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8-K - 8-K - INTERLINE BRANDS, INC./DEa10-17370_28k.htm

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

November 1, 2010

 

Interline Brands, Inc. Announces Third Quarter 2010 Sales and

Earnings Results

 

Jacksonville, Fla. — November 1, 2010 - Interline Brands, Inc. (NYSE: IBI) (“Interline” or the “Company”), a leading distributor and direct marketer of maintenance, repair and operations (“MRO”) products, reported sales and earnings for the fiscal quarter ended September 24, 2010.

 

Sales for the third quarter of 2010 decreased 0.4% compared to the third quarter of 2009.  Earnings per diluted share were $0.34 for the third quarter of 2010, an increase of 6% compared to earnings per diluted share of $0.32 for the same period last year.  Earnings per diluted share for the third quarter of 2010 included a $0.02 per diluted share charge associated with ongoing improvements to our distribution network.

 

Michael J. Grebe, Interline’s Chairman and Chief Executive Officer, commented, “We’ve made meaningful progress over the past year toward improving our operating model, which has resulted in better value and service to our customers, and improved margins at all levels of the business.  Although we generated only modest growth in certain areas of our business during the third quarter, we have achieved significant productivity gains as evidenced by our 10.3% EBITDA margin.  These productivity gains have been driven, in part, by our sales professionals who are focused on building high-quality relationships with targeted customers.  This has taken considerable effort over the past few quarters, but we are now better positioned for it.  With our end markets continuing to stabilize, we expect to accelerate proven targeted investments to drive growth.  We

 



 

have successfully done this in the past and are confident these investments will yield strong results given the improvements in our operating model.”

 

Third Quarter 2010 Performance

Sales for the quarter ended September 24, 2010 were $276.8 million, a 0.4% decrease compared to sales of $277.9 million in the comparable 2009 period.  Interline’s facilities maintenance end-market, which comprised 74% of sales, declined 1.5% during the third quarter.  The professional contractor end-market, which comprised 15% of sales, increased 0.1% for the quarter.  The specialty distributor end-market, which comprised 11% of sales, increased 4.1% for the quarter.

 

Gross profit increased $2.6 million, or 2.6%, to $104.8 million for the third quarter of 2010, compared to $102.2 million for the third quarter of 2009.  As a percentage of net sales, gross profit increased 110 basis points to 37.9% compared to 36.8% for the third quarter of 2009.

 

“Our supply chain efforts remain highly focused on reducing our fixed cost structure, driving operating efficiencies, and improving our customer experience through enhanced technology and  inventory management.  We accomplish this with larger, more sophisticated distribution centers, such as our newest facility in Jacksonville, Florida, which became fully operational during the third quarter.  As initial evidence of the success of these types of facilities, in Jacksonville we are now delivering some of the best fill-rates to our customers in the history of our company,” commented Kenneth D. Sweder, Interline’s Chief Operating Officer.

 



 

Selling, general and administrative (“SG&A”) expenses for the third quarter of 2010 increased $0.8 million, or 1.0%, to $77.0 million from $76.2 million for the third quarter of 2009.  As a percentage of net sales, SG&A expenses were 27.8% compared to 27.4% for the third quarter of 2009.

 

As a result, third quarter 2010 operating income of $22.9 million, or 8.3% of sales, increased 6.4% compared to $21.5 million, or 7.7% of sales, in the third quarter of 2009.

 

Year-To-Date 2010 Performance

Sales for the nine months ended September 24, 2010 were $792.2 million, a 1.5% decrease over sales of $804.7 million in the comparable 2009 period.

 

Gross profit increased $4.4 million, or 1.5%, to $301.5 million for the nine months ended September 24, 2010, compared to $297.1 million in the prior year period.  As a percentage of sales, gross profit increased to 38.1% from 36.9% in the comparable 2009 period.

 

SG&A expenses for the nine months ended September 24, 2010 were $231.7 million, or 29.2% of sales, compared to $239.0 million, or 29.7% of sales, for the nine months ended September 25, 2009.

 

Operating income was $55.2 million, or 7.0% of sales, for the nine months ended September 24, 2010 compared to $44.6 million, or 5.5% of sales, for the nine months ended September 25, 2009, representing an increase of 23.8%.

 



 

Earnings per diluted share were $0.78 for the nine months ended September 24, 2010, an increase of 30% over earnings per diluted share of $0.60 for the nine months ended September 25, 2009.

 

Earnings per diluted share for the nine months ended September 24, 2010 included a $0.05 per diluted share charge associated with ongoing efforts to enhance the Company’s distribution network and a $0.02 per diluted share charge associated with previously announced changes in the Company’s executive management.  Earnings per diluted share for the nine months ended September 25, 2009 included a $0.06 per diluted share charge associated with higher reserves for bad debt expense resulting from a customer seeking Chapter 11 bankruptcy protection, a $0.09 per diluted share charge associated with a reduction in force and consolidation of certain distribution centers, a $0.01 per diluted share charge associated with the adoption of a new accounting standard on business combinations, and a $0.03 per diluted share gain on the early extinguishment of debt.

 

During the nine months ended September 24, 2010, cash and cash equivalents increased $5.1 million to $104.3 million.

 

Business Outlook

Mr. Grebe stated, “The market environment appears to have stabilized somewhat, and we are encouraged to see certain underlying trends continue to improve.  We have industry-leading distribution capabilities, a broad suite of products and supply chain solutions, robust national account expertise, and a platform that continues to drive even higher levels of profitability.  These competitive advantages give us confidence for the future

 



 

of our business and we remain committed to strengthening Interline Brands’ position as a premier, broad-line MRO distributor.”

 

Conference Call

Interline will host a conference call on November 1, 2010 at 9:00 a.m. Eastern Time.  Interested parties may listen to the call toll free by dialing 1-800-427-0638 or 1-706-634-1170.  A digital recording will be available for replay two hours after the completion of the conference call by calling 1-800-642-1687 or 1-706-645-9291 and referencing Conference I.D. Number 18711446.  This recording will expire on November 15, 2010.

 

About Interline

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

 

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

 

Non-GAAP Financial Information

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

 



 

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

The statements contained in this release which are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, forward-looking statements.  The Company has tried, whenever possible, to identify these forward-looking statements by using words such as “projects,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions.  Similarly, statements herein that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements.  The risks and uncertainties involving forward-looking statements include, for example, economic slowdowns, general market conditions, credit market contractions, consumer spending and debt levels, adverse changes in trends in the home improvement and remodeling and home building markets, the failure to realize expected benefits from acquisitions, material facilities systems disruptions and shutdowns, the failure to locate, acquire and integrate acquisition candidates, commodity price risk, foreign currency exchange risk, interest rate risk, the dependence on key employees and other risks described in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 24, 2010 and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2009.  These statements reflect the Company’s current beliefs and are based upon information currently available to it.  Be advised that developments subsequent to this release are likely to cause these statements to become outdated with the passage of time.  The Company does not currently intend, however, to update the information provided today prior to its next earnings release.

 

CONTACT: Lev Cela

 

PHONE: 904-421-1441

 


 


 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

AS OF SEPTEMBER 24, 2010 AND DECEMBER 25, 2009

(in thousands, except share and per share data)

 

 

 

September 24,

 

December 25,

 

 

 

2010

 

2009

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

 104,304

 

$

 99,223

 

Short-term investments

 

469

 

1,479

 

Accounts receivable - trade (net of allowance for doubtful accounts of $10,070 and $12,975)

 

132,908

 

120,004

 

Inventory

 

207,240

 

173,422

 

Prepaid expenses and other current assets

 

24,223

 

18,552

 

Deferred income taxes

 

17,123

 

16,459

 

Total current assets

 

486,267

 

429,139

 

 

 

 

 

 

 

Property and equipment, net

 

51,445

 

46,804

 

Goodwill

 

319,151

 

319,006

 

Other intangible assets, net

 

119,707

 

124,835

 

Other assets

 

9,150

 

9,054

 

Total assets

 

$

 985,720

 

$

 928,838

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

 

$

 95,225

 

$

 85,982

 

Accrued expenses and other current liabilities

 

49,398

 

41,715

 

Accrued interest

 

3,658

 

1,050

 

Income taxes payable

 

897

 

1,285

 

Current portion of long-term debt

 

 

1,590

 

Capital lease - current

 

28

 

222

 

Total current liabilities

 

149,206

 

131,844

 

 

 

 

 

 

 

Long-Term Liabilities:

 

 

 

 

 

Deferred income taxes

 

42,261

 

40,369

 

Long-term debt and capital lease, net of current portion

 

304,202

 

304,092

 

Other liabilities

 

790

 

798

 

Total liabilities

 

496,459

 

477,103

 

Commitments and contingencies

 

 

 

 

 

Senior preferred stock; $0.01 par value, 20,000,000 authorized; none outstanding as of September 24, 2010 and December 25, 2009

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Common stock; $0.01 par value, 100,000,000 authorized; 33,143,690 issued and 33,021,390 outstanding as of September 24, 2010 and 32,640,957 issued and 32,524,251 outstanding as of December 25, 2009

 

331

 

326

 

Additional paid-in capital

 

588,027

 

576,747

 

Accumulated deficit

 

(98,572

)

(124,745

)

Accumulated other comprehensive income

 

1,648

 

1,483

 

Treasury stock, at cost, 122,300 shares as of September 24, 2010 and 116,706 as of December 25, 2009

 

(2,173

)

(2,076

)

Total stockholders’ equity

 

489,261

 

451,735

 

Total liabilities and stockholders’ equity

 

$

985,720

 

$

928,838

 

 



 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2010 AND SEPTEMBER 25, 2009

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 24,

 

September 25,

 

September 24,

 

September 25,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

276,821

 

$

277,948

 

$

792,193

 

$

804,661

 

Cost of sales

 

171,991

 

175,726

 

490,649

 

507,528

 

Gross profit

 

104,830

 

102,222

 

301,544

 

297,133

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

76,987

 

76,191

 

231,686

 

239,009

 

Depreciation and amortization

 

4,981

 

4,535

 

14,667

 

13,561

 

Total operating expenses

 

81,968

 

80,726

 

246,353

 

252,570

 

Operating income

 

22,862

 

21,496

 

55,191

 

44,563

 

 

 

 

 

 

 

 

 

 

 

(Loss) Gain on extinguishment of debt, net

 

 

(248

)

 

1,295

 

Interest expense

 

(4,373

)

(4,577

)

(13,092

)

(14,673

)

Interest and other income

 

541

 

554

 

1,266

 

1,284

 

Income before income taxes

 

19,030

 

17,225

 

43,365

 

32,469

 

Income taxes

 

7,518

 

6,794

 

17,192

 

12,694

 

Net income

 

$

11,512

 

$

10,431

 

$

26,173

 

$

19,775

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

$

0.32

 

$

0.79

 

$

0.61

 

Diluted

 

$

0.34

 

$

0.32

 

$

0.78

 

$

0.60

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

33,084,756

 

32,511,597

 

32,931,814

 

32,493,797

 

Diluted

 

33,796,615

 

33,070,041

 

33,685,652

 

32,826,466

 

 



 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 24, 2010 AND SEPTEMBER 25, 2009

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 24,

 

September 25,

 

 

 

2010

 

2009

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

26,173

 

$

19,775

 

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

 

 

 

 

 

Depreciation and amortization

 

14,970

 

14,169

 

Gain on extinguishment of debt, net

 

 

(1,295

)

Amortization of debt issuance costs

 

775

 

829

 

Amortization of discount on 81/8% senior subordinated notes

 

115

 

108

 

Write-off of deferred acquisition costs

 

 

672

 

Share-based compensation

 

3,299

 

3,075

 

Excess tax benefits from share-based compensation

 

(775

)

(1

)

Deferred income taxes

 

1,270

 

6,113

 

Provision for doubtful accounts

 

3,629

 

7,330

 

Loss on disposal of property and equipment

 

129

 

13

 

 

 

 

 

 

 

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

 

 

 

 

 

Accounts receivable - trade

 

(16,499

)

(8,959

)

Inventory

 

(33,756

)

26,720

 

Prepaid expenses and other current assets

 

(5,670

)

4,478

 

Other assets

 

(97

)

774

 

Accounts payable

 

9,235

 

16,061

 

Accrued expenses and other current liabilities

 

6,691

 

8,751

 

Accrued interest

 

2,609

 

2,394

 

Income taxes

 

345

 

1,321

 

Other liabilities

 

6

 

(145

)

Net cash provided by operating activities

 

12,449

 

102,183

 

Cash Flows from Investing Activities:

 

 

 

 

 

Purchase of property and equipment, net

 

(12,937

)

(9,078

)

Purchase of short-term investments

 

(3,002

)

(1,830

)

Proceeds from sales and maturities of short-term investments

 

4,012

 

203

 

Purchase of businesses, net of cash acquired

 

(145

)

(381

)

Net cash used in investing activities

 

(12,072

)

(11,086

)

Cash Flows from Financing Activities:

 

 

 

 

 

(Decrease) Increase in purchase card payable, net

 

(1,463

)

492

 

Repayment of term debt

 

(1,590

)

(56,488

)

Repayment of 81/8% senior subordinated notes

 

 

(34,157

)

Payments on capital lease obligations

 

(198

)

(177

)

Proceeds from stock options exercised

 

7,211

 

17

 

Excess tax benefits from share-based compensation

 

775

 

1

 

Treasury stock acquired to satisfy minimum statutory tax withholding requirements

 

(97

)

(34

)

Net cash provided by (used in) financing activities

 

4,638

 

(90,346

)

Effect of exchange rate changes on cash and cash equivalents

 

66

 

216

 

Net increase in cash and cash equivalents

 

5,081

 

967

 

Cash and cash equivalents at beginning of period

 

99,223

 

62,724

 

Cash and cash equivalents at end of period

 

$

104,304

 

$

63,691

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

9,410

 

$

11,278

 

Income taxes, net of refunds

 

$

15,644

 

$

5,371

 

 

 

 

 

 

 

Schedule of Non-Cash Investing Activities:

 

 

 

 

 

Property acquired through lease incentives

 

$

2,445

 

$

3,009

 

Adjustments to liabilities assumed and goodwill on businesses acquired

 

$

 

$

732

 

 



 

INTERLINE BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-US GAAP INFORMATION (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2010 AND SEPTEMBER 25, 2009

(in thousands)

 

Free Cash Flow

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 24,

 

September 25,

 

September 24,

 

September 25,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

$

(3,675

)

$

29,847

 

$

12,449

 

$

102,183

 

Less capital expenditures

 

(4,709

)

(3,390

)

(12,937

)

(9,078

)

Free cash flow

 

$

(8,384

)

$

26,457

 

$

(488

)

$

93,105

 

 

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

 

Daily Sales Calculations

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 24,

 

September 25,

 

 

 

September 24,

 

September 25,

 

 

 

 

 

2010

 

2009

 

% Variance

 

2010

 

2009

 

% Variance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

276,821

 

$

277,948

 

-0.4

%

$

792,193

 

$

804,661

 

-1.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daily sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ship days

 

63

 

63

 

 

 

191

 

191

 

 

 

Average daily sales (1)

 

$

4,394

 

$

4,412

 

-0.4

%

$

4,148

 

$

4,213

 

-1.5

%

 


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

 

Adjusted EBITDA

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 24,

 

September 25,

 

September 24,

 

September 25,

 

 

 

2010

 

2009

 

2010

 

2009

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

11,512

 

$

10,431

 

$

26,173

 

$

19,775

 

Interest expense

 

4,373

 

4,577

 

13,092

 

14,673

 

Interest income

 

(29

)

(76

)

(83

)

(151

)

Loss (Gain) on extinguishment of debt, net

 

 

248

 

 

(1,295

)

Income taxes

 

7,518

 

6,794

 

17,192

 

12,694

 

Depreciation and amortization

 

5,040

 

4,847

 

14,970

 

14,169

 

Adjusted EBITDA

 

$

28,414

 

$

26,821

 

$

71,344

 

$

59,865

 

Adjusted EBITDA margin

 

10.3

%

9.6

%

9.0

%

7.4

%

 

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