Attached files
file | filename |
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EX-32.1 - EX-32.1 - INTERLINE BRANDS, INC./DE | a12-7587_1ex32d1.htm |
EX-31.1 - EX-31.1 - INTERLINE BRANDS, INC./DE | a12-7587_1ex31d1.htm |
EX-12.1 - EX-12.1 - INTERLINE BRANDS, INC./DE | a12-7587_1ex12d1.htm |
EX-32.2 - EX-32.2 - INTERLINE BRANDS, INC./DE | a12-7587_1ex32d2.htm |
EX-31.2 - EX-31.2 - INTERLINE BRANDS, INC./DE | a12-7587_1ex31d2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 30, 2012 | |
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or | |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-32380
INTERLINE BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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03-0542659 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
701 San Marco Boulevard |
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Jacksonville, Florida |
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32207 |
(Address of principal executive offices) |
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(Zip code) |
(904) 421-1400
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
As of May 4, 2012, there were 31,840,940 shares of the registrants common stock outstanding (excluding 2,036,718 shares held in treasury), par value $0.01.
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 30, 2012 AND DECEMBER 30, 2011
(in thousands, except share and per share data)
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March 30, |
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December 30, |
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2012 |
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2011 |
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ASSETS |
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Current Assets: |
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|
|
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Cash and cash equivalents |
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$ |
84,397 |
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$ |
97,099 |
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Accounts receivable - trade (net of allowance for doubtful accounts of $5,740 and $6,457) |
|
136,756 |
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128,383 |
| ||
Inventories |
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227,885 |
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221,225 |
| ||
Prepaid expenses and other current assets |
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21,042 |
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26,285 |
| ||
Income taxes receivable |
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5,283 |
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1,123 |
| ||
Deferred income taxes |
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15,446 |
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16,738 |
| ||
Total current assets |
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490,809 |
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490,853 |
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Property and equipment, net |
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56,403 |
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57,728 |
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Goodwill |
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344,478 |
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344,478 |
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Other intangible assets, net |
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132,406 |
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134,377 |
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Other assets |
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9,390 |
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9,022 |
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Total assets |
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$ |
1,033,486 |
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$ |
1,036,458 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
96,933 |
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$ |
109,438 |
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Accrued expenses and other current liabilities |
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47,060 |
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51,864 |
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Accrued interest |
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8,205 |
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2,933 |
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Current portion of capital leases |
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635 |
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669 |
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Total current liabilities |
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152,833 |
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164,904 |
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Long-Term Liabilities: |
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Deferred income taxes |
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52,456 |
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51,776 |
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Long-term debt, net of current portion |
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300,000 |
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300,000 |
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Capital leases, net of current portion |
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578 |
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726 |
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Other liabilities |
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4,261 |
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4,607 |
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Total liabilities |
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510,128 |
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522,013 |
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Commitments and contingencies (see Note 5) |
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Senior preferred stock; $0.01 par value, 20,000,000 authorized; none outstanding as of March 30, 2012 and December 30, 2011 |
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Stockholders Equity: |
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Common stock; $0.01 par value, 100,000,000 authorized; 33,877,337 issued and 31,840,619 outstanding as of March 30, 2012 and 33,558,842 issued and 31,596,615 outstanding as of December 30, 2011 |
|
339 |
|
335 |
| ||
Additional paid-in capital |
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602,659 |
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599,923 |
| ||
Accumulated deficit |
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(51,685 |
) |
(59,150 |
) | ||
Accumulated other comprehensive income |
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1,835 |
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1,688 |
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Treasury stock, at cost, 2,036,718 as of March 30, 2012 and 1,962,227 as of December 30, 2011 |
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(29,790 |
) |
(28,351 |
) | ||
Total stockholders equity |
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523,358 |
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514,445 |
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Total liabilities and stockholders equity |
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$ |
1,033,486 |
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$ |
1,036,458 |
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See accompanying notes to unaudited consolidated financial statements.
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 2012 AND APRIL 1, 2011
(in thousands, except share and per share data)
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March 30, |
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April 1, |
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2012 |
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2011 |
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Net sales |
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$ |
313,582 |
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$ |
297,417 |
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Cost of sales |
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197,971 |
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186,476 |
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Gross profit |
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115,611 |
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110,941 |
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Operating Expenses: |
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Selling, general and administrative expenses |
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91,517 |
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88,087 |
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Depreciation and amortization |
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6,308 |
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5,752 |
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Total operating expenses |
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97,825 |
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93,839 |
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Operating income |
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17,786 |
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17,102 |
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Interest expense |
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(6,046 |
) |
(6,096 |
) | ||
Interest and other income |
|
592 |
|
407 |
| ||
Income before income taxes |
|
12,332 |
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11,413 |
| ||
Provision for income taxes |
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4,867 |
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4,530 |
| ||
Net income |
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$ |
7,465 |
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$ |
6,883 |
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Earnings Per Share: |
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Basic |
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$ |
0.23 |
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$ |
0.21 |
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Diluted |
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$ |
0.23 |
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$ |
0.20 |
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Weighted-Average Shares Outstanding: |
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|
|
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Basic |
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31,807,491 |
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33,356,472 |
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Diluted |
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32,406,790 |
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34,158,121 |
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See accompanying notes to unaudited consolidated financial statements.
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 2012 AND APRIL 1, 2011
(in thousands)
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March 30, |
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April 1, |
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|
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2012 |
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2011 |
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Net income |
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$ |
7,465 |
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$ |
6,883 |
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Other comprehensive income, net of tax: |
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|
|
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Foreign currency translation adjustments |
|
147 |
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228 |
| ||
Amortization of unrecognized gain on employee benefits |
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4 |
| ||
Other comprehensive income |
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147 |
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232 |
| ||
Comprehensive income |
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$ |
7,612 |
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$ |
7,115 |
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See accompanying notes to unaudited consolidated financial statements.
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 2012 AND APRIL 1, 2011
(in thousands)
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March 30, |
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April 1, |
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2012 |
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2011 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
7,465 |
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$ |
6,883 |
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Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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|
|
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Depreciation and amortization |
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6,308 |
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5,752 |
| ||
Amortization of deferred lease incentive obligation |
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(200 |
) |
(195 |
) | ||
Amortization of debt issuance costs |
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349 |
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337 |
| ||
Share-based compensation |
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1,169 |
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1,265 |
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Excess tax benefits from share-based compensation |
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(713 |
) |
(853 |
) | ||
Deferred income taxes |
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1,972 |
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2,229 |
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Provision for doubtful accounts |
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231 |
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1,094 |
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(Gain) loss on disposal of property and equipment |
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(36 |
) |
63 |
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Other |
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(315 |
) |
(153 |
) | ||
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|
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Changes in assets and liabilities which provided (used) cash, net of businesses acquired: |
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|
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Accounts receivable - trade |
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(8,571 |
) |
(6,851 |
) | ||
Inventories |
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(6,595 |
) |
(1,446 |
) | ||
Prepaid expenses and other current assets |
|
5,246 |
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10,966 |
| ||
Other assets |
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(53 |
) |
(128 |
) | ||
Accounts payable |
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(12,512 |
) |
(4,854 |
) | ||
Accrued expenses and other current liabilities |
|
(2,807 |
) |
(7,997 |
) | ||
Accrued interest |
|
5,271 |
|
5,188 |
| ||
Income taxes |
|
(3,447 |
) |
1,863 |
| ||
Other liabilities |
|
(20 |
) |
335 |
| ||
Net cash (used in) provided by operating activities |
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(7,258 |
) |
13,498 |
| ||
Cash Flows from Investing Activities: |
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|
|
|
| ||
Purchases of property and equipment, net |
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(3,321 |
) |
(5,427 |
) | ||
Proceeds from sales and maturities of short-term investments |
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|
|
100 |
| ||
Purchase of businesses, net of cash acquired |
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|
|
(9,496 |
) | ||
Net cash used in investing activities |
|
(3,321 |
) |
(14,823 |
) | ||
Cash Flows from Financing Activities: |
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|
|
|
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(Decrease) increase in purchase card payable, net |
|
(2,128 |
) |
1,707 |
| ||
Repayment of 81/8 % senior subordinated notes |
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|
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(13,358 |
) | ||
Payment of debt issuance costs |
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|
|
(34 |
) | ||
Payments on capital lease obligations |
|
(183 |
) |
(188 |
) | ||
Proceeds from stock options exercised |
|
857 |
|
611 |
| ||
Excess tax benefits from share-based compensation |
|
713 |
|
853 |
| ||
Purchases of treasury stock |
|
(1,439 |
) |
(1,030 |
) | ||
Net cash used in financing activities |
|
(2,180 |
) |
(11,439 |
) | ||
Effect of exchange rate changes on cash and cash equivalents |
|
57 |
|
90 |
| ||
Net decrease in cash and cash equivalents |
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(12,702 |
) |
(12,674 |
) | ||
Cash and cash equivalents at beginning of period |
|
97,099 |
|
86,981 |
| ||
Cash and cash equivalents at end of period |
|
$ |
84,397 |
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$ |
74,307 |
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|
|
|
|
|
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Supplemental Disclosure of Cash Flow Information: |
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Cash paid during the period for: |
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|
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Interest |
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$ |
391 |
|
$ |
252 |
|
Income taxes, net of refunds |
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$ |
6,362 |
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$ |
630 |
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|
|
|
|
|
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Schedule of Non-Cash Investing and Financing Activities: |
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Property acquired through lease incentives |
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$ |
|
|
$ |
475 |
|
Contingent consideration associated with purchase of business |
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$ |
|
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$ |
250 |
|
See accompanying notes to unaudited consolidated financial statements.
INTERLINE BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2012 AND APRIL 1, 2011
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Interline Brands, Inc., a Delaware corporation, and its subsidiaries (Interline or the Company) is a leading national distributor and direct marketer of broad-line maintenance, repair and operations (MRO) products. The Company sells plumbing, electrical, hardware, security, heating, ventilation and air conditioning (HVAC), janitorial and sanitation (JanSan) supplies and other MRO products. Interlines highly diverse customer base consists of multi-family housing, educational, lodging, government and health care facilities, professional contractors and specialty distributors.
The Company markets and sells its products primarily through fourteen distinct and targeted brands. The Company utilizes a variety of sales channels, including a direct sales force, telesales representatives, a direct marketing program consisting of catalogs and promotional flyers, brand-specific websites and a national accounts sales program. The Company delivers its products through its network of distribution centers and professional contractor showrooms located throughout the United States, Canada and Puerto Rico, vendor managed inventory locations at large professional contractor customer locations, and its dedicated fleet of trucks and third-party carriers. Through its broad distribution network, the Company is able to provide next-day delivery service to approximately 98% of the U.S. population and same-day delivery service to most major metropolitan markets in the U.S.
Interline Brands, Inc. is the holding company of the Interline group of businesses, including its principal operating subsidiary, Interline Brands, Inc., a New Jersey corporation (Interline New Jersey).
Basis of Presentation
The accompanying unaudited interim consolidated financial statements include the accounts of Interline Brands, Inc. and all of its wholly-owned subsidiaries. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements included in the Companys Annual Report on Form 10-K have been condensed or omitted. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the fiscal year ended December 30, 2011 filed with the SEC.
All adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented have been recorded. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation reserves for accounts receivable and income taxes, lower of cost or market and obsolescence reserves for inventory, reserves for self-insurance programs and valuation of goodwill and other intangible assets. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Disclosure about how fair value is determined for assets and liabilities is based on a hierarchy established from the significant levels of inputs as follows:
Level 1 |
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quoted prices in active markets for identical assets or liabilities; |
Level 2 |
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quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or |
Level 3 |
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unobservable inputs, such as discounted cash flow models or valuations. |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The fair value of cash and cash equivalents, accounts receivable, and accounts payable approximate the carrying amount because of the short maturities of these items.
The fair value of the Companys senior subordinated notes is determined by quoted market prices, which are Level 1 inputs. The carrying amount and fair value of the non-current portion of the Companys senior subordinated notes as of March 30, 2012 and December 30, 2011 was as follows (in thousands):
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March 30, 2012 |
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December 30, 2011 |
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Description |
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Carrying |
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Fair |
|
Carrying |
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Fair |
| ||||
Senior subordinated notes |
|
$ |
300,000 |
|
$ |
316,500 |
|
$ |
300,000 |
|
$ |
310,500 |
|
Segment Information
The Company has one operating segment and, therefore, one reportable segment, the distribution of MRO products. The Companys revenues and assets outside the United States are not significant. The Companys net sales by product category were as follows (in thousands):
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Three Months Ended |
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March 30, |
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April 1, |
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Product Category (1) |
|
2012 |
|
2011 |
| ||
JanSan |
|
$ |
116,351 |
|
$ |
108,309 |
|
Plumbing |
|
71,275 |
|
70,863 |
| ||
Hardware, tools and fixtures |
|
28,775 |
|
30,143 |
| ||
HVAC |
|
26,141 |
|
23,134 |
| ||
Electrical and lighting |
|
20,043 |
|
17,980 |
| ||
Appliances and parts |
|
17,592 |
|
15,259 |
| ||
Security and safety |
|
16,427 |
|
15,420 |
| ||
Other |
|
16,978 |
|
16,309 |
| ||
Total |
|
$ |
313,582 |
|
$ |
297,417 |
|
(1) The Company continues to refine its robust product identification process and, as a result, stock keeping units are realigned within product categories. Therefore, the prior period in this table has been recast to be consistent with current presentation.
Recently Adopted Accounting Guidance
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04). The amendments in ASU 2011-04 provide clarification of certain fair value concepts such as principal market determination; valuation premise and highest and best use; measuring fair value of instruments with offsetting market or counterparty credit risks; blockage factor and other premiums and discounts; and liabilities and instruments classified in shareholders equity. In addition, the pronouncement provides guidance for new disclosures such as transfers between Level 1 and Level 2 of the fair value hierarchy; Level 3 fair value measurements; an entitys use of an asset when it is different from its highest and best use; and fair value hierarchy disclosures for financial instruments not measured at fair value but disclosed. Effective December 31, 2011, the Company adopted the fair value measurement and disclosure requirements. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05), as amended by ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). This pronouncement brings consistency to the way reporting entities disclose comprehensive income in their consolidated financial statements and related notes. ASU 2011-05, as amended by ASU 2011-12, no longer permits disclosure of comprehensive income in either the statement of shareholders equity or in a note to the consolidated financial statements. Instead, reporting entities have two options for presenting comprehensive income. The first option presents comprehensive income in a single statement, which includes two components: net income and other comprehensive income. The second option allows the presentation of comprehensive income in two separate but consecutive statements: one for net income and the other for other comprehensive income. Effective December 31, 2011, the Company adopted new disclosure requirements for comprehensive income, including the required retrospective application. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles Goodwill and Other (Topic 350) (ASU 2011-08). The amendments in ASU 2011-08 are intended to simplify how entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Effective December 31, 2011, the Company adopted the provisions of this guidance. Because this guidance only enhances the steps performed to determine whether a potential impairment exists (but should not impact the resulting conclusion), the adoption did not have an impact on the Companys consolidated financial statements.
2. ACCOUNTS RECEIVABLE
The Companys trade receivables are exposed to credit risk. The majority of the markets served by the Company are comprised of numerous individual accounts, none of which is individually significant. The Company monitors the creditworthiness of its customers on an ongoing basis and provides a reserve for estimated bad debt losses. If the financial condition of the Companys customers were to deteriorate, increases in its allowance for doubtful accounts may be needed.
The activity in the allowance for doubtful accounts consisted of the following (in thousands):
Balance at |
|
Charged to |
|
Deductions |
|
Balance at |
| ||||
$ |
6,457 |
|
$ |
231 |
|
$ |
(948 |
) |
$ |
5,740 |
|
3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock and participating securities outstanding during the period. Participating securities are unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid), such as deferred stock units. The impact of participating securities on the calculation is insignificant.
Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock and participating securities outstanding during the period as adjusted for the potential dilutive effect of stock options and non-vested shares of restricted stock and restricted share units using the treasury stock method.
The following summarizes the shares of common stock used to calculate earnings per share including the potentially dilutive impact of stock options, restricted stock and restricted share units, calculated using the treasury stock method, as included in the calculation of diluted weighted-average shares:
|
|
Three Months Ended |
| ||
|
|
March 30, |
|
April 1, |
|
|
|
2012 |
|
2011 |
|
Weighted average shares outstanding - basic |
|
31,807,491 |
|
33,356,472 |
|
Dilutive shares resulting from: |
|
|
|
|
|
Stock options |
|
359,149 |
|
488,863 |
|
Restricted stock |
|
540 |
|
|
|
Restricted share units |
|
239,610 |
|
312,786 |
|
Weighted average shares outstanding - diluted |
|
32,406,790 |
|
34,158,121 |
|
During the three months ended March 30, 2012 and April 1, 2011, stock options to purchase 1,898,545 shares and 1,237,757 shares of common stock, respectively, were excluded from the computations of diluted weighted-average shares outstanding because their effect would be anti-dilutive.
4. SHARE-BASED COMPENSATION
During the three months ended March 30, 2012 and April 1, 2011, share-based compensation expense was $1.2 million and $1.3 million, respectively. As of March 30, 2012, there was $12.8 million of total unrecognized share-based compensation expense related to unvested share-based payment awards. The expense is expected to be recognized over a weighted-average period of 2.6 years.
During the three months ended March 30, 2012 and April 1, 2011, the Company granted 207,161 and 345,291 stock options, respectively, with a weighted-average grant date fair value of $7.96 and $8.40, respectively. The fair values of stock options were estimated using the Black-Scholes option-pricing model. Expected volatility is based on historical performance of the Companys stock. The Company also considers historical data to estimate the timing and amount of stock option exercises and forfeitures. The expected life represents the period of time that stock options are expected to remain outstanding and is based on the contractual term of the stock options and expected exercise behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected option life assumed at the date of grant.
The Black-Scholes weighted-average assumptions were as follows:
|
|
Three Months Ended |
| ||
|
|
March 30, |
|
April 1, |
|
|
|
2012 |
|
2011 |
|
Expected volatility |
|
43.5 |
% |
41.0 |
% |
Expected dividends |
|
0.0 |
% |
0.0 |
% |
Risk-free interest rate |
|
0.9 |
% |
2.1 |
% |
Expected life (in years) |
|
5.0 |
|
5.0 |
|
During the three months ended March 30, 2012 and April 1, 2011, there were 76,759 and 38,198 stock options exercised, respectively, with an intrinsic value of $0.7 million and $0.2 million, respectively.
A summary status of restricted stock, restricted share units, and deferred stock units as of March 30, 2012 and changes during the three months then ended is presented below:
|
|
Restricted Stock |
|
Restricted Share Units |
|
Deferred Stock Units |
| |||||||||
|
|
|
|
Weighted- |
|
|
|
Weighted- |
|
|
|
Weighted- |
| |||
|
|
|
|
Average |
|
|
|
Average |
|
|
|
Average |
| |||
|
|
|
|
Grant Date |
|
|
|
Grant Date |
|
|
|
Grant Date |
| |||
|
|
Shares |
|
Fair Value |
|
Shares |
|
Fair Value |
|
Shares |
|
Fair Value |
| |||
Outstanding at December 30, 2011 |
|
2,300 |
|
$ |
22.27 |
|
630,269 |
|
$ |
14.69 |
|
124,019 |
|
$ |
19.05 |
|
Granted |
|
|
|
|
|
190,218 |
|
20.56 |
|
1,011 |
|
21.61 |
| |||
Vested |
|
(2,300 |
) |
22.27 |
|
(241,736 |
) |
10.93 |
|
|
|
|
| |||
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Outstanding at March 30, 2012 |
|
|
|
$ |
|
|
578,751 |
|
$ |
18.19 |
|
125,030 |
|
$ |
19.07 |
|
During the three months ended March 30, 2012, 2,300 restricted stock awards vested, with a fair value of less than $0.1 million. During the three months ended March 30, 2012, 241,736 restricted share units vested with a fair value of $4.7 million. During the three months ended March 30, 2012, no deferred stock units vested.
5. COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
As of March 30, 2012 and December 30, 2011, the Company was contingently liable for outstanding letters of credit aggregating to $7.5 million and $8.3 million, respectively.
Legal Proceedings
The Company has been named as a defendant in an action filed before the Nineteenth Judicial Circuit Court of Lake County, Illinois, which was subsequently removed to the United States District Court for the Northern District of Illinois. The complaint alleges that the Company sent thousands of unsolicited fax advertisements to businesses nationwide in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (TCPA). At the time of filing the complaint, the plaintiff also filed a motion asking the Court to certify a class of plaintiffs comprised of businesses who allegedly received unsolicited fax advertisements from the Company. Other reported TCPA claims have resulted in a broad range of outcomes, with each case being dependent on its own unique set of facts and circumstances. Accordingly, the Company cannot reasonably estimate the amount of loss, if any, arising from this matter. The Company is vigorously contesting class action certification and liability, and will continue to evaluate its defenses based upon its internal review and investigation of prior events, new information, and future circumstances.
The Company is involved in various other legal proceedings in the ordinary course of its business that are not anticipated to have a material effect on the Companys results of operations, financial position, or cash flows.
6. GUARANTOR SUBSIDIARIES
The 7.00% senior subordinated notes of Interline New Jersey (the Subsidiary Issuer), issued in November 2010, are, and the 81/8 % senior subordinated notes, fully redeemed in January 2011, were, fully and unconditionally guaranteed, jointly and severally, on an unsecured senior subordinated basis by Interline Brands, Inc. (the Parent Company) and all of Interline New Jerseys 100% owned domestic subsidiaries: Wilmar Holdings, Inc., Wilmar Financial, Inc., and Glenwood Acquisition LLC (collectively the Guarantor Subsidiaries). The guarantees by the Parent Company and the Guarantor Subsidiaries are senior to any of their existing and future subordinated obligations, equal in right of payment with any of their existing and future senior subordinated indebtedness and subordinated to any of their existing and future senior indebtedness.
The Parent Company is a holding company whose only asset is the stock of its subsidiaries. The Parent Company conducts virtually all of its business operations through the Subsidiary Issuer. Accordingly, the Parent Companys only material sources of cash are dividends and distributions with respect to its ownership interests in the Subsidiary Issuer that are derived from the earnings and cash flow generated by the Subsidiary Issuer. Through March 30, 2012, dividends totaling $1.4 million have been paid to the Parent Company from the Subsidiary Issuer for the purpose of funding share repurchases to satisfy minimum tax withholding requirements on share-based compensation.
The following tables set forth, on a condensed consolidating basis, the balance sheets, statements of earnings and comprehensive income, and statements of cash flows for the Parent Company, Subsidiary Issuer and Guarantor Subsidiaries for all financial statement periods presented in the Companys consolidated financial statements. The non-guarantor subsidiaries are minor and are included in the condensed financial data of the Subsidiary Issuer. The Subsidiary Issuer does not allocate integration expenses, corporate overhead or other expenses for shared services to the Parent Company or the Guarantor Subsidiaries; therefore, the following tables do not reflect any such allocation.
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF MARCH 30, 2012
(in thousands)
|
|
Parent |
|
|
|
|
|
|
|
|
| |||||
|
|
Company |
|
Subsidiary |
|
Guarantor |
|
Consolidating |
|
|
| |||||
|
|
(Guarantor) |
|
Issuer |
|
Subsidiaries |
|
Adjustments |
|
Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
|
|
$ |
84,365 |
|
$ |
32 |
|
$ |
|
|
$ |
84,397 |
|
Accounts receivable - trade, net |
|
|
|
136,756 |
|
|
|
|
|
136,756 |
| |||||
Inventories |
|
|
|
227,885 |
|
|
|
|
|
227,885 |
| |||||
Intercompany receivable |
|
|
|
|
|
161,620 |
|
(161,620 |
) |
|
| |||||
Other current assets |
|
|
|
43,729 |
|
4 |
|
(1,962 |
) |
41,771 |
| |||||
Total current assets |
|
|
|
492,735 |
|
161,656 |
|
(163,582 |
) |
490,809 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Property and equipment, net |
|
|
|
56,403 |
|
|
|
|
|
56,403 |
| |||||
Goodwill |
|
|
|
344,478 |
|
|
|
|
|
344,478 |
| |||||
Other intangible assets, net |
|
|
|
132,406 |
|
|
|
|
|
132,406 |
| |||||
Investment in subsidiaries |
|
523,358 |
|
166,733 |
|
|
|
(690,091 |
) |
|
| |||||
Other assets |
|
|
|
2,351 |
|
7,039 |
|
|
|
9,390 |
| |||||
Total assets |
|
$ |
523,358 |
|
$ |
1,195,106 |
|
$ |
168,695 |
|
$ |
(853,673 |
) |
$ |
1,033,486 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
|
|
$ |
96,933 |
|
$ |
|
|
$ |
|
|
$ |
96,933 |
|
Accrued expenses and other current liabilities |
|
|
|
55,265 |
|
1,962 |
|
(1,962 |
) |
55,265 |
| |||||
Intercompany payable |
|
|
|
161,620 |
|
|
|
(161,620 |
) |
|
| |||||
Current portion of capital leases |
|
|
|
635 |
|
|
|
|
|
635 |
| |||||
Total current liabilities |
|
|
|
314,453 |
|
1,962 |
|
(163,582 |
) |
152,833 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt and capital leases, net of current portion |
|
|
|
300,578 |
|
|
|
|
|
300,578 |
| |||||
Other liabilities |
|
|
|
56,717 |
|
|
|
|
|
56,717 |
| |||||
Total liabilities |
|
|
|
671,748 |
|
1,962 |
|
(163,582 |
) |
510,128 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Senior preferred stock |
|
|
|
1,034,013 |
|
|
|
(1,034,013 |
) |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stockholders equity (deficit) |
|
523,358 |
|
(510,655 |
) |
166,733 |
|
343,922 |
|
523,358 |
| |||||
Total liabilities and stockholders equity |
|
$ |
523,358 |
|
$ |
1,195,106 |
|
$ |
168,695 |
|
$ |
(853,673 |
) |
$ |
1,033,486 |
|
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF DECEMBER 30, 2011
(in thousands)
|
|
Parent |
|
|
|
|
|
|
|
|
| |||||
|
|
Company |
|
Subsidiary |
|
Guarantor |
|
Consolidating |
|
|
| |||||
|
|
(Guarantor) |
|
Issuer |
|
Subsidiaries |
|
Adjustments |
|
Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
|
|
$ |
97,061 |
|
$ |
38 |
|
$ |
|
|
$ |
97,099 |
|
Accounts receivable - trade, net |
|
|
|
128,383 |
|
|
|
|
|
128,383 |
| |||||
Inventories |
|
|
|
221,225 |
|
|
|
|
|
221,225 |
| |||||
Intercompany receivable |
|
|
|
|
|
158,003 |
|
(158,003 |
) |
|
| |||||
Other current assets |
|
|
|
45,764 |
|
5 |
|
(1,623 |
) |
44,146 |
| |||||
Total current assets |
|
|
|
492,433 |
|
158,046 |
|
(159,626 |
) |
490,853 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Property and equipment, net |
|
|
|
57,728 |
|
|
|
|
|
57,728 |
| |||||
Goodwill |
|
|
|
344,478 |
|
|
|
|
|
344,478 |
| |||||
Other intangible assets, net |
|
|
|
134,377 |
|
|
|
|
|
134,377 |
| |||||
Investment in subsidiaries |
|
514,445 |
|
163,147 |
|
|
|
(677,592 |
) |
|
| |||||
Other assets |
|
|
|
2,298 |
|
6,724 |
|
|
|
9,022 |
| |||||
Total assets |
|
$ |
514,445 |
|
$ |
1,194,461 |
|
$ |
164,770 |
|
$ |
(837,218 |
) |
$ |
1,036,458 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
|
|
$ |
109,438 |
|
$ |
|
|
$ |
|
|
$ |
109,438 |
|
Accrued expenses and other current liabilities |
|
|
|
54,797 |
|
1,623 |
|
(1,623 |
) |
54,797 |
| |||||
Intercompany payable |
|
|
|
158,003 |
|
|
|
(158,003 |
) |
|
| |||||
Current portion of capital leases |
|
|
|
669 |
|
|
|
|
|
669 |
| |||||
Total current liabilities |
|
|
|
322,907 |
|
1,623 |
|
(159,626 |
) |
164,904 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt and capital leases, net of current portion |
|
|
|
300,726 |
|
|
|
|
|
300,726 |
| |||||
Other liabilities |
|
|
|
56,383 |
|
|
|
|
|
56,383 |
| |||||
Total liabilities |
|
|
|
680,016 |
|
1,623 |
|
(159,626 |
) |
522,013 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Senior preferred stock |
|
|
|
999,139 |
|
|
|
(999,139 |
) |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stockholders equity (deficit) |
|
514,445 |
|
(484,694 |
) |
163,147 |
|
321,547 |
|
514,445 |
| |||||
Total liabilities and stockholders equity |
|
$ |
514,445 |
|
$ |
1,194,461 |
|
$ |
164,770 |
|
$ |
(837,218 |
) |
$ |
1,036,458 |
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 30, 2012
(in thousands)
|
|
Parent |
|
|
|
|
|
|
|
|
| |||||
|
|
Company |
|
Subsidiary |
|
Guarantor |
|
Consolidating |
|
|
| |||||
|
|
(Guarantor) |
|
Issuer |
|
Subsidiaries (1) |
|
Adjustments |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
$ |
|
|
$ |
313,582 |
|
$ |
|
|
$ |
|
|
$ |
313,582 |
|
Cost of sales |
|
|
|
197,971 |
|
|
|
|
|
197,971 |
| |||||
Gross profit |
|
|
|
115,611 |
|
|
|
|
|
115,611 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Selling, general and administrative expenses |
|
|
|
96,215 |
|
1 |
|
(4,699 |
) |
91,517 |
| |||||
Depreciation and amortization |
|
|
|
6,308 |
|
|
|
|
|
6,308 |
| |||||
Other operating income |
|
|
|
|
|
(4,699 |
) |
4,699 |
|
|
| |||||
Operating income |
|
|
|
13,088 |
|
4,698 |
|
|
|
17,786 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Equity earnings of subsidiaries |
|
(7,465 |
) |
(3,586 |
) |
|
|
11,051 |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest and other (expense) income, net |
|
|
|
(6,358 |
) |
904 |
|
|
|
(5,454 |
) | |||||
Income before income taxes |
|
7,465 |
|
10,316 |
|
5,602 |
|
(11,051 |
) |
12,332 |
| |||||
Provision for income taxes |
|
|
|
2,851 |
|
2,016 |
|
|
|
4,867 |
| |||||
Net income |
|
7,465 |
|
7,465 |
|
3,586 |
|
(11,051 |
) |
7,465 |
| |||||
Preferred stock dividends |
|
|
|
(34,874 |
) |
|
|
34,874 |
|
|
| |||||
Net income (loss) attributable to common stockholders |
|
7,465 |
|
(27,409 |
) |
3,586 |
|
23,823 |
|
7,465 |
| |||||
Other comprehensive income |
|
|
|
147 |
|
|
|
|
|
147 |
| |||||
Comprehensive income |
|
$ |
7,465 |
|
$ |
(27,262 |
) |
$ |
3,586 |
|
$ |
23,823 |
|
$ |
7,612 |
|
(1) The Subsidiary Issuer does not allocate integration expenses, corporate overhead or other expenses for shared services to the Guarantor Subsidiaries; therefore, the results for the Guarantor Subsidiaries do not reflect any such allocation.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 1, 2011
(in thousands)
|
|
Parent |
|
|
|
|
|
|
|
|
| |||||
|
|
Company |
|
Subsidiary |
|
Guarantor |
|
Consolidating |
|
|
| |||||
|
|
(Guarantor) |
|
Issuer |
|
Subsidiaries (1) |
|
Adjustments |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
$ |
|
|
$ |
297,417 |
|
$ |
|
|
$ |
|
|
$ |
297,417 |
|
Cost of sales |
|
|
|
186,476 |
|
|
|
|
|
186,476 |
| |||||
Gross profit |
|
|
|
110,941 |
|
|
|
|
|
110,941 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Selling, general and administrative expenses |
|
|
|
92,817 |
|
12 |
|
(4,742 |
) |
88,087 |
| |||||
Depreciation and amortization |
|
|
|
5,752 |
|
|
|
|
|
5,752 |
| |||||
Other operating income |
|
|
|
|
|
(4,742 |
) |
4,742 |
|
|
| |||||
Operating income |
|
|
|
12,372 |
|
4,730 |
|
|
|
17,102 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Equity earnings of subsidiaries |
|
(6,883 |
) |
(3,624 |
) |
|
|
10,507 |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest and other (expense) income, net |
|
|
|
(6,402 |
) |
713 |
|
|
|
(5,689 |
) | |||||
Income before income taxes |
|
6,883 |
|
9,594 |
|
5,443 |
|
(10,507 |
) |
11,413 |
| |||||
Provision for income taxes |
|
|
|
2,711 |
|
1,819 |
|
|
|
4,530 |
| |||||
Net income |
|
6,883 |
|
6,883 |
|
3,624 |
|
(10,507 |
) |
6,883 |
| |||||
Preferred stock dividends |
|
|
|
(30,402 |
) |
|
|
30,402 |
|
|
| |||||
Net income (loss) attributable to common stockholders |
|
6,883 |
|
(23,519 |
) |
3,624 |
|
19,895 |
|
6,883 |
| |||||
Other comprehensive income |
|
|
|
232 |
|
|
|
|
|
232 |
| |||||
Comprehensive income |
|
$ |
6,883 |
|
$ |
(23,287 |
) |
$ |
3,624 |
|
$ |
19,895 |
|
$ |
7,115 |
|
(1) The Subsidiary Issuer does not allocate integration expenses, corporate overhead or other expenses for shared services to the Guarantor Subsidiaries; therefore, the results for the Guarantor Subsidiaries do not reflect any such allocation.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 30, 2012
(in thousands)
|
|
Parent |
|
|
|
|
|
|
|
|
| |||||
|
|
Company |
|
Subsidiary |
|
Guarantor |
|
Consolidating |
|
|
| |||||
|
|
(Guarantor) |
|
Issuer |
|
Subsidiaries |
|
Adjustments |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash (used in) provided by operating activities |
|
$ |
|
|
$ |
(10,869 |
) |
$ |
3,611 |
|
$ |
|
|
$ |
(7,258 |
) |
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Purchases of property and equipment, net |
|
|
|
(3,321 |
) |
|
|
|
|
(3,321 |
) | |||||
Dividends received from subsidiary issuer |
|
1,439 |
|
|
|
|
|
(1,439 |
) |
|
| |||||
Other |
|
|
|
3,617 |
|
|
|
(3,617 |
) |
|
| |||||
Net cash provided by (used in) investing activities |
|
1,439 |
|
296 |
|
|
|
(5,056 |
) |
(3,321 |
) | |||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Decrease in purchase card payable, net |
|
|
|
(2,128 |
) |
|
|
|
|
(2,128 |
) | |||||
Payments on capital lease obligations |
|
|
|
(183 |
) |
|
|
|
|
(183 |
) | |||||
Purchases of treasury stock |
|
(1,439 |
) |
|
|
|
|
|
|
(1,439 |
) | |||||
Dividends paid to parent company |
|
|
|
(1,439 |
) |
|
|
1,439 |
|
|
| |||||
Other |
|
|
|
1,570 |
|
(3,617 |
) |
3,617 |
|
1,570 |
| |||||
Net cash used in financing activities |
|
(1,439 |
) |
(2,180 |
) |
(3,617 |
) |
5,056 |
|
(2,180 |
) | |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
57 |
|
|
|
|
|
57 |
| |||||
Net decrease in cash and cash equivalents |
|
|
|
(12,696 |
) |
(6 |
) |
|
|
(12,702 |
) | |||||
Cash and cash equivalents at beginning of period |
|
|
|
97,061 |
|
38 |
|
|
|
97,099 |
| |||||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
84,365 |
|
$ |
32 |
|
$ |
|
|
$ |
84,397 |
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 1, 2011
(in thousands)
|
|
Parent |
|
|
|
|
|
|
|
|
| |||||
|
|
Company |
|
Subsidiary |
|
Guarantor |
|
Consolidating |
|
|
| |||||
|
|
(Guarantor) |
|
Issuer |
|
Subsidiaries |
|
Adjustments |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash provided by operating activities |
|
$ |
|
|
$ |
12,972 |
|
$ |
526 |
|
$ |
|
|
$ |
13,498 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Purchases of property and equipment, net |
|
|
|
(5,427 |
) |
|
|
|
|
(5,427 |
) | |||||
Proceeds from sales and maturities of short-term investments |
|
|
|
100 |
|
|
|
|
|
100 |
| |||||
Purchase of businesses, net of cash acquired |
|
|
|
(9,496 |
) |
|
|
|
|
(9,496 |
) | |||||
Other |
|
|
|
561 |
|
|
|
(561 |
) |
|
| |||||
Net cash used in investing activities |
|
|
|
(14,262 |
) |
|
|
(561 |
) |
(14,823 |
) | |||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Increase in purchase card payable, net |
|
|
|
1,707 |
|
|
|
|
|
1,707 |
| |||||
Repayment of debt and capital lease obligations |
|
|
|
(13,546 |
) |
|
|
|
|
(13,546 |
) | |||||
Proceeds from stock options exercised |
|
|
|
611 |
|
|
|
|
|
611 |
| |||||
Other |
|
|
|
(211 |
) |
(561 |
) |
561 |
|
(211 |
) | |||||
Net cash used in financing activities |
|
|
|
(11,439 |
) |
(561 |
) |
561 |
|
(11,439 |
) | |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
90 |
|
|
|
|
|
90 |
| |||||
Net decrease in cash and cash equivalents |
|
|
|
(12,639 |
) |
(35 |
) |
|
|
(12,674 |
) | |||||
Cash and cash equivalents at beginning of period |
|
|
|
86,919 |
|
62 |
|
|
|
86,981 |
| |||||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
74,280 |
|
$ |
27 |
|
$ |
|
|
$ |
74,307 |
|
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
References to us and we are to the Company. You should read the following discussion in conjunction with our unaudited consolidated financial statements and related notes included in this quarterly report, and our audited consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) that are subject to risks and uncertainties. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as may, believe, expect, anticipate, intend, plan, estimate or similar expressions, including, without limitation, certain statements in Results of Operations, Liquidity and Capital Resources, and Item 3. Quantitative and Qualitative Disclosures About Market Risk. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include:
· general market conditions,
· product cost and price fluctuations due to inflation and currency exchange rates,
· the highly competitive nature of the maintenance, repair and operations distribution industry,
· adverse changes in trends in the home improvement and remodeling and home building markets,
· apartment vacancy rates and effective rents,
· governmental and educational budget constraints,
· our ability to accurately predict market trends,
· the loss of significant customers,
· health care costs,
· labor and benefit costs,
· failure to identify, acquire and successfully integrate acquisition candidates,
· our ability to purchase products from suppliers on favorable terms,
· fluctuations in the cost of commodity-based products and raw materials (such as copper) and fuel prices,
· our customers ability to pay us,
· credit market contractions,
· failure to realize expected benefits from acquisitions,
· consumer spending and debt levels,
· material facilities and systems disruptions and shutdowns,
· the length of our supply chains,
· work stoppages or other business interruptions at transportation centers or shipping ports,
· dependence on key employees,
· changes to tariffs between the countries in which we operate,
· our ability to protect trademarks,
· adverse publicity and litigation,
· our level of debt,
· interest rate fluctuations,
· future cash flows,
· changes in governmental regulations related to our product offerings,
· weather conditions,
· changes in consumer preferences, and
· other factors described under Part I. Item 1ARisk Factors in our Annual Report on Form 10-K filed with the SEC.
Forward-looking statements made by us in this report, or elsewhere, speak only as of the date on which we make them. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. In light of these risks and uncertainties, any forward-looking statements made in this report or elsewhere might not occur. Notwithstanding the foregoing, all information contained in this report is materially accurate as of the date of this report.
Overview
We are a leading national distributor and direct marketer of broad-line maintenance, repair and operations (MRO) products. We have one operating segment, the distribution of MRO products. We stock approximately 100,000 MRO products in the following categories: janitorial and sanitation (JanSan); plumbing; hardware, tools and fixtures; heating, ventilation and air conditioning (HVAC); electrical and lighting; appliances and parts; security and safety; and other miscellaneous products. Our products are primarily used for the repair, maintenance, remodeling, refurbishment and construction of residential properties and non-industrial facilities.
Our highly diverse customer base includes facilities maintenance customers, which consist of multi-family housing facilities, educational institutions, lodging and health care facilities, government properties and building service contractors; professional contractors who are primarily involved in the repair, remodeling and construction of residential and non-industrial facilities; and specialty distributors, including plumbing and hardware retailers. Our customers range in size from individual contractors and independent hardware stores to apartment management companies and national purchasing groups.
We market and sell our products primarily through fourteen distinct and targeted brands, each of which is recognized in the markets they serve for providing quality products at competitive prices with reliable same-day or next-day delivery. The Wilmar®, AmSan®, CleanSource®, Sexauer®, NCP®, Maintenance USA® and Trayco® brands generally serve our facilities maintenance customers; the Barnett®, Copperfield®, U.S. Lock® and SunStar® brands generally serve our professional contractor customers; and the Hardware Express®, LeranSM and AF Lighting® brands generally serve our specialty distributors customers. Our multi-brand operating model, which we believe is unique in the industry, allows us to use a single platform to deliver tailored products and services to meet the individual needs of each respective customer group served. We reach our markets using a variety of sales channels, including a sales force of approximately 700 field sales representatives, approximately 365 inside sales and customer service representatives, a direct marketing program consisting of catalogs and promotional flyers, brand-specific websites and a national accounts sales program.
We deliver our products through our network of 55 distribution centers and 25 professional contractor showrooms located throughout the United States, Canada and Puerto Rico, 52 vendor-managed inventory locations at large customer locations and a dedicated fleet of trucks and third-party carriers. Our broad distribution network enables us to provide reliable, next-day delivery service to approximately 98% of the U.S. population and same-day delivery service to most major metropolitan markets in the U.S.
Our information technology and logistics platforms support our major business functions, allowing us to market and sell our products at varying price points depending on the customers service requirements. While we market our products under a variety of brands, generally our brands draw from the same inventory within common distribution centers and share associated employee and transportation costs. In addition, we have centralized marketing, purchasing and catalog production operations to support our brands. We believe that our information technology and logistics platforms also benefit our customers by allowing us to offer a broad product selection at highly competitive prices while maintaining the unique customer appeal of each of our targeted brands. Overall, we believe that our common operating platforms have enabled us to improve customer service, maintain lower operating costs, efficiently manage working capital and support our growth initiatives.
Results of Operations
The following table presents information derived from the consolidated statements of earnings expressed as a percentage of net sales for the three months ended March 30, 2012 and April 1, 2011:
|
|
% of Net Sales |
|
% Increase |
| ||
|
|
Three Months Ended |
|
(Decrease) |
| ||
|
|
March 30, |
|
April 1, |
|
2012 |
|
|
|
2012 |
|
2011 |
|
vs. 2011 (1) |
|
|
|
|
|
|
|
|
|
Net sales |
|
100.0 |
% |
100.0 |
% |
5.4 |
% |
Cost of sales |
|
63.1 |
|
62.7 |
|
6.2 |
|
Gross profit |
|
36.9 |
|
37.3 |
|
4.2 |
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
29.2 |
|
29.6 |
|
3.9 |
|
Depreciation and amortization |
|
2.0 |
|
1.9 |
|
9.7 |
|
Total operating expenses |
|
31.2 |
|
31.6 |
|
4.2 |
|
Operating income |
|
5.7 |
|
5.8 |
|
4.0 |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(1.9 |
) |
(2.0 |
) |
(0.8 |
) |
Interest and other income |
|
0.2 |
|
0.1 |
|
45.5 |
|
Income before income taxes |
|
3.9 |
|
3.8 |
|
8.1 |
|
Provision for income taxes |
|
(1.6 |
) |
(1.5 |
) |
7.4 |
|
Net income |
|
2.4 |
% |
2.3 |
% |
8.5 |
% |
(1) Percent increase (decrease) represents the actual change as a percentage of the prior years result.
Overview. During the three months ended March 30, 2012, our sales increased 5.4%, primarily reflecting the impact of continued economic improvements across our facilities maintenance and professional contractor end-markets, combined with our continued investments in our sales force, sales initiatives, information technology, and our distribution network, which we believe is improving our competitive position and market capabilities. The increase also reflects the incremental impact from our NCP acquisition that occurred during the first quarter of the prior year. Excluding our NCP acquisition, organic sales increased 4.3%. Sales to customers in our facilities maintenance end-market, which makes up 76% of our total sales and include residential multi-family housing and institutional customers, increased 7.8% in total, mainly as a result of continued investments in our sales force and sales initiatives, as well as improved economic conditions in these end-markets, including 6.2% on an organic sales basis during the first quarter of 2012 compared to the first quarter of 2011. Sales to our professional contractor customers, which represent 14% of our total sales, increased 2.5% in total. Sales to our specialty distributor customers, which represent 10% of our total sales, decreased 5.4% in total. As market conditions continue to strengthen, we expect better growth in 2012 as compared to 2011.
Operating income as a percentage of net sales was 5.7% in the first quarter of 2012 compared to 5.8% in the comparable prior year period. The nominal decrease in operating income as a percentage of sales is primarily a result of lower gross profit margins related to some product cost pressures and changes in product mix as compared to the prior year, combined with the incremental impact from the NCP acquisition, and higher depreciation and amortization expense, partially offset by lower selling, general and administrative (SG&A) expenses as a percentage of sales, mainly driven by lower bad debt expense, lower distribution center consolidation costs, lower delivery expense, and the favorable impact from the NCP acquisition.
Net income as a percentage of net sales was 2.4% in the first quarter of 2012 compared to 2.3% in the comparable prior year period as a result of lower interest expense combined with higher interest and other income, somewhat offset by the decrease in operating income as a percentage of sales.
Three Months Ended March 30, 2012 Compared to Three Months Ended April 1, 2011
Net Sales. Net sales increased by $16.2 million, or 5.4%, to $313.6 million in the three months ended March 30, 2012 from $297.4 million in the three months ended April 1, 2011. The increase in sales is primarily attributable to sales of $14.5 million from
net increases in comparable sales to our facilities maintenance and professional contractor customers, as well as $3.5 million associated with the NCP acquisition, partially offset by a sales decrease to our specialty distributor customers.
Gross Profit. Gross profit increased by $4.7 million, or 4.2%, to $115.6 million in the three months ended March 30, 2012 from $110.9 million in the three months ended April 1, 2011. Our gross profit margin decreased 40 basis points to 36.9% for the three months ended March 30, 2012 compared to 37.3% for the three months ended April 1, 2011. This decrease in gross profit margin was related to some product cost pressures and changes in product mix as compared to the prior year, combined with the incremental impact from the NCP acquisition.
Selling, General and Administrative Expenses. SG&A expenses increased by $3.4 million, or 3.9%, to $91.5 million in the three months ended March 30, 2012 from $88.1 million in the three months ended April 1, 2011. As a percentage of net sales, SG&A decreased 40 basis points to 29.2% for the three months ended March 30, 2012 compared to 29.6% for the three months ended April 1, 2011. The decrease in SG&A expenses as a percentage of sales is primarily due to the impact from our lower bad debt expense, lower distribution center consolidation costs, lower delivery costs, and the favorable incremental impact from the NCP acquisition, offset in part by higher labor costs as a result of the investments in sales force made during the latter part of the prior year, combined with higher health care costs.
Depreciation and Amortization. Depreciation and amortization expense increased by $0.6 million, or 9.7%, to $6.3 million in the three months ended March 30, 2012 from $5.8 million in the three months ended April 1, 2011. As a percentage of net sales, depreciation and amortization was 2.0% and 1.9% for the three months ended March 30, 2012 and April 1, 2011, respectively. The increase in depreciation and amortization expense was due to higher depreciation resulting from our capital spending associated with our information technology infrastructure and distribution center consolidation and integration efforts that occurred during the last three years.
Operating Income. As a result of the foregoing, operating income increased by $0.7 million, or 4.0%, to $17.8 million in the three months ended March 30, 2012 from $17.1 million in the three months ended April 1, 2011. As a percentage of net sales, operating income decreased to 5.7% in the three months ended March 30, 2012 compared to 5.8% in the three months ended April 1, 2011.
Liquidity and Capital Resources
Overview
We are a holding company whose only asset is the stock of Interline New Jersey. We conduct virtually all of our business operations through Interline New Jersey. Accordingly, our only material sources of cash are dividends and distributions with respect to our ownership interests in Interline New Jersey that are derived from the earnings and cash flow generated by Interline New Jersey.
On November 16, 2010, Interline New Jersey completed a series of refinancing transactions: (1) an offering of $300.0 million of 7.00% senior subordinated notes due 2018 (the 7.00% Notes) and (2) entering into a $225.0 million asset-based revolving credit facility (the ABL Facility). The proceeds from the 7.00% Notes were used to redeem $137.3 million of the 8 1/8 % senior subordinated notes due 2014 (the 8 1/8 % Notes) and to repay the indebtedness under the prior credit facility of Interline New Jersey. The remaining $13.4 million of the 8 1/8 % Notes were redeemed on January 3, 2011. The 8 1/8 % Notes were redeemed at an average price of 104.256% of par.
The 7.00% Notes were priced at 100% of their principal amount of $300.0 million. The 7.00% Notes mature on November 15, 2018 and interest is payable on May 15 and November 15 of each year. Debt issuance costs capitalized in connection with the 7.00% Notes were $6.9 million.
The 7.00% Notes are generally unsecured, senior subordinated obligations of Interline New Jersey that rank equal to all of Interline New Jerseys existing and future senior subordinated indebtedness, junior to all of Interline New Jerseys existing and future senior indebtedness, including indebtedness under the ABL Facility, and senior to any of Interline New Jerseys existing and future obligations that are, by their terms, expressly subordinated in right of payment to the 7.00% Notes. The 7.00% Notes are unconditionally guaranteed, jointly and severally, on an unsecured senior subordinated basis by the Company and Interline New Jerseys existing and future domestic subsidiaries that guarantee the ABL Facility (collectively the Guarantors). The Guarantors have issued guarantees (each a Guarantee and collectively, the Guarantees) of Interline New Jerseys obligations under the 7.00% Notes and the indenture on an unsecured senior subordinated basis. The Guarantors have issued guarantees (each a Guarantee and collectively, the Guarantees) of Interline New Jerseys obligations under the 7.00% Notes and the indenture on an unsecured senior subordinated basis. Each Guarantee ranks equal in right of payment with all of the Guarantors existing and future senior subordinated indebtedness, junior to all of the Guarantors existing and future senior indebtedness, including guarantees of the ABL Facility, and
senior to all of the Guarantors existing and future obligations that are, by their terms, expressly subordinated in right of payment to the Guarantees. The 7.00% Notes are not guaranteed by any of Interline New Jerseys foreign subsidiaries.
The debt instruments of Interline New Jersey, primarily the ABL Facility and the indenture governing the terms of the 7.00% Notes, contain significant restrictions on the payment of dividends and distributions to the Company by Interline New Jersey. The ABL facility allows Interline New Jersey to pay dividends or make distributions to the Company for the purpose of funding a repurchase, redemption, or retirement of the Companys equity or declare or pay a dividend to the Companys shareholders in an aggregate amount not to exceed $25.0 million during any 12-month period, so long as there is no default and Interline New Jersey meets certain availability requirements. Only if these conditions are met and, in addition, Interline New Jerseys fixed charge coverage ratio is at least 1.20 to 1.00, then there is no cap on Interline New Jerseys ability to pay dividends or make distributions to fund a share repurchase by the Company. In addition, ordinary course distributions for overhead (up to $3.0 million annually) and taxes are permitted, as are annual payments of up to $7.5 million in respect of our stock option or other benefit plans for management or employees. The indenture for the 7.00% Notes generally restricts the ability of Interline New Jersey to pay distributions to the Company and to make advances to, or investments in, the Company to an amount equal to 50% of the net income of Interline New Jersey, plus an amount equal to the net proceeds from certain equity issuances, subject to compliance with a leverage ratio and no default having occurred and continuing. The indenture also contains certain permitted exceptions, including: (1) allowing the Company to pay our franchise taxes and other fees required to maintain our corporate existence, to pay for general corporate and overhead expenses and to pay expenses incurred in connection with certain financing, acquisition or disposition transactions, in an aggregate amount not to exceed $15.0 million per year; (2) allowing certain tax payments; and (3) allowing other distributions in an aggregate amount not to exceed the greater of $85.0 million and 8.5% of the total assets of Interline New Jersey and its restricted subsidiaries, provided there is no default. For a further description of the ABL Facility, see Credit Facility below.
As of March 30, 2012, we had $300.0 million of the 7.00% Notes outstanding and $190.8 million of availability under our ABL Facility, net of $7.5 million in letters of credit.
Financial Condition
Working capital increased by $12.0 million to $338.0 million as of March 30, 2012 from $325.9 million as of December 30, 2011. The increase in working capital was primarily funded by cash flows from operations.
Cash Flow
Operating Activities. Net cash used in operating activities was $7.3 million in the three months ended March 30, 2012 compared to net cash provided by operating activities of $13.5 million in the three months ended April 1, 2011.
Net cash used in operating activities of $7.3 million during the three months ended March 30, 2012 primarily consisted of net income of $7.5 million, adjustments for non-cash items of $8.8 million and cash used by working capital items of $23.4 million. Adjustments for non-cash items primarily consisted of $6.3 million in depreciation and amortization of property, equipment and intangible assets, $2.0 million in deferred income taxes, $1.2 million in share-based compensation, $0.3 million in amortization of debt issuance costs, and $0.2 million in provision for doubtful accounts. These amounts were partially offset by $0.7 million in excess tax benefits from share-based compensation, and $0.6 million of other items. The cash used by working capital items primarily consisted of $12.5 million from decreased trade payables balances as a result of the timing of purchases and related payments, $8.6 million from increased trade receivables, net of changes in provision for doubtful accounts, resulting from increased sales in the current year as compared to the prior year, $6.6 million from increased inventory levels primarily in preparation for normal seasonal demands in our business, $3.4 million from changes in income taxes, and $2.8 million from decreased accrued expenses and other current liabilities as a result of lower payroll and incentive compensation accruals as compared to prior year-end due to timing of payments. The use of cash was partially offset by $5.2 million in decreased prepaid expenses and other current assets primarily as a result of higher collections of rebates from vendors, and $5.3 million from increased accrued interest due to timing of required interest payments per our debt agreements.
Net cash provided by operating activities of $13.5 million in the three months ended April 1, 2011 primarily consisted of net income of $6.9 million, adjustments for non-cash items of $9.5 million and cash used in working capital items of $3.1 million. Adjustments for non-cash items primarily consisted of $5.8 million in depreciation and amortization of property, equipment and intangible assets, $2.2 million in deferred income taxes, $1.3 million in share-based compensation, $1.1 million in bad debt expense, and $0.3 million in amortization of debt issuance costs, partially offset by $0.9 million in excess tax benefits from share-based compensation and $0.3 million from other items. The cash used in working capital items consisted of $8.0 million of decreased accrued expenses and other current liabilities primarily due to lower accrued compensation resulting from the timing of payments,
$6.9 million from increased trade receivables, net of changes in our allowance for doubtful accounts, resulting from the timing of collections, $4.9 million from decreased trade payables balances as a result of the timing of purchases and related payments, and $1.4 million from increased inventory levels primarily in preparation for normal seasonal demands in our business. These items were partially offset by $11.0 million from decreased prepaid expenses and other current assets primarily as a result of higher collections of rebates from vendors, $5.2 million from timing of interest payments and $1.9 million from the increase in current income taxes resulting from an increase in income before taxes.
Investing Activities. Net cash used in investing activities was $3.3 million during the three months ended March 30, 2012 compared to net cash used in investing activities of $14.8 million in the three months ended April 1, 2011.
Net cash used in investing activities during the three months ended March 30, 2012 was attributable to $3.3 million of capital expenditures made in the ordinary course of business.
Net cash used in investing activities in the three months ended April 1, 2011 was primarily attributable to $9.5 million in costs related to purchases of businesses and $5.4 million of capital expenditures made in the ordinary course of business.
Financing Activities. Net cash used in financing activities totaled $2.2 million in the three months ended March 30, 2012 compared to net cash used in financing activities of $11.4 million in the three months ended April 1, 2011.
Net cash used in financing activities in the three months ended March 30, 2012 was attributable to $2.1 million net decrease in purchase card payable, $1.4 million in treasury stock to acquired satisfy minimum statutory tax withholding requirements resulting from the vesting or exercising of equity awards, and $0.2 million of payments on capital lease obligations, partially offset by $1.6 million of proceeds from stock options exercised and excess tax benefits from share-based compensation.
Net cash used in financing activities in the three months ended April 1, 2011 was attributable to the redemption of the remaining $13.4 million of our 8 1/8 % Notes and payment of $0.2 million on capital lease obligations, partially offset by a $1.7 million net increase in purchase card payable and $0.4 million of proceeds from stock options exercised and excess tax benefits from share-based compensation, net of treasury stock acquired to satisfy minimum statutory tax withholding requirements resulting from the vesting or exercising of equity awards.
Capital Expenditures
Capital expenditures were $3.3 million in the three months ended March 30, 2012 compared to $5.4 million in the three months ended April 1, 2011. Capital expenditures as a percentage of net sales were 1.1% and 1.8% for the three months ended March 30, 2012 and April 1, 2011, respectively. The decrease in capital expenditures was driven primarily by the current year reduction in spending on the continued consolidation of our distribution center network including the investments in larger more efficient distribution centers and enhancements to our information technology systems as compared to the prior year. There were no leasehold improvements acquired through non-cash lease incentives during the three months ended March 30, 2012. During the three months ended April 1, 2011, we acquired leasehold improvements through non-cash lease incentives of $0.5 million.
Credit Facility
The ABL Facility provides for revolving credit financing of up to $225.0 million subject to borrowing base availability, with a maturity of five years, including sub-facilities for letters of credit, not exceeding $40.0 million, and for borrowings on same-day notice, referred to as swingline loans. In addition, the ABL Facility provides that the revolving commitments may be increased to $325.0 million, subject to certain terms and conditions. The ABL Facility has a 5-year term and any borrowings outstanding will be due and payable in full on November 15, 2015. Debt issuance costs capitalized in connection with the ABL Facility were $3.5 million.
The borrowing base at any time equals the sum (subject to certain eligibility requirements, reserves and other adjustments) of:
· 85% of eligible trade receivables; and
· the lesser of: (x) 65% of eligible inventory, valued at the lower of cost or market, and (y) 85% of the net orderly liquidation value of eligible inventory.
All borrowings under the ABL Facility are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties.
Borrowings under the ABL Facility bear interest at a rate per annum equal to, at Interline New Jerseys option, either adjusted LIBOR or at an alternate base rate, in each case plus an applicable margin. As of March 30, 2012, the applicable margin was equal to 2.25% per annum for loans bearing interest by reference to the adjusted LIBOR and 1.25% per annum for loans bearing interest by reference to the alternate base rate. The applicable margin is adjusted quarterly by reference to a grid based on average availability under the ABL Facility. The applicable margin for the upcoming quarter is expected to be 2.25% per annum for loans bearing interest by reference to the adjusted LIBOR and 1.25% per annum for loans bearing interest by reference to the alternate base rate.
In addition, Interline New Jersey is required to pay each lender a commitment fee at a rate equal to 0.50% per annum, in respect of any unused commitments if the average utilization under the ABL Facility during the preceding calendar quarter is 50% or higher, and equal to 0.625% if the average utilization under the ABL Facility during the preceding calendar quarter is less than 50%.
During any period after the occurrence and continuance of an event of default (and continuing for a certain period of time thereafter), or after availability under the ABL Facility is less than the greater of: (i) $35.0 million and (ii) 17.5% of the total revolving commitments at such time (and continuing for a certain period of time thereafter), the ABL Facility, subject to exceptions, requires mandatory prepayments, but not permanent reductions of commitments, and subject to a right of reinvestment, in amounts equal to 100% of the net cash proceeds from permitted non-ordinary-course asset sales and casualty and condemnation events, as well as from any equity issuance or incurrence of debt not otherwise permitted under the ABL Facility. In addition, Interline New Jersey is required to pay down loans under the ABL Facility if the total amount of outstanding obligations thereunder exceeds the lesser of the aggregate amount of the revolving commitments thereunder and the applicable borrowing base. Interline New Jersey may prepay loans and permanently reduce commitments under the ABL Facility at any time in certain minimum principal amounts, without premium or penalty (except LIBOR breakage costs, if applicable).
Borrowings under the ABL Facility are guaranteed by the Company and Interline New Jerseys existing and future domestic subsidiaries and are secured by first priority liens on substantially all of the assets of Interline New Jersey and the Guarantors.
The ABL Facility requires that if excess availability is less than the greater of: (a) 12.5% of the commitments and (b) $28.1 million, Interline New Jersey must comply with a minimum fixed charge coverage ratio test of 1.00:1.00 and certain other covenants. In addition, the ABL Facility includes negative covenants that, subject to significant exceptions, limit Interline New Jerseys ability and the ability of the Guarantors to, among other things, incur debt, incur liens and engage in sale leaseback transactions, make investments and loans, pay dividends, engage in mergers, acquisitions and asset sales, prepay certain indebtedness, amend the terms of certain material agreements, enter into agreements limiting subsidiary distributions, engage in certain transactions with affiliates and alter the business that Interline New Jersey conducts.
The ABL Facility contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, actual or asserted failure of any guaranty or security document supporting the ABL Facility to be in full force and effect and changes of control. If such an event of default occurs, the lenders under the ABL Facility would be entitled to take various actions, including the acceleration of amounts due under the ABL Facility and all actions permitted to be taken by a secured creditor.
We are currently in compliance with all covenants contained within the ABL Facility.
Liquidity
Historically, our capital requirements have been for debt service obligations, working capital requirements (including inventory, accounts receivable and accounts payable), acquisitions, the expansion and maintenance of our distribution network and upgrades of our information systems. We expect this to continue in the foreseeable future. Historically, we have funded these requirements through cash flow generated from operating activities and funds borrowed under our credit facility. We expect our cash on hand, cash flow from operations and availability under our ABL Facility to be our primary source of funds in the future. Letters of credit, which are issued under our ABL Facility, are used to support payment obligations incurred for our general corporate purposes.
As of March 30, 2012, we had $190.8 million of availability under our ABL Facility, net of $7.5 million in letters of credit. We believe that cash and cash equivalents on hand, cash flow from operations and available borrowing capacity under our ABL Facility will be adequate to finance our ongoing operational cash flow needs and debt service obligations in the foreseeable future.
Contractual Obligations
Our contractual obligations are disclosed in our Annual Report on Form 10-K for the year ended December 30, 2011 filed with the SEC. There have been no material changes to our contractual obligations since December 30, 2011.
Critical Accounting Policies
In preparing the unaudited consolidated financial statements in conformity with US GAAP, we are required to make certain estimates, judgments and assumptions. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities, including the disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. On an ongoing basis, we evaluate these estimates and assumptions. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable at the time we make the estimates and assumptions. Actual results may differ from these estimates and assumptions under different circumstances or conditions.
Our critical accounting policies are included in our Annual Report on Form 10-K for the year ended December 30, 2011 filed with the SEC. During the three months ended March 30, 2012, there were no significant changes to any of our critical accounting policies.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
We are aware of the potentially unfavorable effects inflationary pressures may create through higher product and material costs, higher asset replacement costs and related depreciation and higher interest rates. In addition, our operating performance is affected by price fluctuations in copper, oil, stainless steel, aluminum, zinc, plastic and PVC and other commodities and raw materials. We seek to minimize the effects of inflation and changing prices through economies of purchasing and inventory management resulting in cost reductions and productivity improvements as well as price increases to maintain reasonable profit margins. However, such commodity price fluctuations have from time to time created cyclicality in our financial performance, and could continue to do so in the future. In addition, our use of priced catalogs may not allow us to offset such cost increases quickly, resulting in a decrease in gross margins and profit.
Interest Rate Risk
The fair market value of our 7.00% Notes is subject to interest rate risk. As of March 30, 2012, the estimated fair market value of our 7.00% Notes was $316.5 million, or 105.5% of par.
Foreign Currency Exchange Risk
The majority of our purchases from foreign-based suppliers are from China and other countries in Asia and are transacted in U.S. dollars. Accordingly, our risk to foreign currency exchange rates was not material as of March 30, 2012.
Many of our suppliers price their products in currencies other than the U.S. dollar or incur costs of production in non-U.S. currencies. Accordingly, depreciation of the U.S. dollar against foreign currencies could increase the price we pay for these products. A substantial portion of our products is sourced from suppliers in China and the value of the Chinese Yuan has increased relative to the U.S. dollar since July 2005, when it was allowed to fluctuate against a basket of foreign currencies. Most experts believe that the value of the Yuan will continue to increase relative to the U.S. dollar over the next few years. Such a move would most likely result in an increase in the cost of products that are sourced from suppliers in China.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 30, 2012. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 30, 2012, our disclosure controls and procedures were effective to ensure that: (1) material information disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosure and (2) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the quarter ended March 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We have been named as a defendant in an action filed before the Nineteenth Judicial Circuit Court of Lake County, Illinois, which was subsequently removed to the United States District Court for the Northern District of Illinois. The complaint alleges that we sent thousands of unsolicited fax advertisements to businesses nationwide in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (TCPA). At the time of filing the complaint, the plaintiff also filed a motion asking the Court to certify a class of plaintiffs comprised of businesses who allegedly received unsolicited fax advertisements from us. Other reported TCPA claims have resulted in a broad range of outcomes, with each case being dependent on its own unique set of facts and circumstances. Accordingly, we cannot reasonably estimate the amount of loss, if any, arising from this matter. We are vigorously contesting class action certification and liability, and will continue to evaluate our defenses based upon our internal review and investigation of prior events, new information, and future circumstances.
We are involved in various other legal proceedings that have arisen in the ordinary course of our business and have not been fully adjudicated. These actions, when ultimately concluded and determined, will not, in the opinion of management, have a material effect upon our consolidated financial position, results of operations or liquidity.
For information regarding factors that could affect our financial position, results of operations and cash flows, see the risk factors discussion provided in our Annual Report on Form 10-K for the year ended December 30, 2011 in Part I. Item 1A. Risk Factors. See also Part I. Item 2Forward-Looking Statements above.
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 30, 2011.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Purchases of Equity Securities by the Issuer
Period |
|
Total |
|
Average |
|
Total Number of |
|
Approximate Dollar |
| |
January 2012 |
|
|
|
|
|
|
|
|
| |
(December 31, 2011 - January 27, 2012) |
|
942 |
|
$ |
17.01 |
|
|
|
|
|
February 2012 |
|
|
|
|
|
|
|
|
| |
(January 28, 2012 - February 24, 2012) |
|
73,138 |
|
$ |
19.34 |
|
|
|
|
|
March 2012 |
|
|
|
|
|
|
|
|
| |
(February 25, 2012 - March 30, 2012) |
|
411 |
|
$ |
20.21 |
|
|
|
|
|
Total |
|
74,491 |
|
$ |
19.32 |
|
|
|
|
|
(1) Comprised entirely of shares purchased to satisfy minimum tax withholding obligations on vesting of restricted share units and restricted stock awards.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
None.
None.
The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:
12.1 |
|
Computation of earnings to fixed charges and earnings to combined fixed charges and preferred dividends of Interline Brands, Inc. (furnished herewith). |
31.1 |
|
Certification of the Chief Executive Officer of Interline Brands, Inc., pursuant to Rule 13a-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
31.2 |
|
Certification of the Chief Financial Officer of Interline Brands, Inc., pursuant to Rule 13a-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
32.1 |
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
32.2 |
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
101.INS |
* |
XBRL Instance Document |
101.SCH |
* |
XBRL Taxonomy Extension Schema Document |
101.CAL |
* |
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
* |
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
* |
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
* |
XBRL Taxonomy Extension Presentation Linkbase Document |
*Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
1 Consolidated Balance Sheets as of March 30, 2012 and December 30, 2011;
2 Consolidated Statements of Earnings for the three months ended March 30, 2012 and April 1, 2011;
3 Consolidated Statements of Comprehensive Income for the three months ended March 30, 2012 and April 1, 2011;
4 Consolidated Statements of Cash Flows for the three months ended March 30, 2012 and April 1, 2011; and
5 Notes to the Consolidated Financial Statements.
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is furnished and shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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 hereunto duly authorized.
|
|
INTERLINE BRANDS, INC. |
|
|
Registrant |
|
|
|
|
|
|
Date: May 8, 2012 |
By: |
/S/ JOHN A. EBNER |
|
|
John A. Ebner |
|
|
Chief Financial Officer |
|
|
(Duly Authorized Signatory and Principal Financial |
|
|
Officer) |