<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _______________
Commission File No. 0-27424
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WILMAR INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2232386
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(State of incorporation or (I.R.S. Employer
organization) Identification No.)
303 Harper Drive
Moorestown, New Jersey 08057
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 439-1222
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
-------- --------
The number of shares of the registrant's common stock, no par value,
outstanding as of October 31, 1998 was 13,389,827.
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (Unaudited)
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September 25, December 26,
1998 1997
ASSETS ------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 29,560,863 $ 30,723,746
Cash - restricted 292,832 283,655
Accounts Receivable - trade, net of allowance for doubtful accounts
of $1,405,600 in 1998 and $1,359,800 in 1997. 30,295,419 23,801,733
Inventory 30,550,745 24,979,935
Prepaid expenses and other current assets 854,626 898,255
Deferred income taxes 1,513,000 1,227,000
------------------ -----------------
Total current assets 93,067,485 81,914,324
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $4,487,669 in 1998 and $3,923,523 in 1997. 4,023,885 3,540,889
GOODWILL, net of accumulated amortization of $829,307 in 1998 and $426,066 in 1997. 18,614,723 18,121,121
INTANGIBLE ASSETS AND OTHER, Net 5,317,483 4,538,971
------------------ -----------------
TOTAL ASSETS $ 121,023,576 $ 108,115,305
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,025,000 $ 725,000
Accounts payable 14,591,325 13,244,918
Accrued expenses and other current liabilities 3,896,098 2,875,484
Income taxes payable 356,576 220,819
------------------ -----------------
Total current liabilities 19,868,999 17,066,221
NOTES PAYABLE 500,000 500,000
------------------ -----------------
Total liabilities 20,368,999 17,566,221
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY :
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued
Common stock, no par value - 50,000,000 shares authorized;
13,383,760 shares issued and outstanding in 1998
13,335,754 shares issued and outstanding in 1997 103,486,386 102,793,984
Accumulated deficit (2,831,809) (12,244,900)
------------------ -----------------
Total stockholders' equity 100,654,577 90,549,084
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 121,023,576 $ 108,115,305
================== =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - (Unaudited)
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For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 25, September 26, September 25, September 26,
1998 1997 1998 1997
------------ ------------ ------------- --------------
NET SALES $ 52,093,171 $ 40,184,412 $ 145,297,415 $ 109,802,979
COST OF SALES 37,029,987 28,472,789 103,322,150 77,326,297
------------ ------------ ------------- --------------
Gross profit 15,063,184 11,711,623 41,975,265 32,476,682
OPERATING EXPENSES:
Operating and selling expenses 6,876,052 5,588,799 19,750,733 15,359,799
Corporate general and administrative expenses 2,645,613 2,434,389 8,166,499 7,355,114
Non-recurring severance expense 259,000 259,000
------------ ----------- ------------- --------------
Total operating expenses 9,521,665 8,282,188 27,917,232 22,973,913
------------ ----------- ------------- --------------
Operating income 5,541,519 3,429,435 14,058,033 9,502,769
INTEREST INCOME (362,536) (413,394) (1,137,458) (1,221,689)
------------ ----------- ------------- --------------
Income before income taxes 5,904,055 3,842,829 15,195,491 10,724,458
PROVISION FOR INCOME TAXES 2,273,000 1,428,400 5,782,400 3,991,300
------------ ----------- ------------- --------------
Net income $ 3,631,055 $ 2,414,429 $ 9,413,091 $ 6,733,158
============ =========== ============= ==============
Net income per share - Basic $ 0.27 $ 0.18 $ 0.70 $ 0.51
============ =========== ============= ==============
Net income per share - Diluted $ 0.27 $ 0.18 $ 0.70 $ 0.51
============ =========== ============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Unaudited)
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Total
Common Stock Accumulated Stockholders'
Shares Amount Deficit Equity
------------ ------------- -------------- ------------
BALANCE, DECEMBER 27, 1996 13,048,371 $ 96,978,776 $ (21,479,162) $ 75,499,614
Exercised Stock Options 131,485 1,305,796 1,305,796
Tax Benefit from Exercised Stock Options 660,000 660,000
Issuance of Common Stock - Mile High Acquisition 4,652 100,024 100,024
Issuance of Common Stock - Mangement Supply Acquisition 151,246 3,749,388 3,749,388
Net income 9,234,262 9,234,262
------------ ------------- ------------- ------------
BALANCE, DECEMBER 26, 1997 13,335,754 $ 102,793,984 $ (12,244,900) $ 90,549,084
Exercised Stock Options 42,283 321,689 321,689
Tax Benefit from Exercised Stock Options 240,000 240,000
Issuance of Common Stock - Apartment Cleaning 5,723 130,713 130,713
Net income 9,413,091 9,413,091
------------ ------------- ------------- -------------
BALANCE, SEPTEMBER 25, 1998 13,383,760 $ 103,486,386 $ (2,831,809) $ 100,654,577
============ ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
WILMAR INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
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For the Nine For the Nine
Months Ending Months Ending
September 25, September 26,
1998 1997
--------------------- ------------------
OPERATING ACTIVITIES :
Net Income $ 9,413,091 $ 6,733,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,431,313 931,716
Deferred income taxes (286,000) (260,000)
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable (6,178,507) (6,576,004)
Inventory (5,390,146) (1,383,658)
Prepaid expenses and other current assets 34,452 238,376
Other assets (340,062) (118,965)
Accounts Payable 1,346,407 5,181,876
Accrued expenses and other current liabilities 980,614 1,944,766
Income taxes payable 375,757 (1,469,743)
--------------------- ------------------
Net cash provided by operating activities 1,386,919 5,221,522
--------------------- ------------------
INVESTING ACTIVITIES :
Purchase of property and equipment (1,208,568) (1,295,984)
Proceeds from sale of short-term investments 3,927,276
Acquisition of business, including escrow (1,962,923) (15,267,275)
Procceds from escrow settlement 82,000
--------------------- ------------------
Net cash used in investing activities (3,171,491) (12,553,983)
--------------------- ------------------
FINANCING ACTIVITIES :
Proceeds from (repayment of) notes payable 300,000 (260,000)
Net proceeds from exercise of stock options 321,689 1,305,796
--------------------- ------------------
Net cash provided by financing activities 621,689 1,045,796
--------------------- ------------------
NET INCREASE (DECREASE) IN CASH (1,162,883) (6,286,665)
--------------------- ------------------
CASH, BEGINNING OF PERIOD 30,723,746 38,230,210
--------------------- ------------------
CASH, END OF PERIOD $ 29,560,863 $ 31,943,545
==================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for :
Interest $ 11,328 $ 25,748
===================== ==================
Income taxes $ 5,765,843 $ 5,586,850
===================== ==================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of Common Stock in connection with the purchase of :
Apartment Cleaning Supply and Pool Supply, Inc. $ 130,713
Managament Supply Company $ 3,749,388
Mile High Maintenance Supply $ 100,024
Issuance of Note in connection with the purchase of :
Pier-Angeli $ 75,000
Managament Supply Company $ 500,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
- ------------------------------
The condensed consolidated financial statements include the accounts of Wilmar
Industries, Inc. ("Wilmar" or the "Company") and its subsidiaries. Inter-
company balances and transactions have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year ending
December 25, 1998. These financial statements should be read in conjunction
with the audited consolidated financial statements and footnotes included in the
Company's Form 10-K for the year ended December 26, 1997.
NOTE 2 - ACCOUNTING POLICIES
- ----------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and disclosure of
comprehensive income. The Company adopted this statement during the first
quarter of fiscal year 1998. Net income equaled comprehensive income for both
the three and nine months ended September 25,1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement, which establishes
standards for the reporting of information about operating segments and requires
the reporting of selected information about operating segments in interim
financial statements. SFAS No. 131 is required to be applied to interim
financial statements in the initial year of application. Reclassification of
segment information for earlier periods presented for comparative purposes are
required under SFAS No. 131. As this statement only requires additional
disclosures in the Company's consolidated financial statements, its adoption
will not have any impact on the Company's consolidated financial position,
results of operations or cash flows. The Company will adopt SFAS No. 131 in its
December 25, 1998 annual financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This statement, which revises
certain disclosure requirements for the Company's pension assets and
obligations, is effective for fiscal periods beginning after December 15, 1997.
Restatement of prior years' information is required, where available. As this
statement only requires a change in methods of disclosure and not any change in
accounting methods, it will not have any impact on the Company's consolidated
financial position, results of operations or cash flows. The Company will adopt
SFAS No. 132 in its December 25, 1998 annual financial statements.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting For the Costs of Computer
Software Developed For or Obtained for Internal-Use". The SOP is effective for
the Company in 1999. The SOP will require the capitalization of certain costs
incurred after the date of adoption in connection with developing or obtaining
software for internal use. The Company currently capitalizes certain external
consulting costs and expenses all other costs as incurred. The Company has not
yet assessed what the impact of the SOP will be on the Company's future earnings
or financial position.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities". This SOP provides guidance on the financial reporting of start-up
costs and organization costs. This SOP broadly defines start-up activities as
those one-time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, conducting business
with a new class of customer, initiating a new process in an existing facility
or commencing some new operation. The SOP requires costs of start-up activities
and organization costs to be expensed as incurred. The Company will adopt this
standard in the first quarter of fiscal 1999. The Company has not yet
determined the effect of adoption of this SOP on the Company's financial
statements.
<PAGE>
WILMAR INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3 ACQUISITIONS
- --------------------
In March 1998, the Company acquired certain assets of the California-based
company American Maintenance Supply, Inc. ("AMS-CA") and in June 1998, the
Company acquired certain assets of the Nevada-based company American Maintenance
Supply, Inc. ("AMS-NV"), both are distributors of plumbing supplies primarily to
the multi-family industry or apartment housing market. The total purchase price
of both acquisitions was paid in cash. Goodwill recorded in connection with
these acquisitions is being amortized on a straight-line basis over 40 years.
In June 1998, the Company acquired certain assets of Apartment Cleaning Supply
and Pool Supply, Inc. ("ACSPS"), a distributor of both janitorial and pool
chemicals, supplies and equipment primarily to the multi-family industry or
apartment housing market in the Phoenix area. The purchase price of this
acquisition consisted of cash and common stock of the company. Goodwill and
other intangibles recorded in connection with this acquisition are being
amortized on a straight-line basis over 5 to 40 years. Each of the acquisitions
described above are accounted for using the purchase method.
In July 1998, as specified in the purchase agreement with Management Supply
Company ("MSC"), the Company sold back a division of MSC to its former owners.
The total assets of this division are approximately $600,000 and were sold at
net book value. Accordingly, the company has not recorded a gain or loss on this
transaction.
NOTE 4 - INCOME TAXES
- ---------------------
The Company provides for income taxes based upon SFAS No. 109, "Accounting for
Income Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes.
NOTE 5 - COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE
- --------------------------------------------------------------
Net income per share presented for all periods have been computed in accordance
with SFAS No. 128, "Earnings per Share." Data for 1997 has been restated to
conform to SFAS No. 128. Basic net income per share is computed by dividing net
income by the weighted-average number of shares outstanding during the period.
Diluted net income per share is computed by dividing net income by the weighted-
average number of shares outstanding during the period, assuming dilution.
The amounts used in calculating net income per share data are as follows:
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For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 25, 1998 September 26, 1997 September 25,1998 September 26,1997
------------------ ------------------ ----------------- -----------------
Net Income $ 3,631,055 $ 2,414,429 $ 9,413,091 $ 6,733,158
================== ================== ================= =================
Weighted average shares
outstanding - Basic 13,383,352 13,197,827 13,361,833 13,108,694
Effect of Dilutive Stock options 133,250 172,891 142,440 172,299
------------------ ------------------ ----------------- -----------------
Weighted average shares
outstanding - Diluted 13,516,602 13,370,718 13,504,273 13,280,993
================== ================== ================= =================
</TABLE>
Options to purchase 70,450 shares of common stock that were outstanding during
the three months ended September 25, 1998, as well as the option to purchase
52,050 and 14,700 shares of common stock that were outstanding during the nine
months ended September 25, 1998 and September 26,1997 respectively, were not
included in the computation of weighted average shares outstanding - Diluted
because the options' exercise price was greater than the average market price of
common shares.
NOTE 6 - CONTINGENCIES
- ----------------------
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.
<PAGE>
WILMAR INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, the anticipated costs associated with those
plans, the Company's liability and capital resources, 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, general market conditions, increased
competition, failure to locate and acquire desirable acquisition candidates and
factors discussed elsewhere in this report and in the documents incorporated
herein by reference. The following discussion should be read in conjunction with
the interim financial statements and the notes thereto contained elsewhere in
this report on Form 10-Q.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 25, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 26,
1997.
Net Sales. Net sales increased by $35.5 million, or 32.3%, to $145.3 million
for the nine months ended September 25, 1998 from $109.8 million for the
corresponding period in 1997. This increase was attributable to the maturation
of the existing sales force, sales force additions, the Company's telesales
effort, increased sales to national accounts and a substantial investment in
"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). The Company's sales force at the end of the third quarter of 1998
was 208, an increase of 54 when compared with the corresponding quarter of 1997.
Sales attributable to the existing sales force (salesmen employed for all of
both periods) increased 16%. In addition the acquisitions of Management Supply
Company ("MSC") and certain assets of ACSPS, AMS-CA and AMS-NV which occurred in
September 1997, June 1998, March 1998 and June 1998, respectively, also
contributed significantly to the Company's growth. Price increases during both
periods were modest and made only on selected items. During the nine months
ended September 25, 1998, Wilmar generated approximately $6.5 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 the first
quarter of 1995.
Gross Profit. Cost of sales includes merchandise, freight, distribution center
occupancy and delivery costs. As a percentage of net sales, gross profit was
28.9% for the nine months ended September 25, 1998 compared to 29.6% for the
corresponding period in 1997. This expected decrease in the gross margin
resulted from the acquisition of MSC. MSC's gross margins reflect a product mix
that includes a larger volume of major appliance sales, that yield a lower gross
margin percentage. In addition, the increased delivery expenses associated with
"line-hauling" to new markets, as well as higher relative occupancy costs
relating to the operation of the Company's new distribution centers in
Charlotte, San Antonio, Phoenix, Las Vegas and Boston, also contributed to the
decrease in gross margin when compared with the first nine months of 1997.
Operating and Selling Expenses. Operating and selling expenses consist of labor
and other costs associated with operating a distribution center as well as
selling expenses and commissions. Operating and selling expenses increased by
$4.4 million, or 28.6%, to $19.8 million for the nine months ended September 25,
1998 from $15.4 million for the corresponding period in 1997. As a percentage
of net sales, these expenses represented 13.6% for the nine months ended
September 25, 1998 compared to 14.0% for the corresponding period in 1997. This
decrease was primarily attributable to the assimilation of the HMA acquisition
in July 1997 and the MSC acquisition in May 1998.
<PAGE>
WILMAR INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $811,000 or 11.0%, to $8.2 million for the
nine months ended September 25, 1998 from $7.4 million for the corresponding
period in 1997. This increase is primarily the result of the enhanced staffing
required to manage a larger volume of business. As a percentage of net sales,
corporate general and administrative expenses represented 5.6% for the nine
months ended September 25, 1998 compared to 6.7% for the corresponding period in
1997. During the first nine months of 1998, the Company incurred approximately
$180,000 in expenses related to the assimilation of MSC and pre-opening expenses
for its new San Antonio, Las Vegas and Boston distribution centers, (the
"assimilation and pre-opening expenses"). The Company expenses all distribution
center pre-opening and acquisition assimilation costs when incurred. Excluding
these expenses, corporate general and administrative expenses as a percentage of
net sales would have been 5.5% for the nine months ended September 25, 1998
compared to 6.4% for the corresponding period in 1997.
Operating Income. Operating income increased by $4.6 million, or 47.9%, to
$14.1 million for the nine months ended September 25, 1998 from $9.5 million for
the corresponding period in 1997. As a percentage of net sales, operating
income was 9.7% for the nine months ended September 25, 1998 compared to 8.7%
for the corresponding period in 1997. During the third quarter of 1997,
operating income was negatively impacted by a non-recurring severance charge of
$259,000. Excluding the non-recurring charge, as well as the assimilation and
pre-opening expenses, operating income, as a percentage of net sales, excluding
these expenses, would have been 10.0% for the first nine months in 1998 compared
to 9.2% for the first nine months of 1997.
Interest Income. Net interest income for the nine months ended September 25,
1998 was $1.1 million and $1.2 million for the corresponding period in 1997. The
interest income occurred as a result of the investment income from the proceeds
of the secondary public offering completed in July 1996.
THREE MONTHS ENDED SEPTEMBER 25, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
26, 1997
Net Sales. Net sales increased by $11.9 million, or 29.6%, to $52.1 million
for the three months ended September 25, 1998 from $40.2 million for the
corresponding period in 1997. This increase was attributable to the maturation
of the existing sales force, sales force additions, the Company's telesales
effort, increased sales to national accounts and a substantial investment in
"line-hauling". Sales attributable to the existing sales force (salesmen
employed for all of both periods) increased 18%. In addition the acquisitions of
MSC and certain assets of ACSPS, AMS-CA and AMS-NV which occurred in September
1997, June 1998, March 1998 and June 1998 respectively, also contributed
significantly to the Company's growth. Price increases during both periods were
modest and made only on selected items. During the three months ended September
25, 1998, Wilmar generated approximately $2.6 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 the first quarter of 1995.
Gross Profit. Cost of sales includes merchandise, freight, distribution center
occupancy and delivery costs. As a percentage of net sales, gross profit was
28.9% for the three months ended September 25, 1998 compared to 29.1% for the
corresponding period in 1997. This expected decrease in the gross margin was a
result of the following factors: (1) the acquisition of MSC, whose gross margins
reflect a product mix that includes a larger volume of major appliance sales,
that yield a lower gross margin percentage, (2) a larger volume of HVAC sales,
which are seasonal in nature and have lower gross margins, and (3) the higher
relative occupancy costs relating to the operation of the Company's new
distribution centers in San Antonio, Las Vegas and Boston also contributed to
the decrease in gross margin when compared with the three months ended September
26, 1997.
<PAGE>
WILMAR INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Operating and Selling Expenses. Operating and selling expenses consist of labor
and other costs associated with operating a distribution center as well as
selling expenses and commissions. Operating and selling expenses increased by
$1.3 million, or 23.0%, to $6.9 million for the three months ended September 25,
1998 from $5.6 million for the corresponding period in 1997. As a percentage of
net sales, these expenses represented 13.2% for the three months ended September
25, 1998 compared to 13.9% for the corresponding period in 1997. This decrease
was primarily attributable to the assimilation of the HMA acquisition in July
1997 and the MSC acquisition in May 1998.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased by $211,000, or 8.79%, to $2.6 million for the
three months ended September 25, 1998 from $2.4 million for the corresponding
period in 1997. This increase is primarily the result of the enhanced staffing
required to manage a larger volume of business. The Company expenses all
distribution center pre-opening costs when incurred. During the second quarter
of 1998, the Company incurred approximately $63,000 in expenses related to the
assimilation of MSC and pre-opening expenses for its new San Antonio, Las Vegas
and Boston distribution center. As a percentage of net sales, corporate general
and administrative expenses represented 5.1% for the three months ended
September 25, 1998 compared to 6.1% for the corresponding period in 1997.
Excluding assimilation and pre-opening expenses, general and administrative
expenses would represent 5.0% for the three months ended September 25, 1998 and
5.8% for the corresponding period in 1997.
Operating Income. Operating income increased by $2.1 million or 61.6%, to $5.5
million for the three months ended September 25, 1998 from $3.4 million for the
corresponding period in 1997. As a percentage of net sales, operating income
was 10.6% for the three months ended September 25, 1998 and 8.5% for the
corresponding period in 1997. During the third quarter of 1997, operating income
was impacted by a non-recurring severance charge of $259,000. As a percentage
of net sales, operating income (excluding the non-recurring charge, assimilation
and pre-opening expenses) would have been 10.8% for the three months ended
September 25, 1998 compared to 9.4% for the corresponding period in 1997.
Interest Income. Net interest income for the three months ended September 25,
1998 was $363,000 and $413,000 for the corresponding period in 1997. The
interest income occurred as a result of the investment income from the proceeds
of the secondary public offering completed in July 1996.
LIQUIDITY AND CAPITAL RESOURCES
Wilmar's primary source of liquidity has been cash flow from operations,
supplemented by borrowings under its revolving bank line of credit to support
increases in accounts receivable and inventory, net of accounts payable. Since
its initial public offering in January 1996, additional liquidity has been
provided through the proceeds of the sale of its securities as well as
investment income from the proceeds of the secondary public offering completed
in July 1996.
Cash provided by operating activities was $1.4 million during the nine months
ended September 25, 1998 compared to $5.2 million of cash provided by operating
activities during the corresponding period in 1997. Cash provided by operating
activities during the nine months ended September 25, 1998 consisted of $9.4
million of net income before adding back depreciation and amortization and other
non-cash charges, decreased $9.2 million by changes in operating assets and
liabilities. This primarily resulted from a $2.6 million increase in accounts
payable, accrued expenses and income tax payable offset by an increase in the
accounts receivable and inventory of $11.6 million.
Cash used in investing activities during the nine months ended September 25,
1998 was $3.2 million, which consisted of approximately $1.2 million for the
purchase of property and equipment and $2.0 million relating to the acquisitions
of ACSPS, AMS-CA and AMS-NV.
Cash provided by financing activities during the first nine months of 1998 was
approximately $622,000, consisting of $322,000 of net proceeds received from the
exercise of stock options and net borrowing of $300,000.
<PAGE>
WILMAR INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Capital expenditures were $1.2 million for the nine months ended September 25,
1998 compared to $1.3 million for the corresponding period in 1997. The Company
spent approximately $542,000 in the first nine months of 1998 to equip its new
Atlanta, San Antonio, Las Vegas and Boston distribution centers, as well as
upgrading the existing MSC distribution centers. A typical distribution center
requires a capital investment of approximately $150,000 to $200,000 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 $60,000
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 previous public offerings, term debt or capital
leases.
Wilmar's credit facilities consist of two unsecured bank lines of credit
totaling $16 million. The balance on these lines of credit totaled $400,000 at
September 25, 1998. In July 1998, the Company renewed an existing $10 million
unsecured bank line of credit, which bears interest at three quarter percent
below the bank's prime rate, as well as a $6 million unsecured bank line of
credit, which bears interest at the bank's prime rate. In October 1998 the
Company renewed these existing credit facilities prior to their expiration date
and believes it could increase the amount of these credit facilities 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 1998. 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.
YEAR 2000 COMPLIANCE
The Company recognizes that the arrival of the Year 2000 (Y2K) poses a worldwide
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000. The Company continues to assess how the
Y2K problem will impact its operations. Considerable progress has been achieved
in the areas of identifying, remediating, testing, and implementing Y2K
compliant products and services, which are critical to the business computing
systems infrastructure. Inventory of all in-house software has been completed
and is currently being reviewed for compliance. The Company's core business
application software does not utilize a "MMDDYY" date format and is therefore
substantially unaffected by the Y2K issue. The Company is in the process of
attempting to identify critical third party vendors whose inability to reach Y2K
compliance may impact business connectivity and viability. Hardware systems have
been examined and appropriate paths charted to ensure complete Y2K
compatibility. The goal for completing Y2K compliance for all critical computing
system environments is early to mid calendar year 1999.
All costs associated with the Y2K project to date have been expensed as
incurred. These costs have not been and are not anticipated to be material to
the Company's financial position, results of operations or cash flows in any
given year, and such cost have been and is expected to continue to be funded
from the Company's operations. The Company's total estimated cost of the Y2K
compliance program is approximately $50,000 to $100,000. A significant portion
of these costs are not likely to be incremental costs to the Company, but rather
will represent the redeployment of existing information technology resources.
Based upon current benchmarks, the Company believes that it has the necessary
resources in-house to complete all required Y2K remediation. In the event that
internal resources are insufficient to complete the project in a timely manner,
out-sourcing the Y2K project, either in part or whole, to a Y2K Service Provider
may be necessary.
Until all inventory and analysis phases are completed the Company will not know
with absolute certainty how the transition from 1999 to 2000 will affect its
operations. Moreover, there is no guarantee that computing systems and
associated applications of other companies with which the Company conducts
business will be converted on a timely basis or that a failure by said companies
to address their Y2K compliance problems would not have a material adverse
impact on the Company.
To date, the Company has not established a formal contingency plan for dealing
with a failure by either the Company or its third party vendors to achieve Year
2000 compliance. However it recognizes the need to develop contingency plans and
expects to have these plans secured, where applicable by the end of Fiscal 1999.
<PAGE>
WILMAR INDUSTRIES, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
----------
27* Financial Data Schedule
___________________
* Filed herewith
(b) REPORTS ON FORM 8-K
-------------------
The Company did not file a Form 8-K during the quarter ended September 25,
1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILMAR INDUSTRIES, INC.
BY: /s/ Michael T. Toomey
---------------------------------------
Michael T. Toomey
Chief Financial Officer and Treasurer
(Duly authorized officer and
Principal financial officer)
Date: November 9, 1998
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