<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 DECEMBER 31, 1996
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.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 59-1380437
(State of Incorporation) (I.R.S. Employer
Identification Number)
3333 LENOX AVENUE
JACKSONVILLE, FLORIDA 32254
(Address of Principal Executive Offices) (Zip Code)
(904)384-6530
(Registrant's Telephone Number Including Area Code)
NOT APPLICABLE
(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
14,398,000 shares of Common Stock, $.01 par value, were issued and outstanding
as of January 31, 1997.
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BARNETT INC.
INDEX TO FORM 10-Q
------------------
PAGE
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
Condensed Balance Sheets as of December 31, 1996 and
June 30, 1996 3-4
Condensed Statements of Income for the Six Months and Three
Months Ended December 31, 1996 and 1995 5
Condensed Statements of Cash Flows for the Six Months Ended
December 31, 1996 and 1995 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-12
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
- ----------
EXHIBIT INDEX
- -------------
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PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
BARNETT INC.
------------
CONDENSED BALANCE SHEETS
------------------------
DECEMBER 31, 1996 AND JUNE 30, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,211 $ 1,707
Accounts receivable, net 20,617 17,577
Inventories 30,955 27,362
Prepaid expenses 1,381 1,074
------- -------
Total current assets 54,164 47,720
------- -------
PROPERTY AND EQUIPMENT:
Leasehold Improvements 4,527 3,999
Machinery and Equipment 14,475 10,619
------- -------
19,002 14,618
Less accumulated depreciation and amortization (9,431) (8,301)
------- -------
Property and equipment, net 9,571 6,317
COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED, NET 3,516 3,580
DEFERRED TAX ASSETS, NET 500 500
OTHER ASSETS 410 183
------- -------
$68,161 $58,300
======= =======
The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
</TABLE>
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BARNETT INC.
------------
CONDENSED BALANCE SHEETS
------------------------
DECEMBER 31, 1996 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $16,144 $14,131
Accrued liabilities 1,702 1,780
Accrued income taxes 369 1,065
Short-term debt 2,919 --
------- -------
Total current liabilities 21,134 16,976
------- -------
STOCKHOLDERS' EQUITY:
Serial preferred stock, $.10 par value per share:
Authorized 10,000 shares; Issued and outstanding 1,271
shares at December 31, 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 December 31, 1996 and June 30, 1996 143 143
Paid-in capital 39,109 39,109
Retained earnings 7,648 1,945
------ -------
Total stockholders' equity 47,027 41,324
------- -------
$68,161 $58,300
======= =======
</TABLE>
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
------------
CONDENSED STATEMENTS OF INCOME
------------------------------
(UNAUDITED)
FOR THE SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
Dec. 31 Dec. 31
------- -------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $76,362 $60,515 $39,871 $31,089
Cost of sales 50,372 40,258 26,245 20,435
------ ------ ------- -------
Gross profit 25,990 20,257 13,626 10,654
Selling, general and
administrative expenses 16,690 12,756 8,698 6,412
Corporate charge 0 892 0 465
------ ------ ------- -----
Operating income 9,300 6,609 4,928 3,777
Interest expense 35 1,235 51 621
------ ------ ------ ------
Income before income taxes 9,265 5,374 4,877 3,156
Provision for income taxes 3,562 2,000 1,871 1,168
------ ------ ------- -------
Net income $5,703 $3,374 $3,006 $1,988
====== ====== ====== ======
Primary and fully diluted
earnings per share: $0.36 $0.19
====== ======
Average shares outstanding 15,944 15,944
====== ======
PRO FORMA ADJUSTED FOR
EARNINGS PER SHARE:
Pro Forma net income $ 4,641 $ 2,578
======= =======
Pro Forma primary and fully
diluted earnings per share: $ 0.30 $ 0.16
====== =======
Pro Forma average shares
outstanding: 15,669 15,669
====== =======
</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
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<TABLE>
<CAPTION>
BARNETT INC.
------------
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 5,703 $ 3,374
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,130 1,047
Changes in assets and liabilities:
(Increase) in accounts receivable, net (3,040) (1,181)
(Increase) in inventories (3,593) (279)
(Increase) decrease in prepaid expenses (307) 102
Increase in accounts payable 2,013 630
(Decrease) in accrued liabilities (774) (18)
------- -------
Net Cash Provided by Operating Activities 1,132 3,675
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures, net (4,384) (1,090)
Change in other assets (163) (16)
------- -------
Net Cash (Used in) Investing Activities (4,547) (1,106)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings under credit agreements 15,161 64,116
Repayments under credit agreements (12,242) (61,652)
Push-down debt - (2,464)
Advances to Waxman Industries, Inc. - (5,191)
Capital contribution from Waxman Industries, Inc. - 2,271
------- -------
Net Cash Provided by (Used in) Financing Activities 2,919 (2,920)
------- -------
NET (DECREASE) IN CASH (496) (351)
BALANCE, BEGINNING OF PERIOD 1,707 1,155
------- -------
BALANCE, END OF PERIOD $ 1,211 $ 804
======= =======
</TABLE>
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(UNAUDITED)
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION
The condensed financial statements include the accounts of Barnett Inc. (the
"Company"). The condensed statements of income for the six months and three
months ended December 31, 1996 and 1995, the condensed balance sheet as of
December 31, 1996 and the condensed statements of cash flows for the six months
ended December 31, 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 December 31, 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.
Unaudited proforma net income of $4.6 million and $2.6 million for the six and
three months ended December 31, 1995, respectively, reflect the following
adjustments: elimination of the corporate charge of $ 0.5 million, decrease in
interest expense by $0.6 million and an increase in income taxes of $ 0.4
million.
NOTE 2 - BUSINESS
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
46,000 active customers.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the six months ended December 31, 1996 and 1995 included
income taxes of $4.2 million and $186,000, respectively, and interest of $32,000
and $968,000, respectfully.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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
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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.
OVERVIEW
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 $1.2 million and
$0.6 million for the six and three months ended December 31, 1995, respectively.
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.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
SIX MONTHS ENDED DECEMBER 31, 1995
NET SALES
Net sales increased $15.8 million, or 26.2%, to $76.4 million in the six months
ended December 31, 1996 from $60.5 million in the corresponding prior year
period. Approximately 81.5% 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 22
telesalespersons compared to the prior year period. Also contributing to the
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overall increase in net sales was a net increase of 1,053 in the total number of
products offered by the Company over the past twelve months which contributed
approximately $7.2 million to the net sales increase during the period.
Additionally, as a result of an expanded promotional flyer campaign, active
customers grew to 46,000 from 40,000 in the comparable period and contributed
approximately $3.0 million to the net sales increase during the six month
period.
GROSS PROFIT
Gross profit increased by 28.3% to $26.0 million in the six months ended
December 31, 1996 from $20.3 million in the corresponding prior year period.
Gross profit margin increased to 34.0% for the six months ended December 31,
1996 from 33.5% for the same period last year, primarily as a result of
favorable vendor program changes implemented in the current six month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased 30.8% to $16.7
million for the six months ended December 31, 1996 from $12.8 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 22 telesalespersons, together with the expansion
of the marketing staff and increased promotional flyer mailings. 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 and the establishment of a same day shipping
policy. Furthermore, in addition to expenses incurred as a result of becoming an
independent public company, the company instituted new, and enhanced existing,
employee benefit programs to allow it to become more competitive in its
compensation and benefit programs. SG&A expenses represented 21.9% of net sales
in the six months ended December 31, 1996, compared to 21.1% of net sales in the
comparable period of fiscal 1995.
CORPORATE CHARGE
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 $1.6 million or 78.1% to $3.6 million
for the six months ended December 31, 1996 from $2.0 million for the six months
ended December 31, 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 December 31, 1995 for income tax
purposes, the Company had no liability for federal taxes at December 31, 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
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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.
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1995
NET SALES
Net sales increased $8.8 million, or 28.2%, to $39.9 million in the three months
ended December 31, 1996 from $31.1 million in the corresponding prior year
period. Approximately 79.1% 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 22
telesalespersons compared to the prior year period. Also contributing to the
overall increase in net sales was a net increase of 1,053 in the total number of
products offered by the Company over the past twelve months which contributed
approximately $4.0 million to the net sales increase during the period.
Additionally, increased promotional flyer mailings yielded a record level of
4,000 new customers for the current three month period, contributing
approximately $1.6 million to the net sales increase during the period. Also
contributing to the Company's net sales increase was a 79.6% increase in export
sales for the current quarter. This increase in international sales, which
currently represents approximately 5% of net sales, was primarily attributable
to the Company's recent establishment of a small, dedicated international
telesales staff to complement the Company's international promotional flyer
mailings. Also, the Company opened its twenty-ninth distribution center in
Kansas City, Kansas on November 1, 1996. The sales contribution from this new
distribution center was not significant for the current three month period.
GROSS PROFIT
Gross profit increased by 27.9% to $13.6 million in the three months ended
December 31, 1996 from $10.7 million in the corresponding prior year period.
Gross profit margins remained basically unchanged for the three month comparable
period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased 35.7% to $8.7 million for the three months ended
December 31, 1996 from $6.4 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 22
telesalespersons, together with the expansion of the marketing staff and
increased promotional flyer mailings. 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. SG&A
expense was also increased by the establishment of a same day shipping policy.
Furthermore, in addition to expenses incurred as a result of becoming an
independent public company, the company instituted new, and enhanced existing,
employee benefit programs to allow it to become more competitive in its
compensation and benefit programs. SG&A expenses represented 21.8% of net sales
in the three months ended December 31, 1996, compared to 20.6% 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 $.7 million or 60.2% to $1.9 million
for the three months ended December 31, 1996 from $1.2 million for the three
months ended December 31, 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 December 31, 1995 for income tax
purposes, the Company had no liability for federal taxes at December 31, 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 December 31, 1996 the company had working capital of $33.0 million and a
current ratio of 2.6 to 1.
Net cash provided by operating activities totaled $1.1 million for the six
months ended December 31, 1996 compared to $3.7 million for the six months ended
December 31, 1995.
Net cash used in investing activities totaled $4.5 million during the three
months ended December 31, 1996 compared to $1.1 million for the six months ended
December 31, 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 increased product
offerings.
Net cash provided by financing activities was $2.9 million for the six months
ended December 31, 1996 and represents amounts borrowed under the Company's
revolving credit facility to fund working capital fluctuations, principally,
increases in inventory due to new product introductions. Net cash used in
financing activities of $2.9 million for the six months ended December 31, 1995
primarily represents 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 December
31,
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1996, there was $ 2.9 million outstanding under the credit agreement and there
were $4.1 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 December 31, 1996.
Historically, cash flow from operations has been sufficient to fund the
Company's growth. The Company believes that funds generated from operations,
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.
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PART II. OTHER INFORMATION
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 December 31, 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.
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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.
BARNETT INC.
REGISTRANT
DATE: JANUARY 31, 1997 By: /s/ Andrea Luiga
Andrea Luiga
Chief Financial Officer
(principal financial and
accounting officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,211
<SECURITIES> 0
<RECEIVABLES> 21,375
<ALLOWANCES> (758)
<INVENTORY> 30,955
<CURRENT-ASSETS> 54,164
<PP&E> 19,002
<DEPRECIATION> (9,431)
<TOTAL-ASSETS> 68,161
<CURRENT-LIABILITIES> 21,134
<BONDS> 0
<COMMON> 143
0
127
<OTHER-SE> 46,757
<TOTAL-LIABILITY-AND-EQUITY> 68,161
<SALES> 76,362
<TOTAL-REVENUES> 76,362
<CGS> 50,372
<TOTAL-COSTS> 50,372
<OTHER-EXPENSES> 16,466
<LOSS-PROVISION> 224
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 9,265
<INCOME-TAX> 3,562
<INCOME-CONTINUING> 5,703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,703
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
