<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] 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 001-13195
INDUSTRIAL DISTRIBUTION GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2299339
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2500 Royal Place, Tucker, Georgia 30084
-----------------------------------------------------
(Address of principal executive offices and zip code)
(770) 243-9000
-----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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
--- ---
Shares outstanding of the issuer's Common Stock at September 30, 1997:
7,254,973 shares of Common Stock, $0.01 par value share.
<PAGE> 2
INDEX
INDUSTRIAL DISTRIBUTION GROUP, INC.
PART I. Financial Information
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1997
Consolidated Statements of Operations for the three
months ended September 30, 1996 and 1997
Consolidated Statements of Operations for the nine
months ended September 30, 1996 and 1997
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1996 and 1997
Notes to the Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. Other Information
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31 SEPTEMBER 30,
1996 1997
----------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash & Cash Equivalents $ 1,407 $ 37,311
Accounts Receivable, net 3,973 31,628
Inventory, net 4,455 34,909
Prepaid and Other Current Assets 1,366 2,268
-------- --------
TOTAL CURRENT ASSETS 11,201 106,116
Property and Equipment, net 1,114 8,679
Intangible Assets, net -- 20,565
Other Assets 633 2,268
-------- --------
TOTAL ASSETS $12,948 $137,628
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short Term Debt $ 1,205 $ 3,676
Accounts Payable 2,056 20,339
Accrued Compensation 446 1,901
Other Accrued Liabilities 544 3,062
-------- --------
TOTAL CURRENT LIABILITIES 4,251 28,978
Long-Term Debt 373 4,689
Deferred Income Taxes 17 1,636
Other Long-Term Liabilities 1,138 6,090
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share, 50,000,000 9 73
shares authorized; 866,992 shares issued and
outstanding in 1996; 7,254,973 shares in 1997
Additional Paid-In Capital -- 87,719
Retained Earnings 7,160 8,443
-------- --------
Total Stockholders' Equity 7,169 96,235
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $12,948 $137,628
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1996 1997
--------- ----------
<S> <C> <C>
NET SALES..................................... $ 7,830 $ 15,427
COST OF SALES................................. 5,679 11,581
--------- ----------
Gross profit................................ 2,151 3,846
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.. 1,384 2,823
--------- ----------
Income from operations...................... 767 1,023
INTEREST EXPENSE.............................. 52 130
OTHER (INCOME) EXPENSE........................ (3) 18
--------- ----------
INCOME BEFORE INCOME TAXES.................... 718 875
PROVISION FOR INCOME TAXES.................... 231 253
--------- ----------
NET INCOME.................................... $ 487 $ 622
========= ==========
EARNINGS PER SHARE............................ $ 0.56 $ 0.45
========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING........... 866,992 1,385,307
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1997
--------- -----------
<S> <C> <C>
NET SALES ................................... $ 21,043 $ 32,194
COST OF SALES ............................... 15,442 24,017
--------- -----------
Gross profit .............................. 5,601 8,177
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,215 6,117
--------- -----------
Income from operations .................... 1,386 2,060
INTEREST EXPENSE ............................ 158 286
OTHER (INCOME) EXPENSE ...................... (181) (124)
--------- -----------
INCOME BEFORE INCOME TAXES .................. 1,409 1,898
PROVISION FOR INCOME TAXES .................. 466 610
--------- -----------
NET INCOME .................................. $ 943 $ 1,288
========= ===========
EARNINGS PER SHARE .......................... $ 1.09 $ 1.25
========= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ......... 866,992 1,031,586
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 6
INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1996 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 943 $ 1,288
------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................... 93 97
Changes in operating assets and liabilities, net
of Acquisitions:
Accounts receivable, net ................................. (727) 2,042
Inventories .............................................. 185 1,974
Prepaids and other assets ................................ (7) (115)
Accounts payable ......................................... (58) (2,371)
Accrued compensation ..................................... -- 142
Other accrued liabilities ................................ 141 (1,119)
------- --------
Total adjustments ...................................... (373) 650
------- --------
Net cash provided by operating activities............... 570 1,938
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments ........................... -- 948
Additions to property and equipment, net ..................... (52) (113)
------- --------
Net cash provided by (used in) investing activities .......... (52) 835
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ....................... -- 56,599
Proceeds (payments) on short term debt ....................... 55 (13,129)
Payments on long-term debt ................................... (46) (12,146)
Payments on notes payable to related parties ................. (38) (44)
Cash from acquired companies ................................. -- 1,851
------- --------
Net cash provided by (used in) financing activities .......... (29) 33,131
------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ........................ 489 35,904
CASH AND CASH EQUIVALENTS, beginning of period ................. 2,035 1,407
------- --------
CASH AND CASH EQUIVALENTS, end of period ....................... $ 2,524 $ 37,311
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 7
INDUSTRIAL DISTRIBUTION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
Industrial Distribution Group, Inc., a Delaware corporation ("IDG" or the
"Company"), was formed on February 12, 1997 to create a nationwide supplier of
cost-effective, flexible procurement solutions for manufacturers and other
users of "MROP" products. In September 1997, IDG completed an initial public
offering of its Common Stock, and at the same time, acquired the following nine
industrial distribution companies: Associated Suppliers, Inc. ("Associated"),
B&J Industrial Supply Company ("B&J"), Cramer Industrial Supplies ("Cramer"),
Grinding Supplies Company ("Grinding"), J.J. Stangel Company ("J.J. Stangel"),
Shearer Industrial Supply Company ("Shearer"), Slater Industrial Supply Company
("Slater"), The Distribution Group ("TDG") (formerly known as Industrial
Distribution Group, Inc. and sometimes referred to herein as "Predecessor-IDG")
and Tri-Star Industrial Supply, Inc. ("Tri-Star"), collectively referred to as
the "Founding Companies". The consideration for the acquisitions of the
Founding Companies consisted of Company Common Stock. A total of 3,330,224
shares of Company Common Stock were issued to the stockholders of the Founding
companies. B&J has been identified as the acquiror for financial statement
presentation purposes pursuant to Staff Accounting Bulletin 97 ("SAB 97"). The
acquisitions were accounted for using the purchase method of accounting. The
allocations of purchase price to the assets acquired and liabilities assumed of
the Founding Companies have been recorded based on preliminary estimates of
fair value, and may be revised as additional information concerning the
valuation of such assets and liabilities becomes available.
The closing of the acquisitions and the offering occurred on September 29,
1997. For accounting purposes, however, September 24, 1997 has been established
as the effective date of the acquisitions because management has determined
that effective control of the operations of the Founding Companies transferred
to IDG on that date.
The accompanying unaudited interim financial statements of IDG represent B&J (as
the SAB 97 financial acquiror) for the entire three months and nine months ended
September 30, 1997, and September 30, 1996 and the other eight Founding
Companies for only the seven days ended September 30, 1997.
The accompanying unaudited interim financial statements are prepared pursuant
to the rules and regulations for reporting on Form 10-Q. Accordingly, certain
information and footnotes required by generally accepted accounting principles
for complete financial statements are not included herein.
The Company believes all adjustments necessary for a fair presentation of these
interim statements have been included and are of a normal and recurring nature.
<PAGE> 8
The interim statements should be read in conjunction with the financial
statements of B&J and the other Founding Companies for the fiscal years
presented and notes thereto, included in the Company's Prospectus dated
September 23, 1997 included in its Registration Statement on Form S-1,
Commission File No. 333-36223 (the "Registration Statement").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, refer to Note
2 of Notes to Financial Statements of B&J included in the Registration
Statement.
3. CREDIT FACILITY:
The Company has a $75,000,000 commitment from a bank for a revolving credit
facility. The facility will have a three-year term, will bear interest at
either the bank's corporate base rate or a Eurodollar rate plus applicable
margins and will require a first security interest in the capital stock of the
Company's subsidiaries. The commitment provides that the facility may be used
for operations and acquisitions and provides $5,000,000 each for swinglines and
letters of credit. Interest and fees are at competitive rates. The Company
expects to execute definitive documents and activate that facility soon. In the
interim, the Company has negotiated agreements whereby the lines of credit of
the Founding Companies, totaling $28,250,000 will remain active and accessible
until November 24, 1997, by which time the Company expects to activate the new
credit facility. These agreements are secured by the assets of the individual
companies and vary in interest rates of LIBOR plus 3.25% to prime plus 1%. At
September 30, 1997, $3,676,000 was outstanding under these arrangements. The
effective interest rate under these arrangements amounted to approximately
9.5%.
4. CAPITAL STOCK
On September 24, 1997, the Company sold 3,795,000 shares of Common Stock to the
public at $17 per share. The net proceeds to the Company from the offering
(after deducting underwriting commissions and offering expenses) were $56.6
million. Of this amount, $25.1 million was used to reduce the Founding
Companies' indebtedness under their lines of credit.
<PAGE> 9
5. INCOME TAXES
Prior to the acquisitions, the stockholders of one of the Founding Companies
were taxed under the provisions of Chapter S of the Internal Revenue Code.
Under these provisions, the stockholders paid income taxes on their
proportionate share of that company's earnings. Because the stockholders were
taxed directly, the company paid no federal income tax and only
certain state income taxes.
The Company intends to file a consolidated federal income tax return, which
includes the operations of the Founding Companies for periods subsequent to the
acquisition date. The Founding Companies will each file a "short period"
federal income tax return through their respective acquisition date.
6. COMMITMENTS AND CONTINGENCIES
On November 18, 1996, Milliken & Company, a textile manufacturer and customer
of TDG, filed suit against a manufacturer of an industrial product and TDG. TDG
has denied any liability and its insurance carrier is vigorously defending the
lawsuit on its behalf. The inclusion of the distributor of a product, along
with its manufacturer, as a defendant in an action for alleged product
defectiveness is unexceptional. The Company believes that TDG's insurance is
adequate to cover any loss to the Company that might result from the lawsuit.
For further explanation refer to Note 8 of Notes to Financial Statements of TDG
(Predecessor-IDG) included in the Registration Statement.
The Company is subject to various claims and legal actions, which arise, in the
ordinary course of business. The Company believes that the ultimate resolution
of such matters will be adequately covered by insurance or will not have a
material adverse effect on the Company's financial position or results of
operations.
<PAGE> 10
7. NEW PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
revises the calculations used in determining earnings per share ("EPS").
Consistent with the provisions of SFAS No.128, the Company will begin using the
new EPS calculation effective December 31, 1997. EPS amounts for the periods
ended September 30, 1996 and 1997 calculated under the new pronouncements and
presented at that time will be unchanged from the amounts shown in these
financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No.130 establishes standards for the
reporting of comprehensive income in a company's financial statements.
Comprehensive income includes all changes in a company's equity during the
period that result from transactions and other economic events other than
transactions with its stockholders. For the Company, SFAS No.130 will be
effective for the year beginning January 1, 1998. The Company has not completed
its analysis of the impact of this new pronouncement. However, based on a
preliminary review, the Company believes the implementation of SFAS No. 130
will not have a significant effect on its current financial reporting.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 requires that an enterprise disclose certain information about operating
segments. SFAS No. 131 is effective for financial statements for the Company's
fiscal year ending December 31, 1998. The Company does not expect that SFAS No.
131 will require significant revision of prior disclosures.
8. PRO FORMA COMBINED FINANCIAL INFORMATION
The following pro forma combined financial information for the nine months ended
September 30, 1996 and September 30, 1997, includes the results of B&J (as the
SAB 97 financial acquiror) combined with the other eight Founding Companies as
if the acquisitions has occurred on January 1 of each respective period. This
pro forma combined financial information includes the effects of (a) the
acquisitions; (b) the offering; (c) amortization of goodwill resulting from the
acquisitions; (d) elimination of interest expense for the debt that was paid
from the offering proceeds; and (e) provision for income taxes at 40%, even
though one of the acquired companies had a Chapter S corporate tax status.
The earnings per share amounts are based on 7,333,035 shares deemed to be
outstanding for the periods ended September 30, 1996 and 1997. The net income
amounts include estimates of the federal and state taxes that would have been
applicable to the Company had the acquisitions occurred at the beginning of each
respective period. The underlying tax rates differ from statutory federal and
state rates primarily because amortization of goodwill related to the
acquisitions is not deductible for tax purposes.
The pro forma combined financial information does not purport to represent what
the Company's financial position or results of operations would actually have
been if such transactions and events in fact had occurred on those dates or to
project the Company's results of operations for any future period. (Amounts are
in thousands, except for per share amounts.)
<PAGE> 11
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1997
---- ----
<S> <C> <C>
Net Sales $ 186,985 $ 211,145
============= ============
Net Income $ 2,880 $ 3,937
============= ============
Earnings per Share $ .39 $ .54
============= ============
</TABLE>
<PAGE> 12
ITEM. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Under SAB 97, B&J was designated as the financial acquiror in the
Company's acquisition and combination of the nine Founding Companies (the
"Combination"), the consolidated financial statements of B&J are deemed to be
the historical financial statements of the Company for purposes of all SEC
reporting, and the Company must include in this management's discussion and
analysis a discussion that is based on those financial statements. As discussed
in Note 1 of the Company's unaudited interim financial statements, such
financial statements include the operating results of the other eight Founding
Companies for only the seven days ended September 30, 1997 following the
financial effective date of the Combination, while reflecting the results of B&J
for the entire periods presented. Accordingly, management has also included
herein its discussion and analysis of certain combined information of all nine
Founding Companies as a whole in order to provide other important information
with respect to the Company in light of certain effects of the Combination. The
following discussions have been organized on that basis.
In these discussions, most percentages and dollar amounts have been
rounded to aid presentation; as a result, all such figures are approximations.
References to such approximations have generally been omitted.
These discussions may contain certain forward-looking statements
concerning the Company's operations, performance, and financial condition,
including, in particular, the likelihood of the Company's success in developing
and expanding its business. These statements are based upon a number of
assumptions and estimates that are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company. Actual results may differ materially from those expressed or implied by
such forward-looking statements. Factors that could cause actual results to
differ include, but are not limited to, the availability of attractive
acquisition opportunities, the successful integration and profitable management
of acquired businesses, improvement of operating efficiencies, the availability
of working capital and financing for future acquisitions, the Company's ability
to grow internally through expansion of services and customer bases and
reduction of overhead, seasonality, the continuation of key supplier
relationships, the ability of the Company to compete successfully in the highly
competitive and diverse MROP market, the Company's ability to maintain key
personnel, the availability of key personnel for employment by the
<PAGE> 13
Company, and other risk factors discussed in the Registration Statement
commencing on page seven of the Prospectus.
The timing and magnitude of acquisitions and assimilation costs may
also materially affect quarterly results. Accordingly, the operating results for
any interim period are not necessarily indicative of the results that may be
achieved for any subsequent interim period or for a full year.
RESULTS OF OPERATIONS - COMBINED
The combined financial information for the three and nine months ended
September 30, 1996 and September 30, 1997 discussed in this subsection includes
the operating results of B&J together with the results of the other eight
Founding Companies on a combined basis for the entire periods presented. These
combined operating results may not be indicative of the Company's
post-Combination results of operations for several reasons. The Founding
Companies operated as separate privately owned entities until the closing of the
Combination, which was deemed effective for financial purposes on September 24,
1997. Until that time, their results of operations reflect varying tax
structures, which in turn have influenced other matters such as owners'
compensation. Accordingly, selling, general, and administrative expenses may not
be comparable among the individual Founding Companies. In addition, as a result
of the Combination, the Company has new senior management, will incur
implementation costs of the Combination, and will incur amortization expenses
from the goodwill associated with the Combination. Moreover, these combined
operating results do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only
summations of the respective line items from historical information of the
individual Founding Companies.
The Company anticipates that, in the future, it will realize savings
from several sources as a result of the Combination, including (a) increased
volume discounts and rebates from vendors, (b) consolidation of certain
administrative functions, and (c) the reduction in interest payments related to
the repayment of certain former Founding Company debt; and (d) its ability to
borrow at lower interest rates than the Founding Companies. These savings will
be offset, to some extent, by costs related to the Company's new senior
management and costs associated with being a public company. No such anticipated
effect is reflected in the following information or discussion.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1997
The following table sets forth certain selected financial data and
shows such data as a percentage of net sales for the periods indicated (dollars
in thousands):
<PAGE> 14
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
---- ----
<S> <C> <C> <C> <C>
Net Sales $ 63,286 100.0% $73,831 100.0%
Cost of Sales 48,414 76.5 56,879 77.0
-------- ----- ------- -----
Gross Profit 14,872 23.5 16,952 23.0
Selling, General and Administrative 12,645 20.0 14,432 19.6
-------- ----- ------- -----
Operating Income $ 2,227 3.5% $ 2,520 3.4%
======== ===== ======= =====
</TABLE>
Net sales increased $10.6 million, or 16.7%, from $63.3 million for the
three months ended September 30, 1996, to $73.8 million for the three months
ended September 30, 1997. This increase was attributable to an increase in
integrated supply sales and new customer orders.
Cost of sales increased $8.5 million, or 17.5%, from $48.4 million for
the three months ended September 30, 1996 to $56.9 million for the three months
ended September 30, 1997, primarily as a result of increased sales. As a
percentage of net sales, cost of sales increased slightly due to a change in
product mix.
Selling, general, and administrative expenses increased $1.8 million,
or 14.1%, from $12.7 million for the three months ended September 30, 1996 to
$14.4 million for the three months ended September 30, 1997. This increase is
attributable to the higher volume of business, start-up costs associated with
new integrated supply contracts, and salary increases. As a percentage of net
sales, however, selling, general, and administrative expenses decreased .4% from
1996 to 1997.
Operating income increased 13.2%, from $2.2 million for the three
months ended September 30, 1996 to $2.5 million for the three months ended
September 30, 1997. As a percentage of net sales, operating income decreased
slightly from 3.5% for the three months ended September 30, 1996 to 3.4% for the
three months ended September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1997
The following table sets forth certain selected financial data and
shows such data as a percentage of net sales for the periods indicated (dollars
in thousands):
<PAGE> 15
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C> <C> <C>
Net Sales $186,985 100.0% $211,145 100.0%
Cost of Sales 142,879 76.4 162,068 76.8
-------- ----- -------- -----
Gross Profit 44,106 23.6 49,077 23.2
Selling, General and Administrative 37,924 20.3 41,869 19.8
-------- ----- -------- -----
Operating Income $ 6,182 3.3% $ 7,208 3.4%
======== ===== ======== =====
</TABLE>
Net sales increased $24.2 million, or 12.9%, from $187.0 million for
the nine months ended September 30, 1996, to $211.2 million for the nine months
ended September 30, 1997. This increase was attributable to an increase in
integrated supply sales and new customer orders.
Cost of sales increased $19.2 million, or 13.4%, from $142.9 million
for the nine months ended September 30, 1996 to $162.1 million for the nine
months ended September 30, 1997, primarily as a result of increased sales during
the latter period. As a percentage of net sales, cost of sales increased
slightly due to a change in product mix and certain large sales to a few
customers at lower margins.
Selling, general, and administrative expenses increased $4.0 million,
or 10.4%, from $37.9 million for the nine months ended September 30, 1996 to
$41.9 million for the nine months ended September 30, 1997. The increase is
attributable to the higher volume of business, start-up costs associated with
new integrated supply contracts, salary increases, certain increases in the
costs of employee health care and retirement benefits, and fees for
professional services during the period. As a percentage of net sales,
however, selling, general, and administrative expenses decreased .5% from 1996
to 1997.
Operating income increased 16.6%, from $6.2 million for the nine months
ended September 30, 1996 to $7.2 million for the nine months ended September 30,
1997. As a percentage of net sales, operating income increased from 3.3% for the
nine months ended September 30, 1996 to 3.4% for the nine months ended September
30, 1997.
RESULTS OF OPERATIONS -- HISTORICAL
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
The following table sets forth certain selected financial data for IDG
(based on B&J as the SAB 97 financial acquiror) and shows such data as a
percentage of net sales for the periods indicated (dollars in thousands):
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
---- ----
<S> <C> <C> <C> <C>
Net Sales $ 7,830 100.0% $15,427 100.0%
Cost of Sales 5,679 72.5 11,581 75.1
------- ----- ------- -----
Gross Profit 2,151 27.5 3,846 24.9
Selling, General and Administrative 1,384 17.7 2,823 18.3
------- ----- ------- -----
Operating Income $ 767 9.8% $ 1,023 6.6%
======= ===== ======= =====
</TABLE>
Net sales increased $7.6 million, or 97%, from $7.8 million in 1996 to
$15.4 million in 1997. This increase was due to the fact that the consolidated
companies contributed $7.5 million in revenue since their combined acquisition.
In addition, B&J had an increase in sales to a large customer.
Cost of sales increased $5.9 million, or 104%, from $5.7 million in
1996 to $11.6 million in 1997. The increase is primarily due to the increase in
sales. Cost of sales, as a percentage of net sales, is higher in 1997 because
the Founding Companies as a whole have a higher cost of sales percentage, and
because of B&J's increased margins in 1996 on sales to a large customer.
Selling, general, and administrative expenses increased $1.4 million or
104%, from $1.4 million in 1996 to $2.8 million in 1997 primarily as a result of
expenses attributable to the other eight Founding Companies (approximately $1.2
million after the combination) and also reflects salary increases at B & J which
took effect beginning the third quarter of 1997. The .6% increase in selling,
general, and administrative expenses as a percentage of net sales, however, is
primarily due to the timing of the B&J salary increases.
Operating income increased $250,000 or 33.4%, from $750,000 in 1996 to
$1 million in 1997. Operating income as a percentage of net sales is lower in
1997 in part because the Founding Companies as a whole have a lower operating
margin than B&J, and because of B&J's increased margins during the 1996 period
on sales to a large customer.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1997
The following table sets forth certain selected financial data for IDG
(based on B&J as the SAB 97 financial acquiror) and shows such data as a
percentage of net sales for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C> <C> <C>
Net Sales $21,043 100.0% $32,194 100.0%
Cost of Sales 15,442 73.4 24,017 74.6
------- ----- ------- -----
Gross Profit 5,601 26.6 8,177 25.4
Selling, General and Administrative 4,215 20.0 6,117 19.0
------- ----- ------- -----
Operating Income $ 1,386 6.6% $ 2,060 6.4%
======= ===== ======= =====
</TABLE>
Net sales increased $11.2 million, or 53%, from $21.0 million in 1996
to $32.2 million in 1997. This was primarily due to the contributed revenue of
the consolidated companies as well as B&J's increased sales to a large customer.
Cost of sales increased $8.6 million, or 55.5%, from $15.4 million in
1996 to $24.0 million in 1997. The increase is primarily due to the increase in
sales. Cost of sales is
<PAGE> 17
higher as a percentage of net sales in 1997 because the Founding Companies as a
whole have a higher cost of sales percentage than B&J.
Selling, general and administrative expenses increased $1.9 million, or
45.1% from $4.2 million in 1996 to $6.1 million in 1997. Selling, general and
administrative expenses are lower as a percentage of net sales in 1997 because
the Founding Companies as a whole have lower selling, general and
administrative expenses as a percentage of net sales than B&J. B&J's selling,
general, and administrative expenses as a percentage of net sales also decreased
over the same period of time due to the ability of B&J to use its existing
corporate overhead levels to accommodate increased sales, which were only
partially offset by salary increases which took effect beginning in the third
quarter of 1997.
Operating income increased $.7 million, or 48.6 %, from $1.4 million in
1996 to $2.1 million in 1997. Operating income as a percentage of net sales is
lower in 1997 because the Founding Companies have a lower operating margin than
B&J.
LIQUIDITY AND CAPITAL RESOURCES
On September 24, 1997, the Company sold 3,795,000 shares of Common
Stock to the public at $17.00 per share. The net proceeds to the Company from
the offering (after deducting underwriting commissions and offering expenses)
were $56.6 million. Of this amount, $25.1 million was used to reduce
indebtedness under operating lines of credit of the Founding Companies at the
time of the Combination.
The Company has a commitment from a bank for a revolving credit
facility of $75 million with a three-year term ("the Credit Facility"). The
commitment provides that the facility can be used for operations and
acquisitions and provides $5 million each for swinglines and letters of credit.
Interest and fees are at competitive rates. The facility is to be secured by the
stock of all the subsidiaries of the Company. The Company expects to execute
definitive documents and activate the Credit Facility soon. At September 30,
1997, the Company had $37.3 million of cash and cash equivalents, $77.1 million
of working capital, and an aggregate of $28.3 million of borrowing capacity
under operating lines of credit previously established by the Founding
Companies. In connection with making repayments on the previously established
lines of credit with proceeds from the Offering, the Company negotiated
agreements whereby those lines of credit will remain active and accessible until
November 24, 1997, by which time the Company expects to activate the Credit
Facility.
The principal operating capital requirements of the Company are for
increases in inventory and accounts receivable and purchasing and upgrading
property and equipment. The Company has available cash and working capital,
together with cash flow generated from operations, to enable the Company to fund
its current operations and to fund anticipated internal expansion for at least
the next year.
<PAGE> 18
The Company also intends to pursue acquisition opportunities. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, working capital, cash flow from operations and borrowings,
including use of amounts that will be available under the Credit Facility.
On an historical basis (based on B&J as the SAB 97 financial acquiror),
net cash provided by operating activities for the nine months ended September
30, 1996 and 1997 was $.6 million and $1.9 million, respectively. These changes
were principally due to reductions in working capital requirements for inventory
and accounts receivable, offset by changes in accrued liabilities.
On an historical basis (based on B&J as the SAB 97 financial acquiror),
net cash provided by (used in) investing activities was primarily attributable
to capital expenditures and for the nine months ended September 30, 1996 and
1997 was ($.1 million) and $1.0 million, respectively.
On an historical basis (based on B&J as the SAB 97 financial acquiror),
net cash provided by (used in) financing activities for the nine months ended
September 30, 1997 and 1996 was $33.1 million and ($.1 million), respectively.
The changes were principally due to the offering and repayment of substantially
all of the lines of credit.
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the Company's Registration Statement on Form S-1, Commission File
No. 333-36223, previously filed with the Commission, regarding certain legal
proceedings in which the Company is involved.
ITEM 2. CHANGES IN SECURITIES
The Company sold 3,795,000 shares of its Common Stock $0.01 par value
per share pursuant to a Registration Statement on Form S-1 (the "Registration
Statement"), declared effective by the Securities and Exchange Commission on
September 23, 1997 (File No. 333-36223), through a firm commitment underwriting
managed by Merrill Lynch & Co. and The Robinson-Humphrey Company, Inc. (the
"Offering"). Common Stock having an aggregate price of $64,515,000 ($17.00 per
share) was registered pursuant to the Registration Statement, all of which
shares were sold at such price. The Offering was consummated on September 29,
1997, upon the sale of all the shares.
In connection with the Offering, the Company paid $4,516,050 in
underwriting discounts and commissions to the underwriters, and had other
estimated Offering expenses of $3,399,000, for cumulative expenses of
$7,915,050. The estimated net Offering proceeds were $56,600,000. The Company
used $25,047,000 of such net estimated proceeds to pay off certain preexisting
debts of certain of the Founding Companies (as defined in the Registration
Statement).
An aggregate of 3,330,224 shares of Common Stock was issued as of
September 29, 1997 in connection with the Combination in reliance on the
exemption contained in Section 4(2) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
Exhibit 11 -- Computation of Earnings Per Share
Exhibit 27 -- Financial Data Schedule (for SEC use only).
Reports on Form 8-K
None
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL DISTRIBUTION GROUP, INC.
(Registrant)
Date: November 14, 1997 By: /s/ Jack P. Healey
----------------------------------
Jack P. Healey
Vice President and Chief
Financial Officer
Date: November 14, 1997 /s/ Jack P. Healey
----------------------------------
Jack P. Healey
Vice President and Chief
Financial Officer
(Principal accounting and
Financial Officer)
<PAGE> 1
EXHIBIT 11
INDUSTRIAL DISTRIBUTION GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
PRIMARY EARNINGS PER SHARE:
<S> <C> <C> <C> <C>
Net income $487 $ 622 $943 $1,288
==== ====== ==== ======
Weighted average common 867 1,307 867 954
and common equivalent shares
outstanding
Add - Dilutive effect of outstanding options -- 78 -- 78
(as determined by the application of the ---- ----- ---- -----
treasury stock method)
Weighted average common and 867 1,385 867 1,032
common equivalent ==== ====== ===== =======
shares outstanding
Primary earnings per share: $.56 $ .45 $1.09 $ 1.25
==== ====== ===== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INDUSTRIAL DISTRIBUTION GROUP, INC. FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 37,311
<SECURITIES> 0
<RECEIVABLES> 32,194
<ALLOWANCES> (566)
<INVENTORY> 34,909
<CURRENT-ASSETS> 106,116
<PP&E> 19,128
<DEPRECIATION> (10,449)
<TOTAL-ASSETS> 137,628
<CURRENT-LIABILITIES> 28,978
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 96,162
<TOTAL-LIABILITY-AND-EQUITY> 137,628
<SALES> 32,194
<TOTAL-REVENUES> 32,194
<CGS> 24,017
<TOTAL-COSTS> 30,134
<OTHER-EXPENSES> (124)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> 1,898
<INCOME-TAX> 610
<INCOME-CONTINUING> 1,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,288
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
