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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 MARCH 31, 1999
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
16,217,769 shares of Common Stock, $.01 par value, were issued and outstanding
as of April 30, 1999.
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BARNETT INC.
INDEX TO FORM 10-Q
------------------
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999
and June 30, 1998 3-4
Condensed Consolidated Statements of Income for the Nine Months
and Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-13
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
- ----------
EXHIBIT INDEX
- -------------
</TABLE>
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PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
BARNETT INC.
------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
MARCH 31, 1999 AND JUNE 30, 1998
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
---------- ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash ................................................. $ 302 $ 450
Accounts receivable, net ............................. 33,719 28,866
Inventories .......................................... 57,437 40,599
Prepaid expenses ..................................... 2,726 2,139
--------- ---------
Total current assets ..................... 94,184 72,054
--------- ---------
PROPERTY AND EQUIPMENT:
Leasehold improvements ................................ 8,234 6,620
Furniture and fixtures ................................ 4,633 3,378
Machinery and equipment ............................... 19,769 15,252
Building and improvements ............................. 7,281 3,668
--------- ---------
39,917 28,918
Less accumulated depreciation and amortization ......... (16,453) (11,876)
--------- ---------
Property and equipment, net ............................ 23,464 17,042
COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED, NET 27,347 4,815
DEFERRED TAX ASSETS, NET ............................... 716 716
OTHER ASSETS ........................................... 2,040 1,157
--------- ---------
$ 147,751 $ 95,784
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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BARNETT INC.
------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
MARCH 31, 1999 AND JUNE 30, 1998
($ IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
---------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 17,944 $ 16,247
Accrued liabilities ......................................................... 4,274 2,297
Accrued interest ............................................................ 371 0
Accrued income taxes ........................................................ 97 365
Short-term debt ............................................................. 4,493 714
-------- --------
Total current liabilities ....................................... 27,179 19,623
-------- --------
LONG-TERM DEBT ................................................................ 33,000 --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value per share: Authorized 40,000 shares; Issued and
outstanding 16,214 shares at March 31, 1999 and 16,194 at
June 30, 1998 ............................................................. 162 161
Paid-in capital ............................................................. 47,820 47,743
Retained earnings ........................................................... 39,590 28,257
-------- --------
Total stockholders' equity ...................................... 87,572 76,161
-------- --------
$147,751 $ 95,784
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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BARNETT INC.
------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(UNAUDITED)
FOR THE NINE MONTHS AND THREE MONTHS ENDED MARCH 31, 1999 AND 1998
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine months Ended Three Months Ended
March 31 March 31
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .......................... $174,390 $148,001 $ 63,879 $ 49,465
Cost of sales ...................... 116,330 98,003 42,273 32,847
-------- -------- -------- --------
Gross profit ....................... 58,060 49,998 21,606 16,618
Selling, general and
administrative expenses ............ 38,790 32,976 14,612 11,159
-------- -------- -------- --------
Operating income ................... 19,270 17,022 6,994 5,459
Interest expense ................... 674 96 608 89
-------- -------- -------- --------
Income before income taxes ......... 18,596 16,926 6,386 5,370
Provision for income taxes ......... 7,263 6,521 2,559 2,069
-------- -------- -------- --------
Net income ......................... $ 11,333 $ 10,405 $ 3,827 $ 3,301
======== ======== ======== ========
Basic earnings per share ........... $ 0.70 $ 0.64 $ 0.24 $ 0.20
Diluted earnings per share ......... $ 0.70 $ 0.64 $ 0.24 $ 0.20
Weighted average shares outstanding:
Basic .............................. 16,212 16,174 16,212 16,179
Diluted ............................ 16,216 16,353 16,216 16,396
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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BARNETT INC.
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income ..................................................... $ 11,333 $ 10,405
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................ 3,510 2,895
Changes in assets and liabilities:
Increase in accounts receivable, net ......................... (1,965) (3,324)
Increase in inventories ...................................... (10,648) (6,215)
Increase in prepaid expenses ................................. (644) (1,891)
Changes in other assets ...................................... (449) (425)
(Decrease) increase in accounts payable ...................... (29) 1,047
Increase (decrease) in accrued liabilities ................... 704 (466)
-------- --------
Net Cash Provided by Operating Activities .......... 1,812 2,026
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures, net ...................................... (5,818) (7,967)
Acquisition of LeRan Gas Products .............................. -- (3,200)
Acquisition of U.S. Lock Corporation ........................... (33,000) --
-------- --------
Net Cash Used in Investing Activities .............. (38,818) (11,167)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings under credit agreements ............................. 42,770 27,893
Repayments under credit agreements ............................. (38,991) (22,642)
Borrowings under term loan ..................................... 33,000 --
-------- --------
Net proceeds from issuance of common stock-stock options, grants 79 206
-------- --------
Net Cash Provided by Financing Activities .......... 36,858 5,457
-------- --------
NET DECREASE IN CASH ............................................. (148) (3,684)
BALANCE, BEGINNING OF PERIOD ..................................... 450 4,429
-------- --------
BALANCE, END OF PERIOD ........................................... $ 302 $ 745
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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BARNETT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
MARCH 31, 1999
NOTE 1 - BASIS OF PRESENTATION
---------------------
The consolidated financial statements include the accounts of Barnett Inc. and
its wholly-owned subsidiary, U.S. Lock Corporation (the "Company"). All
material intercompany transactions have been eliminated.
The consolidated statements of income for the nine months and three months ended
March 31, 1999 and 1998, the consolidated balance sheet as of March 31, 1999 and
the consolidated statements of cash flows for the nine months ended March 31,
1999 and 1998 have been prepared by the Company without audit, while the
consolidated balance sheet as of June 30, 1998 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 March 31, 1999 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
consolidated 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, 1998 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,
locksmiths, independent hardware stores and maintenance managers. The Company
distributes its products to approximately 73,000 active customers.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash payments during the nine months ended March 31, 1999 and 1998 included
income taxes of $8.0 million and $7.5 million, respectively, and interest of
$299,000 and $80,000, respectively. In addition, liabilities of approximately
$2.0 million were assumed as part of the U.S. Lock acquisition.
NOTE 4 - BUSINESS ACQUISITIONS
---------------------
On July 1, 1997, the Company acquired certain of the assets of LeRan Gas
Products, an operating unit of Waxman Industries, Inc ("Waxman"). 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
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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.
On January 8, 1999, Barnett Inc. acquired the U.S. Lock ("U.S. Lock") division
of WOC, Inc., an indirect wholly-owned subsidiary of Waxman Industries, Inc. for
a cash purchase price of approximately $33.0 million and the assumption of
liabilities of approximately $2.0 million. The effective date of the U.S. Lock
acquisition was January 1, 1999.
The acquisition of U.S. Lock was accounted for as a purchase. Accordingly, the
purchase price was allocated to the net assets acquired based upon their
estimated fair market values. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $23.0
million. This has been accounted for as goodwill and is being amortized over 40
years using the straight line method.
The following unaudited pro forma information presents a summary of consolidated
results of operations of Barnett Inc. and U.S. Lock as if the acquisition had
occurred at the beginning of fiscal years 1998 and 1999, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments, together with related income tax
effects (dollars in thousands, except per share data).
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended 3-31-99 Ended 3-31-98
- -------------------------------------------------------------------------
<S> <C> <C>
Net sales $187,752 $164,634
Net income $11,425 $10,155
Earnings per share $0.71 $0.63
- -------------------------------------------------------------------------
</TABLE>
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.
In June 1997, the FASB also issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." The standard requires that companies
disclose "operating segments" based on the way management disaggregates the
company for making internal operating decisions. The new rules will be effective
for the 1999 fiscal year. Abbreviated quarterly disclosures will be required
beginning first quarter of fiscal year 2000, with both fiscal year 1999 and 2000
information.
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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
- --------
The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products, and through its wholly-owned
subsidiary, U.S. Lock Corporation ("U.S. Lock"), security hardware products, to
approximately 73,000 active customers throughout the United States and Puerto
Rico. The Company offers approximately 20,000 name brand and private label
products through its industry-recognized Barnett(R) and U.S. Lock(R) catalogs
and telesales operations. The Company markets its products through six distinct,
comprehensive catalogs that target professional contractors, independent
hardware stores, locksmiths and maintenance managers. The Company's staff of
over 145 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 40 distribution centers
strategically located in 34 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 500 domestic and foreign suppliers.
On July 1, 1997, the Company acquired certain of the assets of LeRan Gas
Products, an operating unit of Waxman. 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.
Effective January 1, 1999, the Company acquired U.S. Lock, a division of WOC,
Inc., a wholly-owned subsidiary of Waxman for a cash purchase price of
approximately $33.0 million and the assumption of liabilities estimated at
approximately $2.0 million.
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NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH
----------------------------------------------
NINE MONTHS ENDED MARCH 31, 1998
--------------------------------
NET SALES
- ---------
Net sales increased $26.4 million, or 17.8%, to $174.4 million in the nine
months ended March 31, 1999 from $148.0 million in the corresponding prior year
period. Approximately 73.7% 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 8
telesalespersons compared to the prior year period. A large portion of the
revenue increase derived from the telesales group was in the direct sales sector
of the business. Direct sales represent products that are shipped directly to
the customer from the original equipment manufacturer. The Company vastly
widened these "non-stock" product offerings in its September 1998 and January
1999 catalogs. Direct sales grew at a rate of 63.9% over the prior year period,
contributing approximately $3.0 million to the revenue increase for the period.
Sales from new product introductions over the last twelve months contributed
approximately $8.5 million to the net sales increase during the period.
Additionally, as a result of the Company's promotional flyer campaign, coupled
with the acquisition of U.S. Lock, active customers grew to 73,000 from 64,000
in the comparable prior year period and contributed approximately $13.5 million
to the net sales increase during the nine month period. Also, the Company opened
its thirty-third and thirty-fourth distribution centers in Birmingham, Alabama
and Parsippany, New Jersey on September 1, 1998 and March 1, 1999, respectively.
U.S. Lock opened its sixth warehouse in Dallas, Texas on March 1, 1999. The
sales contribution from these new distribution centers was not significant for
the current nine month period.
In the fourth quarter of fiscal 1998, the Company announced that it discontinued
its relationship with three of its larger customers: two buying co-op customers
and one retail chain. The phaseout of these relationships began in the third
quarter of fiscal 1998 and was completed in the fourth quarter of fiscal 1998.
Partially offsetting the net sales increase for the nine months ended March 31,
1999 was the lost revenue from these discontinued relationships which
approximated $3.2 million.
GROSS PROFIT
- ------------
Gross profit increased by 16.1% to $58.1 million in the nine months ended March
31, 1999 from $50.0 million in the corresponding prior year period. Gross profit
margins decreased to 33.3% for the nine months ended March 31, 1999 from 33.8%
for the same period last year, primarily as a result of competitive pricing
pressures across some of the Company's imported product lines. Also, the
aforementioned increased activity in the Company's direct sales programs, which
typically carry much lower gross profit margins than the Company's warehouse
shipments, was a contributing factor to the gross profit erosion.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses increased 17.6% to $38.8
million for the nine months ended March 31, 1999, from $33.0 million for the
comparable prior year period. The increase is primarily due to occupancy and
other expenses related to the opening of three new distribution centers in the
prior year, and the opening of the Birmingham and Parsippany distribution
centers in the current year. Also contributing to increased variable selling
expenses were personnel costs related to the above mentioned addition of eight
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telesalespersons and the addition of six outside sales personnel. These expenses
were partially offset by decreased promotional flyer mailings versus the same
period a year ago and lower warehouse and delivery costs as a result of
increased direct sales activity.
PROVISION FOR INCOME TAXES
- --------------------------
The provision for income taxes increased $0.7 million or 11.4% to $7.3 million
for the nine months ended March 31, 1999 from $6.5 million for the nine months
ended March 31, 1998, primarily as a result of increased operating income.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH
-----------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------
NET SALES
- ---------
Net sales increased $14.4 million, or 29.1%, to $63.9 million in the three
months ended March 31, 1999, from $49.5 million in the corresponding prior year
period and includes the acquisition of U.S. Lock. Approximately 83.8% of the
increase in the Company's net sales was derived from the Company's telesales
operations, primarily resulting from increased sales by existing
telesalespersons and the addition of 8 telesalespersons compared to the prior
year period. Virtually all of U.S. Lock's revenues are derived from its
telesales operation. A significant portion of the revenue increases derived from
the telesales group was in the direct sales sector of the business. Direct sales
represent products that are shipped directly to the customer from the original
equipment manufacturer. The Company vastly widened these "non-stock" product
offerings in its September 1998 and January 1999 catalogs. Direct sales grew at
a rate of 49.7% over the prior year period, contributing approximately $0.8
million to the revenue increase for the period.
Sales from new product introductions over the last twelve months contributed
approximately $2.1 million to the net sales increase during the period.
Additionally, as a result of the Company's promotional flyer campaign, along
with the acquisition of U.S. Lock, active customers grew to 73,000 from 64,000
in the comparable prior year period and contributed approximately $2.7 million
to the net sales increase during the three month period. Also, the Company
opened its thirty-third and thirty-fourth distribution centers in Birmingham,
Alabama and Parsippany, New Jersey on September 1, 1998 and March 1, 1999,
respectively. U.S. Lock opened its sixth distribution center in Dallas, Texas on
March 1, 1999. The sales contribution from these new distribution centers was
not significant for the current three month period.
GROSS PROFIT
- ------------
Gross profit increased by 30.0% to $21.6 million in the three months ended March
31, 1999 from $16.6 million in the corresponding prior year period. Gross profit
margins increased to 33.8% for the three months ended March 31, 1999 from 33.6%
for the same period last year, despite the higher mix of direct sales. The
increased gross profit margin for the quarter ended March 31, 1999 is primarily
product mix related.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
SG&A expenses increased 30.9% to $14.6 million for the three months ended March
31, 1999 from $11.2 million for the comparable prior year period. The increase
is primarily due to the addition of U.S. Lock, in addition to occupancy and
other expenses related to the opening of three new distribution centers in the
prior year, and the opening of the Birmingham and Parsippany distribution
centers in the current year. Also contributing to increased variable selling
expenses were personnel costs related to the addition of four outside sales
personnel. Additionally, increased wages and training costs related to personnel
turnover in various distribution centers, as well as the amortization of
goodwill related to the U.S. Lock acquisition, also contributed to the increased
expense level. SG&A expenses represented 22.9% of sales for the quarter ended
March 31, 1999 compared to 22.6% in the prior year period.
PROVISION FOR INCOME TAXES
- --------------------------
The provision for income taxes increased $0.5 million or 23.7% to $2.6 million
for the three months ended March 31, 1999 from $2.1 million for the three months
ended March 31, 1998, primarily as a result of increased operating income.
YEAR 2000
- ---------
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or in
miscalculations causing disruptions to operations, including, among other
things, a temporary inability to process transactions, to send invoices to
customers, or to engage in similar normal business activities. The Year 2000
issue affects virtually all companies and organizations.
The Company has identified all computer-based systems and applications
(including embedded systems) that are not Year 2000 compliant and has determined
what revisions, replacements or updates are needed to achieve compliance.
Management believes that most of the systems are compliant currently.
The Company has put in place project teams dedicated to implementing a Year 2000
solution. The teams are actively working to achieve the objectives of Year 2000
compliance. The work includes the modification of certain existing systems,
replacing hardware and software for other systems, the creation of contingency
plans, and surveying suppliers of goods and services with whom the Company does
business.
The Company is using standard methodology with three phases for the Year 2000
compliance project. Phase I includes conducting a complete inventory of
potentially affected areas of the business (including information technology and
non-information technology), assessing and prioritizing the information
collected during the inventory, and completing project plans to address all key
areas of the project. Phase II includes the remediation and testing of all
mission critical areas of the project, surveying suppliers of goods and services
with whom the Company does business, and the creation of contingency plans to
address potential Year 2000 related problems. Phase III of the project includes
the remediation and testing of non-
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mission critical areas of the project, and the implementation of contingency
plans as may be necessary. The Company completed Phase I. Phase II and Phase III
are in process.
The Company is using both internal and external resources to reprogram, replace,
and test the software and hardware for Year 2000 compliance. Year 2000 work for
mission critical and most non-mission critical systems and testing of all system
revisions is planned to be completed by September 30, 1999. The expenses
associated with this project include both a reallocation of existing internal
resources plus the use of outside services. Project expenses to date amount to
an estimated $20,000. The total remaining expenses associated with the Year 2000
project are estimated to be between $10,000 - $15,000. These project expenses
will be funded through the Company's operating cash flows.
In addition to addressing internal systems, the Company's Year 2000 project team
is surveying suppliers of goods and services with whom the Company does
business. This is being done to determine the extent to which the Company is
vulnerable to failures by third parties to remedy their own Year 2000 issues.
However, there can be no guarantee that the systems of other companies,
including those on which the Company's systems interact, will be timely
converted. A failure to convert by another company on a timely basis or a
conversion by another company that is incompatible with the Company's systems,
may have an adverse effect on the Company.
As part of Phase II of the Year 2000 project, the Company is creating
contingency plans to address potential Year 2000 related problems with key
business processes. These plans are expected to address risks to the Company's
systems as well as risks from third party suppliers, customers, and others with
whom the Company does business. It is recognized that while the Company cannot
eliminate all potential risks, the effect of the risks on the business can be
partially mitigated by creating and testing contingency plans where appropriate.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
(27) Financial Data Schedule
b) The Company filed the following reports on Form 8-K during the quarter
ended March 31, 1999:
January 19, 1999 - Filed the press release concerning the purchase of
U.S. Lock Corporation.
March 16, 1999 - Filed an amendment to Form 8-K filed on January 19,
1999 providing pro forma condensed financial information as of and for
the six months ending December 31, 1998.
All other items in Part II are either inapplicable to the Company during the
quarter ended March 31, 1999, 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: MAY 11, 1999 By: /s/ Andrea M. Luiga
Andrea M. Luiga
Chief Financial Officer
(principal financial and
accounting officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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