<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, 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
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 East Paces Ferry Road, Suite 1575 Atlanta, Georgia 30326
------------------------------------------------------------
(Address of principal executive offices and zip code)
(404) 949-2100
--------------
(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 April 30, 2000
----------------------------------- -----------------------------
Common Stock, $.01 par value 8,808,947
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INDUSTRIAL DISTRIBUTION GROUP, INC.
INDEX
<TABLE>
<S> <C>
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999 (Unaudited)
Consolidated Statements of Operations for the three months ended March 31, 2000 and
1999 (Unaudited)
Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (Unaudited)
Notes to the Consolidated Financial Statements (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 1. Legal Proceedings
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)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents......................... $ 1,911 $ 851
Accounts Receivable, net.......................... 69,052 64,029
Inventory, net.................................... 68,012 67,633
Deferred Tax Assets............................... 7,094 7,094
Prepaid and Other Current Assets.................. 7,405 5,722
--------- --------
TOTAL CURRENT ASSETS............................. 153,474 145,329
Property and Equipment, net....................... 30,716 31,538
Intangible Assets, net............................ 53,294 53,019
Other Assets...................................... 1,083 918
--------- --------
TOTAL ASSETS..................................... $ 238,567 $230,804
========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short Term Debt................................... $ 452 $ 467
Accounts Payable.................................. 45,019 48,870
Accrued Compensation.............................. 2,698 2,782
Other Accrued Liabilities......................... 21,974 15,062
--------- --------
TOTAL CURRENT LIABILITIES........................ 70,143 67,181
Long-Term Debt.................................... 51,395 47,486
Deferred Income Tax Liabilities................... 2,024 2,024
Other Long-Term Liabilities....................... 2,044 2,041
--------- --------
TOTAL LIABILITIES............................... 125,606 118,732
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share, 50,000,000
shares authorized; 8,789,640 shares issued and
8,759,986 shares outstanding in 2000; 8,641,831
shares issued and 8,635,058 shares outstanding
in 1999.......................................... 89 87
Additional Paid-In Capital........................ 97,908 97,546
Retained Earnings................................. 14,964 14,439
--------- ---------
Total Stockholders' Equity........................ 112,961 112,072
--------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY........ $ 238,567 $230,804
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
NET SALES............................................. $ 139,515 $ 135,895
COST OF SALES......................................... 109,268 105,783
---------- ----------
Gross profit........................................ 30,247 30,112
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 28,014 28,740
---------- ----------
Income from operations.............................. 2,233 1,372
INTEREST EXPENSE...................................... 1,229 634
OTHER (INCOME) EXPENSE................................ (48) (136)
---------- ----------
INCOME BEFORE INCOME TAXES............................ 1,052 874
PROVISION FOR INCOME TAXES............................ 527 354
---------- ----------
NET INCOME............................................ $ 525 $ 520
========== ==========
BASIC EARNINGS PER SHARE.............................. $ .06 $ .06
=========== ===========
DILUTED EARNINGS PER SHARE............................ $ .06 $ .06
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (Basic)........... 8,747,608 8,497,418
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (Diluted)......... 8,747,608 8,497,418
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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INDUSTRIAL DISTRIBUTION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 525 $ 520
-------- --------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization........................... 1,252 1,127
Benefit for deferred taxes.............................. 0 (1)
Gain on disposal of equipment........................... (36) (21)
Changes in operating assets and liabilities:
Accounts receivable, net............................ (5,520) (9,574)
Inventories, net.................................... (1,399) (483)
Prepaid assets and other assets..................... (197) 499
Accounts payable.................................... (151) 736
Accrued compensation................................ (83) (777)
Deferred loan costs................................. (18) 52
Other accrued liabilities........................... 3,086 528
-------- --------
Total adjustments................................ (3,066) (7,914)
-------- --------
Net cash used in operating activities............ (2,541) (7,394)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net.................. (2,154) (6,117)
Proceeds from the sale of property and equipment.......... 1,783 498
Purchase of investments................................... 0 (30)
Deposits.................................................. (155) (101)
Cash surrender value of life insurance.................... 18 0
Proceeds from sale of investments......................... 88 33
-------- --------
Net cash used in investing activities.............. (420) (5,717)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... 128 96
Proceeds from (payments on) long term debt, net............. 3,928 15,403
Proceeds from (payments on) short term debt, net............ (34) (41)
Other....................................................... (1) (6)
-------- --------
Net cash provided by financing activities........ 4,021 15,452
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 1,060 2,341
CASH AND CASH EQUIVALENTS, beginning of period.............. $ 851 $ 1,285
======== ========
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,911 $ 3,626
======== ========
Supplemental Cash Flow Information:
Cash Paid for Interest.................................... $ 1,235 $ 296
======== ========
Cash Paid for Income Taxes................................ $ 655 $ 534
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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INDUSTRIAL DISTRIBUTION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 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 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, 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. ACQUISITIONS
There were no acquisitions during the periods presented.
4. 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 20 and 30 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 $51,000 and $42,000 for
the periods ended March 31, 2000 and 1999, respectively. This agreement amended
the December 1998 agreement for $125,000,000. The amount outstanding under this
facility at March 31, 2000 and 1999 was $49,000,000.
Additionally, the Company has outstanding an issued letter of credit for
$2,081,000 as of March 31, 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 March 31, 2000 and
1999.
5. CAPITAL STOCK
During the first quarter of 2000, the Company issued 46,316 shares of its common
stock through its employee stock purchase plan. The Company redeemed 3,521
shares of its Common Stock from a former shareholder of an acquired company
through it's employee stock ownership plan. The Company also issued 82,133
shares of common stock in accordance with the acquisition agreement of one of
the companies acquired in 1998.
6
<PAGE> 7
6. COMMITMENTS AND CONTINGENCIES
On April 5, 2000, the Company settled the previously reported dissenter's rights
lawsuit involving its wholly owned subsidiary The Distribution Group, Inc.
("TDG") and Alvis J. Waite that had been pending in DeKalb County Superior
Court, Georgia, File No. 97-14388-4. On behalf of TDG, the Company paid Mr.
Waite $10.75 million in full satisfaction of all disputes and issues raised by
the lawsuit, in which the court had entered a judgment that adopted the
recommendations of the court-appointed appraiser. Including a charge taken in
the fourth quarter of 1999, the Company had previously provided an accrual that
was adequate to cover the payment as well as related legal fees. The payment was
made using a premium finance arrangement through one of its insurance carriers.
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 that identified above, will not have a material
adverse effect on the Company's financial position or results of operations.
7. NEW PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which addresses
the accounting for derivative instruments. SFAS No. 133 was recently amended to
be effective for financial statements for the Company's fiscal quarters
beginning after January 1, 2001. 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.
7
<PAGE> 8
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 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>
THREE MONTHS ENDED MARCH 31
---------------------------------------------------------
2000 1999
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<S> <C> <C> <C> <C>
Net Sales $ 139,515 100.0% $ 135,895 100.0%
Cost of Sales 109,268 78.3 105,783 77.9
--------- ----- --------- -----
Gross Profit 30,247 21.7 30,112 22.1
Selling, General and
Administrative 28,014 20.1 28,740 21.1
--------- ----- --------- -----
Operating Income $ 2,233 1.6% $ 1,372 1.0%
========= ===== ========= =====
</TABLE>
Net sales increased $3.6 million or 2.7 % from $135.9 million for the three
months ended March 31, 1999 to $139.5 million for the three months ended March
31, 2000. The sales increase is attributable to conversion of existing customers
from traditional MROP sales arrangements to fully integrated supply
relationships as well as the addition of new integrated supply customers.
Further, $1.4 million is attributable to sales from an acquisition made in the
second quarter of 1999.
Cost of sales increased $3.5 million or 3.4 % from $105.8 million for the three
months ended March 31, 1999 to $109.3 million for the three months ended March
31, 2000. As a percentage of net sales, cost of sales increased from 77.9% in
1999 to 78.3% 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.
Selling, general, and administrative expenses decreased $726,000 from $28.7
million for the three months ended March 31, 1999 to $28.0 million for the three
months ended March 31, 2000. As a percentage of net sales, selling, general and
administrative expenses decreased from 21.1% 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, and also management's
efforts to reduce expenses through consolidation of facilities and reduction of
the number of employees.
Operating income increased $861,000 from $1.4 million for the three months ended
March 31, 1999 to $2.2 million for the three months ended March 31, 2000. As a
percentage of net sales, operating income increased from 1.0% in 1999 to 1.6% in
2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had $1.9 million in cash, an additional $81
million of working capital, and $49 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 operating activities for the three months ended March 31, 2000
and 1999 was $2.5 million and $7.4 million, respectively. The change was
principally due to improved management of accounts receivable.
Net cash used in investing activities for the three months ended March 31, 2000
and 1999 was $.4 and $5.7 million, respectively. In 2000, the cash was used
primarily for property and equipment additions, whereas in 1999, the cash was
used primarily for a new building for the largest business unit and a portion of
the Company's ERP system.
Net cash provided by financing activities for the three months ended March 31,
2000 and 1999 was $4.0 million and $15.5 million, respectively. In 2000, the
cash provided from the credit facility was used primarily to fund working
capital needs, whereas in 1999, the cash was used for repayment of lines of
credit of certain acquired companies, property additions, and to fund working
capital needs.
8
<PAGE> 9
The Company arranged, through one of its insurance carriers to purchase
management liability insurance to cover the payment to be made to the dissenting
shareholder in Note 6. This premium is being financed by the insurance carrier
over a period of three years.
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 10K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 5, 2000, the Company settled the previously reported dissenter's rights
lawsuit involving its wholly owned subsidiary The Distribution Group, Inc.
("TDG") and Alvis J. Waite that had been pending in DeKalb County Superior
Court, Georgia, File No. 97-14388-4. On behalf of TDG, the Company paid Mr.
Waite $10.75 million in full satisfaction of all disputes and issues raised by
the lawsuit, in which the court had entered a judgment that adopted the
recommendations of the court-appointed appraiser. Including a charge taken in
the fourth quarter of 1999, the Company had previously provided an accrual that
was adequate to cover the payment as well as related legal fees. The payment was
made using a premium finance arrangement through one of its insurance carriers.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) The following exhibits are filed as part of the Form 10Q:
Exhibit 11 -- Computation of Earnings Per Share
Exhibit 27A -- Financial Data Schedule (for SEC use only)
b) No report on Form 8-K was filed during the quarter to which this Form
10-Q relates.
9
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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>
<S> <C> <C>
INDUSTRIAL DISTRIBUTION GROUP, INC.
(Registrant)
Date: May 15, 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)
</TABLE>
10
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EXHIBIT 11
INDUSTRIAL DISTRIBUTION GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
------ ------
Net income $ 525 $ 520
====== ======
<S> <C> <C>
Weighted average common
shares outstanding 8,747 8,497
Add - Dilutive effect of outstanding
options (as determined by the
application of the treasury stock method) -- --
------ ------
Weighted average common and
common equivalent
shares outstanding 8,747 8,497
====== ======
Primary earnings per share: $ .06 $ .06
====== ======
Diluted earnings per share: $ .06 $ .06
====== ======
</TABLE>
11
<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, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,911
<SECURITIES> 0
<RECEIVABLES> 70,616
<ALLOWANCES> (1,564)
<INVENTORY> 68,012
<CURRENT-ASSETS> 153,474
<PP&E> 39,630
<DEPRECIATION> (8,914)
<TOTAL-ASSETS> 238,567
<CURRENT-LIABILITIES> 70,143
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 112,872
<TOTAL-LIABILITY-AND-EQUITY> 238,567
<SALES> 139,515
<TOTAL-REVENUES> 139,515
<CGS> 109,268
<TOTAL-COSTS> 137,282
<OTHER-EXPENSES> (48)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,229
<INCOME-PRETAX> 1,052
<INCOME-TAX> 527
<INCOME-CONTINUING> 525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 525
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
