P.
and Summit Subordinated Debt Fund, L.P. (collectively, the "Summit Investors"
for a purchase price of $12.9 million. All of the outstanding Series A Senior
Preferred Stock was redeemed, by its terms, for $12.9 million (plus accrued
dividends estimated at $900,000) upon consummation of the Company's initial
public offering in January 1996. The Company used the proceeds of the investment
by Summit to redeem 3,584,000 shares of Common Stock held by William Green for
$15.1 million. As deferred consideration for the redemption of Mr. Green's
Common Stock in connection with the 1995 Recapitalization, the Company issued a
$2.0 million note to Mr. Green on November 22, 1995, payable only if the Company
satisfies certain earnings targets in 1995 and 1996, or upon the earlier
consummation of a qualified liquidity event, including the initial public
offering. The Company paid the note with a portion of the proceeds of its
initial public offering in January 1996. In connection with the 1995
Recapitalization, the Company issued 3,080,000 shares of its Common Stock to the
Summit Investors for an aggregate purchase price of $55,000. As a result of the
1995 Recapitalization, the Company incurred significant interest expense and was
required to accrue preferred dividends from March 9, 1995 through the initial
public offering in January 1996. In connection with Wilmar's initial public
offering, William Green agreed to convert $5.0 million of his Series B Junior
Preferred Stock into Common Stock at the initial public offering price of
$11.00. Simultaneously with the initial public offering, the terms of the Series
B Junior Preferred Stock were amended to provide that $5.0 million of Mr.
Green's Series B Junior Preferred Stock would be converted into 454,545 shares
of Common Stock, and the balance would be redeemed for $5.6 million (plus
accrued dividends of approximately $700,000).
S Corporation Status. From its inception until March 1, 1995, the Company
was subject to federal income taxation under Subchapter S of the Internal
Revenue Code of 1986, as amended and the regulations promulgated there under
(the "Code"). As a result, for federal and certain state income tax purposes,
the net income of the Company was reported by and taxed directly to its
shareholders, rather than to the Company. Accordingly, the Company has
calculated pro forma income tax provision, pro forma net income and pro forma
income per share for each year presented as if the Company were a C Corporation
subject to all federal and applicable state income taxes. The effective tax rate
used in calculating the pro forma income tax provision was approximately 40% for
all periods. In connection with the termination of its S Corporation status, the
Company distributed to William Green, the Company's then sole shareholder, an
aggregate of approximately $5.2 million between late 1994 and early 1995. These
distributions represented the Company's income previously taxed to Mr. Green,
net of prior distributions to him.
Acquisitions. In July 1996, the Company acquired 100% of the capital stock
of HMA for a base purchase price of $7.6 million, including costs of
acquisition, with contingent consideration of up to $750,000 based on the future
performance of HMA. Also during 1996, the Company completed three additional
acquisitions (Mile High, Sun Valley and Aaron) for an aggregate purchase price
of approximately $4.3 million. The Company accounted for the four 1996
acquisitions as purchases for financial reporting purposes. The resulting
goodwill of approximately $3.9 million is amortized on a straight-line basis
over 30 years and other intangible assets of approximately $1.8 million are
amortized over three to 20 years. In November 1995, the Company acquired One
Source for approximately $3.6 million.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of net sales for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 68.8 68.8 70.4
----- ----- ------
Gross profit......................... 31.2 31.2 29.6
Operating and selling expenses............ 14.8 15.0 14.1
Corporate general and administrative
expenses................................. 6.1 6.5 6.7
----- ----- ------
Operating income..................... 10.3 9.7 8.8
Interest expense (income) net............. 0.6 1.9 (0.6)
----- ----- ------
Income before income
taxes.............................. 9.7 7.8 9.4
----- ----- ------
Pro forma data (1):
Income tax provision................. 3.9 3.1 3.6
----- ----- ------
Net income........................... 5.8% 4.7% 5.8%
===== ===== ======
</TABLE>
___________________________
(1) The income tax provision and net income for fiscal 1996 are actual amounts
because the Company was taxed as a C Corporation during 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased by $39.8 million, or 65.5%, to $100.6
million in 1996 from $60.8 million in 1995. Of this increase, 22.7 % was
attributable to higher sales volumes shipped from distribution centers open for
all of both periods, and the balance was attributable to the three distribution
centers (Columbus, Seattle and Miami) opened or acquired between August 1, 1995
and December 29, 1995 and the Company's 1996 acquisitions. The higher net sales
from distribution centers open during all of both periods resulted primarily
from the increased experience of the Company's direct sales and telesales forces
and increased sales to national accounts. The Company's sales force at the end
of 1996 was 129, an increase of 43 when compared with 1995. Price increases
during both years were modest and made only on selected items. During 1996,
Wilmar generated approximately $2.1 million in net sales to new end markets as a
result of the Company's decision to target customers outside its core apartment
housing market beginning in 1995.
Gross Profit. Cost of sales includes merchandise, freight,
distribution center occupancy and delivery costs. As a percentage of net sales,
gross profit was 29.6% in 1996 compared to 31.2% in 1995. This expected decrease
in the gross margin resulted from the acquisition of HMA, whose historic gross
margins have been lower due to increased competition in the Texas market , as
well as a higher volume of less profitable HVAC equipment and major appliance
sales. Increased delivery expenses associated with "line-hauling" (the use of
third party trucks to ship multiple orders from a distribution center to other
markets overnight followed by next day local delivery) to new markets and higher
relative occupancy costs relating to the operation of two immature distribution
centers opened after July, 1995 (Columbus and Seattle) also contributed to the
decrease in gross margin.
Operating and Selling Expenses. Operating and selling expenses
consist of labor and other costs associated with opening and operating a
distribution center as well as selling expenses and commissions. The Company
expenses all distribution center pre-opening costs when incurred.
-9-
<PAGE>
Operating and selling expenses increased by $5.1 million, or 55.7%, to $14.2
million in 1996 from $9.1 million in 1995. As a percentage of net sales, these
expenses represented 14.1% in 1996 compared to 15.0% in 1995. The decrease, in
percentage of sales, resulted primarily from the acquisition of HMA which
operates three mature distribution centers and employs a mature sales force.
Historically, the Company's operating and selling expenses as a percentage of
sales have been higher than HMA's due to the Company's investment in new,
immature distribution centers and its rapidly expanding sales force.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $2.7 million, or 68.6%, to $6.7 million in
1996 from $4.0 million in 1995, as a result of the increased staffing required
to manage a larger volume of business. As a percentage of net sales, those
expenses represented 6.7% in 1996 compared to 6.5% in 1995. In 1996, the Company
incurred approximately $430,000 in first time public company expenses and
acquisition related amortization of intangibles. Additionally, during 1995, the
Company incurred $207,000 in expenses related to the 1995 Recapitalization.
Excluding the expenses described above, corporate general and administrative
expenses as a percentage of net sales would have been 6.2% in 1996 and 1995.
Operating Income. Operating income increased by $3.0 million, or
50.8%, to $8.9 million in 1996 from $5.9 million in 1995. As a percentage of net
sales, operating income was 8.8% in 1996 compared to 9.7% in 1995.
Interest Expense, Net. Net interest expense decreased $1.7 million to
$551,000 of net interest income in 1996 from $1.2 million of net interest
expense in 1995 as a result of the reduction in debt made from the proceeds of
the Company's initial public offering in January 1996 and secondary public
offering in July 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $13.1 million, or 27.5%, to $60.8
million in fiscal 1995 from $47.7 million in fiscal 1994. Of this increase,
51.9% was attributable to higher sales volumes shipped from distribution centers
open for all of both periods, and the balance was attributable to the three
distribution centers (Tampa, Columbus and Seattle) opened between December 1,
1994 and December 29, 1995 and the One Source acquisition which occurred on
November 17, 1995. The higher net sales from distribution centers open during
all of both periods resulted primarily from the increased experience of the
Company's direct sales and telesales forces and increased sales to national
accounts. In addition, the Company added 26 local sales representatives during
fiscal 1995, the majority of whom were hired in the second half of the year and
ten of whom joined the Company as part of the One Source acquisition in November
1995. Price increases during fiscal 1995 were modest and made only on selected
items. During fiscal 1995, Wilmar generated approximately $940,000 in net sales
to new end markets as a result of the Company's decision to target customers
outside its core apartment housing market beginning in 1995.
Gross Profit. As a percentage of net sales, gross profit was 31.2% in
fiscal 1995, which was unchanged from fiscal 1994.
Operating and Selling Expenses. Operating and selling expenses
increased by $2.0 million, or 28.2%, to $9.1 million in fiscal 1995 from $7.1
million in fiscal 1994. This increase resulted primarily from increased
commissions related to higher sales volumes, costs associated with the new
Tampa, Columbus and Seattle distribution centers and higher operating costs
associated with increased sales volumes at the other distribution centers. As a
percentage of net sales, these expenses represented 15.0% in fiscal 1995
compared to 14.8% in fiscal 1994, due to the effects of operating three
immature, less efficient distribution centers and higher pre-opening expenses in
fiscal 1995.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $1.1 million, or 37.9%, to $4.0 million in
fiscal 1995 from $2.9 million in fiscal 1994. During fiscal 1995, the Company
incurred $207,000 in expenses related to the 1995 Recapitalization and a full
year of expenses associated with the Company's new corporate headquarters in
Moorestown, New Jersey. Until May 1994, the Company had operated its
headquarters within its Philadelphia distribution center. During fiscal 1995,
the Company significantly increased its corporate staff to manage the Company's
greater base of operations. Excluding the expenses associated with the 1995
Recapitalization, corporate general and administrative expenses as a percentage
of net sales would have increased to 6.2% in fiscal 1995 from 6.1 % in fiscal
1994.
-10-
<PAGE>
Operating Income. Operating income increased by $975,000, or 19.8%,
to $5.9 million in fiscal 1995 from $4.9 million in fiscal 1994. Excluding the
one-time expenses associated with the 1995 Recapitalization, operating income
would have increased by $1.2 million, or 24.4%, to $6.1 million in fiscal 1995
from $4.9 million in fiscal 1994. As a percentage of net sales, operating income
(excluding the 1995 Recapitalization expenses) would have decreased to 10.0% in
fiscal 1995 from 10.3% in 1994 due primarily to the effects of operating three
immature, less efficient distribution centers, increases in the corporate staff
and the operation of the Company's new corporate headquarters for all of 1995.
Interest Expense, Net. Net interest expense increased by $875,000 to
$1.2 million in fiscal 1995 from $289,000 in fiscal 1994 as a result of the
approximately $9.3 million of additional indebtedness incurred in connection
with the 1995 Recapitalization.
SEASONALITY
Generally, the Company's sales volumes are not seasonal, although
November and December sales tend to be lower because customers defer purchases
at year end as their budget limits are met and because of the holiday season
between Thanksgiving and New Years.
-11-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Wilmar's primary source of liquidity has been cash flow
from operations, supplemented by borrowings under its bank line of credit to
support increases in accounts receivable and inventory, net of accounts payable,
and, since its initial public offering in January, 1996, through the proceeds of
the sale of its securities.
Cash provided by operating activities was $1.4 million during 1996
compared to $277,000 in 1995 and $2.3 million in 1994. Cash provided by
operating activities during 1996 consisted of $6.6 million of net income before
depreciation and amortization and other non-cash charges, offset by $5.2 million
of changes in operating assets and liabilities primarily resulting from a $3.9
million decrease in accounts payable and increases in the Company's accounts
receivable and inventory of $1.2 million, consistent with its higher volume of
business. Charges in other operating assets and liabilities resulted in a net
use of cash of approximately $100,000 for 1996. Cash provided by operating
activities was $277,000 during 1995 compared to $2.3 million during 1994. The
1995 decline was primarily the result of a $616,000 increase in income taxes
paid because the Company terminated its S Corporation status in March 1995 and
increases in the Company's accounts receivable and inventory, net of accounts
payable, consistent with its higher volume of business.
Cash used in investing activities in 1996 was $14.2 million, related
to the purchase of short-term investments, acquisitions of businesses, and the
purchase of property and equipment compared to $4.1 million in 1995. Cash
provided by financing activities during 1996 was $51.0 million, consisting
primarily of the net proceeds of the two public offerings less the repayment of
all debt and the redemption of the outstanding preferred stock, compared to $3.7
million in 1995.
Capital expenditures were $1.2 million in 1996 compared to $507,000 in
1995 and $768,000 in 1994. The Company spent approximately $673,000 on capital
expenditures in 1996 primarily for office, computer and distribution center
equipment. Additionally, the Company spent approximately $500,000 in 1996 to
equip its new Philadelphia distribution center in connection with a lease
agreement entered into on April 29, 1996. A typical distribution center requires
a capital investment of approximately $75,000 to $80,000 for equipment and
leasehold improvements and an initial commitment of approximately $250,000 for
working capital (net of accounts payable attributable to new inventory). The
Company typically incurs expenses of approximately $50,000 before a new
distribution center becomes operational. The Company intends to finance its
future capital expenditures with cash flow from operations and possibly with a
portion of the proceeds of future equity offerings, term debt or capital leases.
During the first quarter of 1996, the Company completed an initial
public offering of 4,600,000 shares of its Common Stock for $11.00 per share,
resulting in net proceeds of $47,058,000. During the third quarter of 1996, the
Company completed a public offering of 4,335,500 shares of its Common Stock for
$17.875 per share, of which the Company sold 2,565,500 shares, resulting in
additional net proceeds to the Company of $43,575,000. A portion of the net
proceeds of the initial public offering was used to repay the outstanding
balance under the Company's revolving bank line of credit and the term debt with
the Company's bank and to redeem the $4.0 million of 11.5% Subordinated
Debentures issued to certain of the Summit Investors.
Wilmar's credit facility currently consists of a $10.0 million
unsecured bank line of credit, which bears interest at three quarters of one
percent below the bank's prime rate and expires on April 1, 1997. The line of
credit had a zero balance as of December 27, 1996. The Company expects to renew
its revolving line of credit when it expires in April 1997 and believes it could
increase the amount of this credit facility if needed, although there can be no
assurance that it could do so on equally or more favorable terms.
The Company believes that its existing cash balances, supplemented by
borrowings under the revolving line of credit, are adequate to meet planned
operating and capital expenditure needs at least through 1997. However, if the
Company were to make any significant acquisitions for cash, it may be necessary
for the Company to obtain additional debt or equity financing.
INFLATION
The Company does not believe that inflation has had a material effect
on its results of operations in recent years. There can be no assurance,
however, that the Company's business will not be affected by inflation in the
future.
-12-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
The consolidated financial statements of the Company and its
subsidiaries and supplementary data required by this item are attached to this
report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURES.
---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------- --------------------------------------------------
Information concerning directors and compliance with Section 16(a) of the
Securities Exchange Act of 1934 called for by this Item will be contained in the
Company's definitive proxy statement for the 1997 Annual Meeting of Shareholders
(the "Proxy Statement"), which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
- ------- ----------------------
Information with respect to this item will be contained in the Proxy
Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------- --------------------------------------------------------------
Information with respect to this item will be contained in the Proxy
Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------- ----------------------------------------------
Information with respect to this item will be contained in the Proxy
Statement, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ------- ----------------------------------------------------------------
(a) 1. Financial Statements. Financial Statements listed in the
--------------------
accompanying Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 are filed as part of this annual report on Form 10-K.
2. Financial Statement Schedule. Financial Statement Schedule
----------------------------
listed in the accompanying Index to Financial Statements and Financial Statement
Schedules appearing on page F-1 are filed as part of this annual report on Form
10-K.
(b) Reports on Form 8-K.
-------------------
The Company did not file a report on Form 8-K during the quarter ended
December 27, 1996.
-13-
<PAGE>
(c) Exhibits.
--------
The following is a list of exhibits filed as part of this annual
report on Form 10-K. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------
<S> <C>
3.1(a)+ Certificate of Incorporation.
3.2+ Bylaws.
10.1+ Amended and Restated 1995 Stock Option Plan.
10.2++ Lease Agreement, dated April 29, 1996, between the Company and 804
Eastgate Associates, L.L.C.
10.3++ Assumption Agreement, dated as of June 1, 1996, between the Company
and 804 Eastgate Associates, L.L.C.
10.4+ Amended and Restated Registration Rights Agreement, dated as of
March 9, 1996, among the Company, William Green and the Summit
Investors.
10.5+ Registration Rights Agreement, dated as of July 8, 1996, among the
Company and the shareholders of HMA Enterprises, Inc.
10.6+ Amended and Restated Employment Agreement, dated as of April 12,
1994 between the Company and Fred B. Gross, Esq.
10.7+ Employment Agreement, dated as of March 9, 1995, between the
Company and William Green.
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche, LLP
27 Financial Data Schedule.
</TABLE>
________________
+ Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-99750), filed with the Securities and Exchange Commission
on November 22, 1995.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1996.
-14-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
WILMAR INDUSTRIES, INC.
Date: March 27, 1997 By /s/ William S. Green
-------------------------------
William S. Green
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Each person, in so signing also makes, constitutes and appoints
William S. Green, Chairman, President and Chief Executive Officer of Wilmar
Industries, Inc., and Fred B. Gross, Vice President - Corporate Development and
Secretary of Wilmar Industries, Inc., and each of them acting alone, as his true
and lawful attorneys-in-fact, in his name, place and stead, to execute and cause
to be filed with the Securities and Exchange Commission any or all amendments to
this report.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ William S. Green Chairman, President and Chief March 27, 1997
- ------------------------ Executive Officer (principal executive
William S. Green officer) and Director
/s/ Fred B. Gross Vice President - Corporate March 27, 1997
- ------------------------ Development, Secretary and Director
Fred B. Gross
/s/ Michael T. Toomey Chief Financial Officer and Treasurer March 27, 1997
- ------------------------ (principal financial and accounting
Michael T. Toomey officer)
/s/ Martin Hanaka Director March 27, 1997
- ------------------------
Martin Hanaka
/s/ Ernest K. Jacquet Director March 27, 1997
- ------------------------
Ernest K. Jacquet
/s/ Donald M. Wilson Director March 27, 1997
- ------------------------
Donald M. Wilson
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------
<S> <C>
3.1(a)+ Certificate of Incorporation.
3.2+ Bylaws.
10.1+ Amended and Restated 1995 Stock Option Plan.
10.2++ Lease Agreement, dated April 29, 1996, between the Company and 804
Eastgate Associates, L.L.C.
10.3++ Assumption Agreement, dated as of June 1, 1996, between the Company
and 804 Eastgate Associates, L.L.C.
10.4+ Amended and Restated Registration Rights Agreement, dated as of
March 9, 1996, among the Company, William Green and the Summit
Investors.
10.5+ Registration Rights Agreement, dated as of July 8, 1996, among the
Company and the shareholders of HMA Enterprises, Inc.
10.6+ Amended and Restated Employment Agreement, dated as of April 12,
1994 between the Company and Fred B. Gross, Esq.
10.7+ Employment Agreement, dated as of March 9, 1995, between the
Company and William Green.
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche, LLP
27 Financial Data Schedule.
</TABLE>
________________
+ Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-99750), filed with the Securities and Exchange Commission
on November 22, 1995.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1996.
-16-
<PAGE>
Wilmar Industries, Inc.
Index to Consolidated Financial Statements and Financial Statement Schedules
Independent Auditors' Report.............................................F-2
Consolidated Balance Sheets..............................................F-3
Consolidated Statements of Income........................................F-4
Consolidated Statements of Stockholders' Equity (Deficit)................F-5
Consolidated Statements of Cash Flows....................................F-6
Notes to Consolidated Financial Statements...............................F-7
Independent Auditors' Report.............................................S-1
Schedule II - Valuation and Qualifying Accounts..........................S-2
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Wilmar Industries, Inc.
Moorestown, NJ
We have audited the accompanying consolidated balance sheets of Wilmar
Industries, Inc. and its subsidiaries (the "Company") as of December 27, 1996
and December 29, 1995, and the related consolidated statements of income,
stockholders' equity (deficit) and cash flows for each of the three fiscal years
in the period ended December 27, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 27, 1996 and December 29, 1995, and the results of its operations and
its cash flows for each of the three fiscal years in the period ended December
27, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 13, 1997
F-2
<PAGE>
WILMAR INDUSTRIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
December 27, December 29,
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 38,228,710 $ 25,043
Cash - restricted 719,185 200,000
Investments 3,927,276
Accounts receivable - trade, net of allowance for doubtful accounts
of $ 806,300 in 1996 and $ 236,700 in 1995. 16,140,693 9,575,307
Inventory 17,669,441 12,699,376
Prepaid expenses and other current assets 656,588 244,798
Deferred income taxes 768,000 408,000
--------------- ---------------
Total current assets 78,109,893 23,152,524
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,486,092
in 1996 and $1,117,441 in 1995 2,460,748 1,337,308
GOODWILL, net of accumulated amortization of $100,756 in 1996 and $3,078
in 1995 4,932,050 1,105,412
OTHER ASSETS 2,806,452 1,275,260
--------------- ---------------
TOTAL ASSETS $ 88,309,143 $ 26,870,504
=============== ===============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Demand notes payable - bank $ $ 9,922,510
Notes payable 285,000
Current portion of long-term debt:
Banks 666,668
Related parties 2,107,050
Accounts payable 8,537,019 7,889,405
Accrued expenses and other current liabilities 2,053,350 1,387,524
Accrued interest 212,823
Income taxes payable 1,934,160 1,020,991
--------------- ---------------
Total current liabilities 12,809,529 23,206,971
LONG-TERM DEBT - Net of current portion:
Banks 833,331
Related parties 833,872
Subordinated debentures 4,000,000
--------------- ---------------
Total liabilities 12,809,529 28,874,174
--------------- ---------------
COMMITMENTS AND CONTINGENT LIABILITIES
Mandatorily Redeemable Series A Senior Preferred Stocks, $.01 par value;
129,450 shares, authorized, issued and outstanding with a redemption
value of $100 per share, plus accrued dividends 13,782,110
Mandatorily Redeemable Series B Junior Preferred Stocks, $.01 par value;
105,914 shares, authorized, issued and outstanding with a redemption
value of $100 per share, plus accrued dividends 11,276,311
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued
Common stock, no par value - 50,000,000 shares authorized;
13,048,371 shares issued and outstanding in 1996
5,320,000 shares issued and outstanding in 1995 96,978,776 124,231
Retained earnings (accumulated deficit) (21,479,162) (27,186,322)
--------------- ---------------
Total stockholders' equity (deficit) 75,499,614 (27,062,091)
--------------- ---------------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY $ 88,309,143 $ 26,870,504
=============== ===============
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 27, December 29, December 30,
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
SALES $ 100,644,167 $ 60,823,188 $ 47,679,227
COST OF SALES 70,852,668 41,835,284 32,786,779
--------------- --------------- ---------------
Gross profit 29,791,499 18,987,904 14,892,448
OPERATING EXPENSES:
Operating and selling expenses 14,168,050 9,098,440 7,067,785
Corporate general and administrative expenses 6,718,428 3,984,873 2,895,180
--------------- --------------- ---------------
20,886,478 13,083,313 9,962,965
--------------- --------------- ---------------
Operating income 8,905,021 5,904,591 4,929,483
INTEREST (INCOME) EXPENSE, NET (551,351) 1,164,129 289,372
--------------- --------------- ---------------
Income before income taxes 9,456,372 4,740,462 4,640,111
PROVISION FOR INCOME TAXES 3,593,280 1,623,580 40,056
--------------- --------------- ---------------
Net income $ 5,863,092 $ 3,116,882 $ 4,600,055
=============== =============== ===============
Net income per share $ 0.51
===============
Weighted average shares outstanding 11,557,316
===============
UNAUDITED PRO FORMA DATA:
Income before income taxes $ 4,740,462 $ 4,640,111
Provision for income taxes 1,896,000 1,860,000
--------------- ---------------
Pro forma net income $ 2,844,462 $ 2,780,111
=============== ===============
Pro forma net income per share $ 0.36 $ 0.31
=============== ===============
Pro forma shares outstanding 7,937,266 9,071,327
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained Total
Earnings Stockholders'
Common Stock (Accumulated Treasury Equity
Shares Amount Deficit) Stock (Deficit)
------------- ----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 5,824,000 $ 100,000 $ 4,368,432 $ (2,000,000) $ 2,468,432
Net Income 4,600,055 4,600,055
Distributions to stockholders (4,349,329) (4,349,329)
------------- ----------- ---------------- ------------ ----------------
BALANCE, DECEMBER 30, 1994 5,824,000 100,000 4,619,158 (2,000,000) 2,719,158
Distributions to stockholders (3,722,710) (3,722,710)
Capital contribution 694,000 (694,000)
Redemption of common stock (3,584,000) (30,769) (17,086,231) (17,117,000)
Dividend of Series B Preferred Stock (10,591,400) (10,591,400)
Issuance of common stock 3,080,000 55,000 55,000
Accretion of Mandatorily Redeemable
Preferred Stock (1,522,021) (1,522,021)
Retirement of treasury shares (2,694,000) 2,694,000
Net income 3,116,882 3,116,882
------------- ----------- ---------------- ------------ ----------------
BALANCE, DECEMBER 29, 1995 5,320,000 124,231 (27,186,322) -- (27,062,091)
Accretion of Mandatorily Redeemable
Preferred Stock (155,932) (155,932)
Conversion of Series B Preferred Stock 454,545 5,000,000 5,000,000
Issuance of Common Stock - Initial
Public Offering 4,600,000 46,152,891 46,152,891
Issuance of Common Stock - Secondary Offering 2,565,500 43,179,654 43,179,654
Issuance of Common Stock - HMA Acquisition 63,980 1,522,000 1,522,000
Issuance of Common Stock - Aaron Acquisition 44,346 1,000,000 1,000,000
Net income 5,863,092 5,863,092
------------- ----------- ---------------- ------------ ----------------
BALANCE, DECEMBER 27, 1996 13,048,371 $96,978,776 $ (21,479,162) $ -- $ 75,499,614
============= =========== ================ ============ ================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WILMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 27, December 29, December 30,
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 5,863,092 $ 3,116,882 $ 4,600,055
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 735,345 330,480 211,941
Deferred income taxes (250,000) (408,000)
Gain on disposition of property and equipment (3,286) (2,000)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (990,023) (2,640,523) (1,476,186)
Inventory (245,134) (4,327,986) (2,585,454)
Prepaid expenses and other current assets (17,670) (66,361) (69,867)
Other assets (63,425) (315,966) (20,536)
Accounts payable (3,857,976) 2,887,101 1,625,995
Accrued expenses and other current liabilities (352,850) 483,574 55,497
Accrued interest (212,823) 196,901
Income taxes payable 803,169 1,020,991
--------------- --------------- ---------------
Net cash provided by operating activities 1,408,419 277,093 2,339,445
--------------- --------------- ---------------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,173,048) (507,272) (768,472)
Proceeds from sale of property and equipment 4,250 2,000
Purchase of short-term investments (3,927,276)
Acquisitions of businesses, including escrow (9,111,111) (3,572,796)
--------------- --------------- ---------------
Net cash used in investing activities (14,207,185) (4,080,068) (766,472)
--------------- --------------- ---------------
FINANCING ACTIVITIES:
Net proceeds (repayments) of demand notes payable - Bank (9,922,510) 6,408,510 1,682,000
Proceeds of long-term debt - Bank 2,000,000 1,600,000
Principal payments on long-term debt:
Banks (1,499,999) (2,729,635) (422,077)
Related parties (2,940,922) (102,264) (97,286)
Issuance of common stock 55,000
Repurchase of common stock (15,117,000)
Repurchase of Series A Preferred Stock, plus accrued dividends (13,870,928)
Repurchase of Series B Preferred Stock, plus accrued dividends (6,343,425)
Proceeds from the issuance (repayment) of subordinated debentures (4,000,000) 4,000,000
Net proceeds from issuance of Common Stock - Initial Public Offering 46,152,891
Net proceeds from issuance of Common Stock - Secondary Public Offering 43,427,326
Issuance of Series A Preferred Stock 12,945,000
Distributions to stockholders (3,722,710) (4,349,329)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 51,002,433 3,736,901 (1,586,692)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH 38,203,667 (66,074) (13,719)
CASH, BEGINNING OF YEAR 25,043 91,117 104,836
--------------- --------------- ---------------
CASH, END OF YEAR $ 38,228,710 $ 25,043 $ 91,117
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 392,801 $ 967,228 $ $299,338
=============== =============== ===============
Income taxes $ 3,048,802 $ 642,279 $ $25,851
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accretion of mandatorily redeemable Series A Senior and
Series B Junior Preferred Stock redemption values $ 155,932 $ 1,522,021
Distribution of mandatorily redeemable Series B Junior
Preferred Stock to stockholders $ 10,591,400
Issuance of note payable - Related party $ 2,000,000
Conversion of Series B Junior Preferred stock into $ 5,000,000
Common Stock
Issuance of Common Stock in connection with the purchase of:
HMA Enterprises, Inc. $ 1,522,000
Aaron Supply, Inc. $ 1,000,000
Issuance of Notes in connection with the purchase of:
Aaron Supply, Inc. $ 285,000
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE FISCAL YEARS IN THE PERIOD ENDED DECEMBER 27, 1996
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE BUSINESS
Wilmar Industries, Inc., ("Wilmar" or the "Company") is a national marketer
and distributor of repair and maintenance products with sixteen distribution
centers throughout the United States. The Company sells primarily to
apartment complexes and other institutional customers.
2. PUBLIC OFFERINGS
On January 24, 1996, the Company completed an initial public offering of
4,600,000 shares of its Common Stock for $11.00 per share resulting in net
proceeds (after deducting underwriters' issuance costs) of $47,058,000.
The proceeds of the offering were used as follows:
<TABLE>
<S> <C>
Redemption of Preferred Stock and accumulated dividends $20,188,000
Repayment of bank debt and interest 12,987,000
Repayment of Subordinated Debentures and interest 4,037,000
Repayment of notes payable and interest 2,967,000
Working capital and IPO costs 6,879,000
----------
$47,058,000
===========
</TABLE>
Prior to the offering, $5,000,000 of the Mandatorily Redeemable Series B
Junior Preferred Stock was converted into $5,000,000 of Series B Junior
Preferred Stock with conversion rights. Upon consummation of the offering,
$5,000,000 of the Series B Junior Preferred Stock with conversion rights were
converted into 454,545 shares of Common Stock.
On July 31, 1996, the Company completed a public offering of 4,335,500 shares
of its Common Stock at a price of $17.875 per share. Of the shares offered,
2,565,500 shares were sold by the Company and 1,770,000 were sold by selling
shareholders. The Company received net proceeds (after deducting
underwriters' issuance costs) of $43,575,000.
The proceeds of the offering were used as follows:
<TABLE>
<S> <C>
Repayment of bank debt and interest $ 2,012,000
Working capital and offering costs 41,563,000
----------
$43,575,000
===========
</TABLE>
F-7
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Wilmar Industries, Inc. ("Wilmar" or the "Company") and its
subsidiaries. Material intercompany balances and transactions have been
eliminated.
Fiscal Year - The Company operates on a 52-53 week fiscal year which ends on
the last Friday in December. Each of the three fiscal years in the period
ended December 27, 1996 were fifty-two week years. References herein to 1996,
1995 and 1994 are for the fiscal years ended December 27, 1996, December 29,
1995 and December 30, 1994, respectively.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
highly liquid investments with an original maturity of three months or less.
Inventory - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment - Property, equipment and leasehold improvements are
stated at cost. Expenditures for additions, renewals and betterments are
capitalized; expenditures for maintenance and repairs are charged to expense
as incurred. Upon retirements or disposal of assets, the cost and
accumulated depreciation or amortization are eliminated from the accounts and
the resulting gain or loss is credited or charged to operations.
Depreciation is computed primarily using the straight-line method based upon
estimated useful lives of the assets, and amortization is computed using the
straight-line method based upon the remaining terms of the associated leases,
as follows:
Machinery and equipment 5-7 years
Office furniture and equipment 5-7 years
Leasehold improvements Remaining lease term
Long-Lived Assets - On December 30, 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of". This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. Adoption of this standard had no
impact on the Company's financial statements.
The Company analyzes the carrying value of its recorded goodwill, intangible
assets and other long-lived assets periodically or when facts or
circumstances indicate that the carrying value may be impaired. The review
includes an assessment of customer retentions, cash flow projections and
other factors the Company believes are relevant. The Company has concluded
that there is no impairment to the carrying value of its recorded goodwill or
other long-lived assets at December 27, 1996.
Goodwill (the excess of cost over the fair value of the underlying assets at
the date of acquisition) is being amortized on a straight-line basis over 30
years. Intangible assets include amounts assigned to customer lists and non-
compete agreements. Intangibles are amortized on a straight-line basis over
their useful lives, 20 years for customer lists and 3 to 10 years for non-
compete agreements.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results may
differ from those estimates and assumptions.
Fair Value of Financial Instruments - The carrying value of cash, accounts
receivable, notes payable and accounts payable approximate fair value because
of the short maturities of these items.
Revenue Recognition- Sales are recognized as product is shipped, F.O.B. point
of shipment and are net of sales returns, allowances and credits.
F-8
<PAGE>
Cost of Sales - Cost of sales includes merchandise costs, freight,
distribution center occupancy and delivery costs.
Pre-Opening Distribution Center Expenses - Pre-opening distribution center
expenses are expensed as incurred.
Stock-Based Compensation - SFAS No. 123, "Accounting for Stock Based
Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to
acquire the stock (see Note 14).
Stock Splits - In March 1995 and November 1995, the Company effected a 1,040-
for-1 and a 37.333-for-1 stock split of its Common Stock, respectively. All
share and per share amounts in the accompanying financial statements have
been adjusted retroactively to reflect both splits.
Income Taxes - Prior to February 24, 1995, the Company had elected to be
taxed as an S Corporation under provisions of the Internal Revenue Code. As
such, current taxable income had been included on the income tax returns of
the sole stockholder for federal income tax purposes and no provision had
been made for federal income taxes (see pro forma presentation and Note 16).
In anticipation of consummating the Recapitalization, the Company changed its
election to be taxed as a C Corporation under the Internal Revenue Code.
Taxes on income are provided based upon Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", which requires an asset and
liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future. Such deferred
income tax asset and liability computations are based on enacted tax laws and
rates applicable to periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Net Income per Share - Net income per share data presented for 1996
represents net income divided by the weighted average number of shares of
Common Stock and Common Stock equivalents outstanding during the period. Net
income is not reduced by the $155,932 provision for accretion of Preferred
Stock redemption values because the calculation assumes the related Common
Stock was outstanding in lieu of the Preferred Stock (see Note 15). Common
Stock equivalents include shares from the exercise of stock options (using
the treasury stock method).
Unaudited Pro Forma Net Income and Pro Forma Net Income Per Share - Pro
forma net income per share data presented for 1995 and 1994 represent pro
forma net income (after a pro forma provision for income taxes as if the
Company had been subject to federal and state income taxation as a C
Corporation since inception) divided by the weighted average number of shares
of Common Stock and Common Stock equivalents outstanding during the periods
plus the number of shares of Common Stock required to be sold at the assumed
initial public offering price to raise sufficient proceeds to redeem the
mandatorily redeemable Preferred Stock (including accrued but unpaid
dividends thereon). Net income is not reduced by the $1,522,021 provision
for accretion of Preferred Stock redemption values because the calculation
assumes the related Common Stock was outstanding in lieu of the Preferred
Stock (see Note 15).
F-9
<PAGE>
Common Stock equivalents include shares from the exercise of stock options
(using the treasury stock method). Common stock issued and stock options
granted at prices lower than the assumed initial public offering price within
a one year period prior to an initial public offering are included in the
calculation (using the treasury stock method and the assumed initial public
offering price) as if they were outstanding for all periods presented (see
Notes 5 and 14).
Historical net income per share data has not been presented for 1995 or 1994
in view of the S Corporation status of the Company for those periods and the
change in capital structure upon the closing of the initial public offering.
4. ACQUISITIONS
The Company acquired 100% of the capital stock of HMA Enterprises Inc.
("HMA"), a distributor of repair and maintenance supplies, based in Houston,
Texas, in July 1996. The base purchase price of this acquisition was
approximately $7.6 million, including costs of acquisition, with contingent
consideration of up to $750,000 based on the future performance of HMA.
Also during 1996, the Company completed three additional acquisitions: Mile
High Maintenance Supply, Inc. ("Mile High"), Sun Valley Maintenance Supply
Inc. ("Sun Valley") and Aaron Supply ("Aaron") for an aggregate base purchase
price of approximately $4.3 million, including costs of acquisition, with
contingent consideration of up to $250,000 based on the future performance of
Mile High.
Each of the acquisitions described above have been accounted for using the
purchase method. No amounts related to the contingent consideration have
been recorded in the accompanying consolidated financial statements.
Goodwill recorded in these transactions totaled approximately $3.9 million
and is being amortized on a straight-line basis over 30 years.
In November 1995, the Company acquired One Source Supply, Inc., a supplier of
repair and maintenance products to multi-unit apartment complexes in the
South Florida market, for an aggregate consideration of approximately $3.6
million. This acquisition has been accounted for under the purchase method.
Goodwill recorded in connection with this acquisition was approximately $1.1
million and is being amortized on a straight-line basis over 30 years.
The following presents the unaudited results of operations of the Company for
the three fiscal years ended December 27, 1996 as if the 1996 acquisitions
had been consummated as of the beginning of 1995 and as if the 1995
acquisition had been consummated as of the beginning of 1994, and include
certain pro forma adjustments to reflect the amortization of intangible
assets, reduction of overhead charges, reduction in compensation, interest
expense on amounts drawn on the Company's line of credit to finance the
acquisition as if the acquisitions had occurred on the dates described above,
and inclusion of a federal income tax provision:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues.............. $118,313,000 $106,374,000 $56,990,000
Net income............ 6,134,000 3,798,000 2,755,000
Net income per share.. 0.53 0.47 0.30
</TABLE>
F-10
<PAGE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the dates described above or the
results which may occur in the future. The above acquisitions have been
accounted for by the purchase method of accounting, and accordingly, the net
assets and results of operations have been included in the accompanying
consolidated financial statements since the dates of acquisition. The excess
of purchase price over the estimated fair values of the net assets acquired
for the above investment has been allocated to intangible assets and goodwill
with amortization over 3 to 30 years.
5. STOCKHOLDERS' EQUITY
Authorized Shares - On November 20, 1995, the Company's stockholders
approved an increase in authorized shares of common stock to 50,000,000
shares and preferred stock to 5,235,364 shares.
Recapitalization - On March 6, 1995, the Company declared and subsequently
issued a stock dividend to the stockholder in the form of 105,914 shares of
mandatorily redeemable Series B Junior Preferred Stock with a redemption
value of $10,591,400. On March 9, 1995, the Company entered into a Stock
Purchase and Redemption Agreement (the "Agreement") with certain investors
(the "Investors"). Pursuant to the Agreement, the Company repurchased
3,584,000 shares of common stock from its then sole stockholder for
$15,117,000 plus a deferred payment of $2,000,000. In addition, pursuant to
the Agreement, the Company issued 129,450 shares of mandatorily redeemable
Series A Senior Preferred Stock for $12,945,000 and then sold 3,080,000
shares of Common Stock to the Investors for $55,000, which represented the
fair market value at that time. In addition, the Investors loaned $4,000,000
to the Company pursuant to a Subordinated Debenture Purchase Agreement dated
March 9, 1995. The debt instruments were repaid and satisfied on January 29,
1996 with proceeds from the Company's initial public offering.
Distribution to Stockholders - In 1994, the stockholder received compensation
and S Corporation distributions of $156,340 and $4,349,329, respectively. In
1995, the stockholder received compensation and bonuses of $249,340 and S
Corporation distributions of $3,722,710.
6. INVESTMENTS
At December 27, 1996, the Company holds investment in debt securities
designated as available-for-sale. These debt securities are stated at fair
value based upon market quotes and consist of debt securities issued by
municipalities, and are due within one year. The amortized cost of debt
security investments at December 27, 1996, which approximates market value,
is $3,927,276.
F-11
<PAGE>
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Intangible assets $2,742,000 $ 920,052
Less-amortization (122,241) (5,560)
---------- ----------
2,619,759 914,492
Deferred IPO costs --- 247,672
Deposits 180,857 112,043
Other 5,836 1,053
---------- ----------
$2,806,452 $1,275,260
========== ==========
</TABLE>
8. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Property and Equipment
Machinery and equipment $2,098,731 $ 952,348
Office furniture and equipment 1,391,807 1,070,080
Vehicles 709,438 ---
Leasehold improvements 746,864 432,321
---------- ----------
4,946,840 2,454,749
Less accumulated depreciation and amortization 2,486,092 1,117,441
---------- ----------
$2,460,748 $1,337,308
========== ==========
Accrued Expenses and Other Current Liabilities
Sales tax payable $ 515,342 $ 349,991
Accrued compensation and related benefits 664,508 507,193
Other accrued liabilities 873,500 530,340
---------- ----------
$2,053,350 $1,387,524
========== ==========
</TABLE>
Depreciation expense was approximately $521,000, $322,000 and $212,000 for 1996,
1995 and 1994, respectively.
F-12
<PAGE>
9. NOTES PAYABLE
At December 27, 1996, the Company has an 8% note payable to the former
sole stockholder of Aaron Distributing , Inc. in the amount of $285,000.
The principal balance of the note and accrued interest were paid on the
due date of February 28, 1997.
In March 1996, the Company obtained a $10,000,000 unsecured bank line of
credit, which bears interest at 3/4% below the bank's prime rate (8.25% at
December 27, 1996) and expires in April 1997. No amounts were outstanding
against this line of credit at December 27, 1996. Management anticipates
that this line of credit will be renewed in April 1997.
At December 29, 1995, the Company had a $10,000,000 (increased to
$12,000,000 from November 16, 1995 to February 16, 1996) revolving credit
facility with a bank which refinanced the existing $4,000,000 line of
credit. This credit facility was replaced in March 1996 with the unsecured
bank line of credit. Interest was payable monthly at the bank's prime rate.
The credit facility was collateralized by substantially all assets of the
Company. Borrowings under the line of credit were limited to the sum of 85%
of eligible accounts receivable plus the lesser of 50% of inventory or
$4,500,000. Amounts outstanding under the line was $9,922,510 at December
29, 1995, and were repaid on January 29, 1996 with proceeds from the
initial public offering (see Note 2).
10. LONG-TERM DEBT
At December 29, 1995, the Company had outstanding two 11.5% Subordinated
Debentures of $2,000,000 each. These debentures were due on March 9, 2000
and 2001, with interest payable quarterly on the last day of March, June,
September and December of each year, commencing June 30, 1995. The Company
also had outstanding a term loan to a bank in the amount of $1,499,999 at
December 29, 1995. This term loan was payable in quarterly installments of
$166,667, plus accrued interest at 8.5% annually, commencing in May 1995.
The loan was collateralized by substantially all assets of the Company. The
current portion of total long-term debt at December 29, 1995 was $666,668,
and $4,833,331 was due after one year. Such amounts were repaid and
satisfied on January 29, 1996 with proceeds from the Company's initial
public offering.
11. TRANSACTIONS WITH RELATED PARTIES
At December 29, 1995, the Company had a 5% note payable to the father of
the Company's former sole stockholder, pursuant to a stock redemption
agreement. The principal balance on the notes as of December 29, 1995
was $940,922. Such amounts were repaid and satisfied on January 29, 1996,
with proceeds from the initial public offering.
The stock redemption agreement also provided for an increase in the
purchase price of the shares if the remaining stockholder of the Company
sells all or substantially all of the Company's assets or all or
substantially all of his stock in the Company prior to July 1997 (see Note
5). In connection with the Recapitalization, the former sole stockholder
made a $694,000 capital contribution to the Company in order for the
Company to satisfy its obligation under the stock redemption agreement to
the former sole stockholder's father.
F-13
<PAGE>
In November 1995, the Company issued a $2,000,000 subordinated note to the
former sole stockholder, which represented the deferred payments for the
redemption of this stockholder's common stock in connection with the
Recapitalization (see Note 5). The note was repaid and satisfied on January
29, 1996 with proceeds from the initial public offering.
The Company leases its executive offices from a stockholder of the Company
and one distribution center from an entity controlled by two officers of
Company (See Note 13).
12. PROFIT SHARING PLAN
The Company has a qualified profit sharing plan under Section 401(k) of the
Internal Revenue Code. Contributions to the plan by the Company are made at
the discretion of the Company's Board of Directors. Company contributions
to the plan were approximately $102,600, $59,600 and $11,100 for 1996, 1995
and 1994, respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments - The Company leases its facilities under operating
leases expiring at various dates through 2004. Minimum future rental
payments under these leases as of December 27, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,481,000
1998 1,387,000
1999 1,255,000
2000 980,000
2001 651,000
Thereafter 1,563,000
----------
Total $7,317,000
==========
</TABLE>
In September 1996, the Company moved its Philadelphia, PA, distribution
center to a building which is leased from an entity which is partially
owned by two officers of the Company. Minimum annual rent payable under
this lease is $288,624, plus all real estate taxes and assessments,
utilities and insurance related to the premises. Total rent expense for
this lease was $74,000 for 1996. This lease expires on May 31, 2006 and
does not contain any renewal terms. The Company believes that the terms of
the lease are no less favorable to it than could be obtained from an
unaffiliated party.
In April 1994, the Company moved its executive office to a building which
is leased from a stockholder of the Company. In 1994, in lieu of rental
payments, the Company directly paid and expensed the mortgage payments to
the bank which financed the purchase by the stockholder. Such payments
amounted to approximately $5,300 monthly and aggregated approximately
$42,500 in 1994. As amended in March 1995, under the new terms of the
lease, the Company is required to pay approximately $137,500 annually, plus
all real estate taxes and assessments, utilities and insurance related to
the premises. The lease expires on February 28, 2004 and does not contain
any renewal terms. The Company believes that the terms of the lease are no
less favorable to it than could be obtained from an unaffiliated party.
Rent expense under all operating leases was $1,409,000, $806,000 and
$555,000 for 1996, 1995 and 1994, respectively. Certain of the leases
provide that the Company pay taxes, insurance and other operating expenses
applicable to the leased premises.
F-14
<PAGE>
Employment and Severance Agreements - The Company has an employment
agreement with its President until March 2000, unless terminated earlier by
the Company, at an annual base salary of $200,000, subject to adjustments
plus bonus.
Contingent Liabilities - At December 27,1996, the Company was contingently
liable for unused letters of credit aggregating approximately $ 649,000.
Employment Tax Audit - In March 1995, the Internal Revenue Service (the
"IRS") indicated to the Company that it intends to examine the Company's
employment tax returns for 1992 and 1993. The IRS has not asserted any
employment tax deficiencies for such years as of the current date. If the
IRS asserts any employment tax deficiencies with respect to such years, the
Company intends to vigorously pursue all available remedies and defenses.
The Company does not believe that the outcome of any such examination will
have a material effect on the Company's financial position or results of
operations.
Legal Proceedings - The Company is involved in various legal proceedings in
the ordinary course of its business which are not anticipated to have a
material adverse effect on the Company's results of operations or financial
position.
14. STOCK OPTION PLAN
In March 1995, the Company adopted a stock option plan (the "Stock Option
Plan") under which employees may be granted options to purchase shares of
Common Stock. Options granted were issued at prices equal to at least fair
market value, become exercisable not earlier than one year after the grant
date, and expire ten years after the grant date. The stock option plan is
administered by the Compensation Committee of the Board of Directors, which
determines the vesting provisions, the form of payment for shares and all
other terms of the options. In January 1996, the Company increased the
maximum number of shares to be reserved under the Stock Option Plan from
392,000 to 800,000 shares. At December 27, 1996, 401,800 shares were
available for future grants. Stock options transactions are summarized as
follows:
<TABLE>
<CAPTION>
Exercise Weighted Average
Number of Price Exercise Price
Shares Per Share Per Share
---------------------------------------------
<S> <C> <C> <C>
Granted during 1995 280,000 $ 4.23 $ 4.23
1996:
Granted 121,000 $11.00 - $24.25 $12.41
Forfeited (2,800) $ 4.23 $ 4.23
-----------
Outstanding at December 27,1996 398,200
=======
</TABLE>
All stock options are granted at fair market value of the Common Stock at
the grant date. The weighted average fair value of the stock options
granted during 1996 and 1995 were $5.67 and $0.80, respectively. The fair
value of each stock option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995:
F-15
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Risk-free interest rate 5.46 % 5.25%
Expected volatility 74.20% -
Expected life 2.3 years 4.5 years
Contractual life 10 years 10 years
</TABLE>
There were no stock option shares exercisable in 1996 or 1995.
The Company accounts for the Stock Option Plan in accordance with
Accounting Principles Board Opinion No. 25, under which no compensation
cost has been recognized for stock option awards. Had compensation cost for
the Stock Option Plan been determined with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), the Company pro forma net income and earnings per share for the
years ended December 27, 1996 and December 29,1995 would have been as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
---------------------
<S> <C> <C>
Net Income:
As reported $5,863 $2,844
Pro forma $5,485 $2,540
Net Income per share:
As reported $ 0.51 $ 0.36
Pro forma $ 0.48 $ 0.32
</TABLE>
15. MANDATORILY REDEEMABLE PREFERRED STOCK
At December 29, 1995, there were 5,235,364 shares of preferred stock
authorized. At December 29, 1995, 129,450 shares were designated as
Series A Senior Preferred Stock ("Series A") and 105,914 shares were
designated as Series B Junior Preferred Stock ("Series B") (see Note 2).
F-16
<PAGE>
The Series A and Series B ("Outstanding Preferred Stock")
were entitled to dividends of $8.00 per share per annum compounded annually
prior and in preference to holders of Common Stock. In addition, the
holders of Series A were entitled to dividends prior and in preference to
the holders of Series B. All dividends were cumulative whether or not
declared by the Board of Directors ("Cumulative Dividends").
During 1996 and 1995, Cumulative Dividends totaling $155,932 and
$1,522,021, respectively, were charged as an accretion of the Outstanding
Preferred Stock Redemption Value with a corresponding increase in the value
of the Outstanding Preferred Stock. On January 29, 1996 all of the Series A
Senior Preferred Stock and accumulated dividends were redeemed from
proceeds of the initial public offering. In addition, $5,591,400 of the
Series B Junior Preferred Stock and accumulated dividends were redeemed.
The $5,000,000 balance of the Series B Junior Preferred Stock was converted
into 454,545 shares of Common Stock (at the $11.00 public offering price)
immediately prior to the initial public offering (see Note 2).
16. PROVISION FOR INCOME TAXES
The corporate income tax provision for 1996 and the period from February
24, 1995 through December 29, 1995 (see Note 3) is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current:
Federal $3,110,000 $1,723,680
State 733,280 307,900
---------- ----------
3,843,280 2,031,580
---------- ----------
Deferred:
Federal (209,000) (365,000)
State (41,000) ( 43,000)
---------- ----------
(250,000) (408,000)
---------- ----------
$3,593,280 $1,623,580
========== ==========
<CAPTION>
The reconciliation of the provision for income taxes at the federal statutory
tax rate to the provision for income taxes is as follows:
1996 1995
---------- ----------
<S> <C> <C>
Federal statutory tax rate 34.0% 34.0%
State income taxes, net of federal benefit 5.1 4.3
Non-deductible expenses 2.2 0.6
Non-taxable investment income (4.6)
Other 1.3 4.5
Benefit of change in tax status (4.9)
S Corporation earnings (4.3)
-------- ------
38.0% 34.2%
======== ======
</TABLE>
F-17
<PAGE>
Deferred income taxes result primarily from temporary differences in the
recognition of certain expenses for financial and income tax reporting
purposes.
The components of the Company's net deferred tax asset consisted of the
following as of:
<TABLE>
<CAPTION>
December 27, December 29,
1996 1995
---- ----
<S> <C> <C>
Inventory $436,000 $285,000
Bad debt reserves 234,000 61,000
State taxes 93,000 43,000
Other 5,000 19,000
-------- --------
$768,000 $408,000
======== ========
</TABLE>
Prior to February 24, 1995, the Company elected to be taxed under
Subchapter S of the Internal Revenue Code. An S Corporation is a
corporation which generally does not pay income taxes but whose income is
passed on through to its shareholders who report such amounts on their
individual tax returns. Effective February 24, 1995 the Company's
Subchapter S status was terminated and, as a result of such change in
status, the Company established a deferred tax asset of approximately
$230,000, which is reflected in the deferred provision for the year ended
December 29, 1995.
17. SUBSEQUENT EVENTS
In January 1997, the Company acquired certain assets of Pier-Angeli Company
("Pier-Angeli"), a distributor of plumbing and electrical supplies
primarily to the multi-family industry or apartment house market. The total
purchase price of the acquisition was approximately $4 million, including
costs of acquisition. Goodwill and other intangibles recorded in connection
with this acquisition totaled approximately $2 million, and will be
amortized on a straight-line basis over 3 to 30 years.
F-18
<PAGE>
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996
----------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
(13 weeks) (13 weeks) (13 weeks) (13 weeks)
<S> <C> <C> <C> <C>
Net sales $19,309 $21,415 $30,712 $29,208
Gross profit 5,936 6,553 8,718 8,584
Operating income 1,707 1,952 2,774 2,472
Net income 960 1,218 1,857 1,828
Net income per share $ .10 $ .11 $ .15 $ .14
<CAPTION>
1995
----------------------------------------------
First Second Third Fourth
--------- --------- --------- ----------
(13 weeks) (13 weeks) (13 weeks) (13 weeks)
<S> <C> <C> <C> <C>
Net sales $13,458 $14,625 $16,381 $16,359
Gross profit 4,246 4,534 5,107 5,101
Operating income 1,171 1,455 1,838 1,440
Pro forma net income 581 689 920 654
Pro forma net income per share $ .07 $ .09 $ .12 $ .08
</TABLE>
The Company's quarters end on the last Friday of each calendar quarter.
The Company's sales volumes tend to be lower in the fourth quarter because
customers defer purchases at year end as their budget limits are met. In
addition, net sales in the fourth quarter are reduced because of the
holidays during the period. The third and fourth quarters of 1996 included
sales of HMA, which was acquired in July 1996. The fourth quarter of 1995
included sales of One Source, which was acquired in November 1995.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Wilmar Industries, Inc.
Moorestown, New Jersey
We have audited the consolidated financial statements of Wilmar Industries,
Inc. and its subsidiaries (the "Company") as of December 27, 1996 and December
29, 1995, and for each of the three fiscal years in the period ended December
27, 1996, and have issued our report thereon dated March 13, 1997; such report
is included elsewhere in this Form 10-K. Our audits also included the
consolidated financial statement schedule of the Company referred to in Item 8.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 13, 1997
S-1
<PAGE>
SCHEDULE II
WILMAR INDUSTRIES, INC.
VALUATION ACCOUNTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Balance
at Charged Balance
Beginning to Other at End
of Year Expense Deductions Changes of Year
------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 30, 1994:
Allowance for doubtful accounts $105,000 163,407 133,407 $135,000
-------- ------- --------- ========
Year ended December 29, 1995:
Allowance for doubtful accounts $135,000 186,727 167,657 $ 82,000/2/ $236,070
-------- ======= ======= ----------- ---------
Year ended December 27, 1996:
Allowance for doubtful accounts $236,070 364,500 37,481 243,211/3/ $806,300
-------- ------- ------- --------- ========
</TABLE>
1. Accounts receivable written off as uncollectible, net of recoveries.
2. Represents reserve established in connection with acquisition of One
Source Supply, Inc. See Notes 2 and 4 of Notes to Consolidated Financial
Statements.
3. Represents reserves established in connection with acquisitions of Mile
High Maintenance Supply, Inc., and HMA Enterprises, Inc. See Notes 2 and 4
of Notes to Consolidated Financial Statements.
S-2
<PAGE>
Exhibit 11
Wilmar Industries, Inc.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended Year Ended
December 27, 1996 December 29,1995
================================================================================================================================
<S> <C> <C>
Income before income taxes $ 9,456,372 $ 4,760,462
Provision for Income Taxes (2) 3,593,280 1,896,000
---------------- ----------------
Net Income (2) $ 5,863,092 $ 2,864,462
================ ================
Weighted Average Shares Outstanding during the period 11,104,618 5,404,000
Common Stock Equivalents :
Preferred Stock 192,569 1,848,439
Items issued within one year of IPO: (1)
Common Stock 512,500
Stock Options 260,129 172,327
---------------- ----------------
Total Weighted Average Shares Outstanding 11,557,316 7,937,266
================ ================
Net Income Per Share (2) $ 0.51 $ 0.36
================ ================
</TABLE>
(1) Common stock issued and stock options granted at prices lower then the
assumed initial public offering price within a one year period prior to an
initial public offering are included in the calculation (using the treasury
stock method and the assumed initial public offering price) as if they were
outstanding for all periods presented.
(2) Total weighted average shares outstanding for the year ended December 29,
1995 represent pro forma number of common shares assumed outstanding during the
year.
(3) The provision for income taxes, net income, and net income per share amounts
reflected for the year ended December 29, 1995 represents pro forma amounts as
if the Company had been subject to federal and state income taxation as a C
Corporation since inception.
FULLY DILUTED EARNINGS PER SHARE
Fully diluted earnings per share differs from primary earnings per share by less
than 3%.
<PAGE>
Exhibit 21
----------
Wilmar Industries, Inc.
List of Subsidiaries
-------------------------
<TABLE>
<CAPTION>
State or Jurisdiction
Name of Subsidiary of Incorporation
------------------ ----------------
<S> <C>
HMA Enterprises, Inc. ........................ Texas
One Source Supply, Inc. ...................... Florida
Mile High Maintenance Supply, Inc. ........... Colorado
</TABLE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-
19563 of Wilmar Industries, Inc. on Form S-8 of our report dated March 13, 1997,
appearing in this Annual Report on Form 10-K of Wilmar Industries, Inc. for the
year ended December 27, 1996.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> DEC-27-1996
<CASH> 38,947,895
<SECURITIES> 3,927,276
<RECEIVABLES> 16,946,993
<ALLOWANCES> (806,300)
<INVENTORY> 17,669,441
<CURRENT-ASSETS> 78,109,893
<PP&E> 4,946,839
<DEPRECIATION> (2,486,091)
<TOTAL-ASSETS> 88,309,143
<CURRENT-LIABILITIES> 12,809,529
<BONDS> 0
0
0
<COMMON> 96,978,776
<OTHER-SE> (21,479,162)
<TOTAL-LIABILITY-AND-EQUITY> 88,309,143
<SALES> 100,644,167
<TOTAL-REVENUES> 100,644,167
<CGS> 70,852,668
<TOTAL-COSTS> 20,886,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (551,351)
<INCOME-PRETAX> 9,456,372
<INCOME-TAX> 3,593,280
<INCOME-CONTINUING> 5,863,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,863,092
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
