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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, 2000
[ ] 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
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
950 East Paces Ferry Road, Suite 1575 Atlanta, Georgia 30326
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(Address of principal executive offices and zip code)
(404) 949-2100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at October 31, 2000
---------------------------- -------------------------------
Common Stock, $.01 par value 8,486,587
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INDUSTRIAL DISTRIBUTION GROUP, INC.
INDEX
<TABLE>
<S> <C>
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000 (Unaudited) and December 31, 1999
Consolidated Statements of Operations for the three months ended September 30, 2000 and
1999 (Unaudited)
Consolidated Statements of Operations for the nine months ended September 30, 2000 and 1999
(Unaudited)
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements - September 30, 2000 (Unaudited)
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 6. Exhibits and Reports on Form 8-K
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents .................................. $ 523 $ 851
Accounts Receivable, net ................................... 70,137 64,029
Inventory, net ............................................. 69,170 67,633
Deferred Tax Assets ........................................ 7,234 7,094
Prepaid and Other Current Assets ........................... 7,723 5,722
-------- --------
TOTAL CURRENT ASSETS .................................... 154,787 145,329
Property and Equipment, net ................................ 23,393 31,538
Intangible Assets, net ..................................... 52,561 53,019
Other Assets ............................................... 978 918
-------- --------
TOTAL ASSETS .............................................. $231,719 $230,804
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short Term Debt ............................................ $ 365 $ 467
Accounts Payable ........................................... 46,865 41,806
Accrued Compensation ....................................... 3,077 2,782
Other Accrued Liabilities .................................. 13,010 22,126
-------- --------
TOTAL CURRENT LIABILITIES ................................. 63,317 67,181
Long-Term Debt ............................................. 45,267 47,486
Deferred Income Tax Liabilities ............................ 2,024 2,024
Other Long-Term Liabilities ................................ 7,544 2,041
-------- --------
TOTAL LIABILITIES ........................................ 118,152 118,732
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share, 50,000,000
shares authorized; 8,908,657 shares issued and 8,436,505
shares outstanding in 2000; 8,641,831 shares issued and
8,635,058 shares outstanding in 1999 ...................... 85 87
Additional Paid-In Capital ................................. 97,090 97,546
Retained Earnings .......................................... 16,392 14,439
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Total Stockholders' Equity ................................. 113,567 112,072
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ................. $231,719 $230,804
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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INDUSTRIAL DISTRIBUTION GROUP, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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<S> <C> <C>
NET SALES ................................................. $ 132,457 $ 135,300
COST OF SALES ............................................. 103,492 105,414
----------- ----------
Gross profit ............................................ 28,965 29,886
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .............. 26,954 27,861
----------- ----------
Income from operations .................................. 2,011 2,025
INTEREST EXPENSE .......................................... 1,142 919
OTHER (INCOME) EXPENSE, NET ............................... (58) 13
----------- ----------
INCOME BEFORE INCOME TAXES ................................ 927 1,093
PROVISION FOR INCOME TAXES ................................ 353 599
----------- ----------
NET INCOME ................................................ $ 574 $ 494
=========== ==========
BASIC AND DILUTED EARNINGS PER SHARE ...................... $ .07 $ .06
=========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted) ... 8,547,130 8,592,287
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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INDUSTRIAL DISTRIBUTION GROUP, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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<S> <C> <C>
NET SALES ................................................. $ 410,265 $ 408,445
COST OF SALES ............................................. 320,743 318,476
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Gross profit ............................................ 89,522 89,969
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .............. 82,477 84,448
----------- -----------
Income from operations .................................. 7,045 5,521
INTEREST EXPENSE .......................................... 3,539 2,440
OTHER INCOME, NET ......................................... 77 168
----------- -----------
INCOME BEFORE INCOME TAXES ................................ 3,583 3,249
PROVISION FOR INCOME TAXES ................................ 1,630 1,582
----------- -----------
NET INCOME ................................................ $ 1,953 $ 1,667
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE ...................... $ .22 $ .20
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted) ... 8,703,548 8,543,419
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 1,953 $ 1,667
-------- --------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization .......................................... 3,691 3,498
Gain on disposal of equipment .......................................... (133) (13)
Loss on sale of investment ............................................. -- 10
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable, net ............................................. (6,605) (9,367)
Inventories, net ..................................................... (2,557) (3,219)
Prepaid and other assets ............................................. (906) 1,278
Accounts payable ..................................................... 5,211 5,779
Accrued compensation ................................................. 351 (543)
Other accrued liabilities ............................................ (1,973) 3,127
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Total adjustments .................................................. (2,921) 550
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Net cash (used in) provided by operating activities ................ (968) 2,217
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net ............................... (4,406) (14,886)
Proceeds from the sale of property and equipment ....................... 9,685 6,212
Cash paid in acquisitions, net of cash acquired ........................ -- (1,753)
Deposits ............................................................... (115) 180
Proceeds from liquidation of life insurance policies ................... 437 70
Proceeds from sale of investments ...................................... 88 43
-------- --------
Net cash provided by (used in) investing activities ........... 5,689 (10,134)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................. 355 382
Proceeds from (payments on) debt, net .................................. (2,320) 7,284
Purchase and retirement of Treasury Stock .............................. (1,105) --
Proceeds from management liability insurance, net of premium payments .. 8,772 --
Payment to dissenting shareholder ...................................... (10,750) --
Other .................................................................. (1) (6)
-------- --------
Net cash (used in) provided by financing activities .............. (5,049) 7,660
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................................. (328) (257)
CASH AND CASH EQUIVALENTS, beginning of period .......................... $ 851 $ 1,285
======== ========
CASH AND CASH EQUIVALENTS, end of period ................................ $ 523 $ 1,028
======== ========
Supplemental Cash Flow Information:
Cash Paid for Interest ................................................ $ 3,206 $ 2,677
======== ========
Cash Paid for Income Taxes ............................................ $ 1,273 $ 975
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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INDUSTRIAL DISTRIBUTION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - SEPTEMBER 30, 2000
Industrial Distribution Group, Inc. ("IDG" or the "Company"), a Delaware
corporation, was formed on February 12, 1997 to create a nationwide supplier of
cost-effective, flexible procurement solutions for manufacturers and other users
of maintenance, repair, operating, and production ("MROP") products. The Company
conducts business in 27 states and provides product expertise in the procurement
and application of MROP products to a wide range of industries.
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements are prepared pursuant to
the Securities and Exchange Commission's rules and regulations for reporting on
Form 10-Q. Accordingly, certain information and footnotes required by accounting
principles generally accepted in the United States 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.
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
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, 1999, 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. CREDIT FACILITY
In December 1999, the Company entered into a $100,000,000 revolving credit
facility with a six-bank syndicate. The facility has a two-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 assets of the
Company's business units. The agreement provides that the facility be used for
operations and acquisitions and provides $5,000,000 for swinglines and
$10,000,000 for letters of credit. There is an annual commitment fee on the
unused portion of the facility equal to between 32.5 and 50 basis points of the
average daily unused portion of the aggregate commitment, depending on the ratio
of indebtedness to adjusted EBITDA. This fee amounted to approximately $69,000
and $47,000 for the three months ended September 30, 2000 and 1999,
respectively. This agreement amended the December 1998 agreement for a
$125,000,000 facility. The amount outstanding under this facility at September
30, 2000 and 1999 was $43,000,000.
Additionally, the Company has outstanding two issued letters of credit for a
total of $2,948,000 as of September 30, 2000. The revolving credit facility
contains various covenants pertaining to the maintenance of certain financial
ratios. These covenants include requirements for interest coverage, cash flow,
and net worth, among other restrictions. The covenants also prohibit the payment
of dividends. The Company was in compliance with these covenants as of September
30, 2000 and 1999.
4. CAPITAL STOCK
During the third quarter of 2000, the Company issued 47,492 shares of its common
stock through its employee stock purchase plan.
On July 24, 2000, the Company repurchased 442,498 shares of its common stock
from Douglass C. Smith (a co-founder and former President, Chief Operating
Officer, and Director of IDG) and certain of Mr. Smith's family members, at a
purchase price of $2.50 per share, for an aggregate purchase price of
$1,106,245. The transaction was completed in response to Mr. Smith's unsolicited
request for such a repurchase.
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5. COMMITMENTS AND CONTINGENCIES
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 not have a material adverse effect on the Company's
financial position or results of operations.
6. NEW PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
addresses the accounting for derivative instruments. SFAS No. 133 was recently
amended by SFAS 137 to be effective for financial statements for the Company's
fiscal quarters beginning after January 1, 2001. In June 2000, the FASB issued
SFAS 138, which amended certain guidance within SFAS 133. The Company does not
expect SFAS No. 133 will have a significant effect on its current financial
reporting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based upon the historical financial results of the
Company. Results of operations from acquisitions made using the purchase method
of accounting have also been included from their date of acquisition.
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 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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):
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------
2000 1999
------------------------ -----------------------
<S> <C> <C> <C> <C>
Net Sales $132,457 100.0% $135,300 100.0%
Cost of Sales 103,492 78.1 105,414 77.9
-------- ----- -------- -----
Gross Profit 28,965 21.9 29,886 22.1
Selling, General and
Administrative 26,954 20.4 27,861 20.6
-------- ----- -------- -----
Operating Income $ 2,011 1.5% $ 2,025 1.5%
======== ===== ======== =====
</TABLE>
Net sales decreased $2.8 million or 2.1% from $135.3 million for the three
months ended September 30, 1999 to $132.5 million for the three months ended
September 30, 2000. The decrease in sales is attributable to higher interest
rates and rising energy costs negatively impacting customers in the automobile,
trucking, manufactured housing, and aluminum industries.
Cost of sales decreased $1.9 million or 1.8% from $105.4 million for the three
months ended September 30, 1999 to $103.5 million for the three months ended
September 30, 2000. As a percentage of net sales, cost of sales increased from
77.9% in 1999 to 78.1% in 2000. The overall increase in cost of sales as a
percentage of net sales is primarily due to lower sales in the higher margin
manufactured housing sector and increased freight offset by incentives from
strategic growth suppliers.
Selling, general, and administrative expenses decreased $0.9 million or 3.3%
from $27.9 million for the three months ended September 30, 1999 to $27.0
million for the three months ended September 30, 2000. As a percentage of net
sales, selling, general and administrative expenses decreased from 20.6% in 1999
to 20.4% in 2000. The decrease in selling, general and administrative expenses
as a percentage of sales is primarily due to management's efforts to reduce
expenses through consolidation of facilities and reduction of the number of
employees. During the three months ended September 30, 2000, the Company also
recorded a reduction in bad debt expense of $0.1 million as a result of
management's revised estimates related to the Company's allowance for doubtful
accounts.
Operating income was $2.0 million, or 1.5% of net sales, for the three months
ended September 30, 2000 and September 30, 1999. Net income increased $0.1
million from $0.5 million for the three months ended September 30, 1999 to $0.6
million for the three months ended September 30, 2000. The increase is primarily
attributable to a decrease in the company's estimated tax provision offset by an
increase in interest expense. The effective rate has been reduced due to an
adjustment of $0.1 million in the estimated deferred tax asset.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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>
NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------
2000 1999
------------------------ -----------------------
<S> <C> <C> <C> <C>
Net Sales $410,265 100.0% $408,445 100.0%
Cost of Sales 320,743 78.2 318,476 77.9
-------- ----- -------- -----
Gross Profit 89,522 21.8 89,969 22.1
Selling, General and
Administrative 82,477 20.1 84,448 20.7
-------- ----- -------- -----
Operating Income $ 7,045 1.7% $ 5,521 1.4%
======== ===== ======== =====
</TABLE>
Net sales increased $1.8 million or 0.5 % from $408.4 million for the nine
months ended September 30, 1999 to $410.3 million for the nine months ended
September 30, 2000. The sales increase is attributable to the addition of new
flexible procurement solutions customers and specifically more integrated supply
business.
Cost of sales increased $2.3 million or 0.7% from $318.5 million for the nine
months ended September 30, 1999 to $320.7 million for the nine months ended
September 30, 2000. As a percentage of net sales, cost of sales increased from
77.9% in 1999 to 78.2% in 2000. The increase in cost of sales as a percentage of
net sales is primarily due to a change in total company sales mix driven by
lower sales in the higher margin manufactured housing industry, offset by
additional incentives from strategic growth suppliers.
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Selling, general, and administrative expenses decreased $2.0 million or 2.3%
from $84.4 million for the nine months ended September 30, 1999 to $82.5 million
for the nine months ended September 30, 2000. As a percentage of net sales,
selling, general and administrative expenses decreased from 20.7% to 20.1%. The
decrease is partially attributable to the 1999 expense associated with the
departure of the former CEO and the closure of the Chevy Chase, Maryland office.
Additionally, management's efforts to reduce expenses through consolidation of
facilities and reduction of the number of employees have resulted in lower
selling, general, and administrative expenses as a percentage of sales.
Operating income increased $1.5 million or 27.6% from $5.5 million for the nine
months ended September 30, 1999 to $7.0 million for the nine months ended
September 30, 2000. As a percentage of net sales, operating income increased
from 1.4% in 1999 to 1.7% in 2000. Net income increased $0.3 million from $1.7
million for the nine months ended September 30, 1999 to $2.0 million for the
nine months ended September 30, 2000. The increase is attributable to the
improvement in operating income offset by an increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had $0.5 million in cash, an additional $90.9
million of working capital, and $54.1 million of borrowing capacity under its
$100 million revolving credit facility with a six-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 the next year.
Net cash (used in) provided by operating activities for the nine months ended
September 30, 2000 and 1999 was ($1.0) million and $2.2 million, respectively.
The change was due to cash used to fund working capital needs.
Net cash provided by (used in) investing activities for the nine months ended
September 30, 2000 and 1999 was $5.7 million and ($10.1) million, respectively.
During 1999 property and equipment additions included expenditures for a new
building for the Company's largest business unit. In June 2000, the building was
sold in a transaction accounted for as a sale-leaseback. Proceeds from the sale
are included in investing activities for the nine months ended September 30,
2000. Otherwise, in 2000, cash was used primarily for equipment additions. In
1999 cash was also used to fund a portion of the Company's ERP system and to
fund an acquisition.
Net cash (used in) provided by financing activities for the nine months ended
September 30, 2000 and 1999 was ($5.0) million and $7.7 million, respectively.
In 2000, the Company arranged, through one of its insurance carriers to purchase
management liability insurance to cover the $10.8 million payment made to the
dissenting shareholder. This premium is being financed by the insurance carrier
over a period of three years and provided $8.8 million in cash net of premium
payments. Additionally in 2000, cash provided by investing activities was used
to reduce the Company's long-term debt. In 1999, the cash provided by financing
activities was used for property additions and to fund working capital needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in the disclosure concerning this item made
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) The following exhibits are filed as part of the Form 10-Q:
Exhibit 11 -- Computation of Earnings Per Share
Exhibit 27A -- Financial Data Schedule (for SEC use only)
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b) Reports on Form 8-K
Form 8-K filed July 24, 2000
Reporting under Item 5 that the Company repurchased shares of its
common stock.
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 13, 2000 By: /s/ Jack P. Healey
----------------------------------------------
Jack P. Healey
Senior Vice President and Chief Financial
Officer (Duly Authorized Officer and Principal
Accounting and Financial Officer)
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