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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 JULY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________________TO___________________
COMMISSION FILE NO. 0-23442
CAMERON ASHLEY BUILDING PRODUCTS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1984957
------------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11651 PLANO ROAD, DALLAS TX 75243
---------------------------------
(Address of principal executive offices)
(Zip Code)
214-860-5100
------------
(Registrant's telephone number, including area code)
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 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at September 1, 1999: 8,680,307
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JULY 31, 1999
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets as of July 31, 1999 and
October 31, 1998 3
Consolidated Statements of Income for the three months and nine months
ended July 31, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity for the
nine months ended July 31, 1999 5
Consolidated Statements of Cash Flows for the nine months
ended July 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,566 $ 3,706
Accounts receivable, net 167,313 148,392
Inventories 135,125 99,810
Prepaid expenses and other assets 2,844 1,999
Deferred income taxes 4,010 3,703
--------- ---------
Total current assets 312,858 257,610
PROPERTY, PLANT AND EQUIPMENT, NET 58,795 50,454
INTANGIBLES, NET 64,821 48,865
OTHER ASSETS 1,662 4,804
--------- ---------
TOTAL $ 438,136 $ 361,733
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 108,764 $ 80,950
Accrued expenses 21,913 24,052
Line of credit 3,188 0
Current maturities of debt 4,348 2,346
--------- ---------
Total current liabilities 138,213 107,348
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 3) 169,452 135,051
MINORITY INTEREST 516 0
DEFERRED INCOME TAXES 4,427 4,369
--------- ---------
Total liabilities 312,608 246,768
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock; authorized 100,000 shares, no shares issued
and outstanding
Common stock; no par value; authorized 20,000,000 shares; 9,863,000 shares
issued July 31, 1999, and
9,834,000 shares issued at October 31, 1998 64,722 64,329
Retained earnings 75,849 65,756
Treasury stock, at cost, 1,190,000 shares (13,633) (13,633)
Accumulated other comprehensive income (loss), net of tax (1,410) (1,487)
--------- ---------
Total stockholders' equity 125,528 114,965
--------- ---------
TOTAL $ 438,136 $ 361,733
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
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CAMERON ASHLEY BUILDING PRODUCTS, INC.,
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
July 31, July 31, July 31, July 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE $315,768 $249,322 $807,901 $613,311
COST OF SALES 253,131 200,532 646,544 491,053
-------- -------- -------- --------
GROSS PROFIT 62,637 48,790 161,357 122,258
OPERATING EXPENSES 47,901 37,309 134,392 100,857
RE-ENGINEERING & SYSTEM CONVERSION 500 300 1,562 1,223
-------- -------- -------- --------
INCOME FROM OPERATIONS 14,236 11,181 25,403 20,178
INTEREST EXPENSE 3,175 2,170 8,569 5,587
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 11,061 9,011 16,834 14,591
PROVISION FOR INCOME TAXES 4,399 3,646 6,741 5,835
-------- -------- -------- --------
NET INCOME $ 6,662 $ 5,365 $ 10,093 $ 8,756
======== ======== ======== ========
NET INCOME PER SHARE:
BASIC $ 0.77 $ 0.57 $ 1.17 $ 0.94
======== ======== ======== ========
DILUTED $ 0.76 $ 0.56 $ 1.15 $ 0.91
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 8,662 9,363 8,652 9,345
======== ======== ======== ========
DILUTED 8,821 9,648 8,807 9,621
======== ======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
--------------------- RETAINED TREASURY COMPREHENSIVE
SHARES VALUE EARNINGS STOCK INCOME (LOSS) TOTAL
-------- -------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF NOVEMBER 1, 1998 9,834 $ 64,329 $ 65,756 $(13,633) $ (1,487) $114,965
Proceeds from exercise of stock options, 2 19 -- -- -- 19
including tax benefits of $1,000
Proceeds from employee stock purchase plan 27 229 -- -- -- 229
Management and director stock plan
compensation expense -- 145 -- -- -- 145
Net income -- -- 10,093 -- -- 10,093
Foreign currency translation adjustment -- -- -- -- 77 77
-------- -------- -------- -------- -------- --------
BALANCE AS OF JULY 31, 1999 9,863 $ 64,722 $ 75,849 $(13,633) $ (1,410) $125,528
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
----------------------
July 31, July 31,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,093 $ 8,756
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 8,899 7,021
(Gain) loss on sale of property, plant and equipment (35) 47
Deferred income taxes (269) (1,178)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (6,359) (7,615)
Notes receivable held for resale (27) 16,123
Inventories (28,801) (24,298)
Prepaid expenses (293) (2,165)
Accounts payable and accrued expenses 18,633 10,775
Warehouse line of credit 0 (12,189)
Other assets/liabilities (1,240) 1,568
-------- --------
Net cash provided by/(used in) operating activities 601 (3,155)
INVESTING ACTIVITIES:
Payment for acquisitions (19,093) (37,029)
Purchases of property, plant and equipment, net (10,366) (7,053)
Investment in affiliate 0 (293)
Other 18 4
-------- --------
Net cash used in investing activities (29,441) (44,371)
FINANCING ACTIVITIES:
Net borrowings 30,691 58,308
Repayments of seller financing of acquired business (1,583) (1,237)
Proceeds from employee stock purchase plan 229 167
Exercise of stock options 19 721
Other (656) (706)
-------- --------
Net cash provided by financing activities 28,700 57,253
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (140) 9,727
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 3,706 899
-------- --------
END OF PERIOD $ 3,566 $ 10,626
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 6,140 $ 2,947
======== ========
Cash paid for income taxes $ 9,056 $ 3,113
======== ========
</TABLE>
See notes to consolidated condensed financial statements
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 31, 1999
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements of Cameron Ashley
Building Products, Inc. and its subsidiaries (the "Company") have not been
audited; however, the balance sheet at October 31, 1998 has been derived from
the Company's audited financial statements. In the opinion of the Company's
management, the financial statements reflect all adjustments necessary to
present fairly the results of operations for the three month and nine month
periods ended July 31, 1999 and 1998, financial position at July 31, 1999 and
October 31, 1998, and the cash flows for the nine month periods ended July 31,
1999 and 1998. These adjustments are of a normal recurring nature.
Certain notes and other information have been condensed in or omitted from the
interim financial statements presented in the Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1998 Annual Report on Form 10-K.
The operating results for the third quarter and for the nine month period ended
July 31, 1999 are not necessarily indicative of the results that may be expected
for the entire year.
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
On November 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS"). SFAS No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. During the nine month periods ended July
31, 1999 and 1998 the Company's total comprehensive earnings (in thousands) were
as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net income (loss) $10,093 $ 8,756
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 77 (1,471)
------- -------
Comprehensive income $10,170 $ 7,285
</TABLE>
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information" which
establishes standards for the way public companies disclose information about
operating segments, products and services, geographic areas and major customers.
The Company will adopt these standards commencing with the annual report for
fiscal year 1999. The Company does not expect the adoption of these standards to
have any impact on the Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities' (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company believes that
SFAS No. 133, which is required to be implemented no later than November 1,
2000, will not have a material impact on the financial statements of the
Company.
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<PAGE> 8
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following at July 31, 1999: (In thousands)
<S> <C>
Senior Debt:
Unsecured Senior Notes with maturities and interest rates as follows:
$10,000 due April 15, 2001 bearing interest at 6.79%
$15,000 due April 15, 2002 bearing interest at 6.79%
with scheduled payments of $5.0 million
on April 15, 2000 and April 15, 2001
$10,000 due April 15, 2003 bearing interest at 7.21%
$15,000 due April 15, 2006 bearing interest at 7.61%
$3,000 due April 7, 2004 bearing interest at 6.71%
$63,000 due April 7, 2010 bearing interest at 6.90%
with payments of $12.6 million beginning April 7, 2006
$10,000 (Canadian $) due October 7, 2004 bearing interest at 6.45%
$7,000 due October 7, 2004 bearing interest at 6.71%
Interest is due semi-annually, with an average interest rate of 6.93% $129,368
Bank of America (as agent):
Revolving credit note due January 15, 2002; unsecured; interest is due
quarterly at the LIBOR rate or Banker's acceptance rate plus 0.50%
to 2.0%, or at a base rate
(defined in the agreement as prime). At July 31, 1999, the interest rate was 7.12% 36,100
Revolving credit note due December 31, 1999; secured, interest due monthly at prime
plus 0.05% at July 31, 1999, the interest rate was 8.5% 3,188
Seller financing of acquired businesses:
Various terms, interest at 7%, collateralized by certain land and buildings 239
Other, including capital leases 8,093
--------
176,988
Less current maturities (7,536)
--------
Long-term debt $169,452
========
</TABLE>
The seller notes payable are subordinated to the obligations under the Bank of
America agreements.
At July 31, 1999, the Company had $1,273,500 of letters of credit issued under
the Bank of America revolving credit facility.
NOTE 4. ACQUISITIONS
In May, 1999, the Company increased its ownership of Field Marketing, Inc. from
53.5% to 55.23% by an equity investment of approximately $0.5 million. In
September, 1999, the Company increased its ownership in Field Marketing, Inc.,
to approximately 70% by a $1.1 million equity investment.
In June, 1999, the Company acquired certain assets and assumed certain
liabilities of Fox Valley Building Materials, Inc., an Elgin, Illinois
distributor of building products. The purchase price, subject to post closing
adjustments was approximately $3.6 million.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
consolidated condensed financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended October 31, 1998, included in the Company's Annual Report on
Form 10-K.
GENERAL
The Company is a distributor of a broad line of building products that are used
principally in home improvement, remodeling and repair work, and in new
residential construction. The Company distributes its products to independent
building material dealers, professional builders, large contractors, and mass
merchandisers through a network of over 160 branches located throughout the
United States and Canada. Product lines include roofing, millwork, pool and
patio enclosure materials, insulation, siding, steel products, industrial metals
and a variety of other building materials.
The building products industry is affected by various factors including general
economic conditions, the level of building activity, weather conditions, the
rate of new home construction, interest rates and the availability of credit. A
significant portion of the Company's products are sold for use in the home
improvement, remodeling and repair market, which is relatively less affected by
these factors that the new residential construction market.
The Company's long-term growth strategy focuses on three principles: (i)
establishing economies of scale through strategic acquisitions which build mass
and allow increased purchasing power, (ii) promoting internal sales growth
through a focus on product mix and marketing efforts, and (iii) improving branch
operating performance through cost awareness programs, the consolidation of
overhead expenses and the upgrade of technology.
In an effort to increase efficiency and reduce operating costs, the company has
invested in a new information system. The Company is on schedule for installing
the new system in the U.S. branches, and believes the new system will improve
its operating leverage and enhance its long-term growth strategy.
The following table sets forth items from Cameron Ashley Building Products,
Inc.'s Consolidated Statements of Income as percentages of revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
July 31, 1999 July 31, 1998 July 31, 1999 July 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of Sales 80.2 80.4 80.0 80.1
----- ----- ----- -----
Gross Profit 19.8 19.6 20.0 19.9
Operating Expenses 15.2 15.0 16.7 16.4
Re-engineering and System
Conversion Costs 0.1 0.1 0.2 0.2
----- ----- ----- -----
Income from Operations 4.5 4.5 3.1 3.3
Interest Expense 1.0 0.9 1.1 0.9
----- ----- ----- -----
Income Before Income Taxes 3.5 3.6 2.0 2.4
Provision for Income Taxes 1.4 1.4 0.8 1.0
----- ----- ----- -----
Net Income 2.1% 2.2% 1.2% 1.4%
===== ===== ===== =====
</TABLE>
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<PAGE> 10
RESULTS OF OPERATIONS
The comparability of operating results between the three and nine months ended
July 31, 1999 and the corresponding periods for 1998 is affected by several
events which occurred during those periods (collectively referred to as the "Net
Acquisition Activity"). These events include: 1) the discontinuation of the
Company's financing subsidiary, Cameron Ashley Financial Services (CAFS) in
1998, 2) the acquisition of seven businesses during fiscal 1998 at a total cost
of $8.8 million, 3) the acquisition of four businesses through 7/31/99 at a
total price of approximately $16.6 million, and 4) the increase in ownership of
Field Marketing, Inc. from 33% to 55.23% during 1999.
THIRD QUARTER ENDED JULY 31, 1999 COMPARED TO THIRD QUARTER ENDED JULY 31, 1998
Revenue increased 26.7% from $249.3 million in the three months ended July 31,
1998 to $315.8 million in the three months ended July 31, 1999, an increase of
$66.5 million. Of the increase in revenues, $16.3 million resulted from a 6.8%
increase in same store sales. The remaining increase in revenues is from the Net
Acquisitions Activity, specifically the acquisitions done during 1998 which were
only partially reflected in the 1998 numbers, while revenues for the full period
are shown in 1999.
Gross profit for the third quarter increased from $48.8 million to $62.6
million, an increase of 28.4%. Gross profit as a percentage of net sales
increased to 19.8% as compared to 19.6% for the same quarter 1998, due primarily
to changes in overall product mix.
Operating expense increased from $37.3 million in the third quarter of 1998 to
$47.9 million in the same period in 1999. The increase is primarily a result of
the increased operations as a result from the Net Acquisition Activity mentioned
above. As a percentage of net sales, operating expenses increased from 15.0% for
the third quarter of 1998, to 15.2% for the same period in 1999. A portion of
the increase is a result of increased employee costs to keep up with the peak
seasonal demands. Other Operating expenses incurred for re-engineering and
system conversion costs totaled $0.5 million for the third quarter, compared to
$0.3 million for the same period a year ago. As a percent of revenue these
expenses remained flat at 0.1% for both the 1998 and 1999 third quarters.
Total operating expenses, including those associated with re-engineering and
system conversion, were $48.4 million in the quarter ended July 31, 1999,
compared with $37.6 million in the prior year's quarter. The quarter ended July
31, 1998 included a charge of $1.4 million in operating expenses for costs
associated with the discontinuation of issuing customer loans by CAFS. There
were no charges associated with the discontinuation of business for CAFS for the
third quarter in 1999.
Income from operations increased 27.3% from $11.2 million in the third quarter
of 1998 to $14.2 million in the same period in 1999, due to Net Acquisition
Activity as discussed. The re-engineering and system conversion costs
effectively reduced income from operations by 3.4% for the quarter in 1999 and
2.6% for the same period in 1998. Including all activity, the income from
operations as a percentage of revenues remained flat at 4.5% for the third
quarters of 1998 and 1999.
Interest expense increased 46.3% from $2.2 million in the third quarter of 1998
to $3.2 million in the same period in 1999 due to additional debt of
approximately $54 million incurred for acquisitions during the latter part of
1998 and higher inventory levels to support seasonal needs over a larger branch
base.
As a result of the above factors, income before income taxes increased 22.8%
from $9.0 million in the third quarter of 1998 to $11.1 million in the same
period of 1999. Net income increased from $5.4 million in the 1998 period to
$6.7 million in the 1999 period. Diluted earnings per share increased from $0.56
in the 1998 period to $0.76 in the 1999 period on 8.6% fewer shares outstanding.
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
Revenues increased 31.7% from $613.3 million in the nine months ended July 31,
1998, to $807.9 million in the same period in 1999, an increase of $194.6
million. Of the increase in revenues, $49.1 million resulted from an 8.3%
increase in same store revenues. The remaining increase in revenues is from the
Net Acquisition Activity, specifically the acquisitions done during 1998, which
were only partially reflected in the 1998 numbers, while revenues for the full
period are shown in the 1999 results.
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<PAGE> 11
Gross profit for the nine-month period ending July 31, 1999 increased from
$122.3 million to $161.4 million, an increase of 32.0%. Gross profit as a
percentage of net sales increased to 20.0% in 1999 as compared to 19.9% for the
same period in 1998, due primarily to changes in overall product mix.
Operating expense increased from $100.9 million in the first nine months of
1998, to $134.4 million in the same period in 1999. Operating expenses include
both expenses directly attributable to branch operations and corporate expenses.
The increase is primarily a result of the increased operations as a result from
the Net Acquisition Activity mentioned above. As a percentage of net sales,
operating expenses increased from 16.4% for the first nine months in 1998, to
16.7% for the same period in 1999. A portion of the increase is a result of
increased employee costs and increased vehicle and transportation costs.
Other operating expenses incurred for re-engineering and system conversion costs
totaled $1.6 million for the nine months ended July 31, 1999, compared to $1.2
million for the same period a year ago. As a percent of revenue these expenses
remained flat at 0.2% for both the nine month period ending July 31, 1998 and
July 31, 1999.
Total operating expenses, including those associated with re-engineering and the
system conversion, increased from $102.1 million in the nine months ended July
31, 1998, to $136.0 million for the nine months ending July 31, 1999. Included
in the operating expenses for the nine months ended July 31, 1998, is a charge
of $1.9 million for costs associated with the discontinuation of issuing
customer loans by CAFS. There were no charges in 1999 for the discontinuation of
this business. This decrease in costs from 1998 to 1999 is offset by the
increases in operating costs as a result of the new acquisitions, which
combined, form the Net Acquisition Activity mentioned above.
Income from operations increased 25.9% from $20.2 million in the nine months
period ended July 31, 1999 to $25.4 million in the 1999 period, due to the
reasons previously discussed. The re-engineering and system conversion costs
effectively reduced income from operations by 5.8% for the nine months ending
July 31, 1999 and 5.7% for the same period in 1998. Including all activity, the
income from operations as a percentage of revenues dropped slightly from 3.3%
for the nine months ending July 31, 1998, to 3.1% for the same period in 1999.
Interest expense increased from $5.6 million in the nine months ending July 31,
1998 to $8.6 million in the nine months ending July 31, 1999. The increase is in
conjunction with the increase in long-term debt, which was the result of the Net
Acquisitions Activity mentioned previously. Total long-term debt, including
current maturities, was $141.3 million on July 31, 1998, and $177.0 million on
July 31, 1999.
As a result of the above factors, income before income taxes increased 15.4%
from $14.6 million in the 1998 period to $16.8 million in the 1999 period. Net
income increased 15.3% from $8.8 million in the nine months period 1998 to
$10.1 million in the same 1999 period, an increase of $1.3 million. Net income
as a percentage of revenue decreased from 1.4% in the 1998 period to 1.2% in the
1999 period. Diluted EPS increased from $0.91 per share in the 1998 period to
$1.15 per share in the 1999 period.
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on results
of operations for the periods presented. Substantial increases in costs,
however, could have a significant impact on the Company and the industry.
Management believes that, to the extent inflation affects its costs in the
future, the Company can generally offset inflation by increasing prices if
competitive conditions permit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for capital resources are to finance acquisitions,
working capital and capital expenditures. Borrowings for working capital
typically increase during periods of sales expansion when higher levels of
inventory and receivables are needed and decrease as inventories and receivables
are converted to cash which is then used to pay down debt. The Company had
$169.5 million of long-term debt (excluding current maturities of $7.5 million)
outstanding as of July 31, 1999, consisting of the facilities described in the
1998 Annual Report, Form 10-K and in the notes to the accompanying interim
financial statements.
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<PAGE> 12
Net cash provided from operating activities was $0.6 million for the nine months
ended July 31, 1999 compared to net cash used in operations of $3.2 million for
nine months ended July 31, 1998. The change in cash used in operating activities
was due to a decrease in payments of accounts payable due primarily to timing
and the 1998 use of funds on the warehouse line of credit used in the operations
of CAFS.
Capital expenditures were $10.4 million up from $7.1 million for the nine months
ended July 31, 1999 and 1998, respectively. The Company has budgeted $13.0
million for capital expenditures in fiscal 1999 relating to its currents
operations, including property, plant and equipment additions and replacements
and the costs of implementation of the Company's new enterprise information
systems. Management estimates the new system will have a total cost of $20 - $23
million of which approximately $17.0 million is of a capital nature. Of the
total cost, approximately $15 million had been incurred as of July 31, 1999, and
the remainder will be incurred by the middle of fiscal Year 2000 when management
expects the system to be fully implemented across the Cameron division. The
Company's fiscal 1999 budget for capital expenditures does not include any
amounts that may be attributable to acquisitions.
Management believes that funds generated from operations, funds available from
bank lines of credit, and other sources will be sufficient to meet the needs of
the Company's current operations for the next 12 months.
SEASONALITY
The Company's first and, to a lesser extent, its second quarter, are typically
adversely affected by winter construction cycles and weather patterns as the
level of activity in both the home improvement and new construction markets
decreases. Management closely monitors operating expenses and inventory levels
during seasonal periods and, to the extent possible, controls variable operating
costs to match seasonally adjusted revenues in both the U.S. and Canada.
YEAR 2000 COMPLIANCE
The Company utilizes a significant number of computer software programs and
information systems in its internal operations, including applications used in
financial business systems and various administration functions ("IT systems").
The Company also makes use of a variety of machinery and equipment in its
business which are operated by or reliant upon non-information technology
systems ("non-IT systems"), for example equipment or mechanical systems which
contain embedded technology such as microcontrollers. To the extent that the
source code of the software applications of these IT systems or the embedded
technologies of these non-IT systems are unable to appropriately interpret and
process the upcoming calendar year 2000 ("Year 2000"), some level of
modification or possible replacement of such applications would be necessary for
proper continuous performance. Without such modification or replacement, the
normal course of the Company's business could be disrupted or otherwise
adversely impacted. This potential problem is commonly referred to as the Year
2000 compliance issue.
State of Readiness. Management of the Company has substantially
completed evaluation of the status of the Company's internal IT and non-IT
systems for compliance with the Year 2000 issue. In addition, the Company has
completed verification of the readiness for Year 2000 of third party systems
with whom the Company has a material relationship, such as its largest vendors
and suppliers. On the basis of such evaluation, the Company has developed a
comprehensive Year 2000 readiness project plan.
Non-IT Systems. Management believes that the failure of any internal
non-IT system to become timely compliant for Year 2000 would not have a material
effect on the business, operations or financial condition of the Company as a
whole. Nevertheless, the Company will continue to take steps to modify or
replace all non-IT systems which are not Year 2000 compliant during the 1999
calendar year. The anticipated expenses for such conversions are not expected to
be material.
Major IT Systems. The Company's current primary internal IT system is
supplied and supported by DMSI. DMSI completed a multi-year compliance project
and released its Year 2000 compliant Version 8.1 in October 1998 and has
delivered this release to the Company as part of its annual support agreement.
The Company has completed the upgrade of its system to Version 8.1.
DMSI has released another update known as Version 8.3 to correct minor problems
experienced by some users. The Company will evaluate the issues addressed by
this and any future updates, and, if a material correction is made to a portion
of DMSI used by the Company, the new version will be installed and the system
re-tested for Year 2000 compliance.
-12-
<PAGE> 13
Certain other systems, running independently at a number of recently acquired
operations, could require revision, modification, or replacement to become Year
2000 compliant. The Company initiated a major re-engineering project in late
1997, centered around a new information system for the Cameron division. The new
system is operational and is being implemented on a gradual rollout basis in all
of the Company's branch locations. The implementation is scheduled to be
completed by April 2000 and will replace all existing major systems including
the DMSI system and those in recently acquired operations. Those branches not on
a Year 2000 compliant system will be converted prior to December 1999.
The Company's business process re-engineering project is aimed at improving and
standardizing Company processes, using a "best practices" approach to reduce
operating costs. This project incorporates an IT system using JD Edwards
software and IBM hardware to be implemented in the Cameron division, which
business accounted for approximately 82% of the Company's total revenues in
fiscal 1998. The new IT system and re-engineered processes are expected to
enhance the Company's competitive position by reducing operating and
administrative costs and improving customer service, pricing management and
inventory and logistics management. JD Edwards has represented the new software
to be fully Year 2000 compliant. The Company will test for such compliance by
the end of September 1999.
JD Edwards has announced their intent to release an update to correct minor
problems experienced by some users. The Company will evaluate the issues
addresses by this and any future updates, and, if a material correction is made
to a portion of JD Edwards used by the Company, the new version will be
installed and the system re-tested for Year 2000 compliance.
Development of the new enterprise system is virtually complete, and the Cameron
division began the roll-out of the system implementation to its branches in
November 1998. As of August 1, 1999, all of the Company's Canadian operations
and 17 U.S. branches were operating on the new system. The Company will continue
the system rollout to its Cameron division U.S. operations throughout the
remainder of 1999 and into 2000.
In the Ashley division, the Company operates a Data General Aviion system, which
has been determined to be Year 2000 compliant and has been successfully tested
on a preliminary basis. The Company will test this system again for Year 2000
compliance by the end of 1999.
Other IT Systems. The Company has assessed its telecommunications
systems with its third party providers and has been assured that they are or
will be made Year 2000 compliant without significant expense to the Company. The
Company is also assessing the requirements and expense to make Year 2000
compliant all third party IT-system application software typically used in
desktop formats, such as financial, accounting, spreadsheet, E-mail and word
processing programs. Management believes that these costs will not be material
to the Company.
Third Party Systems. The Company has completed a review of the issues
related to Year 2000 compliance by its largest suppliers and vendors. The
Company has received assurance from its largest suppliers and vendors that they
are, or will be, Year 2000 functional. Due to the nature of the Company's
business, management believes that the loss of any single of its smaller
suppliers or vendors as a result of Year 2000 system problems would not
materially impact the Company's business, operations or financial condition.
Costs to Address Year 2000 Issues. It is important to note that,
although Year 2000 compliance is a necessary byproduct of the Cameron division
system re-engineering project, it is only one portion of the benefit to be
derived by the Company from the new system conversion. While cost of the project
constitutes the vast majority of the Company's IT budget for the relevant
periods, such cost is not confined solely to the Year 2000 issue and is not
displacing other critical IT projects. It is not possible to segregate the total
expense to the Company strictly for Year 2000 compliance from the total system
conversion project budget.
As of August 1, 1999, the costs to date of the system re-engineering project in
the Cameron division were approximately $17.5 million. The Company currently
expects that the final project cost to be $20 - $23 million. The Company's
results of operations reflect the amount of re-engineering and system conversion
costs that have been expensed and not capitalized. The Company's source of funds
for the system re-engineering project is cash generated by operations and
borrowings under existing bank facilities.
The costs of Year 2000 compliance verification and testing in the Company are
expected to be minimal. In addition, as stated above, management believes that
the costs for making other IT systems and non-IT systems Year 2000 compliant are
not material.
-13-
<PAGE> 14
Risks to the Company for Year 2000 Issues. The worst case scenario to
the Company associated with its Year 2000 compliance efforts would be the
failure of the new enterprise system in the Cameron division to be Year 2000
compliant. This would require any operating branches not yet converted to the
new enterprise system to rely on the Company's current DMSI system and may
require already converted branches to revert back to the old system. Should the
Company's enterprise system experience a Year 2000 failure for an significant
period of time prior to implementation of its contingency plan, it would have an
impact on the Company's ability to efficiently process, bill, account for and
report its sales. In addition, in such a worst case scenario, manual processes
would be required to temporarily replace automated processes and could
moderately disrupt the Company's ability to take and fulfill product orders.
Contingency Plans. In anticipation that the Cameron division's new IT
system will not be fully operational in all locations in 1999, the Company
completed installation of the Year 2000 compliant version of its current DMSI
system. Management believes that this has achieved Year 2000 compliance in the
Company's current IT system, and that such system would function as an effective
back-up system. There are minimal costs associated with the DMSI upgrades.
FORWARD-LOOKING INFORMATION
The matters discussed in this Report on Form 10-Q, other than historical
information, and, in particular, information regarding future revenue, earnings
and business plans and goals, consist of forward-looking information under the
Private Securities Litigation Reform Act of 1995, and are subject to and involve
risks and uncertainties which could cause actual results to differ materially
from the forward-looking information. Forward-looking statements may be
indicated by phrases such as "believes", "anticipates", "expects", "intends",
"foresees", "projects", "predicts", "forecasts" or similar words and involve
known and unknown risks and uncertainties which may cause the Company's actual
results in future periods to differ materially from forecasted results. Among
the factors that could cause results to differ materially are the following: (i)
business and economic conditions in North America, (ii) business and economic
conditions in the regional markets in which the Company operates, (iii) adverse
homebuilding conditions including those related to weather and interest rates,
(iv) the ability to make acquisitions at reasonable prices and achieve synergies
upon integration, (v) reliable and cost-effective supply of products from
manufacturers, and (vi) technology risks in integrating information systems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk associated with
activities involving derivative financial instruments, other financial
instruments and derivative commodity instruments. The majority of the Company's
debt is at a fixed rate and, thus, is not exposed to interest rate risk.
-14-
<PAGE> 15
CAMERON ASHLEY BUILDING PRODUCTS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In connection with a pending investigation of possible violation of
federal antitrust laws in the aluminum building products industry in Florida,
first reported in the Company's Annual Report on Form 10-K for the fiscal year
ending October 31, 1998, representatives of the U.S. Department of Justice,
Antitrust Division, in Dallas, Texas, interviewed an executive officer of the
Company in June 1999. After such interview, the Department of Justice requested
additional information from the Company's subsidiary in Florida. No further
developments occurred in the quarter ending July 31, 1999.
ITEM 5. OTHER INFORMATION
On May 21, 1999, the Board of Directors of the Company accepted the
resignation of Allen J. Keesler who served as a Director. Subsequently, the
Board of Directors voted to reduce the number of Board seats from nine to eight.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits required to be filed with this Report on Form 10-Q are listed
on the Exhibit Index following the signature page hereof.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
quarter ended July 31, 1999.
-15-
<PAGE> 16
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.
CAMERON ASHLEY BUILDING PRODUCTS, INC.
(Registrant)
Date: September 13, 1999 /s/ GAROLD E. SWAN
---------------------------------------
Garold E. Swan
Executive Vice President/Chief
Financial Officer/Treasurer
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
10.30 Employment Agreement dated June 1, 1999, between Wm. Cameron & Co. dba Cameron Ashley Building
Products and Kirk Black.
11 Computation of Earnings per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this 1st day of June, 1999, between WM. CAMERON
& CO., a Georgia corporation dba Cameron Ashley Building Products (the
"Company"), and Kirk Black, a resident of the State of Texas ("Executive").
BACKGROUND
The Company desires to employ Executive on the terms and conditions
set forth below. Executive desires to accept employment on the terms and
conditions set forth below.
AGREEMENT
In consideration of the employment and continued employment of
Executive by the Company, the premises, and the mutual agreements hereinafter
set forth, the parties agree:
1. Definitions. The following terms used herein shall have the
definitions set forth below:
(a) "Business" or "Business of the Company" means the business of
the wholesale distribution, sale and marketing of building materials, building
supplies and mill work.
(b) "Cause" means conduct amounting to fraud or dishonesty against
the Company; Executive's violation of Sections 2(a) or (b) hereof, or any of the
Company's work rules or policies, or absences from work without a reasonable
excuse, if the President and Chief Executive Officer notifies Executive of such
violation or absence in writing and Executive fails to cure such violation or
absenteeism within five (5) days after written notice has been given, provided
that written notice relating to such violation or absenteeism shall only be
given once as it relates to a particular manner of conduct; intoxication with
alcohol or drugs while on Company business during regular business hours; a
conviction or plea of guilty or nolo contendere to a felony or a crime involving
dishonesty against the Company; or Executive's failure to observe the
requirements of Sections 2(c), 5 and 6 hereof.
(c) "Disability" means (i) the inability of Executive to perform the
duties of Executive's employment due to physical or emotional incapacity or
illness, where such inability is expected to be of long-continued and indefinite
duration or (ii) Executive shall be entitled to (x) disability retirement
benefits under the federal Social Security Act or (y) recover benefits under any
long-term disability plan or policy maintained by the Company. In the event of a
dispute, the determination of Disability shall be made reasonably by the Board
of Directors of the Company and shall be supported by advice of a physician
competent in the area to which such Disability relates.
(d) "Effective Date" means the date hereof.
<PAGE> 2
2. Terms of Engagement; Duties
(a) The Company hereby employs Executive, commencing on the
Effective Date, and Executive hereby accepts employment by the Company subject
to the terms and conditions hereof. Executive shall report to, shall have the
title assigned by, and shall perform the duties assigned by the Chairman and CEO
of the Company and Cameron Ashley Building Products, Inc. (the "Parent") or
other senior executive of the Company from time to time in connection with the
conduct of the Business of the Company. Executive is engaged initially with the
title and functions of Executive Vice President and Chief Information Officer of
the Company and the Parent. Nothing herein shall preclude the Chairman and CEO
of the Company from changing the Executive's title and duties if the Chairman
and CEO of the Company has concluded in his reasonable judgment that such change
is in the Company's best interests. Executive shall not be required to reside
outside the Area (as defined in Section 6 hereof).
(b) Throughout the term of this Agreement, Executive shall:
(i) devote all of Executive's business effort, time, energy and
skill (reasonable vacations and reasonable absences due to illness
excepted) to the duties of Executive's employment hereunder assigned by
the senior officers of the Company;
(ii) faithfully, loyally, and industriously perform such duties,
subject to the control and supervision of the senior officers of the
Company; and
(iii) diligently follow and implement all lawful management
policies and decisions of the Company that are communicated to
Executive.
(c) During the term of this Agreement, Executive shall not be
engaged (whether or not during normal business hours) in any other business or
professional activity, whether or not such activity is pursued for gain, profit
or other pecuniary advantage; but this shall not be construed as preventing
Executive from (i) investing his personal assets in businesses which do not
compete with the Company in such form or manner as will not require any services
on the part of Executive in the operation or the affairs of the companies in
which such investments are made and in which his participation is solely that of
an investor, (ii) purchasing securities in any corporation whose securities are
regularly traded provided that such purchase shall not result in his
collectively owning beneficially at any time five percent (5%) or more of the
equity securities of any corporation engaged in a business competitive to that
of the Company, or (iii) participating in conferences, preparing or publishing
papers or books or teaching so long as the Executive's supervisor approves of
such activities prior to Executive's engaging in them.
3. Compensation.
(a) In consideration of the services rendered by Executive pursuant
to this Agreement, the Company shall provide the following:
(i) A base salary of Two Hundred Thousand ($200,000.00) per
annum
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<PAGE> 3
(the "Base Salary") which Base Salary will be reviewed periodically and
may be increased by the Company from time to time. The Base Salary
shall be paid in accordance with the Company's standard payroll
practices in effect from time to time, and shall be subject to such
deductions and withholdings as are required by law or by policies of
the Company.
(ii) Reimbursement for all reasonable business expenses
(including a $600.00 per month car allowance) incurred by Executive in
connection with the Business of the Company subject to compliance with
the expense reimbursement policies established by the Company and in
sufficient detail to comply with Internal Revenue Service Regulations.
(b) Executive shall be eligible to be considered for an annual cash
performance bonus, which may consist of an amount of up to sixty percent (60%)
of the Base Salary in the applicable year based on the attainment of performance
objectives established by the Board of Directors of the Company and the Parent
in good faith and Executive's contributions to the attainment of those
objectives, and shall be in such amount and payable in such manner and on such
terms as are determined by the Board of Directors of the Company and the Parent.
Nothing contained in this subsection (b) shall obligate the Company to pay a
bonus to Executive, unless the Board of Directors of the Company and the Parent
determines to award such a bonus to Executive.
(c) Executive shall have the right to participate in (i) any
insurance plans maintained by the Company from time to time to the extent that
Executive's position, tenure, salary, age, health and other qualifications make
him eligible to participate, and (ii) such other fringe benefit plans or
programs as are provided to the other senior management Executives of the
Company, provided that the Company shall not be required to adopt or continue
any insurance plans or fringe benefit plans or programs.
(d) Executive shall receive options to purchase Thirty Thousand
(30,000) shares of Common Stock of the Parent pursuant to the terms of a
Non-Qualified Stock Option Agreement ("Option Agreement"). Such options will
have a term of ten (10) years and will vest in one-third (1/3) increments over
three (3) years from the date of grant. The exercise prices of such options
shall be the exercise prices set forth in the Option Agreement and the date of
grant shall be the Effective Date.
(e) The remuneration and benefits set forth in this Section 3 shall
be the only compensation payable to Executive with respect to his employment
hereunder, and Executive shall not be entitled to receive any compensation in
addition to that set forth in this Section 3 for any services rendered by him in
any capacity to the Company or any affiliated corporation unless agreed to in
writing by the Company or such affiliated corporation.
4. Term and Termination of this Agreement. The term of employment of
Executive pursuant to this Agreement shall commence on the Effective Date and
shall continue for a term of five (5) years, or until sooner terminated as
provided herein.
(a) Executive's employment hereunder may be terminated:
(i) By the Company, upon the death or Disability of Executive;
3
<PAGE> 4
(ii) By the Company, immediately for Cause;
(iii) By Executive upon ninety (90) days prior written notice to
the Company;
(iv) By mutual agreement between Executive and the Company; and
(v) By the Company, without Cause.
(b) In the event the Company terminates the employment of Executive
without Cause, then, during the nine (9) month period immediately following the
effective date of the termination of his employment, Executive shall continue to
receive his base salary under this Agreement as in effect on the date that his
employment terminates subject to Executive signing a Settlement and Release
Agreement agreeable to the Company. The payments described in this Section 4(b)
are hereinafter referred to as "Severance Pay," and shall be made to the
Executive without any obligation on his part to render services hereunder after
the effective date of the termination of Executive's employment, in full
settlement of all of the obligations of the Company hereunder. No Severance Pay
shall be paid to the estate or personal representative of the Executive in the
event of his death during the term of this Agreement.
(c) Except as set forth above, upon termination of Executive's
employment hereunder pursuant to this Section 4, the Company shall have no
further obligation to Executive or his personal representative with respect to
remuneration due under this Agreement, except for Base Salary earned but unpaid
at date of termination; provided however, Executive's covenants in Sections 5
and 6 of this Agreement shall survive the termination of Executive's employment
hereunder. If Executive fails to observe the requirements of Sections 5 or 6
hereof, then the Company shall have no obligation to pay any portion of the Base
Salary remaining unpaid to Executive and the Company shall have no obligation to
pay any portion of the Severance Pay. It is understood that Executive's coverage
under the Company's disability, accidental death or dismemberment and group life
insurance plans shall cease as of the date of termination.
5. Ownership, Non-Disclosure, and Non-Use of Trade Secrets.
(a) The following terms used in this Section 5 shall have the
definitions set forth below:
(i) "Excluded Information" means any data or information that is
a Trade Secret hereunder (1) that has been voluntarily disclosed to the
public by the Company or has become generally known to the public
(except where such public disclosure has been made by or through the
Executive or by a third person or entity with the knowledge of the
Executive without authorization by the Company); (2) that has been
independently developed and disclosed by parties other than the
Executive or the Company to the Executive or to the public generally
without a breach of any obligation of confidentiality by any such
person running directly or indirectly to the Company; or (3) that
otherwise enters the public domain through lawful means.
(ii) "Trade Secrets" means information which derives economic
value,
4
<PAGE> 5
actual or potential, from not being generally known and not being
readily ascertainable to other persons who can obtain economic value
from its disclosure or use and which is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy or
confidentiality. Trade Secrets may include either technical or
non-technical data, including without limitation, (1) any useful
process, machine, chemical formula, composition of matter, or other
device which (A) is new or which Executive has a reasonable basis to
believe may be new, (B) is being used or studied by the Company and is
not described in a printed patent or in any literature already
published and distributed externally by the Company, and (C) is not
readily ascertainable from inspection of a product of the Company; (2)
any engineering, technical, or product specifications including those
of features used in any current product of the Company or to be used,
or the use of which is contemplated, in a future product of the
Company; (3) any application, operating system, communication system,
or other computer software (whether in source or object code) and all
flow charts, algorithms, coding sheets, routines, subroutines,
compilers, assemblers, design concepts, test data, documentation, or
manuals related thereto, whether or not copyrighted, patented or
patentable, related to or used in the Business of the Company; or (4)
information concerning the customers, suppliers, products, pricing
strategies of the Company, personnel assignments and policies of the
Company, or matters concerning the financial affairs and management of
the Company or any parent, subsidiary, or affiliate of the Company;
provided however, that Trade Secrets shall not include any Excluded
Information.
(b) Executive acknowledges and agrees that all Trade Secrets, and
all physical embodiments thereof, are confidential to and shall be and remain
the sole and exclusive property of the Company and that any Trade Secrets
produced by the Executive during the period of Executive's employment by the
Company shall be considered "work for hire" as such term is defined in 17 U.S.C.
Section 101, the ownership and copyright of which shall be vested solely in the
Company. Executive agrees (i) immediately to disclose to the Company all Trade
Secrets developed in whole or part by Executive during the term of Executive's
employment by the Company, and (ii) at the request and expense of the Company,
to do all things and sign all documents or instruments reasonably necessary in
the opinion of the Company to eliminate any ambiguity as to the rights of the
Company in such Trade Secrets including, without limitation, providing to the
Company Executive's full cooperation in any litigation or other proceeding to
establish, protect, or obtain such rights. Upon request by the Company, and in
any event upon termination of Executive's employment by the Company for any
reason, Executive shall promptly deliver to the Company all property belonging
to the Company including, without limitation, all Trade Secrets (and all
embodiments thereof) then in Executive's custody, control, or possession.
(c) Executive agrees that all Trade Secrets of the Company received
or developed by Executive as a result of Executive's employment with the Company
will be held in trust and strictest confidence, that Executive will protect such
Trade Secrets from disclosure, and that Executive will make no use of such Trade
Secrets, except in connection with Executive's employment hereunder, without the
Company's prior written consent. The obligations of confidentiality contained in
this Agreement shall apply during Executive's employment by the Company and (i)
with respect to all Trade Secrets consisting of scientific or technical data, at
any and all times after expiration or termination (for whatever reason) of such
employment; and (ii) with respect to all other Trade Secrets, for a period of
two (2) years after such expiration or termination, unless a longer period of
protection is provided by law.
5
<PAGE> 6
6. Noncompete; Nonsolicitation Covenants.
(a) The following terms used in this Section 6 shall have the
definitions set forth below:
(i) "Affiliate" means any person or entity directly or
indirectly controlling, controlled by, or under common control with
Executive. As used herein, the word "control" means the power to direct
the management and affairs of a person.
(ii) "Area" means the United States of America and Canada.
(iii) "Competing Enterprise" means any person or any business
organization of whatever form, engaged directly within the Area in the
Business of the Company.
(b) Executive covenants that Executive shall, during the term of
this Agreement, and for a period of nine (9) months following termination for
any reason of Executive's employment by the Company, observe the following
separate and independent covenants:
(i) Neither Executive nor any Affiliate will, without the prior
written consent of the Company, within the Area, either directly or
indirectly, (A) become financially interested in a Competing Enterprise
(other than as a holder of less than five percent of the outstanding
voting securities of any entity whose voting securities are listed on a
national securities exchange or quoted by the National Association of
Securities Dealers, Inc. automated quotation system), or, (B) engage in
or be employed by any Competing Enterprise as a consultant, officer,
director, or Executive or managerial employee.
(ii) Neither Executive nor any Affiliate will, without the prior
written consent of the Company, either directly or indirectly, on
Executive's own behalf or in the service or on behalf of others,
solicit, divert, or appropriate, or attempt to solicit, divert, or
appropriate, to any Competing Enterprise within the Area, any person or
entity whose account with the Company was serviced by or under
Executive's direction or supervision during the term of this Agreement.
(iii) Neither Executive nor any Affiliate will, without the
Company's prior written consent, either directly or indirectly, on
Executive's own behalf or in the service or on behalf of others,
solicit, divert, or hire away, or attempt to solicit, divert, or hire
away, any person employed by the Company, whether or not such employee
is a full-time or a temporary employee of the Company and whether or
not such employment is pursuant to written agreement and whether or not
such employment is at will.
7. Remedies. Executive acknowledges and agrees that the Company is
engaged in the Business of the Company in and throughout the Area, and that by
virtue of the training, duties, and responsibilities attendant with Executive's
employment by the Company and the special knowledge of the business and
operations of the Company that Executive will have as a consequence of
Executive's employment by the Company, great loss and irreparable damage would
be suffered by the Company if the Executive should breach or violate any of the
terms or provisions of the
6
<PAGE> 7
covenants and agreements set forth herein. Executive further acknowledges and
agrees that each such covenant and agreement is reasonably necessary to protect
and preserve the interest of the Company. Therefore, in addition to all the
remedies provided at law or in equity, Executive agrees and consents that the
Company shall be entitled to a temporary restraining order and a permanent
injunction to prevent a breach of any of the covenants or agreements of
Executive contained herein and to collect from Executive reasonable attorney's
fees incurred by the Company in the enforcement hereof. The existence of any
claim, demand, action or cause of action of Executive against the Company shall
not constitute a defense to the enforcement by the Company of any of the
covenants or agreements herein whether predicated upon this Agreement or
otherwise, and shall not constitute a defense to the enforcement by the Company
of any of its rights hereunder.
8. General Provisions.
(a) In the event that any one or more of the provisions, or parts of
any provisions, contained in the Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect by a court of competent
jurisdiction, the same shall not invalidate or otherwise affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
Specifically, but without limiting the foregoing in any way, each of the
covenants of the parties to this Agreement contained herein shall be deemed and
shall be construed as a separate and independent covenant and should any part or
provision of any of such covenants be held or declared invalid by any court of
competent jurisdiction, such invalidity shall in no way render invalid or
unenforceable any other part or provision thereof or any other covenant of the
parties not held or declared invalid.
(b) This Agreement and the rights and obligations of the Company
hereunder may be assigned by the Company to any subsidiary of or successor to
the Company, and shall inure to the benefit of, shall be binding upon, and shall
be enforceable by any such assignee, provided that any such assignee shall agree
to assume and be bound by this Agreement. This Agreement and the rights and
obligations of Executive hereunder may not be assigned by Executive.
(c) The waiver by the Company of any breach of this Agreement by
Executive shall not be effective unless in writing, and no such waiver shall
operate or be construed as a waiver of the same or another breach on a
subsequent occasion.
(d) This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of Texas.
(e) This Agreement embodies the entire agreement of the parties
relating to the employment of Executive by the Company. No amendment,
modification extension or renewal of this Agreement shall be valid or binding
upon the Company or Executive unless made in writing and signed by the parties.
All prior understandings and agreements relating to the employment of Executive
by the Company are hereby expressly terminated.
(f) Any notice, request, demand, or other communication required to
be given hereunder shall be made in writing and shall be deemed to have been
fully given if personally
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<PAGE> 8
delivered or if mailed by overnight delivery (the date on which such notice,
request, demand, or other communication is received shall be the date of
delivery) to the parties at the following addresses (or at such other addresses
as shall be given in writing by any party to the other party hereto):
If to Executive:
2102 Belclaire Drive
Carrollton, Texas 75006
If to Company:
Wm. Cameron & Co. dba Cameron Ashley Building Products
11651 Plano Road, Suite 100
Dallas, Texas 75243
Attention: Ronald Ross, Chairman and Chief Executive Officer
Telecopy: (214) 860-5148
(g) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, and it shall not be necessary for
the same counterpart of this agreement to be signed by all of the undersigned in
order for the agreements set forth herein to be binding upon all of the
undersigned in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company and Executive have each executed and
delivered this Agreement as of the date first above written.
COMPANY:
WM. CAMERON & CO. dba Cameron Ashley
Building Products
By: /s/ Ronald R. Ross
----------------------------------------
Ronald R. Ross
Chairman and CEO
EXECUTIVE:
/s/ Kirk Black
--------------------------------------------
Kirk Black
8
<PAGE> 1
EXHIBIT 11
CAMERON ASHLEY BUILDING PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
(THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------
July 31, 1999 July 31, 1998
------------------------------------------ ------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common
stockholders $ 6,662 8,662 $ 0.77 $ 5,365 9,363 $ 0.51
========== ==========
EFFECT OF DILUTIVE SECURITIES
Average options outstanding 1,883 1,456
Effects of treasury stock method
(based on exercise proceeds and
tax benefits) (1,724) (1,171)
----------- ------------- ----------- -------------
DILUTED EPS
Income available to common
stockholders assuming dilution $ 6,662 8,821 $ 0.76 $ 5,365 9,648 $ 0.56
=========== ============= ========== =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------------------------------------------------
July 31, 1999 July 31, 1998
------------------------------------------ ------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common
stockholders $ 10,093 8,652 $ 1.17 $ 8,756 9,345 $ 0.94
========== ==========
EFFECT OF DILUTIVE SECURITIES
Average options outstanding 1,883 1,359
Effects of treasury stock method
(based on exercise proceeds and
tax benefits) (1,728) (1,083)
----------- ------------- ----------- ------------- ----------
DILUTED EPS
Income available to common
stockholders assuming dilution $ 10,093 8,807 $ 1.15 $ 8,756 9,621 $ 0.91
=========== ============= ========== =========== ============= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 3,566
<SECURITIES> 0
<RECEIVABLES> 172,980
<ALLOWANCES> 5,667
<INVENTORY> 135,125
<CURRENT-ASSETS> 312,858
<PP&E> 88,369
<DEPRECIATION> 29,574
<TOTAL-ASSETS> 438,136
<CURRENT-LIABILITIES> 138,213
<BONDS> 0
0
0
<COMMON> 64,722
<OTHER-SE> 60,806
<TOTAL-LIABILITY-AND-EQUITY> 438,136
<SALES> 807,901
<TOTAL-REVENUES> 807,901
<CGS> 646,544
<TOTAL-COSTS> 132,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,117
<INTEREST-EXPENSE> 8,569
<INCOME-PRETAX> 16,834
<INCOME-TAX> 6,741
<INCOME-CONTINUING> 10,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,093
<EPS-BASIC> 1.17
<EPS-DILUTED> 1.15
</TABLE>
