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8-K - 8-K - INTERLINE BRANDS, INC./DEa11-23830_18k.htm

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

August 5, 2011

 

Interline Brands Announces Second Quarter 2011 Sales and Earnings Results

 

Jacksonville, Fla. — August 5, 2011 - Interline Brands, Inc. (NYSE: IBI) (“Interline” or the “Company”), a leading distributor and direct marketer of maintenance, repair and operations products (“MRO”), reported sales and earnings for the fiscal quarter ended July 1, 2011.

 

“We executed well on a number of fronts during the second quarter, and our recent CleanSource and NCP acquisitions are off to great starts.  We continue to face some challenges posed by the broader macroeconomic environment, but we remain confident that the strategic initiatives we have underway will help us deliver improved efficiencies, customer services, technology and sales performance,” commented Michael J. Grebe, Chairman and Chief Executive Officer.

 

Second Quarter 2011 Performance

 

Sales for the quarter ended July 1, 2011 were $317.7 million, a 17.6% increase compared to sales of $270.2 million in the comparable 2010 period.  Interline’s facilities maintenance end-market, which comprised 77% of sales, increased 24.9% during the second quarter, and 3.7% on an average organic daily sales basis.  The professional contractor end-market, which comprised 13% of sales, decreased 0.3% for the quarter.  The specialty distributor end-market, which comprised 10% of sales, decreased 3.3% for the quarter.  Not including the acquisitions of CleanSource and Northern Colorado Paper (“NCP”), average organic daily sales increased 2.2% for the quarter.

 



 

“We continue to be encouraged by the trends within the institutional and multi-family facilities maintenance end-markets, though our large customers remain focused on cost control. In addition, our recent acquisitions in the jan-san space are contributing to our growth and broadening our reach in underpenetrated markets and geographies,” said Mr. Grebe.

 

Gross profit increased $14.6 million, or 14.3%, to $116.1 million for the second quarter of 2011, compared to $101.6 million for the second quarter of 2010.  As a percentage of net sales, gross profit decreased 100 basis points to 36.6% compared to 37.6% for the second quarter of 2010.  This decrease was related to the CleanSource and NCP acquisitions, as they have lower gross profit margins due to their product mix.

 

“From our regional replenishment strategy to our investments in sales professionals and e-commerce sites, we are building the foundation for scalable growth,” commented Kenneth D. Sweder, Interline’s President and Chief Operating Officer.  “In addition, our two recent acquisitions, CleanSource and NCP, continue to progress well.  Through these acquisitions, we are extending our national capabilities into the Western United States, enabling more MRO product sales, and benefiting from operating and merchandising opportunities.”

 

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2011 increased $10.8 million, or 13.9%, to $88.3 million from $77.5 million for the second quarter of 2010.  As a percentage of net sales, SG&A expenses were 27.8% compared to 28.7% for the second quarter of 2010.

 



 

Second quarter 2011 operating income of $22.0 million, or 6.9% of sales, increased 15.0% compared to $19.2 million, or 7.1% of sales, in the second quarter of 2010.

 

Earnings per diluted share for the second quarter of 2011 were $0.29, an increase of 7% compared to earnings per diluted share of $0.27 for the second quarter of 2010.  Earnings per diluted share for the second quarters of 2011 and 2010 include a $0.01 and $0.02 per diluted share charge, respectively, associated with ongoing improvements to the Company’s distribution network.

 

Year-To-Date 2011 Performance

 

Sales for the six months ended July 1, 2011 were $615.1 million, a 19.3% increase over sales of $515.4 million in the comparable 2010 period.  Not including the acquisitions of CleanSource and NCP, average organic daily sales increased 3.2% for the six months ended July 1, 2011.

 

Gross profit increased $30.4 million, or 15.4%, to $227.1 million for the six months ended July 1, 2011, compared to $196.7 million in the prior year period.  As a percentage of sales, gross profit decreased to 36.9% from 38.2% in the comparable 2010 period.

 

SG&A expenses for the six months ended July 1, 2011 were $176.3 million, or 28.7% of sales, compared to $154.7 million, or 30.0% of sales, for the six months ended June 25, 2010.

 



 

Operating income was $39.1 million, or 6.4% of sales, for the six months ended July 1, 2011 compared to $32.3 million, or 6.3% of sales, for the six months ended June 25, 2010, representing an increase of 21.0%.

 

Earnings per diluted share were $0.49 for the six months ended July 1, 2011, an increase of 11% over earnings per diluted share of $0.44 for the six months ended June 25, 2010.

 

Earnings per diluted share for the six months ended July 1, 2011 included a $0.02 per diluted share charge associated with ongoing efforts to enhance the Company’s distribution network.  Earnings per diluted share for the six months ended June 25, 2010 included a $0.03 per diluted share charge associated with ongoing efforts to enhance the Company’s distribution network and a $0.02 per diluted share charge associated with changes in the Company’s executive management.

 

Cash flow from operating activities for the six month ended July 1, 2011 was $28.0 million compared to $16.1 million for the six months ended June 25, 2010.

 

Business Outlook

 

Mr. Grebe stated, “Looking ahead, we have a cautious stance on the broader macroeconomic environment and the pace of recovery in our end-markets.  Nevertheless, we are driving permanent improvements in our business that will enable us to grow more efficiently and deliver incremental operating leverage over time.  We remain confident in our ability to execute against our strategy and we are excited to realize the full benefits of our efforts as we work to strengthen Interline’s position as a premier, broad-line MRO distributor.”

 



 

Conference Call

 

Interline will host a conference call on August 5, 2011 at 9:00 a.m. Eastern Time.  Interested parties may listen to the call toll free by dialing 1-800-427-0638 or 1-706-634-1170.  A digital recording will be available for replay two hours after the completion of the conference call by calling 1-800-642-1687 or 1-706-645-9291 and referencing Conference I.D. Number 84234072.  This recording will expire on August 19, 2011.

 

About Interline

 

Interline Brands, Inc. is a leading distributor and direct marketer with headquarters in Jacksonville, Florida.  Interline provides maintenance, repair and operations products to a diversified customer base of facilities maintenance professionals, professional contractors, and specialty distributors primarily throughout North America, Central America and the Caribbean.  For more information, visit the Company’s website at http://www.interlinebrands.com.

 

Recent releases and other news, reports and information about the Company can be found on the “Investor Relations” page of the Company’s website at http://ir.interlinebrands.com/.

 

Non-GAAP Financial Information

 

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).  Interline’s management uses non-US GAAP measures in its analysis of the Company’s performance.  Investors are encouraged to review the

 



 

reconciliation of non-US GAAP financial measures to the comparable US GAAP results available in the accompanying tables.

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

 

The statements contained in this release which are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, forward-looking statements.  The Company has tried, whenever possible, to identify these forward-looking statements by using words such as “projects,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions.  Similarly, statements herein that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements.  The risks and uncertainties involving forward-looking statements include, for example, economic slowdowns, general market conditions, credit market contractions, consumer spending and debt levels, adverse changes in trends in the home improvement and remodeling and home building markets, the failure to realize expected benefits from acquisitions, material facilities systems disruptions and shutdowns, the failure to locate, acquire and integrate acquisition candidates, commodity price risk, foreign currency exchange risk, interest rate risk, the dependence on key employees and other risks described in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2011 and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.  These statements reflect the Company’s current beliefs and are based upon information currently available to it.  Be advised that developments subsequent to this release are likely to cause these statements to become outdated with the passage of time.  The Company does not currently intend, however, to update the information provided today prior to its next earnings release.

 

CONTACT: Lev Cela

 

PHONE: 904-421-1441

 



 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JULY 1, 2011 AND DECEMBER 31, 2010

(in thousands, except share and per share data)

 

 

 

July 1,

 

December 31,

 

 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

82,793

 

$

86,981

 

Investments

 

 

100

 

Accounts receivable - trade (net of allowance for doubtful accounts of $8,120 and $9,088)

 

147,067

 

122,619

 

Inventory

 

212,901

 

203,269

 

Prepaid income taxes

 

775

 

2,086

 

Prepaid expenses and other current assets

 

20,923

 

28,816

 

Deferred income taxes

 

17,008

 

17,381

 

Total current assets

 

481,467

 

461,252

 

 

 

 

 

 

 

Property and equipment, net

 

57,275

 

54,546

 

Goodwill

 

343,853

 

341,168

 

Other intangible assets, net

 

138,261

 

141,562

 

Other assets

 

9,240

 

9,081

 

Total assets

 

$

1,030,096

 

$

1,007,609

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

 

$

108,087

 

$

96,878

 

Accrued expenses and other current liabilities

 

44,288

 

45,181

 

Accrued interest

 

3,220

 

2,852

 

Income tax payable

 

1,852

 

819

 

Current portion of long-term debt

 

 

13,358

 

Current portion of capital leases

 

607

 

607

 

Total current liabilities

 

158,054

 

159,695

 

 

 

 

 

 

 

Long-Term Liabilities:

 

 

 

 

 

Deferred income taxes

 

48,123

 

44,045

 

Long-term debt, net of current portion

 

300,000

 

300,000

 

Capital leases, net of current portion

 

570

 

906

 

Other liabilities

 

6,865

 

6,731

 

Total liabilities

 

513,612

 

511,377

 

Commitments and contingencies

 

 

 

 

 

Senior preferred stock; $0.01 par value, 20,000,000 shares authorized; no shares outstanding as of July 1, 2011 and December 31, 2010

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

Common stock; $0.01 par value, 100,000,000 authorized; 33,527,352 issued and 33,358,650 outstanding as of July 1, 2011 and 33,336,373 issued and 33,214,073 outstanding as of December 31, 2010

 

335

 

333

 

Additional paid-in capital

 

597,346

 

593,031

 

Accumulated deficit

 

(80,085

)

(96,824

)

Accumulated other comprehensive income

 

2,091

 

1,865

 

Treasury stock, at cost, 168,702 shares as of July 1, 2011 and 122,300 as of December 31, 2010

 

(3,203

)

(2,173

)

Total shareholders’ equity

 

516,484

 

496,232

 

Total liabilities and shareholders’ equity

 

$

1,030,096

 

$

1,007,609

 

 



 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

THREE AND SIX MONTHS ENDED JULY 1, 2011 AND JUNE 25, 2010

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 1,

 

June 25,

 

July 1,

 

June 25,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

317,679

 

$

270,154

 

$

615,096

 

$

515,372

 

Cost of sales

 

201,545

 

168,587

 

388,021

 

318,658

 

Gross profit

 

116,134

 

101,567

 

227,075

 

196,714

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

88,252

 

77,470

 

176,339

 

154,699

 

Depreciation and amortization

 

5,853

 

4,935

 

11,605

 

9,686

 

Total operating expense

 

94,105

 

82,405

 

187,944

 

164,385

 

Operating income

 

22,029

 

19,162

 

39,131

 

32,329

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(6,093

)

(4,366

)

(12,189

)

(8,719

)

Interest and other income

 

382

 

301

 

789

 

725

 

Income before income taxes

 

16,318

 

15,097

 

27,731

 

24,335

 

Provision for income taxes

 

6,462

 

6,006

 

10,992

 

9,674

 

Net income

 

$

9,856

 

$

9,091

 

$

16,739

 

$

14,661

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

$

0.28

 

$

0.50

 

$

0.45

 

Diluted

 

$

0.29

 

$

0.27

 

$

0.49

 

$

0.44

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

33,451,011

 

33,036,531

 

33,404,735

 

32,855,343

 

Diluted

 

34,119,482

 

33,888,918

 

34,139,992

 

33,629,770

 

 



 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JULY 1, 2011 AND JUNE 25, 2010

(in thousands)

 

 

 

Six Months Ended

 

 

 

July 1,

 

June 25,

 

 

 

2011

 

2010

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

16,739

 

$

14,661

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

11,605

 

9,930

 

Amortization of debt issuance costs

 

677

 

515

 

Amortization of discount on 81/8% senior subordinated notes

 

 

74

 

Share-based compensation

 

2,831

 

2,021

 

Excess tax benefits from share-based compensation

 

(860

)

(754

)

Deferred income taxes

 

4,252

 

(579

)

Provision for doubtful accounts

 

1,772

 

2,419

 

Loss on disposal of property and equipment

 

75

 

54

 

 

 

 

 

 

 

Changes in assets and liabilities which provided (used) cash:

 

 

 

 

 

Accounts receivable - trade

 

(22,216

)

(18,002

)

Inventory

 

(4,777

)

(17,997

)

Prepaid expenses and other current assets

 

7,123

 

(1,699

)

Other assets

 

(74

)

50

 

Accounts payable

 

8,680

 

22,399

 

Accrued expenses and other current liabilities

 

(2,224

)

1,033

 

Accrued interest

 

365

 

(70

)

Income taxes

 

3,989

 

2,065

 

Other liabilities

 

10

 

4

 

Net cash provided by operating activities

 

27,967

 

16,124

 

Cash Flows from Investing Activities:

 

 

 

 

 

Purchase of property and equipment, net

 

(10,543

)

(8,228

)

Purchase of short-term investments

 

 

(2,678

)

Proceeds from sales and maturities of short-term investments

 

100

 

2,845

 

Purchase of businesses, net of cash acquired

 

(9,496

)

(145

)

Net cash used in investing activities

 

(19,939

)

(8,206

)

Cash Flows from Financing Activities:

 

 

 

 

 

Increase (decrease) in purchase card payable, net

 

969

 

(1,463

)

Repayment of term debt

 

 

(1,590

)

Repayment of 81/8% senior subordinated notes

 

(13,358

)

 

Payment of debt issuance costs

 

(34

)

 

Payments on capital lease obligations

 

(337

)

(130

)

Proceeds from stock options exercised

 

626

 

6,972

 

Excess tax benefits from share-based compensation

 

860

 

754

 

Treasury stock acquired to satisfy minimum statutory tax withholding requirements

 

(1,030

)

(97

)

Net cash (used in) provided by financing activities

 

(12,304

)

4,446

 

Effect of exchange rate changes on cash and cash equivalents

 

88

 

35

 

Net (decrease) increase in cash and cash equivalents

 

(4,188

)

12,399

 

Cash and cash equivalents at beginning of period

 

86,981

 

99,223

 

Cash and cash equivalents at end of period

 

$

82,793

 

$

111,622

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

11,081

 

$

8,066

 

Income taxes, net of refunds

 

$

3,238

 

$

7,938

 

 

 

 

 

 

 

Schedule of Non-Cash Investing Activities:

 

 

 

 

 

Property acquired through lease incentives

 

$

475

 

$

1,620

 

Adjustments to liabilities assumed and goodwill on businesses acquired

 

$

163

 

$

 

Contingent consideration associated with purchase of business

 

$

250

 

$

 

 



 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP INFORMATION

THREE AND SIX MONTHS ENDED JULY 1, 2011 AND JUNE 25, 2010

(in thousands, except per share data)

 

Free Cash Flow

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 1,

 

June 25,

 

July 1,

 

June 25,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net cash from operating activities

 

$

14,469

 

$

58

 

$

27,967

 

$

16,124

 

Less capital expenditures

 

(5,116

)

(4,495

)

(10,543

)

(8,228

)

Free cash flow

 

$

9,353

 

$

(4,437

)

$

17,424

 

$

7,896

 

 

We define free cash flow as net cash provided by operating activities, as defined under US GAAP, less capital expenditures. We believe that free cash flow is an important measure of our liquidity and therefore our ability to reduce debt and make strategic investments after considering the capital expenditures necessary to operate the business. We use free cash flow in the evaluation of the Company’s business performance. A limitation of this measure, however, is that it does not reflect payments made in connection with investments and acquisitions, which reduce liquidity. To compensate for this limitation, management evaluates its investments and acquisitions through other return on capital measures.

 

Daily Sales Calculations

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 1,

 

June 25,

 

 

 

July 1,

 

June 25,

 

 

 

 

 

2011

 

2010

 

% Variance

 

2011

 

2010

 

% Variance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

317,679

 

$

270,154

 

17.6

%

$

615,096

 

$

515,372

 

19.3

%

Less acquisitions:

 

(41,716

)

 

 

 

(79,322

)

 

 

 

Organic sales

 

$

275,963

 

$

270,154

 

2.2

%

$

535,774

 

$

515,372

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daily sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ship days

 

64

 

64

 

 

 

129

 

128

 

 

 

Average daily sales (1)

 

$

4,964

 

$

4,221

 

17.6

%

$

4,768

 

$

4,026

 

18.4

%

Average organic daily sales (2)

 

$

4,312

 

$

4,221

 

2.2

%

$

4,153

 

$

4,026

 

3.2

%

 


(1)  Average daily sales are defined as sales for a period of time divided by the number of shipping days in that period of time.

(2)  Average organic daily sales are defined as sales for a period of time divided by the number of shipping days in that period of time excluding any sales from acquisitions made subsequent to the beginning of the prior year period.

 

Average organic daily sales is presented herein because we believe it to be relevant and useful information to our investors since it is used by management to evaluate the operating performance of our business, as adjusted to exclude the impact of acquisitions, and compare our organic operating performance with that of our competitors. However, average organic daily sales is not a measure of financial performance under US GAAP and it should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with US GAAP, such as net sales. Management utilizes average organic daily sales as an operating performance measure in conjunction with US GAAP measures such as net sales.

 

Adjusted EBITDA

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 1,

 

June 25,

 

July 1,

 

June 25,

 

 

 

2011

 

2010

 

2011

 

2010

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

9,856

 

$

9,091

 

$

16,739

 

$

14,661

 

Interest expense

 

6,093

 

4,366

 

12,189

 

8,719

 

Interest income

 

(5

)

(22

)

(11

)

(54

)

Income tax provision

 

6,462

 

6,006

 

10,992

 

9,674

 

Depreciation and amortization

 

5,853

 

5,027

 

11,605

 

9,930

 

Adjusted EBITDA

 

$

28,259

 

$

24,468

 

$

51,514

 

$

42,930

 

Adjusted EBITDA margin

 

8.9

%

9.1

%

8.4

%

8.3

%

 

Adjusted EBITDA differs from Consolidated EBITDA per our credit facility agreement for purposes of determining our net leverage ratio. We define Adjusted EBITDA as net income plus interest expense (income), net, (gain) loss on extinguishment of debt, net, income taxes and depreciation and amortization. Adjusted EBITDA is presented herein because we believe it to be relevant and useful information to our investors since it is consistently used by our management to evaluate the operating performance of our business and to compare our operating performance with that of our competitors. Management also uses Adjusted EBITDA for planning purposes, including the preparation of annual operating budgets, and to determine appropriate levels of operating and capital investments. Adjusted EBITDA excludes certain items, which we believe are not indicative of our core operating results. We therefore utilize Adjusted EBITDA as a useful alternative to net income as an indicator of our operating performance compared to the Company’s plan. However, Adjusted EBITDA is not a measure of financial performance under US GAAP. Accordingly, Adjusted EBITDA should not be used in isolation or as a substitute for other measures of financial performance reported in accordance with US GAAP, such as gross margin, operating income, net income, cash flows from operating, investing and financing activities or other income or cash flow statement data prepared in accordance with US GAAP. While we believe that some of the items excluded from Adjusted EBITDA are not indicative of our core operating results, these items do impact our income statement, and management therefore utilizes Adjusted EBITDA as an operating performance measure in conjunction with US GAAP measures, such as gross margin, operating income, net income, cash flows from operating, investing and financing activities or other income or cash flow statement data prepared in accordance with US GAAP. We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.