<PAGE>
UNITED STATES
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. For the fiscal year ended December 31, 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 NUMBER 33-26991
__________________________________________
AMERICAN BUILDERS AND CONTRACTORS SUPPLY CO., INC.
AMCRAFT BUILDING PRODUCTS CO., INC.
MULE-HIDE PRODUCTS CO., INC.
(Exact names of Registrants as specified in their respective charters)
<TABLE>
<S> <C> <C>
DELAWARE 5033 39-1413708
DELAWARE 5033 39-1701778
TEXAS 5033 62-1277211
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
ONE ABC PARKWAY,
BELOIT, WISCONSIN 53511
(Address of principal executive offices) (Zip Code)
</TABLE>
608-362-7777
(Registrant's telephone number, including area code)
_______________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check 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 knowlege, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
<PAGE>
PART I
ITEM 1. BUSINESS
General
American Builders and Contractors Supply Co., Inc. (the Company or ABC) is the
largest wholesale distributor of roofing products and one of the largest
wholesale distributors of vinyl siding materials in the United States, operating
204 distribution centers located in 40 states. ABC provides its customers with
access to what it believes to be the largest selection of roofing and vinyl
siding materials in the industry and with a knowledgeable staff capable of
providing product specific information, as well as credit services and marketing
support. For the year ended December 31, 1998, the Company generated net sales
of $1.2 billion.
The products distributed by the Company consist exclusively of roofing and
siding materials, windows and related tools and accessories for residential and,
to a lesser extent, commercial applications. The Company markets these products
on a wholesale basis primarily to small and medium-sized roofing and siding
contractors that are involved in the replacement segment of the construction
industry. ABC also distributes products to builders and subcontractors involved
in new construction projects.
ABC was founded in 1982 by Kenneth A. Hendricks, the sole stockholder, Chief
Executive Officer and Chairman of the Board, who as the owner of a successful
roofing business, saw a market for the Company's services. Since its inception,
ABC has experienced significant growth. The Company's net sales have increased
from $513.8 million for the year ended December 31, 1994 to $1.2 billion, for
the year ended December 31, 1998, representing compound annual growth rate of
22.6%. In addition, comparable distribution center sales have grown at an
average annual rate of 10.0% over the same period.
Effects of Acquisitions
The Company has historically selected acquisition candidates based, in part,
on the opportunity to improve their operating results. The Company seeks to
leverage its purchasing power, broad product selection and management expertise
to improve the financial performance of its acquired distribution centers while
maintaining the acquired customer bases. Results of operations reported herein
for each period only include results of operations for acquired businesses from
their respective dates of acquisition. Full year operating results, therefore,
could differ materially from that presented. In addition, there has typically
been a period following each acquisition in which the acquired business does not
perform at the same level as the Company's existing distribution centers. As a
result of the Company's ongoing acquisition program, its results of operations
have historically reflected, and are likely to continue to reflect, the periodic
inclusion of under-performing businesses.
In 1997, the Company acquired two larger distributors. In May 1997, the
Company acquired certain assets of Viking Aluminum Products, Inc., a regional
building supply distributor with 12 locations in the northeastern United States.
In November 1997, the Company acquired Champ Industries, Inc., a regional
building supply distributor with 32 locations located primarily in the
southwestern and western United States.
Products, Customers and Markets
The roofing and vinyl siding products industry contains three primary
distribution channels: manufacturers' direct sales; mass merchandisers, such as
Home Depot; and wholesale distributors, such as the Company. Mass merchandisers
primarily sell products to homeowners and small contractors, tend to stock items
across a multitude of building supply categories and stock a relatively narrow
selection of non-premium grade roofing and siding products. Typically,
manufacturers do not sell products directly to retail customers or small
customers.
The products distributed by the Company consist primarily of roofing products
(both residential and commercial), siding products, windows, and related tools,
equipment and accessories. ABC provides its customers
2
<PAGE>
with what it believes to be the largest selection of roofing and vinyl siding
materials in the industry. The products that the Company distributes can be
classified in the following five categories:
Residential roofing products and accessories. The Company distributes a broad
selection of shingles, felt, roof tile, wood shakes, flashings, vents and other
roofing products to residential roofing contractors. Principal brands of
residential roofing products include GAF(R), Elk(R), Owens-Corning(R), Tamko(R),
CertainTeed(R), and GS(R).
Commercial roofing products and accessories. The Company distributes a broad
selection of modified bitumen, EPDM, hypalon, other rolled roofing, felts,
coatings, asphalt, flashings, vents, fasteners, roof insulation and other
roofing products to commercial roofing contractors. Principal brands of
commercial roofing products include Johns Manville(R), GAF(R), GS(R), US
Intec(R), Firestone(R), Atlas(R),and Mule-Hide(R). Mule-Hide primarily sells its
private label roofing systems through ABC's distribution centers.
Siding products and accessories. The Company distributes a broad selection of
siding products to siding contractors. The Company's siding products consist
primarily of vinyl siding, soffits and accessories and, to a lesser extent,
aluminum and wood siding. Principal vinyl siding brands include Alcoa(R),
Wolverine(R), Certainteed(R) and Amcraft(R).
Windows and accessories. The Company distributes a broad selection of window
products and accessories to residential window installers, including vinyl, wood
and aluminum window frames and single, double and triple glazed windows.
Principal window brands include CertainTeed(R), Eagle Windows(R) and Weather-
Shield(R).
Other building products and accessories. The Company distributes a variety of
roofing and siding products to complement its primary product lines. Such
products include gutters, sheet metal, roofing and siding equipment, tools and
other related accessories.
The following table sets forth certain information regarding the Company's net
sales by product for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Total Net Sales
----------------------------------
Product Categories 1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Residential roofing $ 612.7 $472.1 $391.8
Commercial roofing 266.9 240.6 214.2
Siding 136.5 129.5 90.5
Windows 103.8 65.9 53.6
Other 42.2 51.2 39.0
----------------------------------
Total for all categories $1,162.1 $959.3 $789.1
==================================
</TABLE>
The Company distributes these products on a wholesale basis primarily to small
and medium-sized roofing and siding contractors that are involved in the
replacement segment of the construction industry. ABC also distributes products
to builders and subcontractors involved in new construction projects.
Sales and Marketing
The Company's sales organization consists of outside sales personnel who
report directly to their local distribution center manager and are supported by
inside customer service representatives at the distribution center. A
substantial portion of each of these representatives pay is derived from sales
commissions. Additional support comes from a number of regional sales managers
who educate the Company's sales personnel and customers regarding technical
specifications and marketability of certain products.
3
<PAGE>
Distribution Center Operations
The Company operates 204 local distribution centers located in 40 states.
Since January 1, 1996, the Company has opened 32 distribution centers, closed 9
distribution centers and acquired an additional 55 distribution centers (net of
consolidations) in connection with its selective acquisition program. A typical
distribution center is composed of showroom space, office space, warehouse and
receiving space, secure outdoor holding space and a loading dock. ABC's
distribution centers range in size from approximately 10,000 to approximately
110,000 square feet, with a typical size of approximately 40,000 square feet.
Each location is managed by a distribution center manager who oversees the
center's employees, including a credit manager, various sales personnel,
customer service representatives and delivery and warehouse personnel. The
Company allows each distribution center manager to alter the product mix of a
given center to meet local market demands and to stock regional products (such
as roof tile in the Florida, Texas and California markets). Distribution center
employees' bonus levels are largely driven by location profitability. The
Company believes its incentive programs have contributed significantly to its
growth and have helped it to achieve an average annual growth rate of comparable
distribution center sales of 10.0% over the past five years.
The following table sets forth the Company's growth in terms of distribution
centers in each of the past three years:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Distribution centers on January 1 205 157 126
Distribution centers acquired 4 51 22
Distribution centers opened 7 11 14
Acquired distribution centers consolidated (6) (11) (5)
Distribution centers closed (6) (3) -
---------------------------
Distribution centers on December 31 204 205 157
===========================
</TABLE>
Competition
The roofing and siding products distribution industry is highly competitive
and fragmented. The Company competes directly with a large number of local and
regional building products distributors and, in certain markets and product
categories, with two national distributors, Cameron Ashley Building Products and
Allied Building Products. The Company also competes to a lesser extent with
mass-merchandisers, such as Home Depot, and with direct sales from building
products manufacturers.
Purchasing
ABC purchases its products directly from a wide variety of manufacturers,
including GAF, GS Roofing Products Company, Inc., Elk Corporation of America,
Tamko, Certainteed, Owens-Corning Fiberglass Corporation, Johns Manville
Corporation and Alcoa Buiding Products, Inc. Payment, discount and volume
purchase programs are negotiated directly by the Company with its major
suppliers, with a significant portion of the Company's purchases made from
suppliers offering these programs. The Company believes it is the largest or a
significant customer to many of its primary suppliers, and, as a result, is able
to negotiate volume discounts and other favorable terms. At 13.4% of the
Company's 1998 product purchases, GAF (including its subsidiaries U.S. Intec,
and Leatherback) was the only supplier which represented more than 10.0% of the
Company's total purchases. The Company typically purchases its products from
manufacturers pursuant to individual purchase orders, and does not generally
enter into long-term contracts for the purchase of products.
4
<PAGE>
Seasonality
Because of cold weather conditions in many of the markets in which the Company
does business and the seasonal nature of the roofing and siding business
generally, the Company's revenues vary substantially throughout the year, with
its lowest revenues typically occurring in the months of December through
February.
Employees
As of December 31, 1998, the Company employed 3,035 full-time and 65 part-time
employees, of whom 43 were members of unions. The Company's collective
bargaining agreements with its unions expire on various dates, from April 1999
through May 2001. The Company believes that its relations with its employees are
good.
Environmental Matters
A number of roofing materials are considered environmentally hazardous. The
Company typically handles and stores a variety of these materials at its
distribution center locations. The Company maintains appropriate environmental
compliance programs at each of its distribution centers and has never been the
subject of any material enforcement action by any governmental agency.
Many of the Company's distribution centers are located in areas of current or
former industrial activity, where environmental contamination may have occurred.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate releases or threatened releases of
hazardous or toxic substances or petroleum products located at such property,
and may be held liable for property damage and for investigation and remediation
costs in connection with the contamination.
The Company does not believe there are any material environmental liabilities
at any of its distribution center locations. Nevertheless, there can be no
assurance that the Company's knowledge is complete with regard to all material
environmental liabilities and it could subsequently discover potential
environmental liabilities arising from its sites or from neighboring facilities.
5
<PAGE>
ITEM 2. PROPERTIES
The Company operates both owned and leased branches in 40 states. Its
facilities range in size from approximately 10,000 to 110,000 square feet. This
building space is used for warehousing and distribution purposes and, to a
lesser extent, for sales and administrative purposes. The Company owns a
118,000 square foot office building where its corporate offices are located in
Beloit, Wisconsin. The Company believes its facilities are adequately
maintained and utilized and are suitable for the purposes for which they are
used. See Note 5 to the Consolidated Financial Statements of the Company for a
summary of payments due under the Company's leases.
The following table sets the geographical location of the Company's
distribution centers as of December 31, 1998:
<TABLE>
<CAPTION>
Total Number
of Locations
Region
- -------------------------------------------------
<S> <C>
Midwest 44
Northeast 38
Southwest 32
Southeast 40
Rocky Mountain 25
Western 25
----------
204
==========
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the conduct
of its business. The Company does not believe that the outcome of any of the
matters in which it is currently involved will have a material adverse effect on
its financial condition or results of operations.
In connection with the purchase of Viking the Company entered into a five year
supply agreement with Viking Aluminum Products (VAP), a company owned by the
former owners of Viking. The supply agreement specified minimum annual purchase
commitments and damages for short falls. The Company has not met the minimum
level of purchases required under the agreement and legal actions have been
initiated by both the Company and VAP. The ultimate outcome of such actions is
uncertain.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1998.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for the stock of the Company. There was one
holder of record of the Company's common stock as of December 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected consolidated financial
information of the Company for each of the five years in the period ended
December 31, 1998. The information contained in the following table should be
read in conjunction with, and is qualified in its entirety by reference to, the
information set forth under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's audited
consolidated financial statements and related notes included elsewhere in this
report.
<TABLE>
<CAPTION>
Year Ended December 31,
(in 000's)
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales $1,162,110 $959,321 $789,103 $638,821 $513,766
Cost of sales 894,450 744,186 615,627 501,027 403,032
----------------------------------------------------------
Gross profit 267,660 215,135 173,476 137,794 110,734
Operating expenses:
Distribution Center Expense 223,602 180,158 140,109 110,783 90,398
General and administrative 16,366 13,897 11,878 10,383 7,981
Amortization of intangible assets 1,735 747 329 169 83
Non-recurring charge 3,900 - - - -
----------------------------------------------------------
Operating income 22,057 20,333 21,160 16,459 12,272
Net interest expense (24,532) (16,480) (10,457) (9,092) (5,466)
----------------------------------------------------------
Income (loss) before provision for income taxes (2,475) 3,853 10,703 7,367 6,806
Provision for income taxes (1) 170 311 329 338 260
----------------------------------------------------------
Net income (loss) $ (2,645) $ 3,542 $ 10,374 $ 7,029 $ 6,546
==========================================================
Balance Sheet Data (at end of period)
Accounts receivable, net $ 149,103 $143,106 $ 92,360 $ 73,133 $ 56,205
Inventories 130,802 128,847 95,779 79,297 62,520
Total assets 412,901 409,622 251,948 205,316 158,095
Accounts payable and accrued expenses 107,040 100,483 71,805 61,069 52,039
Long-term debt, less current maturities 281,658 281,206 139,664 113,397 80,799
Stockholder's equity 19,147 21,792 31,960 25,524 22,027
Other Data
Comparable distribution center sales growth (2) 5.0% 5.2% 11.5% 17.3% 11.1%
</TABLE>
(1) Consists of certain state and local income taxes. As subchapter S
corporations under the Internal Revenue Code of 1986, as amended (the
"Code"), the Company and its subsidiaries have not been subject to U.S.
federal income taxes or most state income taxes. Instead, such taxes have
been paid by Mr. Hendricks. The Company has made periodic distributions to
Mr. Hendricks in respect of such tax liabilities in accordance with the
terms of the Tax Allocation Agreement (as defined herein). See "Certain
Relationships and Related Transactions".
(2) Comparable distribution center sales growth is defined as the percentage
change in distribution center sales as compared to sales for the same
distribution centers in the prior year. For purposes of this calculation,
only distribution centers that were open and operated by ABC for at least
one year as of the beginning of the applicable period are included.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table summarizes the Company's historical results of operations
as a percentage of net sales for each of the three years ended December 31,
1998:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Income Statement Data
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.0 77.6 78.0
----------------------------------------
Gross profit 23.0 22.4 22.0
Operating expenses:
Distribution centers 19.2 18.8 17.8
General and administrative 1.4 1.4 1.5
Amortization 0.2 0.1 0.0
Non-recurring 0.3 - -
----------------------------------------
Total operating expenses 21.1 20.3 19.3
----------------------------------------
Operating income 1.9% 2.1% 2.7%
========================================
</TABLE>
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
Net sales for the year ended December 31, 1998 increased by $202.8 million, or
21.1%, to $1.162 billion from $959.3 million for the year ended December 31,
1997. Components of the change in net sales are as follows:
<TABLE>
<CAPTION>
Distribution Centers 1998 1997 Increase %Increase
------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
In operation prior to January 1, 1996 $ 814.7 $784.2 $ 30.5 3.9%
Acquired in 1996 59.2 52.3 6.9 13.2
Opened by the Company in 1996 32.0 26.4 5.6 21.2
Acquired in 1997 187.6 78.4 109.2 139.3
Opened by the Company in 1997 53.0 18.0 35.0 194.4
Acquired in 1998 5.9 - 5.9 -
Opened by the Company in 1998 9.7 - 9.7 -
------------------------------------------
Total $1,162.1 $959.3 $202.8 21.1%
========================================
</TABLE>
Cost of sales for the year ended December 31, 1998 increased by $150.2
million, or 20.2% primarily as a result of costs associated with increased
sales. Gross profit, as a percent of sales, increased from 22.4% in 1997 to
23.0% in 1998 primarily due to management's focus on improving gross profit
percentage through increased sales of higher profit margin products. In
addition, direct sales (product shipped from the vendor directly to the
customer's job site), which have significantly lower gross profit percentages
than sales from the distribution center's warehouse, decreased as a percentage
of total sales in 1998.
8
<PAGE>
Distribution center operating income, which consists of net sales less cost of
sales and operating expenses for the distrubtion centers, increased $9.1 million
or 26.0% to $44.1 million in 1998 from $35.0 million in 1997. Components of
distribution center operating income (loss) and the change therein are as
follows:
<TABLE>
<CAPTION>
Distribution Centers 1998 1997 Change
----------------------------
(in millions)
<S> <C> <C> <C>
In operation prior to January 1, 1996 $38.5 $35.7 $ 2.8
Acquired in 1996 0.7 0.0 0.7
Opened by the Company in 1996 0.2 (1.2) 1.4
Acquired in 1997 3.4 0.8 2.6
Opened by the Company in 1997 1.3 (0.3) 1.6
Acquired in 1998 0.1 - 0.1
Opened by the Company in 1998 (0.1) - (0.1)
----------------------------
Total $44.1 $35.0 $ 9.1
============================
</TABLE>
The tables set forth above illustrate that the Company's commitment to growth
has a significant impact on operating income. Although distribution centers in
operation prior to January 1, 1996 accounted for only 70.1% of net sales in
1998, such distribution centers accounted for 87.3% of distribution center
operating income.
The 1998 distribution center operating income for locations in operation prior
to January 1, 1996 increased by $2.8 million or 7.8% over 1997, while sales for
these same locations increased by 3.9%.
General and administrative expenses increased $2.5 million to $16.4 million in
1998 from $13.9 million in 1997. Major components of the increased expenses
were salaries and benefits to support the increased sales.
Amortization of intangible assets increased by $1.0 million to $1.7 million in
1998 from $0.7 million in 1997 primarily due to the full year's amortization
expense for the 1997 Viking and Champ acquisitions.
Non-recurring charge of $3.9 million relates to a net loss incurred due to
financial problems experienced by a customer, a large commercial roofing
contractor. The contractor's assets and business were foreclosed upon by its
bank. In an effort to reduce its loss as well as for other business reasons,
the Company made a decision to purchase the contractor's assets from the bank,
finish the contracts in process, collect the receivables, and sell the remaining
assets. The non-recurring expense is the net of the customer's uncollectible
notes receivable, plus costs incurred, less anticipated recoveries.
Interest expense for the year ended December 31, 1998 increased by $8.2
million, or 47.9%, to $25.1 million from $16.9 million for the year ended
December 31, 1997, primarily as a result of increased average borrowings during
1998, and increased working capital. In addition, interest expense for 1998
included a full year for the Senior Subordinated Notes which carry a higher
interest rate than the Revolver.
9
<PAGE>
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996
Net sales for the year ended December 31, 1997 increased by $170.2 million, or
21.6%, to $959.3 million. Components of the change in net sales are as follows:
<TABLE>
<CAPTION>
Distribution Centers 1997 1996 Increase % Increase
------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
In operation prior to January 1, 1995 $721.7 $695.5 $ 26.2 3.8%
Acquired in 1995 42.0 31.8 10.2 32.1
Opened by the Company in 1995 20.5 18.1 2.4 13.3
Acquired in 1996 52.3 33.1 19.2 58.0
Opened by the Company in 1996 26.4 10.6 15.8 149.1
Acquired in 1997 78.4 - 78.4 -
Opened by the Company in 1997 18.0 - 18.0 -
------------------------------------------
Total $959.3 $789.1 $170.2 21.6%
==========================================
</TABLE>
Cost of sales for the year ended December 31, 1997 increased by $128.6
million, or 20.9% to $744.2 million from $615.6 million for the year ended
December 31, 1996 primarily as a result of costs associated with increased
sales. Gross profit, as a percent of sales, increased from 22.0% in 1996 to
22.4% in 1997. Increased sales of higher margin products such as vinyl siding
and window contributed to the increased gross margin percentage. In addition,
direct sales (product shipped from the vendor directly to the customer's job
site), which have significantly lower margins than sales from the distribution
center's warehouse, decreased as a percentage of total sales in 1997.
Distribution center operating income, which consists of net sales less cost of
sales and operating expenses for the distribution centers, is a key measure that
the Company uses to evaluate individual distribution center performance.
Distribution center operating income increased $1.6 million to $35.0 million in
1997 from $33.4 million in 1996. Components of distribution center operating
income (loss) and the change therein are as follows:
<TABLE>
<CAPTION>
Distribution Centers 1997 1996 Change
----------------------------
(in millions)
<S> <C> <C> <C>
In operation prior to January 1, 1995 $34.5 $33.9 0.6
Acquired in 1995 1.5 0.9 0.6
Opened by the Company in 1995 (0.3) (0.3) 0.0
Acquired in 1996 0.0 0.2 (0.2)
Opened by the Company in 1996 (1.2) (1.3) 0.1
Acquired in 1997 0.8 -- 0.8
Opened by the Company in 1997 (0.3) -- (0.3)
----------------------------
Total $35.0 $33.4 $ 1.6
============================
</TABLE>
Distribution centers in operation prior to January 1, 1995 accounted for only
75.2% of sales in 1997, but accounted for 98.6% of distribution center
operating income.
The increase in distribution center operating income for distribution centers
in operation prior to January 1, 1995 was less than increases experienced in
prior years primarily due to lower increases in sales than anticipated. The
Company had increases in personnel and other expenses in anticipation of volume
in excess of what occurred.
General and administrative expenses increased $2.0 million to $13.9 million in
1997 from $11.9 million in 1997, yet decreased as a percent of net sales to 1.4%
from 1.5% in 1996. Major components of the increased expenses were salaries and
benefits to support the increased sales.
10
<PAGE>
Interest expense for the year ended December 31, 1997 increased by $5.8
million, or 52.3%, to $16.9 million from $11.1 million for the year ended
December 31, 1996, primarily as a result of increased working capital needs
($4.0 million) offset by a lower overall average borrowing rate on the revolver
($0.4 million), and higher interest rates on the Senior Subordinated Notes as
compared to the revolver utilized in the prior year ($2.2 million) and increased
borrowings related to acquisitions.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash provided by (used in)
operations was $ 11.8 million for the year ended December 31, 1998 compared to $
(1.7) million for the year ended December 31, 1997 and $ 4.8 million for the
year ended December 31, 1996. The increase in 1998 was principally due to an
increased level of accounts payable. The decrease in 1997 was due to decreased
earnings as well as increases in receivables and inventories which were not
offset by an increase in accounts payable.
Cash Flows from Investing Activities. Net cash used in investing activities
was $13.1 million, $111.5 million and $26.7 million for the years ended
December 31, 1998, 1997 and 1996, respectively. The Company's investing
activities consist primarily of costs associated with the acquisition of
building products distributors and, to a lesser extent, capital expenditures.
Acquisition of businesses were $ 2.3 million, $ 86.7 million and $ 12.7 million
in the fiscal years ended December 31, 1998, 1997 and 1996, respectively.
Capital expenditures were $12.4 million, $25.3 million and $14.7 million in the
fiscal years ended December 31, 1998, 1997 and 1996, respectively.
Cash Flows from Financing Activities. Net cash provided by financing
activities was $1.8 million, $114.7 million and $21.8 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The Company's financing
activities consist primarily of the borrowings incurred in connection with the
growth of its existing distribution centers as well as acquisition of building
products distributors and, to a lesser extent, distributions to the Company's
sole stockholder in respect of tax liabilities related to the Company.
Liquidity. The Company's principal sources of funds are anticipated to be cash
flows from operating activities and borrowings under its revolving credit
agreement. The Company believes that these funds will provide the Company with
sufficient liquidity and capital resources for the Company to meet its financial
obligations, as well as to provide funds for the Company's working capital,
capital expenditures and other needs for the foreseeable future. No assurance
can be given, however, that this will be the case.
Senior Subordinated Notes: As of December 31, 1998, the Company had $100
million of unsecured Senior Subordinated Notes bearing interest at 10 5/8%.
These notes mature on May 15, 2007 and are subordinate to borrowings under the
revolving credit agreement.
Revolving Credit Agreement: The Company is party to a credit agreement due
June 2000, which as of December 31, 1998, permitted revolving borrowings of up
to $250 million under the revolving line of credit indebtedness (the
"Revolver"). Debt outstanding under this agreement as of December 31, 1998 was
$163.3 million and borrowings under the Revolver are secured by accounts
receivable and inventories.
Year 2000 Compliance
The Company utilizes information technology and a number of computer programs
in its internal operations including financial systems and various
administrative functions ("IT" systems). The Company also uses a variety of
equipment in its business which contain embedded technology such as
microcontrollers ("Non-IT" systems).
To the extent that the source code of the software applications of these IT
systems or the embedded technologies of these non-IT systems are unable to
appropriately interpret and process the upcoming calendar year 2000 ("Year
2000"), some level of modification or possible replacement of such applications
would be necessary for proper continuous performance. Without such modification
or replacement, the normal course of the Company's business could be disrupted
or otherwise adversely impacted.
11
<PAGE>
State of readiness. The Company has developed a four step plan to modify or
replace its IT and Non-IT systems. The four steps include assessment,
remediation, testing, and implementation.
<TABLE>
<CAPTION>
Assessment Remediation Testing Implementation
---------- ----------- ------- --------------
<S> <C> <C> <C> <C>
IT System 100% complete 100% complete 50% complete 40% complete
Expected completion Complete Complete June 1999 September 1999
Non-IT System 100% complete 95% complete 35% complete 20% complete
Expected completion Complete March 1999 September 1999 October 1999
</TABLE>
The Company has queried its significant suppliers. To date, the Company is
not aware of any supplier with a Year 2000 issue that would materially impact
the Company's results of operations, liquidity, or capital resources. However,
the Company has no means of ensuring that all suppliers will be Year 2000 ready.
Due to the availability of alternative suppliers, the inability of any one
supplier to complete their Year 2000 resolution process in a timely fashion is
not expected to have a material impact on the Company.
Risks. The Company believes it has an effective program in place to resolve
the Year 2000 Issue in a timely manner. As noted above, the Company has not yet
completed all necessary phases of the Year 2000 program. Management believes
that expenditures to complete the Year 2000 compliance will not be material to
its operations. In the event that the Company does not complete any additional
phases, the Company would have to manually process customer orders, invoice
customers and collect payments. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
Contingency Plans. The Company has developed contingency plans for certain
applications and is working on such plans for others. These plans include,
among other actions, manual work arounds, increasing staffing, increasing
inventories, and shifting processes to compliant locations.
Seasonality
Because of cold weather conditions in many of the markets in which the Company
does business and the seasonal nature of the roofing and siding business
generally, the Company's revenues vary substantially throughout the year, with
its lowest revenues typically occurring in the months of December through
February.
Inflation
The Company believes that inflation did not have a material impact on its
results of operations for the three years ended December 31, 1998.
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results
of Opeations (MD&A) contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act). Such
forward-looking statements are based on the beliefs of the Company's management
as well as on assumptions made by and information currently available to the
Company at the time such statements were made. When used in this MD&A, the words
"anticipate," "believe," "estimate," "expect," "intends" and similar
expressions, as they relate to the Company are intended to identify forward-
looking statements, which include statements relating to, among other things;
(i) the ability of the Company to continue to successfully compete in the
roofing and vinyl siding products market; (ii) the anticipated benefits from its
acquisition strategy, (iii) the continued effectiveness of the Company's sales
and marketing strategy; and (iv) the ability of the Company to continue to
successfully develop and launch new distribution centers. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the matters discussed herein and certain economic and business
factors, some of which may be beyond the control of the Company.
12
<PAGE>
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.
Interest Rate Sensitivity. The Company earnings are affected by changes in
short-term interest rates as a result of its notes payable to banks under the
Revolver. If market interest rates for such borrowings average 1% more during
1999 than they did during 1998, the Company's interest expense would increase,
and income before income taxes would decrease by approximately $0.8 million.
This analysis does not consider the effects of the reduced level of overall
economic activity that could exist in such an environment. Further, in the event
of a change of such magnitude, management could take actions to further mitigate
its exposure to the change. However, due to the uncertainity of the specific
actions that would be taken and their possible effects, the sensitivity analysis
assumes no changes in the Company's financial structure.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are listed in Part IV Item 14 of this
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to (i) each
member of the Company's Board of Directors (the "Board"), (ii) each executive
officer of the Company and (iii) certain key employees of the Company.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------------
<S> <C> <C>
Kenneth A. Hendricks 57 Chief Executive Officer and Chairman of the Board
David Luck 49 President and Chief Operating Officer
Diane Hendricks 51 Executive Vice President, Secretary, and director
Kendra Story 39 Chief Financial Officer, Treasurer, and director
Robert Bartels 50 Senior Vice President of Operations
Gil Aleman 55 Director
Kent Nelson 54 Director
</TABLE>
Kenneth A. Hendricks serves as Chief Executive Officer and Chairman of the
Board. Prior to July 1998 when Mr. David Luck was hired, Mr. Hendricks also
served as the President. Prior to 1982, Mr. Hendricks was the owner and
operator of a number of successful exterior building contracting businesses and
real estate businesses.
David Luck has served as President and Chief Operating Officer since July of
1998, prior to which he was the President of Bridgestone/Firestone Retail
Operations Division, and the Senior Vice President of Bridgestone/Firestone,
Inc. As president he was responsible for 1,550 retail stores selling tires and
automotive services. Mr. Luck spent twenty-eight years with Bridgestone/
Firestone and held a variety of positions with increasing responsibilities.
Diane Hendricks has served as Executive Vice President, Secretary and a
director of the Company since its inception. Ms. Hendricks is also President of
American Patriot Insurance Agency, Inc. Ms. Hendricks is primarily responsible
for overseeing insurance, personnel matters, bonus programs, profit sharing and
legal matters for the Company.
Kendra Story has served as the Chief Financial Officer, Treasurer and a
director of the Company since its inception. Ms. Story is primarily responsible
for overseeing finance, accounting, internal audit and inventory management for
the Company.
Robert Bartels has served as the Company's Senior Vice President of Operations
since September of 1997, prior to which, he was the Director of Purchasing since
1996. From 1971 to 1996, Mr. Bartels was employed by several leading
manufacturers in the buidling materials industry with a variety of postions with
increasing responsiblities, which included national marketing and sales and as
vice president of sales.
Gil Aleman has served as a director of the Company since 1997. Mr. Aleman is
recently retired from Jim Walter Corporation, where he served as President of
its Celotex roofing division from 1985 to 1997. Prior to 1985, Mr. Aleman served
as President of Jim Walter Window Components, a division of Jim Walter
Corporation.
Kent Nelson has served as a director of the Company since 1997. Mr. Nelson is
currently Chief Executive Officer and President of TJ Adams and Associates,
Inc., a regional insurance broker, and is an adjunct professor of management at
the Graduate School of Business, Northern Illinois University. From 1989 to
1998, Mr. Nelson was Managing Director and a member of the Executive Committee
of Aon Risk Services of Illinois, Inc., an international insurance broker.
Kenneth and Diane Hendricks are husband and wife. Kendra Story is a daughter
of Mr. Hendricks.
14
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The compensation of executive officers of the Company is determined by the
Board. The following Summary Compensation Table includes individual compensation
information for the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company in the year ended December
31, 1998 for services rendered in all capacities to the Company and its
subsidiaries during the year ended December 31, 1998.
<TABLE>
<CAPTION>
All Other
Name and Principal Position Annual Compensation Compensation (1)
- ------------------------------------------------------------------------------------------------------------
Annual Bonus
----------------------------
<S> <C> <C> <C>
Kenneth A. Hendricks $1,000,000 - $4,408
Chief Executive Officer and Chariman of the Board
David Luck 248,050 750,000 2,000
President and Chief Operating Officer
Diane M. Hendricks 250,000 - 3,998
Executive Vice President and Secretary
Kendra Story 175,000 25,000 917
Chief Financial Officer and Treasurer
Robert Bartels 175,000 25,000 3,017
Senior Vice President of Operations
</TABLE>
(1) Consists of estimated amounts paid by the Company for automobiles and for
matching payments under the Company's 401(k) Profit Sharing Plan,
respectively, as follows: Mr. Hendricks--$3,700 and $708; Mr. Luck,
$2,000 and $0; Ms. Hendricks--$3,300 and $698; Ms. Story--$0 and $917;
and Mr. Bartels--$2,200 and $817.
Mr. Luck is party to an agreement with the Company dated May 18, 1998, which
provides for his employment through April 30, 2005. As part of the agreement,
Mr. Luck received a one-time bonus of $1,500,000, one half of which was paid in
1998 and the other half in 1999. The one-time bonus is subject to repayment
under conditions specified in the agreement. The agreement provides a bonus
program and severance package, and also contains noncompetition and
nonsolicitation covenants covering the term of the agreement plus two years from
the date of termination.
Mr. Bartels is party to an agreement with the Company dated November 30, 1998,
which provides for his employment for a five period commencing on January 1,
1999. The agreement provides a bonus program and severance package, and also
contains noncompetition and nonsolicitation covenants covering the term of the
agreement plus two years from the date of termination.
For a description of the employment agreement entered into between Mr.
Hendricks and the Company, see "Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's capital stock is owned beneficially and of record by Mr.
Hendricks. There are no outstanding options or other rights to purchase any
shares of the Company's capital stock.
15
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ABC transacts business with a number of entities, including Corporate
Contractors, Inc. (CCI), ABC Express, Inc. (Express), Water Tower Industrial
Properties (Water Tower), Hendricks Commercial Properties (HCP), Hendricks
Carolina Properties, L.L.C. (Carolina), Patriot, Ltd. (Patriot) and American
Patriot Insurance Agency, Inc. (APIA) (collectively, the Related Entities),
which are owned by ABC's sole stockholder and his spouse. CCI performs
construction work such as interior renovations and additions at ABC locations.
Express provides transportation services for the Company. The Company leases
properties from Water Tower, Carolina and HCP. The Company believes that the
transactions between ABC and the Related Entities have generally been conducted
on an arm's-length basis.
In connection with certain of the Company's acquisitions, the Company's sole
stockholder or his affiliates have purchased the real estate of the acquired
business, which the Company has then leased from Mr. Hendricks or his
affiliates. In addition, certain of the distribution centers opened by the
Company are located in facilities purchased by and leased from Mr. Hendricks or
his affiliates. These real estate purchases have historically been financed with
a combination of debt financing and equity, and a portion of the equity has
sometimes been funded by Mr. Hendricks or his affiliates with borrowings from
ABC. The aggregate amount of such borrowings from ABC outstanding as of December
31, 1998 was approximately $4.8 million and $7.3 million as of December 31,
1997. The Company and Mr. Hendricks currently intend to continue to acquire
properties for the Company's occupancy using such method of financing. The
Company's debt agreements will permit it to lend up to $10.0 million to Mr.
Hendricks or his affiliates in connection with such transactions in the future.
Interest is charged on such loans at a rate comparable to the rate the Company
pays on its bank borrowings. The maximum amount of such borrowings at any time
during the three years ended December 31, 1998, occurred in April 1997 and
aggregated $8.2 million.
As described above, as of December 31, 1998, the Company leased 98 facilities
from Mr. Hendricks or his affiliates compared to 83 facilities as of December
31, 1997. For the years ended December 31, 1998 and 1997, the Company paid $10.2
million and $7.5 million, respectively, in lease payments to Mr. Hendricks or
his affiliates in respect of such properties. Annual payments due under these
leases are based on the prevailing market rates in the areas in which such
properties are located and will be adjusted annually to reflect changes in the
consumer price index.
As of December 31, 1998, and 1997, the Company had obligations outstanding
under guarantees and letters of credit in respect of debt of Mr. Hendricks and
his affiliates in the amounts of $4.7 million and $3.7 million, respectively.
Such guarantees and letters of credit are primarily related to certain
indebtedness of the Company which was assumed by Mr. Hendricks. The maximum
amount of such guarantees and letters of credit at any time during the past
three years occurred in July 1998 and aggregated $4.7 million.
Patriot, an insurance captive owned by Mr. and Mrs. Hendricks, provides
certain insurance coverage to the Company, which is subsequently reinsured in
part by third-party insurance carriers. APIA, also owned by Mr. and Mrs.
Hendricks, serves as a broker with respect to insurance coverage for the Company
and the Related Entities. The Company paid APIA, net of reimbursements, $9.0
million and $5.9 million in 1998 and 1997 respectively, for claim liabilities,
as determined by an independent actuarial service
During 1997, the Company entered into an employment agreement (the "Employment
Agreement") with Mr. Hendricks which provides for an annual salary of $1.0
million, subject to annual increases if approved by a majority of ABC's
independent directors, of up to 20.0% of his salary in the preceding year. The
Employment Agreement expires in 2000 and is renewable annually thereafter upon
the mutual agreement of the Company and Mr. Hendricks.
The Company has entered into a Tax Allocation Agreement with Mr. Hendricks
pursuant to which he will receive distributions from each of the Company and its
wholly owned subsidiaries with respect to taxes payable by Mr. Hendricks
associated with the operations of each entity.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1.) FINANCIAL STATEMENTS
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 17
Consolidated Balance Sheets as of December 31, 1998 and 1997 18
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 19
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1998, 1997 and 1996 20
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 21
Notes to Consolidated Financial Statements 22
</TABLE>
(2.) FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and, therefore, have been omitted.
(3.) LISTING OF EXHIBITS
Exhibit 27 - Financial Data Schedule
(b) CURRENT REPORTS ON FORM 8-K:
During the quarter ended December 31, 1998, the Company had no current filings
on Form 8-K.
(c) EXHIBITS:
See Exhibit Index submitted as a separate section of this report.
17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
American Builders & Contractors Supply Co., Inc.
We have audited the accompanying consolidated balance sheets of American
Builders & Contractors Supply Co., Inc., and subsidiaries (the Company) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1998. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Milwaukee, Wisconsin
March 12, 1999
18
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------------
<S> <C> <C>
Assets
Current assets:
Cash......................................................................... $ 4,682,063 $ 4,139,758
Accounts receivable, less allowance for doubtful accounts of $7,164,000--
1998 and $5,949,000--1997.................................................. 149,102,559 143,105,577
Inventories.................................................................. 130,801,946 128,846,638
Prepaid expenses and other................................................... 4,595,772 3,762,591
--------------------------------
Total current assets...................................................... 289,182,340 279,854,564
Property and equipment, net (Note 4)........................................... 69,189,739 71,614,380
Receivable from sole stockholder and affiliates (Note 6)....................... 4,839,533 7,328,218
Goodwill, net of accumulated amortization of $1,793,993--1998 and
$500,089--1997................................................................ 40,438,586 41,732,490
Other intangible assets, net of accumulated amortization of $1,570,832--1998
and $786,522--1997............................................................ 7,211,294 7,987,953
Security deposits.............................................................. 992,268 1,025,844
Other assets................................................................... 1,047,568 78,246
--------------------------------
$412,901,328 $409,621,695
================================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable............................................................. $ 84,978,669 $ 78,489,098
Accrued liabilities.......................................................... 22,061,176 21,994,354
Current portion of long-term debt (Note 3)................................... 5,056,653 6,140,688
--------------------------------
Total current liabilities................................................. 112,096,498 106,624,140
Long-term debt (Note 3)........................................................ 281,657,871 281,205,914
Commitments and contingent liabilities (Notes 5, 6 and 7)
Stockholder's equity:
Common stock $0.01 par value; 1,000 shares authorized, 147.04 shares issued
and outstanding............................................................... 1 1
Additional paid-in capital.................................................... 1,864,054 1,864,054
Retained earnings............................................................. 17,282,904 19,927,586
--------------------------------
Total stockholder's equity................................................ 19,146,959 21,791,641
--------------------------------
$412,901,328 $409,621,695
================================
</TABLE>
See accompanying notes.
19
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Net sales $1,162,109,809 $959,321,241 $789,102,559
Cost of sales 894,449,980 744,186,017 615,626,559
----------------------------------------------
Gross profit 267,659,829 215,135,224 173,476,000
Operating expenses:
Distribution centers 223,601,129 180,158,358 140,108,749
General and administrative 16,366,013 13,896,888 11,878,553
Amortization of intangible assets 1,735,286 746,875 328,614
Non-recurring charge (Note 10) 3,900,000 -- --
----------------------------------------------
245,602,428 194,802,121 152,315,916
----------------------------------------------
Operating income 22,057,401 20,333,103 21,160,084
Other income (expense):
Interest income 542,475 469,645 689,205
Interest expense (25,074,527) (16,949,586) (11,146,057)
----------------------------------------------
(24,532,052) (16,479,941) (10,456,852)
----------------------------------------------
Income (loss) before provision for income taxes (2,474,651) 3,853,162 10,703,232
Provision for income taxes 170,031 310,838 329,509
----------------------------------------------
Net income (loss) $ (2,644,682) $ 3,542,324 $ 10,373,723
==============================================
</TABLE>
See accompanying notes.
20
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Additional Retained Total Stock-
Stock Paid-in Capital Earnings holder's Equity
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 109,001 $1,215,053 $ 24,200,170 $ 25,524,224
Net income - - 10,373,723 10,373,723
Distributions to sole stockholder - - (3,937,773) (3,937,773)
---------------------------------------------------------------------------------------
Balance at December 31, 1996 109,001 1,215,053 30,636,120 31,960,174
Net income - - 3,542,324 3,542,324
Contributions by sole stockholder - 540,001 - 540,001
Distributions to sole stockholder - - (14,250,858) (14,250,858)
Change state of incorporation (109,000) 109,000 - -
---------------------------------------------------------------------------------------
Balance at December 31, 1997 1 1,864,054 19,927,586 21,791,641
Net (loss) - - (2,644,682) (2,644,682)
---------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 1 $1,864,054 $ 17,282,904 $ 19,146,959
=======================================================================================
</TABLE>
See accompanying notes.
21
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (2,644,682) $ 3,542,324 $ 10,373,723
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities net of acquisitions:
Depreciation 14,050,976 11,116,823 8,750,803
Amortization 1,735,286 746,875 328,614
Amortization of deferred financing costs 435,278 232,628 -
Non-recurring charge 3,900,000 - -
Provision for doubtful accounts 8,690,291 4,463,785 3,603,631
Loss on disposal of property and equipment 453,503 305,934 17,412
Change in operating assets and liabilities:
Accounts receivable (18,213,255) (12,972,988) (18,328,728)
Inventories (1,349,861) (2,979,764) (9,832,405)
Prepaid expenses and other (833,181) (1,855,197) (142,212)
Security deposits 33,576 295,587 (570,341)
Other assets (969,322) 843,321 (179,614)
Accounts payable 6,489,571 (9,061,854) 7,961,040
Accrued liabilities 66,822 3,627,663 2,774,544
----------------------------------------------------
Cash provided by (used in) operating activities 11,845,002 (1,694,863) 4,756,467
Investing activities
Additions to property and equipment (12,375,998) (25,346,559) (14,697,361)
Proceeds from disposal of property and equipment 1,579,729 528,222 688,209
Acquisition of businesses (2,263,036) (86,687,666) (12,684,977)
----------------------------------------------------
Cash used in investing activities (13,059,305) (111,506,003) (26,694,129)
Financing activities
Net borrowings (payments) under line of credit (481,710) 47,284,907 23,381,086
Proceeds from long-term debt 3,723,404 100,109,172 9,734,539
Payments on long-term debt (3,873,771) (13,221,806) (6,175,029)
Net change in receivable from/payable to sole stockholder and 2,488,685 (1,639,033) (1,177,384)
affiliates
Distributions paid to sole stockholder - (14,250,858) (3,937,773)
Deferred financing costs (100,000) (3,572,095) -
----------------------------------------------------
Cash provided by financing activities 1,756,608 114,710,287 21,825,439
----------------------------------------------------
Net increase (decrease) in cash 542,305 1,509,421 (112,223)
Cash at beginning of year 4,139,758 2,630,337 2,742,560
----------------------------------------------------
Cash at end of year $ 4,682,063 $ 4,139,758 $ 2,630,337
====================================================
Supplemental disclosures of cash flow information are as
follows:
Cash paid for interest $ 24,691,093 $ 15,246,275 $ 10,982,497
Cash paid for income taxes 324,621 382,475 345,459
</TABLE>
See accompanying notes.
22
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
The accompanying consolidated financial statements include the accounts of
American Builders & Contractors Supply Co., Inc. (ABC or the Company) and its
wholly owned subsidiaries, Mule-Hide Products Co., Inc. (Mule-Hide), and Amcraft
Building Products Co., Inc. (Amcraft). All significant intercompany profits,
transactions, and balances have been eliminated in consolidation.
The Company is primarily engaged in the sale of roofing and siding products
throughout the United States. There were 204, 205 and 157 distribution center
locations at December 31, 1998, 1997 and 1996, respectively.
Inventories
Inventories, which consist primarily of purchased roofing and siding
products, are stated at the lower of cost (average cost basis) or market.
Property and Equipment
Property and equipment additions (including leasehold improvements) are
capitalized at cost. Depreciation on these assets is calculated using the
straight-line method over the estimated useful lives of the related assets or,
in the case of leasehold improvements, the life of the lease if shorter.
Estimated useful lives are as follows (in years):
Buildings and improvements 31 -39 years
Warehouse equipment 5 - 7 years
Vehicles 2 -10 years
Office furniture and equipment 3 - 7 years
Leasehold improvements Life of the lease, maximum 10 years
Goodwill
Goodwill is amortized over 25 to 35 years using the straight-line method.
Other Intangible Assets
Other intangible assets include noncompete agreements and deferred financing
costs which are amortized over the term of the respective agreements or loans
(ranging from 2 to 15 years).
Common Stock
In May 1997, the Company changed its state of incorporation from Texas to
Delaware. As part of this change, the Company issued 147.04 shares of $0.01 par
value common stock.
Revenue Recognition
The Company recognizes revenue upon delivery of product to the customer,
which typically occurs at the Company's distribution center locations.
23
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Late Payment Charges
Late payment charges are recorded in connection with past due receivable
balances and are classified as a reduction to distribution center operating
expenses.
Advertising
Advertising costs are expensed in the period incurred. Total advertising
expense was approximately $3,990,000, $3,896,000, and $3,312,000 for 1998, 1997
and 1996, respectively.
Income Taxes
ABC and its subsidiaries have elected to be treated as Subchapter S
Corporations for federal and state income tax purposes. As a result, the
Company's sole stockholder includes the taxable income of ABC and its
subsidiaries in his personal income tax returns. Accordingly, with the exception
of the amounts described in the following paragraph, the accompanying
consolidated financial statements include no provision or liability for income
taxes.
Certain states impose a corporate state tax on earnings of a Subchapter S
Corporation. Provisions of $170,031, $310,838, and $329,509 have been made for
such income taxes for the years ended December 31, 1998, 1997 and 1996,
respectively.
Net income (loss) differs from the amount currently taxable to the Company's
sole stockholder due to certain items which are reported differently for
financial reporting purposes than for income tax purposes; principally inventory
costs capitalized, bad debts and depreciation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Business Acquisitions
The following business acquisitions have been accounted for using the
purchase method. Operations of such acquisitions are included in the Company's
consolidated financial statements from the respective dates of acquisition:
1998 Acquisitions
On January 19, 1998, the Company acquired certain assets and assumed certain
liabilities of U.S.A. Roofing Supply, Inc. (USA) for a purchase price of
approximately $2,300,000. USA was engaged primarily in the wholesale
distribution and sale of roofing material and supplies primarily in the Florida
market. The excess of cost over the fair value of the net assets acquired of,
$1,000,000 is being amortized on a straight-line basis over 25 years.
24
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Business Acquisitions (continued)
1997 Acquisitions
On November 3, 1997, the Company acquired the stock or assets of five
corporations affiliated with Champ Industries, Inc. (Champ) for a purchase price
of approximately $61,000,000. Subsequent to the business combination, the Champ
entities acquired through stock acquisitions were merged into the Company. Champ
was engaged primarily in the wholesale distribution and sale of roofing material
and supplies (primarily in Texas and California). The excess of cost over the
fair value of the net assets acquired, which approximated $36,000,000, is being
amortized on a straight-line basis over 35 years.
On May 19, 1997, the Company acquired certain assets and assumed certain
liabilites of Viking Products, Inc. and certain assets of Viking Aluminum
Products, Inc. (collectively, Viking). The purchase price was approximately
$26,000,000, which included a $3,000,000 seller note. Viking was a regional
distributor of residential roofing, siding and window products to customers
located primarily in the northeastern U.S. The excess of cost over the fair
value of the net assets acquired, which approximated $2,850,000, is being
amortized on a straight-line basis over 25 years.
During 1997, the Company also made several other relatively small
acquisitions, with an aggregate cost of approximately $3,500,000 million.
1996 Acquisitions
During the year ended December 31, 1996, the Company acquired the inventory,
accounts receivable and fixed assets of seventeen distribution centers for a
total purchase price of approximately $15,205,000. In connection with these
transactions, the Company recorded goodwill of 2,510,000 which is being
amortized on a straight-line basis over 25 years.
A summary of the purchase allocation for the acquisitions is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Fixed assets $ 283,570 $ 8,274,510 $ 1,527,716
Inventories 605,447 30,088,288 6,649,324
Accounts receivable 374,019 42,236,311 4,502,460
Other - 1,575,473 15,529
Goodwill and other intangible assets
1,000,000 43,616,917 2,510,000
--------------------------------------------------
2,263,036 125,791,499 15,205,029
Less: seller notes - (3,150,000) (2,520,052)
Liabilities assumed - (35,953,833) -
--------------------------------------------------
Net effect on cash $2,263,036 $ 86,687,666 $12,684,977
==================================================
</TABLE>
25
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Business Acquisitions (continued)
Pro Forma Results
Pro forma unaudited results of operations for the years ended December 31,
1997 and 1996, assuming the 1997 purchase of Champ had been consummated as of
January 1, 1996, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
--------------------------------
<S> <C> <C>
Net sales $1,132,877,000 $986,611,000
Net income 6,229,000 13,730,000
</TABLE>
Unaudited pro forma financial information for other acquisitions is not
presented because those acquisitions did not have a material impact on the
Company's results of operations.
The pro forma results do not purport to represent what the Company's net
sales or net income would actually have been if the acquisiton in fact had
occurred at the beginning of the periods indicated.
3. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
-----------------------------
<S> <C> <C>
Notes payable to banks under Revolver $163,283,305 $163,765,015
Senior Subordinated Notes 100,000,000 100,000,000
Equipment loan 16,300,000 14,445,027
Mortgage notes payable 6,130,800 6,235,998
Other notes payable 743,706 2,249,873
Capital lease obligations 256,713 650,689
-----------------------------
286,714,524 287,346,602
Less current maturities 5,056,653 6,140,688
-----------------------------
$281,657,871 $281,205,914
=============================
</TABLE>
ABC has a financing agreement with a group of banks (Revolver) which expires
on June 30, 2000, under which ABC may borrow, on a revolving credit basis, up to
a maximum of $250,000,000 based on a percentage of eligible accounts receivable
and eligible inventories. Interest on the Revolver at December 31, 1998 was
based on LIBOR plus 1.25%. The weighted average interest rate on all borrowings
outstanding under the Revolver at December 31, 1998 was 6.4%.
The agreement contains various covenants, including provisions that place
restrictions on ABC's ability to merge or sell its business, sell assets, make
investments other than in the ordinary course of business, repurchase stock, or
pay dividends. Additional provisions require ABC to maintain specified tangible
net worth and cash flow amounts and require that ABC's sole stockholder continue
to own at least 51% of the Company's stock.
26
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Long-Term Debt (continued)
In May 1997, ABC issued $100,000,000 of 10 5/8% Senior Subordinated Notes
due 2007, for which it received net proceeds of approximately $96,500,000 after
deducting expenses and commissions. Net proceeds of $10,000,000 were distributed
to the Company's sole stockholder, who simultaneously repaid to the Company
approximately $8,200,000 of net borrowings. The remainder of the net proceeds
combined with the repayments of the net stockholder advances approximated
$94,700,000 and was used to repay indebtedness outstanding under the Revolver.
In June of 1998, the Company refinanced its previous equipment loans with a
$16,300,000 note, payable in 2002, that is collaterallized by specific equipment
(delivery trucks, trailers, and forklifts). Interest payments are due monthly
with four annual principal payments. The interest rate on this note is fixed at
7.1%. Prior to this refinancing, the Company had numerous equipment lenders with
various payment terms and interest rates ranging from 7.5% to 9.2%.
The mortgage notes payable principally relate to ABC's corporate offices,
and are due in monthly principal and interest installments of approximately
$50,000 through April 2002, with a final maturity date of May 31, 2002. Interest
on the mortgage notes is 8.375% through February 1, 1999. From February 2, 1999
through February 1, 2001 the rate will be 7.75%, and adjusted each year
thereafter.
The Company has various other notes payable and capital lease obligations
with maturity dates ranging from 1999 through 2002, and interest rates ranging
from 6.5% to 8.5% on other notes payable and 6.7% to 15.3% on the capital lease
obligations.
Substantially all of the Company's assets are collateral for Company
indebtedness.
Future maturities of long-term debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Amount
--------------
Year ending December 31,
<S> <C>
1999 $ 5,056,653
2000 168,220,285
2001 4,210,456
2002 9,227,130
2003 0
Thereafter 100,000,000
--------------
$286,714,524
==============
</TABLE>
27
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------------------
<S> <C> <C>
Land $ 3,369,505 $ 3,607,692
Buildings and improvements 12,730,251 12,948,995
Warehouse equipment 9,964,464 9,068,436
Vehicles 65,350,808 60,305,119
Office furniture and equipment 11,857,414 11,063,481
Leasehold improvements 13,837,715 12,849,139
-------------------------------
117,110,157 109,842,861
Less accumulated depreciation 47,920,418 38,228,481
-------------------------------
$ 69,189,739 $ 71,614,380
===============================
</TABLE>
5. Lease Commitments
ABC conducts the majority of its operations in leased facilities under
operating leases expiring at various dates through 2007. Generally, the leases
provide that ABC pay all insurance, maintenance, and other costs and expenses
associated with use of the buildings. Some of the leases also require ABC to pay
real estate taxes.
As of December 31, 1998, the real estate for 98 of the distribution centers
was owned by a related party. The total rent expense for these related-party
leases was approximately $10,192,000, $7,492,000, and $6,249,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
Rent expense under all leases totaled $20,872,000 $16,998,000 and
$12,592,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum rental payments required as of December 31, 1998, under leases
with initial or remaining terms of more than one year are as follows:
<TABLE>
<CAPTION>
Amount
--------------
Year ending December 31,
<S> <C>
1999 $16,587,852
2000 14,300,169
2001 12,575,498
2002 11,507,233
2003 9,079,251
Thereafter 32,632,316
--------------
Future minimum payments
required $96,682,319
==============
</TABLE>
28
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Related-Party Transactions
The Company is related to certain other affiliates by common ownership and
management. Transactions and balances with these entities are as follows at
December 31 or for years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Accounts receivable $ 13,992 $ 27,433 $ 288,024
Security deposits 360,694 413,767 374,044
Accounts payable 690 4,336 11,340
Sales 93,597 100,165 65,969
Purchases 109,638 56,442 556,390
Rent expense--buildings 10,191,171 7,491,836 6,248,942
</TABLE>
Interest on the receivables from and payables to the sole stockholder is
charged/incurred at a rate comparable to the interest rate ABC pays on its
Revolver and was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Interest income $531,291 $465,872 $ 627,751
Interest expense -- (20,121) (239,397)
-------------------------------------
$531,291 $445,751 $ 388,354
=====================================
</TABLE>
At December 31, 1998 and 1997, the Company had guaranteed debt of the sole
stockholder in the amounts of approximately $1,939,000 and $2,029,000,
respectively. Certain assets owned by the Company serve as collateral as
part of an overall guaranty of this debt by the Company. The Company also had
outstanding letters of credit of approximatley $2,764,000 and $1,626,000 at
December 31, 1998 and 1997, respectively, with respect to debt of the sole
stockholder and affiliates.
An insurance captive, owned by the sole stockholder and spouse, provides
certain insurance coverage to the Company, which is subsequently reinsured in
part by third-party insurance carrriers. The Company paid an insurance broker,
also owned by the sole stockholder and spouse, net of reimbursements,
approximately $9,017,000, $5,860,000 and $5,256,000 in 1998, 1997 and 1996,
respectively, for claim liabilities, as determined by an independent actuarial
service.
7. Contingencies
The Company is involved in various legal matters arising in the normal course
of business. In the opinion of management and legal counsel, the amount of
losses that may be sustained, if any, would not have a material effect on the
financial position and results of operations of the Company.
29
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Contingencies (continued)
In connection with the purchase of Viking (see Note 2) the Company entered
into a five year supply agreement with Viking Aluminum Products (VAP), a company
owned by the former owners of Viking. The supply agreement specified minimum
annual purchase commitments and damages for short falls. The Company has not
met the minimum level of purchases required under the agreement and legal
actions have been initiated by both the Company and VAP. The ultimate outcome
of such actions is uncertain.
8. Employee Benefit Plan
The Company sponsors a 401(k) plan covering substantially all employees. The
Company may make elective contributions. Discretionary contributions of
approximately $204,000, $924,000 and $716,000 were made for 1998, 1997 and 1996,
respectively.
9. Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable and
borrowings under the revolving credit agreement approximate their fair value at
both December 31, 1998 and 1997. The fair value of the Senior Subordinated
Notes was $90,250,000 at December 31, 1998. At December 31, 1997, the fair
value of the Senior Subordinated Notes approximated their carrying value.
Substantially all of the Company's accounts receivable are due from
contractors located throughout the United States. Credit is extended based on an
evaluation of the customer's financial condition and projects, where applicable.
Credit losses are provided for in the consolidated financial statements and have
consistently been within management's expectations.
10. Non-Recurring Charge
For many years, the Company had done a significant volume of business with a
large roofing contractor in Chicago. In 1998, the contractor's assets and
business were foreclosed upon by its bank. At that time, the Company had a
notes receivable for $4,698,000 from the contractor. In an effort to reduce its
loss as well as for other business reasons, the Company made a decision to
purchase the contractor's assets from the bank, finish the contracts in process,
collect the receivables and sell the remaining assets. The following is a
summary of the transactions:
<TABLE>
<S> <C>
Note receivable $ 4,698,000
Purchase of assets from the bank 750,000
Expenses incurred to complete work in process, legal
Expenses and other 1,527,000
Estimated additional expenses to be incurred 525,000
-------------
Total costs 7,500,000
Amounts realized from sale of assets and collections
of receivables (1,498,000)
Estimated additional amounts to be realized (2,102,000)
Provision for loss $ 3,900,000
=============
</TABLE>
Included in current assets in the Company's blance sheet is approximately
$1,577,000 representing the estimated amount to be realized from the remaining
assets net of estimated expenses to be incurred.
30
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11.Summarized Financial Information about Guarantor Subsidiaries
The following is summarized aggregated financial information for Mule-Hide and
Amcraft, both of which fully, unconditionally, jointly, and severally guarantee
the $100 million of Senior Subordinated Notes issued by ABC. The amounts are
before consolidated level elimination entries (i.e. sales to ABC and accounts
receivable from ABC are eliminated in consolidation but are separately shown
below; all other amounts are unaffected). Separate financial statements of the
guarantors are not presented because, in the opinion of management, such
financial statements are not material to investors.
<TABLE>
<CAPTION>
December 31,
1998 1997
-----------------------------------
<S> <C> <C> <C>
Current assets:
Accounts receivable from ABC $ 3,595,656 $ 2,355,004
Other current assets - third parties 3,633,646 3,950,487
-----------------------------------
Total 7,229,302 6,305,491
Noncurrent assets 654,654 707,312
Current liabilities (5,820,990) (6,894,655)
Noncurrent liabilities -- --
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
To ABC $45,524,752 $38,172,755 $33,922,487
To third parties 5,617,383 5,869,444 5,532,971
------------------------------------------------
Total 51,142,135 44,042,199 39,455,458
Gross profit 8,116,547 7,572,577 6,784,164
Net income 1,944,818 1,593,119 1,577,620
</TABLE>
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registration has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Beloit, State of Wisconsin, on March 30, 1999.
AMERICAN BUILDERS AND CONTRACTORS SUPPLY
CO. INC.
By: /s/ Kendra A. Story
--------------------------
Kendra A. Story
Chief Financial Officer, Treasurer
32
<PAGE>
INDEX TO EXHIBITS
-----------------
3.1 Certificate of Incorporation of the Company [Incorporated by reference to
exhibit 3.1 to the Company's Registration Statement on Form S-4 (File No.
33-26991)].
3.2 By-laws of the Company [Incorporated by reference to exhibit 3.2 to the
Company's Registration Statement on Form S-4 (File No. 33-26991)].
3.3 Articles of Incorporation of Mule-Hide [Incorporated by reference to
exhibit 3.3 to the Company's Registration Statement on Form S-4 (File No.
33-26991)].
3.4 By-laws of Mule-Hide [Incorporated by reference to exhibit 3.4 to the
Company's Registration Statement on Form S-4 (File No. 33-26991)].
3.5 Certificate of Incorporation of Amcraft [Incorporated by reference to
exhibit 3.5 to the Company's Registration Statement on Form S-4 (File No.
33-26991)].
3.6 By-laws of Amcraft [Incorporated by reference to exhibit 3.6 to the
Company's Registration Statement on Form S-4 (File No. 33-26991)].
10.1 Employment Agreement, dated as of May 1, 1997, between the Company and
Kenneth A. Hendricks [Incorporated by reference to exhibit 10.3 to the
Company's Registration Statement on Form S-4 (File No. 33-26991)].
10.2 Tax Allocation Agreement, dated as of May 1, 1997, among the Company, Mule-
Hide and Amcraft and Kenneth A. Hendricks [Incorporated by reference to
exhibit 10.4 to the Company's Registration Statement on Form S-4 (File No.
33-26991)].
10.3 Form of lease agreement between the Company and Hendricks Real Estate
Properties and schedule of lease terms for all properties leased pursuant
thereto [Incorporated by reference to exhibit 10.5 to the Company's
Registration on Form S-4 (File No. 33-26991)].
10.4 Amended and Restated Loan and Security Agreement among American National
Bank and Trust Company of Chicago, NationsBank of Texas, N.A., Bankamerica
Business Credit, Inc. and the Company, as amended to date (the "Credit
Agreement") [Incorporated by reference to exhibit 10.6 to the Company's
Registration on Form S-4 (File No. 33-26991)].
10.5 Amended and Restated Patent, Trademark and License Mortgage by the Company
in favor of NationsBank of Texas, N.A., as agent for the lenders under the
Credit Agreement, as amended [Incorporated by reference to exhibit 10.7 to
the Company's Registration on Form S-4 (File No. 33-26991)].
10.6 Amended and Restated Limited Guaranty Agreement by Kenneth A. Hendricks,
dated as of February 8, 1996, in favor of NationsBank of Texas, N.A.,
individually or as agent for the lenders under the Credit Agreement
[Incorporated by reference to exhibit 10.8 to the Company's Registration on
Form S-4 (File No. 33-26991)].
10.7 Continuing Guarantee Agreement, dated July 20, 1996, between Mule-Hide and
Heritage for the benefit of Kenneth A. Hendricks [Incorporated by reference
to exhibit 10.9 to the Company's Registration on Form S-4 (File No. 33-
26691)].
33
<PAGE>
10.8 Guaranty, dated December 22, 1992, between the Company and Transohio
Savings Bank, for the benefit of Kenneth A. Hendricks [Incorporated by
reference to exhibit 10.10 to the Company's Registration on Form S-4 (File
No. 33-26991)].
10.9 Guaranty, dated December 22, 1996, between the Company and Met Life
Capital Corporation, for the benefit of Kenneth A. Hendricks [Incorporated
by reference to exhibit 10.11 to the Company's Registration on Form S-4
(File No. 33-26991)].
10.10 Second Amended and Restated Loan and Security Agreement between
Nationsbank, N.A. , American National Bank and Trust Company of Chicago,
and the Company (the "Credit Agreement"). [Incorporated by reference to
exhibit 10.1 to the Company's Form 10-Q for the period ending March 31,
1998 (File No. 33-26991)]
10.11 First Amendment to the Second Amended and Restated Loan and Security
Agreement between NationsBank N.A., American National Bank and Trust
Company of Chicago, and the Company, as amended to date (the "Credit
Agreement").
10.12 Employment Agreement, dated as of May 1, 1998 between the Company and
David Luck. [Incorporated by reference to exhibit 10.1 to the Company's
Form 10-Q for the period ending June 30, 1998 (File No. 33-26991)]
10.13 Employment Agreement, dated as of November 30, 1998, between the Company
and Robert Bartels.
21.1 Subsidiaries of the Company, Mule-Hide and Amcraft [Incorporated by
reference to exhibit 21.1 Company's Registration on Form S-4 (File No. 33-
26991)].
27.1 Financial Data Schedule.
34
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997, 1996
<TABLE>
<CAPTION>
Additions
Balance at Additions Charged to
Beginning of Charged to Other Accounts Deductions Balance at End
Year Expense (2) (1) of Year
Description ----------------------------------------------------------------------------------
- ------------
Accounts Receivable--Allowance for
doubtful accounts:
<S> <C> <C> <C> <C> <C>
1998 $5,949,000 $8,690,000 $ 700,000 $8,175,000 $7,164,000
1997 4,325,000 4,464,000 1,733,000 4,573,000 5,949,000
1996 3,904,000 3,604,000 -- 3,183,000 4,325,000
</TABLE>
(1) Consist of charge-offs, net of recoveries
(2) Allowance for doubtful accounts recorded in connection with acquisitions
35
<PAGE>
EXHIBIT 10.11
FIRST AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
-------------------------------------
This First Amendment to Second Amended and Restated Loan and Security
Agreement (this "Amendment"), effective as of January 15, 1999 (the "Effective
Date"), is entered into among American Builders & Contractors Supply Co., Inc.,
a Delaware corporation (the "Borrower"), the financial institutions listed on
the signature pages hereof (individually, a "Lender" and collectively, the
"Lenders"), American National Bank and Trust Company of Chicago, (the "Co-
Agent"), and NationsBank, N.A., as Agent for the Lenders (in such capacity, the
"Agent"):
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower, the Lenders, the Agent and the Co-Agent are party to
that certain Second Amended and Restated Loan and Security Agreement (the "Loan
Agreement") dated as of May 12, 1998, pursuant to which the Lenders have agreed
to make certain loans and extend certain other financial accommodations to the
Borrower on the terms and subject to the conditions provided therein.
WHEREAS, the Borrower, the Agent, the Co-Agent and the Lenders desire to
modify the Loan Agreement in certain respects, in accordance with the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the terms and conditions contained herein,
and of any loans or financial accommodations heretofore, now or hereafter made
to or for the benefit of the Borrower by the Lenders, the parties hereto agree
as follows:
1. Definitions. All terms defined in the Loan Agreement and not otherwise
defined herein, wherever used in this Amendment, shall have the same meaning in
this Amendment as are prescribed to such terms in the Loan Agreement as amended
hereby.
2. Amendment to Definition of "Eurodollar Interest Period." The definition
of the term "Eurodollar Interest Period" contained in Section 1.1 of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
"`Eurodollar Interest Period' shall mean, with respect to a Eurodollar
Loan, a period of one (1), two (2), three (3), four (4), six (6) or twelve
(12) months commencing on a Business Day selected by the Borrower pursuant
to this Agreement. Such Eurodollar Interest Period shall end on (but
exclude) the day which corresponds numerically to such date one (1), two
(2), three (3), four (4), six (6) or twelve (12) months thereafter,
provided, that if there is no such numerically corresponding day in such
first (lst), second (2nd), third (3rd), fourth (4th), sixth (6th) or
twelfth (12) succeeding month, such Eurodollar Interest Period shall end on
the last Business Day of such first (lst), second (2nd), third (3rd),
fourth (4th), sixth (6th) or twelfth (12th) succeeding month. If a
Eurodollar Interest Period would otherwise end on a day which is not a
Business Day, such Eurodollar Interest Period shall end on the next
succeeding Business Day, provided, that if said next succeeding Business
Day falls in a new month, such Eurodollar Interest Period shall end on the
last preceding Business Day."
3. Amendment to Section 2.11 of the Loan Agreement. Clause (a) in Section
2.11 of the Loan Agreement is amended by amending and restating the phrase
"provided, that no more than five (5) Eurodollar Interest Periods may be
in existence at any one time;" to read as follows: "provided, that no more than
eight (8) Eurodollar Interest Periods may be in existence at any one time;".
1
<PAGE>
4. Amendment to Section 3.2 of the Loan Agreement. Clause (a) in Section
3.2 of the Loan Agreement is amended and restated in its entirety to read as
follows: "(a) Accounts which remain unpaid more than sixty (60) days
from the stated due date or more than 120 days from the invoice date, in each
case based upon the end-of-the-month aging;".
5. Amendment to Exhibit E to the Loan Agreement. Exhibit E to the Loan
Agreement is hereby amended and restated to read in its entirety as shown on
Exhibit E attached to this Amendment.
6. Conditions to Effectiveness. This Amendment, including the amendments
and the other terms set forth herein, shall become effective as of the date
of this Amendment upon the satisfaction of the following conditions precedent,
all of which must be acceptable in form and substance to the Agent and the
Lenders in each of their sole discretion.
(a) Consent and Reaffirmation of Guarantors. Agent has received the
consent of each of Amcraft Building Products Co., Inc. and Mule-Hide
Products Co., Inc. (collectively, the "Guarantors") to this Amendment and
the reaffirmation of each of the Financing Agreements, in form and
substance satisfactory to the Agent.
(b) Validity Certification Reaffirmations. Agent has received
reaffirmations of the Validity Certifications by each of Kendra A. Story
and Kenneth A. Hendricks, in form and substance satisfactory to the Agent.
(c) Other. The Borrower shall have executed and delivered all other
agreements, documents, certifications or opinions as the Agent may
reasonably request in connection with implementation of this Amendment.
7. Representation and Warranties of Borrower. The Borrower hereby represents
and warrants that as of the date of this Amendment (a) no event has occurred and
is continuing which, after giving effect to this Amendment, constitutes a
Default or an Event of Default, (b) the representations and warranties of the
Borrower contained in the Loan Agreement and the other Financing Agreements are
true and correct on and as of the date hereof to the same extent as though made
on and as of the date hereof, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they are true
and correct as of such earlier date, (c) the execution and delivery by the
Borrower of this Amendment and the performance by the Borrower of the Loan
Agreement, as amended by this Amendment, are within its corporate power and have
been duly authorized by all necessary corporate action, (d) this Amendment and
the Loan Agreement, as amended by this Amendment, are legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their terms, (e) the execution and delivery by the Borrower of this Amendment
and the performance by the Borrower of the Loan Agreement, as amended by this
Amendment, do not require the consent of any Person and do not contravene the
terms of the Borrower's Articles of Incorporation or By-Laws or any indenture,
agreement or undertaking to which the Borrower is a party or by which the
Borrower or any of its property is bound, and (f) except as disclosed on
Schedule 1 attached hereto, all schedules attached to the Loan Agreement remain
true, correct and complete.
8. Reference to and Effect on the Loan Agreement. Except as expressly
provided herein, the Loan Agreement and all other Financing Agreements shall
remain unmodified and in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver or forbearance of (a) any right, power or remedy of the
Lenders under the Loan Agreement or any of the other Financing Agreements, or
(b) any Default or Event of Default. This Amendment shall constitute a
Financing Agreement.
9. Fees, Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses of the Agent in connection with the preparation, negotiation,
execution and delivery and closing of this Amendment and all related
documentation, including the fees and out-of-pocket expenses of counsel for the
Agent with respect thereto.
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10. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto as separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, when taken together, shall constitute
but one and the same agreement.
11. Effectiveness. This Amendment shall be deemed effective prospectively as
of the Effective Date specified in the preamble upon execution by the Borrower,
the Agent, the Co-Agent and each of the Lenders whose names appear on the
signature pages below.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
day and year first written above.
AMERICAN BUILDERS &
ATTEST: CONTRACTORS SUPPLY CO., INC.
By:______________________ By:______________________
Name:____________________ Name:____________________
Title:___________________ Title:___________________
NATIONSBANK, N.A.
In its capacity as Agent
By:______________________
Name:____________________
Title:___________________
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
In its capacity as Co-Agent
By:______________________
Name:____________________
Title:___________________
NATIONSBANK, N.A.
In its capacity as a Lender
By:______________________
Name:____________________
Title:___________________
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
In its capacity as a Lender
By:______________________
Name:____________________
Title:___________________
BANKAMERICA BUSINESS CREDIT, INC.
By:______________________
Name:____________________
Title:___________________
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LASALLE BUSINESS CREDIT, INC.
By:______________________
Name:____________________
Title:___________________
HARRIS TRUST AND SAVINGS BANK
By:______________________
Name:____________________
Title:___________________
FLEET CAPITAL CORPORATION
By:______________________
Name:____________________
Title:___________________
SANWA BUSINESS CREDIT CORPORATION
By:______________________
Name:____________________
Title:___________________
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Each of the undersigned, by its execution below, consents to the foregoing
Amendment and each of the undersigned agrees to the continued effectiveness of
the Financing Agreements to which it is a party, respectively. All references
in any Financing Agreement to the Loan Agreement shall be deemed to be to the
Loan Agreement as amended by the Amendment and all prior and subsequent
amendments thereto. This agreement has been executed as of January 15, 1999.
GUARANTORS:
----------
AMCRAFT BUILDING PRODUCTS CO., INC.
By:______________________
Name:____________________
Title:___________________
MULE-HIDE PRODUCTS CO., INC.
By:______________________
Name:____________________
Title:___________________
Each of the undersigned agrees to the continued effectiveness of the Validity
Certification executed by it and delivered to Agent. All references in each
such Validity Certification to the Loan Agreement shall be deemed to be to the
Loan Agreement as amended by the foregoing Amendment and all prior and
subsequent amendments thereto. This agreement has been executed as of January
15, 1999.
_______________________________________
Kenneth A. Hendricks
_______________________________________
Kendra A. Story
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Schedule 1
Additional Schedule Information
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Exhibit E
---------
Form of Borrowing Notice
NationsBank, N.A., as agent
901 Main Street
6th Floor
Dallas, Texas 75283
Attention: Business Credit/Division Manager: URGENT
Ladies and Gentlemen:
The undersigned hereby notifies you in connection with the Second Amended
and Restated Loan and Security Agreement dated as of May 12, 1998, among the
undersigned, certain lenders, NationsBank, N.A., as agent for such lenders, and
American National Bank and Trust Company of Chicago, as co-agent for the Lenders
(the "Loan Agreement"), of the undersigned's election that $_________________
[must be in the minimum amount of $5,000,000 and in an integral multiple of
$1,000,000] of the principal due on the Revolving Loans bear interest at a
Eurodollar Rate, commencing on __________________ [must be a Business Day at
least three Business Days after the date of this Borrowing Notice]. The
Eurodollar Interest Period with respect to such portion of the Revolving Loans
shall be ________________ [1, 2, 3, 4, 6 or 12] months. All capitalized terms
used herein shall have the meanings ascribed in the Loan Agreement.
Very truly yours,
AMERICAN BUILDERS & CONTRACTORS
SUPPLY CO., INC.
By:
----------------------------
Name:
--------------------------
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Exhibit 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT is made as of the 30th day of November,
1998 between AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC., a Delaware
corporation, with its principal office at One ABC Parkway, Beloit, Wisconsin
53511 (the "Company"), and ROBERT BARTELS ("Executive").
WITNESSETH
- ----------
WHEREAS, Executive desires to become the Senior Vice President of Operations
of the Company, and the Company desires to hire Executive to act in such
capacity, pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements herein
set forth, the parties agree as follows:
1. EMPLOYMENT. Effective January 1, 1999 ("Commencement Date"), Executive
shall become employed by the Company in the capacity of Senior Vice President of
Operations, and Executive and the Company shall each become obligated to honor
and perform the covenants and agreements provided for hereunder. Executive
shall initial report directly to the President and Chief Operating Officer.
2. TERM. Unless sooner terminated as provided for herein, Executive's
employment shall commence on the Commencement Date and shall continue until the
fifth (5th) anniversary of the Commencement Date (the "Initial Term"). For
purposes of this Agreement, if the performance of Executive is acceptable to the
Company, in its sole discretion, the Company will offer to extend the Initial
Term upon terms and conditions to be agreed by the parties. Together, the
Initial Term and all renewal employment terms are herein referred to as the
"Term".
3. DUTIES. During the Term of this Agreement, Executive shall perform such
senior management duties as may from time to time reasonably be requested of him
by the Board of Directors, the President, Chief Operating Officer, Chief
Executive Officer or any other person appointed by the Board to direct him.
Executive shall initially hold office of Senior Vice President of Operations.
Executive shall serve the Company faithfully, diligently, and to the best of his
ability, and shall devote his best efforts, attention, energy, and skill to the
performance of the duties assigned to him and to promote and further the
interests of the Company. During the Term, Executive shall devote substantially
all of his working time and efforts to the business and affairs of the Company
and to the duties and responsibilities assigned to him pursuant to this
Agreement. Executive may devote a reasonable amount of his time to civic,
community or charitable activities. Subject to the restrictions contained in
Paragraph 7 hereof, Executive may invest his assets in such manner as will not
require any substantial services by Executive in the conduct of the business or
affairs of the entities or in the management of the assets in which such
investments are made. Executive shall fully inform the Company of all such
businesses and managements in which Executive actively engages during the Term.
4. COMPENSATION.
(a) Base Salary. Executive's base salary shall be One Hundred Seventy-Five
Thousand Dollars ($175,000) per year, payable in appropriate installments to
conform with the regular payroll dates for salaried personnel of the Company.
Executive's base salary may increase during the Term, at the discretion of the
Company; provided, however, in the event the Company's Net Profits (as defined
below) shall increase at least $1,000,000 over the preceding calendar year,
then, as of April 15 of the following year, Executive's base salary shall the
increase no less than three percent (3%) and no more than five percent (5%) of
the base salary for the immediately preceding year, as determined by the Company
in the exercise of its discretion. The base salary, as it may be increased from
time to time, is hereinafter referred to as the "Base Salary".
(b) Annual Bonus. For each calendar year of the Term from 1999 through 2003,
Executive shall receive a
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bonus equal to (i) three percent (3.0%) of the Company's Net Profits over the
Threshold up to Ten Million Dollars ($10,000,000), if any, and (ii) one percent
(1.0%) of the Net Profits over the Threshold which exceed Ten Million Dollars
($10,000,000), if any. As used herein, "Net Profits" means the pre-federal
income tax profits of the Company for the calendar year in which the bonus
calculation is made. "Threshold" means one percent (1%) of gross sales of the
Company for the calendar year in which the bonus calculation is made. The bonus
described in this Paragraph 4(b)(i) and (ii) is referred to herein as the
"Annual Bonus". The Annual Bonus, if any, shall be paid on April 30th of the
calendar year following the year for which the bonus is determined. A
calculation example for 2000 follows:
<TABLE>
<CAPTION>
<S> <C>
ABC Gross Sales (2000) $1,320,000,000.00
ABC Net Profits $ 26,400,000.00
Threshold (1% gross sales) $ 13,200,000.00
Net Profits Over Threshold $ 13,200,000.00
Bonus (i): First $10,000,000 $ 300,000.00
Bonus (ii): over $10,000,000 $ 32,000.00
Total Annual Bonus: $ 332,000.00
</TABLE>
The foregoing example (including the dates and amounts referenced therein) are
for illustrative purposes only and are not intended to represent any particular
result. The Company makes no representation or warranty with respect to the
income earned in the past or projected to be earned at any time, and the Company
makes no representation or warranty that Executive will receive any amount of
Annual Bonus. The calculations of Net Profits and any bonuses due hereunder
shall be made in the reasonable discretion and in accordance with generally
accepted accounting principles by the Company's Chief Financial Officer. From
time to time, the Company may change its accounting principles and tax status as
determined by its Board of Directors.
In any event, Executive shall not be entitled to receive the Annual Bonus if
the Company's Net Profits do not exceed the Threshold. The Company makes no
representation or warranty with respect to the income earned in the past or
projected to be earned at any time, and the Company makes no representation or
warranty that Executive will receive any amount of Earnings Bonus.
5. OTHER COMPANY BENEFITS.
(a) Benefits and Vacation. Executive will be entitled to participate in all
pension and profit sharing programs, medical insurance programs, life insurance
programs, and other employee benefit programs, if any, as may from time to time
be applicable to other employees of the Company. Executive shall be entitled to
three (3) weeks of paid vacation during the Initial Term. Executive's vacation
shall be scheduled in conformity with the Company's policies, as they may exist
from time to time, concerning the scheduling of vacations for senior executives
or management. Executive shall be entitled to the use of a vehicle owned by the
Company. Executive may be assessed an amount for his personal use of the vehicle
in accordance with federal and state tax requirements, and any such assessment
shall be deducted from Executive's base salary.
(b) General-Profit Sharing and Other Bonus Plans. The specific compensation
and fringe benefit provisions hereunder shall not be deemed to preclude
Executive's current or subsequent eligibility for, or participation in, any old
age benefit, insurance, profit sharing, stock option, pension or other plan or
program which the Company has or may hereafter generally adopt for the benefit
of its employees. The Bonus plan set forth in Paragraph 4 shall be the exclusive
bonus program available to Executive and he shall not be entitled to participate
in any other employee-performance bonus program which is not generally offered
to all other full-time employees of the Company.
6. BUSINESS EXPENSES. In view of Executive's senior position, he will be
expected to travel and to entertain customers, vendors and other business
entities and to incur certain expenses for an on behalf of the Company. In
connection with these duties, reasonable business and travel expenses incurred
by Executive in accordance with Company policies shall be reimbursed to him on
presentation of proper vouchers or invoices or
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other evidences of payment or liability for such business expenses.
7. CONFIDENTIALITY; NON-COMPETITION.
(a) Position of Loyalty. In the course of Executive's employment with the
Company, and because of the nature of Executive's responsibilities, Executive
may acquire and have access to valuable trade secrets, proprietary data and
other confidential information (collectively, "Confidential Information") with
respect to the Company's customers, suppliers, competitors and business. Such
trade secrets, proprietary data and other confidential information include but
are not limited to the following: the Company's existing and contemplated
services, products, business and financial methods and practices, plans,
pricing, selling techniques, business systems, product technologies and
formulas, and special methods and process involved in providing services, lists
of the Company's existing and prospective suppliers, subcontractors and/or
customers, methods of obtaining suppliers and customers, credit and financial
data for the Company's present and prospective suppliers and/or customers,
particular business requirements of the Company's present and prospective
customers as well as similar information related to any subsidiaries or
affiliates the Company may have. In addition, Executive, on behalf of the
Company, may in the future enhance or develop personal acquaintances and
relationships with the Company's present and prospective suppliers,
subcontractor and customers, which acquaintances and relationships may
constitute the Company's only contact with such persons or entities. As a
consequence thereof, the parties agree that Executive occupies or will occupy a
position of trust and confidence with respect to the Company's affairs and its
products and services. In view of the foregoing and in consideration of the
remuneration to be paid to Executive hereunder, Executive acknowledges and
agrees that it is reasonable and necessary for the protection of the goodwill
and business of the Company that Executive make the covenants contained in
subparagraphs (b) through (f) below regarding the conduct of Executive during
and subsequent to employment with the Company, and that the Company will suffer
irreparable injury if Executive engages in conduct prohibited thereby.
Executive represent that observance of the aforementioned covenants will not
cause Executive any undue hardship nor will it unreasonably interfere with
Executive's ability to earn a livelihood. The covenants contained in
subparagraphs (b) through (f) below shall each be construed as a separate
agreement independent of any other provision of this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of any of those covenants.
(b) Non-Disclosure. Executive, while in the employ of the Company or at any
time thereafter, will not, without the express written consent of the Company,
directly or indirectly communicate or divulge to, or use for his own benefit or
for the benefit of any other person, firm, company, association or corporation,
any of the Company's or its subsidiaries' or affiliates' Confidential
Information which was communicated to or otherwise learned of or acquired by
Executive during his employment with the Company or its predecessor, provided,
however, Executive may disclose or use such information under any of the
following circumstances: (a) disclosure or use thereof in good faith by
Executive in connection with the performance of his duties in the course of his
employment by the Company, (b) disclosure which Executive is advised by counsel
is required by a court or other governmental agency of competent jurisdiction,
provided that Executive gives the Company written notice and an opportunity to
prevent such disclosure or otherwise seek protection for the Confidential
Information, (c) disclosure or use by Executive of any such information or data
which is generally known within the industry or is otherwise available through
independent sources who do not owe a duty of confidentiality to the Company or
its subsidiaries or affiliates, and (d) disclosure or use by Executive, after
the expiration of thirty-six (36) months following Executive's termination of
employment with the Company (or, if this period shall be unenforceable by law,
then for the maximum period as shall be permitted by law to make the provisions
of this subparagraph enforceable), of any such information in connection with
Executive's subsequent employment or business endeavors undertaken in good faith
and without specific intent of unreasonably depriving the Company of the value
and benefit of such proprietary data.
(c) Return of Information and Equipment. Promptly after the termination of
employment with the Company (whether or not pursuant to an employment
agreement), Executive will deliver to the Company all originals and copies or
memoranda, customer lists, samples, records, documents, computer programs,
product information,
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hardware, equipment (e.g., computers, fax machines, vehicles) and other
materials and equipment requested by the Company which he has obtained from the
Company while serving in any such capacity.
(d) Non-Competition. During Executive's employment with the Company, and for
a period of eighteen (18) months following termination of Executive's employment
with the Company for any reason whatsoever (or, if this period shall be
unenforceable by law, then for the maximum period as shall be permitted by law
to make the provisions of this subparagraph enforceable), Executive shall not,
without the express written consent of the Chief Executive Officer or the Board
of Directors of the Company, directly or indirectly, own, finance, manage,
operate, control, or participate in the financing, ownership, management,
operation or control of, or be employed by or act as an officer, director,
agent, representative, advisor, consultant, partner, member or investor, or be
connected with in any other manner or otherwise engage in or have any connection
with any business in the United States which distributes roofing or siding
products to contractors. Notwithstanding anything contained herein to the
contrary, Executive shall not be precluded hereby from (i) owning stock or any
other securities in a publicly traded company where such investment entitles
Executive to less than one percent (1%) of the voting control over such company,
or (ii) working as an employee, after the termination of Executive's employment
with the Company, for any entity in which Executive has no ownership interest,
or option or other right to acquire an ownership interest, in any capacity where
the likelihood of Executive's breach or violation of the provisions of
subparagraphs (b) and (e) is demonstrated to the reasonable satisfaction of the
Board of Directors to be remote.
(e) Non-Solicitation of Customers. During Executive's employment with the
Company, and for a period of twenty-four (24) months following the termination
of Executive's employment with the Company for any reason whatsoever (or if this
period shall be unenforceable by law, then for the maximum period as shall be
permitted by law to make the provisions of this subparagraph enforceable), and
except in the good faith furtherance of the interests of the Company, Executive
will not, without the express written consent of the Company or Board of
Director's approval, contact (whether or not initiated by Executive), with a
view toward selling any product or service competitive with any product or
service, to Executive's knowledge, sold or proposed to be sold by the Company or
any subsidiary or affiliate of the Company at the time of such contact, any
person, firm, company, association or corporation: (i) to which the Company or
any subsidiary or affiliate of the Company was known by Executive to have sold
any product or service during the preceding year, (ii) which Executive
solicited, contacted or otherwise dealt with on behalf of the Company or any
subsidiary or affiliate of the Company during the preceding year, or (iii) which
Executive was otherwise aware was a customer or prospective customer of the
Company or any subsidiary or affiliate of the Company during the preceding year.
Executive will not directly or indirectly make any contact, either for his
benefit or for the benefit of any person, firm, company, association or
corporation, and Executive will not in any manner assist any such person, firm,
association or corporation to make any such contact.
(f) Non-Interference. During Executive's employment with the Company, and for
a period of twenty-four (24) months following the termination of Executive's
employment with the Company for any reason whatsoever (or if this period shall
be unenforceable by law, then for the maximum period as shall be permitted by
law to make the provisions of this subparagraph enforceable), Executive shall
not induce or encourage, directly or indirectly, (i) any employee of the Company
to leave his or her employment, or to seek employment with anyone other than the
Company, unless it has been determined by Executive in good faith with Board of
Directors, that such employee's performance or other characteristics or
circumstances are such that employee's leaving the Company are in the best
interests of the Company, or (ii) any customer or vendor (including without
limitation, independent contractors engaged by the Company to provide or deliver
products to, or perform services for, customers of the Company) of the Company
to modify or terminate any relationship, whether or not evidenced by a written
contract, with the Company unless it has been determined by Executive in good
faith with the Board of Directors that such modification or termination is in
the best interests of the Company.
Notwithstanding anything contained in Paragraphs 7(b)-(f) to the contrary,
after termination or expiration of the Initial Term, Employee shall be entitled
to be employed by, represent, or participate in the ownership or management of a
roofing or siding manufacturer, or a business which performs roofing or siding
contracting or installation, provided, that such manufacturer or contracting
business does not sell roofing or siding products to
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installers or contractors.
8. SPECIFIC PERFORMANCE. Executive acknowledges and agrees that the
restrictions set forth in Paragraph 7 are reasonable and necessary for the
protection of the Company's business and goodwill and that the Company will
suffer irreparable injury if Executive engages in the conduct prohibited
thereby. Executive further agrees that if he breaches or attempts to breach any
of his obligations under Paragraph 7, the Company, in addition to any other
remedies available to it under law, may obtain injunctive relief against him to
prevent such continued or attempted breach and the Company may recover any
damages (including reasonable attorney's fees) it may incur as a result of any
such continued or attempted breach and for the enforcement of Paragraph 7.
9. EARLY TERMINATION.
(a) Executive may terminate Executive's employment with the Company upon
ninety (90) days prior written notice (which notice shall include a resignation
by Executive as an officer, manager and member of any advisory board), provided
that, at the Company's option, Executive's employment and ability to act on
behalf of the Company can be terminated immediately upon receipt by the Company
of said written notice.
(b) Executive's employment with the Company will terminate upon Executive's
death or Disability. For purposes of this Agreement, Executive shall be deemed
to have a "Disability" if Executive becomes disabled as defined in any insurance
policy maintained by the Company with respect to Executive, or if no such policy
is maintained, becomes, by reason of physical or mental illness or accident, for
a continuous period of twelve (12) months, to perform his regular
responsibilities as provided herein or any other responsibilities within the
Company based upon training, education and experience, provided that a period of
disability separated by fewer than thirty (30) days of continuous service shall
be deemed to be continuous.
(c) Subject to the provisions of Paragraph 10(b), Executive's employment may
be terminated by the Company, prior to the end of the Term upon advance written
notice specifying a termination date ("Termination Date") therein which shall be
no sooner than thirty (30) days after the date of such notice for termination
without cause.
(d) Executive's employment may be terminated by the Company at any time
without prior notice for "Cause", as defined in Paragraph 10 below.
10. SEVERANCE AND OTHER BENEFITS. If Executive's employment terminates
during the Initial Term of this Agreement, the following shall apply:
(a) If the termination occurs under any of the following circumstances, there
will be no liability on the part of the Company for the payment to Executive of
severance benefits in connection with such termination (except as otherwise
provided in any other contractual agreement or under any plan or policy of the
Company or as otherwise required by law) for any compensation or other benefits
attributable to any period after such termination:
(i) Executive's resignation or other election to terminate without cause;
(ii) Executive's death or Disability; or
(iii) the Company's termination of Executive for Cause.
For the purposes of clause (iii) above, "Cause" means, in connection with a
discharge of an Executive, any of the following: (A) the Board of Director's
good faith determination (1) that Executive is guilty of fraud, dishonesty or
other willful or malicious acts of misconduct related to Executive's employment
or which has a material adverse effect on the business, financial condition or
well-being of the Company or (2) that Executive has brought himself or the
Company into public disrepute, (B) the Board of Director's good faith
determination that Executive is unable to adequately perform his duties and
responsibilities by reason of substance abuse, (C) voluntary resignation from
employment of the Company or (D) the Board of Director's good faith
determination that
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Executive has (1) unreasonably failed or refused to perform duties and
responsibilities assigned to him as described in this Agreement or in any
reasonable orders or directions provided to him in writing by the President or
Board of Directors or (2) has failed to abide by or breached the terms,
conditions or covenants of this Agreement or any other written agreement between
Executive and the Company in effect from time to time, and that such failure,
refusal or breach has not been cured, if susceptible to cure, within thirty (30)
days after receipt by Executive of written notice from the Board of Directors,
Chief Executive Officer or President specifying such failure or refusal. The
Board of Directors, Chief Executive Officer, President and Chief Operating Offer
shall not to unreasonably interfere with Executive's ability to perform the
duties and responsibilities assigned to him.
(b) If the termination occurs during the Initial Term by reason of the
Company's election to terminate pursuant to Paragraph 9(c) above or in the event
the Agreement expires and Executive's employment by the Company terminates then,
for the eighteen (18) months following such termination the Company shall
continue to pay Executive (in accordance with regular payroll dates) an amount
equal one hundred percent (100%) of his then current Base Salary ("Severance
Pay"); provided, however, that the Company shall be entitled to reduce or offset
against such payments, or otherwise recover from Executive to the extent any
payments have been made, the amounts provided for in subparagraph (c) below;
provided further, however, in the event the any of the covenants set forth in
Paragraph 7 above are determined by a court of competent jurisdiction to be
unenforceable or if Executive breaches any such provision or provisions, then
Executive shall not be entitled to the Severance Pay set forth herein. Upon
thirty (30) days prior written notice, the Company may terminate its obligations
under this subparagraph 10(b), in which event Executive shall be released from
his obligations under Paragraph 7(d) with respect to his conduct arising after
the thirty (30) day period. In the event of termination of his employment,
Executive shall use his best efforts to seek and accept new employment with
compensation similar to or better than his Base Salary compensation. Upon
obtaining such employment, Executive shall give the Company prompt written
notice of his new employment, and Company's obligations to pay Severance Pay
shall cease without any effect on Employee's obligations hereunder, including
but not limited to Paragraph 7.
(c) The Company shall have the option, in its sole discretion, to credit any
amount owing to it (for any reason) against payments due to Executive from the
Company for any reason or to demand reimbursement from Executive.
11. WAIVER. The waiver by either party of a breach or provision of this
Agreement by the other shall not operate or be construed as a waiver of any
subsequent or other breach by such other party. No waiver by the Company shall
be effective unless it is made in writing and signed by the Chief Executive
Officer or President of the Company.
12. AMENDMENT. This Agreement may not be changed orally or rescinded, but
may only be changed or rescinded by a written instrument signed by the parties
hereto.
13. NOTICES. Any notice permitted or required hereunder shall be sufficient
if in writing, sent by registered or certified mail, return receipt requested or
express courier, and, in the case of the Company, to its principal business
address, and in the case of Executive, to his last known residence address as
listed on Executive's records with the Company, or as otherwise provided in a
written notice by a party. Notice shall be deemed to be received two (2) days
after its mailing.
14. BENEFITS AND ASSIGNABILITY. This Agreement shall inure to the benefit of
and be binding upon the parties and their successors and assigns, provided,
however, the duties of Executive under this Agreement are personal to him and
may not be assigned by him.
15. SEVERABILITY. The invalidity, illegality, or unenforceability of any
provision hereof shall not in any way affect, impair, invalidate or render
unenforceable this Agreement or any other provision hereof. It is intended that
each provision of this Agreement which is invalid or unenforceable as written be
valid and enforceable to the fullest extent possible. In the event that a court
of competent jurisdiction would hold all or any portion of Paragraph 7 hereof
unenforceable as a result of its geographic or business scope or duration, said
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Paragraph shall be construed as if its geographical or business scope had been
more narrowly drafted so as not to be invalid or unenforceable.
16. GOVERNING LAW. Notwithstanding that any of the parties hereto may now,
or at any time during the term of this Agreement, be domiciled outside of the
State of Wisconsin, this Agreement shall be regarded for all purposes as a
Wisconsin document and the validity and construction hereof, and all acts and
payments required hereunder, shall be determined and governed, in all respects,
by the laws of the State of Wisconsin.
17. ARBITRATION. Except for any claim or action by the Company regarding a
breach by Executive of any provision of Paragraph 7 or to enforce any provision
of Paragraph 7, any dispute, controversy or claim arising out of or relating to
this Agreement or any provision hereof, or the breach thereof, shall be resolved
and settled by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof.
Arbitration claims shall be filed and heard in Madison, Wisconsin.
18. TAXES. The Company shall be entitled to deduct or withhold all
applicable payroll and social security taxes where required on all compensation
and/or other benefits paid or reimbursed to Executive or any permitted successor
in interest.
19. INDEPENDENT ADVICE. Executive hereby represents and warrants to the
Company that he has been advised to and has had the opportunity to seek the
advice of independent counsel in connection with this Agreement and the
transactions contemplated hereby and has obtained such independent advice or
hereby waives his right to seek such independent advice. Executive further
represents that he has made the decision to execute this Agreement independent
of any other executive, his counsel or counsel to the Company.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be duly
executed the day and year above written.
COMPANY:
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC., a Delaware corporation
______________________________________
By:___________________________________
Its:__________________________________
EXECUTIVE:
_____________________________________
ROBERT BARTELS
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABC
SUPPLY'S CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998 AND CONSOLIDATED
STATEMENT ON INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,682
<SECURITIES> 0
<RECEIVABLES> 156,267
<ALLOWANCES> 7,164
<INVENTORY> 130,802
<CURRENT-ASSETS> 289,182
<PP&E> 117,107
<DEPRECIATION> 47,920
<TOTAL-ASSETS> 412,901
<CURRENT-LIABILITIES> 112,096
<BONDS> 281,658
0
0
<COMMON> 0
<OTHER-SE> 19,147
<TOTAL-LIABILITY-AND-EQUITY> 412,901
<SALES> 1,162,110
<TOTAL-REVENUES> 1,162,110
<CGS> 894,450
<TOTAL-COSTS> 894,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,075
<INCOME-PRETAX> (2,475)
<INCOME-TAX> 170
<INCOME-CONTINUING> (2,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,645)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
