Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 0-12490
ACR GROUP, INC.
(Exact name of registrant as specified in its charter)
| Texas | 74-2008473 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 3200 Wilcrest Drive, Suite 440, Houston, Texas | 77042-6039 | |
| (Address of principal executive offices) | (Zip Code) | |
(713) 780-8532
(Registrant’s telephone number, including area code)
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, and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Shares of Common Stock outstanding at December 31, 2003 - 10,681,294.
ACR GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| Page | ||||
| PART I FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements |
|||
| Condensed Consolidated Balance Sheets – November 30, 2003 (Unaudited) and February 28, 2003 |
3 | |||
| 5 | ||||
| 6 | ||||
| Notes to Condensed Consolidated Financial Statements (Unaudited) |
7 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| Item 3. |
16 | |||
| Item 4. |
17 | |||
| PART II OTHER INFORMATION |
||||
| Item 1. |
17 | |||
| Item 4. |
17 | |||
| Item 6. |
17 | |||
| 18 | ||||
| CERTIFICATIONS |
||||
- 2 -
PART I - FINANCIAL INFORMATION
Item 1. – Financial Statements
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
| November 30, 2003 |
February 28, 2003 | |||||
| (Unaudited) | ||||||
| Current assets: |
||||||
| Cash |
$ | 47 | $ | 104 | ||
| Accounts receivable, net of allowance for doubtful accounts of $1,161 and $685 |
19,318 | 15,202 | ||||
| Inventory |
27,043 | 24,997 | ||||
| Prepaid expenses and other |
1,100 | 311 | ||||
| Deferred income taxes |
786 | 1,458 | ||||
| Total current assets |
48,294 | 42,072 | ||||
| Property and equipment, net of accumulated depreciation |
4,416 | 4,955 | ||||
| Goodwill, net of accumulated amortization |
5,258 | 5,258 | ||||
| Other assets |
729 | 443 | ||||
| Total assets |
$ | 58,697 | $ | 52,728 | ||
The accompanying notes are an integral part
of these condensed financial statements.
- 3 -
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
| November 30, 2003 |
February 28, 2003 |
|||||||
| (Unaudited) | ||||||||
| Current liabilities: |
||||||||
| Current maturities of long-term debt and capital lease obligations |
$ | 348 | $ | 403 | ||||
| Accounts payable |
17,607 | 16,967 | ||||||
| Accrued expenses and other liabilities |
3,839 | 2,097 | ||||||
| Total current liabilities |
21,794 | 19,467 | ||||||
| Revolving line of credit |
21,927 | 20,172 | ||||||
| Long-term debt and capital lease obligations, less current maturities |
1,588 | 1,903 | ||||||
| Total long-term obligations |
23,515 | 22,075 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock |
107 | 107 | ||||||
| Additional paid-in capital |
41,691 | 41,691 | ||||||
| Accumulated deficit |
(28,410 | ) | (30,612 | ) | ||||
| Total shareholders’ equity |
13,388 | 11,186 | ||||||
| Total liabilities and shareholders’ equity |
$ | 58,697 | $ | 52,728 | ||||
The accompanying notes are an integral part
of these condensed financial statements.
- 4 -
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended November 30, |
Nine months Ended November 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Sales |
$ | 42,187 | $ | 37,902 | $ | 136,047 | $ | 128,581 | ||||||||
| Cost of sales |
33,057 | 29,536 | 106,264 | 100,635 | ||||||||||||
| Gross profit |
9,130 | 8,366 | 29,783 | 27,946 | ||||||||||||
| Selling, general and administrative costs |
8,425 | 8,234 | 25,453 | 24,944 | ||||||||||||
| Operating income |
705 | 132 | 4,330 | 3,002 | ||||||||||||
| Interest expense |
366 | 423 | 1,127 | 1,339 | ||||||||||||
| Other non-operating (income) |
(139 | ) | (134 | ) | (365 | ) | (350 | ) | ||||||||
| Income (loss) before income taxes and cumulative effect of accounting change |
478 | (157 | ) | 3,568 | 2,013 | |||||||||||
| Provision for income taxes: |
||||||||||||||||
| Current |
103 | (13 | ) | 699 | 97 | |||||||||||
| Deferred |
89 | (36 | ) | 667 | 413 | |||||||||||
| Income (loss) before cumulative effect of accounting change |
286 | (108 | ) | 2,202 | 1,503 | |||||||||||
| Cumulative effect of accounting change, net of taxes |
— | — | — | (483 | ) | |||||||||||
| Net income (loss) |
$ | 286 | $ | (108 | ) | $ | 2,202 | $ | 1,020 | |||||||
| Basic and diluted earnings (loss) per share: |
||||||||||||||||
| Before cumulative effect of change in accounting principle |
$ | .03 | $ | (.01 | ) | $ | .21 | $ | .14 | |||||||
| Cumulative effect of accounting change |
— | — | — | (.04 | ) | |||||||||||
| $ | .03 | $ | (.01 | ) | $ | .21 | $ | .10 | ||||||||
| Weighted average shares outstanding, basic and diluted |
10,681 | 10,681 | 10,681 | 10,681 | ||||||||||||
The accompanying notes are an integral part
of these condensed financial statements.
- 5 -
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine months ended November 30, |
||||||||
| 2003 |
2002 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 2,202 | $ | 1,020 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Cumulative effect of change in accounting principle |
— | 483 | ||||||
| Depreciation and amortization |
744 | 895 | ||||||
| Provision for bad debt |
476 | 364 | ||||||
| Deferred income tax expense |
667 | 413 | ||||||
| Other |
— | (13 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(4,592 | ) | (206 | ) | ||||
| Inventory |
(2,833 | ) | 2,391 | |||||
| Prepaid expenses and other assets |
(292 | ) | 33 | |||||
| Accounts payable |
662 | (2,468 | ) | |||||
| Accrued expenses and other liabilities |
1,742 | 534 | ||||||
| Net cash (used in) provided by operating activities |
(1,224 | ) | 3,446 | |||||
| Investing activities: |
||||||||
| Acquisition of property and equipment |
(463 | ) | (490 | ) | ||||
| Proceeds from disposition of assets |
245 | 37 | ||||||
| Net cash (used in) investing activities |
(218 | ) | (453 | ) | ||||
| Financing activities: |
||||||||
| Net borrowings (payments) on revolving credit facility |
1,755 | (2,487 | ) | |||||
| Payments on long-term debt |
(370 | ) | (514 | ) | ||||
| Net cash provided by (used in) provided by financing activities |
1,385 | (3,001 | ) | |||||
| Net (decrease) in cash |
(57 | ) | (8 | ) | ||||
| Cash at beginning of year |
104 | 129 | ||||||
| Cash at end of period |
$ | 47 | $ | 121 | ||||
| Non-cash sale of subsidiaries’ inventory, property and equipment and other net assets |
$ | 804 | $ | — | ||||
The accompanying notes are an integral part
of these condensed financial statements.
- 6 -
ACR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The accompanying unaudited condensed historical financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States. Accordingly, they do not include all of the information and footnotes required for complete financial statements, and therefore should be reviewed in conjunction with the financial statements and related notes thereto contained in the Company’s annual report for the year ended February 28, 2003 filed on Form 10-K with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Actual operating results for the three months ended and nine months ended November 30, 2003, are not necessarily indicative of the results that may be expected for the fiscal year ended February 29, 2004.
Certain reclassifications were made to the prior year’s financial statements to conform with current year presentation.
2 - Summary of Significant Accounting Policies
For a detailed description of these policies, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2003 and to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.
In accordance with the provisions of SFAS 123, “Accounting for Stock-based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based Compensation – Trans