-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DjaZDZnaALLWKBxbPJ7GuTfp2tnP2hvyGgt0FAuXcqL9OcG/JgaPHqDN0DwmQLUV qylu6g/Q8KW0fpttkw01Hg== 0001036050-98-001321.txt : 19980812 0001036050-98-001321.hdr.sgml : 19980812 ACCESSION NUMBER: 0001036050-98-001321 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980626 FILED AS OF DATE: 19980810 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILMAR INDUSTRIES INC CENTRAL INDEX KEY: 0001003956 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 222232386 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27424 FILM NUMBER: 98681348 BUSINESS ADDRESS: STREET 1: 303 HARPER DR CITY: MOORESTOWN STATE: NJ ZIP: 08057 BUSINESS PHONE: 6094391222 10-Q 1 WILMAR INDUSTRIES, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 26, 1998 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. 0-27424 -------- WILMAR INDUSTRIES, INC. ----------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2232386 ---------- ---------- (State of incorporation or (I.R.S. Employer organization) Identification No.) 303 Harper Drive Moorestown, New Jersey 08057 ---------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 439-1222 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 Yes X No ____________ -------- The number of shares of the registrant's common stock, no par value, outstanding as of July 31, 1998 was 13,383,760. WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS - (Unaudited) - --------------------------------------------------------------------------------
June 26, December 26, 1998 1997 -------------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 30,217,762 $ 30,723,746 Cash - restricted 290,503 283,655 Accounts Receivable - trade, net of allowance for doubtful accounts of $1,443,300 in 1998 and $1,359,800 in 1997. 27,708,078 23,801,733 Inventory 32,055,286 24,979,935 Prepaid expenses and other current assets 1,288,076 898,255 Deferred income taxes 1,453,000 1,227,000 -------------- -------------- Total current assets 93,012,705 81,914,324 PROPERTY AND EQUIPMENT, net 3,898,361 3,540,889 GOODWILL, net of accumulated amortization of $698,318 in 1998 and $426,066 in 1997. 18,481,900 18,121,121 INTANGIBLE ASSETS AND OTHER, Net 4,852,530 4,538,971 -------------- -------------- TOTAL ASSETS $ 120,245,496 $ 108,115,305 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 700,000 $ 725,000 Accounts payable 18,002,870 13,244,918 Accrued expenses and other current liabilities 4,154,315 2,875,484 Income taxes payable 7,000 220,819 -------------- -------------- Total current liabilities 22,864,185 17,066,221 NOTES PAYABLE 500,000 500,000 -------------- -------------- Total liabilities 23,364,185 17,566,221 COMMITMENTS AND CONTINGENT LIABILITIES STOCKHOLDERS' EQUITY : Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued Common stock, no par value - 50,000,000 shares authorized; 13,381,577 shares issued and outstanding in 1998 13,335,754 shares issued and outstanding in 1997 103,344,175 102,793,984 Accumulated deficit (6,462,864) (12,244,900) -------------- -------------- Total stockholders' equity 96,881,311 90,549,084 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,245,496 $ 108,115,305 ============== ==============
The accompanying notes are an integral part of these condensed consolidated financial statements. WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME - (Unaudited) - --------------------------------------------------------------------------------
For the Three For the Three For the Six For the Six Months Ended Months Ended Months Ended Months Ended June 26, June 27, June 26, June 27, 1998 1997 1998 1997 ------------- ------------- ------------- ------------- NET SALES $ 49,658,989 $ 36,409,392 $ 93,204,244 $ 69,618,567 COST OF SALES 35,356,091 25,639,353 66,292,163 48,853,508 ------------- ------------- ------------- ------------- Gross profit 14,302,898 10,770,039 26,912,081 20,765,059 OPERATING EXPENSES: Operating and selling expenses 6,761,759 5,029,959 12,874,681 9,771,000 Corporate general and administrative expenses 2,878,776 2,588,337 5,520,886 4,920,725 ------------- ------------- ------------- ------------- Total operating expenses 9,640,535 7,618,296 18,395,567 14,691,725 ------------- ------------- ------------- ------------- Operating income 4,662,363 3,151,743 8,516,514 6,073,334 INTEREST INCOME (392,182) (426,325) (774,922) (808,295) ------------- ------------- ------------- ------------- Income before income taxes 5,054,545 3,578,068 9,291,436 6,881,629 PROVISION FOR INCOME TAXES 1,946,000 1,331,200 3,509,400 2,562,900 ------------- ------------- ------------- ------------- Net income $ 3,108,545 $ 2,246,868 $ 5,782,036 $ 4,318,729 ============= ============= ============= ============= Net income per share - Basic $ 0.23 $ 0.17 $ 0.43 $ 0.33 ============= ============= ============= ============= Net income per share - Diluted $ 0.23 $ 0.17 $ 0.43 $ 0.33 ============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements. WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (UNAUDITED) - --------------------------------------------------------------------------------
Total Common Stock Accumulated Stockholders' Shares Amount Deficit Equity ----------- ------------- ------------- ------------- BALANCE, DECEMBER 27, 1996 13,048,371 $ 96,978,776 $ (21,479,162) $ 75,499,614 Exercised Stock Options 131,485 1,305,796 1,305,796 Tax Benefit from Exercised Stock Options 660,000 660,000 Issuance of Common Stock - Mile High Acquisition 4,652 100,024 100,024 Issuance of Common Stock - Mangement Supply Acquisition 151,246 3,749,388 3,749,388 Net income 9,234,262 9,234,262 ----------- ------------- ------------- ------------- BALANCE, DECEMBER 26, 1997 13,335,754 $ 102,793,984 $ (12,244,900) $ 90,549,084 Exercised Stock Options 40,100 283,978 283,978 Tax Benefit from Exercised Stock Options 135,500 135,500 Issuance of Common Stock - Apartment Cleaning 5,723 130,713 130,713 Net income 5,782,036 5,782,036 ----------- ------------- ------------- ------------- BALANCE, JUNE 26, 1998 13,381,577 $ 103,344,175 $ (6,462,864) $ 96,881,311 =========== ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements.
WILMAR INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited) - ----------------------------------------------------------------------------------------------------------------------- FOR THE SIX FOR THE SIX MONTHS ENDING MONTHS ENDING JUNE 26, JUNE 27, 1998 1997 ----------------- --------------- OPERATING ACTIVITIES: Net Income $ 5,782,035 $ 4,318,729 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 992,508 585,714 Deferred income taxes (226,000) (39,000) Loss on disposition of property and equipment 11,704 Changes in assets and liabilities, net of effects of acquisition: Accounts receivable (3,591,166) (3,995,611) Inventory (6,870,716) (2,017,932) Prepaid expenses and other current assets (396,669) 117,102 Other assets 223,300 (632,231) Accounts Payable 4,757,952 4,001,986 Accrued expenses and other current liabilities 1,278,831 615,598 Income taxes payable (78,319) 52,447 ------------- ------------- Net cash provided by operating activities 1,883,460 3,006,802 ------------- ------------- INVESTING ACTIVITIES : Purchase of property and equipment (901,290) (983,103) Proceeds from sale of short-term investments 3,395,861 Acquisition of business, including escrow (1,747,132) (3,988,455) Proceeds from escrow settlement 82,000 ------------- ------------- Net cash used in investing activities (2,648,422) (1,493,697) ------------- ------------- FINANCING ACTIVITIES : Repayment of note payable (25,000) (260,000) Net proceeds from exercise of stock options 283,978 799,798 ------------- ------------- Net cash provided by financing activities 258,978 539,798 ------------- ------------- NET INCREASE (DECREASE) IN CASH (505,984) 2,052,903 CASH, BEGINNING OF PERIOD 30,723,746 38,228,710 ------------- ------------- CASH, END OF PERIOD $ 30,217,762 $ 40,281,613 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for : Interest $ 1,673 $ 19,802 ============= ============= Income taxes $ 4,030,149 $ 2,669,100 ============= ============= SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Issuance of Common Stock in connection with the purchase of : Apartment Cleaning Supply and Pool Supply, Inc. $ 130,713 Issuance of Note in connection with the purchase of : Pier-Angeli $ 75,000
The accompanying notes are an integral part of these condensed consolidated financial statements. WILMAR INDUSTRIES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The condensed consolidated financial statements include the accounts of Wilmar Industries, Inc. ("Wilmar" or the "Company") and its subsidiaries. Inter- company balances and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the full year ending December 25, 1998. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Form 10-K for the year ended December 26, 1997. NOTE 2 - ACCOUNTING POLICIES - ---------------------------- In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and disclosure of comprehensive income. The Company adopted this statement during the first quarter of fiscal year 1998. Adoption of this statement had no impact on the Company's consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement, which establishes standards for the reporting of information about operating segments and requires the reporting of selected information about operating segments in interim financial statements. SFAS No. 131 is required to be applied to interim financial statements in the initial year of application. Reclassification of segment information for earlier periods presented for comparative purposes are required under SFAS No. 131. As this statement only requires additional disclosures in the Company's consolidated financial statements, its adoption will not have any impact on the Company's consolidated financial position, results of operations or cash flows. The Company will adopt SFAS No. 131 in its December 25, 1998 annual financial statements. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This statement, which revises certain disclosure requirements for the Company's pension assets and obligations, is effective for the fiscal periods beginning after December 15, 1997. Restatement of prior years' information is required, where available. As this statement only requires a change in methods of disclosure and not any change in accounting methods, it will not have any impact on the Company's consolidated financial position, results of operations or cash flows. The Company will adopt SFAS No. 132 in its December 25, 1998 annual financial statements. In March 1998, the AICPA issued Statement of Position ("SOP") 98-1, Accounting For the Costs of Computer Software Developed For or Obtained for Internal-Use. The SOP is effective for the Company in 1999. The SOP will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal use. The Company currently capitalizes certain external consulting costs and expenses all other costs as incurred. The Company has not yet assessed what the impact of the SOP will be on the Company's future earnings or financial position. NOTE 3 - ACQUISITION - -------------------- In March 1998, the Company acquired certain assets of the California based company American Maintenance Supply, Inc. ("AMS-CA") and in June 1998, the Company acquired certain assets of the Nevada based company American Maintenance Supply, Inc. ("AMS-NV"), both are distributors of plumbing supplies primarily to the multi-family industry or apartment housing market. The total purchase price of both acquisitions was paid in cash. Goodwill recorded in connection with these acquisitions is being amortized on a straight-line basis over 40 years. In June 1998, the Company acquired certain assets of Apartment Cleaning Supply and Pool Supply, Inc. ("ACSPS"), a distributor of both janitorial and pool chemicals, supplies and equipment primarily to the multi-family industry or apartment housing market in the Phoenix area. The purchase price of this acquisition consisted of cash and common stock of the company. Goodwill and other intangibles recorded in connection with this acquisition are being amortized on a straight-line basis over 5 to 40 years. WILMAR INDUSTRIES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 4 - INCOME TAXES - --------------------- The Company provides for income taxes based upon SFAS No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. NOTE 5 - COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE - -------------------------------------------------------------- Net income per share presented for all periods have been computed in accordance with SFAS No. 128, "Earnings per Share." Data for 1997 has been restated to conform to SFAS No. 128. Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted- average number of shares outstanding during the period, assuming dilution. The amounts used in calculating net income per share data are as follows:
For the Three For the Three For the Six For the Six Months Ended Months Ended Months Ended Months Ended June 26, 1998 June 27, 1998 June 27, 1998 June 27, 1997 ------------- ------------- ------------- ------------- Net Income $ 3,108,545 $ 2,246,868 $ 5,782,036 $ 4,318,729 ============= ============= ============= ============= Weighted Average Shares Outstanding - Basic 13,362,415 13,078,743 13,349,921 13,063,481 Effective of Dilutive Stock Options 144,735 189,247 146,982 174,784 ------------- ------------- ------------- ------------- Weighted Average Shares Outstanding - Diluted 13,507,150 13,267,990 13,496,903 13,238,265 ============= ============= ============= =============
Options to purchase 48,200 and 8,500 shares of common stock that were outstanding during the three months ended June 26, 1998 and June 27,1997 respectively, as well as the option to purchase 45,825 and 8,500 shares of common stock that were outstanding during the six months ended June 26, 1998 and June 27,1997 respectively, were not included in the computation of weighted average shares outstanding - Diluted because the options' exercise price was greater than the average market price of common shares. NOTE 6 - CONTINGENCIES - ---------------------- The Company is involved in various legal proceedings in the ordinary course of its business, which are not anticipated to have a material adverse effect on the Company's results of operations or financial position. WILMAR INDUSTRIES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This document contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include certain information relating to future growth plans, the anticipated costs associated with those plans, the Company's liability and capital resources, as well as information contained elsewhere in this report where statements are preceded by, followed by or include the words "believes," "expects," "anticipates" or similar expressions. For such statements the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including without limitation, general market conditions, increased competition, and factors discussed elsewhere in this report and in the documents incorporated herein by reference. The following discussion should be read in conjunction with the interim financial statements and the notes thereto contained elsewhere in this report on Form 10-Q. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 26, 1998 COMPARED TO SIX MONTHS ENDED JUNE 27, 1997. Net Sales. Net sales increased by $23.6 million, or 33.9%, to $93.2 million for the six months ended June 26, 1998 from $69.6 million for the corresponding period in 1997. This increase was attributable to the maturation of the existing sales force, sales force additions, the Company's telesales effort, increased sales to national accounts and a substantial investment in "line- hauling" (the use of third party trucks to ship multiple orders from a distribution center to other markets overnight followed by next day local delivery). The Company's sales force at the end of the second quarter of 1998 was 201 an increase of 51 when compared with the corresponding quarter of 1997. Sales attributable to the existing sales force (salesmen employed for all of both periods) increased 16%. In addition the acquisitions of Management Supply Company ("MSC") and certain assets of ACSPS, AMS-CA and AMS-NV which occurred in September 1997, June 1998, March 1998 and June 1998 respectively, also contributed significantly to the Company's growth. Price increases during both periods were modest and made only on selected items. During the six months ended June 26, 1998, Wilmar generated approximately $3.7 million in net sales to new end markets as a result of the Company's decision to target customers outside its core apartment housing market beginning in the first quarter of 1995. Gross Profit. Cost of sales includes merchandise, freight, distribution center occupancy and delivery costs. As a percentage of net sales, gross profit was 28.9% for the six months ended June 26, 1998 compared to 29.8% for the corresponding period in 1997. This expected decrease in the gross margin resulted from the acquisition of MSC. MSC's gross margins reflect a product mix that includes a larger volume of major appliance sales, that yield a lower gross margin percentage. In addition, the increased delivery expenses associated with "line-hauling" to new markets, as well as higher relative occupancy costs relating to the operation of the Company's new distribution centers in Charlotte, San Antonio, Phoenix, Las Vegas and Boston, also contributed to the decrease in gross margin when compared with the first six months of 1997. Operating and Selling Expenses. Operating and selling expenses consist of labor and other costs associated with operating a distribution center as well as selling expenses and commissions. Operating and selling expenses increased by $3.1 million, or 31.8 %, to $12.9 million for the six months ended June 26, 1998 from $9.8 million for the corresponding period in 1997. As a percentage of net sales, these expenses represented 13.8% for the six months ended June 26, 1998 compared to 14.0% for the corresponding period in 1997. This decrease was primarily attributable to the assimilation of the HMA acquisition in July 1997, and in addition the acquisition of MSC, which though it had not yet been fully assimilated into our system until May 1998, had been operated very efficiently as a stand-alone company. WILMAR INDUSTRIES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 26, 1998 COMPARED TO SIX MONTHS ENDED JUNE 27, 1997 Corporate General and Administrative Expenses. Corporate general and administrative expenses increased by $600,000 or 12.2%, to $5.5 million for the six months ended June 26, 1998 from $4.9 million for the corresponding period in 1997. This increase is primarily the result of the enhanced staffing required to manage a larger volume of business. As a percentage of net sales, corporate general and administrative expenses represented 5.9% for the six months ended June 26, 1998 compared to 7.1% for the corresponding period in 1997. During the first six months of 1998, the Company incurred approximately $116,000 in expenses related to the assimilation of MSC and pre-opening expenses for its new San Antonio, Las Vegas and Boston distribution centers, (the "assimilation and pre-opening expenses"). The Company expenses all distribution center pre-opening and acquisition assimilation costs when incurred. Excluding these expenses, corporate general and administrative expenses as a percentage of net sales would have been 5.8% for the six months ended June 26, 1998 compared to 6.8% for the corresponding period in 1997. Operating Income. Operating income increased by $2.4 million, or 40.2%, to $8.5 million for the six months ended June 26, 1998 from $6.1million for the corresponding period in 1997. As a percentage of net sales, operating income was 9.1% for the six months ended June 26, 1998 compared to 8.7% for the corresponding period in 1997. Excluding the assimilation and pre-opening expenses, operating income as a percentage of net sales would have been 9.3% for the six months in 1998 compared to 9.0% for the first six months of 1997. Interest Income. Net interest income for the six months ended June 26, 1998 was $775,000 and $808,000 for the corresponding period in 1997. The interest income occurred as a result of the investment income from the proceeds of the secondary public offering completed in July 1996. THREE MONTHS ENDED JUNE 26, 1998 COMPARED TO THREE MONTHS ENDED JUNE 27, 1997 Net Sales. Net sales increased by $13.3 million, or 36.4%, to $49.7 million for the three months ended June 26, 1998 from $36.4 million for the corresponding period in 1997. This increase was attributable to the maturation of the existing sales force, sales force additions, the Company's telesales effort, increased sales to national accounts and a substantial investment in "line-hauling". Sales attributable to the existing sales force (salesmen employed for all of both periods) increased 20%. In addition the acquisitions of MSC and certain assets of ACSPS, AMS-CA and AMS-NV which occurred in September 1997, June 1998, March 1998 and June 1998 respectively, also contributed significantly to the Company's growth. Price increases during both periods were modest and made only on selected items. During the three months ended June 26, 1998, Wilmar generated approximately $2.1 million in net sales to new end markets as a result of the Company's decision to target customers outside its core apartment housing market beginning in the first quarter of 1995. Gross Profit. Cost of sales includes merchandise, freight, distribution center occupancy and delivery costs. As a percentage of net sales, gross profit was 28.8% for the three months ended June 26, 1998 compared to 29.6 % for the corresponding period in 1997. This expected decrease in the gross margin was a result of the following factors: (1) the acquisition of MSC, whose gross margins reflect a product mix that includes a larger volume of major appliance sales, that yield a lower gross margin percentage, (2) a larger volume of HVAC sales, which are seasonal in nature and have lower gross margins, and (3) the higher relative occupancy costs relating to the operation of the Company's new distribution centers in San Antonio, Las Vegas and Boston also contributed to the decrease in gross margin when compared with the three months ended June 27, 1997. WILMAR INDUSTRIES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 26, 1998 COMPARED TO THREE MONTHS ENDED JUNE 27, 1997 Operating and Selling Expenses. Operating and selling expenses consist of labor and other costs associated with operating a distribution center as well as selling expenses and commissions. Operating and selling expenses increased by $1.8 million, or 34.4%, to $6.8 million for the three months ended June 26, 1998 from $5.0 million for the corresponding period in 1997. As a percentage of net sales, these expenses represented 13.6% for the three months ended June 26, 1998 compared to 13.8% for the corresponding period in 1997. This decrease was primarily attributable to the assimilation of the HMA acquisition in July 1997, and in addition the acquisition of MSC, which though it had not yet been fully assimilated into our system until May 1998, had been operated very efficiently as a stand-alone company. Corporate General and Administrative Expenses. Corporate general and administrative expenses increased by $290,000, or 11.2%, to $2.9 million for the three months ended June 26, 1998 from $2.6 million for the corresponding period in 1997. This increase is primarily the result of the enhanced staffing required to manage a larger volume of business. The Company expenses all distribution center pre-opening costs when incurred. During the second quarter of 1998, the Company incurred approximately $96,000 in expenses related to the assimilation of MSC and pre-opening expenses for its new San Antonio, Las Vegas and Boston distribution center. As a percentage of net sales, corporate general and administrative expenses represented 5.8% for the three months ended June 26, 1998 compared to 7.1% for the corresponding period in 1997. Excluding assimilation and pre-opening expenses, general and administrative expenses would represent 5.6% for the three months ended June 26, 1998 and 6.9% for the corresponding period in 1997. Operating Income. Operating income increased by $1.5 million or 47.9%, to $4.7 million for the three months ended June 26, 1998 from $3.2 million for the corresponding period in 1997. As a percentage of net sales, operating income was 9.4% for the three months ended June 26, 1998 and 8.7% for the corresponding period in 1997. Excluding assimilation and pre-opening expenses, operating income as a percentage of net sales would have been 9.6% for the three month ended June 26,1998 and 8.9% for the same period in 1997. Interest Income. Net interest income for the three months ended June 26, 1998 was $392,000 and $426,000 for the corresponding period in 1997. The interest income occurred as a result of the investment income from the proceeds of the secondary public offering completed in July 1996. LIQUIDITY AND CAPITAL RESOURCES Wilmar's primary source of liquidity has been cash flow from operations, supplemented by borrowings under its revolving bank line of credit to support increases in accounts receivable and inventory, net of accounts payable. Since its initial public offering in January 1996, additional liquidity has been provided through the proceeds of the sale of its securities as well as investment income from the proceeds of the secondary public offering completed in July 1996. Cash provided by operating activities was $1.9 million during the six months ended June 26, 1998 compared to $3.0 million of cash provided by operating activities during the corresponding period in 1997. Cash provided by operating activities during the six months ended June 26, 1998 consisted of $5.8 million of net income before adding back depreciation and amortization and other non- cash charges, decreased $4.9 million by changes in operating assets and liabilities. This primarily resulted from a $6.0 million increase in accounts payable and accrued expenses offset by an increase in the accounts receivable, inventory and prepaid expenses of $10.9 million, consistent with its higher volume of business. WILMAR INDUSTRIES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Cash used in investing activities during the six months ended June 26, 1998 was $2.6 million, this consisted of approximately $901,000 for the purchase of property and equipment and $1.7 million relating to the acquisitions of ACSPS, AMS-CA and AMS-NV. Cash provided by financing activities during the first six months of 1998 was approximately $259,000, consisting of $284,000 of net proceeds received from the exercise of stock options offset by $25,000 of repayment of a note payable. Capital expenditures were $901,000 for the six months ended June 26, 1998 compared to $983,000 for the corresponding period in 1997. The Company spent approximately $485,000 in the first six months of 1998 to equip its new Atlanta, San Antonio, Las Vegas and Boston distribution centers, as well as upgrading the existing MSC distribution centers. A typical distribution center requires a capital investment of approximately $150,000 to $200,000 for equipment and leasehold improvements and an initial commitment of approximately $250,000 for working capital (net of accounts payable attributable to new inventory). The Company typically incurs expenses of approximately $60,000 before a new distribution center becomes operational. The Company intends to finance its future capital expenditures with cash flow from operations and possibly with a portion of the previous public offerings, term debt or capital leases. Wilmar's credit facilities consist of two unsecured bank lines of credit totaling $16 million. These lines of credit had zero balances at June 26, 1998. In July 1998, the Company renewed an existing $10 million unsecured bank line of credit, which bears interest at three quarter percent below the bank's prime rate as well as a $6 million unsecured bank line of credit, which bears interest at the bank's prime rate. These credit facilities will expire in October 1998. The Company anticipates renewing these existing credit facilities prior to their expiration date and believes it could increase the amount of these credit facilities if needed, although there can be no assurance that it could do so on equally or more favorable terms. The Company believes that its existing cash balances, supplemented by borrowings under the revolving line of credit, are adequate to meet planned operating and capital expenditure needs at least through 1998. However, if the Company were to make any significant acquisitions for cash, it may be necessary for the Company to obtain additional debt or equity financing. YEAR 2000 COMPLIANCE The Company recognizes that the arrival of the Year 2000 poses a worldwide challenge to the ability of all systems to recognize the date change from December 31, 1999 to January 1, 2000, and like other companies, is assessing and modifying its computer applications and business processes to provide for their continued functionality. Many of the Company's systems include the new hardware and software recently purchased from large vendors who have represented that these systems are already Year 2000 compliant. The Company expects to complete its Year 2000 assessment and remediation by 1999. However, there can be no guarantee that the systems of other companies with which the Company interfaces will be timely converted, or that a failure to convert by another company would not have a material adverse effect on the Company. The total cost to the Company of these Year 2000 activities has not been and is not anticipated to be material to its financial position, results of operations or cash flows in any given year, and such cost has been and is expected to continue to be funded from the Company's operations. WILMAR INDUSTRIES, INC. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 27* Financial Data Schedule ___________________ * Filed herewith (B) REPORTS ON FORM 8-K ------------------- The Company did not file a Form 8-K during the quarter ended June 26, 1998. SIGNATURE 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. WILMAR INDUSTRIES, INC. BY: /s/ Michael T. Toomey --------------------------------------- Michael T. Toomey Chief Financial Officer and Treasurer (Duly authorized officer and Principal financial officer) Date: August 10, 1998 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-25-1998 JUN-26-1998 30,508,265 0 29,151,378 (1,433,300) 32,055,286 93,012,705 8,300,074 (4,401,713) 120,245,496 22,864,185 0 0 0 103,344,175 (6,462,864) 120,245,496 93,204,244 93,204,244 66,292,163 66,292,163 18,395,567 0 (774,922) 9,291,436 3,509,400 5,782,036 0 0 0 5,782,036 0.43 0.43
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