<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 MARCH 31, 1998
[ ] 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 March 31, 1998: 7,807,417
shares of Common Stock, $0.01 par value share.
<PAGE> 2
INDEX
INDUSTRIAL DISTRIBUTION GROUP, INC.
<TABLE>
<CAPTION>
PART I. Financial Information
<S> <C>
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 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
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
(Note 1)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
*Restated
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 27,079 $ 31,500
Accounts Receivable, net 38,908 33,624
Inventory, net 41,221 40,015
Prepaid and Other Current Assets 4,424 3,984
---------- ----------
TOTAL CURRENT ASSETS 111,632 109,123
Property and Equipment, net 11,670 9,409
Intangible Assets, net 21,433 19,580
Other Assets 2,489 3,061
---------- ----------
TOTAL ASSETS $ 147,224 $ 141,173
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short Term Debt $ 1,715 $ 2,349
Accounts Payable 26,064 21,661
Accrued Compensation 2,306 2,115
Other Accrued Liabilities 3,301 3,137
---------- ----------
TOTAL CURRENT LIABILITIES 33,386 29,262
Long-Term Debt 4,571 4,485
Deferred Income Taxes 217 880
Other Long-Term Liabilities 7,365 7,422
---------- ----------
TOTAL LIABILITIES 45,539 42,049
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share, 50,000,000
shares authorized; 7,807,417 shares issued and
outstanding in 1998; 7,261,551 shares in 1997 78 73
Additional Paid-In Capital 90,110 88,701
Retained Earnings 11,497 10,350
---------- ----------
Total Stockholders' Equity 101,685 99,124
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 147,224 $ 141,173
========== ==========
</TABLE>
*Restated for acquisitions accounted for under the pooling-of-interests method.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
INDUSTRIAL DISTRIBUTION GROUP, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
----------- -----------
* Restated
<S> <C> <C>
NET SALES ........................................ $ 84,742 $ 14,614
COST OF SALES .................................... 64,866 11,228
----------- -----------
Gross profit ................................... 19,876 3,386
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ..... 17,943 3,054
----------- -----------
Income from operations ......................... 1,933 332
INTEREST EXPENSE ................................. 211 122
OTHER (INCOME) EXPENSE ........................... (483) (61)
----------- -----------
INCOME BEFORE INCOME TAXES ....................... 2,205 271
PROVISION FOR INCOME TAXES ....................... 888 90
----------- -----------
NET INCOME ....................................... $ 1,317 $ 181
=========== ===========
BASIC EARNINGS PER SHARE ......................... $ .17 $ .13
=========== ===========
DILUTED EARNINGS PER SHARE ....................... $ .17 $ .13
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (Basic) ...... 7,750,990 1,348,107
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (Diluted) .... 7,806,341 1,348,107
=========== ===========
</TABLE>
*Restated for acquisitions accounted for under the pooling-of-interests method.
The accompanying notes are an integral part of these financial statements.
4
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INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Ended
Three Months 31
March 1997
1998 *Restated
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 1,317 $ 251
-------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization ............................ 583 73
Amortization of deferred loan cost ....................... 23 --
Provision (benefit) for deferred taxes ................... -- (74)
Loss (gain) on disposal of equipment ..................... 4 --
Loss (gain) on sale of investments ....................... (6) --
Changes in operating assets and liabilities:
Accounts receivable, net ................................. (3,131) 172
Inventories, net ......................................... (209) 585
Prepaids and other assets ................................ (389) 12
Accounts payable ......................................... 2,282 (767)
Accrued compensation ..................................... 94 261
Other accrued liabilities ................................ 46 (314)
-------- -------
Total adjustments ................................... (703) (52)
-------- -------
Net cash provided by operating activities .......... 614 199
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net ................. (2,377) (85)
Cash paid in acquisitions ................................ (1,126) --
Deposits ................................................. (3) --
Cash surrender value of life insurance ................... 611 --
Cash from acquired companies ............................ 3 --
Proceeds from sale of investments ........................ (3) --
-------- -------
Net cash, (used in) provided by investing activities ..... (2,895) (85)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................... 86 --
Proceeds (payments) on short term debt ................... (2,059) 71
Proceeds (payments) on long-term debt .................... (117) 410
Adjustments to conform year ends of certain
Pooled Costs ............................................... (4) (3)
Deferred loan costs ...................................... 46 --
-------- -------
Net cash provided by (used in) financing activities ...... (2,140) 478
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................... (4,421) 592
CASH AND CASH EQUIVALENTS, beginning of period ............. 31,500 2,448
======= =======
CASH AND CASH EQUIVALENTS, end of period ................... $ 27,079 $ 3,040
======== =======
Supplemental Cash Flow Information:
Cash Paid for Interest ................................. $ 180 $ 3
======== =======
Cash Paid for Income Taxes ............................. $ 1,504 $ 7
======== =======
</TABLE>
*Restated for acquisitions accounted for under the pooling-of- interests method.
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
INDUSTRIAL DISTRIBUTION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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") 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 a
total of 3,330,224 shares of Company Common Stock. 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 were recorded based
on fair value.
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 three months ended March 31, 1997, B&J
and the other eight Founding Companies for the three months ended March 31,
1998, and give retroactive effect for all periods presented to the results of
two companies acquired by IDG in March 1998 in business combinations accounted
for under the pooling-of-interests method (the "Pooled Companies"). See Note 3.
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.
The interim statements should be read in conjunction with the Company's
financial statements and notes thereto, included in its annual report on form
10-K for the fiscal year ended December 31, 1997, Commission File Number
001-13195.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of the Company
during the periods presented.
3. ACQUISITIONS
During March, 1998, the Company acquired three industrial supply distributors,
E.C. Blackstone Company, Continental Air Tools, Inc. d/b/a
Continental-McLaughlin, and Northern Tool & Supply, Inc.
E.C. Blackstone Company, located in Memphis, Tennessee, will establish a hub
location for IDG in the Tennessee Tri-State area. E.C. Blackstone was accounted
for using the purchase method of accounting. The Company's financial statements
include the operating results of E.C. Blackstone only from March 11, 1998, the
date of its acquisition. The total purchase price of the acquisition was paid in
cash and stock. Goodwill recorded in connection with this acquisition is being
amortized on a straight-line basis over 40 years.
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Continental Air Tools, Inc. , d/b/a Continental-McLaughlin, and Northern Tool &
Supply Company (the "Pooled Companies") will expand the Company's markets in
Southern California and the upper peninsula area of Michigan, respectively .
Continental-McLaughlin and Northern Tool & Supply were accounted for using the
pooling-of-interests method of accounting. The Company's financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. The Company issued 474,964 shares in these
pooling-of-interests transactions.
4. CREDIT FACILITY
In December 1997, the Company entered into a $75,000,000 revolving credit
facility with a five-bank syndicate. The facility has a three-year term, bears
interest at either the bank's corporate base rate or a Eurodollar rate plus
applicable margins, and has a first security interest in the capital stock of
the Company's business units. The agreement provides that the facility be used
for operations and acquisitions and provides $5,000,000 each for swinglines and
letters of credit. There is an annual commitment fee on the unused portion of
the facility equal to between 20 and 30 basis points of the average daily unused
portion of the aggregate commitment depending on the indebtedness to adjusted
EBITDA ratio, as defined. At March 31, 1998, no amounts were outstanding under
this facility. The revolving credit facility contains various covenants
pertaining to maintenance of certain financial relationships. The Company was in
compliance with these covenants as of March 31, 1998.
5. CAPITAL STOCK
During March 1998, the Company issued 539,797 shares of its Common Stock to
acquire three companies.
6. INCOME TAXES
The Company intends to file a consolidated federal income tax return, which
includes the operations of all acquired companies for periods subsequent to
their respective acquisition dates. Each acquired company will file a "short
period" federal income tax return through its acquisition date.
7. 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.
Milliken claims that a product sold to it by TDG as a distributor of the
defendant-manufacturer was defective and caused fire, severely damaging
Milliken's textile manufacturing plant in LaGrange, Georgia. Milliken alleges
damages of $500 million against the defendants. 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
litigation is in the early stages of discovery, and while it is not possible to
predict with accuracy the outcome of any such litigation matter, the Company
believes that its insurance, which provides for $12 million of coverage, will be
adequate to cover any loss to TDG that might result from the lawsuit.
On August 27, 1997, Robert Hallager filed suit against his former employer,
Jessop Steel Company, and several manufacturers and distributors of industrial
products, including Shearer. Mr. Hallager claims that he contracted cobalt
poisoning and other pulmonary problems requiring his cessation of work and
lifetime monitoring as a result of this exposure to steel containing cobalt,
chromium and nickel through a grinding process utilizing abrasive tools supplies
by his employer and by the various defendant-manufacturers and distributors. Mr.
Hallager alleges damages "in excess of $50,000." The litigation is in the very
early stages, and no answer is yet due from or has been filed by Shearer.
Shearer intends to deny any liability, and its insurance carrier is expected to
defend the lawsuit on Shearer's behalf. While it is not possible to predict with
accuracy the outcome of any such litigation matter, the Company believes that
its insurance, which provides for $7 million of coverage, will be adequate to
cover any loss to Shearer that might result from the lawsuit.
On December 22, 1997, TDG brought an action in DeKalb County Superior Court,
Georgia, File No. 97-14388-4, against a former stockholder, under the Georgia
dissenters' rights provisions of the Georgia Business Corporation Code (the
"GBCC). This former stockholder of TDG had exercised his rights pursuant to the
GBCC to dissent from the merger of TDG with the Company. In accordance with the
GBCC, TDG offered to pay the former stockholder $4.2 million for his interest in
TDG. The former stockholder
7
<PAGE> 8
rejected that offer and demanded payment of $9 million. TDG brought this action
to seek a judicial determination of the value of his interest in TDG as of the
time of the merger. The proceedings are in the early stages of discovery, and it
is not possible to predict the outcome at this time.
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, including those identified above, will not have a material
adverse effect on the Company's financial position or results of operations.
8. NEW PRONOUNCEMENTS
The Company computes basic and diluted earnings per share in accordance with
SFAS No. 128, "Earnings Per Share." The adoption of this statement in 1997 had
no effect on previously reported earnings per share ("EPS").
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 is effective
for the year beginning January 1, 1998. Implementation of SFAS No. 130 did 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 have a significant impact on its current financial statements nor will
it require significant revision of prior disclosures.
9. SUBSEQUENT EVENTS
Subsequent to March 31, 1998 and through May 6, 1998, the Company has completed
four business combinations. The four industrial supply distributors, REFCO,
Inc., Hawley Industrial Supplies, Inc., The New England Group Industrial
Distributors, Inc. (d/b/a Industrial Suppliers of New England), and Industrial
and Tool Suppliers, LLC. will combine to create a New England hub company with
approximately $70 million in annualized revenues.
Hawley Industrial Supplies, Inc. was accounted for as a pooling of interests.
REFCO, Inc., Industrial Suppliers of New England, and Industrial and Tool
Suppliers, LLC were accounted for as purchases and were acquired using both cash
and stock.
10. PRO FORMA COMBINED FINANCIAL INFORMATION
The following pro forma combined financial information for the three months
ended March 31, 1998 and March 31, 1997 reflects the results of the Company and
includes the historical results combined with the other eight Founding Companies
as if the acquisitions had 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 7,807,417 common shares deemed to be
outstanding for the periods ended March 31, 1998 and 1997. For B&J and the other
eight Founding Companies 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.)
8
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Net Sales $ 84,742 $ 73,144
======== ========
Net Income $ 1,317 $ 1,403
======== ========
Earnings per $ .17 $ .18
======== ========
Share
</TABLE>
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.
Accordingly, 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 reflect the results of the Company for the three months
ended March 31, 1998, while reflecting the results of only B&J and the Pooled
Companies for the three months ended March 31, 1997. Accordingly, management has
also included herein its discussion and analysis of certain information on a
combined basis that includes the Company, all nine Founding Companies, and the
Pooled Companies, as a whole, in order to provide other important information
with respect to the Company in light of certain effects of the Combination and
these acquisitions. The following discussion has been organized on that basis.
In this discussion, 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.
This discussion 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, its ability to
reduce 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 Company, and other factors
discussed in more detail under "Item 1-Business" of the Company's Annual Report
on Form 10-K for fiscal 1997.
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 months ended March 31, 1998
and 1997 discussed in this subsection includes the operating results of (i) the
Company for the three months ended March 31, 1998 and (ii) B&J together with the
results of the other eight Founding Companies and the Pooled Companies on a
combined basis for the three months ended March 31, 1997. These combined
operating results may not be indicative of the Company's post-Combination
results of operations for several reasons. The Founding Companies and the Pooled
Companies operated as separate privately owned entities until the closing of the
Combination (September 1997) or the Pooled Companies acquisition (March 1998),
as appropriate. 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 companies. In addition, as a result of the Combination,
the Company has new senior management, has incurred implementation costs of the
Combination, and is incurring amortization expenses from the goodwill associated
with the Combination. Moreover, for 1997 the combined operating results do not
represent combined results of operations presented in accordance with generally
accepted accounting principles, but are
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only summations of the respective line items from historical information of the
individual Founding Companies and the Pooled 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 and Acquired Company debt; and (d) its ability to
borrow at lower interest rates than the Founding and Acquired 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 for
the three months ended March 31, 1997. Any such effect that has been realized as
of March 31, 1998 is reflected in the following information and discussion.
THREE MONTHS ENDED MARCH 31, 1998 AND 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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1998 1997
--------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 84,742 100.0% $ 73,144 100.0%
Cost of Sales 64,866 76.5 55,920 76.5
--------- -------- --------- --------
Gross Profit 19,876 23.5 17,224 23.5
Selling, General and Administrative 17,943 21.2 15,011 20.5
--------- -------- --------- --------
Operating Income $ 1,933 2.3% $ 2,213 3.0%
========= ========== ========= ========
</TABLE>
Net sales increased $11.6 million or 15.9% from $73.1 million for the three
months ended March 31, 1997 to $84.7 million for the three months ended March
31, 1998. The Company acquired $2.1 million in revenues related to the purchase
of E.C. Blackstone Company, which transaction occurred March 11, 1998. In
addition, integrated supply sales and other specialized services supply contract
sales have increased in 1998 over the same period in 1997. Several of IDG's
larger customers made large purchases throughout the first quarter of 1998.
Cost of sales increased $ 9.0 million or 16.0% from $55.9 million for the three
months ended March 31, 1997 to $64.9 million for the three months ended March
31, 1998. The cost of sales increase is due to the increase in net sales. As a
percentage of net sales, however, cost of sales remained steady over the two
periods.
Selling, general, and administrative expenses increased $2.9 million or 19.5%
for the three months ended March 31, 1997 from $15.0 million in 1997 to $17.9
million in 1998. As a percentage of net sales, selling, general, and
administrative expenses increased from 20.5% in 1997 to 21.2% in 1998. 1998
selling, general, and administrative expenses included $187,000 of non-recurring
expenses related to acquisitions made during the first quarter of 1998.
Excluding these non-recurring expenses, selling, general, and administrative
expenses for the first quarter of 1998 were $17.8 million or 21.0% of net
revenues. In addition, during 1998, the Company incurred increased professional
fees and expenses related to staffing a corporate office and incurred costs
related to being a public company. Excluding such corporate expenses, selling,
general, and administrative expenses were 19.6% of net revenues for the quarter
ended March 31, 1998. The Company's overall staffing levels are not currently
growing in proportion to its revenue growth.
Operating income decreased $280,000 or 12.7% from $2.2 million for the three
months ended March 31, 1997 to $1.9 million for the three months ended March 31,
1998. As a percentage of net sales, operating income decreased from 3.0% in 1997
to 2.3% in 1998.
RESULTS OF OPERATIONS -- HISTORICAL
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THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The following table sets forth certain historical financial data for IDG
and shows such data as a percentage of net sales for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1998 1997
---------- --------
<S> <C> <C> <C> <C>
Net Sales $ 84,742 100.0% $ 14,614 100.0%
Cost of Sales 64,866 76.5% 11,228 76.8%
---------- -------- --------- ------
Gross Profit 19,876 23.5 3,386 23.2
Selling, General and Administrative 17,943 21.2 3,054 20.9
---------- -------- --------- ------
Operating Income $ 1,933 2.3% $ 332 2.3%
========== ======== ========= ======
</TABLE>
Net sales increased $70.1 million or 479.9% from $14.6 million for the three
months ended March 31, 1997 to $84.7 million for the three months ended March
31, 1998. This was primarily due to the contributed revenue of the other eight
Founding Companies following the Combination on September 24, 1997.
Cost of sales increased $53.6 million or 477.7% from $11.2 million for the three
months ended March 31, 1997 to $64.9 million for the three months ended March
31, 1998. As a percentage of net sales, cost of sales decreased from 76.8% in
1997 to 76.5% in 1998. The percentage decrease in cost of sales was primarily
due to the capitalization of freight costs associated with inventory that was
not recorded during the first quarter of 1997.
Selling, general, and administrative expenses increased $14.9 million or 487.5%
for the three months ended March 31, 1997 from $3.1 million in 1997 to $17.9
million in 1998, again primarily attributable to the effect of the SAB 97
accounting for the Combination. As a percentage of net sales, selling, general,
and administrative expenses increased from 20.9% in 1997 to 21.2% in 1998. 1998
selling, general, and administrative expenses included $187,000 of non-recurring
expenses related to acquisitions made during the first quarter of 1998.
Excluding these non-recurring expenses, selling, general, and administrative
expenses for the first quarter of 1998 were $17.8 million or 21.0% of net
revenues. As a percentage of net sales, selling, general, and administrative
expenses remained relatively stable over the two periods.
Operating income increased $1.6 million or 482.2% from $332,000 for the three
months ended March 31, 1997 to $1.9 million for the three months ended March 31,
1998, reflecting the Combination. As a percentage of net sales, however,
operating income remained stable over the two periods.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $27.1 million in cash, $78.3 million of
working capital, and full borrowing capacity under its $75,000,000 revolving
credit facility with a five-bank syndicate.
The Company's liquidity position continues to be sufficient to enable the
Company to fund its current operations and to fund anticipated internal
expansion and acquisitions for at least the current year.
On a historical basis, net cash provided by operating activities for the
three months ended March 31, 1998 and 1997 was $568,000 and $199,000,
respectively. These changes were principally due to reductions in working
capital requirements for inventory and accounts receivable.
On a historical basis, net cash provided by (used in) investing activities
for the three months ended March 31, 1998 and 1997 was ($2.9 million) and
($85,000), respectively. The change was primarily attributable to capital
expenditures.
On a historical basis, net cash provided by (used in) financing activities
for the three months ended March 31, 1998 and 1997 was ($2.1 million) and
$478,000, respectively. The changes were principally due to repayment of lines
of credit of acquired companies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission File No. 001-13195, previously filed with the
Commission, regarding certain legal proceedings in which the Company is
involved.
ITEM 2. CHANGES IN SECURITIES
During the first quarter of 1998, 539,797 shares of common stock were issued
to acquire three companies, as discussed in Note 3 to the financial statements
included in Part I of this Report.
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
12
<PAGE> 13
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.
<TABLE>
<CAPTION>
INDUSTRIAL DISTRIBUTION GROUP, INC.
(Registrant)
<S> <C>
Date: May 15, 1998 By: /s/ Jack P. Healey
------------------------------------------------------
Jack P. Healey
Senior Vice President and Chief Financial Officer
Date: May 15, 1998 /s/ Jack P. Healey
------------------------------------------------------------
Jack P. Healey
Senior Vice President and Chief Financial Officer
(Principal accounting and Financial Officer)
</TABLE>
13
<PAGE> 1
EXHIBIT 11
INDUSTRIAL DISTRIBUTION GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
-------- ------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income $ 1,317 $ 181
======= ======
Weighted average common 7,751 1,348
shares outstanding
Add - Dilutive effect of outstanding options
(as determined by the application of the
treasury stock method) 55 0
------- ------
Weighted average common and
common equivalent
shares outstanding 7,806 1,348
======= ======
Primary earnings per share: $ .17 $ .13
======= ======
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INDUSTRIAL DISTRIBUTION GROUP, INC. FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 27,079
<SECURITIES> 0
<RECEIVABLES> 39,838
<ALLOWANCES> (930)
<INVENTORY> 41,221
<CURRENT-ASSETS> 111,632
<PP&E> 28,256
<DEPRECIATION> (16,586)
<TOTAL-ASSETS> 147,224
<CURRENT-LIABILITIES> 33,386
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 101,607
<TOTAL-LIABILITY-AND-EQUITY> 147,224
<SALES> 84,742
<TOTAL-REVENUES> 84,742
<CGS> 64,866
<TOTAL-COSTS> 82,809
<OTHER-EXPENSES> (483)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211
<INCOME-PRETAX> 2,205
<INCOME-TAX> 888
<INCOME-CONTINUING> 1,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,317
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
