<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FROM TO
Commission File Number 0-21728
BARNETT INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 59-1380437
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(State of Incorporation) (I.R.S. Employer
Identification Number)
3333 LENOX AVENUE
JACKSONVILLE, FLORIDA 32254
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(Address of Principal Executive Offices) (Zip Code)
(904)384-6530
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(Registrant's Telephone Number Including Area Code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since
last report)
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 ninety (90) days.
Yes X No
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14,398,000 shares of Common Stock, $.01 par value, were issued and outstanding
as of October 31, 1996.
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BARNETT INC.
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INDEX TO FORM 10-Q
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<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
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<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1996
and June 30, 1996...................................... 3-4
Condensed Statements of Income for the Three
Months Ended September 30, 1996
and 1995............................................... 5
Condensed Statements of Cash Flows for the
Three Months Ended September 30, 1996 and
1995................................................... 6
Notes to Condensed Financial
Statements............................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 11
SIGNATURES
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EXHIBIT INDEX
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</TABLE>
2
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BARNETT INC.
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CONDENSED BALANCE SHEETS
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SEPTEMBER 30, 1996 AND JUNE 30, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited)
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<S> <C> <C>
CURRENT ASSETS:
Cash $ 698 $ 1,707
Accounts receivable, net 17,911 17,577
Inventories 30,304 27,362
Prepaid expenses 1,227 1,074
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Total current assets 50,140 47,720
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PROPERTY AND EQUIPMENT:
Leasehold Improvements 4,210 3,999
Machinery and Equipment 13,059 10,619
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17,269 14,618
Less accumulated depreciation and amortization (8,864) (8,301)
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Property and equipment, net 8,405 6,317
COST OF BUSINESSES IN EXCESS
OF NET ASSETS ACQUIRED, NET 3,548 3,580
DEFERRED TAX ASSETS, NET 500 500
OTHER ASSETS 291 183
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$ 62,884 $ 58,300
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</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
3
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BARNETT INC.
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CONDENSED BALANCE SHEETS
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SEPTEMBER 30, 1996 AND JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited)
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 15,339 $ 14,131
Accrued liabilities 1,769 1,780
Accrued income taxes 1,755 1,065
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Total current liabilities 18,863 16,976
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STOCKHOLDERS' EQUITY:
Serial preferred stock, $.10 par value per share:
Authorized 10,000 shares; Issued and outstanding
1,271 shares at September 30, 1996 and
June 30, 1996: 127 127
Common stock, $.01 par value per share:
Authorized 40,000 shares; Issued and outstanding
14,398 shares at September 30, 1996 and
June 30, 1996 143 143
Paid-in capital 39,109 39,109
Retained earnings 4,642 1,945
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Total stockholders' equity 44,021 41,324
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$ 62,884 $ 58,300
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</TABLE>
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
4
<PAGE> 5
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
BARNETT INC.
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CONDENSED STATEMENTS OF INCOME
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(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Net sales $ 36,491 $ 29,425
Cost of sales 24,127 19,823
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Gross profit 12,364 9,602
Selling, general and
administrative expenses 7,992 6,343
Corporate charge - 427
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Operating income 4,372 2,832
Interest income (expense) 16 (615)
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Income before income taxes 4,388 2,217
Provision for income taxes 1,691 833
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Net income $ 2,697 $ 1,384
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Primary and fully diluted
earnings per share: $ 0.17 $ 0.09
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Weighted average shares outstanding 15,874 15,874
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PRO FORMA ADJUSTED FOR INITIAL
PUBLIC OFFERING:
Income before income taxes $ 2,217
Add: Corporate charge 427
Interest expense 615
Less: Public company costs 50
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Pro Forma income before income
taxes 3,209
Provision for income taxes 1,203
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Pro Forma net income $ 2,006
======
Pro Forma primary and fully
diluted earnings per share: $ 0.13
======
Pro Forma average weighted shares
outstanding: 15,874
======
</TABLE>
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
5
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BARNETT INC.
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CONDENSED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 2,697 $ 1,384
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 595 452
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (334) 143
(Increase) in inventories (2,942) (692)
(Increase) in prepaid expenses (153) (122)
Increase in accounts payable 1,208 238
Increase (decrease) in accrued liabilities 679 (256)
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Net Cash Provided by Operating Activities 1,750 1,147
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CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures, net (2,651) (492)
Change in other assets (108) (2)
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Net Cash (Used in) Investing Activities (2,759) (494)
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CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings under credit agreements - (575)
Repayments under credit agreements - -
Push-down debt - 575
Debt issue costs - 68
Advances to Waxman Industries, Inc. - (2,405)
Capital contribution from Waxman
Industries, Inc. - 529
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Net Cash (Used in) Financing Activities - (1,808)
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NET INCREASE (DECREASE) IN CASH (1,009) (1,155)
BALANCE, BEGINNING OF PERIOD 1,707 1,155
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BALANCE, END OF PERIOD $ 698 $ 0
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</TABLE>
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
6
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BARNETT INC.
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NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 1 - BASIS OF PRESENTATION
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The condensed financial statements include the accounts of Barnett Inc. (the
"Company"). The condensed statements of income for the three months ended
September 30, 1996 and 1995, the condensed balance sheet as of September 30,
1996 and the condensed statements of cash flows for the three months ended
September 30, 1996 and 1995 have been prepared by the Company without audit,
while the condensed balance sheet as of June 30, 1996 was derived from audited
financial statements. In the opinion of management, these financial statements
include all adjustments, all of which are normal and recurring in nature,
necessary to present fairly the financial position, results of operations and
cash flows as of September 30, 1996 and for all periods presented. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the disclosures
included are adequate and provide a fair presentation of interim period
results. Interim financial statements are not necessarily indicative of
financial position or operating results for an entire year. It is suggested
that these condensed interim financial statements be read in conjunction with
the audited financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996
filed with the Securities and Exchange Commission.
NOTE 2 - BUSINESS
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The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to a broad base of customers in the
United States. The Company's customer base consists primarily of professional
plumbing and electrical repair and remodeling contractors, independent hardware
stores and maintenance managers; the Company distributes its products to over
43,000 active customers.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
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Cash payments during the three months ended September 30, 1996 and 1995
included income taxes of $1.0 million and $46,000, respectively, and interest
of $490,000 for the prior year period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
This Quarterly Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements regarding the sufficiency of the Company's
liquidity and sources of capital. These forward-looking statements are subject
to certain risks, uncertainties and other factors which could cause actual
results to differ materially. Additional information on factors that could
potentially affect the Company or its financial results may be found in the
Company's filings with the Securities and Exchange Commission.
7
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OVERVIEW
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On April 3, 1996, the Company consummated an initial public offering, (the
"Initial Public Offering") whereby 7,207,000 shares of common stock, $.01 par
value, of the Company representing approximately 55.1% of the outstanding shares
of common stock, were sold by the Company and its former parent, Waxman USA Inc.
("Waxman USA").
The prior period financial statements have been adjusted to reflect push-down
adjustments from Waxman USA, consisting of certain bank indebtedness which was
repaid by the Company on April 3, 1996. Related interest expense and debt issue
costs have also been pushed down having the effect of creating higher interest
expense than was actually paid by the Company during those periods. Interest
expense, including amortization of debt issue costs totaled $0.6 million for the
three months ended September 30, 1995.
Management fees previously charged to the Company by Waxman Industries, Inc.
("Waxman"), the parent of Waxman USA, are included as corporate charge in the
Company's financial statements. In connection with the Initial Public Offering,
these allocations are no longer charged to the Company as of March 31, 1996. As
of March 31, 1996, Waxman and the Company entered into a new intercorporate
agreement under which Waxman may provide certain managerial, administrative and
financial services to the Company, for which the Company pays Waxman the
allocable costs of the salaries and expenses of Waxman's employees rendering
such services. The Company also reimburses Waxman for actual out-of-pocket
disbursements to third parties by Waxman required for the provision of such
services. Subsequent to March 31, 1996, such payments to Waxman are reported in
the Company's financial statements as a component of general and administrative
expenses.
Pursuant to the new intercorporate agreement, the Company continues to provide
certain services to the operating divisions of WOC Inc., a subsidiary of Waxman
USA. Waxman pays the Company the allocable costs of the salaries and
expenses of the Company's employees rendering such services. Waxman also
reimburses the Company for all actual out-of-pocket disbursements to third
parties by the Company required for the provision of such services. For a
full-year period, the Company expects that the net effect of the payments made
and/or received pursuant to the new intercorporate agreement and the additional
expenses of being an independent public company to be an incremental $200,000 of
expenses.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
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THREE MONTHS ENDED SEPTEMBER 30, 1995
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NET SALES
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Net sales increased $7.1 million, or 24.0%, to $36.5 million in the three months
ended September 30, 1996 from $29.4 million in the corresponding prior year
period. Approximately 83.6% of the increase in the Company's net sales is
attributable to the Company's telesales operations, primarily resulting from
increased sales by existing telesalespersons and the addition of 19
telesalespersons compared to the prior year period. Also contributing to the
overall increase in net sales was a net increase of 1,031 in the total number of
products offered by the Company over the past twelve months, 517 of which were
introduced in the current three month period. Sales from new product
introductions over the last twelve months contributed approximately $3.2 million
to the net sales increase during the period. Additionally, as a result of an
expanded promotional flyer campaign, active customers grew to 43,000 from 39,000
in the comparable period and contributed approximately $1.3 million to the net
sales increase during the three month period.
8
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GROSS PROFIT
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Gross profit increased by 28.8% to $12.4 million in the three months ended
September 30, 1996 from $9.6 million in the corresponding prior year period.
Gross profit margin increased to 33.9% for the three months ended September 30,
1996 from 32.6% for the same period last year primarily as a result of favorable
vendor program changes implemented in the current three month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses increased 26.0% to $8.0
million for the three months ended September 30, 1996 from $6.3 million for the
comparable prior year period. The increase is primarily due to increased
variable selling expenses, primarily attributable to personnel costs related to
the above mentioned addition of 19 telesalespersons, together with the
expansion of the marketing staff. Also contributing to increased variable
selling expenses were increased freight and delivery costs resulting from the
Company's determination to reduce its customers' prepaid freight minimums. In
addition, SG&A expenses increased as a result of independent company expenses
incurred by the Company since its Initial Public Offering on April 3, 1996.
SG&A expenses represented 21.9% of net sales in the three months ended
September 30, 1996, compared to 21.6% of net sales in the comparable period of
1995.
CORPORATE CHARGE
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Corporate charges were allocations of expenses to the Company by the Company's
former parent to support its corporate activities. These allocations are no
longer charged to the Company as of March 31, 1996. As of March 31, 1996 Waxman
USA and the Company entered into a new intercorporate agreement for services
pursuant to which charges allocated to the Company only include those expenses
incurred by Waxman with respect to the Company. These expenses are included as a
component of SG&A expenses beginning April 1, 1996 and are not material.
PROVISION FOR INCOME TAXES
- --------------------------
The provision for income taxes increased $0.9 million or 103.0% to $1.7 million
for the three months ended September 30, 1996 from $0.8 million for the three
months ended September 30, 1995, primarily as a result of increased operating
income. The Company previously participated in a tax sharing agreement with
Waxman. Under this agreement, the Company's federal tax liability was equal to
the lesser of the federal tax liability calculated on a stand-alone basis or
Waxman's federal tax liability. As Waxman had $75.0 million of available
domestic net operating loss carryforwards at September 30, 1995 for income tax
purposes, the Company had no liability for federal taxes at September 30, 1995.
The Company files separate income tax returns in certain states based on the
results of operations within the applicable states. As a result of the initial
public offering, the Company is no longer included in Waxman's consolidated tax
return. Therefore, Waxman's remaining net operating loss carryforwards are not
available to offset the Company's taxable income after April 3, 1996, the
consummation date of the Initial Public Offering.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1996 the company had working capital of $31.3 million and a
current ratio of 2.7 to 1.
9
<PAGE> 10
Net cash provided by operating activities totaled $1.7 million for the three
months ended September 30, 1996 compared to $1.1 million for the three months
ended September 30, 1995.
Net cash used in investing activities totaled $2.8 million during the three
months ended September 30, 1996 compared to $0.5 million for the three months
ended September 30, 1995. These investments related primarily to capital
expenditures for improved management information systems, including the buy-out
of an operating lease incurred in prior years and expansion and/or relocation of
several of the Company's distribution centers to accommodate new product
offerings.
Net cash used in financing activities was $0 for the three months ended
September 30, 1996 compared to $1.8 million for the three months ended September
30, 1995. This amount primarily represent advances to Waxman to satisfy its
debt service obligations in the prior year period.
In connection with the Initial Public Offering, the Company entered into a
revolving credit agreement with First Union National Bank of Florida for an
unsecured three-year credit facility providing for borrowings of up to $15.0
million including a letter of credit subfacility of $4.0 million. Borrowings
under this facility bear interest, at the Company's option, at the prime rate
minus 75 basis points or LIBOR plus 100 basis points. The credit facility
provides funds for working capital and general corporate purposes. At September
30, 1996, there were no borrowings under the credit agreement and there were
$3.0 million of letters of credit outstanding. The credit facility contains
customary affirmative and negative covenants, including certain covenants
requiring the Company to maintain debt to net worth, interest coverage and
current ratios, as well as a minimum net worth test. The credit facility also
restricts the amount of dividends payable by the Company. The Company was in
compliance with all covenants at September 30, 1996.
Historically, cash flow from operations has been sufficient to fund the
Company's growth. The Company believes that funds generated from operations will
continue to be sufficient to fund future growth. These funds, together with
funds available under the bank credit facility discussed above, will be
sufficient to fund the Company's current operational needs and growth strategy.
10
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PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
(27) Financial Data Schedule
b) No Reports on Form 8-K were filed.
All other items in Part II are either inapplicable to the Company during the
quarter ended September 30, 1996, the answer is negative or a response has been
previously reported and an additional report of the information need not be
made pursuant to the instructions to Part II.
SIGNATURES
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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.
BARNETT INC.
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REGISTRANT
DATE: NOVEMBER 5, 1996 By: /s/ Andrea Luiga
----------------
Andrea Luiga
Chief Financial Officer
(principal financial and
accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 698
<SECURITIES> 0
<RECEIVABLES> 18,642
<ALLOWANCES> (731)
<INVENTORY> 30,304
<CURRENT-ASSETS> 50,140
<PP&E> 17,269
<DEPRECIATION> (8,864)
<TOTAL-ASSETS> 62,884
<CURRENT-LIABILITIES> 18,863
<BONDS> 0
<COMMON> 143
0
127
<OTHER-SE> 43,751
<TOTAL-LIABILITY-AND-EQUITY> 62,884
<SALES> 36,491
<TOTAL-REVENUES> 36,491
<CGS> 24,127
<TOTAL-COSTS> 24,127
<OTHER-EXPENSES> 7,885
<LOSS-PROVISION> 107
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,388
<INCOME-TAX> 1,691
<INCOME-CONTINUING> 2,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,697
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
