<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1995.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission file number 0-12490
ACR GROUP, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2008473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 Wilcrest Drive, Suite 440, Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
(713) 780-8532
(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, and (2) has been subject to such filing
requirements for the past 90 days.Yes X No
----- -----
Shares of Common Stock outstanding at June 30, 1995 - 10,246,555.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1995 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 345,979 $ 162,745
Accounts receivable, net 6,705,299 4,720,279
Inventory 9,131,836 8,353,511
Prepaid expenses and other 226,500 366,888
Deferred income taxes 136,000 136,000
------------ ------------
Total current assets 16,545,614 13,739,423
------------ ------------
Property and equipment, net of accumulated
depreciation 1,741,186 1,268,771
Deferred income taxes 544,000 544,000
Goodwill, net of accumulated amortization 1,375,771 1,384,933
Other assets 171,424 194,617
------------ ------------
$ 20,377,995 $ 17,131,744
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 689,321 $ 686,447
Accounts payable 8,447,728 6,738,283
Accrued expenses and other liabilities 562,060 496,770
------------ ------------
Total current liabilities 9,699,109 7,921,500
Long-term debt, less current maturities 5,111,523 3,727,798
------------ ------------
Total liabilities 14,810,632 11,649,298
------------ ------------
Shareholders' equity:
Common stock 102,466 102,466
Additional paid-in capital 41,427,020 41,427,020
Accumulated deficit (35,962,123) (36,047,040)
------------ ------------
Total shareholders' equity 5,567,363 5,482,446
------------ ------------
$ 20,377,995 $ 17,131,744
============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
-1-
<PAGE>
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Sales $12,093,847 $ 9,429,373
Cost of sales 9,732,205 7,440,299
----------- -----------
Gross profit 2,361,642 1,989,074
Selling, general and administrative expenses (2,213,867) (1,796,443)
Income from energy services, net 55,878 17,605
----------- -----------
Operating income 203,653 210,236
Interest expense (132,731) (82,918)
Other non-operating income 13,995 8,082
----------- -----------
Net income $ 84,917 $ 135,400
=========== ===========
Average outstanding common and equivalent
shares 10,627,935 10,464,612
=========== ===========
Earnings per share $ .01 $ .01
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
-2-
<PAGE>
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 84,917 $ 135,400
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation and amortization 122,114 98,989
Increase (decrease) from changes in:
Accounts receivable (1,985,020) (1,103,072)
Inventory (778,325) (2,189,247)
Prepaid expense and other assets 156,787 7,552
Accounts payable 1,709,445 1,641,025
Accrued expenses and other liabilities 65,290 116,307
----------- -----------
Net cash used in operating activities (624,792) (1,293,046)
----------- -----------
Investing activities:
Acquisition of property and equipment (444,259) (214,069)
Proceeds from disposition of assets 525
----------- -----------
Net cash used in investing activities (443,734) (214,069)
----------- -----------
Financing activities:
Proceeds from borrowings 1,530,594 2,047,166
Repayment of debt (278,834) (286,645)
----------- -----------
Net cash provided by financing activities 1,251,760 1,760,521
----------- -----------
Net increase in cash and cash equivalents 183,234 253,406
Cash at beginning of year 162,745 50,279
----------- -----------
Cash at end of period $ 345,979 $ 303,685
=========== ===========
Schedule of non-cash investing and financing
activities:
Purchase of equipment under capital leases
(net of cash paid) $ 134,839 $ 31,619
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
-3-
<PAGE>
ACR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 - BASIS OF PRESENTATION
The interim financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normally
recurring adjustments) which are, in the opinion of management, necessary for
a fair statement of results for the interim periods. Certain balances in the
1994 financial statements have been reclassified to conform to the 1995
presentation. The results of operations for the three month period ended May
31, 1995 are not necessarily indicative of the results to be expected for the
full year.
All inventories represent finished goods held for sale.
2 - DEBT
In March 1995, the Company's revolving line of credit was expanded from
$3.5 million to $5 million, and the maturity date extended from June 30, 1996
to February 28, 1997. As of May 31, 1995, the Company had utilized $4.25
million of the credit line, including letters of credit aggregating $600,000.
Additional borrowings were used to open two additional branch operations and
to pay trade debt incurred to sustain the Company's sales growth.
3 - CONTINGENT LIABILITIES
The Company has an arrangement with an HVACR equipment manufacturer and a
field warehouse agent whereby HVACR equipment is held for sale in bonded
warehouses located at the premises of the Company's operations in Atlanta,
Las Vegas and Memphis, with payment due only when products are sold. Such
inventory is accounted for as consigned merchandise and is not recorded on
the Company's balance sheet. As of May 31, 1995, the cost of such inventory
held in the bonded warehouses was $4,282,996.
-4-
<PAGE>
ACR GROUP, INC. AND SUBSIDIARIES
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MAY 31,
1995 AND MAY 31, 1994
Net income declined to $84,917 in the quarter ended May 31, 1995, from
$135,400 in the quarter ended May 31, 1994, a decrease of 37%. Although
sales of each operating company attained record levels, gross margin
percentage declined in the face of price competition and the increasing
percentage of sales represented by low-margin equipment. During the first
quarter of fiscal 1996, the Company also opened two branch operations: a
branch of ACR Supply ("ACRS") in McAllen, Texas on the border between Texas
and Mexico, and a branch of Total Supply ("TSI") in Forest Park, a suburb
south of Atlanta. The McAllen branch is the first operation of ACRS in far
south Texas, a region that management that believes can be a significant
growth opportunity for the company in the future. The TSI branch is the
company's third in the Atlanta trade area and is 50% larger than the other
two branches, serving as both the company's administrative headquarters and a
warehouse from which the other branches can draw to meet unanticipated
inventory needs. Management intends for the new TSI branch to continue this
role for future planned additional branches and designed the branch
accordingly. Operating losses, including start-up expenses, for the two new
branches were approximately $50,000 in the quarter ended May 31, 1995.
Sales increased 28%, to $12,093,847 for the quarter ended May 31, 1995,
compared to $9,429,373 for the quarter ended May 31, 1994. Sales at Valley
Supply ("Valley"), which opened in late May 1994, comprised 32% of the
increase in 1995. Sales at ACRS, Heating & Cooling Supply ("HCS") and TSI
increased 20%, 12% and 23% from 1994 to 1995. The McAllen branch of ACRS was
opened in May 1995, and accounted for an insignificant percentage of ACRS's
increase in sales. Sales at the new Forest Park branch, which opened in
April 1995, accounted for the increase in sales at TSI; however, customers
formerly served by the company's other two branches generate as much as 30%
of sales at the new branch. Following a record year of sales in fiscal 1995,
HCS further enhanced its presence in the commercial HVACR market. Over 50%
of the company's sales are now to the commercial sector, substantially all of
which has been developed in the past two years. In addition, HCS has
successfully marketed the Janitrol brand of HVACR equipment, which is
identical to the GMC brand of equipment sold by TSI and Valley. Sales of
Janitrol equipment comprised 22% of HCS's total sales in the first quarter of
fiscal 1996, from almost none in the same quarter of fiscal 1995.
The Company's gross margin percentage on sales declined from 21.1% in
1994 to 19.5% in 1995. This trend, which was predicted by the Company, is a
result of the increasing percentage of the Company's sales that are generated
by TSI and Valley. GMC equipment represents 68% and 87%, respectively, of
TSI's and Valley's total sales. The manufacturer of both GMC and Janitrol
equipment limits the gross margin that a distributor may charge and still
participate in its
-5-
<PAGE>
ACR GROUP, INC. AND SUBSIDIARIES
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MAY 31,
1995 AND MAY 31, 1994 (continued)
distributor rebate program. ACRS also has encountered increasing competitive
price pressure in several of its trade areas, and has reduced margins to
maintain its market share. Management is constantly examining opportunities
to increase the Company's gross margin percentage and does not expect the
percentage to decline further from the first quarter of fiscal 1996.
Selling, general and administrative expenses increased 23% in the quarter
ended May 31, 1995 compared to the same quarter of 1994. Such increase
reflects the operating expense of Valley and the branches of ACRS and of TSI
that were opened during the quarter ended May 31, 1995. As described above,
the new branch of TSI was planned to meet expected needs resulting from
continued growth of the company. Nevertheless, as a percentage of sales,
selling, general and administrative expenses declined from 19.1% in 1994 to
18.3% in 1995. Interest expense increased 60% from 1994 to 1995 (from 0.9%
to 1.1% of sales) as a result of the indebtedness incurred by the Company.
See Liquidity and Capital Resources, below.
Net income from energy services increased from $17,605 in 1994 to $55,878
in 1995 as exceptionally moderate weather generated additional energy cost
savings. The Company's remaining energy service contracts will begin to
expire in the third quarter of fiscal 1996, and will all expire by the end of
the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $5,817,923 at February 28, 1995 to
$6,846,505 at May 31, 1995, primarily as a result of funds raised through
borrowings. In March 1995, the Company's revolving line of credit
arrangement with a commercial bank was expanded from $3.5 million to $5
million, and the maturity date extended from June 30, 1996 to February 28,
1997. As of May 31, 1995, the Company had utilized $4.25 million of the
credit line, including letters of credit aggregating $600,000. Additional
borrowings were used to open the two additional branches described above and
to pay trade debt incurred to sustain the Company's sales growth.
The Company continued to draw funds during the first quarter of fiscal
1996 to pay for construction costs of the new warehouse and office of the
Pasadena, Texas branch of ACRS. As of May 31, 1995, the Company had drawn
$304,986 of the aggregate $425,000 financing commitment. In accordance with
the terms of the loan, the Company began in May 1995 to repay the loan in
monthly installments of $2,400. The unpaid balance of the loan matures on
April 30, 2000. The Company expects that construction of the building will
be completed during July 1995.
-6-
<PAGE>
ACR GROUP, INC. AND SUBSIDIARIES
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
Higher levels of accounts receivable and inventories at May 31, 1995,
compared to such amounts at February 28, 1995, reflect a usual seasonal
pattern. The quarterly increase in inventory was significantly greater in
fiscal 1995 because the Company received minimal pre-season shipments of
equipment inventory compared to fiscal 1996. Including merchandise held on
consignment, the Company had approximately 90 days inventory on hand at May
31, 1995.
Management believes that the availability under the Company's revolving
line of credit is adequate to sustain the Company's expected level of
operations in fiscal 1996 and, potentially, to finance limited further
expansion or the acquisition of a small company. The Company continually
examines other business opportunities, including acquisitions, within the
HVACR industry.
The Company has approximately $35 million in tax loss carryforwards and
$1.06 million in tax credit carryforwards. Such operating loss and tax
credit carryforwards will substantially limit the Company's federal income
tax liabilities in the near future.
-7-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None.
(b) No report on Form 8-K was filed during the quarter ended May 31, 1995.
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.
ACR GROUP, INC.
July 17, 1995 /s/ Anthony R. Maresca
- ----------------------------- ------------------------------
Date Anthony R. Maresca
Senior Vice-President and
Chief Financial Officer
-8-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> MAY-31-1995
<CASH> 345,979
<SECURITIES> 0
<RECEIVABLES> 6,705,299
<ALLOWANCES> 0
<INVENTORY> 9,131,836
<CURRENT-ASSETS> 16,545,614
<PP&E> 1,741,186
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,377,995
<CURRENT-LIABILITIES> 9,699,109
<BONDS> 5,111,523
<COMMON> 102,466
0
0
<OTHER-SE> 5,464,897
<TOTAL-LIABILITY-AND-EQUITY> 20,377,995
<SALES> 12,093,847
<TOTAL-REVENUES> 0
<CGS> 9,732,205
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,731
<INCOME-PRETAX> 84,917
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,917
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
