<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, 1999 or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _________ to
__________
COMMISSION FILE NUMBER 33-26991
__________________________________________
AMERICAN BUILDERS & 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 knowledge, 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 & 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
200 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, 1999, 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 $638.8 million for the year ended December 31, 1995 to $1.2 billion for the
year ended December 31, 1999, representing a compound annual growth rate of
17.0%. In addition, comparable distribution center sales have grown at an
average annual rate of 5.0% over the same period.
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 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),
and CertainTeed(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), 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).
<PAGE>
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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Total Net Sales
------------------------------------
Product Categories 1999 1998 1997
------------------------------------
<S> <C> <C> <C>
(in millions)
Residential roofing $ 668.2 $ 612.7 $ 472.1
Commercial roofing 261.6 266.9 240.6
Siding 131.1 136.5 129.5
Windows 99.6 103.8 65.9
Other 37.0 42.2 51.2
------------------------------------
Total for all categories $ 1,197.5 $1,162.1 $ 959.3
====================================
</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.
Distribution Center Operations
The Company operates 200 local distribution centers located in 40 states.
Since January 1, 1997 the Company has opened 21 distribution centers, closed 13
distribution centers and acquired an additional 35 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 5.0% over the past five years.
2
<PAGE>
The following table sets forth the Company's growth in terms of distribution
centers in each of the past three years:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------
<S> <C> <C> <C>
Distribution centers on January 1 204 205 157
Distribution centers acquired 3 4 51
Distribution centers opened 3 7 11
Acquired distribution centers consolidated (6) (6) (11)
Distribution centers closed (4) (6) (3)
---------------------------
Distribution centers on December 31 200 204 205
===========================
</TABLE>
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. (Champ), a
regional building supply distributor with 32 locations located primarily in the
southwestern and western United States. 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 while they are
being integrated to the Company's systems and policies.
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, Elk Corporation of America, Tamko, Certainteed, Owens-Corning
Fiberglass Corporation, Johns Manville Corporation and Alcoa Building 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 13.1% of the Company's 1999 product purchases, GAF
(including its subsidiaries U.S. Intec, and Leatherback) was the only supplier
which represented more than 10% 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.
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, 1999, the Company employed 3,141 full-time and 98 part-time
employees, of whom 37 were members of unions. The Company's collective
bargaining agreements with its unions expire on various dates, from June 2000
through September 2002. The Company believes that its relations with its
employees are good.
3
<PAGE>
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.
4
<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, 1999:
Total Number
Region of Locations
- -------------------------------------------------------------
Midwest 47
Northeast 33
Southwest 31
Southeast 40
Rocky Mountain 25
Western 24
------------------
200
==================
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 1999, the Company settled a
lawsuit with Viking Aluminum Products, Inc. See Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, and Note 10 to
the Consolidated Financial Statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1999.
5
<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, 1999.
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, 1999.
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 thousands)
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales $ 1,197,509 $ 1,162,110 $ 959,321 $ 789,103 $ 638,821
Cost of sales 914,971 894,450 744,186 615,627 501,027
------------------------------------------------------------------------
Gross profit 282,538 267,660 215,135 173,476 137,794
Operating expenses:
Distribution centers 226,587 223,602 180,158 140,109 110,783
General and administrative 18,040 16,366 13,897 11,878 10,383
Amortization of intangible assets 1,686 1,735 747 329 169
Non-recurring charges 7,030 3,900 - - -
------------------------------------------------------------------------
Operating income 29,195 22,057 20,333 21,160 16,459
Net interest expense (22,413) (24,532) (16,480) (10,457) (9,092)
------------------------------------------------------------------------
Income (loss) before provision for income 6,782 (2,475) 3,853 10,703 7,367
taxes
Provision for income taxes (1) 171 170 311 329 338
------------------------------------------------------------------------
Net income (loss) $ 6,611 $ (2,645) $ 3,542 $ 10,374 $ 7,029
========================================================================
Balance Sheet Data (at end of period)
Accounts receivable, net $ 143,864 $ 149,103 $ 143,106 $ 92,360 $ 73,133
Inventories 135,511 130,802 128,847 95,779 79,297
Total assets 408,458 412,901 409,622 251,948 205,316
Accounts payable and accrued liabilities 104,773 107,040 100,483 71,805 61,069
Long-term debt, less current maturities 270,429 281,658 281,206 139,664 113,397
Stockholder's equity 27,674 19,147 21,792 31,960 25,524
</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".
6
<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,
1999:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Income Statement Data
Net sales 100.0% 100.0% 100.0%
Cost of sales 76.4 77.0 77.6
--------------------------------------------
Gross profit 23.6 23.0 22.4
Operating expenses:
Distribution centers 18.9 19.2 18.8
General and administrative 1.5 1.4 1.4
Amortization of intangible assets 0.2 0.2 0.1
Non-recurring charges 0.6 0.3 -
--------------------------------------------
Total operating expenses 21.2 21.1 20.3
--------------------------------------------
Operating income 2.4% 1.9% 2.1%
============================================
</TABLE>
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998
Net sales for the year ended December 31, 1999 increased by 3.0% in 1999 to
$1.2 billion. Comparable distribution center sales growth was 3.3% in 1999.
Gross profit for the year ended December 31, 1999 increased by 5.6% in 1999 to
$282.5 million from $267.7 million in 1998. This increase is primarily a result
of profits associated with increased sales. Gross profit, as a percentage of net
sales in 1999 increased to 23.6% from 23.0% in 1998. The increase is principally
due to management's continued focus on improving gross profit through increased
sales of products with higher gross profit margins.
Distribution center operating expenses for the year ended December 31, 1999
increased by 1.3% in 1999 to $226.6 million from $223.6 million in 1998. As a
percentage of net sales, distribution center operating expenses decreased to
18.9% in 1999 from 19.2% in 1998. This improvement is the result of two factors.
The first factor is an increased focus on controlling operating expenses at all
distribution centers. The majority of the focus is being placed on controlling
payroll expenses, which comprise more than 50 percent of the operating expenses.
Secondly, during 1998 distribution center operating expenses included the
integration of over 50 distribution centers from the 1997 acquisitions.
Partially offsetting these two factors is an increase in the provision for
doubtful accounts of $1.9 million in 1999 to $10.6 million from $8.7 million in
1998. This increase is a continuation of the collection trends experienced by
the Company during the last half of 1998.
General and administrative expenses increased by $1.6 million to $18.0 million
in 1999 from $16.4 million in 1998. This increase is the result of two factors.
First, during the last half of 1998 the Company reevaluated the support needs of
its distribution centers. This evaluation resulted in restructuring and adding
staff that provides technical support (inventory, sales, fleet) to the
distribution centers. This new structure was in place by the end of the first
quarter of 1999. Second, this evaluation resulted in a formal training program
for key branch personnel. This new training program was initiated during the
third quarter of 1999.
7
<PAGE>
Amortization of intangible assets remained at $1.7 million for both 1999 and
1998.
Non-recurring charge. In connection with the purchase of certain distribution
business assets of Viking Building Products, Inc. and Viking Aluminum Products,
Inc. (VAP) in 1997, the Company entered into a five year supply agreement with
VAP, regarding the sale to ABC of windows, awnings, doors and related products
manufactured by VAP. The supply agreement specified minimum annual purchases
through May 2002 and damages for shortfalls. The Company did not meet the
required minimum annual purchases for 1998. In February 1999, the Company filed
a lawsuit in the U.S. District court for the Western District of Wisconsin
seeking damages related to warranty and quality issues, among other issues. VAP
instituted a lawsuit in the U.S. District Court for the Southern District of New
York seeking approximately $2.3 million in damages under the terms of the supply
agreement for the period through December 31, 1998.
In December 1999, the Company and VAP reached a final settlement whereby the
Company paid $6.6 million to VAP. During 1999, the Company recorded a $7.0
million non-recurring charge related to this settlement and estimated legal and
other expenses. As part of this settlement, VAP agreed to amend the supply
agreement to substantially lower the minimum purchase requirements for 1999 and
2000 and to conclude the supply agreement on December 31, 2000. The Company has
met the revised 1999 purchase requirements, and believes it will meet the 2000
purchase requirements.
Interest expense decreased by $2.2 million to $22.9 million in 1999 from $25.1
million in 1998. The reduction is due to decreased interest rates on the
Company's LIBOR based borrowings and a reduction in the Company's average
borrowings.
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 $1.2 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>
Gross profit for the year ended December 31, 1998 increased by $52.6 million,
to $267.7 million in 1998 from $215.1 million in 1997, primarily as a result of
profits 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.
Distribution center operating expenses for the year ended December 31, 1998
increased by 24.1% to $223.6 million in 1998 from $180.2 million in 1997. As a
percentage of net sales, distribution center operating expenses increased to
19.2% in 1998 from 18.8% in 1997. The 1998 increase is the result of the Company
completing the integration of over 50 distribution centers from 1997
acquisitions. Considerable time and efforts were focused on converting the 1997
acquired accounts to the Company's credit and collection policies. During this
conversion process, the Company's provision for doubtful accounts increased to
$8.7 million in 1998 from $4.5 million in 1997.
8
<PAGE>
Distribution center operating income, which consists of net sales less cost of
sales and operating expenses for the distribution 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:
Distribution Centers 1998 1997 Change
------------------------------
(in millions)
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
==============================
The table set forth above illustrates that the Company's commitment to growth
has a significant impact on distribution center 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. For many years, the Company had
done a significant volume of business with a large commercial roofing contractor
in Chicago, IL. In 1998, the contractor's assets and business were foreclosed
upon by its bank. At that time, the Company had notes receivable for $4,698,000
from the contractor. Prior to this action by the bank, the contractor was
expanding his business and hand been paying the Company on a timely basis. 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.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash provided by (used in)
operations was $23.3 million for the year ended December 31, 1999 compared to
$11.8 million for the year ended December 31, 1998 and $(1.7) million for the
year ended December 31, 1997. The increase in 1999 was principally due to
improved earnings. The increase in 1998 was principally due to an increased
level of accounts payable.
9
<PAGE>
Cash Flows from Investing Activities. Net cash used in investing activities
was $13.9 million, $13.1 million and $111.5 million for the years ended December
31, 1999, 1998 and 1997, respectively. The Company's investing activities
consist primarily of costs associated with the acquisition of building products
distributors and capital expenditures. Acquisition of businesses were $1.0
million, $2.3 million and $86.7 million for the years ended December 31, 1999,
1998 and 1997, respectively. Capital expenditures were $14.2 million, $12.4
million and $25.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
Cash Flows from Financing Activities. Net cash provided by (used in) financing
activities was $(9.3) million, $1.8 million and $114.7 million for the years
ended December 31, 1999, 1998 and 1997, 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, 1999, the Company had $90.7
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. During 1999 the Company repurchased and retired $9.3
million of the Senior Subordinated Notes.
Revolving Credit Agreement. The Company is party to a credit agreement due
June 2002, which as of December 31, 1999, 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, 1999 was $157.9 million
and borrowings under the Revolver are secured by accounts receivable and
inventories.
Year 2000 Update
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. Expenditures in connection
with remediating its systems were not material to the Company's operations
during 1999. The Company is not aware of any material problems resulting from
Year 2000 issues, either with its services, its internal systems, or the
products and services of third parties. The Company will continue to monitor its
critical computer applications and those of its suppliers and vendors throughout
the Year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
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, 1999.
10
<PAGE>
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A) contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (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.
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's 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
2000 than they did during 1999, the Company's interest expense would increase,
and income before income taxes would decrease by approximately $1.6 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 uncertainty 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.
11
<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.
Name Age Position
- --------------------------------------------------------------------------------
Kenneth A. Hendricks 58 Chief Executive Officer and Chairman of the
Board
David Luck 50 President and Chief Operating Officer and
Director
Diane Hendricks 52 Executive Vice President, Secretary, and
Director
Kendra Story 40 Chief Financial Officer, Treasurer, and
Director
Robert Bartels 51 Senior Vice President of Operations
Keith Rozolis 40 Vice President of Strategic Marketing
and Planning
Gil Aleman 56 Director
Kent Nelson 55 Director
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. In May of 1999, Mr. Luck became a director of the Company. Prior to
joining ABC, 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 building materials industry with a variety of positions
with increasing responsibilities, which included national marketing and sales
and as vice president of sales.
Keith Rozolis has served as the Vice President of Strategic Marketing and
Planning since July 1999. Prior to joining ABC, Mr. Rozolis was with
Bridgestone/Firestone Retail Operations division since 1993, where he served in
several capacities including a Director of Tire Marketing. He also directed key
strategic initiatives related to tire marketing, automotive service
(MasterCare), systems and process reengineering, and collaborative internet
strategies for Bridgestone/Firestone. Mr. Rozolis earned a Masters degree from
the J.L. Kellogg Graduate School of Management Northwestern University and a
B.S. in Business Administration from Bucknell University.
Gil Aleman has served as a director of the Company since 1997. Mr. Aleman is
currently the Director of Operations for American Mortgage Capital Inc., a major
lender for all types of mortgages. Previously he served as President of the
Celotex roofing division for Jim Walter Corporation 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 Group, LLC, 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.
12
<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, 1999 for services rendered in all capacities to the Company and its
subsidiaries during the year ended December 31, 1999.
<TABLE>
<CAPTION>
All Other
Name and Principal Position Annual Compensation Compensation (1)
- ----------------------------------------------------------------------------------------------------------------
Annual Bonus
<S> <C> <C> <C>
Kenneth A. Hendricks $1,000,000 - $1,080
Chief Executive Officer and Chairman of the Board
David Luck 533,000 750,000 6,000
President and Chief Operating Officer
Diane M. Hendricks 250,000 - 1,905
Executive Vice President and Secretary
Kendra Story 200,000 - 720
Chief Financial Officer and Treasurer
Robert Bartels 175,000 - 0
Senior Vice President of Operations
</TABLE>
(1) Consists of estimated amounts paid by the Company for automobiles.
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 noncompetion 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 and amended November 30, 1999, which provides for his employment for a five
year period commencing on January 1, 1999. The agreement provides a bonus
program and severance package, and also contains noncompetion 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.
13
<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), Amfinity Capital, LLC
(Amfinity), Water Tower Industrial Properties (Water Tower), Hendricks
Commercial Properties (HCP), Hendricks Carolina Properties, LLC (Carolina),
Hendricks Peachtree, LLC (Peachtree), Hendricks Michigan Properties, LLC
(Michigan), Hendricks Oregon Properties, LLC (Oregon), 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, Peachtree, Michigan, Oregon, and
HCP. Amfinity provides business advisory services. APIA is an insurance broker
who provides services and arranges insurance for ABC. 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, 1999 was approximately $5.3 million and $4.8 million as of December 31,
1998. 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, 1999, occurred in April 1997 and
aggregated $8.2 million.
As described above, as of December 31, 1999, the Company leased 102 facilities
from Mr. Hendricks or his affiliates compared to 98 facilities as of December
31, 1998. For the years ended December 31, 1999 and 1998, the Company paid $12.8
million and $10.2 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 are adjusted annually to reflect changes in the
consumer price index.
As of December 31, 1999 and 1998, 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 $5.5 million and $4.7 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 1999 and aggregated $5.5 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, $11.8
million and $9.5 million in 1999 and 1998, respectively, for claim liabilities,
as determined by an independent actuarial service
During 1997, the Company entered into an employment agreement (Employment
Agreement) with Mr. Hendricks which provided 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.
Effective January 1, 2000 the independent directors approved a $200,000 annual
raise for Mr. Hendricks. His Employment Agreement automatically renews unless
ABC or Mr. Hendricks otherwise elect.
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.
14
<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 16
Consolidated Balance Sheets as of December 31, 1999 and 1998 17
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 18
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1999, 1998 and 1997 19
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 20
Notes to Consolidated Financial Statements 21
</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, 1999, the Company had no current
filings on Form 8-K.
(c) EXHIBITS:
See Exhibit Index submitted as a separate section of this report.
15
<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, 1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. 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 6, 2000
16
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share amounts)
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------
<S> <C> <C>
Assets (Note 3)
Current assets:
Cash $ 4,717 $ 4,682
Accounts receivable, less allowance for doubtful accounts of $6,975--
1999 and $7,164--1998 143,864 149,103
Inventories 135,511 130,802
Prepaid expenses and other 3,672 4,595
--------------------------
Total current assets 287,764 289,182
Property and equipment, net (Note 4) 67,515 69,190
Receivable from sole stockholder and affiliates (Note 6) 5,320 4,840
Goodwill, net of accumulated amortization of $3,089--1999 and $1,794--1998 39,143 40,438
Other intangible assets, net of accumulated amortization of $2,625--1999 and
$1,578--1998 6,200 7,211
Security deposits 740 992
Other assets 1,776 1,048
--------------------------
$ 408,458 $412,901
==========================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 82,497 $ 84,979
Accrued payroll and benefits 9,930 9,028
Accrued liabilities 12,346 13,033
Current portion of long-term debt (Note 3) 5,582 5,056
--------------------------
Total current liabilities 110,355 112,096
Long-term debt (Note 3) 270,429 281,658
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 - -
Additional paid-in capital 3,780 1,864
Retained earnings 23,894 17,283
--------------------------
Total stockholder's equity 27,674 19,147
--------------------------
$ 408,458 $412,901
==========================
</TABLE>
See accompanying notes.
17
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Net sales $1,197,509 $1,162,110 $959,321
Cost of sales 914,971 894,450 744,186
------------------------------------------------
Gross profit 282,538 267,660 215,135
Operating expenses:
Distribution centers 226,587 223,602 180,158
General and administrative 18,040 16,366 13,897
Amortization of intangible assets 1,686 1,735 747
Non-recurring charges (Note 10) 7,030 3,900 -
------------------------------------------------
253,343 245,603 194,802
------------------------------------------------
Operating income 29,195 22,057 20,333
Other income (expense):
Interest income 500 542 470
Interest expense (22,913) (25,074) (16,950)
------------------------------------------------
(22,413) (24,532) (16,480)
------------------------------------------------
Income (loss) before provision for income taxes 6,782 (2,475) 3,853
Provision for income taxes 171 170 311
------------------------------------------------
Net income (loss) $ 6,611 $ (2,645) $ 3,542
================================================
</TABLE>
See accompanying notes.
18
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Additional Retained Total Stock-
Stock Paid-in Capital Earnings holder's Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 109 $1,215 $ 30,637 $ 31,961
Net income - - 3,542 3,542
Contributions by sole stockholder - 540 - 540
Distributions to sole stockholder - - (14,251) (14,251)
Change state of incorporation (109) 109 - -
-------------------------------------------------------------------------
Balance at December 31, 1997 - 1,864 19,928 21,792
Net loss - - (2,645) (2,645)
-------------------------------------------------------------------------
Balance at December 31, 1998 - 1,864 17,283 19,147
Net income - - 6,611 6,611
Contributions by sole stockholder - 1,916 - 1,916
-------------------------------------------------------------------------
Balance at December 31, 1999 $ - $3,780 $ 23,894 $ 27,674
=========================================================================
</TABLE>
See accompanying notes.
19
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 6,611 $ (2,645) $ 3,542
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities, net of acquisitions:
Depreciation 14,330 14,051 11,117
Amortization 1,686 1,735 747
Amortization of deferred financing costs 670 435 233
Non-recurring charge - 3,900 -
Provision for doubtful accounts 10,648 8,690 4,464
Loss on disposal of property and equipment 282 454 306
Change in operating assets and liabilities:
Accounts receivable (5,202) (18,213) (12,973)
Inventories (3,941) (1,350) (2,980)
Prepaid expenses and other 930 (833) (1,855)
Security deposits 252 33 296
Other assets (728) (969) 843
Accounts payable (2,482) 6,490 (9,062)
Accrued liabilities 215 66 3,628
-------------------------------------------------
Cash provided by (used in) operating activities 23,271 11,844 (1,694)
Investing activities
Additions to property and equipment (14,194) (12,376) (25,346)
Proceeds from disposal of property and equipment 1,317 1,580 528
Acquisition of businesses (1,042) (2,263) (86,688)
-------------------------------------------------
Cash used in investing activities (13,919) (13,059) (111,506)
Financing activities
Net borrowings (payments) under line of credit (5,348) (482) 47,285
Proceeds from long-term debt 5,000 3,724 100,109
Payments on long-term debt (10,355) (3,874) (13,222)
Net change in receivable from/payable to sole stockholder and (480) 2,489 (2,179)
affiliates
(Distributions to) contributions from sole stockholder 1,916 - (13,711)
Deferred financing costs (50) (100) (3,572)
------------------------------------------------
Cash provided by (used in) financing activities (9,317) 1,757 114,710
------------------------------------------------
Net increase in cash 35 542 1,510
Cash at beginning of year 4,682 4,140 2,630
------------------------------------------------
Cash at end of year $ 4,717 $ 4,682 $ 4,140
================================================
Supplemental disclosures of cash flow information are as follows:
Cash paid for interest $ 22,691 $ 24,691 $ 15,246
Cash paid for income taxes 176 325 382
</TABLE>
See accompanying notes.
20
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 200, 204 and 205 distribution center
locations at December 31, 1999, 1998 and 1997, 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:
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 include noncompete agreements and deferred
financing costs which are amortized over the term of the respective agreements
or loans (ranging from 3 to 15 years).
Impairment of Long-Lived Assets
Property and equipment, goodwill, other intangible assets, and other assets
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of the expected
undiscounted cash flows is less than the carrying value of the related asset or
group of assets, a loss is recognized for the difference between the fair value
and carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
21
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue upon delivery of product to the customer,
which typically occurs at the Company's distribution center locations.
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. Late payment charges were approximately $3,861,000, $4,654,000 and
$3,505,000 in 1999, 1998 and 1997, respectively.
Advertising
Advertising costs are expensed in the period incurred. Total advertising
expense was approximately $4,001,000, $3,990,000, and $3,896,000 for 1999, 1998
and 1997, 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 approximately $171,000, $170,000, and $311,000 have
been made for such income taxes for the years ended December 31, 1999, 1998 and
1997, 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.
1999 Acquisitions
During 1999, the Company made three acquisitions, with an aggregate cost of
approximately $1,000,000. The cost of the acquisitions approximated the fair
value of the net assets acquired.
22
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Business Acquisitions (continued)
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
totaled $1,000,000.
Unaudited pro forma financial information for the acquisitions in 1999 and
1998 is not presented because these acquisitions did not have a material impact
on the Company's results of operations.
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, totaled $36,000,000.
On May 19, 1997, the Company acquired certain assets and assumed certain
liabilities 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, totaled $2,850,000.
During 1997, the Company also made several other acquisitions, with an
aggregate cost of approximately $3,500,000.
3. Long-Term Debt
Long-term debt consists of the following:
December 31,
1999 1998
---------------------------
(in thousands)
Revolving line of credit $ 157,935 $ 163,283
Senior Subordinated Notes 90,650 100,000
Equipment loans 21,300 16,300
Mortgage notes payable 6,001 6,131
Other notes payable 125 1,000
---------------------------
276,011 286,714
Less current maturities 5,582 5,056
---------------------------
$ 270,429 $ 281,658
===========================
23
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Long-Term Debt (continued)
ABC has a financing agreement with a group of banks (Revolver) which
expires on June 30, 2002, under which ABC may borrow, on a revolving credit
basis, up to a maximum of $250,000,000. At December 31, 1999, the Company had
$25,500,000 of availability under the Revolver. The average availability during
1999 was approximately $43,000,000 based on a percentage of eligible accounts
receivable and eligible inventories. Interest on the Revolver at December 31,
1999 was primarily based on LIBOR plus 1.25%. The weighted average interest rate
on all borrowings outstanding under the Revolver at December 31, 1999 and 1998
was 7.7% and 6.4%, respectively.
The Revolver contains various covenants, including, among other things,
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 common
stock.
The Company's 10 5/8% Senior Subordinated Notes are due in 2007. During
1999, the Company repurchased and retired $9,350,000 of the Senior Subordinated
Notes. The difference between the par value of the Senior Subordinated Notes
repurchased and the repurchased price, net of the applicable portion of the
unamortized deferred financing fees written off, was not material.
In 1999, the Company obtained a $5,000,000 note due in 48 monthly principal
and interest installments beginning in February 2000. The note is collateralized
by specific equipment (delivery trucks, trailers and forklifts) and bears
interest at 8.01%. In 1998, the Company refinanced its previous equipment loans
with a $16,300,000 note, collaterallized by specific equipment (delivery trucks,
trailers, and forklifts). Principal payments of $4,075,000 are due in July 2000
and 2001 with the remaining principal balance due in July 2002. The note bears
interest at 7.1% and is payable monthly.
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 was 8.375% through February 1, 1999. From February 2, 1999
through February 1, 2001 the rate is 7.75%, and is adjusted annually thereafter.
The Company has various other notes payable with maturity dates ranging
from 2000 through 2002. Substantially all of the Company's assets are collateral
for the Company's indebtedness.
Future maturities of long-term debt as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
Amount
---------------
(in thousands)
Year ending December 31,
<S> <C>
2000 $ 5,582
2001 6,067
2002 172,481
2003 1,231
2004 -
Thereafter 90,650
--------
$276,011
--------
</TABLE>
24
<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,
1999 1998
-----------------------
(in thousands)
<S> <C> <C>
Land $ 3,610 $ 3,370
Buildings and improvements 13,497 12,730
Warehouse equipment 11,048 9,964
Vehicles 69,840 65,351
Office furniture and equipment 12,821 11,857
Leasehold improvements 14,488 13,838
-----------------------
125,304 117,110
Less accumulated depreciation 57,789 47,920
-----------------------
$ 67,515 $ 69,190
=======================
</TABLE>
5. Lease Commitments
ABC conducts the majority of its operations in leased facilities under
operating leases expiring at various dates through 2009. 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, 1999, the real estate for 102 of the distribution
centers was owned by a related party. The total rent expense for these related-
party leases was approximately $12,820,000, $10,191,000, and $7,492,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Rent expense under all leases totaled $20,743,000, $20,872,000 and
$16,998,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum rental payments required as of December 31, 1999, under all
leases with initial or remaining terms of more than one year are as follows:
<TABLE>
<CAPTION>
Amount
---------------
(in thousands)
<S> <C>
Year ending December 31,
2000 $ 19,105
2001 17,690
2002 16,378
2003 13,224
2004 11,949
Thereafter 35,024
--------
Future minimum payments required $113,370
========
</TABLE>
25
<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 the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------
(in thousands)
<S> <C> <C> <C>
Accounts receivable $ 49 $ 14 $ 27
Security deposits 320 361 414
Sales 76 94 100
Purchases 385 110 56
Rent expense 12,820 10,191 7,492
Interest income 467 531 466
</TABLE>
Interest on the receivables from the sole stockholder is charged at a rate
comparable to the interest rate ABC pays on its Revolver.
At December 31, 1999 and 1998, the Company had guaranteed debt of the sole
stockholder in the amounts of approximately $1,870,000 and $1,939,000,
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 approximately $3,664,000 and $2,764,000 at
December 31, 1999 and 1998, 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 carriers. The Company paid an insurance broker,
also owned by the sole stockholder and spouse, net of reimbursements,
approximately $11,762,000, $9,499,000 and $5,880,000 in 1999, 1998 and 1997,
respectively, for claim liabilities, as determined by an independent actuarial
service.
7. Contingent Liabilities
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.
8. Employee Benefit Plan
The Company sponsors a 401(k) plan covering substantially all employees.
Contributions which are at the discretion of the Company approximated $204,000
and $924,000 in 1998 and 1997, respectively. No discretionary contributions were
made in 1999.
26
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable and
borrowings under the Revolver approximated fair value at December 31, 1999 and
1998. The value of the Senior Subordinated Notes, based on quoted market prices,
is as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------
(in thousands)
<S> <C> <C>
Par Value $90,650 $100,000
Fair Value 84,305 90,250
</TABLE>
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 Charges
In connection with the purchase of certain distribution business assets of
Viking Building Products, Inc. and Viking Aluminum Products, Inc. (VAP) in 1997,
the Company entered into a five year supply agreement with VAP, regarding the
sale to ABC of windows, awnings, doors and related products manufactured by VAP.
The supply agreement specified minimum purchases of approximately $20,000,000
per year through May 2002 and damages for shortfalls. The Company did not meet
the required minimum annual purchases for 1998. In February 1999, the Company
filed a lawsuit in the U.S. District court for the Western District of Wisconsin
seeking damages related to warranty and quality issues, among other issues. VAP
instituted a lawsuit in the U.S. District Court for the Southern District of New
York seeking approximately $2,250,000 in damages under the terms of the supply
agreement for the period through December 31, 1998.
In December 1999, the Company and VAP reached a final settlement whereby
the Company paid $6,550,000. The Company has recorded a $7,030,000 non-recurring
charge related to this settlement and estimated legal and other expenses. As
part of this settlement, VAP agreed to amend the supply agreement to
substantially lower the minimum purchase requirements for 1999 and 2000 and to
conclude the supply agreement on December 31, 2000. The Company has exceeded the
revised 1999 purchase requirements of $8,000,000, and believes it will meet the
2000 purchase requirements of $10,000,000.
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 notes
receivable for $4,698,000 from the contractor.
27
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Non-Recurring Charges (continued)
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 transaction during 1998 (in
thousands):
<TABLE>
<S> <C>
Note receivable $ 4,698
Purchase of assets from the bank 750
Expenses incurred to complete work in process, legal expenses and other 1,527
Estimated additional expenses to be incurred 525
-------
Total costs 7,500
Amounts realized from sale of assets and collections
of receivables (1,498)
Estimated additional amounts to be realized (2,102)
-------
Provision for loss $ 3,900
=======
</TABLE>
Included in other current assets in the Company's consolidated balance sheets
is approximately $437,000 and $1,577,000 at December 31, 1999 and 1998,
respectively, representing the estimated remaining amount to be realized net of
estimated expenses to be incurred.
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 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,
1999 1998
---------------------------
(in thousands)
<S> <C> <C>
Current assets:
Accounts receivable from ABC $ 6,879 $ 3,596
Other current assets - third parties 3,041 3,633
---------------------------
Total 9,920 7,229
Noncurrent assets 632 655
Current liabilities (6,454) (5,821)
Noncurrent liabilities - -
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales:
To ABC $46,430 $45,525 $38,173
To third parties 2,606 5,617 5,869
------------------------------------------------
Total 49,036 51,142 44,042
Gross profit 8,143 8,117 7,573
Net income 2,034 1,945 1,593
</TABLE>
28
<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 20, 2000.
AMERICAN BUILDERS AND CONTRACTORS SUPPLY
CO. INC.
By: /s/ Kendra A. Story
--------------------------
Kendra A. Story
Chief Financial Officer, Treasurer
29
<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)].
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)].
30
<PAGE>
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"). [Incorporated by reference to exhibit 10.11 to the Company's
Form 10-K for the period ending December 31, 1998 (File No. 33-26991)]
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. [Incorporated by reference to exhibit 10.11 to the
Company's Form 10-K for the period ending December 31, 1998 (File No. 33-
26991)]
10.14 Consent and Second Amendment to the Second Amended and Restated Loan and
Security Agreement [Incorporated by reference to exhibit 10.1 to the
Company's Form 10-Q for the period ending March 31, 1999 (File No. 33-
26991)]
10.15 Third Amendment to the Second Amended and Restated Loan and Security
Agreement among American Builders & Contractors Supply Co., Inc., and Bank
of America, N.A. as Agent and a Lender [Incorporated by reference to
exhibit 10.1 to the Company's Form 10-Q for the period ending September
30, 1999 (File No. 33-26991)]
10.16 Amendment to Executive Employment Agreement, dated as of November 30,
1999 between the Company and Robert Bartels.
10.17 Restated Third Amendment to Second Amended and Restated Loan and Security
Agreement among American Builders & Contractors Supply Co., Inc, and Bank
of America, N.A. as Agent and a Lender.
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.
31
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Additions Charged to Balance at
Beginning of Charged to Other Accounts Deductions End of
Description Year Expense (2) (1) Year
- ----------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable--Allowance for
doubtful accounts:
1999 $7,164 $ 10,648 $ - $10,837 $ 6,975
1998 5,949 8,690 700 8,175 7,164
1997 4,325 4,464 1,733 4,573 5,949
</TABLE>
(1) Consist of charge-offs, net of recoveries
(2) Allowance for doubtful accounts recorded in connection with acquisitions
32
<PAGE>
Exhibit 10.16
Amendment to Executive Employment Agreement
This Amendment to Executive Employee Agreement ("Amendment") is entered
into on this 30 day of November, 1999, by and between AMERICAN BUILDERS &
CONTRACTORS SUPPLY CO., INC. (the "Company") and ROBERT BARELTS ("Executive").
WHEREAS, the Company and Executive entered into that certain Employment
Agreement dated November 30, 1998 (the "Agreement"); and
NOW, THEREFORE, in consideration of the mutual covenants made herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and Executive agree as follows:
1. All capitalized terms used herein and not otherwise defined shall have the
same meaning as such term is given in the Agreement.
2. Section 4(b) of the Agreement is hereby amended and restated in its
entirety as follows:
(b) Annual Bonus. For each calendar year of the Term from 1999
-------------
through 2003, Executive shall receive a bonus equal to one percent
(1.0%) of the Company's Net Profits over the Threshold, 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) is referred to herein as the "Annual
Bonus". The Annual Bonus, if any, shall be paid on April 30/th/ of the
calendar year following the year for which the bonus is determined. A
calculation example for 2000 follows:
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
Total annual Bonus: $ 132,000.00
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 Earning Bonus.
3. All references in the agreement shall mean the Agreement as amended
hereby.
4. Except as set forth here, in the agreement is herby ratified and
affirmed in all respects and remains in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Company and Executive have executed this Amendment
on the date and year first written above.
AMERICAN BUILDERS
& CONTRACTORS
SUPPLY CO., INC.: EXECUTIVE:
____________________________ ___________________________________
David Luck, President Robert Bartels, individually
<PAGE>
Exhibit 10.17
RESTATED THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Restated Third Amendment to Second Amended and Restated Loan and
Security Agreement ("Amendment"), dated effective as of November 3, 1999 (the
---------
"Effective Date"), is entered into among American Builders & Contractors Supply
--------------
Co., Inc., a Delaware corporation (the "Borrower") with its chief executive
--------
office located at One ABC Parkway, Beloit, Wisconsin, the financial institutions
listed on the signature pages hereof (individually, a "Lender" and collectively,
------
the "Lenders") and Bank of America, N.A., a national banking association and
-------
successor in interest to Bank of America, N.A., formerly NationsBank, N.A.,
successor in interest to NationsBank of Texas, N.A., as Agent for the Lenders
(in such capacity, the "Agent"):
-----
Recitals
- --------
a. The Borrower, the Lenders and the Agent are party to that certain
Second Amended and Restated Loan and Security Agreement dated as of May 12,
1998, as amended by the First Amendment to Second Amended and Restated Loan and
Security Agreement dated effective as of January 15, 1999, the Consent and
Second Amendment (the "Second Amendment") to Second Amended and Restated Loan
----------------
and Security Agreement dated effective as of May 5, 1999 and the Third
Amendment (the "Third Amendment") to Second Amended and Restated Loan and
---------------
Security Agreement dated effective as of November 3, 1999 (the "Loan Agreement")
--------------
pursuant to which the Lenders have agreed to make certain loans and extend
certain other financial accommodations to the Borrower as provided therein
(terms defined by the Loan Agreement, where used in this Amendment, shall have
the same meanings in this Amendment as are prescribed by the Loan Agreement).
b. The Borrower, the Agent, and the Lenders have agreed to restate the
Third Amendment to carry forward and include certain provisions in the
restatement of Section 8.17 of the Loan Agreement (as provided by Section 1.4 of
------------
the Third Amendment), which provisions were previously included by the Second
Amendment but were inadvertently omitted from the Third Amendment.
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, it hereby
is agreed that the Third Amendment hereby is corrected and restated as provided
herein.
ARTICLE I
AMENDMENT TO LOAN AGREEMENT
1.1. Amendment to Section 1.1 of the Loan Agreement. Section 1.1
---------------------------------------------- -----------
("Requisite Lenders") of the Loan Agreement is hereby amended and restated to
-----------------
read in its entirety as follows:
1.1 "Requisite Lenders" shall mean Lenders having, in the aggregate,
-----------------
Pro Rata Shares of at least 66.67%.
1.2. Amendment to Section 2.8 of the Loan Agreement. Section 2.8
---------------------------------------------- -----------
("Term of this Agreement") of the Loan Agreement is hereby amended and
-----------------------
restated to read in its entirety as follows:
<PAGE>
2.8 Term of this Agreement. Subject to all other terms and
----------------------
conditions hereof, this Agreement shall be effective until June 30, 2002
(the "Initial Term") and shall automatically extend for successive one year
------------
periods (each a "Term") of one year (each extending through the next
----
succeeding June 30) unless terminated by the Borrower or the Agent or any
of the Lenders by written notice of intention to terminate this Agreement
as of the end of the Initial Term or any such Term, as the case may be,
which, in order to be effective, must be delivered to all other parties to
this Agreement at least sixty (60) days prior to the end of the Initial
Term or any such Term, as the case may be. Following timely delivery of
any such notice, unless otherwise agreed in writing by the Borrower, the
Agent and all the Lenders, this Agreement shall terminate as of the
expiration of the Initial Term or any such Term, as the case may be,
provided that (a) all of the Agent's and each of the Lenders' rights and
--------
remedies under this Agreement and (b) the security interests reaffirmed and
created under Section 5.1 and under any of the other Financing Agreements,
-----------
shall survive any such termination until all of the Liabilities under this
Agreement and the other Financing Agreements have been paid in full. In
addition, the Agent may at any time demand repayment of the Liabilities and
the Liabilities may be accelerated as set forth in Section 9.1. Upon the
-----------
effective date of termination, all of the Liabilities shall become
immediately due and payable without notice or demand. Notwithstanding any
termination, until all of the Liabilities hereunder shall have been fully
paid and satisfied, the Agent shall be entitled to retain its security
interests, for the benefit of the Lenders, in and to all existing and
future Collateral and the Borrower shall continue to remit collections of
Accounts and proceeds as provided herein.
1.3. Amendment to Section 8.8 of the Loan Agreement. Section 8.8
---------------------------------------------- -----------
("Capital Expenditures Limitation") of the Loan Agreement is hereby amended and
-------------------------------
restated to read in its entirety as follows:
8.8 Capital Expenditure Limitations. The Borrower and its
-------------------------------
Subsidiaries, if any, shall not purchase, invest in or otherwise acquire,
additional real estate, Equipment, Rolling Stock or other fixed assets,
which, in the aggregate, cost the Borrower and its Subsidiaries, if any,
more than Twenty Six Million Five Hundred Thousand Dollars ($26,500,000.00)
during the calendar year ending December 31, 1997, Thirty Million Dollars
($30,000,000.00) during the calendar year ending December 31, 1998, Twenty
Million Dollars ($20,000,000.00) during the calendar year ending December
31, 1999, Thirty Million Dollars ($30,000,000.00) during the calendar year
ending December 31, 2000 and Thirty Five Million Dollars ($35,000,000.00)
during the calendar year ending December 31, 2001, and any calendar year
thereafter. For purposes of the foregoing, there shall be excluded
therefrom capital expenditures made to finance Store Acquisitions pursuant
to Section 8.3.
-----------
1.4. Amendment to Section 8.17 of the Loan Agreement. Section 8.17
----------------------------------------------- ------------
("Minimum Tangible Net Worth") of the Loan Agreement is hereby amended and
--------------------------
restated to read in its entirety as follows:
8.17 Minimum Tangible Net Worth. Tangible Net Worth, as determined
--------------------------
as of each date set forth below, shall not be less than the amount set
forth below opposite such date:
Date................... Amount
---- ------
December 31, 1998...... $60,000,000.00
December 31, 1999...... An amount, determined as of the end of
such fiscal year, equal to $70,000,000.00
less the aggregate face amount, if any, of
Repurchased Senior Subordinated Notes
December 31, 2000...... An amount, determined as of the end of
such fiscal year, equal to $75,000,000.00
less the aggregate face amount, if any, of
Repurchased Senior Subordinated Notes
December 31, 2001...... An amount, determined as of the end of
such fiscal year, equal to $80,000,000.00
less the aggregate face amount, if any, of
Repurchased Senior Subordinated Notes
<PAGE>
1.5. Amendment to Section 8.18 of the Loan Agreement. Section 8.18
----------------------------------------------- ------------
("Maximum Funded Debt to EBITDA") of the Loan Agreement is hereby amended and
------------------------------
restated to read in its entirety as follows:
8.18 Maximum Funded Debt to EBITDA. The ratio of Funded Debt to
-----------------------------
EBITDA, determined as of the last day of each calendar quarter and measured
for the preceding period of four calendar quarters, shall not exceed the
following prescribed amounts, as applicable:
Date.............. Ratio
---- -----
December 31, 1997........ 10.00 to 1.0
March 31, 1998........... 10.75 to 1.0
June 30, 1998............ 9.75 to 1.0
September 30, 1998....... 8.50 to 1.0
December 31, 1998........ 8.00 to 1.0
March 31, 1999........... 7.75 to 1.0
June 30, 1999............ 7.50 to 1.0
September 30, 1999....... 7.25 to 1.0
December 31, 1999........ 7.00 to 1.0
March 31, 2000........... 6.90 to 1.0
June 30, 2000............ 6.80 to 1.0
September 30, 2000....... 6.50 to 1.0
December 31, 2000........ 6.40 to 1.0
March 31, 2001........... 6.30 to 1.0
June 30, 2001............ 6.20 to 1.0
September 30, 2001....... 6.10 to 1.0
December 31, 2001........ 6.00 to 1.0
March 31, 2002........... 5.95 to 1.0
June 30, 2002............ 5.90 to 1.0
1.6. Amendment to Section 8.19 of the Loan Agreement. Section 8.19
----------------------------------------------- ------------
("Minimum Fixed Charge Coverage Ratio") of the Loan Agreement is hereby amended
-----------------------------------
and restated to read in its entirety as follows:
8.19 Minimum Fixed Charge Coverage Ratio. The ratio of (i) EBITDA
-----------------------------------
to (ii) the sum of interest expense plus the principal portion of current
maturities of long term indebtedness (determined on a consolidated basis
for the Borrower and its Subsidiaries), determined as of the last day of
each calendar quarter and measured for the preceding period of four
calender quarters, shall not be less than the following prescribed amounts,
as applicable:
Date............... Ratio
---- -----
December 31, 1997........ 1.25 to 1.0
March 31, 1998........... 1.00 to 1.0
June 30, 1998............ 1.05 to 1.0
September 30, 1998....... 1.15 to 1.0
December 31, 1998........ 1.20 to 1.0
March 31, 1999........... 1.20 to 1.0
June 30, 1999............ 1.25 to 1.0
September 30, 1999....... 1.35 to 1.0
Each Quarter Thereafter.. 1.35 to 1.0
ARTICLE II
MISCELLANEOUS
2.1. Conditions to Effectiveness. This Amendment, including the
---------------------------
amendments and other terms set forth herein, shall become effective as of the
Effective Date upon the satisfaction of each the following conditions precedent,
all of which must be satisfied and acceptable in form and substance to the Agent
and each of the Lenders signatory hereto in each of their sole discretion.
<PAGE>
a. Execution and Delivery. This Amendment shall have been executed
----------------------
and delivered by each of the Borrower, the Agent and Requisite Lenders.
b. Consent and Agreement of Guarantors. Each of Amcraft Building
-----------------------------------
Products Co., Inc. and Mule-Hide Products Co., Inc. shall have executed the
Consent and Agreement of Guarantors which is attached to and made a part of
this Amendment, in form and substance satisfactory to the Agent.
c. Consent and Agreement by Validity Guarantors. Each of Kendra A.
--------------------------------------------
Story and Kenneth A. Hendricks shall have executed the Consent and
Agreement by Validity Guarantors which is attached to and made a part of
this Amendment, in form and substance satisfactory to the Agent.
d. 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.
2.2. Representations, Warranties, Covenants of Borrower. The Borrower
--------------------------------------------------
hereby represents and warrants that as of the date of this Amendment and after
giving effect thereto (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 and (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.
2.3. 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.
2.4. Amendment Fee. Subject to the terms of the Loan Agreement, in
-------------
consideration of this Amendment the Borrower agrees to pay to the Agent, for the
benefit of the Lenders, an amendment fee in the amount of $50,000.
2.5. 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.
2.6. 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. A telecopy of any such executed counterpart
shall be deemed valid and may be relied upon as an original.
2.7. Effectiveness. This Amendment shall be deemed effective
-------------
prospectively as of the Effective Date specified in the preamble upon execution
by the Borrower, the Agent and sufficient of the Lenders whose names appear on
the signature pages below to constitute Requisite Lenders (subject, however, to
------- -------
<PAGE>
the prior satisfaction of all other conditions for effectiveness as specified by
Section 2.1), whereupon the Third Amendment shall be deemed to be corrected and
- -----------
restated pursuant to the terms of this Amendment.
2.8. No Oral Agreements. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
------------------
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.
[SIGNATURES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first written above.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
ATTEST:............................ By:
Name:.............................. Kendra A. Story, Chief Financial Officer
Title:............................. Date signed: March __, 2000
By:................................
BANK OF AMERICA, N.A............... AMERICAN NATIONAL BANK AND
In its capacity as Agent........... TRUST COMPANY OF CHICAGO
................................... In its capacity as Co-Agent
By:................................ By:
Doug Motl, Vice President.......... David Weislogel, Vice President
Date signed: March __, 2000........ Date signed: March __, 2000
BANK OF AMERICA, N.A............... AMERICAN NATIONAL BANK AND
In its capacity as a Lender........ TRUST COMPANY OF CHICAGO
................................... In its capacity as a Lender
By:................................ By:
Doug Motl, Vice President.......... David Weislogel, Vice President
Date signed: March __, 2000........ Date signed: March __, 2000
LASALLE BUSINESS CREDIT, INC....... HARRIS TRUST AND SAVINGS BANK
By:................................ By:
Name:.............................. Venkata Ramani, Vice President
Title:.............................
Date signed: March __, 2000........ Date signed: march __, 2000
FLEET CAPITAL CORPORATION.......... FLEET BUSINESS CREDIT CORPORATION
By:................................ By:
Dan Hughes, Vice President......... Dan Hughes, Vice President
Date signed: March __, 2000........ Date signed: March __, 2000
<PAGE>
CONSENT AND AGREEMENT BY GUARANTORS
Each of the undersigned consents to the foregoing Amendment and each of the
undersigned agrees to the continued effectiveness of the Amended and Restated
Guaranty Agreement dated as of May 12, 1998, executed and delivered by each of
the undersigned, respectively, to the Agent for the benefit of the Lenders. All
references in each such Guaranty, respectively, 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 thereof. This Consent and Agreement is executed
as of the Effective Date specified in the Amendment.
AMCRAFT BUILDING PRODUCTS CO., INC.
By:___________________________________________
Kendra A. Story, Chief Financial Officer
Date signed: March __, 2000
MULE-HIDE PRODUCTS CO., INC.
By:___________________________________________
Kendra A. Story, Chief Financial Officer
Date signed: March __, 2000
CONSENT AND AGREEMENT BY VALIDITY GUARANTORS
Each of the undersigned consents to the foregoing Amendment and each of the
undersigned agrees to the continued effectiveness of the Validity Certification
dated as of May 12, 1998, executed and delivered by each of the undersigned,
respectively, to the Agent for the benefit of the Lenders. All references in
each such Validity Certification, respectively, 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 thereof. This Consent and Agreement is executed
as of the Effective Date specified in the Amendment.
_________________________________
Kenneth A. Hendricks
_________________________________
Kendra A. Story
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE MONTH
ENDED DECEMBER 31 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,717
<SECURITIES> 0
<RECEIVABLES> 150,839
<ALLOWANCES> 6,975
<INVENTORY> 135,511
<CURRENT-ASSETS> 287,764
<PP&E> 125,304
<DEPRECIATION> 57,789
<TOTAL-ASSETS> 408,458
<CURRENT-LIABILITIES> 110,355
<BONDS> 270,429
0
0
<COMMON> 0
<OTHER-SE> 27,674
<TOTAL-LIABILITY-AND-EQUITY> 408,458
<SALES> 1,197,509
<TOTAL-REVENUES> 1,197,509
<CGS> 914,971
<TOTAL-COSTS> 914,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,648
<INTEREST-EXPENSE> 22,913
<INCOME-PRETAX> 6,782
<INCOME-TAX> 171
<INCOME-CONTINUING> 6,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,611
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
