Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended September 30, 2002

OR

               Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

               Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

               The number of shares of Common Stock, $0.001 par value, outstanding (the only class of common stock of the Company outstanding) was 12,190,498 on November 13, 2002.

Table of Contents

CENTURY MAINTENANCE SUPPLY, INC. AND SUBSIDIARIES

Quarter Ended September 30, 2002

TABLE OF CONTENTS

1

Table of Contents

PART I  FINANCIAL INFORMATION

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets
(In thousands)

See accompanying notes.

(continued)

2

Table of Contents

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (continued)
(In thousands, except share data)

See accompanying notes.

3

Table of Contents

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Statements of Income
(In thousands)

See accompanying notes.

4

Table of Contents

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Nine Months Ended September 30, 2002
(In thousands, except share data)

See accompanying notes.

5

Table of Contents

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows
(In thousands)

See accompanying notes.

6

Table of Contents

Century Maintenance Supply, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.         Basis of Presentation

            Century Maintenance Supply, Inc. and subsidiaries (collectively, the “Company”) distribute general maintenance supplies and air conditioning and heating equipment and parts to apartment complexes throughout the United States.

            The condensed consolidated financial statements include the accounts of Century Maintenance Supply, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

            The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

            The condensed consolidated balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information or footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The Company’s condensed consolidated balance sheet at September 30, 2002 and the condensed consolidated statements of income, changes in stockholders’ equity (deficit), and cash flows for the interim periods ended September 30, 2001 and 2002 have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations.

            Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2001.

2.         Income Taxes

            The Company’s interim provisions for income taxes were computed using its estimated effective tax rate for the year.

3.         Stockholders’ Equity (Deficit)

            On January 12, 2002, the Company granted to its newly appointed chief executive officer a non-qualified option to purchase up to 190,000 shares of common stock of the Company.  40,000 shares subject to the option are immediately exercisable at an exercise price of $10.00 per share.  The remaining shares subject to the option become exercisable over the next three years on the anniversary of the date of grant at exercise prices between $10.00 and $15.00 per share.  The option will terminate on the seven-year anniversary of the grant date.  Additionally, in January 2002, the Company sold 20,000 shares of Common Stock to the Company’s chief executive officer pursuant to its Stock Subscription Plan for an aggregate purchase price of $200,000 payable with a secured promissory note for $100,000 and $100,000 in cash.  The promissory note bears interest at 2.75% per annum and is payable in full on April 15, 2003.

4.           Preferred Stock

            In 1998, the Company sold $40.0 million of 13¼% Senior Exchangeable PIK (payment-in-kind) Preferred Stock of which $12.0 million was sold to affiliates of the Company. The preferred stock is due in 2010 with an

7

Table of Contents

aggregate liquidation preference of $40.0 million or $100 per share. Dividends are payable semi-annually in cash, except that on each dividend payment date on or prior to July 1, 2003, dividends may be paid, at the Company’s option, by issuance of additional shares of preferred stock. The Company’s credit facility currently prohibits the payment of cash dividends on the preferred stock.  The preferred stock is subject to mandatory redemption at its liquidation preference, plus accumulated and unpaid dividends, on July 1, 2010. The Company may redeem the preferred stock in accordance with certain redemption provisions at a date earlier than July 1, 2010. If the Company elects to redeem the preferred stock on or before July 1, 2003 the redemption price will be 113.25% of the liquidation preference price of $100 per share.  Holders of preferred stock have no voting rights.  Since January 1, 1999, the Company has issued 251,512 shares of additional preferred stock as payment-in-kind for dividends on the Company’s existing preferred stock.  The Credit Facility currently prohibits the payment of cash dividends on the Exchange Preferred Stock.  The Exchange Preferred Stock is mandatorily redeemable upon a change of control and on July 1, 2010. In September 2000 and August 2002, the Company repurchased 51,573 and 60,001 shares of its redeemable exchangeable preferred stock for $3,906,655 and $5,700,095, respectively.

            At any time, the Company may, at its option, exchange all of the shares of preferred stock then outstanding for exchange debentures in a principal amount equal to the liquidation preference of the shares being exchanged. The exchange debentures would have interest of 13¼% and would be due in 2010.  The Company’s credit facility currently prohibits the Company from exchanging the preferred stock. The Company incurred $2,803,000 of costs as part of the sale of the preferred stock which has been offset against the proceeds.  For the nine months ended September 30, 2002, the Company has accreted $382,511 to retained earnings as part of dividends accrued.  Included in the 2002 accretion is $234,923 related to the repurchase of preferred stock in 2002.

5.         Credit Facility

            In 1998, the Company entered into a credit facility, providing for $100.0 million of secured term loan facilities and a $25.0 million revolving loan facility (the “Revolving Credit Facility”). The term loan facility consists of a $40.0 million Tranche A Term Facility and a $60.0 million Tranche B Term Facility (collectively called the “Term Loan Facility”). The Term Loan Facility will amortize over a five-year period for the Tranche A Term Facility and a seven-year period for the Tranche B Term Facility, and the Revolving Credit Facility will mature on September 30, 2003.  The interest rate under the Credit Facility is variable and based, at the option of the Company, upon either a Eurodollar rate plus 2.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 2.75% (for the Tranche B Term Facility) per annum or a base rate plus 1.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 1.75% (for the Tranche B Term Facility) per annum.  If the Company achieves certain performance goals, rates under the Tranche A Term Facility and the Revolving Credit Facility will be reduced. A commitment fee of 0.5% per annum will be charged on the unused portion of the Revolving Credit Facility.

            The credit facility contains certain non-financial and financial covenants. The Company incurred $4,552,000 of costs as part of obtaining the credit facility which have been recorded as deferred financing costs. The Company amortizes the costs over the average life of the credit facility.  For the three and nine-month periods ended September 30, 2002 the Company recognized amortization expense of $233,934 and $663,447, respectively.  The Company is in compliance, as of November 13, 2002, with the provisions of the Credit Facility.

            The credit facility has been amended twice to allow the Company more flexibility in meeting minimum leverage ratio, interest coverage ratio, fixed charge ratio and minimum EBITDA covenants thereunder.

6.         Derivative Instruments and Hedging Activities

            The Company is exposed to variability of future cash flows related to interest rate risk on its existing long-term debt and had entered into interest rate swap agreements to hedge their exposure which terminated on September 30, 2001. 

8

Table of Contents

            The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001.  SFAS No. 133 required that all derivatives be recognized as either assets or liabilities and measured at fair value, and changes in the fair value of derivatives are reported in current earnings, unless the derivative is designated and effective as a hedge.  If the intended use of the derivative is to hedge the exposure to changes in the fair value of an asset, a liability or a firm commitment, then changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item’s fair value.  However, if the intended use of the derivative is to hedge the exposure to variability in expected future cash flows, then changes in the fair value of the derivative instrument will generally be reported in Other Comprehensive Income (“OCI”).  The gains and losses on the derivative instrument that are reported in OCI will be reclassified in earnings in the periods in which earnings are impacted by the hedged item.

            There was no impact on the Company’s results of operations from the January 1, 2001 implementation of SFAS No. 133.  For the nine months ended September 30, 2001, the Company recorded a $711,000 net of tax gain in OCI related to its interest rate swap agreements.

7.         New Accounting Standards

            In July 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001.  Use of the pooling-of-interests method is prohibited.  SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment.  The Company adopted this statement on January 1, 2002.  As a result, the Company recognized no impairment, and ceased amortization of goodwill.  Amortization expense charged to operations was $56,418 and $169,254 for the three- and nine-month periods ending September 30, 2001.

            In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets.  The Company adopted this statement during the first quarter of 2002.  The adoption of this statement had no effect on the Company’s consolidated financial position or results of operations.

            In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.”  SFAS No. 145, among other things, amends SFAS No. 4 and SFAS No. 64 to require that gains and losses from the extinguishment of debt generally be classified within continuing operations.  The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002.  Management does not believe the adoption of SFAS No. 145 will have a significant impact on the Company’s financial statements.

            In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 replaces Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.”  This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.  This statement is effective for exit or disposal activities that are initiated after December 31, 2002.  The Company does not believe that the adoption of SFAS 146 will have a significant impact on its financial statements.

9

Table of Contents

            The following discussion of Century Maintenance Supply, Inc. and its subsidiaries’ (collectively, the “Company” or “Century”) condensed consolidated historical results of operations and financial condition should be read in conjunction with the condensed consolidated financial statements of the Company and the notes thereto included elsewhere in this Form 10-Q.

Forward Looking Statements

            This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical fact included in this Report, including without limitation, certain statements under this Item 2 and the Company’s condensed financial statements and notes thereto contained elsewhere in this Report regarding the Company’s financial position, business strategy, prospects and other related matters may constitute such forward-looking statements.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  Actual results could differ materially from the Company’s expectations as a result of a number of factors, including without limitation those set forth below and those located elsewhere in this Report and in the Company’s Registration Statement on Form S-4, as amended, effective January 21, 1999 (File Number 333-62635).

General

            Century has grown through a combination of increasing sales at its existing distribution centers, by opening new distribution centers and through the acquisitions of Nationwide Apartment Supply, Inc. in July 1997 (the “Nationwide Acquisition”) and Champion Blind and Drapery, Inc. in April 1999 (the “Champion Acquisition”).  As part of its strategy of expanding into new geographic markets, the Company opened 22 new distribution centers from 1994 through the quarter ended September 30, 2002.  Historically, a typical center breaks even within three years of opening, and operating margins continue to improve as the center’s revenue grows.  The Nationwide Acquisition added 11 distribution centers principally in the Midwestern United States, three of which were consolidated into existing Century centers.

Results of Operations

            The following tables set forth, for the periods indicated, certain income and expense items expressed in dollars and as a percentage of the Company’s net sales.

10

Table of Contents

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

            Net sales for the three months ended September 30, 2002 were $85.7 million, an increase of $5.7 million or 7.1% over the three months ended September 30, 2001.  This increase in net sales was primarily due to comparable center growth of 6.3%, a deeper penetration of management companies and increased sales from sales initiatives introduced in prior periods.

            The Company’s gross profit for the three months ended September 30, 2002 was $23.3 million, an increase of $1.9 million or 8.8% over the quarter ended September 30, 2001 primarily due to the increase in net sales discussed above.  As a percentage of net sales, the Company’s gross profit increased to 27.2% for the quarter ended September 30, 2002 from 26.7% for the quarter ended September 30, 2001.  This increase was primarily due to product mix and lower procurement cost.

            Selling, general and administrative expenses, consisting primarily of payroll, occupancy and vehicle expenses, totaled $12.7 million for the quarter ended September 30, 2002, an increase of $0.9 million or 7.8% over the quarter ended September 30, 2001.  As a percentage of net sales, selling, general and administrative expenses increased slightly to 14.8% for the three months ended September 30, 2002 from 14.7% in the quarter ended September 30, 2001.  This increase was primarily due to an increase in payroll and payroll related expenses attributable to an increase in wage levels and an increase in employee related insurance cost.

            Interest expense for the three months ended September 30, 2002 was $1.3 million, a decrease of $0.6 million or 33.2% from the quarter ended September 30, 2001, primarily due to a decrease in market interest rates and average outstanding balance owed on the Company’s credit facility.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

            Net sales for the nine months ended September 30, 2002 were $227.1 million, an increase of $11.8 million or 5.5% over the nine months ended September 30, 2001.  This increase in net sales was primarily due to comparable center growth, a deeper penetration of management companies and increased sales from sales initiatives introduced in prior periods.

            The Company’s gross profit for the nine months ended September 30, 2002 was $62.4 million, an increase of $4.1 million or 7.0% over the nine months ended September 30, 2001 primarily due to the increase in net sales discussed above.  As a percentage of net sales, the Company’s gross profit increased to 27.5% for the nine months

11

Table of Contents

ended September 30, 2002 from 27.1% for the nine months ended September 30, 2001.  This increase was primarily due to product mix and lower procurement cost.

            Selling, general and administrative expenses, consisting primarily of payroll, occupancy and vehicle expenses, totaled $36.3 million for the nine months ended September 30, 2002, an increase of $2.0 million or 5.9% over the nine months ended September 30, 2001.  As a percentage of net sales, selling, general and administrative expenses increased slightly to 16.0% for the nine months ended September 30, 2002 from 15.9% in the nine months ended September 30, 2001.

            Interest expense for the nine months ended September 30, 2002 was $3.6 million, a decrease of $2.6 million or 42.4% from the nine months ended September 30, 2001, primarily due to a decrease in market interest rates and average outstanding balance owed on the Company’s credit facility.

Liquidity and Capital Resources

            The Company’s primary capital requirements have been the funding of its continued distribution center expansion program, inventory requirements and the development and implementation of customized information systems.  The Company has financed its growth through a combination of internally generated funds and borrowings.

            In the first nine months of 2002, net cash provided by operating activities was $1.7 million, decreasing from $6.8 million of net cash provided in the first nine months of 2001.  Net cash used by investing activities in the first nine months of 2002 was $1.0 million, increasing from $0.8 million of net cash used in the first nine months of 2001 and was due to an increase in capital expenditures.  Net cash used by financing activities in the first nine months of 2002 was $1.6 million, decreasing from net cash used of $6.0 million in the first nine months of 2001 primarily due to an increase in short-term borrowings offset by repayment of long-term debt and the repurchase of preferred stock. 

            The Company currently anticipates that its capital expenditures, excluding potential acquisitions, for 2002 and 2003 will be approximately $2.0 million in each year.  Inventories were $40.7 million as of September 30, 2002 and $35.9 million at December 31, 2001.  In order to meet the needs of its customers, the Company must maintain inventories sufficient to permit same day or next day filling of most orders.  The Company anticipates that its inventory levels will continue to increase primarily to support higher sales volumes and new center openings.  Trade accounts receivable, net of allowances were $39.7 million at September 30, 2002 and $26.6 million at December 31, 2001.  The Company generally offers 30-day credit terms to its customers.  The Company’s working capital requirements are typically higher in the second and third quarters to meet seasonal demand.  This is due primarily to the fact that more people move during the summer months when school is out, causing apartment managers to purchase more supplies to make apartments ready for new occupants.  Also, hot summer months translate into a higher volume of HVAC sales due to the need for air conditioning parts.

            The Company has outstanding indebtedness consisting of borrowings of $67.95 million under the Term Loan Facility.  The Company has access to a total of $25.0 million through the Revolving Credit Facility.  As of November 13, 2002, the Company had $11.0 million of outstanding borrowings under the Revolving Credit Facility.  The Tranche A Term Facility will mature on July 8, 2003 and the Tranche B Term Facility will mature on July 8, 2005.  Annual required principal payments on the Term Loan Facility are $3.65 million, $18.8 million, $28.5 million and $17.0 million over the next four years.  The Revolving Credit Facility will mature on September 30, 2003.  The interest rate under the Credit Facility is variable and based, at the option of the Company, upon either a Eurodollar rate plus 2.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 2.75% (for the Tranche B Term Facility) per annum or a base rate plus 1.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 1.75% (for the Tranche B Term Facility) per annum.  Pursuant to the terms of the Credit Facility, because the Company achieved certain performance goals, rates under the Tranche A Term Facility and the Revolving Credit Facility have been reduced in increments as agreed.  At November 11, 2002 the interest rate for the Revolving Credit Facility was 5.25%, the Tranche A Facility was 3.8125% and the Tranche B Facility ranges from 4.5625% to 4.875%.   A commitment fee of 0.375% per annum will be charged on the unused portion of the Credit Facility.  The loans under the Credit Facility are secured by a first priority security interest in substantially all tangible and intangible assets of the Company and its subsidiaries (including the capital stock of the subsidiaries).

12

Table of Contents

            Borrowings under the Credit Facility are required to be prepaid with (a) 75% (or 50% upon satisfaction of a debt to adjusted EBITDA ratio) of the Company’s Excess Cash Flow, (b) 100% of the net proceeds of issuances of debt obligations of the Company and its subsidiaries, (c) 100% of the net cash proceeds from asset dispositions of the Company and its subsidiaries, (d) 50% of the net proceeds of issuances of equity of the Company and its subsidiaries, except that if an equity issuance occurs other than as part of a Public Equity Offering (as defined) of the Company’s common stock, then 100% of the net proceeds of such offering are required to be applied to prepay the Credit Facility, and (e) 100% of the net proceeds from insurance recoveries over $1.0 million and condemnations, after application of such insurance recoveries or condemnation proceeds to repair the property involved.  “Excess Cash Flow,” for any period, means EBITDA (as defined) for such period, less the sum of (a)(i) permitted capital expenditures, (ii) taxes, (iii) consolidated interest expense, (iv) increases in Adjusted Working Capital (as defined) for such period, (v) scheduled and mandatory payments of debts, (vi) voluntary prepayments of the Term Loan Facility, (vii) payments in connection with purchases of the Company’s Capital Stock, (viii) cash consideration paid for certain permitted acquisitions (but excluding cash consideration funded by a borrowing under the Revolving Credit Facility), and (ix) cash dividends paid on the Exchange Preferred Stock to the extent permitted by the Credit Facility, plus the sum of: (b)(i) decreases in adjusted working capital for such period, (ii) refunds of taxes paid in prior periods, and (iii) proceeds of certain indebtedness.

            The Credit Facility contains covenants restricting the ability of the Company and the Company’s subsidiaries to, among other things, (i) incur additional debt, (ii) declare dividends or redeem or repurchase capital stock, (iii) prepay, redeem or purchase debt, (iv) incur liens, (v) make loans and investments, (vi) make capital expenditures, (vii) engage in mergers, acquisitions and asset sales and (viii) engage in transactions with affiliates.  The Company is also required to comply with financial covenants with respect to (a) limits on annual aggregate capital expenditures, (b) a fixed charge coverage ratio, (c) a maximum leverage ratio, (d) a minimum EBITDA and (e) an interest coverage ratio.  On June 14, 2000 and December 31, 2001, the Credit Facility was amended to provide more flexibility in meeting the maximum leverage ratio, interest coverage ratio, fixed charge ratio, and minimum EBITDA covenants thereunder.  The Company is in compliance, as of November 13, 2002, with the provisions of the Credit Facility.

            In 1998, the Company issued 280,000 shares of its Initial Preferred Stock with an aggregate liquidation preference of $28.0 million, and 120,000 shares of preferred stock pursuant to the Private Placement, with an aggregate liquidation preference of $12.0 million.  On February 19, 1999, the Initial Preferred Stock was exchanged for the Company’s Series C 13¼% Senior Exchangeable PIK Preferred Stock due 2010 which has been registered under the Securities Act pursuant to the Company’s Registration Statement on Form S-4, as amended, effective January 21, 1999 (File Number 333-62635).  At the election of the Company, dividends on the Exchange Preferred Stock may be paid in kind until July 1, 2003 and thereafter must be paid in cash.  Since January 1, 1999, the Company has issued 251,512 shares of additional preferred stock as payment-in-kind for dividends on the Exchange Preferred Stock.  The Credit Facility currently prohibits the payment of cash dividends on the Exchange Preferred Stock.  The Exchange Preferred Stock is mandatorily redeemable upon a change of control and on July 1, 2010. In September 2000 and August 2002, the Company repurchased 51,573 and 60,001 shares of its redeemable exchangeable preferred stock for $3,906,655 and $5,700,095, respectively.

            Under the terms of the Exchange Preferred Stock, at the election of the Company, dividends may be paid in kind until January 1, 2003 and thereafter must be paid in cash commencing in January 2004.  Under the Credit Agreement, the Company may only pay cash dividends if it meets specified financial ratios.  Based on current projections, the Company believes that it is likely that it will not be permitted by the Credit Agreement to pay cash dividends to the holders of the Exchange Preferred Stock when required by the terms of the Exchange Preferred Stock.  In the event that the Company is unable to pay cash dividends to the holders of Exchange Preferred Stock for six or more periods (whether or not consecutive), the sole remedy of the holders is the ability to elect two members to the Company’s Board of Directors.

            The Company is a holding company and relies on dividends and other distributions from its subsidiaries as its primary source of liquidity.  The Company does not have and in the future may not have any assets other than the capital stock of its subsidiaries.  The ability of subsidiaries of the Company to make payments to the Company when required may be restricted by law and restricted or prohibited under the terms of the Credit Facility and future

13

Table of Contents

indebtedness of the Company.  No assurance can be made that subsidiaries of the Company will be able to pay cash dividends or make other distributions to the Company.

            The Company believes that, based on current levels of operations and anticipated growth, its cash from operations, together with other available sources of liquidity, including borrowings under the Revolving Credit Facility, will be sufficient to fund its debt service obligations and implement its growth strategy over the next 12 months.

            The Company or its affiliates may, from time to time depending on market conditions, purchase, refinance or otherwise retire certain of the Company’s outstanding debt and/or equity securities in the open market or by other means through open market purchases, privately negotiated purchases or exchanges, redemptions or otherwise, in each case, without public announcement or prior notice to the holders thereof, and if initiated or commenced, such purchases or offers to purchase may be discontinued at any time.

New Accounting Standards

            In July 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001.  Use of the pooling-of-interests method is prohibited.  The adoption of this statement had no effect on our consolidated financial position or results of operation.

            SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment.  The Company adopted this statement on January 1, 2002.  As a result, the Company recognized no impairment, and ceased amortization of goodwill.  Amortization expense charged to operations was $56,418 and $169,254 for the three- and nine-month periods ending September 30, 2001.

            In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets.  The Company adopted this statement during the first quarter of 2002.  The adoption of this statement had no effect on our consolidated financial position or results of operations.

            In April 2002, FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.”  SFAS No. 145, among other things, amends SFAS No. 4 and SFAS No. 64 to require that gains and losses from the extinguishment of debt generally be classified within continuing operations.  The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002.  We do not believe adoption of SFAS No. 145 will have a significant impact on our financial statements.

            In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 replaces Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.”  This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.  This statement is effective for exit or disposal activities that are initiated after December 31, 2002.  We do not believe that the adoption of SFAS 146 will have a significant impact on our financial statements.

14

Table of Contents

            There have been no material changes in the Company’s market risk exposure from that reported in the Company’s 10-K for the fiscal year ended December 31, 2001.

Within 90 days prior to the date of this report, the Company completed an evaluation, under the supervision and with the participation of the Company’s chief executive officer and chief financial officer of the effectiveness of the Company’s disclosure controls and procedures pursuant to  Rule 13a-14 of the Exchange Act.  Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective with respect to timely communicating to them all material information required to be disclosed in this report as it related to the Company and its subsidiaries.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed this evaluation.

15

Table of Contents

16

Table of Contents

SIGNATURE

            Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

17

Table of Contents

CERTIFICATIONS

          I, Joseph Semmer, certify that:

          1.          I have reviewed this quarterly report on Form 10-Q of Century Maintenance Supply, Inc.;

          2.          Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

          3.          Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

          4.          The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                        a.          designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

                        b.          evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

                        c.          presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

          5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

                        a.          all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

                        b.          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

          6.          The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

18

Table of Contents

CERTIFICATIONS

          I, Richard E. Penick, certify that:

          1.          I have reviewed this quarterly report on Form 10-Q of Century Maintenance Supply, Inc.;

          2.          Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

          3.          Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

          4.          The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                        a.          designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

                        b.          evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

                        c.          presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

          5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

                        a.          all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

                        b.          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

          6.          The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

19