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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, 1997
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
16,172,687 shares of Common Stock, $.01 par value, were issued and outstanding
as of October 31, 1997.
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BARNETT INC.
INDEX TO FORM 10-Q
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1997 and June 30, 1997 3-4
Condensed Statements of Income for the Three Months Ended September
30, 1997 and 1996 5
Condensed Statements of Cash Flows for the Three Months Ended
September 30, 1997 and 1996 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-10
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
BARNETT INC.
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CONDENSED BALANCE SHEETS
------------------------
SEPTEMBER 30, 1997 AND JUNE 30, 1997
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
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SEPT. 30, JUNE 30,
1997 1997
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(UNAUDITED)
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CURRENT ASSETS:
Cash $ 850 $ 4,429
Accounts receivable, net 23,802 21,734
Inventories 39,116 33,772
Prepaid expenses 2,381 1,336
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Total current assets 66,149 61,271
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PROPERTY AND EQUIPMENT:
Leasehold Improvements 5,676 4,961
Machinery and Equipment 15,876 13,672
Construction in Progress 512 444
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22,064 19,077
Less accumulated depreciation and amortization (9,443) (8,692)
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Property and equipment, net 12,621 10,385
COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED, NET 4,698 3,452
DEFERRED TAX ASSETS, NET 351 351
OTHER ASSETS 1,518 1,556
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$ 85,337 $ 77,015
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The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
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BARNETT INC.
------------
CONDENSED BALANCE SHEETS
------------------------
SEPTEMBER 30, 1997 AND JUNE 30, 1997
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
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<CAPTION>
SEPT.30, JUNE 30,
1997 1997
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(UNAUDITED)
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CURRENT LIABILITIES:
Accounts payable $16,449 $13,557
Accrued liabilities 2,288 2,366
Accrued income taxes 2,020 481
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Total current liabilities 20,757 16,404
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share:
Authorized 40,000 shares; Issued and outstanding
16,171 shares at September 30, 1997 and 16,142 at
June 30, 1997 161 160
Paid-in capital 47,156 46,471
Retained earnings 17,263 13,980
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Total stockholders' equity 64,580 60,611
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$85,337 $77,015
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The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
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SEPTEMBER 30,
1997 1996
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Net sales $46,769 $36,491
Cost of sales 31,049 24,127
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Gross profit 15,720 12,364
Selling, general and administrative expenses 10,394 7,992
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Operating income 5,326 4,372
Interest income 15 16
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Income before income taxes 5,341 4,388
Provision for income taxes 2,058 1,691
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Net income $ 3,283 $ 2,697
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Earnings per share: $ 0.20 $ 0.17
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Average shares outstanding 16,361 15,874
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</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral part
of these statements.
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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, 1997 AND 1996
($ IN THOUSANDS)
SEPTEMBER 30,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income $ 3,283 $ 2,697
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 751 595
Changes in assets and liabilities:
Increase in accounts receivable, net (1,124) (334)
Increase in inventories (3,357) (2,942)
Increase in prepaid expenses (995) (153)
Increase in accounts payable 2,460 1,208
Increase in accrued liabilities 1,354 679
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Net Cash Provided by Operating Activities 2,372 1,750
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Capital expenditures, net (2,929) (2,651)
Change in other assets 92 (108)
Acquisition of LeRan Gas Products (3,200) -
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Net Cash Used In Investing Activities (6,037) (2,759)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Borrowings under credit agreements 89 -
Repayments under credit agreements (89) -
Net proceeds from issuance of common stock-stock options and grants 86 -
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Net Cash Provided by Financing Activities 86 0
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NET DECREASE IN CASH (3,579) (1,009)
BALANCE, BEGINNING OF PERIOD 4,429 1,707
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BALANCE, END OF PERIOD $ 850 $ 698
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</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)
SEPTEMBER 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The condensed financial statements include the accounts of Barnett Inc. (the
"Company"). The condensed statements of income for the three months ended
September 30, 1997 and 1996, the condensed balance sheet as of September 30,
1997 and the condensed statements of cash flows for the three months ended
September 30, 1997 and 1996 have been prepared by the Company without audit,
while the condensed balance sheet as of June 30, 1997 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, 1997 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, 1997 filed with the
Securities and Exchange Commission.
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 and Puerto Rico. 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 approximately 60,000 active customers.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the three months ended September 30, 1997 and 1996 included
income taxes of $0.5 million and $1.0 million, respectively.
NOTE 4 - BUSINESS ACQUISITION
On July 1, 1997, the Company acquired certain of the assets of LeRan Gas
Products, an operating unit of Waxman Industries, Inc. The acquisition price was
$3.8 million, of which $3.2 million was paid in cash and the remainder was paid
by the issuance to Waxman of 25,000 shares of the common stock of the Company.
The operations related to these assets are not material to the Company's
financial statements.
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NOTE 5 - IMPACT OF ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which,
when adopted, will replace the current methodology for calculating and
presenting earnings per share. Under SFAS No. 128, primary earnings per share
will be replaced with a presentation of basic earnings per share and fully
diluted earnings per share will be replaced with diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed similarly to
fully diluted earnings per share. The statement will be effective beginning in
the Company's second quarter ended December 31, 1997, and accordingly, the
financial statements for such quarter will include a restatement of historical
earnings per share to conform to the requirements of SFAS No. 128. Management
does not expect that the presentation required by SFAS No. 128 to materially
differ from the current presentation of earnings per share.
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 that are based
on the beliefs of the Company and its management. When used in this document,
the words "expect", "believe", "intend", "may", "should", "anticipate" and
similar expressions are intended to identify forward looking statements. Such
forward looking statements reflect the current view of the Company with respect
to future events and are subject to certain risks, uncertainties and assumptions
including, but not limited to, the risk that the Company may not be able to
implement its growth strategy in the intended manner, risks associated with
currently unforeseen competitive pressures and risks affecting the Company's
industry such as increased distribution costs and the effects of general
economic conditions. In addition, the Company's business, operations, and
financial condition are subject to the risks, uncertainties and assumptions
which are described in the Company's reports and statements filed from time to
time with the Securities and Exchange Commission, including this Report. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
OVERVIEW
The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to approximately 60,000 active
customers throughout the United States and Puerto Rico. The Company offers
approximately 11,200 name brand and private label products through its
industry-recognized Barnett(R) catalogs and telesales operations. The Company
markets its products through three distinct, comprehensive catalogs that target
professional contractors, independent hardware stores and maintenance managers.
The Company's staff of over 95 knowledgeable telesales, customer service and
technical support personnel work together to serve customers by assisting in
product selection and offering technical advice. To provide rapid delivery and a
strong local presence, the Company has established a network of 30 distribution
centers strategically located in 30 major metropolitan areas throughout the
United States. Through these local distribution centers, approximately 70% of
the Company's orders are shipped to the customer on the same day the order is
received. The remaining 30% of the orders are picked up by the customer at one
of the Company's local
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distribution centers. The Company's strategy of being a low-cost, competitively
priced supplier is facilitated by its volume of purchases and offshore sourcing
of a significant portion of its private label products. Products are purchased
from over 400 domestic and foreign suppliers.
On July 1, 1997, the Company acquired certain of the assets of LeRan Gas
Products, an operating unit of Waxman Industries, Inc. The acquisition price was
$3.8 million, of which $3.2 million was paid in cash and the remainder was paid
by the issuance to Waxman of 25,000 shares of the common stock of the Company.
The operations related to these assets are not material to the Company's
financial statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1996
NET SALES
Net sales increased $10.3 million, or 28.2%, to $46.8 million in the three
months ended September 30, 1997 from $36.5 million in the corresponding prior
year period. Approximately 72.9% 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 26
telesalespersons compared to the prior year period. Also contributing to the
overall increase in net sales was a net increase of 2,245 in the total number of
products offered by the Company over the past twelve months, 1,042 of which were
introduced in the current three month period. Sales from new product
introductions over the last twelve months contributed approximately $4.2 million
to the net sales increase during the period. Additionally, as a result of an
expanded promotional flyer campaign, coupled with the acquisition of LeRan Gas
Products, active customers grew to 60,000 from 43,000 in the comparable prior
year period and contributed approximately $2.5 million to the net sales increase
during the three month period. Also contributing to the Company's net sales
increase was a 77.0% increase in export sales representing approximately $1.0
million in export revenue increases for the three month period. This increase in
international sales, which currently represents approximately 6% of net sales,
was primarily attributable to the Company's establishment of a small, dedicated
international telesales staff to complement the Company's international
promotional flyer mailings. Also, the Company opened its thirtieth distribution
center in Milwaukee, Wisconsin on July 1, 1997. The sales contribution from this
new distribution center was not significant for the current three month period.
GROSS PROFIT
Gross profit increased by 27.1% to $15.7 million in the three months ended
September 30, 1997 from $12.4 million in the corresponding prior year period.
Gross profit margin decreased to 33.6% for the three months ended September 30,
1997 from 33.9% for the same period last year, primarily as a result of the
acquisition of LeRan Gas Products whose historic margins have been lower due to
their product mix.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased 30.1% to $10.4
million for the three months ended September 30, 1997, from $8.0 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 26 telesalespersons, and increased promotional
flyer mailings. Also contributing to increased variable selling expenses were
increased freight and delivery costs associated with the United Parcel Service
strike. Occupancy costs associated with the expansion of several distribution
centers in the prior year and the opening of two new distribution centers in the
past twelve months were also contributing factors to the SG&A increase. SG&A
expenses represented 22.2% of net sales in the three months ended September 30,
1997, compared to 21.9% of net sales in the comparable period of fiscal 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $0.4 million or 21.7% to $2.1 million
for the three months ended September 30, 1997 from $1.7 million for the three
months ended September 30, 1996, primarily as a result of increased operating
income.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
(27) Financial Data Schedule
b) A Form 8-K was filed on July 9, 1997 incorporating a press release
with respect to the Company's acquisition of LeRan Gas Products.
All other items in Part II are either inapplicable to the Company during the
quarter ended September 30, 1997, 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: NOVEMBER 12, 1997 By: /s/ Andrea Luiga
Andrea Luiga
Chief Financial Officer
(principal financial and
accounting officer)
11
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 850
<SECURITIES> 0
<RECEIVABLES> 24,905
<ALLOWANCES> (1,103)
<INVENTORY> 39,116
<CURRENT-ASSETS> 66,149
<PP&E> 22,064
<DEPRECIATION> (9,443)
<TOTAL-ASSETS> 85,337
<CURRENT-LIABILITIES> 20,757
<BONDS> 0
0
0
<COMMON> 161
<OTHER-SE> 64,419
<TOTAL-LIABILITY-AND-EQUITY> 85,337
<SALES> 46,769
<TOTAL-REVENUES> 46,769
<CGS> 31,049
<TOTAL-COSTS> 31,049
<OTHER-EXPENSES> 10,250
<LOSS-PROVISION> 144
<INTEREST-EXPENSE> (15,005)
<INCOME-PRETAX> 5,341
<INCOME-TAX> 2,058
<INCOME-CONTINUING> 3,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,283
<EPS-PRIMARY> .20
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