<PAGE> 1
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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 APRIL 30, 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.
--------------------------------------
(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 June 8, 2000: 8,817,405
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CAMERON ASHLEY BUILDING PRODUCTS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
APRIL 30, 2000
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
-------
<S> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets as of April 30, 2000 and
October 31, 1999 3
Consolidated Statements of Income and Comprehensive Income
for the three months and six months ended April 30, 2000 and 1999 4
Consolidated Statement of Stockholders' Equity for the
six months ended April 30, 2000 5
Consolidated Statements of Cash Flows for the six months
ended April 30, 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 9-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
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<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,025 $ 3
Accounts receivable, net 163,907 183,453
Inventories 133,923 112,896
Prepaid expenses and other assets 12,035 2,314
Deferred income taxes 5,253 5,064
--------- ---------
Total current assets 317,143 303,730
PROPERTY, PLANT AND EQUIPMENT, NET 62,867 63,040
INTANGIBLES, NET 62,129 67,244
OTHER ASSETS 2,426 1,582
--------- ---------
TOTAL $ 444,565 $ 435,596
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 103,656 $ 97,828
Accrued expenses 19,442 27,694
Line of credit 0 4,896
Current maturities of debt 19,696 10,014
--------- ---------
Total current liabilities 142,794 140,432
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 3) 165,537 155,224
MINORITY INTEREST 361 476
DEFERRED INCOME TAXES 6,336 6,442
--------- ---------
Total liabilities 315,028 302,574
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; 9,913,000 shares
issued April 30, 2000, and
9,882,000 shares issued at October 31, 1999 65,004 64,700
Retained earnings 79,200 82,822
Treasury stock, at cost, 1,190,000 shares (13,633) (13,633)
Accumulated other comprehensive income (loss), net of tax (1,034) (867)
--------- ---------
Total stockholders' equity 129,537 133,022
--------- ---------
TOTAL $ 444,565 $ 435,596
========= =========
</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 Six Months Ended
---------------------- ----------------------
April 30, April 30, April 30, April 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE $ 263,962 $ 270,103 $ 519,751 $ 493,520
COST OF SALES 211,144 216,006 417,056 394,683
--------- --------- --------- ---------
GROSS PROFIT 52,818 54,097 102,695 98,837
OPERATING EXPENSES 53,042 44,885 101,122 86,709
RE-ENGINEERING & SYSTEM CONVERSION 566 724 1,133 1,063
--------- --------- --------- ---------
INCOME/(LOSS) FROM OPERATIONS (790) 8,488 440 11,065
INTEREST EXPENSE 3,335 2,828 6,560 5,411
MINORITY INTEREST 1 (53) (414) (53)
--------- --------- --------- ---------
INCOME/(LOSS) BEFORE INCOME TAXES (4,126) 5,713 (5,706) 5,707
PROVISION FOR/(BENEFIT FROM)
INCOME TAXES (1,708) 2,236 (2,084) $ 2,273
--------- --------- --------- ---------
NET INCOME/(LOSS) $ (2,418) $ 3,477 $ (3,622) $ 3,434
--------- --------- --------- ---------
OTHER COMPREHENSIVE INCOME/(LOSS):
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS (597) 869 (167) 300
--------- --------- --------- ---------
COMPREHENSIVE INCOME/(LOSS) $ (3,015) $ 4,346 $ (3,789) $ 3,734
========= ========= ========= =========
NET INCOME/(LOSS) PER SHARE:
BASIC $ (0.28) $ 0.40 $ (0.42) $ 0.40
========= ========= ========= =========
DILUTED $ (0.28) $ 0.39 $ (0.42) $ 0.39
========= ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 8,712 8,652 8,704 8,649
========= ========= ========= =========
DILUTED 8,712 8,801 8,704 8,802
========= ========= ========= =========
</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, 9,882 $ 64,700 $ 82,822 $ (13,633) $ (867) $ 133,022
1999
Proceeds from exercise of stock options, 15 133 -- -- -- 133
including tax benefits of $10
Proceeds from employee stock purchase 16 171 -- -- -- 171
plan
Net loss -- -- (3,622) -- -- (3,622)
Foreign currency translation adjustment -- -- -- -- (167) (167)
--------- --------- --------- --------- --------- ---------
BALANCE AS OF APRIL 30, 2000 9,913 $ 65,004 $ 79,200 $ (13,633) $ (1,034) $ 129,537
========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated condensed financial statements
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<PAGE> 6
CAMERON ASHLEY BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended
--------------------------------
April 30, 2000 April 30, 1999
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income/(loss) $ (3,622) $ 3,434
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 8,190 5,891
Write-off goodwill 2,915
(Gain) loss on sale of property, plant and equipment 177 (2)
Deferred income taxes (506) 55
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 19,624 1,170
Notes receivable hold for resale (15)
Inventories (21,122) (24,049)
Prepaid expenses (648) (628)
Accounts payable and accrued expenses (4,435) 5,339
Other assets/liabilities (6,741) 1,525
-------- --------
Net cash used in operating activities (6,168) (7,280)
INVESTING ACTIVITIES:
Payment for acquisitions (84) (12,597)
Purchases of property, plant and equipment, net (6,100) (7,736)
Investment in affiliate (2,223)
Other (977) 7
-------- --------
Net cash used in investing activities (7,161) (22,549)
FINANCING ACTIVITIES:
Net borrowings 16,485 31,990
Repayments of seller financing of acquired business (70) (1,525)
Proceeds from employee stock purchase plan 133 137
Exercise of stock options 171 5
Other (1,368) (121)
-------- --------
Net cash provided by financing activities 15,351 30,486
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,022 657
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 3 3,706
-------- --------
END OF PERIOD $ 2,025 $ 4,363
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 6,263 $ 5,394
======== ========
Cash paid for income taxes $ 6,182 $ 6,237
======== ========
</TABLE>
See notes to consolidated condensed financial statements
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<PAGE> 7
CAMERON ASHLEY BUILDING PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 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 and six month
periods ended April 30, 2000 and 1999, financial position at April 30, 2000 and
October 31, 1999, and the cash flows for six month periods ended April 30, 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 second quarter and for the six month period ended
April 30, 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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<PAGE> 8
3. DEBT
<TABLE>
<CAPTION>
Debt consists of the following at April 30, 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% $10,000 due
April 15, 2002 bearing interest at 6.79%
with scheduled payment of $5.0 million
on 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% $124,866
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 April 30, 2000, the interest rate was 7.83% 52,581
Seller financing of acquired businesses:
Various terms, interest rates ranging from 6% to 9%, collateralized by certain land and buildings 2,237
Other, including capital leases 5,549
------------
185,233
Less current maturities (19,696)
-------------
Long-term debt $ 165,537
============
</TABLE>
The seller notes payable are subordinated to the obligations under the Bank of
America agreements.
At April 30, 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
The Company previously disclosed that it entered into a definitive agreement
dated January 18, 2000 (the "CBP Merger 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.
On January 21, 2000, representatives of Guardian Industries Corp. ("Guardian")
notified Credit Suisse First Boston Corporation ("Credit Suisse First Boston"),
the financial advisor of the Company's special committee of outside directors
(the "Special Committee"), that Guardian was interested in making a competing
bid for the Company. On February 1, 2000, Guardian sent the Special Committee a
letter stating that Guardian was prepared to make an offer to acquire all of the
outstanding shares of the Company's Common Stock and the associated Series A
Preferred Stock purchase rights (collectively, the "Shares") for $17.00 per
Share and requesting an opportunity to meet. On February 8, 2000, the Company
and Guardian executed a confidentiality agreement and meetings were held in
Atlanta and Dallas between representatives of the Company, the Special
Committee, Credit Suisse First Boston and Guardian. On February 10, 2000,
Guardian and the Company executed a revised confidentiality agreement and on
February 11, 2000, the Company and Guardian separately announced publicly
Guardian's proposal to acquire all of the outstanding Shares. Over the course of
the next several weeks, Guardian's representatives and advisors conducted a due
diligence examination of the Company.
During the next several weeks while Guardian was conducting its due diligence
examination, the Special Committee's financial advisor and the Company's senior
management contacted various third parties to determine whether there was any
other interest in pursuing a transaction with the Company on terms more
favorable to shareholders than those proposed to date by the Investment Group or
Guardian. The Special Committee received no proposals from any third party other
than the Investment Group and Guardian.
Prior to the completion of Guardian's due diligence examination, the Investment
Group advised the Special Committee that it was increasing its offer to acquire
all of the Shares to $18.25 per Share and that it had obtained a financing
commitment for up to $30 million in additional funds from Owens Corning, a
significant supplier to the Company, to support the increased price. On March
20, 2000, Guardian was advised of this development. On March 26, 2000, the
Special Committee met and reviewed the situation, and concluded that it was
advisable to recommend that the Company accept the revised proposal from the
Investment Group. On March 27, 2000, the Board of Directors approved the revised
proposal and executed an amendment to the CBP Merger Agreement which increased
the merger price to $18.25 per Share.
Thereafter, Guardian advised representatives of the Special Committee that
Guardian remained interested in acquiring the Company and additional discussions
were conducted between representatives of Guardian and the Special Committee and
their advisors. On April 3, 2000, Guardian delivered to the Special Committee a
letter offering to acquire all of the outstanding Shares for $18.50 per Share
through a cash tender offer followed by a merger and without any financing
condition. The Special Committee met on April 7, 2000 to consider Guardian's
offer which by its terms expired at 5:00 p.m. on that date. On the same date
prior to the Special Committee meeting, the Investment Group delivered a letter
to the Special Committee indicating that it intended to increase its offer to
$19.00 per Share and that it was attempting to obtain revised financing
commitment letters in order to permit it to so increase its offer. Prior to the
Special Committee meeting, representatives of the Special Committee informed
representatives of Guardian of this development and gave Guardian the
opportunity to increase its offer or extend its expiration date, which it
declined to do. At its meeting later that day, the Special Committee reviewed
and discussed the status of the competing bids. Shortly after the meeting,
representatives of the Special Committee contacted representatives of Guardian
and indicated that, if Guardian was willing to offer $19.50 per Share and sign
an agreement promptly, the Special Committee was prepared to recommend
acceptance to the Company's board. On April 10, 2000, Guardian representatives
responded to the Special Committee's proposal by indicating that Guardian was
not prepared to offer $19.50 per Share and that Guardian would wait for further
developments. The Special Committee then asked both Guardian and the Investment
Group to submit their best and final offers on or before April 13, 2000. On
April 13, 2000, Guardian tendered a letter to counsel for the Special Committee,
while the Investment Group notified the committee that it
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<PAGE> 10
needed an additional day before submitting its best and final offer. The Special
Committee extended the deadline one day to April 14, 2000. On April 14, 2000,
the Investment Group delivered a letter to the Special Committee offering to
purchase all of the outstanding Shares for $19.50 per Share and Guardian
delivered a letter to the Special Committee offering to purchase all the
outstanding Shares for $18.50 per Share. The offer from the Investment Group was
subject to a financing condition while Guardian's offer was not.
On April 17, 2000, the Special Committee met to consider the respective offers.
Shortly before the meeting, Guardian delivered a letter to the Special Committee
withdrawing its $18.50 per Share offer and, during the Special Committee
meeting, counsel to the Investment Group contacted the Special Committee and
requested that no action on CBP Holdings' offer be taken before contacting
representatives of the Investment Group. As a result, the Special Committee
adjourned its meeting. Later that day, representatives of the Special Committee
contacted representatives of the Investment Group who informed them that CBP
Holdings' $19.50 per Share offer was being withdrawn, but that the amended CBP
Merger Agreement to pay $18.25 per Share remained in effect. After these
developments, representatives of the Special Committee contacted representatives
of Guardian to explain what had happened and requested that Guardian reconsider
the withdrawal of its $18.50 per Share offer. During the following week, various
conversations were held between representatives of the Special Committee and the
Investment Group and between representatives of Guardian and the Special
Committee.
On April 27, 2000, Guardian delivered a letter to the Special Committee
proposing to acquire all of the outstanding Shares for $18.35 per Share and
additionally proposing to increase the expense reimbursement and break-up fee
provision in the proposed Guardian agreement from $5 million to $8 million.
After receiving Guardian's proposal, the Special Committee met later that night
to review and consider the situation and, after discussion and receipt of an
oral fairness opinion from Credit Suisse First Boston, concluded to approve the
Guardian proposal and recommend its acceptance by the full board of the Company.
On April 28, 2000, the full board of the Company met to receive the
recommendation of the Special Committee, and after review and discussion,
unanimously approved Guardian's current proposal. Later that day, an Agreement
and Plan of Merger was signed by the Company, Guardian Fiberglass, Inc. and CAB
Merger Corp, an indirect wholly-owned subsidiary of Guardian and the CBP Merger
Agreement was terminated. On May 1, 2000, the transaction was publicly
announced.
Subsequently, on May 12, 2000, Guardian commenced its tender offer for the
Shares. On June 9, 2000, Guardian indicated to the Company that it had received
tenders for in excess of 50% of the outstanding Shares, and that it would
consummate the purchase of such Shares on June 12, 2000, effecting a change in
control of the Company.
Stock options granted under the Company's stock option plans automatically vest
upon a change of control, which is defined in the plans as the acquisition by
the beneficial owner of 30% or more shares of the Company. As of April 30, 2000,
a successful tender offer at $18.35 per Share will accelerate the vesting of 1.6
million stock options with an average exercise of $11.13 per Share and will
result in recognition of a change of control charge of $11.4 million.
During the second period, the Company initiated the closure of three branches
(Spokane and Tacoma, WA, and Harlingen, TX). Management anticipates the closure
of a fourth branch early in the third quarter.
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 the Company believes is
relatively less affected by these factors than 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.
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<PAGE> 11
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 Six Months Ended
-------------------------------- -----------------------------------
April 30, 2000 April 30, 1999 April 30, 2000 April 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of Sales 80.0 80.0 80.2 80.0
-------- -------- -------- --------
Gross Profit 20.0 20.0 19.8 20.0
Operating Expenses 20.1 16.7 19.5 17.6
Re-engineering and System
Conversion Costs 0.2 0.2 0.2 0.2
-------- -------- -------- --------
Income from Operations (0.3) 3.1 0.1 2.2
Interest Expense 1.3 1.0 1.3 1.0
Minority Interest 0 0 (0.1) 0
-------- -------- -------- --------
Income Before Income Taxes (1.6) 2.1 (1.1) 1.2
Provision for Income Taxes (0.6) 0.8 (0.4) 0.5
-------- -------- -------- --------
Net Income (1.0)% 1.3% (0.7)% 0.7%
======== ======== ======== ========
</TABLE>
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.
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<PAGE> 12
An analysis of operations by segment for the three months ended April 30, 2000
and April 30, 1999 is as follows:
<TABLE>
<CAPTION>
CORPORATE INTERCOMPANY
WM CAMERON CA CANADA ASHLEY AND OTHER ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
APRIL 30, 2000
Sales to customers $ 177,567 $ 30,591 $ 45,961 $ 9,877 (34) $ 263,962
Segment Operating Profit (Loss) (3,496) (337) 4,521 (1,479) (791)
Interest Expense 3,335 3,335
-----------
Loss before income taxes $ (4,126)
===========
Segment assets at April 30, 2000 $ 319,936 $ 52,910 $ 43,937 $ 27,782 $ 444,565
APRIL 30, 1999
Sales to customers $ 190,985 $ 31,031 $ 42,208 $ 270,103
Segment Operating Profit (Loss) 6,147 170 3,749 (5,879) 8,541
Interest Expense 2,828 2,828
-----------
Income before income taxes $ 5,713
===========
Segment assets at April 30, 1999 $ 297,404 $ 55,114 $ 44,534 $ 22,676 $ 419,728
</TABLE>
An analysis of operations by segment for the six months ended April 30, 2000 and
April 30, 1999 is as follows:
<TABLE>
<CAPTION>
CORPORATE INTERCOMPANY
WM CAMERON CA CANADA ASHLEY AND OTHER ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ---------- ------------- ------------
APRIL 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Sales to customers $ 354,264 $ 58,042 $ 87,012 $ 20,562 (129) $ 519,751
Segment Operating Profit (Loss) (2,236) (446) 7,676 (4,140) 854
Interest Expense 6,560 6,560
-----------
Loss before income taxes $ (5,706)
===========
Segment assets at April 30, 2000 $ 319,936 $ 52,910 $ 43,937 $ 27,782 $ 444,565
APRIL 30, 1999
Sales to customers $ 351,641 $ 56,138 $ 79,861 5,880 $ 493,520
Segment Operating Profit (Loss) 8,192 (6) 6,053 (3,133) 11,118
Interest Expense 5,411 5,411
-----------
Income before income taxes $ 5,707
===========
Segment assets at April 30, 1999 $ 297,404 $ 55,114 $ 44,534 $ 22,676 $ 419,728
</TABLE>
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<PAGE> 13
RESULTS OF OPERATIONS
The comparability of operating results of the three month and six month period
ended April 30, 2000 and the corresponding periods for 1999 is affected
primarily by the following events, which occurred in the periods after January
31, 1999: (1) the increase in ownership in Field Marketing Inc., ("FMI") from
33% to 70%; (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; and (3) the closure of three branches
(Spokane and Tacoma, WA, and Harlingen, TX) during the second quarter 2000
resulting in the write down of fixed assets and goodwill, reductions in
inventory values to estimated realizable value, future lease obligations, and
severance costs.
SECOND QUARTER ENDED APRIL 30, 2000 COMPARED TO SECOND QUARTER ENDED APRIL 30,
1999
Revenue for the second quarter declined 2.3% to $264.0 million from $270.1
million in the prior year period due primarily to a drop in revenue within the
Cameron division reflecting softened business conditions as well as a loss of
sales associated with the closing of three branches during the quarter.
Same-store sales declined 2.7% overall, with the Cameron division down by 5.0%.
The decrease experienced in the Cameron division during the quarter more than
offset the strong performance of the Ashley division, which reported same-store
sales growth of 8.9%.
Gross profit for the second quarter decreased from $54.1 million to $52.8
million, a decrease of 2.4%. Gross profit as a percentage of net sales remained
even at 20% as compared the same quarter 1999. Gross profit as a percentage of
sales excluding closed branches was 20.7% for the second quarter 2000.
Operating expense increased from $44.9 million in the second quarter of 1999 to
$53.0 million in the same period in 2000. As a percentage of net sales,
operating expenses increased from 16.7% for the second quarter of 1999, to 20.1%
for the same period in 2000. Excluding closed branches, operating expense for
the 2000 period is $47.5 million and operating expense as a percentage of sales
is 18.2%. Other operating expenses incurred for re-engineering and system
conversion costs totaled $0.6 million for the quarter, compared to $0.7 million
for the same period a year ago. As a percent of revenue these expenses decreased
from 0.3% to 0.2% for the quarters 1999 and 2000.
Income from operations decreased from $8.5 million in the second quarter of 1999
to a loss of $0.8 million in the same period in 2000. Excluding closed branches,
income from operations in second quarter 2000 was $5.9 million and income from
operations as a percentage of revenues decreased from 3.1% to 2.3% for the
quarters 1999 and 2000.
Interest expense increased 17.9% from $2.8 million in the second quarter of 1999
to $3.3 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 $5.7
million in the second quarter 1999 to $4.1 million loss, including pre-tax
losses of $6.7 million relating to branch closures, in the same period 2000. Net
income decreased from $3.5 million in the 1999 period to $2.4 million loss in
2000. Diluted earnings per share decreased from $0.39 in the second quarter 1999
to $0.28 loss in the 2000 period.
SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX MONTHS ENDED APRIL 30, 1999
For the six months ending April 30, 2000, revenue increased 5.3% to $519.8
million from $493.5 million in 1999. Same store sales increased 2.2% overall,
with 0.8% in Cameron division and 9.0% in the Ashley division.
Gross profit for the six month period increased $3.9 million or 3.9%, and as a
percentage of revenue decreased from 20.0% in the 1999 period to 19.8% in the
2000 period.
Other operating expenses increased 16.6% from $86.7 million in the 1999 period
to $101.1 million in the 2000 period, and increased as a percentage of revenue
from 17.6% to 19.5%. Excluding the impact of the branch closures operating
expense for the year is 18.5% of revenue. In addition to the branch closings,
the year to date 2000 results are impacted by losses incurred in the first
quarter by the Field Marketing subsidiary, and by higher operating expenses
associated with inefficiencies and lack of familiarity with the new management
system installed at several of the branches earlier in the year.
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<PAGE> 14
Operating expenses of $1.1 million from re-engineering and system conversion
costs were incurred in the six months ended April 30, 2000, compared to $1.1
million a year ago. These expenses were 0.2% of revenue for the six months ended
April 30, 2000, as well as for the same period 1998, and effectively reduced
income from operations by 72.0% and 8.8% for 2000 and 1999.
Total operating expenses, including costs associated with re-engineering and
system conversion, were $102.3 million in the six months ended April 30, 2000,
compared with $87.8 million in the 1999 period.
Due to the factors described above, income from operations decreased $10.6
million from $11.1 million in the 1999 period to $0.4 million in the 2000 period
and decreased as a percentage of revenue from 2.2% to 0.8%.
Interest expense increased 21.2% from $5.4 million in the six months ended April
30, 1999 to $6.6 million in the six months ended April 30, 2000, due to
acquisitions in the latter part of 1999, and higher levels of inventory to
support a broader branch base.
As a result of the above factors, income before income taxes decreased from $5.7
million in the 1999 period to a loss of $5.7 million in the 2000 period. Net
income decreased from $3.4 million in the 1999 period to a net loss of $3.6
million in the 2000 period. Diluted EPS decreased from $0.39 per share in the
1999 period to a loss of $(0.42) per share in the 2000 period on 103,000 fewer
diluted shares.
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
$165.5 million of long-term debt (excluding current maturities of $19.7 million)
outstanding as of April 30, 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 $6.1 million for the six months ended
April 30, 2000 compared to $6.7 million for six months ended April 30, 1999. The
decrease in cash used in operating activities was due to $2.7 million generated
from working capital offset by $2.2 million cash loss from operations for the
comparative periods.
Capital expenditures were $6.1 million, down from $7.7 million for the six
months ended April 30, 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 $23.8 million. Of the total cost, approximately
$23.4 million had been incurred as of April 30, 2000. The system is close to
being fully implemented across the Cameron division. The Company has budgeted
$12.3 million for capital expenditures in fiscal 2000 relating to its current
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.
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<PAGE> 15
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-ITsystems"), 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 during the current period.
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 April 30, 2000, the costs of the new information system and related
re-engineering project in the Cameron division were approximately $23.4 million.
The Company currently expects that the final project cost to be approximately
$23.8 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 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.
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<PAGE> 16
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%.
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<PAGE> 17
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 the Investment Group were first reported by the Company's 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. There have been no
material developments in the three shareholder suits pending in Fulton County,
Georgia.
On February 24, 2000, a temporary restraining order was issued by the
Dallas County Court that temporarily restrained the Company and its directors
from abiding by the non-solicitation provision clause and the termination fee
payment provisions of the CBP Merger Agreement and from triggering the Rights
Agreement of the Company with respect to any bidders who offer $15.10 per Share
or more for all of the outstanding Shares. In accordance with the Dallas County
Court's order, neither the Company nor Guardian has paid any part of the $5
million termination fee under the CBP Merger Agreement, but they may be required
to do so if the temporary restraining order is not extended. A hearing on the
plaintiff's application for a temporary injunction is set for June 29, 2000. The
parties have been conducting discovery on an accelerated timetable prior to such
hearing.
On May 23, 2000, the plaintiff's counsel filed a separate motion for a
temporary restraining order, seeking to restrain the defendants and others
acting in concert with them from taking any steps in furtherance of the tender
offer and merger without first directing $9.9 million of the payments otherwise
to be paid to Cameron shareholders to an interest-bearing account subject to the
jurisdiction of the court until such counsel's rights to attorney's fees and
reimbursement of expenses have been determined. At a hearing on this motion on
June 2, 2000, the Court denied the plaintiff's counsel's application for a
temporary restraining order. There has been no further activity since such time.
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 March 22, 2000, the Company filed a Current Report on Form 8-K to
report that the investment group consisting of CGW Southeast Partners IV, L.P.
and an affiliate of Citicorp Venture Capital, Ltd. and senior management had
increased its offer to acquire all the outstanding shares of the Company's stock
from $15.10 to $18.25 per share in cash.
On March 29, 2000, the Company filed a Current Report on Form 8-K to
report that the Company had entered into an agreement whereby CGW Southeast
Partners IV, L.P. and an affiliate of Citicorp Venture Capital, Ltd. and senior
management would acquire the outstanding shares of the Company's stock for a
purchase price of $18.25 per share in cash.
On April 3, 2000, the Company filed a Current Report on Form 8-K to
report that the Company had received an increased offer from Guardian Fiberglass
to acquire all of the outstanding shares of the Company's common stock for
$18.50 per share in cash.
On April 13, 2000, the Company filed a Current Report on Form 8-K to
report that the Company was continuing discussions with Guardian Fiberglass and
the investment group consisting of CGW Southeast Partners IV, L.P. and an
affiliate of Citicorp Venture Capital, Ltd. and senior management concerning the
potential sale of the Company.
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<PAGE> 18
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: June 12, 2000 /s/ Garold E. Swan
--------------------------------------
Garold E. Swan
Executive Vice President/Chief
Financial Officer/Treasurer
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<PAGE> 19
CAMERON ASHLEY BUILDING PRODUCTS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of March 20,
2000, by and among Cameron Ashley Building Products, Inc., CBP
Holdings, Inc. and CBP Acquisition Corp. (1)
2.3 Agreement and Plan of Merger dated as of January 17, 2000, by and among
Cameron Ashley Building Products, Inc., Guardian Fiberglass, Inc. and
CAB Merger Corp. (2)
3.2 Second Amendment to Rights Agreement dated April 28, 2000, between the
Company and SunTrust Bank, Atlanta, as Rights Agent (2)
11 Computation of Earnings per Share
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K dated March 28, 2000.
(2) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K dated May 5, 2000.
