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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 DECEMBER 31, 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
16,173,312 shares of Common Stock, $.01 par value, were issued and outstanding
as of January 31, 1998.
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BARNETT INC.
INDEX TO FORM 10-Q
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<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
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<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of December 31, 1997 and June 30, 1997 3-4
Condensed Statements of Income for the Six Months and Three Months Ended
December 31, 1997 and 1996 5
Condensed Statements of Cash Flows for the Six Months Ended
December 31, 1997 and 1996 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-11
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
- ----------
EXHIBIT INDEX
- -------------
</TABLE>
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PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
BARNETT INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1997
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
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(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,102 $ 4,429
Accounts receivable, net 28,285 21,734
Inventories 44,348 33,772
Prepaid expenses 2,409 1,336
------ -------
Total current assets 76,144 61,271
------- -------
PROPERTY AND EQUIPMENT:
Leasehold Improvements 6,201 4,961
Machinery and Equipment 17,032 13,672
Construction in Progress 1,416 444
-------- -------
24,649 19,077
Less accumulated depreciation and amortization (10,269) (8,692)
-------- -------
Property and equipment, net 14,380 10,385
COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED, NET 4,745 3,452
DEFERRED TAX ASSETS, NET 351 351
OTHER ASSETS 1,649 1,556
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$97,269 $77,015
======= =======
</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
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BARNETT INC.
------------
CONDENSED BALANCE SHEETS
------------------------
DECEMBER 31, 1997 AND JUNE 30, 1997
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
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(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $24,296 $13,557
Accrued liabilities 2,189 2,366
Accrued income taxes 0 481
Short term debt 2,358 0
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Total current liabilities 28,843 16,404
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share:
Authorized 40,000 shares; Issued and outstanding
16,173 shares at December 31, 1997 and 16,142 at
June 30, 1997 161 160
Paid-in capital 47,181 46,471
Retained earnings 21,084 13,980
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Total stockholders' equity 68,426 60,611
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$97,269 $77,015
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</TABLE>
The accompanying Notes to Condensed Financial Statements
are an integral part of these statements.
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BARNETT INC.
------------
CONDENSED STATEMENTS OF INCOME
------------------------------
(UNAUDITED)
FOR THE SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
Dec. 31 Dec. 31
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1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $98,536 $76,362 $51,767 $39,871
Cost of sales 65,156 50,372 34,107 26,245
------- ------- ------- -------
Gross profit 33,380 25,990 17,660 13,626
Selling, general and
administrative expenses 21,817 16,690 11,423 8,698
------- ------- ------- -------
Operating income 11,563 9,300 6,237 4,928
Interest expense, net 7 35 22 51
------- ------- ------- -------
Income before income taxes 11,556 9,265 6,215 4,877
Provision for income taxes 4,452 3,562 2,394 1,871
------- ------- ------- -------
Net income $ 7,104 $ 5,703 $ 3,821 $ 3,006
======= ======= ======= =======
Basic earnings per share $ 0.44 $ 0.36 $ 0.24 $ 0.19
Diluted earnings per share $ 0.43 $ 0.36 $ 0.23 $ 0.19
Weighted average shares outstanding:
Basic 16,173 15,669 16,173 15,669
Diluted 16,334 15,892 16,315 15,892
</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
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BARNETT INC.
------------
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 7,104 $ 5,703
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,865 1,218
Changes in assets and liabilities:
Increase in accounts receivable, net (5,607) (3,040)
Increase in inventories (8,589) (3,593)
Increase in prepaid expenses (1,023) (307)
Increase in accounts payable 10,307 2,013
Decrease in accrued liabilities (765) (774)
-------- --------
Net Cash Provided by Operating Activities 3,292 1,220
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures, net (5,514) (4,385)
Change in other assets (374) (250)
Acquisition of LeRan Gas Products (3,200) -
-------- --------
Net Cash Used in Investing Activities (9,088) (4,635)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings under credit agreements 12,985 15,161
Repayments under credit agreement (10,627) (12,242)
Net proceeds from issuance of common stock-stock options, grants 111 -
-------- --------
Net Cash Provided by Financing Activities 2,469 2,919
-------- --------
NET DECREASE IN CASH (3,327) (496)
BALANCE, BEGINNING OF PERIOD 4,429 1,707
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BALANCE, END OF PERIOD $ 1,102 $ 1,211
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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)
DECEMBER 31, 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 six months and three
months ended December 31, 1997 and 1996, the condensed balance sheet as of
December 31, 1997 and the condensed statements of cash flows for the six months
ended December 31, 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 December 31, 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 over 62,000 active customers.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash payments during the six months ended December 31, 1997 and 1996 included
income taxes of $5.0 million and $4.2 million, respectively, and interest of
$14,000 and $32,000, respectfully.
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 24,730 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. SFAS No.
128 replaces the presentation of Primary Earnings Per Share with a presentation
of Basic Earnings Per Share, which represents net income divided by the weighted
average number of common shares outstanding. Diluted Earnings Per Share
continues to utilize the weighted average number of common shares outstanding
and common stock equivalents, which include outstanding stock options and
warrants. The Company adopted SFAS No. 128 during the second quarter of fiscal
1998. All prior period earnings per share amounts have been restated to comply
with SFAS No. 128.
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 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
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The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to approximately 62,000 active
customers throughout the United States and Puerto Rico. The Company offers
approximately 11,600 name brand and private label products through its
industry-recognized Barnett(R) catalogs and telesales operations. The Company
markets its products through five distinct, comprehensive catalogs that target
professional contractors, independent hardware stores and maintenance managers.
The Company's staff of over 113 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 32 distribution
centers strategically located in 32 major metropolitan areas throughout the
United States and Puerto Rico. 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 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.
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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 24,730 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
- ---------------------
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH
------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1996
----------------------------------
NET SALES
- ---------
Net sales increased $22.2 million, or 29.0%, to $98.5 million in the six months
ended December 31, 1997 from $76.4 million in the corresponding prior year
period. Approximately 70.8% 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 21
telesalespersons compared to the prior year period. Also contributing to the
overall increase in net sales was a net increase of 1,875 in the total number of
products offered by the Company over the past twelve months of which 1,365 were
introduced in the current six month period. Sales from new product introductions
over the last twelve months contributed approximately $8.1 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 62,000 from 46,000 in the comparable prior year period
and contributed approximately $6.3 million to the net sales increase during the
six month period. Also contributing to the Company's net sales increase was a
73.0% increase in export sales, representing approximately $2.2 million in
export revenue increases for the six 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 in the prior year to complement the Company's
international promotional flyer mailings. Also, the Company opened its
thirtieth, thirty-first and thirty-second distribution centers in Milwaukee,
Wisconsin, Puerto Rico and Nashville, Tennessee on July 1, 1997, October 1, 1997
and December 1, 1997, respectively. The sales contribution from these new
distribution centers was not significant for the current six month period.
GROSS PROFIT
- ------------
Gross profit increased by 28.4% to $33.4 million in the six months ended
December 31, 1997 from $26.0 million in the corresponding prior year period.
Gross profit margins remained basically unchanged for the six month comparable
period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses increased 30.7% to $21.8
million for the six months ended December 31, 1997 from $16.7 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 21 telesalespersons, together with increased
promotional flyer mailings. Also contributing to increased SG&A expenses were
increased freight and delivery costs associated with the United Parcel Service
strike in the first quarter of the current fiscal year and the establishment of
a same day shipping policy in the second quarter of last fiscal year. Occupancy
costs
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associated with the expansion of several distribution centers in the prior year
and the opening of three new distribution centers in the past six months were
also contributing factors to the SG&A increase. SG&A expenses represented 22.1%
of net sales in the six months ended December 31, 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 $0.9 million or 25.0% to $4.5 million
for the six months ended December 31, 1997 from $3.6 million for the six months
ended December 31, 1996, primarily as a result of increased operating income.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH
--------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1996
------------------------------------
NET SALES
- ---------
Net sales increased $11.9 million, or 29.8%, to $51.8 million in the three
months ended December 31, 1997 from $39.9 million in the corresponding prior
year period. Approximately 69.1% 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 21
telesalespersons compared to the prior year period. Also contributing to the
overall increase in net sales was a net increase of 1,875 in the total number of
products offered by the Company over the past twelve months, 323 of which were
introduced in the current three month period. Net sales from new product
introductions over the last twelve months contributed approximately $3.8 million
to the net sales increase during the period. Additionally, as a result of an
expanded promotional flyer campaign, active customers grew to 62,000 from 46,000
in the comparable prior year period and contributed approximately $2.2 million
to the net sales increase during the three month period. Also contributing to
the Company's net sales increase was a 70.2% increase in export sales,
representing approximately $1.2 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 in
the prior year to complement the Company's international promotional flyer
mailings. Also, the Company opened its thirty-first and thirty-second
distribution centers in Puerto Rico and Nashville, Tennessee on October 1, 1997
and December 1, 1997, respectively. The sales contribution from these new
distribution centers was not significant for the current three month period.
GROSS PROFIT
- ------------
Gross profit increased by 29.6% to $17.7 million in the three months ended
December 31, 1997 from $13.6 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 31.3% to $11.4 million for the three months ended
December 31, 1997 from $8.7 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 21
telesalespersons, together with increased promotional flyer mailings. Occupancy
costs related to the expansion of several distribution centers in the
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prior year and the opening of three new distribution centers in the past six
months, were also contributing factors to the SG&A increase for the current
quarter. SG&A expenses represented 22.1% of net sales in the three months ended
December 31, 1997, compared to 21.8% of net sales in the comparable period of
1997.
PROVISION FOR INCOME TAXES
- --------------------------
The provision for income taxes increased $0.5 million or 28.0% to $2.4 million
for the three months ended December 31,1997 from $1.9 million for the three
months ended December 31, 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) 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, 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: FEBRUARY 2, 1998 By: /s/ Andrea Luiga
Andrea Luiga
Chief Financial Officer
(principal financial and
accounting officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,102
<SECURITIES> 0
<RECEIVABLES> 29,397
<ALLOWANCES> (1,112)
<INVENTORY> 44,348
<CURRENT-ASSETS> 76,144
<PP&E> 24,649
<DEPRECIATION> (10,269)
<TOTAL-ASSETS> 97,269
<CURRENT-LIABILITIES> 28,843
<BONDS> 0
0
0
<COMMON> 161
<OTHER-SE> 68,265
<TOTAL-LIABILITY-AND-EQUITY> 97,269
<SALES> 98,536
<TOTAL-REVENUES> 98,536
<CGS> 65,156
<TOTAL-COSTS> 65,156
<OTHER-EXPENSES> 21,510
<LOSS-PROVISION> 307
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 11,556
<INCOME-TAX> 4,452
<INCOME-CONTINUING> 7,104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,104
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
</TABLE>
