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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.
For quarterly period ended August 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission File No: 0-28812
RANKIN AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0838383
- ---------------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3838 N. Sam Houston Parkway E., #600
Houston, TX 77032
- ---------------------------------------- -----
(Address of principal executive offices) (Zip code)
(281) 618-4000
--------------------------------------------------
Registrant's telephone number, including Area Code
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
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
--- ---
As of October 15, 2000, 5,186,613 shares of common stock were
outstanding.
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RANKIN AUTOMOTIVE GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - August 31, 2000 (unaudited) and
February 29, 2000
Condensed Statements of Income - Three months and six months
ended August 31, 2000 and 1999 (unaudited)
Condensed Statements of Cash Flows -Six months ended
August 31, 2000 and 1999 (unaudited)
Notes to Condensed Financial Statements -Six months ended
August 31, 2000 and 1999 (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED BALANCE SHEETS
AUGUST 31, FEBRUARY 29,
2000 2000
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 723,809 $ 957,119
Accounts receivable, net of allowance for doubtful
accounts of $1,485,847 and $1,380,000, respectively 7,967,417 9,458,057
Related party receivable -- 22,205
Amounts receivable from vendors 3,870,248 4,989,484
Inventories 38,431,917 47,395,741
Prepaid expenses and other current assets 517,174 785,968
------------ ------------
Total current assets 51,510,565 63,608,574
Property and equipment, net 4,217,100 4,469,750
Goodwill, net 6,953,126 8,249,920
Deferred financing costs, net 379,110 433,111
------------ ------------
Total assets $ 63,059,901 $ 76,761,355
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,642,174 $ 26,131,010
Accrued expenses 1,700,776 2,447,813
Current portion of long-term debt 28,701,663 2,146,448
Income taxes payable -- --
------------ ------------
Total current liabilities 55,044,613 30,725,271
Long-term debt, less current portion 161,870 31,641,605
------------ ------------
Commitments and contingencies 55,206,483 62,366,876
------------ ------------
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,201,613 issued 52,016 52,016
Additional paid-in capital 14,513,154 14,513,154
Retained earnings (deficit) (6,516,752) 24,309
Less: Treasury stock 15,000 shares at cost (195,000) (195,000)
------------ ------------
Total stockholders' equity 7,853,418 14,394,479
------------ ------------
Total liabilities and stockholders' equity $ 63,059,901 $ 76,761,355
------------ ------------
See Notes to Condensed Financial Statements.
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RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended August 31, Six Months Ended August 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $ 24,897,967 $ 37,681,167 $ 54,121,905 $ 66,030,662
Cost of goods sold 17,919,088 24,362,390 36,152,745 42,019,291
------------ ------------ ------------ ------------
Gross Profit 6,978,879 13,318,777 17,969,160 24,011,371
Operating, selling, general and
administrative expenses 9,723,842 11,624,772 20,268,863 20,952,310
Loss on sale and closure
of operations 2,085,398 -- 2,085,398 --
------------ ------------ ------------ ------------
Income (loss) from operations (4,830,361) 1,694,005 (4,385,101) 3,059,061
Interest expense 940,045 697,125 2,155,960 1,280,252
------------ ------------ ------------ ------------
Net income (loss) before income taxes (5,770,406) 996,880 (6,541,061) 1,778,809
Income taxes (benefit) -- 197,096 -- 197,096
------------ ------------ ------------ ------------
Net income (loss) $ (5,770,406) $ 799,784 $ (6,541,061) $ 1,581,713
------------ ------------ ------------ ------------
Earnings (loss) per share $ (1.11) $ 0.15 $ (1.26) $ 0.31
------------ ------------ ------------ ------------
Earnings (loss) per share -
assuming dilution $ (1.11) $ 0.15 $ (1.26) $ 0.31
------------ ------------ ------------ ------------
Average common shares outstanding 5,186,613 5,186,613 5,186,613 5,142,301
Dilutive effective of stock options -- -- -- 750
------------ ------------ ------------ ------------
Average common shares outstanding -
assuming dilution 5,186,613 5,186,613 5,186,613 5,143 051
------------ ------------ ------------ ------------
See Notes to Condensed Financial Statements.
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RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED AUGUST 31,
----------------------------
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (6,541,061) $ 1,581,713
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,737,673 621,407
Provisions for bad debts 105,847 161,164
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,590,320 605,943
(Increase) decrease in amounts receivable from vendors 935,913 --
(Increase) decrease in inventories 8,963,824 (2,492,694)
Increase (decrease) in accounts payable
and accrued expenses (2,235,871) 3,698,474
(Increase) decrease in other, net 268,794 181,834
(Increase) decrease in income tax payable -- 197,096
------------ ------------
Net cash provided by operating activities 4,825,439 4,554,937
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (134,228) (664,925)
Purchase of businesses, net of cash acquired -- (16,456,364)
------------ ------------
Net cash (used in) investing activities (134,228) (17,121,289)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (repayments on) revolving line of credit (5,055,858) 21,767,597
Proceeds from (repayments on) other long-term obligations 131,337 (11,048,861)
Issuance of common stock, net of discount -- 1,435,840
Issuance of debt -- 470,080
Deferred financing costs incurred -- (357,500)
------------ ------------
Net cash provided by (used in) financing activities (4,924,521) 12,267,156
------------ ------------
Net decrease in cash (233,310) (299,196)
Cash, beginning of period 957,119 346,913
------------ ------------
Cash, end of period $ 723,809 $ 47,717
------------ ------------
See Notes to Condensed Financial Statements
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RANKIN AUTOMOTIVE GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
1. Current Business Conditions
Beginning in October, 1998 through April, 1999, Rankin
Automotive Group, Inc. (the "Company") acquired four operations - a
distribution center in Monroe, Louisiana, US Parts Corporation in
Houston, Texas, Automotive and Industrial Supply Co in Shreveport,
Louisiana and Allied Distributing Company in Houston, Texas. These
acquisitions tripled the Company's annual sales and improved its
competitive abilities. These acquisitions were financed entirely with
debt. The newly combined Company involved distribution to three
different customer bases including independent jobbers, retail
customers and two-step installers. While significant synergies were
anticipated, new competition in the Company's markets, the inability to
raise margins in the jobber business, computer systems and inventory
management integration issues and high debt levels all negatively
impacted earnings and the Company's ability to finance its inventory
replenishment programs.
The Company significantly reduced its bank indebtedness as of
August 31, 2000, primarily through inventory reductions. Subsequent to
August 31, 2000, the Company further reduced its bank indebtedness as a
result of the sale of operations as described in footnote 4, however,
as a result of requirements of its lenders, most of the proceeds were
used to pay down bank indebtedness. Accordingly, the Company has not
had sufficient remaining funds to reduce its vendor payables. With
reduced inventory replenishment from its vendors, the Company has
experienced a significant reduction in sales during the first half of
this fiscal year.
Additionally, the Company is not and has not been in
compliance with its bank covenants since June 30, 2000. The Company
does not anticipate the current lender will restructure the senior
credit facility and is currently seeking alternative sources of funding
to finance its operations. There can be no assurance that such
financing would be available on acceptable terms, if at all.
As discussed further in footnote 4, the Company is in the
final stages of exiting the low margin independent jobber distribution
business and the highly competitive retailing market. While these
dispositions should permit the Company to focus fully on its
historically successful two-step installer business and are necessary
to the long-term future of the Company, the dispositions have
temporarily reduced the cash flow of the Company and its ability to
purchase product.
With the convergence of the above issues, the Company's
options have become more limited. The Company plans to meet with its
vendors to discuss methods to improve product flow and refresh its
inventories with faster turn product. For such methods to be
successful, the Company's vendors would need to agree to inventory
returns as well as significant concessions in the form of reductions in
the Company's payable balances or long-term pay-out terms. The Company
is unable to predict the outcome of these discussions.
The Company is also exploring new bank financing with less
restrictive terms and lower financing costs. If the Company is able to
secure the necessary concessions and assistance from its vendors, the
Company believes that it could attract such financing based on its
downsized operations (focused on the two-step installer business).
There can be no assurance that the required vendor concessions and new
bank financing will be available to the Company.
In the event these strategies do not achieve the desired
results, the Company may need to consider other options including
additional plans of divestitures or other reorganization strategies.
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2. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with
generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six months ended August 31, 2000 are not
necessarily indicative of the results that may be expected for the
year ended February 28, 2001.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended February 29, 2000.
Additionally, refer to the Company's Form 8-K and 8-K/A filed on March
25, 1999 and May 24, 1999, respectively, concerning information on the
Company's financing agreement and acquisitions finalized during the
three months ended May 31, 1999.
Certain reclassifications have been made to prior period
amounts to conform to the current year presentation.
3. Long-Term Debt
Long-term debt consists of the following:
August 31, 2000 February 29, 2000
--------------- -----------------
Borrowings under revolving line of credit $ 22,310,839 $ 27,366,696
Bank term loans 4,277,315 5,014,882
Other notes payable 2,275,379 1,406,475
------------ ------------
28,863,533 33,788,053
Less current maturities (28,701,663) (2,146,448)
------------ ------------
$ 161,870 $ 31,641,605
------------ ------------
On March 10, 1999, the Company entered into a financing
agreement with Heller Financial, Inc. ("Heller"). The agreement
provides for term loans in the aggregate amount of $6.0 million and a
revolving line of credit with a maximum amount of $39.0 million.
Drawings under the line of credit are limited to a certain percentage
of eligible trade accounts receivable and inventory. The term loans
require minimum monthly principal payments totaling approximately
$90,000. The term loans and the revolving line of credit expire in
March 2004. The interest rate on the revolving line of credit is, at
the Company's option, either LIBOR plus 3.00% or prime plus .75%. The
interest rates on the term loans are .5% to .75% higher than on the
revolving line of credit. During 2000, the interest rate ranged from
7.15% to 9.87% and the weighted-average interest rate was 8.3%, The
line of credit and term loans are collateralized by the accounts
receivable, inventory and fixed assets of the Company. The financing
agreement contains certain financial covenants relating to, among
other things, "tangible net worth", "ratio of indebtedness to tangible
net worth", "fixed-charge coverage" and "capital expenditures", all of
which are as defined in the financing agreement and were waived during
fiscal 2000 by the lenders. Initial borrowings under this financing
agreement were used to repay the Company's existing revolving line of
credit and to fund the acquisitions referred to in Note 3.
Effective May 26, 2000, the Company amended its financing
agreement and received waivers of all continuing defaults prior to that
date. The amendment changed all financial covenant tests to levels
congruent with the Company's then existing financial performance,
reduced the revolving portion of the credit facility to $30.0 million
and increased pricing by 0.25% with additional increases of up to 0.50%
depending upon the Company's leverage. The Company has not been in
compliance with the loan covenants since June 30, 2000, was not in
compliance at August 31, 2000, and does not anticipate being in
compliance in the foreseeable
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future. The Company does not anticipate the current lender will
restructure the senior credit facility and is currently seeking
alternative sources of funding to finance its operations. There can be
no assurance that such financing would be available on acceptable
terms, if at all.
4. Strategic Closures and Sales of Operations
With the acquisitions completed in fiscal year 2000, the
Company's customer bases included independent jobbers, retail customers
and two-step installer. After evaluating the economic potential of each
market and the Company's position in each market, the Company
determined that its main focus should be on its two-step installer
business. As a result of this decision, the Company began a series of
strategic moves to dispose of its jobber and retail distribution
operations.
The first phase was accomplished with the sale of the
independent jobber distribution business in Texas to Star Automotive in
July 2000. The second phase was the sale of the Company's Monroe,
Louisiana distribution center and most of its retail locations in
Louisiana and Mississippi to Replacement Parts, Inc. of Little Rock,
Arkansas effective September 18, 2000. Further, the Company signed a
definitive agreement on October 13, 2000 to sell four retail stores in
southeast Louisiana to O'Reilly's Auto Parts and is negotiating the
sale of its paint and body warehouse in Houston.
As a result of these actions, the Company's ongoing business
will be focused on its historically profitable two-step installer
business and will include a centralized distribution center in Houston
Texas, 38 stores in Texas and 3 stores in Shreveport, Louisiana.
In connection with these strategic moves, the Company recorded
a loss on the sale and closure of operations of approximately $2.1
million during the quarter (including $1.2 million of goodwill) and
will record approximately $2.0 million in the 3rd fiscal quarter as a
result of completing the remaining dispositions.
With the reduced operations, the Company has taken significant
steps to reduce distribution center costs and corporate overhead to
support the reduced operating structure of the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its founding in 1968, the Company had grown from a single store
in Alexandria, Louisiana, to 65 stores and five distribution centers which
supply approximately 310 independent operators in Texas, Louisiana, Mississippi,
Alabama and Arkansas. The most significant growth of the Company occurred during
the period from October 1998 to April 1999 when it acquired a distribution
center in Monroe, Louisiana, US Parts Corporation in Houston, Texas, Automotive
Industrial Supply Co. in Shreveport, Louisiana and Allied Distributing Company
in Houston, Texas.
Since April 1999, the Company has focused on the integration of its
various operations and taking advantage of the anticipated synergies of those
operations. Those operations included three distinct customer bases -
independent jobbers, retail customers and two-step installers. From the
beginning, the two-step installer business was the most profitable and provided
the most potential for growth by the Company. As part of the integration
process, Company's management continually reviewed the Company's strategic
position in each of these markets. Management also considered its limited cash
resources and inventory availability and the most productive application of
those resources.
During 1999 and early 2000, a number of independent jobber customers
were acquired by the Company's competition. Facing a shrinking market place and
with the inability to raise margins to
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acceptable levels, Company's management decided to exit the independent jobber
business. This strategy was accomplished with the sale of the independent jobber
business in Texas to Star Automotive in July, 2000 and the sale of the Company's
Monroe, Louisiana distribution center to Parts Warehouse, Inc. effective
September 18, 2000. These steps allowed the Company to consolidate its
warehousing operations at its central warehouse in Houston, Texas and to
significantly reduce warehouse operating costs.
During the same period, competition in the retail business intensified
in the Louisiana and Mississippi markets where the Company's retail distribution
was focused. A number of major retail competitors entered the marketplace or
intensified their concentration of stores in the Company's marketplace. With
this increased competition and the Company's inventory replenishment abilities
becoming more limited, sales at these locations decreased significantly. Because
of the Company's decreasing competitiveness in these markets, Company management
made a strategic decision to sell its retail distribution operations. Effective
September 18, 2000, the Company sold 24 stores in Louisiana and Mississippi to
Replacement Parts, Inc. On October 13, 2000, the Company signed a definitive
agreement to sell four retail stores in southeast Louisiana to O'Reily's Auto
Parts and is negotiating the sale of its paint and body warehouse in Houston.
As a result of the above actions, the Company's ongoing business will
be focused on its historically profitable two-step installer business and will
include a centralized distribution center in Houston, Texas, 38 stores in Texas
and 3 stores in Shreveport, Louisiana. With the downsizing of operations, the
Company has been very aggressive in reducing its distribution and corporate
costs to a level commensurate with its remaining operations.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The statements contained in this report, in addition to historical
information, are forward-looking statements based on the Company's current
expectations, and actual results may vary materially. Forward-looking statements
often include words like "believe", "plan", "expect", "intend", or "estimate".
The Company's business and financial results are subject to various risks and
uncertainties, including the Company's continued ability to expand its
operations and to successfully integrate the recent acquisitions, the results of
operations of the recently acquired businesses, competition, and other risks
generally affecting the industry in which the Company operates. Many of these
risks and uncertainties are beyond the Company's ability to control or predict.
These forward-looking statements are provided as a framework for the Company's
results of operations. The Company does not intend to provide updated
information other than as otherwise required by applicable law.
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RESULTS OF OPERATIONS
The following table sets forth certain selected historical operating
results for the Company as a percentage of net sales. Operating results of the
acquisitions discussed above are included from the date of acquisition.
Three Months Ended August 31, Six Months Ended August 31,
----------------------------- ---------------------------
2000 1999 2000 1999
------ ------ ------ ------
NET SALES 100.0% 100.0% 100.0% 100.0%
Cost of Sales 72.0% 64.7% 66.8% 63.6%
----- ------ ----- -----
Gross Profit 28.0% 35.3% 33.2% 36.4%
Operating, SG&A expenses 39.0% 30.9% 37.4% 31.7%
Loss on Sale & Closure of Operations 8.4% --% 3.9% --%
----- ------ ----- -----
Income (Loss) from Operations (19.4)% 4.4% (8.1)% 4.7%
Interest Expense 3.8% 1.9% 4.0% 1.9%
----- ------ ----- -----
Income (Loss) before Income Taxes (23.2)% 2.5% (12.1)% 2.8%
----- ------ ----- -----
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1999
Net sales of $24.9 million for the three months ended August 31, 2000,
decreased approximately $12.8 million, or 33.9%, from approximately $37.7
million for the three months ended August 31, 1999. The decrease in net sales
was attributable to a decrease in same store sales of $8.0 million, or 26.7%,
and a decrease in closed store sales of $6.1 million offset by new store sales
of $1.3 million.
Costs of goods sold for the three months ended August 31, 2000,
amounted to approximately $18.0 million, or 72.0% of net sales, compared to
approximately $24.4 million, or 64.7% of net sales, for the three months ended
August 31, 1999. The decrease in the dollar amount was primarily attributable to
the decreased dollar amount of net sales. Cost of goods sold as a percentage of
net sales decreased due to the Company's inability to fully take advantage of
its vendor programs.
Operating, selling, general and administrative expenses for the three
months ended August 31, 2000, amounted to approximately $9.7 million, or 39.0%
of net sales, compared to $11.6 million, or 30.9% of net sales, for the three
months ended August 31, 1999. The decrease was primarily attributable to the
reduced operating scope of the Company as a result of the sale and closure of
operations and cost reduction programs instituted by the Company.
Loss on sale and closure of operations for the three months ended
August 31, 2000 amounted to $2.1 million, or 8.4% of net sales. These costs
included the write-off of approximately $1.2 million of goodwill and $.9 million
of closure costs. No such costs were incurred during the three months ended
August 31, 1999.
Interest expense for the three months ended August 31, 2000, was $0.9
million compared to $.7 million for the three months ended August 31, 1999.
Interest expense increased as a result of fees incurred in connection with
changes to the Company's financing agreement and increased pricing on the
outstanding indebtedness.
Income taxes - For the three months ended August 31, 2000, the Company
did not recognize or record deferred tax assets related to its current loss.
This resulted in the Company having an effective
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federal tax rate of 0.0%. Had the Company recognized deferred tax assets, an
income tax benefit of $2,020,000 would have been recorded.
For the three months ended August 31, 1999, the Company recognized and
recorded deferred tax assets related to the realized net operating losses from
prior years. This resulted in the Company having an effective federal tax rate
of 19.8%. Without the net operating loss carry forward, the Company would have
recorded an income tax expense of $349,000.
SIX MONTHS ENDED AUGUST 31, 2000 COMPARED TO SIX MONTHS ENDED AUGUST 31, 1999
Net sales of $54.1 million for the six months ended August 31, 2000,
decreased approximately $11.9 million, or 18.0%, from approximately $66.0
million for the six months ended August 31, 1999. The decrease in net sales was
attributable to a decrease in same store sales of $12.1 million, or 21.5%, and a
decrease in closed store sales of $2.1 million ($8.4 million on a pro forma
basis) offset by new store sales of $2.3 million.
Costs of goods sold for the six months ended August 31, 2000, amounted
to approximately $36.2 million, or 66.8% of net sales, compared to approximately
$42.0 million, or 63.6% of net sales, for the six months ended August 31, 1999.
The decrease in the dollar amount was primarily attributable to the decreased
dollar amount of net sales. Cost of goods sold as a percentage of net sales
decreased due to the Company's inability to fully take advantage of its vendor
programs.
Operating, selling, general and administrative expenses for the six
months ended August 31, 2000, amounted to approximately $20.3 million, or 37.4%
of net sales, compared to $21.0 million, or 31.7% of net sales, for the three
months ended August 31, 1999. The decrease was primarily attributable to the
reduced operating scope of the Company as a result of the sale and closure of
operations and the cost reduction programs instituted by the Company.
Loss on sale and closure of operations for the six months ended August
31, 2000 amounted to $2.1 million, or 3.9% of net sales. These costs included
the write-off of approximately $1.2 million of goodwill and $.9 million of
closure costs. No such costs were incurred during the six months ended August
31, 1999.
Interest expense for the six months ended August 31, 2000, was $2.2
million compared to $1.3 million for the six months ended August 31, 1999.
Interest expense increased as a result of fees incurred in connection with
changes to the Company's financing agreement and increased pricing on the
outstanding indebtedness.
Income taxes - For the six months ended August 31, 2000, the Company
did not recognize or record deferred tax assets related to its current loss.
This resulted in the Company having an effective federal tax rate of 0.0%. Had
the Company recognized deferred tax assets, an income tax benefit of $2,289,000
would have been recorded.
For the six months ended August 31, 1999, the Company recognized and
recorded deferred tax assets related to the realized net operating losses from
prior years. This resulted in the Company having an effective federal tax rate
of 11.1%. Without the net operating loss carry forward, the Company would have
recorded an income tax expense of $623,000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4,825,439, primarily as
a result of a decrease in inventory offset by net loss for the six months ended
August 31, 2000 of $6,541,061. Net cash provided by operating activities was
$4,554,937 for the six months ended August 31, 1999.
Net cash used in investing activities was $134,228 and $17,121,289 for
the six months ended August 31, 2000 and 1999, respectively. In 1999, cash was
used primarily for purchasing assets of the previously discussed acquisitions,
which were funded through the Company's new financing agreement with Heller.
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Net cash used in financing activities was $4,924,521 for the six
months ended August 31, 2000. Net cash provided by financing activities was
$12,267,156 for the six months ended August 31, 1999. The borrowings in 1999
were used primarily for the acquisitions discussed above, repayment of
indebtedness previously outstanding or acquired and working capital purposes.
Additionally, the Company issued equity securities (common stock)
aggregating 651,613 shares valued at $1,435,840 as a result of the acquisitions
during the three months ended May 31, 1999. Of these shares, 600,000 were issued
to the Company's then chief operating officer and are subject to a lock-up
agreement and discounted by approximately 33% to reflect the impact of the
lock-up. The Company also assumed indebtedness of $16,134,388 and paid a portion
of the USP and Allied purchase price with unsecured obligations of the Company
totaling $773,597.
In connection with the acquisitions, the Company maintained a $45.0
million line of credit through syndicated financing led by Heller. The Company
entered into this financing agreement on March 10, 1999. The agreement provides
for term loans in the aggregate amount of $6.0 million and a revolving line of
credit with a maximum amount of $39.0 million. The term loans require minimum
monthly principal payments totaling approximately $90,000 and the revolving line
of credit expires March 2004. The interest rate on the revolving line of credit
was, at the Company's option, either LIBOR plus 3.00% or prime plus .75%. The
interest rates on the term loans are .5% to .75% higher than on the revolving
line of credit. The financing agreement contains certain financial covenants
relating to, among other things, "tangible net worth", "ratio of indebtedness to
tangible net worth", "fixed charge coverage" and "capital expenditures", all of
which are as defined in the financing agreement. Initial borrowings under this
financing agreement were used to repay the Company" prior lender and to fund the
acquisitions referred to above.
Effective May 26, 2000, the Company amended its financing agreement and
received waivers of all continuing defaults prior to that date. The amendment
changed all financial covenant tests to levels congruent with the Company's then
existing financial performance, reduced the revolving portion of the credit
facility to $30.0 million and increased pricing by 0.25% with additional
increases of up to 0.50% depending upon the Company's leverage. The Company has
not been in compliance with the loan covenants since June 30, 2000, was not in
compliance at August 31, 2000, and does not anticipate being in compliance in
the foreseeable future. The Company does not anticipate the current lender will
restructure the senior credit facility and is currently seeking alternative
sources of funding to finance its operations. There can be no assurance that
such financing would be available on acceptable terms, if at all.
Amounts outstanding at August 31, 2000 were $4.3 million under the term
loan agreements and $22.3 million under the revolving credit agreement.
Additionally, the Company had availability of $.2 million under the revolving
line of credit at August 31, 2000.
In addition to the above, the Company has initiated certain strategies
and is evaluating other strategic options (see Footnote 1) to improve its
liquidity and capital resources. In the event these strategies do not achieve
the desired results, the Company may need to consider other strategies including
additional plans of divestitures or other reorganization strategies.
INFLATION AND SEASONALITY
This Company does not believe its operations are materially affected by
inflation. The Company has been successful in some cases, in reducing the
effects of merchandise cost increases principally by taking advantage of vendor
incentive programs, economies of scale resulting from increased volume of
purchases and selective forward buying.
Store sales have historically been somewhat higher in the first and
second quarters (March through August) than in the third and fourth quarters
(September through February).
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET AND RISK
In the normal course of business, the Company is exposed to market
risk, primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
Accordingly, the Company may enter into certain derivative financial instruments
such as interest rate swap agreements. The Company does not use derivative
financial instruments for trading or to speculate on changes in interest rates.
Interest Rate Exposure. The Company's exposure to market risk for changes in
interest rates relate primarily to the Company's long-term debt. At August 31,
2000, approximately 92.6% ($26.7 million) of the long-term debt was subject to
variable interest rates. The detrimental effect of a hypothetical 100 basis
point increase in interest rates would be to reduce income before taxes by $.3
million. At August 31, 2000, the fair value of the Company's fixed rate debt is
approximately $2.1 million based upon discounted future cash flows using current
market prices.
PART II. OTHER INFORMATION
Other Information
Item 1. Legal Proceedings.
The Company is not a party to any litigation that management considers
to be of a material nature.
Item 4. Submission of Matters to a Vote of Security Holders
The 2000 Annual Meeting of Shareholders of the Company was held on
July 27, 2000, pursuant to notice given to shareholders of record on June 21,
2000 at which date there were 5,201,613 shares of Common Stock outstanding.
At the Annual Meeting, the shareholders elected four directors to hold office
until the 2001 Annual Meeting and until their successors have been duly elected
and qualified. As to the following named individuals, the holders of 3,391,300
shares of the Company's Common Stock voted at the Annual Meeting with all votes
cast in favor of the election of all four directors.
Directors:
Randall B. Rankin
Ricky L. Sooter
Gary D. Walther
Thomas M. Hargrove
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - On October 6, 2000, the Company filed a
Current Report on Form 8-K, dated September 25, 2000, relating to the sale by
the Company of assets including 24 stores in Mississippi and Louisiana and its
Monroe Louisiana distribution center to Replacement Parts, Inc., effective
September 18, 2000.
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SIGNATURES
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 thereunto duly authorized.
RANKIN AUTOMOTIVE GROUP, INC.
/s/ Randall B. Rankin
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Randall B. Rankin, Chief Executive Officer
/s/ Steven A. Saterbak
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Steven A. Saterbak, Vice President Finance
October 15, 2000 /s/ Daniel L. Henneke
- ------------------------------ ------------------------------------------
Daniel L. Henneke, Chief Accounting Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule