SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1999
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 Number: 000-25423
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EAGLE SUPPLY GROUP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3889248
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 East 42nd Street, Suite 1116, New York, New York 10168
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(Address of Principal Executive Offices) (Zip Code)
212-986-6190
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(Registrant's Telephone Number, Including Area Code)
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 past 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 outstanding of the Registrant's Common Stock,
as of February 10, 2000, was 8,510,000 shares.
<PAGE>
EAGLE SUPPLY GROUP, INC.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999
(Unaudited) and June 30, 1999 (Audited) 3
Consolidated Unaudited Statements of Operations for
the Three Months and Six Months Ended December 31, 1999
and 1998 4
Consolidated Unaudited Statement of Shareholders' Equity
for the Six Months Ended December 31, 1999 5
Consolidated Unaudited Statements of Cash Flows for the
Six Months Ended December 31, 1999 and 1998 6-7
Notes to Consolidated Unaudited Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Securityholders 17-18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
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December 31, June 30,
1999 1999
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,009,159 $ 8,519,406
Accounts and notes receivable, net 26,605,895 27,172,426
Inventories 20,909,211 18,972,548
Deferred tax assets 934,906 654,474
Other current assets 1,398,476 1,342,827
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Total current assets 55,857,647 56,661,681
PROPERTY AND EQUIPMENT, net 6,595,830 6,617,261
EXCESS COST OF INVESTMENTS OVER
NET ASSETS ACQUIRED, net 12,271,645 12,147,824
DEFERRED FINANCING COSTS, net 226,480 266,189
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$ 74,951,602 $ 75,692,955
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILTIES:
Accounts payable $ 17,555,161 $ 20,138,146
Accrued expenses and other current liabilities 3,931,680 5,654,890
Current portion of long-term debt 2,166,638 2,523,843
Federal and state income taxes payable 1,260,662 608,160
Income taxes due to TDA Industries, Inc. 1,143,537 1,143,537
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Total current liabilities 26,057,678 30,068,576
LONG-TERM DEBT 30,992,859 30,139,072
DEFERRED TAX LIABILITIES 95,612 97,512
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Total liabilities 57,146,149 60,305,160
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SHAREHOLDERS' EQUITY:
Preferred shares, $.0001 par value per share,
2,500,000 shares authorized, none issued
and outstanding - -
Common shares, $.0001 par value per share,
25,000,000 shares authorized; issued and
outstanding - 8,510,000 shares, December
31, 1999; 8,450,000 shares, June 30, 1999 851 845
Additional paid-in capital 16,958,141 16,658,147
Retained earnings (deficit) 846,461 (783,992)
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17,805,453 15,875,000
Less: Due from TDA Industries, Inc. - (487,205)
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Total shareholders' equity 17,805,453 15,387,795
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$ 74,951,602 $ 75,692,955
============= =============
</TABLE>
See notes to consolidated unaudited financial statements.
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EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED UNAUDITED STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
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THREE MONTHS SIX MONTHS
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES $ 45,240,311 $ 37,863,184 $ 93,798,740 $ 74,222,615
COST OF SALES 33,991,710 28,867,269 70,504,822 56,941,911
------------- ------------- ------------- -------------
11,248,601 8,995,915 23,293,918 17,280,704
------------- ------------- ------------- -------------
OPERATING EXPENSES 9,113,506 6,732,648 18,517,004 12,994,712
DEPRECIATION AND AMORTIZATION 285,952 258,399 559,331 606,647
AMORTIZATION OF EXCESS COST
OF INVESTMENTS OVER
NET ASSETS ACQUIRED 154,559 11,526 310,812 59,479
AMORTIZATION OF DEFERRED
FINANCING COSTS 19,854 17,017 39,708 31,532
------------- ------------- ------------- -------------
9,573,871 7,019,590 19,426,855 13,692,370
------------- ------------- ------------- -------------
INCOME FROM OPERATIONS 1,674,730 1,976,325 3,867,063 3,588,334
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 171,089 15,270 260,971 24,208
Interest expense (792,454) (571,695) (1,512,581) (1,156,955)
------------- ------------- ------------- -------------
(621,365) (556,425) (1,251,610) (1,132,747)
------------- ------------- ------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,053,365 1,419,900 2,615,453 2,455,587
PROVISION FOR INCOME TAXES 405,000 543,327 985,000 929,327
------------- ------------- ------------- -------------
NET INCOME $ 648,365 $ 876,573 $ 1,630,453 $ 1,526,260
============= ============= ============= =============
BASIC AND DILUTED NET INCOME
PER SHARE $ .08 $ .16 $ .19 $ .28
============= ============= ============= =============
COMMON SHARES USED IN BASIC AND
DILUTED NET INCOME PER SHARE 8,510,000 5,400,000 8,510,000 5,400,000
============= ============= ============= =============
</TABLE>
See notes to consolidated unaudited financial statements.
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EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1999
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Additional Due from TDA
Preferred Shares Common Shares Paid-In Retained Industries,
Shares Amount Shares Amount Capital Earnings Inc. Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1999 - $ - 8,450,000 $ 845 $ 16,658,147 $ (783,992) $ (487,205) $ 15,387,795
Net income - - - - - 1,630,453 - 1,630,453
Shares issued in connection with
the acquisition of MSI Co. - - 60,000 6 299,994 - - 300,000
Net change in Due from TDA
Industries, Inc. - - - - - - 487,205 487,205
------ ------ --------- ------ ------------ ----------- ----------- ------------
BALANCE, DECEMBER 31, 1999 - $ - 8,510,000 $ 851 $ 16,958,141 $ 846,461 $ - $ 17,805,453
====== ====== ========= ====== ============ =========== =========== ============
</TABLE>
See notes to consolidated unaudited financial statements.
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<PAGE>
EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
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1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,630,453 $ 1,526,260
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 909,851 697,658
Deferred income taxes (282,332) (186,708)
Increase in allowance for doubtful accounts 776,278 477,740
Changes in assets and liabilities:
Increase in accounts and notes receivable (209,747) (209,837)
Increase in inventories (1,936,663) (915,582)
(Increase) decrease in other current assets (55,649) 81,499
(Decrease) increase in accounts payable (2,582,985) 2,039,696
Decrease in accrued expenses and other
current liabilities (1,857,840) (471,173)
Increase in federal and state income taxes payable 652,502 -
Increase in income taxes due to TDA Industries, Inc. - 17,223
------------ ------------
Net cash (used in) provided by operating activities (2,956,132) 3,056,776
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INVESTING ACTIVITIES:
Capital expenditures (537,902) (614,368)
Payment for purchase of net assets of MSI Co. - (1,519,840)
------------ ------------
Net cash used in investing activities (537,902) (2,134,208)
------------ ------------
FINANCING ACTIVITIES:
Principal borrowings on long-term debt 95,921,613 77,386,429
Principal reductions on long-term debt (95,425,031) (80,958,478)
Proceeds from issuance of note payable - shareholder - 100,000
Capital contributions from TDA Industries, Inc. - 1,000,000
Cash dividends to TDA Industries, Inc. - (450,000)
Decrease in amounts due from TDA Industries, Inc. 487,205 1,463,746
------------ ------------
Net cash provided by (used in) financing activities 983,787 (1,458,303)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,510,247) (535,735)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,519,406 1,686,003
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,009,159 $ 1,150,268
============ ============
</TABLE>
See notes to consolidated unaudited financial statements.
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<PAGE>
EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
- ----------------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,512,581 $ 1,156,955
============ ============
Cash paid during the period for income taxes $ 535,591 $ -
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
60,000 Common Shares issued in connection with the
acquisition of MSI Co. $ 300,000 $ -
============ ============
Additional consideration in connection with the
acquisition of JEH Co. $ 134,630 $ -
============ ============
Acquisition of MSI Co.:
Fair value of assets acquired $ 9,284,007
Liabilities assumed (1,359,698)
Notes issued to seller (2,045,972)
Due to related party (250,000)
Bank debt incurred (4,108,497)
------------
Cash paid $ 1,519,840
============
</TABLE>
See notes to consolidated unaudited financial statements.
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<PAGE>
EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Consolidated Unaudited Interim Financial Statements - The
accompanying consolidated unaudited interim financial
statements of Eagle Supply Group, Inc. and subsidiaries (the
"Company") have been prepared in accordance with generally
accepted accounting principles for interim financial
information and in a manner consistent with that used in the
preparation of the annual financial statements of the Company
at June 30, 1999. In the opinion of management, the
accompanying consolidated unaudited interim financial
statements reflect all adjustments, consisting only of normal
and recurring adjustments, necessary for a fair presentation
of the financial position and results of operations and cash
flows for the periods presented.
Operating results for the three months and six months ended
December 31, 1999 and 1998 are not necessarily indicative of
the results that may be expected for a full year. In
addition, the unaudited interim consolidated financial
statements do not include all information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles. These consolidated unaudited interim financial
statements should be read in conjunction with the financial
statements and related notes thereto which are included in
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999 filed with the Securities and Exchange
Commission.
Business Description - The Company is a majority-owned
subsidiary of TDA Industries, Inc. ("TDA" or the "Parent")
and was organized to acquire, integrate and operate seasoned,
privately-held companies which distribute products to or
manufacture products for the building supplies/construction
industry.
Initial Public Offering - On March 17, 1999, the Company
completed the sale of 2,500,000 shares of Common Stock at
$5.00 per share and 2,875,000 Redeemable Common Stock
Purchase Warrants at $.125 per warrant in connection with its
initial public offering (the "Offering"). The net proceeds
to the Company aggregated approximately $10,206,000.
Acquisitions and Basis of Presentation - Upon consummation of
the Offering, the Company acquired all of the issued and
outstanding common shares of Eagle Supply, Inc. ("Eagle"),
JEH/Eagle Supply, Inc. ("JEH Eagle") and MSI/Eagle Supply,
Inc. ("MSI Eagle") (the "Acquisitions") from TDA for
consideration consisting of 3,000,000 of the Company's common
shares. The Acquisitions have been accounted for as the
combining of four entities under common control, similar to a
pooling of interests, with the net assets of Eagle, JEH Eagle
and MSI Eagle recorded at historical carryover values. The
3,000,000 common shares of the Company issued to TDA were
recorded at Eagle's, JEH Eagle's and MSI Eagle's historical
net book values at the date of acquisition. Accordingly,
this transaction did not result in any revaluation of
Eagle's, JEH Eagle's or MSI Eagle's assets or the creation of
any goodwill. Upon the consummation of the Acquisitions,
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<PAGE>
Eagle, JEH Eagle and MSI Eagle became wholly-owned
subsidiaries of the Company and currently constitute the sole
business operations of the Company.
As a result of the Acquisitions, the consolidated unaudited
interim financial statements of the Company, Eagle, JEH Eagle
and MSI Eagle have been prepared as if all of the entities
had operated as a single consolidated group for all periods
presented. The unaudited interim financial statements of
Eagle and JEH Eagle have been included in the consolidated
unaudited interim financial statements for all periods
presented, and the unaudited interim financial statements of
MSI Eagle have been included in the consolidated unaudited
interim financial statements only for the periods subsequent
to the acquisition of Masonry Supply, Inc. ("MSI Co.") by MSI
Eagle on October 22, 1998. Eagle, JEH Eagle and MSI Eagle
operate in a single industry segment and all of their
revenues are derived from sales to third party customers in
the United States.
Basic Net Income Per Share - Basic net income per share was
calculated by dividing net income by the weighted average
number of common shares outstanding during the periods
presented and excludes any potential dilution. Diluted net
income per share was calculated similarly and would generally
include potential dilution from the exercise of stock options
and warrants. There were no such dilutive options or
warrants for the periods presented. Both basic and diluted
net income per share includes, for the periods presented, the
3,000,000 of the Company's common shares issued to TDA in
connection with the Acquisitions.
Comprehensive Income - For the six months ended December 31,
1999 and 1998, comprehensive income was equal to net income.
*****
-9-
<PAGE>
EAGLE SUPPLY GROUP, INC.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
This document includes statements that may constitute
forward-looking statements made pursuant to the Safe Harbor
provisions of the Private Securities Litigation Reform Act of
1995. The Company would like to caution readers regarding
certain forward-looking statements in this document and in
all of its communications to shareholders and others, press
releases, securities filings, and all other communications.
Statements that are based on management's projections,
estimates and assumptions are forward-looking statements. The
words "believe," "expect," "anticipate," "intend," and
similar expressions generally identify forward-looking
statements. While the Company believes in the veracity of all
statements made herein, forward-looking statements are
necessarily based upon a number of estimates and assumptions
that, while considered reasonable by the Company, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies and known and
unknown risks. Many of the uncertainties and contingencies
can affect events and the Company's actual results and could
cause its actual results to differ materially from those
expressed in any forward-looking statements made by, or on
behalf of, the Company. Some of the factors that could cause
actual results or future events to differ materially include
the Company's inability to find suitable acquisition
candidates or financing on terms commercially reasonable to
the Company, inability to find suitable facilities or
personnel to open or maintain new branch locations,
interruptions or cancellation of existing sources of supply,
the pricing of and demand for distributed products, the
presence of competitors with greater financial resources,
economic and market factors, and other factors. Please see
the "Risk Factors" in the Company's filings with the
Securities and Exchange Commission for a description of some,
but not all, risks, uncertainties and contingencies.
The following discussion and analysis should be read in
conjunction with the financial statements and related notes
thereto which are included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1999 filed with
the Securities and Exchange Commission.
The Company is a majority-owned subsidiary of TDA and was
organized to acquire, integrate and operate seasoned,
privately-held companies which distribute products to or
manufacture products for the building supplies/construction
industry.
On March 17, 1999, the Company completed the sale of
2,500,000 shares of Common Stock at $5.00 per share and
2,875,000 Redeemable Common Stock Purchase Warrants at $.125
per warrant in connection with the Offering. The net
proceeds to the Company aggregated $10,206,000.
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<PAGE>
Upon consummation of the Offering, the Company acquired all
of the issued and outstanding common shares of Eagle, JEH
Eagle and MSI Eagle from TDA for consideration consisting of
3,000,000 of the Company's common shares. The Acquisitions
have been accounted for as the combining of four entities
under common control, similar to a pooling of interests, with
the net assets of Eagle, JEH Eagle and MSI Eagle recorded at
historical carryover values. The 3,000,000 common shares of
the Company issued to TDA were recorded at Eagle's, JEH
Eagle's and MSI Eagle's historical net book values at the
date of acquisition. Accordingly, this transaction did not
result in any revaluation of Eagle's, JEH Eagle's or MSI
Eagle's assets or the creation of any goodwill. Upon the
consummation of the Acquisitions, Eagle, JEH Eagle and MSI
Eagle became wholly-owned subsidiaries of the Company and
currently constitute the sole business operations of the
Company.
As a result of the Acquisitions, the consolidated unaudited
interim financial statements of the Company, Eagle, JEH Eagle
and MSI Eagle have been prepared as if all of the entities
had operated as a single consolidated group for all periods
presented. The unaudited interim financial statements of
Eagle and JEH Eagle have been included in the consolidated
unaudited interim financial statements for all periods
presented, and the unaudited interim financial statements of
MSI Eagle have been included in the consolidated unaudited
interim financial statements only for the periods subsequent
to the acquisition of MSI Co. by MSI Eagle on October 22,
1998. Eagle, JEH Eagle and MSI Eagle operate in a single
industry segment and all of their revenues are derived from
sales to third party customers in the United States.
Results of Operations
Three Months Ended December 31, 1999
Compared to the Three Months Ended December 31, 1998
Revenues of the Company during the three-month period ended
December 31, 1999 increased by approximately $7,377,000
(19.5%) compared to the 1998 three-month period.
Approximately $1,160,000 of this increase may be attributed
to the acquisition on October 22, 1998 of MSI Co. by MSI
Eagle. The remaining increase may be attributed to the
opening of six new locations since December 1998
(approximately $4,559,000) and a general improvement in
market conditions.
Cost of sales increased between the 1999 and 1998 three-month
periods at a lesser rate than the increase in revenues
between these three-month periods. Accordingly, cost of
sales as a percentage of revenues decreased to 75.1% in the
three-month period ended December 31, 1999 from 76.2% in the
three-month period ended December 31, 1998, and gross profit
as a percentage of revenues increased to 24.9% in the three-
month period ended December 31, 1999 from 23.8% in the three-
month period ended December 31, 1998. The gross profit
related to MSI Eagle (approximately $1,448,000) for the
three-month period ended December 31, 1999 was included in
calculating these percentages. If MSI Eagle's gross profit
had been excluded in both three-month periods, cost of sales
as a percentage of revenues would have been 76.4% and 78.3%,
respectively and gross profit would have been 23.6% and
21.7%, respectively.
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<PAGE>
Operating expenses of the Company increased by approximately
$2,381,000 (35.4%) between the 1999 and 1998 three-month
periods. Approximately $80,000 of this increase are
operating expenses of MSI Eagle. Further, approximately
$614,000 may be attributed to the operating expenses of six
new distribution centers opened since December 1998, and
approximately $492,000 consists of corporate operating
expenses incurred subsequent to the Offering. Of the
remaining increase, approximately $767,000 is attributable to
an increase in payroll costs due primarily to the additional
manpower needed to service the increased sales revenues, an
increase in delivery expenses of approximately $379,000,
increased insurance premiums of approximately $131,000 and an
increase in the allowance for doubtful accounts of
approximately $66,000, offset by minor reductions in other
expense areas. Operating expenses as a percentage of revenues
was 20.1% in the 1999 three-month period compared to 17.8% in
the 1998 three-month period. If MSI Eagle's operating
expenses had been excluded, operating expenses as a
percentage of revenues would have changed minimally in the
three-month periods presented.
Depreciation and amortization, and amortization of excess
cost of investments over net assets acquired (goodwill) and
deferred financing costs increased by approximately $174,000
(60.4%) between the 1999 and 1998 three-month periods.
Approximately $28,000 of this increase is additional
depreciation, approximately $143,000 is additional
amortization of goodwill and approximately $3,000 is
additional amortization of deferred financing costs. The
increase in amortization of goodwill may be attributed
primarily to the additional consideration in the amount of
approximately $1,773,000 paid to JEH Co. for the fiscal year
ended June 30, 1999. Such additional consideration increased
goodwill and is being amortized over the remaining life of
the goodwill (see Acquisitions below).
Interest expense increased by approximately $221,000 (38.6%)
between the 1999 and 1998 three-month periods. This increase
is due to the increase in interest expense on borrowings
under revolving credit facilities ($176,000) and increased
debt to finance the acquisition of MSI Co. by MSI Eagle on
October 22, 1998 ($35,000), offset by minor decreases in
short-term borrowings by the Company ($10,000).
Net income and EBITDA (earnings before interest, taxes,
depreciation and amortization) for the three-month period
ended December 31, 1999 were $648,365 and $2,224,684,
respectively, compared to net income and EBITDA of $876,573
and $2,197,537, respectively, for the comparable period in
fiscal 1998.
Six Months Ended December 31, 1999
Compared to the Six Months Ended December 31, 1998
Revenues of the Company during the six-month period ended
December 31, 1999 increased by approximately $19,576,000
(26.4%) compared to the 1998 six-month period. Approximately
$4,367,000 of this increase may be attributed to the
acquisition on October 22, 1998 of MSI Co. by MSI Eagle. The
remaining increase may be attributed to the opening of six
new locations since December 1998 (approximately $9,284,000)
and a general improvement in market conditions.
Cost of sales increased between the 1999 and 1998 six-month
periods at a lesser rate than the increase in revenues
between these six-month periods. Accordingly, cost of sales
as a percentage of revenues decreased to 75.2% in the six-
month period ended December 31, 1999 from 76.7% in the six-
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<PAGE>
month period ended December 31, 1998, and gross profit as a
percentage of revenues increased to 24.8% in the six-month
period ended December 31, 1999 from 23.3% in the six-month
period ended December 31, 1998. The gross profit related to
MSI Eagle (approximately $2,724,000) for the six-month period
ended December 31, 1999 was included in calculating these
percentages. If MSI Eagle's gross profit had been excluded
in both six-month periods, cost of sales as a percentage of
revenues would have been 76.4% and 77.8%, respectively and
gross profit would have been 23.6% and 22.2%, respectively.
Operating expenses of the Company increased by approximately
$5,522,000 (42.5%) between the 1999 and 1998 six-month
periods. Approximately $838,000 of this increase are
operating expenses of MSI Eagle. Further, approximately
$1,200,000 may be attributed to the operating expenses of six
new distribution centers opened since December 1998, and
approximately $796,000 consists of corporate operating
expenses incurred subsequent to the Offering. Of the
remaining increase, approximately $1,480,000 is attributable
to an increase in payroll costs due primarily to the
additional manpower needed to service the increased sales
revenues, an increase in delivery expenses of approximately
$856,000, an increase in rents of approximately $59,000 and
an increase in office expenses and related costs of
approximately $67,000 primarily related to the integration
and relocation of the administrative functions of the Company
to Texas and increased travel of approximately $180,000,
offset by minor reductions in other expense areas. Operating
expenses as a percentage of revenues was 19.7% in the 1999
six-month period compared to 17.5% in the 1998 six-month
period. If MSI Eagle's operating expenses had been excluded,
operating expenses as a percentage of revenues would have
changed minimally in the six-month periods presented.
Depreciation and amortization, and amortization of goodwill
and deferred financing costs increased by approximately
$212,000 (30.4%) between the 1999 and 1998 six-month periods.
Approximately $251,000 is additional amortization of
goodwill and $8,000 is additional amortization of deferred
financing costs, offset by a decrease in depreciation of
approximately $47,000. The increase in amortization of
goodwill may be attributed primarily to the additional
consideration in the amount of approximately $1,773,000 paid
to JEH Co. for the fiscal year ended June 30, 1999, and the
goodwill that arose from the acquisition of MSI Co. by MSI
Eagle on October 22, 1998. The additional consideration paid
to JEH Co. increased goodwill and is being amortized over the
remaining life of the goodwill (see Acquisitions below).
Interest expense increased by approximately $356,000 (30.7%)
between the 1999 and 1998 six-month periods. This increase
is due to the increase in interest expense on borrowings
under revolving credit facilities ($200,000), increased debt
to finance the acquisition of MSI Co. by MSI Eagle on October
22, 1998 ($141,000), offset by a decrease in short-term
borrowings by the Company ($15,000).
Net income and EBITDA (earnings before interest, taxes,
depreciation and amortization) for the six-month period ended
December 31, 1999 were $1,630,453 and $4,846,885,
respectively, compared to net income and EBITDA of $1,526,260
and $4,156,200, respectively, for the comparable period in
fiscal 1998.
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Liquidity and Capital Resources
The Company's working capital was approximately $29,800,000
and $26,593,000 at December 31, 1999 and June 30, 1999,
respectively. At December 31, 1999, the Company's current
ratio was 2.14 to 1 compared to 1.88 to 1 at June 30, 1999.
Cash used in operating activities during the six months ended
December 31, 1999 was approximately $2,956,000. Such amount
consisted primarily of increased levels of deferred income
taxes of $282,000, accounts and notes receivable of $210,000,
inventories of $1,937,000, other current assets of $55,000
and decreased levels of accounts payable of $2,583,000,
accrued expenses and other current liabilities of $1,858,000,
offset by net income of $1,630,000, depreciation and
amortization of $910,000, an increase in the allowance for
doubtful accounts of $776,000 and an increase in federal and
state income taxes payable of $653,000.
Cash used in investing activities during the six months ended
December 31, 1999 was approximately $538,000 for capital
expenditures. Management of the Company presently
anticipates such expenditures in the next twelve months of
not less than $1,300,000, of which approximately $650,000 is
anticipated to be financed and used for the purchase of
trucks and forklifts for the Company's currently existing
operations in anticipation of increased business and to
upgrade its vehicles and facilities to compete better in its
market areas. Management's anticipation of increased
business is based on sales to be generated by the opening of
new distribution centers, the location of some of which have
not yet been decided.
Cash provided by financing activities during the six months
ended December 31, 1999 was approximately $984,000. Such
amount consisted primarily of net principal borrowing on
long-term debt of $497,000 and a change in the TDA
intercompany account of approximately $487,000.
Acquisitions
In July 1997, JEH Eagle acquired the business and
substantially all of the assets of JEH Co., a Texas
corporation, wholly-owned by James E. Helzer, now the
President of the Company. The purchase price, as adjusted,
including transaction expenses, was approximately
$14,774,000, consisting of $13,909,000 in cash, net of
$250,000 due from JEH Co., and a five-year note bearing
interest at the rate of 6% per annum in the principal amount
of $864,652. The purchase price and the note are subject to
further adjustments under certain conditions. Certain,
potentially substantial, contingent payments, as additional
future consideration to JEH Co., or its designee, are to be
paid by JEH Eagle. Upon consummation of the Offering, the
Company issued 300,000 of its common shares to James E.
Helzer, the designee of JEH Co., in fulfillment of certain of
such future consideration. For the fiscal year ended June
30, 1999, approximately $1,773,000 of additional
consideration was paid to JEH Co. Such additional
consideration increased goodwill and is being amortized over
the remaining life of the goodwill. No additional
consideration was payable to JEH Co. for fiscal 1998.
In October 1998, MSI Eagle acquired the business and
substantially all of the assets of MSI Co., a Texas
corporation, wholly-owned by Gary L. Howard, now a Vice
President of the Company. The purchase price, as adjusted,
including transaction expenses, was approximately $8,538,000,
-14-
<PAGE>
consisting of $6,492,000 in cash and a five-year note bearing
interest at the rate of 8% per annum in the principal amount
of $2,045,972. The purchase price is subject to further
adjustment under certain conditions. Upon consummation of
the Offering, the Company issued 50,000 of its common shares
to Gary L. Howard, the designee of MSI Co., in payment of
$250,000 principal amount of the note. The balance of the
note was paid in full in March 1999 out of the proceeds of
the Offering. Certain, potentially substantial, contingent
payments, as additional future consideration to MSI Co., or
its designee, are to be paid by MSI Eagle. Upon consummation
of the Offering, the Company issued 200,000 of its common
shares, and, as of July 1, 1999, the Company issued 60,000 of
its common shares, to Gary L. Howard in fulfillment of
certain of such future consideration. All of such additional
consideration increased goodwill and is being amortized over
the remaining life of the goodwill. No additional
consideration was payable to MSI Co. for fiscal 1999.
Credit Facilities
Eagle is a party to a loan agreement (last amended December
11, 1998) which provides for a credit facility in the
aggregate amount of $10,900,000. The credit facility
consists of a $10 million revolving credit loan and a
$900,000 equipment loan. The initial term of the credit
facility matures on October 22, 2003. Certain current assets
and automotive equipment of Eagle (aggregating approximately
$17,173,000 at December 31, 1999) collateralize the
obligations under the credit facility. The revolving credit
and equipment loans bear interest at the lender's prime rate,
plus one-half percent, or at the London inter-bank offered
rate, plus two and one-half percent, at the option of Eagle.
The equipment loan is payable in equal monthly installments,
based on a seventy-five month amortization schedule, each in
the amount of $11,000, with a balloon payment due on the
earlier of August 1, 2004 or at the end of the loan
agreement's initial or renewal term. This credit facility is
guaranteed by the Company and TDA.
In order to finance the purchase of substantially all of the
assets and business of JEH Co. and to provide for working
capital needs, JEH Eagle entered into a loan agreement (last
amended on December 11, 1998) for a credit facility in the
aggregate amount of $20 million which is collateralized by
substantially all of the tangible and intangible assets of
JEH Eagle. The initial term of the credit facility matures
on October 22, 2003 and consists of a $3,000,000 term loan, a
$2,475,000 equipment loan, and the balance in the form of a
revolving credit loan. The term loan is payable in 48 equal
monthly installments, each in the amount of $62,500; the
equipment loan is payable in equal monthly installments,
based on a seventy-six month amortization schedule, each in
the amount of $26,000, with a balloon payment due on the
earlier of August 1, 2004 or the end of the loan agreement's
initial or renewal term. The equipment and revolving credit
loans bear interest at the lender's prime rate, plus one-half
percent, or at the London inter-bank offered rate, plus two
and one-half percent, at the option of JEH Eagle. The term
loan bears interest at the lender's prime rate, plus one and
one-half percent, or at the London inter-bank offered rate,
plus three and one-quarter percent, at the option of JEH
Eagle. This credit facility is guaranteed by the Company and
TDA.
In order to finance the purchase of substantially all of the
assets and business of MSI Co. and to provide for working
capital needs, MSI Eagle entered into a loan agreement for a
-15-
<PAGE>
credit facility in the aggregate amount of $9,075,000, which
is collateralized by substantially all of the tangible and
intangible assets of MSI. The credit facility has an initial
maturity of October 22, 2003 and consists of a $3,075,000
term loan and the balance in the form of a revolving credit
loan. The term loan is payable in equal monthly
installments, based on an eighty-three month amortization
schedule, each in the amount of $37,000, and a final payment
of the then outstanding principal amount. The revolving
credit loan bears interest at the lender's prime rate, plus
one-half percent, or at the London inter-bank offered rate,
plus two and one-half percent, at the option of MSI Eagle.
The term loan bears interest at the lender's prime rate, plus
one and one-half percent, or at the London inter-bank offered
rate, plus three and one-quarter percent, at the option of
MSI Eagle. This credit facility is guaranteed by the Company
and TDA.
In October 1998, in connection with the purchase of
substantially all of the assets and business of MSI Co. by
MSI Eagle, TDA lent MSI Eagle $1,000,000 pursuant to a 6%
two-year note. The note is payable in full in October 2000,
and TDA has agreed to defer the interest payable on the note
until its maturity.
Impact of Inflation
General inflation in the economy has driven the operating
expenses of many businesses higher, and, accordingly, the
Company has experienced increased salaries and higher prices
for supplies, goods and services. The Company continuously
seeks methods of reducing costs and streamlining operations
while maximizing efficiency through improved internal
operating procedures and controls. While the Company is
subject to inflation as described above, the Company's
management believes that inflation currently does not have a
material effect on its operating results, but there can be no
assurance that this will continue to be so in the future.
Year 2000 Compliance
Prior to January 1, 2000, there was a great deal of concern
regarding the ability of computers to adequately identify and
recognize 21st century dates from 20th century dates due to the
two-digit data fields used by many systems. However, most
reports to date are that computer systems are functioning
properly and that the compliance and remediation work
performed prior to January 1, 2000 was effective to prevent
any problems. Computer experts have warned that there still
may be reduced consequences from the Year 2000 ("Y2K")
problem. The Company currently believes that its computer
systems are Y2K compliant. Notwithstanding its assessments,
if the Company experiences residual Y2K problems, such
problems may negatively impact its operations and financial
condition. The Company intends to continue to monitor its
computer systems for the purpose of identifying, assessing
and remediating the effects of any Y2K problems that may
arise in the future.
-16-
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Uses of proceeds
On March 12, 1999, the Company's Registration Statement,
Securities and Exchange Commission ("SEC") File No. 333-
09951, became effective under the Securities Act of 1933 for
an offering of 2,500,000 shares of the Company's Common Stock
("Shares") and 2,500,000 Redeemable Common Stock Purchase
Warrants ("Warrants") exclusive of an additional 375,000
Shares and Warrants registered to cover an overallotment
option granted to the Underwriter. A closing of the offering
of 2,500,000 Shares and 2,875,000 Warrants was held on March
17, 1999 resulting in gross and net proceeds of approximately
$12,859,000 and $10,206,000, respectively. The Company
reported on its use and expenditures of the net proceeds in
filings previously made with the SEC. There have been no
material changes in such use or expenditures from those
previously reported.
Item 4. Submission of Matters to a Vote of Securityholders
On December 17, 1999, the Company held its annual meeting of
stockholders for the following purposes.
1. to elect seven persons to serve on the Company's Board of
Directors until the next Annual Meeting of Stockholders or
until their respective successors are duly elected and
qualified as provided in the Company's Articles of
Incorporation and Bylaws;
2. to approve an Amendment to the Company's Stock Option Plan
to increase the number of common shares subject to that
Plan by 200,000 shares, from 1,000,000 shares to 1,200,000
shares;
3. to approve an Amendment to the Company's Bylaws to allow for
a special meeting of stockholders to be held upon written
request by the holders of at least 10% of the Company's
voting securities; and
4. to ratify and approve the appointment of Deloitte & Touche
LLP as the Company's auditors for the fiscal year ending June
30, 2000.
-17-
<PAGE>
All proposals were voted for affirmatively by the Company's
Stockholders as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Votes For Votes Against Not Voting Abstain
----------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
1. The following seven 5,826,500 1,500 2,622,000 0
persons were elected by
the Company's
Stockholders to serve as
directors for the term
indicated above. All
such persons had been
directors of the Company
prior to the meeting:
Douglas P. Fields,
Frederick M. Friedman,
James E. Helzer, Paul D.
Finkelstein, George
Skakel III, Steven R.
Andrews, Esq., John E.
Smircina, Esq.
- ----------------------------------------------------------------------------------------------
2. Amend the Company's 5,822,000 6,000 2,622,000 0
Stock Option Plan.
- ----------------------------------------------------------------------------------------------
3. Amend the Company's 5,826,500 1,500 2,622,000 0
Bylaws.
- ----------------------------------------------------------------------------------------------
4. Ratify and approve the 5,826,500 1,500 2,622,000 0
appointment of Deloitte
& Touche LLP as the
Company's auditors.
- ----------------------------------------------------------------------------------------------
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is being filed with this Report:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K. None.
-18-
<PAGE>
SIGNATURES
In accordance with 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.
EAGLE SUPPLY GROUP, INC.
Dated: February 14, 2000 By: /s/Douglas P. Fields
Douglas P. Fields, Chairman of the
Board of Directors, Chief Executive
Officer and a Director (Principal
Executive Officer)
Dated: February 14, 2000 By: /s/ Frederick M. Friedman
Frederick M. Friedman, Executive Vice
President, Treasurer, Secretary and a
Director (Principal Financial and
Accounting Officer)
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Summary Financial Data Schedule contains summary financial information
extraced from Balance Sheet, Statement of Operations, Statements of Cash Flows
and Notes thereto incorporated in Part II, Item 6 of this Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 6,009,159
<SECURITIES> 0
<RECEIVABLES> 28,982,173
<ALLOWANCES> 2,376,278
<INVENTORY> 20,909,211
<CURRENT-ASSETS> 55,857,647
<PP&E> 11,173,751
<DEPRECIATION> 4,577,921
<TOTAL-ASSETS> 74,951,602
<CURRENT-LIABILITIES> 26,057,678
<BONDS> 30,992,859
0
0
<COMMON> 851
<OTHER-SE> 17,804,602
<TOTAL-LIABILITY-AND-EQUITY> 74,951,602
<SALES> 93,798,740
<TOTAL-REVENUES> 0
<CGS> 70,504,822
<TOTAL-COSTS> 19,426,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,512,581
<INCOME-PRETAX> 2,615,453
<INCOME-TAX> 985,000
<INCOME-CONTINUING> 1,630,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,630,453
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
