1
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 25, 1997
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 of incorporation) (I.R.S. Employer Indentification No.)
3709 S. MacArthur Drive
Alexandria, LA 71302
- ---------------------------------------- -------------------------------------
(address of principal executive offices) (zip code)
(318) 487-1081
---------------
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 August 25, 1997, 4,535,000 shares of common stock were
outstanding.
2
RANKIN AUTOMOTIVE GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - February 25, 1997 and August 25,
1997 (unaudited)
Condensed Statements of Operations - Three months ended August
25, 1996 and 1997 and Six months ended August 25, 1996 and 1997
Condensed Statements of Cash Flows - Six months ended August
25, 1996 and 1997
Notes to Condensed Financial Statements - Six months ended
August 25, 1996 and 1997 (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
3
PART II - OTHER INFORMATION
Other Information
Item 1 - 5 None
Item 6 Exhibits and Reports on Form 8 - K
27 Financial Data Schedule (for SEC use only)
SIGNATURE
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
--------------------------------------------
Randall B. Rankin, Chief Executive Officer
October 8, 1997 /s/ Deborah N. Eddlemon
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Deborah N. Eddlemon, Chief Financial Officer
and Treasurer
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PART I.
RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED BALANCE SHEETS
================================================================================
FEBRUARY 25, AUGUST 25,
ASSETS 1997 1997
UNAUDITED
CURRENT ASSETS
Cash $ 4,022,287 $ 4,014,998
Accounts Receivable
Trade, net of allowance for doubtful accounts of $9,000 $ 2,126,352 $ 2,694,997
Related party $ 20,035 $ 9,959
Inventories $ 10,249,572 $ 12,146,748
Prepaid Expenses and other current assets $ 117,526 $ 158,986
------------ ------------
Total Current Assets $ 16,534,772 $ 19,025,688
PROPERTY AND EQUIPMENT, NET $ 1,342,526 $ 1,695,502
INTANGIBLE ASSETS, NET $ 651,260 $ 700,617
------------ ------------
TOTAL ASSETS $18,528,558 $ 21,421,807
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Trade $ 2,552,371 $ 3,152,481
Accrued Expenses $ 714,994 $ 555,129
Current Portion of Long-Term Debt $ 114,378 $ 147,266
----------- ------------
Total Current Liabilities $ 3,381,743 $ 3,954,876
LONG-TERM DEBT, less current portion $ 1,519,022 $ 3,901,213
----------- ------------
Total Liabilities $ 4,900,765 $ 7,856,089
----------- ------------
COMMITMENTS AND CONTINGENCIES $ 0 $ 0
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, 2,000,000 shares authorized,
none issued $ 0 $ 0
Common Stock, $.01 par value, 10,000,000 shares authorized,
4,550,000 shares issued and outstanding $ 45,500 $ 45,500
Additional paid-in capital $13,083,830 $ 13,083,830
Retained Earnings $ 498,463 $ 631,388
Less: Treasury Stock (15,000) shares at cost) $ 0 $ (195,000)
----------- ------------
Total Stockholders' Equity $13,627,793 $ 13,565,718
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,528,558 $ 21,421,807
=========== ============
* The balance sheet at February 25, 1997 has been taken from the audited
balance sheet at that date.
See notes to condensed financial statements.
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RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 25, AUGUST 25,
1996 1997 1996 1997
NET SALES $7,459,275 $10,665,272 $14,344,052 $20,572,159
COST OF GOODS SOLD $4,886,510 $ 7,239,109 $ 9,365,584 $13,781,134
---------- ----------- ----------- -----------
Gross Profit $2,572,765 $ 3,426,163 $ 4,978,468 $ 6,791,025
OPERATING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES $2,130,297 $ 3,426,419 $ 4,080,273 $ 6,625,891
---------- ----------- ----------- -----------
Earnings (loss) from Operations $ 442,468 $ (256) $ 898,195 $ 166,134
NET INTEREST (EXPENSE) INCOME $ (132,789) $ 12,886 $ (265,268) $ 32,791
---------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES $ 309,679 $ 12,630 $ 632,927 $ 197,925
INCOME TAXES $ 108,388 $ 2,000 $ 225,000 $ 65,000
---------- ----------- ----------- -----------
NET EARNINGS $ 201,291 $ 10,630 $ 407,927 $ 132,925
========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE $ 0.07 $ 0.00 $ 0.13 $ 0.03
========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3050000 4535000 3050000 4542500
See notes to condensed financial statements.
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RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
================================================================================
SIX MONTHS ENDED
AUGUST 26,
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 407,927 $ 132,925
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization $ 114,025 212,518
Changes in assets and liabilities
(Increase) decrease in accounts receivable $ (317,057) $ (559,569)
(Increase) in inventories $ (880,646) $ (1,489,176)
Increase (decrease) in accounts payable
and accrued expenses $ 351,462 $ 540,245
Other, net $ (4,078) $ (41,460)
------------- -------------
Net cash (used in) operating activities $ (328,367) $ (1,204,517)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net $ (170,107) $ (603,999)
Purchase of Treasury Stock $ 0 $ (195,000)
Cash paid in connection with acquisition $ 0 $ (408,000)
------------- -------------
Net cash (used in) investing activities $ (170,107) $ (1,206,999)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from revolving line of credit $ 15,344,096 $ 22,542,268
Repayments of borrowings under revolving line of credit $ (14,908,684) $ (20,338,633)
Proceeds from other long-term obligations $ 179,841 $ 237,642
Repayments of long-term obligations $ (87,683) $ (37,050)
Increase (decrease) in notes payable to stockholder $ 406 $ 0
------------- -------------
Net cash provided by financing activities $ 527,976 $ 2,404,227
------------- -------------
NET INCREASE (DECREASE) IN CASH $ 29,502 $ (7,289)
CASH, BEGINNING OF PERIOD $ 309,144 $ 4,022,287
------------- -------------
CASH, END OF PERIOD $ 338,646 $ 4,014,998
============= =============
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RANKIN AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 25, 1997 (UNAUDITED)
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for interim periods are not necessarily indicative of the
results that may be expected for the entire year. These condensed
financial statements should be read in conjunction with the Company's
annual financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended February 25, 1997.
2. ACQUISITION OF BUSINESSES
On July 25, 1996, the Company acquired one auto parts store. The
Company incurred debt to the seller of approximately $400,000 in
exchange for assets with a purchase price of approximately $400,000.
On October 25, 1996, the Company acquired 12 auto parts stores. The
Company incurred debt to the seller of approximately $2,510,000 in
exchange for assets with a purchase price of approximately $2,510,000.
On June 25, 1997, the Company acquired one auto parts store. The
company paid cash of $408,000 to the seller and assumed certain
liabilities amounting to $70,000 in exchange for assets with a
purchase price of $478,000.
These acquisitions were accounted for as purchases and, accordingly,
the purchase prices were allocated to the assets and liabilities based
upon estimates of their fair values as of the dates of acquisition.
The results of operations of each acquisition are included in the
accompanying Statements of Operations from the dates of acquisition.
The following unaudited pro forma results of operations give effect to
the acquisitions as though they had occurred on February 26, 1996
(Numbers are in thousands except share data):
SIX MONTHS ENDED
AUGUST 25,
-------------------------
1996 1997
Net sales $ 19,771 $ 20,872
Net earnings $ 415 $ 133
Net earnings per share $ .14 $ .03
Weighted average of common shares outstanding 3,050,000 4,542,500
The unaudited pro forma information is not necessarily indicative
either of the results of operations that would have occurred had the
purchases been made as of February 26, 1996 or of future results of
operations of the combined companies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
===============================================================================
Results of the second quarter of the fiscal year reflected the
continued evidence of the Company's growth strategy. Sales for the three months
ended August 25, 1997 approximated $10.7 million compared to the $7.5 million
for the same period of the prior year. Likewise, sales for the six months ended
August 25, 1997 approximated $20.6 million compared to the $14.3 million for
the same six month period ended August 25, 1996. The sales gains in both
comparative periods approximated 43%.
At the beginning of this fiscal year, the Company decided to move away
from several specialty markets in which it had participated in the past. This
decision was due primarily to the volatility of those markets and the
ever-shrinking profit margins. When comparing the Company's same store sales,
excluding these two locations, for its traditional business, a 3% increase was
registered for the three months ended August 25, 1997 in relation to the same
period of the previous year.
During 1997, management determined that an increase in its reserve for
inventory shrinkage was appropriate as inventories continue to increase with
the rapid growth of the number of locations within the Company.
The Company has embarked upon a program to solidify the management
staff by hiring highly qualified individuals in key positions to assist with
the continued growth. Some of the costs of this program have been experienced
during the three months ended August 25, 1997. Management believes the benefits
from this decision will be felt in improved efficiencies and profitability for
years to come.
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RESULTS OF OPERATIONS
The following table sets forth certain selected historical
consolidated operating results for the Company as a percentage of Net Sales.
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 25, AUGUST 25,
1996 1997 1996 1997
NET SALES ....................... 100.0% 100.0% 100.0% 100.0%
COST OF GOODS SOLD .............. 65.5% 67.9% 65.3% 67.0%
GROSS PROFIT .................... 34.5% 32.1% 34.7% 33.0%
OPERATING, SG&A EXPENSES ........ 28.6% 32.1% 28.5% 32.2%
EARNINGS FROM OPERATIONS ........ 5.9% 0.0% 6.2% 0.8%
INTEREST (EXPENSE) INCOME ....... (1.8%) 0.0% (1.8%) 0.2%
EARNINGS BEFORE INCOME TAXES .... 4.1% 0.1% 4.4% 1.0%
INCOME TAXES .................... 1.4% 0.0% 1.6% 0.3%
NET EARNINGS (LOSS) ............. 2.7% 0.1% 2.8% 0.7%
THREE MONTHS ENDED AUGUST 25, 1997 COMPARED TO THREE MONTHS ENDED AUGUST 25,
1996
NET SALES. Product sales increased approximately $3.2 million, or
43.0%, from approximately $7.5 million for the three months ended August 25,
1996 to $10.7 million for the comparable three month period of 1997.
Approximately $3.2 million of the increase was due to the acquisitions and new
store openings which occurred in July and October, 1996 and March and June,
1997. Total same store sales for the period were relatively flat when compared
to the same period of the prior year. As indicated elsewhere, this is due in
part to the decision to move away from certain specialty markets.
COST OF GOODS SOLD. Cost of Goods Sold for the three months ended
August 25, 1997 amounted to approximately $7.2 million or 67.9% of Net Sales
compared to approximately $4.9 million or 34.5% for the same three month period
ended August 25, 1996. The increase in the dollar amount was primarily
attributable to the increased dollar amount of Net Sales. The Company increased
its reserve for inventory shrinkage as inventories continue to increase with
the rapid growth of the number of store locations within the Company.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The OSG&A
expenses for the three months ended August 25, 1997 amounted to approximately
$3.4 million or 32.1% of Net Sales compared to $2.1 million, or 28.6% of Net
Sales, for the same three month period of 1996. This increase is attributable
to, among other things, increased Net Sales and a decision by the Company to
consolidate certain functions within the corporate offices to gain efficiencies
and reduce costs. With any planned improvement in productivity, the cost of
implementing the program is experienced first with the benefits coming
afterward. Since the program has recently begun, the costs associated with it
are being exhibited in the fiscal quarter being reported with the expected
benefits coming later.
The specific expense areas where increased costs have been experienced
are payroll costs, communications activities and rents. Payroll costs amounted
to approximately $2.3 million for the three months ended August 25, 1997 or
21.7% of Net Sales. This compares to payroll costs of approximately $1.4
million or 18.6% of Net Sales for the same three month period of the previous
year. Rents and communications activities amounted to approximately 3.7% of Net
Sales in the three month period
10
ended August 25, 1997 while they accounted for approximately 3.0% during the
same period of the previous year.
INTEREST EXPENSE (INCOME). For the three months ended August 25, 1997,
the Company had $12,886 of net Interest Income compared to $132,789 net Interest
Expense for the same period of the prior year. This is a result of excess funds
from the IPO being invested until appropriate acquisition candidates could be
identified. Prior year debts which resulted in Interest Expense were retired by
the use of some of the proceeds from the November, 1996 public offering.
INCOME TAXES. Income taxes decreased to $2,000 for the three months
ended August 25, 1997 compared to $108,388 for the same three month period of
1996 as a result of decreased earnings before income taxes.
SIX MONTHS ENDED AUGUST 25, 1997 COMPARED TO SIX MONTHS ENDED AUGUST 25, 1996
NET SALES. Product sales increased approximately $6.2 million, or
43.4%, from approximately $14.4 million for the six months ended August 25,
1996 to $20.6 million for the comparable six month period of 1997. Sales
attributable to acquisitions and new-store openings which occurred in July and
October, 1996 and March and June, 1997, accounted for the major portion of this
increase.
At the beginning of this fiscal year, the Company decided to move away
from several specialty markets in which it had participated in the past. This
decision was due primarily to the volatility of those markets and the
ever-shrinking profit margins. When comparing the Company's same store sales,
excluding these two locations, for its traditional business, a 3% increase was
registered for the three months ended August 25, 1997 in relation to the same
period of the previous year.
COST OF GOODS SOLD. Cost of Goods Sold for the six months ended August
25, 1997 amounted to approximately $13.8 million or 67.0% of Net Sales compared
to $9.4 million, or 65.3% of Net Sales for the same six month period of the
previous year. The increase in the dollar amount was primarily attributable to
the increase in Net Sales. The increase in cost of goods sold as a percentage
of net sales was due to, among other things, a change in the mix of products
sold and an increase in the reserve for inventory shrinkage.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The OSG&A
expenses for the six months ended August 25, 1997 amounted to approximately
$6.6 million or 32.2% of Net Sales for the period. This compares to a total of
$4.1 million or 28.5% of Net Sales for the six months ended August 25, 1996.
This increase is attributable to, among other things, an increased level of
business and, as previously described, a decision be the Company to consolidate
certain functions within the corporate offices to gain efficiencies and reduce
costs. Total payroll costs amounted to approximately $4.4 million, or 21.2% of
Net Sales for the six months ended August 25, 1997 compared to approximately
$2.7 million for the six months ended August 25, 1996, or 18.6% of Net Sales
for that period. In addition, communication activities and rents amounted to
approximately 3.8% of Net Sales for the six months ended August 25, 1997
compared to approximately 3.1% of Net Sales for the same period of the prior
year.
INTEREST EXPENSE (INCOME). The Company had Interest Income of $32,791,
net of Interest Expense, for the six months ended August 25, 1997 compared to
Interest Expense of $265,268 for the six months ended August 25, 1996. This is
a result of excess funds from the IPO being invested until appropriate
acquisition candidates could be identified. Prior year debts which resulted in
Interest Expense were retired by the use of some of the proceeds from the
November, 1996 public offering.
INCOME TAXES. Income taxes for the six months ended August 25, 1997
amounted to $65,000 for an effective tax rate of 32.8%. This compares to a tax
of $225,000 for an effective tax rate of 35.5% for the same period of the prior
year.
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Exhibit Index
Exhibit
Number Description
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27 Financial Data Schedule