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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 JANUARY 31, 2000
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.
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(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
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(Address of principal executive offices)
(Zip Code)
214-860-5100
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(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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at March 7, 2000: 8,713,034
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JANUARY 31, 2000
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
<S> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets as of January 31, 2000 and
October 31, 1999 3
Consolidated Statements of Income and Comprehensive Income
for the three months ended January 31, 2000 and 1999 4
Consolidated Statement of Stockholders' Equity for the
three months ended January 31, 2000 5
Consolidated Statements of Cash Flows for the three months
ended January 31, 2000 and 1999 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 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>
January 31, October 31,
2000 1999
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,002 $ 3
Accounts receivable, net 143,009 183,453
Inventories 128,903 112,896
Prepaid expenses and other assets 2,861 2,314
Deferred income taxes 4,911 5,064
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Total current assets 280,686 303,730
PROPERTY, PLANT AND EQUIPMENT, NET 62,628 63,040
INTANGIBLES, NET 66,539 67,244
OTHER ASSETS 2,503 1,582
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TOTAL $ 412,356 $ 435,596
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 78,834 $ 97,828
Accrued expenses 17,742 27,694
Line of credit 5,600 4,896
Current maturities of debt 9,678 10,014
------------- -------------
Total current liabilities 111,854 140,432
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 3) 161,785 155,224
MINORITY INTEREST 62 476
DEFERRED INCOME TAXES 6,302 6,442
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Total liabilities 280,003 302,574
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;
9,895,000 shares issued January 31, 2000, and
9,882,000 shares issued at October 31, 1999 64,805 64,700
Retained earnings 81,618 82,822
Treasury stock, at cost, 1,190,000 shares (13,633) (13,633)
Accumulated other comprehensive income (loss), net of tax (437) (867)
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Total stockholders' equity 132,353 133,022
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TOTAL $ 412,356 $ 435,596
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</TABLE>
See notes to consolidated condensed financial statements.
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
January 31, January 31,
2000 1999
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<S> <C> <C>
REVENUE $ 255,789 $ 223,417
COST OF SALES 205,912 178,677
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GROSS PROFIT 49,877 44,740
OPERATING EXPENSES 48,080 41,828
RE-ENGINEERING & SYSTEM CONVERSION 567 339
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INCOME FROM OPERATIONS 1,230 2,573
INTEREST EXPENSE 3,225 2,582
MINORITY INTEREST (415) 0
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LOSS BEFORE INCOME TAXES (1,580) (9)
PROVISION FOR/(BENEFIT FROM)
INCOME TAXES (376) 34
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NET LOSS $ (1,204) $ (43)
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OTHER COMPREHENSIVE INCOME:
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS 430 300
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COMPREHENSIVE INCOME/(LOSS) $ (774) $ 257
============= =============
NET LOSS PER SHARE:
BASIC $ (0.14) $ 0.00
============= =============
DILUTED $ (0.14) $ 0.00
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 8,695 8,646
============= =============
DILUTED 8,695 8,646
============= =============
</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, 1999 9,882 $ 64,700 $ 82,822 $ (13,633) $ (867) $ 133,022
Proceeds from exercise of stock options, 3 16 -- -- -- 16
including tax benefits of $0
Proceeds from employee stock purchase plan 10 89 -- -- -- 89
Net loss -- -- (1,204) -- -- (1,204)
Foreign currency translation adjustment -- -- -- -- 430 430
---------- ---------- ---------- ---------- ------------- ----------
BALANCE AS OF JANUARY 31, 2000 9,895 $ 64,805 $ 81,618 $ (13,633) $ (437) $ 132,353
========== ========== ========== ========== ============= ==========
</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>
Three months ended
----------------------------
January 31, January 31,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,204) $ (43)
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 3,842 2,884
(Gain) loss on sale of property, plant and equipment (11) 17
Deferred income taxes 1 18
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 41,014 32,530
Inventories (15,733) (10,399)
Prepaid expenses (544) (558)
Accounts payable and accrued expenses (28,469) (23,262)
Other assets/liabilities (1,079) (2,034)
------------ ------------
Net cash used in operating activities (2,183) (847)
INVESTING ACTIVITIES:
Payment for acquisitions (84) (10,479)
Purchases of property, plant and equipment, net (2,512) (4,132)
Other (984) 119
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Net cash used in investing activities (3,580) (14,492)
FINANCING ACTIVITIES:
Net borrowings 7,292 15,500
Repayments of seller financing of acquired business (27) (1,473)
Proceeds from employee stock purchase plan 89 70
Exercise of stock options 16 50
Other (608) (56)
------------ ------------
Net cash provided by financing activities 6,762 14,091
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 999 (1,248)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 3 3,706
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END OF PERIOD $ 1,002 $ 2,458
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 856 $ 172
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Cash paid for income taxes $ 539 $ 3,995
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</TABLE>
See notes to consolidated condensed financial statements
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 2000
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, 1999 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 period ended
January 31, 2000 and 1999, financial position at January 31, 2000 and October
31, 1999, and the cash flows for the three month periods ended January 31, 2000
and 1999. 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 1999 Annual Report on Form 10-K, as amended.
The operating results for the first quarter and for the three month period ended
January 31, 2000 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
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for accounting
and reporting for derivative instruments. It requires entities to record all
derivative instruments on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The portion of all hedges
not effective in achieving offsetting changes in fair value is recognized in
earnings. In June 1999, the FASB issued SFAS No. 137 which defers the
implementation date of SFAS No. 133 to be effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management has not completed an
evaluation of the impact of the provisions of this statement on the Company's
financial statements.
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3. DEBT
<TABLE>
<CAPTION>
Debt consists of the following at January 31, 2000: (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% $ 130,029
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 0.5% to 2.0%, or at a base rate
(defined in the agreement as prime). At January 31, 2000, the interest rate was 7.48% 32,832
Revolving credit note due April 30, 2000; secured, interest due monthly at prime
plus 0.5% at January 31, 2000, the interest rate was 8.75% 5,600
Seller financing of acquired businesses:
Various terms, interest rates ranging from 6% to 9%, collateralized by certain land and buildings 2,277
Other, including capital leases 6,325
------------
177,063
Less current maturities (15,278)
------------
Long-term debt $ 161,785
============
</TABLE>
The seller notes payable are subordinated to the obligations under the Bank of
America agreements.
At January 31, 2000, the Company had $1.3 million of letters of credit issued
under the Bank of America revolving credit facility.
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<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, 1999, included in the Company's Annual Report on
Form 10-K, as amended.
RECENT DEVELOPMENTS
On January 18, 2000, the Company announced that it has entered into a definitive
agreement whereby an investment group consisting of CGW Southeast Partners IV,
L.P. and an affiliate of Citicorp Venture Capital, Ltd., a subsidiary of
Citigroup Inc., along with senior management of the Company (the "Investment
Group") will acquire all the outstanding shares of the Company's common stock at
a price of $15.10 per share in cash. The total consideration of the proposed
merger transaction is approximately $320 million including the assumption of
debt. The Investment Group has indicated that financing commitments, subject to
customary conditions, are in place with both senior and subordinated debt
sources, and the transaction could close in the second calendar quarter of 2000.
The Company entered into the agreement following the unanimous recommendation by
a special committee comprised of independent directors of the Company. Credit
Suisse First Boston advised the special committee in this transaction. CGW
Southeast Partners I, L.P., an affiliate of CGW Southeast Partners IV, L.P.,
currently owns approximately 11% of the Company's outstanding shares. CGW
Southeast Partners IV, L.P., is a private equity fund which supports management
teams in middle-market acquisitions and recapitalizations, and is managed by
Atlanta, Georgia based Cravey, Green & Wahlen, Inc. Richard L. Cravey and Edwin
A. Wahlen, Jr., both directors of the Company, are affiliated with the
CGW-related entities.
The closing of the merger is subject to regulatory and stockholder approval and
customary conditions to closing. The agreement includes a provision whereby the
special committee may withdraw or modify its recommendation of the merger
following receipt of an unsolicited acquisition proposal from a third party in
order to fulfill its fiduciary obligations to the Company's shareholders under
applicable law. The agreement also includes a $5 million breakup fee in favor of
the Investment Group.
On February 10, 2000, Bradco Supply Corporation and Barry Segal jointly filed a
Schedule 13D with the Securities and Exchange Commission to report that they had
together purchased approximately 444,900 shares or approximately 5.13% of the
outstanding shares of Common Stock of the Company. The reporting persons stated
that they believe the Investment Group's proposed acquisition price of $15.10
per share to be inadequate and that they would seek to purchase approximately
60% of the outstanding shares of the Company at $16.25 per share in the open
market or in privately negotiated transactions. They further indicated their
intent to merge Bradco's operations into the Company and to work with the
Company's management to grow the combined companies. Bradco and Segal
subsequently filed an amended Schedule 13D on February 16, 2000 to report an
increase in ownership by 104,500 shares to 549,400 shares or approximately 6.33%
of the outstanding shares of Common Stock of the Company.
On February 11, 2000, the Company announced that it had received an unsolicited
proposal from Guardian Industries Corp. to acquire all the outstanding shares of
the Company's common stock at a price of $17.00 per share. Guardian Industries
indicated that it has the financial capacity to fully fund the proposed
transaction. The proposed transaction is subject to due diligence, negotiation
of a definitive agreement and regulatory approval. The special committee is
evaluating this proposal along with its financial advisor, Credit Suisse First
Boston, while Guardian is pursuing its due diligence process.
The special committee subsequently notified Segal that they were currently
considering the Guardian proposal and, in light of its superior terms, did not
believe that further consideration of Segal's proposal was warranted at the
present time. On February 18, 2000, Bradco and Segal further amended their
Schedule 13D filing to report that they have no further interest in pursing a
transaction with the Company and that they now intend to hold their shares for
investment purposes.
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 167 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 the Company believes is
relatively less affected by these factors that the new residential construction
market.
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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 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
--------------------------------------
January 31, 2000 January 31, 1999
---------------- ----------------
<S> <C> <C>
Revenue 100.0% 100.0%
Cost of Sales 80.5 80.0
----- -----
Gross Profit 19.5 20.0
Operating Expenses 18.8 18.7
Re-engineering and System
Conversion Costs 0.2 0.2
----- -----
Income from Operations 0.5 1.1
Interest Expense 1.3 1.1
Minority Interest (0.2) 0
----- -----
Loss Before Income Taxes (0.6) 0.0
Benefit from Income Taxes (0.1) 0.0
----- -----
Net Loss (0.5)% 0.0%
===== =====
</TABLE>
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The Company operates its business using four reportable segments. These segments
represent distinct operating subsidiaries of the Company. The segments include
Wm. Cameron & Co., CA Canada, Inc., Ashley Aluminum, L.L.C., and all other. The
segments are managed separately because of their geographical locations and
their differing products and services. Each of these businesses requires
distinct operating and marketing strategies. Management reviews the performance
of the Company based on these operating segments.
The Wm. Cameron & Co. segment is engaged in distribution, marketing, selling and
manufacturing of building products within the continental United States. The CA
Canada, Inc. segment is engaged in distribution, marketing, selling and
manufacturing of building products within Canada. The Ashley Aluminum, L.L.C.,
segment manufactures, markets, and distributes various building material
products, including pool and patio enclosure materials. The corporate and other
segment includes Field Marketing, Inc. and corporate support staff services.
The segments are measured on operating profits before interest expense, income
taxes and minority interest. Certain expenses are allocated to the operating
segments. For some of these allocated expenses, the related assets and
liabilities remain in the corporate and other segment. The segments follow the
same accounting principles described in the Summary of Significant Accounting
Policies. Sales between the segments are recorded primarily at market prices.
No single customer accounts for 10% or more of consolidated trade sales. An
analysis of operations by segment for the three months ended January 31, 2000
and January 31, 1999 is as follows:
<TABLE>
<CAPTION>
CORPORATE INTERCOMPANY
WM CAMERON CA CANADA ASHLEY AND OTHER ELIMINATIONS CONSOLIDATED
---------- --------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 31, 2000
Sales to customers $ 176,698 $ 27,451 $ 41,050 $ 10,685 (95) $ 255,789
Segment Operating Profit (Loss) 1,267 (112) 3,154 (2,664) 1,645
Interest Expense 3,225 3,225
---------
Loss before income taxes $ (1,580)
=========
Segment assets at January 31, 2000 $ 293,166 $ 42,671 $ 48,099 $ 28,420 $ 412,356
JANUARY 31, 1999
Sales to customers $ 160,657 $ 25,107 $ 37,653 $ 223,417
Segment Operating Profit (Loss) 2,043 (164) 2,304 (1,610) 2,573
Interest Expense 2,582 2,582
---------
Loss before income taxes $ (9)
=========
Segment assets at January 31, 1999 $ 258,208 $ 42,523 $ 47,009 $ 10,342 $ 358,082
</TABLE>
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<PAGE> 12
RESULTS OF OPERATIONS
The comparability of operating results between the three months ended January
31, 2000 and the corresponding periods for 1999 is affected primarily by the
following events, both of which occurred in the periods after January 31, 1999:
(1) the increase in ownership in Field Marketing Inc., ("FMI") from 33% to
70.175%, and (2) the acquisition of three businesses: Performance Materials in
February, 1999, and Fox Valley Building Materials in June 1999, and Bak-a-Lum
Corp. of America in October, 1999.
FIRST QUARTER ENDED JANUARY 31, 2000 COMPARED TO FIRST QUARTER ENDED JANUARY 31,
1999
Revenue increased 14.5% from $223.4 million in the three months ended January
31, 1999 to $255.8 million in the three months ended January 31, 2000, an
increase of $32.4 million. Of the increase in revenues, $11.7 million resulted
from a 6.4% increase in same store sales and $10.7 million resulted from FMI
sales. The remaining increase in revenues is from the acquisitions made during
the later portion 1999.
Gross profit for the first quarter increased from $44.7 million to $49.9
million, an increase of 11.5%. Gross profit as a percentage of net sales
decreased to 19.5% as compared to 20.0% for the same quarter 1999. Gross profit
as a percentage of sales excluding FMI was 20.4% for the first quarter 2000.
Operating expense increased from $41.8 million in the first quarter of 1999 to
$48.1 million in the same period in 2000. As a percentage of net sales,
operating expenses increased from 18.7% for the first quarter of 1999, to 18.8%
for the same period in 2000. Excluding FMI, operating expense for the 2000
period increased to $46.7 million and operating expense as a percentage of sales
increased to 19.1%. A portion of the increase is a result of increased employee
costs and truck expenses.
Other operating expenses incurred for re-engineering and system conversion
costs totaled $0.6 million for the first quarter, compared to $0.3 million for
the same period a year ago. As a percent of revenue these expenses remained flat
0.2% for first quarters 1999 and 2000.
Total operating expenses, including those associated with re-engineering and
system conversion, were $48.6 million in the quarter ended January 31, 2000,
compared with $42.2 million in the prior year's quarter.
Income from operations decreased 52.2% from $2.6 million in the first quarter of
1999 to $1.2 million in the same period in 2000. Excluding FMI, income from
operations in first quarter 2000 increased by 2.2% over the prior year's period.
The re-engineering and system conversion costs effectively reduced income from
operations by 31.6% for the quarter in 2000 and 11.6% for the same period in
1999. Excluding FMI, the income from operations as a percentage of revenues
decreased from 1.2% to 1.1% for the first quarters 1999 and 2000.
Interest expense increased 24.9% from $2.6 million in the first quarter of 1999
to $3.2 million in the same period in 2000 due to additional debt incurred for
acquisitions during the latter part of 1999 and higher inventory levels to
support seasonal needs over a larger branch base.
As a result of the above factors, income before income taxes decreased from
breakeven in the first quarter 1999 to $1.6 million loss in the same period
2000. Net income decreased from breakeven in the 1999 period to $1.2 million
loss in 2000. Diluted earnings per share decreased from zero in the first
quarter 1999 to $0.14 loss in the 2000 period on 49,000 more shares outstanding.
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
$161.8 million of long-term debt (excluding current maturities of $15.3 million)
outstanding as
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<PAGE> 13
of January 31, 2000, consisting of the facilities described in the 1999 Annual
Report, Form 10-K and in the notes to the accompanying interim financial
statements.
Net cash used in operating activities was $2.2 million for the three months
ended January 31, 2000 compared to $0.8 million for three months ended January
31, 1999. The change in cash used in operating activities was primarily due to
an increase in inventory of $5.0 million and decrease in accounts payable of
$5.0 million, and offset by cash provided by operations of $9.0 million
resulting from a decrease in accounts receivable.
Capital expenditures were $2.5 million, down from $4.1 million for the three
months ended January 31, 2000 and 1999 primarily due to reduced expenditures in
the Company's new enterprise information system. Management estimates the new
system will have a total cost of $23 million. Of the total cost, approximately
$22.4 million had been incurred as of January 31, 2000, 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 has budgeted
$12.3 million for capital expenditures in fiscal 2000 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 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 calendar year 2000 ("Year 2000"), some level of modification or
possible replacement of such applications could be necessary for proper
continuous performance. This potential problem is commonly referred to as the
Year 2000 compliance issue.
During the 1998 and 1999 the management of the Company completed evaluation of
the status of the Company's internal IT and non-IT systems for compliance with
the Year 2000 issue. The Company has experienced no material adverse effects
from Year 2000 issues to date. All computer systems, telephone, facsimile
systems, and security systems are functioning normally. Management does not
anticipate any significant Year 2000 issues to occur in subsequent periods.
Major IT Systems. 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 second calendar quarter 2000.
Costs to Address Year 2000 Issues. It is important to note, that, although Year
2000 compliance was 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 January 31, 2000, the costs of the new information system and related
re-engineering project in the Cameron division were approximately $22.4 million.
The Company currently expects that the final project cost to be approximately
$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.
- 13 -
<PAGE> 14
The cost of Year 2000 compliance verification and testing in the Company, and
the costs for making other IT systems and non-IT systems Year 2000 compliant,
have not been material.
FORWARD-LOOKING INFORMATION
Certain statements in this Report on Form 10-Q, including Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. 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) the inability of the parties
to the definitive merger agreement or other competing bidders to complete the
proposed buy-out, (ii) actions by competitors, suppliers, customers,
shareholders, regulators and others in connection with the proposed buy-out,
(iii) stock market and financing market conditions, (iv) business and economic
conditions in North America and in the regional markets in which the Company
operates, (v) adverse homebuilding conditions including those related to weather
and interest rates, (vi) reliable and cost-effective supply of products from
manufacturers, and (vii) technology risks in integrating information systems and
other risks more fully described in this Quarterly Report on Form 10-Q or in
other Company filings with the Securities and Exchange Commission.
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.
In February 1998, the Company's Canadian subsidiary entered into a cross
currency swap on $7.0 million of its U.S. dollar denominated unsecured senior
notes to reduce its exposure to foreign currency fluctuations. The Company
initially paid $7.0 million in exchange for Canadian $10.1 million which amounts
will be repaid at the termination date of September 16, 2004. The Company will
pay at a fixed rate of 6.45% and receive a fixed rate of 6.71%.
- 14 -
<PAGE> 15
CAMERON ASHLEY BUILDING PRODUCTS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Five shareholder lawsuits filed against the Company and its individual
directors in connection with the proposed acquisition of the Company's common
stock by an investment group consisting of CGW Southeast Partners IV, L.P.,
senior management of the Company and an affiliate of Citicorp Venture Capital,
Ltd. ("Investment Group"), were first reported by the Company its Annual Report
on Form 10-K, as amended, for the year ended October 31, 1999.
Two of the cases pending in the County Court at Law of Dallas County,
Texas were consolidated by the uncontested action of the plaintiffs. On February
17, 2000, the plaintiffs in the Texas cases applied to the court for a temporary
restraining order seeking, among other things, to restrain the Company's
compliance with the "no shop" clause and the payment of a termination fee under
the terms of the Merger Agreement between the Company and the Investment Group.
After hearings on February 17 and February 24, 2000, the court issued a
temporary restraining order dated February 25, 2000, later modified on March 3,
2000, which provides that the defendants are temporarily restrained from (i)
proceeding with, abiding by or honoring the "no shop" clause of the Merger
Agreement, (ii) making any payment of the termination fee under the Merger
Agreement and (iii) triggering of the Company's poison pill plan with respect to
any bidder who offers $15.10 per share or more for 100% of the Company's
outstanding common stock. In addition, by agreement, certain discovery in the
Texas cases was postponed until March 31, 2000. The Company continues to assert
that all of the plaintiffs' claims are without merit.
There have been no material developments in the three shareholder suits
pending in Fulton County, Georgia.
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
On January 20, 2000, the Company filed a Current Report on Form 8-K to
report that the Company had entered into a definitive agreement whereby an
investment group would acquire all the outstanding shares of the Company's
common stock at a price of $15.10 per share in cash. The group consists of CGW
Southeast Partners, IV; an affiliate of Citigroup Venture Capital, LTD,; and
senior management of the Company.
- 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: March 10, 2000 /s/ Garold E. Swan
------------------------------------------
Garold E. Swan
Executive Vice President/
Chief Financial Officer/Treasurer
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
11 Computation of Earnings per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
CAMERON ASHLEY BUILDING PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
(THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------
January 31, 2000 January 31, 1999
------------------------------------------ --------------------------------------------
Loss Shares Per-Share Loss Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common
stockholders $(1,204) 8,695 $(0.14) $ (43) 8,646 $0.00
====== =====
EFFECT OF DILUTIVE SECURITIES
Average options outstanding 0 0
Effects of treasury stock method
(based on exercise proceeds and
tax benefits) 0 0
------- ------- ------- -------
DILUTED EPS
Income available to common
stockholders assuming dilution $(1,204) 8,695 $(0.14) $ (43) 8,646 $0.00
======= ======= ====== ======= ======= =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 1,002
<SECURITIES> 0
<RECEIVABLES> 147,841
<ALLOWANCES> 4,832
<INVENTORY> 128,903
<CURRENT-ASSETS> 280,686
<PP&E> 97,968
<DEPRECIATION> 35,340
<TOTAL-ASSETS> 412,356
<CURRENT-LIABILITIES> 111,854
<BONDS> 0
0
0
<COMMON> 64,805
<OTHER-SE> 67,548
<TOTAL-LIABILITY-AND-EQUITY> 412,356
<SALES> 255,789
<TOTAL-REVENUES> 255,789
<CGS> 205,912
<TOTAL-COSTS> 47,766
<OTHER-EXPENSES> (415)
<LOSS-PROVISION> 881
<INTEREST-EXPENSE> 3,225
<INCOME-PRETAX> (1,580)
<INCOME-TAX> (376)
<INCOME-CONTINUING> (1,204)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,204)
<EPS-BASIC> (.014)
<EPS-DILUTED> (.014)
</TABLE>
