ITEM 1. BUSINESS
General
American Builders & Contractors Supply Co., Inc. (the Company or ABC) is the largest wholesale distributor of roofing products and one of the largest wholesale distributors of vinyl siding materials in the United States, operating 200 distribution centers located in 40 states. ABC provides its customers with access to what it believes to be the largest selection of roofing and vinyl siding materials in the industry and with a knowledgeable staff capable of providing product specific information, as well as credit services and marketing support. For the year ended December 31, 1999, the Company generated net sales of $1.2 billion.
The products distributed by the Company consist exclusively of roofing and siding materials, windows and related tools and accessories for residential and, to a lesser extent, commercial applications. The Company markets these products on a wholesale basis primarily to small and medium-sized roofing and siding contractors that are involved in the replacement segment of the construction industry. ABC also distributes products to builders and subcontractors involved in new construction projects.
ABC was founded in 1982 by Kenneth A. Hendricks, the sole stockholder, Chief Executive Officer and Chairman of the Board, who as the owner of a successful roofing business, saw a market for the Company's services. Since its inception, ABC has experienced significant growth. The Company's net sales have increased from $638.8 million for the year ended December 31, 1995 to $1.2 billion for the year ended December 31, 1999, representing a compound annual growth rate of 17.0%. In addition, comparable distribution center sales have grown at an average annual rate of 5.0% over the same period.
Products, Customers and Markets
The roofing and vinyl siding products industry contains three primary distribution channels: manufacturers' direct sales; mass merchandisers, such as Home Depot; and wholesale distributors, such as the Company. Mass merchandisers primarily sell products to homeowners and small contractors, tend to stock items across a multitude of building supply categories and stock a relatively narrow selection of non-premium grade roofing and siding products. Typically, manufacturers do not sell products directly to retail customers or small customers.
The products distributed by the Company consist primarily of roofing products (both residential and commercial), siding products, windows, and related tools, equipment and accessories. ABC provides its customers with what it believes to be the largest selection of roofing and vinyl siding materials in the industry. The products that the Company distributes can be classified in the following five categories:
Residential roofing products and accessories. The Company distributes a broad selection of shingles, felt, roof tile, wood shakes, flashings, vents and other roofing products to residential roofing contractors. Principal brands of residential roofing products include GAF(R), Elk(R), Owens-Corning(R), Tamko(R), and CertainTeed(R).
Commercial roofing products and accessories. The Company distributes a broad selection of modified bitumen, EPDM, hypalon, other rolled roofing, felts, coatings, asphalt, flashings, vents, fasteners, roof insulation and other roofing products to commercial roofing contractors. Principal brands of commercial roofing products include Johns Manville(R), GAF(R), US Intec(R), Firestone(R), Atlas(R), and Mule-Hide(R). Mule-Hide primarily sells its private label roofing systems through ABC's distribution centers.
Siding products and accessories. The Company distributes a broad selection of siding products to siding contractors. The Company's siding products consist primarily of vinyl siding, soffits and accessories and, to a lesser extent, aluminum and wood siding. Principal vinyl siding brands include Alcoa(R), Wolverine(R), CertainTeed(R) and Amcraft(R).
Windows and accessories. The Company distributes a broad selection of window products and accessories to residential window installers, including vinyl, wood and aluminum window frames and single, double and triple glazed windows. Principal window brands include CertainTeed(R), Eagle Windows(R) and Weather- Shield(R).
Other building products and accessories. The Company distributes a variety of roofing and siding products to complement its primary product lines. Such products include gutters, sheet metal, roofing and siding equipment, tools and other related accessories.
The following table sets forth certain information regarding the Company's net sales by product for the years ended December 31, 1999, 1998 and 1997:
The Company distributes these products on a wholesale basis primarily to small and medium-sized roofing and siding contractors that are involved in the replacement segment of the construction industry. ABC also distributes products to builders and subcontractors involved in new construction projects.
Sales and Marketing
The Company's sales organization consists of outside sales personnel who report directly to their local distribution center manager and are supported by inside customer service representatives at the distribution center. A substantial portion of each of these representatives pay is derived from sales commissions. Additional support comes from a number of regional sales managers who educate the Company's sales personnel and customers regarding technical specifications and marketability of certain products.
Distribution Center Operations
The Company operates 200 local distribution centers located in 40 states. Since January 1, 1997 the Company has opened 21 distribution centers, closed 13 distribution centers and acquired an additional 35 distribution centers (net of consolidations) in connection with its selective acquisition program. A typical distribution center is composed of showroom space, office space, warehouse and receiving space, secure outdoor holding space and a loading dock. ABC's distribution centers range in size from approximately 10,000 to approximately 110,000 square feet, with a typical size of approximately 40,000 square feet.
Each location is managed by a distribution center manager who oversees the center's employees, including a credit manager, various sales personnel, customer service representatives and delivery and warehouse personnel. The Company allows each distribution center manager to alter the product mix of a given center to meet local market demands and to stock regional products (such as roof tile in the Florida, Texas and California markets). Distribution center employees' bonus levels are largely driven by location profitability. The Company believes its incentive programs have contributed significantly to its growth and have helped it to achieve an average annual growth rate of comparable distribution center sales of 5.0% over the past five years.
The following table sets forth the Company's growth in terms of distribution centers in each of the past three years:
In 1997, the Company acquired two larger distributors. In May 1997, the Company acquired certain assets of Viking Aluminum Products, Inc., a regional building supply distributor with 12 locations in the northeastern United States. In November 1997, the Company acquired Champ Industries, Inc. (Champ), a regional building supply distributor with 32 locations located primarily in the southwestern and western United States. There has typically been a period following each acquisition in which the acquired business does not perform at the same level as the Company's existing distribution centers while they are being integrated to the Company's systems and policies.
Competition
The roofing and siding products distribution industry is highly competitive and fragmented. The Company competes directly with a large number of local and regional building products distributors and, in certain markets and product categories, with two national distributors, Cameron Ashley Building Products and Allied Building Products. The Company also competes to a lesser extent with mass-merchandisers, such as Home Depot, and with direct sales from building products manufacturers.
Purchasing
ABC purchases its products directly from a wide variety of manufacturers, including GAF, Elk Corporation of America, Tamko, Certainteed, Owens-Corning Fiberglass Corporation, Johns Manville Corporation and Alcoa Building Products, Inc. Payment, discount and volume purchase programs are negotiated directly by the Company with its major suppliers, with a significant portion of the Company's purchases made from suppliers offering these programs. The Company believes it is the largest or a significant customer to many of its primary suppliers, and, as a result, is able to negotiate volume discounts and other favorable terms. At 13.1% of the Company's 1999 product purchases, GAF (including its subsidiaries U.S. Intec, and Leatherback) was the only supplier which represented more than 10% of the Company's total purchases. The Company typically purchases its products from manufacturers pursuant to individual purchase orders, and does not generally enter into long-term contracts for the purchase of products.
Seasonality
Because of cold weather conditions in many of the markets in which the Company does business and the seasonal nature of the roofing and siding business generally, the Company's revenues vary substantially throughout the year, with its lowest revenues typically occurring in the months of December through February.
Employees
As of December 31, 1999, the Company employed 3,141 full-time and 98 part-time employees, of whom 37 were members of unions. The Company's collective bargaining agreements with its unions expire on various dates, from June 2000 through September 2002. The Company believes that its relations with its employees are good.
Environmental Matters
A number of roofing materials are considered environmentally hazardous. The Company typically handles and stores a variety of these materials at its distribution center locations. The Company maintains appropriate environmental compliance programs at each of its distribution centers and has never been the subject of any material enforcement action by any governmental agency.
Many of the Company's distribution centers are located in areas of current or former industrial activity, where environmental contamination may have occurred. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and remediate releases or threatened releases of hazardous or toxic substances or petroleum products located at such property, and may be held liable for property damage and for investigation and remediation costs in connection with the contamination.
The Company does not believe there are any material environmental liabilities at any of its distribution center locations. Nevertheless, there can be no assurance that the Company's knowledge is complete with regard to all material environmental liabilities and it could subsequently discover potential environmental liabilities arising from its sites or from neighboring facilities.
ITEM 2.
ITEM 2. PROPERTIES
The Company operates both owned and leased branches in 40 states. Its facilities range in size from approximately 10,000 to 110,000 square feet. This building space is used for warehousing and distribution purposes and, to a lesser extent, for sales and administrative purposes. The Company owns a 118,000 square foot office building where its corporate offices are located in Beloit, Wisconsin. The Company believes its facilities are adequately maintained and utilized and are suitable for the purposes for which they are used. See Note 5 to the Consolidated Financial Statements of the Company for a summary of payments due under the Company's leases.
The following table sets the geographical location of the Company's distribution centers as of December 31, 1999:
Total Number Region of Locations - -------------------------------------------------------------
Midwest 47 Northeast 33 Southwest 31 Southeast 40 Rocky Mountain 25 Western 24 ------------------ ==================
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the conduct of its business. The Company does not believe that the outcome of any of the matters in which it is currently involved will have a material adverse effect on its financial condition or results of operations. In 1999, the Company settled a lawsuit with Viking Aluminum Products, Inc. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 10 to the Consolidated Financial Statements of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1999.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for the stock of the Company. There was one holder of record of the Company's common stock as of December 31, 1999.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected consolidated financial information of the Company for each of the five years in the period ended December 31, 1999. The information contained in the following table should be read in conjunction with, and is qualified in its entirety by reference to, the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's audited consolidated financial statements and related notes included elsewhere in this report.
(1) Consists of certain state and local income taxes. As Subchapter S Corporations under the Internal Revenue Code of 1986, as amended (the Code), the Company and its subsidiaries have not been subject to U.S. federal income taxes or most state income taxes. Instead, such taxes have been paid by Mr. Hendricks. The Company has made periodic distributions to Mr. Hendricks in respect of such tax liabilities in accordance with the terms of the Tax Allocation Agreement (as defined herein). See "Certain Relationships and Related Transactions".
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table summarizes the Company's historical results of operations as a percentage of net sales for each of the three years ended December 31, 1999:
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
Net sales for the year ended December 31, 1999 increased by 3.0% in 1999 to $1.2 billion. Comparable distribution center sales growth was 3.3% in 1999.
Gross profit for the year ended December 31, 1999 increased by 5.6% in 1999 to $282.5 million from $267.7 million in 1998. This increase is primarily a result of profits associated with increased sales. Gross profit, as a percentage of net sales in 1999 increased to 23.6% from 23.0% in 1998. The increase is principally due to management's continued focus on improving gross profit through increased sales of products with higher gross profit margins.
Distribution center operating expenses for the year ended December 31, 1999 increased by 1.3% in 1999 to $226.6 million from $223.6 million in 1998. As a percentage of net sales, distribution center operating expenses decreased to 18.9% in 1999 from 19.2% in 1998. This improvement is the result of two factors. The first factor is an increased focus on controlling operating expenses at all distribution centers. The majority of the focus is being placed on controlling payroll expenses, which comprise more than 50 percent of the operating expenses. Secondly, during 1998 distribution center operating expenses included the integration of over 50 distribution centers from the 1997 acquisitions.
Partially offsetting these two factors is an increase in the provision for doubtful accounts of $1.9 million in 1999 to $10.6 million from $8.7 million in 1998. This increase is a continuation of the collection trends experienced by the Company during the last half of 1998.
General and administrative expenses increased by $1.6 million to $18.0 million in 1999 from $16.4 million in 1998. This increase is the result of two factors. First, during the last half of 1998 the Company reevaluated the support needs of its distribution centers. This evaluation resulted in restructuring and adding staff that provides technical support (inventory, sales, fleet) to the distribution centers. This new structure was in place by the end of the first quarter of 1999. Second, this evaluation resulted in a formal training program for key branch personnel. This new training program was initiated during the third quarter of 1999.
Amortization of intangible assets remained at $1.7 million for both 1999 and 1998.
Non-recurring charge. In connection with the purchase of certain distribution business assets of Viking Building Products, Inc. and Viking Aluminum Products, Inc. (VAP) in 1997, the Company entered into a five year supply agreement with VAP, regarding the sale to ABC of windows, awnings, doors and related products manufactured by VAP. The supply agreement specified minimum annual purchases through May 2002 and damages for shortfalls. The Company did not meet the required minimum annual purchases for 1998. In February 1999, the Company filed a lawsuit in the U.S. District court for the Western District of Wisconsin seeking damages related to warranty and quality issues, among other issues. VAP instituted a lawsuit in the U.S. District Court for the Southern District of New York seeking approximately $2.3 million in damages under the terms of the supply agreement for the period through December 31, 1998.
In December 1999, the Company and VAP reached a final settlement whereby the Company paid $6.6 million to VAP. During 1999, the Company recorded a $7.0 million non-recurring charge related to this settlement and estimated legal and other expenses. As part of this settlement, VAP agreed to amend the supply agreement to substantially lower the minimum purchase requirements for 1999 and 2000 and to conclude the supply agreement on December 31, 2000. The Company has met the revised 1999 purchase requirements, and believes it will meet the 2000 purchase requirements.
Interest expense decreased by $2.2 million to $22.9 million in 1999 from $25.1 million in 1998. The reduction is due to decreased interest rates on the Company's LIBOR based borrowings and a reduction in the Company's average borrowings.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
Net sales for the year ended December 31, 1998 increased by $202.8 million, or 21.1%, to $1.2 billion from $959.3 million for the year ended December 31, 1997. Components of the change in net sales are as follows:
Gross profit for the year ended December 31, 1998 increased by $52.6 million, to $267.7 million in 1998 from $215.1 million in 1997, primarily as a result of profits associated with increased sales. Gross profit, as a percent of sales, increased from 22.4% in 1997 to 23.0% in 1998 primarily due to management's focus on improving gross profit percentage through increased sales of higher profit margin products. In addition, direct sales (product shipped from the vendor directly to the customer's job site), which have significantly lower gross profit percentages than sales from the distribution center's warehouse, decreased as a percentage of total sales in 1998.
Distribution center operating expenses for the year ended December 31, 1998 increased by 24.1% to $223.6 million in 1998 from $180.2 million in 1997. As a percentage of net sales, distribution center operating expenses increased to 19.2% in 1998 from 18.8% in 1997. The 1998 increase is the result of the Company completing the integration of over 50 distribution centers from 1997 acquisitions. Considerable time and efforts were focused on converting the 1997 acquired accounts to the Company's credit and collection policies. During this conversion process, the Company's provision for doubtful accounts increased to $8.7 million in 1998 from $4.5 million in 1997.
Distribution center operating income, which consists of net sales less cost of sales and operating expenses for the distribution centers, increased $9.1 million or 26.0% to $44.1 million in 1998 from $35.0 million in 1997.
Components of distribution center operating income (loss) and the change therein are as follows:
Distribution Centers 1998 1997 Change ------------------------------ (in millions) In operation prior to January 1, 1996 $38.5 $35.7 $ 2.8 Acquired in 1996 0.7 0.0 0.7 Opened by the Company in 1996 0.2 (1.2) 1.4 Acquired in 1997 3.4 0.8 2.6 Opened by the Company in 1997 1.3 (0.3) 1.6 Acquired in 1998 0.1 - 0.1 Opened by the Company in 1998 (0.1) - (0.1) ------------------------------ Total $44.1 $35.0 $ 9.1 ==============================
The table set forth above illustrates that the Company's commitment to growth has a significant impact on distribution center operating income. Although distribution centers in operation prior to January 1, 1996 accounted for only 70.1% of net sales in 1998, such distribution centers accounted for 87.3% of distribution center operating income.
The 1998 distribution center operating income for locations in operation prior to January 1, 1996 increased by $2.8 million or 7.8% over 1997, while sales for these same locations increased by 3.9%.
General and administrative expenses increased $2.5 million to $16.4 million in 1998 from $13.9 million in 1997. Major components of the increased expenses were salaries and benefits to support the increased sales.
Amortization of intangible assets increased by $1.0 million to $1.7 million in 1998 from $0.7 million in 1997 primarily due to the full year's amortization expense for the 1997 Viking and Champ acquisitions.
Non-recurring charge of $3.9 million relates to a net loss incurred due to financial problems experienced by a customer. For many years, the Company had done a significant volume of business with a large commercial roofing contractor in Chicago, IL. In 1998, the contractor's assets and business were foreclosed upon by its bank. At that time, the Company had notes receivable for $4,698,000 from the contractor. Prior to this action by the bank, the contractor was expanding his business and hand been paying the Company on a timely basis. In an effort to reduce its loss as well as for other business reasons, the Company made a decision to purchase the contractor's assets from the bank, finish the contracts in process, collect the receivables, and sell the remaining assets. The non-recurring expense is the net of the customer's uncollectible notes receivable, plus costs incurred, less anticipated recoveries.
Interest expense for the year ended December 31, 1998 increased by $8.2 million, or 47.9%, to $25.1 million from $16.9 million for the year ended December 31, 1997, primarily as a result of increased average borrowings during 1998, and increased working capital. In addition, interest expense for 1998 included a full year for the Senior Subordinated Notes which carry a higher interest rate than the Revolver.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash provided by (used in) operations was $23.3 million for the year ended December 31, 1999 compared to $11.8 million for the year ended December 31, 1998 and $(1.7) million for the year ended December 31, 1997. The increase in 1999 was principally due to improved earnings. The increase in 1998 was principally due to an increased level of accounts payable.
Cash Flows from Investing Activities. Net cash used in investing activities was $13.9 million, $13.1 million and $111.5 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's investing activities consist primarily of costs associated with the acquisition of building products distributors and capital expenditures. Acquisition of businesses were $1.0 million, $2.3 million and $86.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. Capital expenditures were $14.2 million, $12.4 million and $25.3 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Cash Flows from Financing Activities. Net cash provided by (used in) financing activities was $(9.3) million, $1.8 million and $114.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's financing activities consist primarily of the borrowings incurred in connection with the growth of its existing distribution centers as well as acquisition of building products distributors and, to a lesser extent, distributions to the Company's sole stockholder in respect of tax liabilities related to the Company.
Liquidity. The Company's principal sources of funds are anticipated to be cash flows from operating activities and borrowings under its revolving credit agreement. The Company believes that these funds will provide the Company with sufficient liquidity and capital resources for the Company to meet its financial obligations, as well as to provide funds for the Company's working capital, capital expenditures and other needs for the foreseeable future. No assurance can be given, however, that this will be the case.
Senior Subordinated Notes. As of December 31, 1999, the Company had $90.7 million of unsecured Senior Subordinated Notes bearing interest at 10 5/8%. These notes mature on May 15, 2007 and are subordinate to borrowings under the revolving credit agreement. During 1999 the Company repurchased and retired $9.3 million of the Senior Subordinated Notes.
Revolving Credit Agreement. The Company is party to a credit agreement due June 2002, which as of December 31, 1999, permitted revolving borrowings of up to $250 million under the revolving line of credit indebtedness (the Revolver). Debt outstanding under this agreement as of December 31, 1999 was $157.9 million and borrowings under the Revolver are secured by accounts receivable and inventories.
Year 2000 Update
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. Expenditures in connection with remediating its systems were not material to the Company's operations during 1999. The Company is not aware of any material problems resulting from Year 2000 issues, either with its services, its internal systems, or the products and services of third parties. The Company will continue to monitor its critical computer applications and those of its suppliers and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
Seasonality
Because of cold weather conditions in many of the markets in which the Company does business and the seasonal nature of the roofing and siding business generally, the Company's revenues vary substantially throughout the year, with its lowest revenues typically occurring in the months of December through February.
Inflation
The Company believes that inflation did not have a material impact on its results of operations for the three years ended December 31, 1999.
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act). Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by and information currently available to the Company at the time such statements were made. When used in this MD&A, the words "anticipate," "believe," "estimate," "expect," "intends" and similar expressions, as they relate to the Company are intended to identify forward- looking statements, which include statements relating to, among other things: (i) the ability of the Company to continue to successfully compete in the roofing and vinyl siding products market; (ii) the anticipated benefits from its acquisition strategy, (iii) the continued effectiveness of the Company's sales and marketing strategy; and (iv) the ability of the Company to continue to successfully develop and launch new distribution centers. Actual results could differ materially from those projected in the forward-looking statements as a result of the matters discussed herein and certain economic and business factors, some of which may be beyond the control of the Company.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes.
Interest Rate Sensitivity. The Company's earnings are affected by changes in short-term interest rates as a result of its notes payable to banks under the Revolver. If market interest rates for such borrowings average 1% more during 2000 than they did during 1999, the Company's interest expense would increase, and income before income taxes would decrease by approximately $1.6 million. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management could take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company's financial structure.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are listed in Part IV, Item 14 of this Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to (i) each member of the Company's Board of Directors (the Board), (ii) each executive officer of the Company and (iii) certain key employees of the Company.
Name Age Position - -------------------------------------------------------------------------------- Kenneth A. Hendricks 58 Chief Executive Officer and Chairman of the Board David Luck 50 President and Chief Operating Officer and Director Diane Hendricks 52 Executive Vice President, Secretary, and Director Kendra Story 40 Chief Financial Officer, Treasurer, and Director Robert Bartels 51 Senior Vice President of Operations Keith Rozolis 40 Vice President of Strategic Marketing and Planning Gil Aleman 56 Director Kent Nelson 55 Director
Kenneth A. Hendricks serves as Chief Executive Officer and Chairman of the Board. Prior to July 1998 when Mr. David Luck was hired, Mr. Hendricks also served as the President. Prior to 1982, Mr. Hendricks was the owner and operator of a number of successful exterior building contracting businesses and real estate businesses.
David Luck has served as President and Chief Operating Officer since July of 1998. In May of 1999, Mr. Luck became a director of the Company. Prior to joining ABC, he was the President of Bridgestone/Firestone Retail Operations Division, and the Senior Vice President of Bridgestone/Firestone, Inc. As president he was responsible for 1,550 retail stores selling tires and automotive services. Mr. Luck spent twenty-eight years with Bridgestone/Firestone and held a variety of positions with increasing responsibilities.
Diane Hendricks has served as Executive Vice President, Secretary and a director of the Company since its inception. Ms. Hendricks is also President of American Patriot Insurance Agency, Inc. Ms. Hendricks is primarily responsible for overseeing insurance, personnel matters, bonus programs, profit sharing and legal matters for the Company.
Kendra Story has served as the Chief Financial Officer, Treasurer and a director of the Company since its inception. Ms. Story is primarily responsible for overseeing finance, accounting, internal audit and inventory management for the Company.
Robert Bartels has served as the Company's Senior Vice President of Operations since September of 1997, prior to which, he was the Director of Purchasing since 1996. From 1971 to 1996, Mr. Bartels was employed by several leading manufacturers in the building materials industry with a variety of positions with increasing responsibilities, which included national marketing and sales and as vice president of sales.
Keith Rozolis has served as the Vice President of Strategic Marketing and Planning since July 1999. Prior to joining ABC, Mr. Rozolis was with Bridgestone/Firestone Retail Operations division since 1993, where he served in several capacities including a Director of Tire Marketing. He also directed key strategic initiatives related to tire marketing, automotive service (MasterCare), systems and process reengineering, and collaborative internet strategies for Bridgestone/Firestone. Mr. Rozolis earned a Masters degree from the J.L. Kellogg Graduate School of Management Northwestern University and a B.S. in Business Administration from Bucknell University.
Gil Aleman has served as a director of the Company since 1997. Mr. Aleman is currently the Director of Operations for American Mortgage Capital Inc., a major lender for all types of mortgages. Previously he served as President of the Celotex roofing division for Jim Walter Corporation from 1985 to 1997. Prior to 1985, Mr. Aleman served as President of Jim Walter Window Components, a division of Jim Walter Corporation.
Kent Nelson has served as a director of the Company since 1997. Mr. Nelson is currently Chief Executive Officer and President of TJ Adams Group, LLC, a regional insurance broker, and is an adjunct professor of management at the Graduate School of Business, Northern Illinois University. From 1989 to 1998, Mr. Nelson was Managing Director and a member of the Executive Committee of Aon Risk Services of Illinois, Inc., an international insurance broker.
Kenneth and Diane Hendricks are husband and wife. Kendra Story is a daughter of Mr. Hendricks.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The compensation of executive officers of the Company is determined by the Board. The following Summary Compensation Table includes individual compensation information for the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company in the year ended December 31, 1999 for services rendered in all capacities to the Company and its subsidiaries during the year ended December 31, 1999.
(1) Consists of estimated amounts paid by the Company for automobiles.
Mr. Luck is party to an agreement with the Company dated May 18, 1998, which provides for his employment through April 30, 2005. As part of the agreement, Mr. Luck received a one-time bonus of $1,500,000, one half of which was paid in 1998 and the other half in 1999. The one-time bonus is subject to repayment under conditions specified in the agreement. The agreement provides a bonus program and severance package, and also contains noncompetion and nonsolicitation covenants covering the term of the agreement plus two years from the date of termination.
Mr. Bartels is party to an agreement with the Company dated November 30, 1998 and amended November 30, 1999, which provides for his employment for a five year period commencing on January 1, 1999. The agreement provides a bonus program and severance package, and also contains noncompetion and nonsolicitation covenants covering the term of the agreement plus two years from the date of termination.
For a description of the employment agreement entered into between Mr. Hendricks and the Company, see "Certain Relationships and Related Transactions."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's capital stock is owned beneficially and of record by Mr. Hendricks. There are no outstanding options or other rights to purchase any shares of the Company's capital stock.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ABC transacts business with a number of entities, including Corporate Contractors, Inc. (CCI), ABC Express, Inc. (Express), Amfinity Capital, LLC (Amfinity), Water Tower Industrial Properties (Water Tower), Hendricks Commercial Properties (HCP), Hendricks Carolina Properties, LLC (Carolina), Hendricks Peachtree, LLC (Peachtree), Hendricks Michigan Properties, LLC (Michigan), Hendricks Oregon Properties, LLC (Oregon), Patriot, Ltd. (Patriot) and American Patriot Insurance Agency, Inc. (APIA) (collectively, the Related Entities), which are owned by ABC's sole stockholder and his spouse. CCI performs construction work such as interior renovations and additions at ABC locations. Express provides transportation services for the Company. The Company leases properties from Water Tower, Carolina, Peachtree, Michigan, Oregon, and HCP. Amfinity provides business advisory services. APIA is an insurance broker who provides services and arranges insurance for ABC. The Company believes that the transactions between ABC and the Related Entities have generally been conducted on an arm's-length basis.
In connection with certain of the Company's acquisitions, the Company's sole stockholder or his affiliates have purchased the real estate of the acquired business, which the Company has then leased from Mr. Hendricks or his affiliates. In addition, certain of the distribution centers opened by the Company are located in facilities purchased by and leased from Mr. Hendricks or his affiliates. These real estate purchases have historically been financed with a combination of debt financing and equity, and a portion of the equity has sometimes been funded by Mr. Hendricks or his affiliates with borrowings from ABC. The aggregate amount of such borrowings from ABC outstanding as of December 31, 1999 was approximately $5.3 million and $4.8 million as of December 31, 1998. The Company and Mr. Hendricks currently intend to continue to acquire properties for the Company's occupancy using such method of financing. The Company's debt agreements will permit it to lend up to $10.0 million to Mr. Hendricks or his affiliates in connection with such transactions in the future. Interest is charged on such loans at a rate comparable to the rate the Company pays on its bank borrowings. The maximum amount of such borrowings at any time during the three years ended December 31, 1999, occurred in April 1997 and aggregated $8.2 million.
As described above, as of December 31, 1999, the Company leased 102 facilities from Mr. Hendricks or his affiliates compared to 98 facilities as of December 31, 1998. For the years ended December 31, 1999 and 1998, the Company paid $12.8 million and $10.2 million, respectively, in lease payments to Mr. Hendricks or his affiliates in respect of such properties. Annual payments due under these leases are based on the prevailing market rates in the areas in which such properties are located and are adjusted annually to reflect changes in the consumer price index.
As of December 31, 1999 and 1998, the Company had obligations outstanding under guarantees and letters of credit in respect of debt of Mr. Hendricks and his affiliates in the amounts of $5.5 million and $4.7 million, respectively. Such guarantees and letters of credit are primarily related to certain indebtedness of the Company which was assumed by Mr. Hendricks. The maximum amount of such guarantees and letters of credit at any time during the past three years occurred in July 1999 and aggregated $5.5 million.
Patriot, an insurance captive owned by Mr. and Mrs. Hendricks, provides certain insurance coverage to the Company, which is subsequently reinsured in part by third-party insurance carriers. APIA, also owned by Mr. and Mrs. Hendricks, serves as a broker with respect to insurance coverage for the Company and the Related Entities. The Company paid APIA, net of reimbursements, $11.8 million and $9.5 million in 1999 and 1998, respectively, for claim liabilities, as determined by an independent actuarial service
During 1997, the Company entered into an employment agreement (Employment Agreement) with Mr. Hendricks which provided for an annual salary of $1.0 million, subject to annual increases if approved by a majority of ABC's independent directors, of up to 20.0% of his salary in the preceding year. Effective January 1, 2000 the independent directors approved a $200,000 annual raise for Mr. Hendricks. His Employment Agreement automatically renews unless ABC or Mr. Hendricks otherwise elect.
The Company has entered into a Tax Allocation Agreement with Mr. Hendricks pursuant to which he will receive distributions from each of the Company and its wholly owned subsidiaries with respect to taxes payable by Mr. Hendricks associated with the operations of each entity.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1.) FINANCIAL STATEMENTS
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
(2.) FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted.
(3.) LISTING OF EXHIBITS
Exhibit 27 - Financial Data Schedule
(b) CURRENT REPORTS ON FORM 8-K:
During the quarter ended December 31, 1999, the Company had no current filings on Form 8-K.
(c) EXHIBITS:
See Exhibit Index submitted as a separate section of this report.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors American Builders & Contractors Supply Co., Inc.
We have audited the accompanying consolidated balance sheets of American Builders & Contractors Supply Co., Inc., and subsidiaries (the Company) as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Milwaukee, Wisconsin March 6, 2000
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share amounts)
See accompanying notes.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
See accompanying notes.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
See accompanying notes.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
See accompanying notes.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
The accompanying consolidated financial statements include the accounts of American Builders & Contractors Supply Co., Inc. (ABC or the Company) and its wholly owned subsidiaries, Mule-Hide Products Co., Inc. (Mule-Hide), and Amcraft Building Products Co., Inc. (Amcraft). All significant intercompany profits, transactions, and balances have been eliminated in consolidation.
The Company is primarily engaged in the sale of roofing and siding products throughout the United States. There were 200, 204 and 205 distribution center locations at December 31, 1999, 1998 and 1997, respectively.
Inventories
Inventories, which consist primarily of purchased roofing and siding products, are stated at the lower of cost (average cost basis) or market.
Property and Equipment
Property and equipment additions (including leasehold improvements) are capitalized at cost. Depreciation on these assets is calculated using the straight-line method over the estimated useful lives of the related assets or, in the case of leasehold improvements, the life of the lease if shorter. Estimated useful lives are as follows:
Buildings and improvements 31-39 years Warehouse equipment 5- 7 years Vehicles 2-10 years Office furniture and equipment 3- 7 years Leasehold improvements Life of the lease, maximum 10 years
Goodwill
Goodwill is amortized over 25 to 35 years using the straight-line method.
Other intangible assets include noncompete agreements and deferred financing costs which are amortized over the term of the respective agreements or loans (ranging from 3 to 15 years).
Impairment of Long-Lived Assets
Property and equipment, goodwill, other intangible assets, and other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. Such analyses necessarily involve significant judgment.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue upon delivery of product to the customer, which typically occurs at the Company's distribution center locations.
Late Payment Charges
Late payment charges are recorded in connection with past due receivable balances and are classified as a reduction to distribution center operating expenses. Late payment charges were approximately $3,861,000, $4,654,000 and $3,505,000 in 1999, 1998 and 1997, respectively.
Advertising
Advertising costs are expensed in the period incurred. Total advertising expense was approximately $4,001,000, $3,990,000, and $3,896,000 for 1999, 1998 and 1997, respectively.
Income Taxes
ABC and its subsidiaries have elected to be treated as Subchapter S Corporations for federal and state income tax purposes. As a result, the Company's sole stockholder includes the taxable income of ABC and its subsidiaries in his personal income tax returns. Accordingly, with the exception of the amounts described in the following paragraph, the accompanying consolidated financial statements include no provision or liability for income taxes.
Certain states impose a corporate state tax on earnings of a Subchapter S Corporation. Provisions of approximately $171,000, $170,000, and $311,000 have been made for such income taxes for the years ended December 31, 1999, 1998 and 1997, respectively.
Net income (loss) differs from the amount currently taxable to the Company's sole stockholder due to certain items which are reported differently for financial reporting purposes than for income tax purposes, principally inventory costs capitalized, bad debts and depreciation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. Business Acquisitions
The following business acquisitions have been accounted for using the purchase method. Operations of such acquisitions are included in the Company's consolidated financial statements from the respective dates of acquisition.
1999 Acquisitions
During 1999, the Company made three acquisitions, with an aggregate cost of approximately $1,000,000. The cost of the acquisitions approximated the fair value of the net assets acquired.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Business Acquisitions (continued)
1998 Acquisitions
On January 19, 1998, the Company acquired certain assets and assumed certain liabilities of U.S.A. Roofing Supply, Inc. (USA) for a purchase price of approximately $2,300,000. USA was engaged primarily in the wholesale distribution and sale of roofing material and supplies primarily in the Florida market. The excess of cost over the fair value of the net assets acquired totaled $1,000,000.
Unaudited pro forma financial information for the acquisitions in 1999 and 1998 is not presented because these acquisitions did not have a material impact on the Company's results of operations.
1997 Acquisitions
On November 3, 1997, the Company acquired the stock or assets of five corporations affiliated with Champ Industries, Inc. (Champ) for a purchase price of approximately $61,000,000. Subsequent to the business combination, the Champ entities acquired through stock acquisitions were merged into the Company. Champ was engaged primarily in the wholesale distribution and sale of roofing material and supplies (primarily in Texas and California). The excess of cost over the fair value of the net assets acquired, totaled $36,000,000.
On May 19, 1997, the Company acquired certain assets and assumed certain liabilities of Viking Products, Inc. and certain assets of Viking Aluminum Products, Inc. (collectively, Viking). The purchase price was approximately $26,000,000, which included a $3,000,000 seller note. Viking was a regional distributor of residential roofing, siding and window products to customers located primarily in the northeastern U.S. The excess of cost over the fair value of the net assets acquired, totaled $2,850,000.
During 1997, the Company also made several other acquisitions, with an aggregate cost of approximately $3,500,000.
3. Long-Term Debt
Long-term debt consists of the following:
December 31, 1999 1998 --------------------------- (in thousands)
Revolving line of credit $ 157,935 $ 163,283 Senior Subordinated Notes 90,650 100,000 Equipment loans 21,300 16,300 Mortgage notes payable 6,001 6,131 Other notes payable 125 1,000 --------------------------- 276,011 286,714 Less current maturities 5,582 5,056 --------------------------- $ 270,429 $ 281,658 ===========================
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Long-Term Debt (continued)
ABC has a financing agreement with a group of banks (Revolver) which expires on June 30, 2002, under which ABC may borrow, on a revolving credit basis, up to a maximum of $250,000,000. At December 31, 1999, the Company had $25,500,000 of availability under the Revolver. The average availability during 1999 was approximately $43,000,000 based on a percentage of eligible accounts receivable and eligible inventories. Interest on the Revolver at December 31, 1999 was primarily based on LIBOR plus 1.25%. The weighted average interest rate on all borrowings outstanding under the Revolver at December 31, 1999 and 1998 was 7.7% and 6.4%, respectively.
The Revolver contains various covenants, including, among other things, provisions that place restrictions on ABC's ability to merge or sell its business, sell assets, make investments other than in the ordinary course of business, repurchase stock, or pay dividends. Additional provisions require ABC to maintain specified tangible net worth and cash flow amounts and require that ABC's sole stockholder continue to own at least 51% of the Company's common stock.
The Company's 10 5/8% Senior Subordinated Notes are due in 2007. During 1999, the Company repurchased and retired $9,350,000 of the Senior Subordinated Notes. The difference between the par value of the Senior Subordinated Notes repurchased and the repurchased price, net of the applicable portion of the unamortized deferred financing fees written off, was not material.
In 1999, the Company obtained a $5,000,000 note due in 48 monthly principal and interest installments beginning in February 2000. The note is collateralized by specific equipment (delivery trucks, trailers and forklifts) and bears interest at 8.01%. In 1998, the Company refinanced its previous equipment loans with a $16,300,000 note, collaterallized by specific equipment (delivery trucks, trailers, and forklifts). Principal payments of $4,075,000 are due in July 2000 and 2001 with the remaining principal balance due in July 2002. The note bears interest at 7.1% and is payable monthly.
The mortgage notes payable principally relate to ABC's corporate offices, and are due in monthly principal and interest installments of approximately $50,000 through April 2002, with a final maturity date of May 31, 2002. Interest on the mortgage notes was 8.375% through February 1, 1999. From February 2, 1999 through February 1, 2001 the rate is 7.75%, and is adjusted annually thereafter.
The Company has various other notes payable with maturity dates ranging from 2000 through 2002. Substantially all of the Company's assets are collateral for the Company's indebtedness.
Future maturities of long-term debt as of December 31, 1999, are as follows:
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment is comprised of the following:
5. Lease Commitments
ABC conducts the majority of its operations in leased facilities under operating leases expiring at various dates through 2009. Generally, the leases provide that ABC pay all insurance, maintenance, and other costs and expenses associated with use of the buildings. Some of the leases also require ABC to pay real estate taxes.
As of December 31, 1999, the real estate for 102 of the distribution centers was owned by a related party. The total rent expense for these related- party leases was approximately $12,820,000, $10,191,000, and $7,492,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Rent expense under all leases totaled $20,743,000, $20,872,000 and $16,998,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Future minimum rental payments required as of December 31, 1999, under all leases with initial or remaining terms of more than one year are as follows:
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Related-Party Transactions
The Company is related to certain other affiliates by common ownership and management. Transactions and balances with these entities are as follows at December 31 or for the years ended December 31:
Interest on the receivables from the sole stockholder is charged at a rate comparable to the interest rate ABC pays on its Revolver.
At December 31, 1999 and 1998, the Company had guaranteed debt of the sole stockholder in the amounts of approximately $1,870,000 and $1,939,000, respectively. Certain assets owned by the Company serve as collateral as part of an overall guaranty of this debt by the Company. The Company also had outstanding letters of credit of approximately $3,664,000 and $2,764,000 at December 31, 1999 and 1998, respectively, with respect to debt of the sole stockholder and affiliates.
An insurance captive, owned by the sole stockholder and spouse, provides certain insurance coverage to the Company, which is subsequently reinsured in part by third-party insurance carriers. The Company paid an insurance broker, also owned by the sole stockholder and spouse, net of reimbursements, approximately $11,762,000, $9,499,000 and $5,880,000 in 1999, 1998 and 1997, respectively, for claim liabilities, as determined by an independent actuarial service.
7. Contingent Liabilities
The Company is involved in various legal matters arising in the normal course of business. In the opinion of management and legal counsel, the amount of losses that may be sustained, if any, would not have a material effect on the financial position and results of operations of the Company.
8. Employee Benefit Plan
The Company sponsors a 401(k) plan covering substantially all employees. Contributions which are at the discretion of the Company approximated $204,000 and $924,000 in 1998 and 1997, respectively. No discretionary contributions were made in 1999.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable and borrowings under the Revolver approximated fair value at December 31, 1999 and 1998. The value of the Senior Subordinated Notes, based on quoted market prices, is as follows:
Substantially all of the Company's accounts receivable are due from contractors located throughout the United States. Credit is extended based on an evaluation of the customer's financial condition and projects, where applicable. Credit losses are provided for in the consolidated financial statements and have consistently been within management's expectations.
10. Non-Recurring Charges
In connection with the purchase of certain distribution business assets of Viking Building Products, Inc. and Viking Aluminum Products, Inc. (VAP) in 1997, the Company entered into a five year supply agreement with VAP, regarding the sale to ABC of windows, awnings, doors and related products manufactured by VAP. The supply agreement specified minimum purchases of approximately $20,000,000 per year through May 2002 and damages for shortfalls. The Company did not meet the required minimum annual purchases for 1998. In February 1999, the Company filed a lawsuit in the U.S. District court for the Western District of Wisconsin seeking damages related to warranty and quality issues, among other issues. VAP instituted a lawsuit in the U.S. District Court for the Southern District of New York seeking approximately $2,250,000 in damages under the terms of the supply agreement for the period through December 31, 1998.
In December 1999, the Company and VAP reached a final settlement whereby the Company paid $6,550,000. The Company has recorded a $7,030,000 non-recurring charge related to this settlement and estimated legal and other expenses. As part of this settlement, VAP agreed to amend the supply agreement to substantially lower the minimum purchase requirements for 1999 and 2000 and to conclude the supply agreement on December 31, 2000. The Company has exceeded the revised 1999 purchase requirements of $8,000,000, and believes it will meet the 2000 purchase requirements of $10,000,000.
For many years, the Company had done a significant volume of business with a large roofing contractor in Chicago. In 1998, the contractor's assets and business were foreclosed upon by its bank. At that time, the Company had notes receivable for $4,698,000 from the contractor.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Non-Recurring Charges (continued)
In an effort to reduce its loss as well as for other business reasons, the Company made a decision to purchase the contractor's assets from the bank, finish the contracts in process, collect the receivables and sell the remaining assets. The following is a summary of the transaction during 1998 (in thousands):
Included in other current assets in the Company's consolidated balance sheets is approximately $437,000 and $1,577,000 at December 31, 1999 and 1998, respectively, representing the estimated remaining amount to be realized net of estimated expenses to be incurred.
11. Summarized Financial Information about Guarantor Subsidiaries
The following is summarized aggregated financial information for Mule-Hide and Amcraft, both of which fully, unconditionally, jointly, and severally guarantee the Senior Subordinated Notes issued by ABC. The amounts are before consolidated level elimination entries (i.e. sales to ABC and accounts receivable from ABC are eliminated in consolidation but are separately shown below; all other amounts are unaffected). Separate financial statements of the guarantors are not presented because, in the opinion of management, such financial statements are not material to investors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registration has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Beloit, State of Wisconsin, on March 20, 2000.
AMERICAN BUILDERS AND CONTRACTORS SUPPLY CO. INC.
By: /s/ Kendra A. Story -------------------------- Kendra A. Story Chief Financial Officer, Treasurer
INDEX TO EXHIBITS -----------------
3.1 Certificate of Incorporation of the Company [Incorporated by reference to exhibit 3.1 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
3.2 By-laws of the Company [Incorporated by reference to exhibit 3.2 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
3.3 Articles of Incorporation of Mule-Hide [Incorporated by reference to exhibit 3.3 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
3.4 By-laws of Mule-Hide [Incorporated by reference to exhibit 3.4 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
3.5 Certificate of Incorporation of Amcraft [Incorporated by reference to exhibit 3.5 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
3.6 By-laws of Amcraft [Incorporated by reference to exhibit 3.6 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
10.1 Employment Agreement, dated as of May 1, 1997, between the Company and Kenneth A. Hendricks [Incorporated by reference to exhibit 10.3 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
10.2 Tax Allocation Agreement, dated as of May 1, 1997, among the Company, Mule-Hide and Amcraft and Kenneth A. Hendricks [Incorporated by reference to exhibit 10.4 to the Company's Registration Statement on Form S-4 (File No. 33-26991)].
10.3 Form of lease agreement between the Company and Hendricks Real Estate Properties and schedule of lease terms for all properties leased pursuant thereto [Incorporated by reference to exhibit 10.5 to the Company's Registration on Form S-4 (File No. 33-26991)].
10.4 Amended and Restated Loan and Security Agreement among American National Bank and Trust Company of Chicago, NationsBank of Texas, N.A., Bankamerica Business Credit, Inc. and the Company, as amended to date (the "Credit Agreement") [Incorporated by reference to exhibit 10.6 to the Company's Registration on Form S-4 (File No. 33-26991)].
10.5 Amended and Restated Patent, Trademark and License Mortgage by the Company in favor of NationsBank of Texas, N.A., as agent for the lenders under the Credit Agreement, as amended [Incorporated by reference to exhibit 10.7 to the Company's Registration on Form S-4 (File No. 33-26991)].
10.6 Amended and Restated Limited Guaranty Agreement by Kenneth A. Hendricks, dated as of February 8, 1996, in favor of NationsBank of Texas, N.A., individually or as agent for the lenders under the Credit Agreement [Incorporated by reference to exhibit 10.8 to the Company's Registration on Form S-4 (File No. 33-26991)].
10.7 Continuing Guarantee Agreement, dated July 20, 1996, between Mule-Hide and Heritage for the benefit of Kenneth A. Hendricks [Incorporated by reference to exhibit 10.9 to the Company's Registration on Form S-4 (File No. 33-26691)].
10.8 Guaranty, dated December 22, 1992, between the Company and Transohio Savings Bank, for the benefit of Kenneth A. Hendricks [Incorporated by reference to exhibit 10.10 to the Company's Registration on Form S-4 (File No. 33-26991)].
10.9 Guaranty, dated December 22, 1996, between the Company and Met Life Capital Corporation, for the benefit of Kenneth A. Hendricks [Incorporated by reference to exhibit 10.11 to the Company's Registration on Form S-4 (File No. 33-26991)].
10.10 Second Amended and Restated Loan and Security Agreement between Nationsbank, N.A. , American National Bank and Trust Company of Chicago, and the Company (the "Credit Agreement"). [Incorporated by reference to exhibit 10.1 to the Company's Form 10-Q for the period ending March 31, 1998 (File No. 33-26991)]
10.11 First Amendment to the Second Amended and Restated Loan and Security Agreement between NationsBank N.A., American National Bank and Trust Company of Chicago, and the Company, as amended to date (the "Credit Agreement"). [Incorporated by reference to exhibit 10.11 to the Company's Form 10-K for the period ending December 31, 1998 (File No. 33-26991)]
10.12 Employment Agreement, dated as of May 1, 1998 between the Company and David Luck. [Incorporated by reference to exhibit 10.1 to the Company's Form 10-Q for the period ending June 30, 1998 (File No. 33-26991)]
10.13 Employment Agreement, dated as of November 30, 1998, between the Company and Robert Bartels. [Incorporated by reference to exhibit 10.11 to the Company's Form 10-K for the period ending December 31, 1998 (File No. 33- 26991)]
10.14 Consent and Second Amendment to the Second Amended and Restated Loan and Security Agreement [Incorporated by reference to exhibit 10.1 to the Company's Form 10-Q for the period ending March 31, 1999 (File No. 33- 26991)]
10.15 Third Amendment to the Second Amended and Restated Loan and Security Agreement among American Builders & Contractors Supply Co., Inc., and Bank of America, N.A. as Agent and a Lender [Incorporated by reference to exhibit 10.1 to the Company's Form 10-Q for the period ending September 30, 1999 (File No. 33-26991)]
10.16 Amendment to Executive Employment Agreement, dated as of November 30, 1999 between the Company and Robert Bartels.
10.17 Restated Third Amendment to Second Amended and Restated Loan and Security Agreement among American Builders & Contractors Supply Co., Inc, and Bank of America, N.A. as Agent and a Lender.
21.1 Subsidiaries of the Company, Mule-Hide and Amcraft [Incorporated by reference to exhibit 21.1 Company's Registration on Form S-4 (File No. 33- 26991)].
27.1 Financial Data Schedule.
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998, and 1997 (in thousands)
(1) Consist of charge-offs, net of recoveries (2) Allowance for doubtful accounts recorded in connection with acquisitions