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 November 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 (I.R.S. Employer
of incorporation) 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 November 25, 1997, 4,535,000 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 - February 25, 1997 and November 25,
1997 (unaudited)
Condensed Statements of Operations - Three months ended November
25, 1996 and 1997 and Nine months ended November 25, 1996 and 1997
Condensed Statements of Cash Flows - Nine months ended November 25,
1996 and 1997
Notes to Condensed Financial Statements - Nine months ended
November 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
Exhibit 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
January 9, 1998 /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, NOVEMBER 25,
ASSETS 1997* 1997
UNAUDITED
CURRENT ASSETS
CASH $4,022,287 $3,948,143
ACCOUNTS RECEIVABLE
TRADE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS 2,125,352 2,473,174
RELATED PARTY 20,035 11,090
INVENTORIES 10,249,572 12,923,591
PREPAID EXPENSES AND OTHER CURRENT ASSETS 117,526 129,114
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TOTAL CURRENT ASSETS 16,534,772 19,485,112
PROPERTY AND EQUIPMENT, NET 1,342,526 1,886,677
INTANGIBLE ASSETS, NET 651,260 656,025
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TOTAL ASSETS $18,528,558 $22,027,814
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE, TRADE $2,552,371 $3,242,137
ACCRUED EXPENSES 714,994 452,601
CURRENT PORTION OF LONG-TERM DEBT 114,378 161,564
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TOTAL CURRENT LIABILITIES 3,381,743 3,856,302
LONG-TERM DEBT, LESS CURRENT PORTION 1,519,022 4,645,980
--------- ---------
TOTAL LIABILITIES 4,900,765 8,502,282
--------- ---------
COMMITMENTS AND CONTINGENCIES
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 498,463 591,202
LESS: TREASURY STOCK (15,000 SHARES AT COST) 0 (195,000)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 13,627,793 13,525,532
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,528,558 $22,027,814
=========== ===========
* THE BALANCE SHEET AT FEBRUARY 25, 1997 HAS BEEN TAKEN FROM THE AUDITED BALANCE
SHEET AT THAT DATE.
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
5
RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
*******************************************************************************
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 25, NOVEMBER 25,
1996 1997 1996 1997
NET SALES $ 7,190,726 $ 9,719,694 $ 21,534,778 $ 30,291,853
COST OF GOODS SOLD 4,605,919 6,251,141 13,971,503 20,032,275
------------ ------------ ------------ ------------
GROSS PROFIT $ 2,584,807 $ 3,468,553 $ 7,563,275 $ 10,259,578
OPERATING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,304,870 3,513,504 6,385,143 10,139,395
------------ ------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS $ 279,937 ($ 44,951) $ 1,178,132 $ 120,183
NET INTEREST (EXPENSE) INCOME (130,383) (31,235) (395,651) 1,556
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES $ 149,554 ($ 76,186) $ 782,481 $ 121,739
INCOME TAXES (CREDIT) 45,000 (36,000) 270,000 29,000
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) $ 104,554 ($ 40,186) $ 512,481 $ 92,739
============ ============ ============ ============
NET EARNINGS (LOSS) PER COMMON SHARE $ 0.03 ($ 0.01) $ 0.17 $ 0.02
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,116,000 4,535,000 3,072,000 4,540,000
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
********************************************************************************
NINE MONTHS ENDED
NOVEMBER 25,
1996 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $ 512,481 $ 92,739
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 181,507 286,884
CHANGES IN ASSETS AND LIABILITIES
(INCREASE) IN ACCOUNTS RECEIVABLE (317,198) (338,877)
(INCREASE) IN INVENTORIES (1,782,790) (2,274,019)
INCREASE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES 1,116,106 427,373
OTHER, NET (48,210) (4,765)
------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES ($ 338,104) ($ 1,810,665)
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF PROPERTY AND EQUIPMENT, NET ($ 288,728) ($ 533,598)
PURCHASES OF TREASURY STOCK 0 (195,000)
CASH PAID IN CONNECTION WITH ACQUISITION 0 (408,000)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES ($ 288,728) ($ 1,136,598)
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM PUBLIC OFFERING $ 13,049,159 $ 0.00
BORROWINGS FROM REVOLVING LINE OF CREDIT 23,068,520 33,692,416
REPAYMENTS OF BORROWINGS UNDER REVOLVING LINE OF CREDIT (25,963,665) (31,022,038)
PROCEEDS FROM OTHER LONG-TERM OBLIGATIONS 0 254,665
REPAYMENTS OF LONG-TERM OBLIGATIONS (5,021,781) (51,924)
INCREASE (DECREASE) IN NOTES PAYABLE TO STOCKHOLDER (4,595) 0
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 5,127,638 $ 2,873,119
------------ ------------
NET INCREASE (DECREASE) IN CASH $ 4,500,806 ($ 74,144)
CASH, BEGINNING OF PERIOD 309,144 4,022,287
------------ ------------
CASH, END OF PERIOD $ 4,809,950 $ 3,948,143
============ ============
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RANKIN AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 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):
NINE MONTHS ENDED
NOVEMBER 25,
------------------------
1996 1997
Net sales $ 30,200 $ 30,592
Net earnings $ 879 $ 93
Net earnings per share $ .29 $ .02
Weighted average of common shares outstanding 3,072,000 4,540,000
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 third quarter of the fiscal year reflected the continued
evidence of the Company's growth strategy. Sales for the three months ended
November 25, 1997 approximated $ 9.7 million compared to the $7.2 million for
the same period of the prior year. Likewise, sales for the nine months ended
November 25, 1997 approximated $30.3 million compared to the $21.5 million for
the same nine month period ended November 25, 1996. The sales gains for the
three month comparative period approximated 35% while the sales gains for the
nine month period were 41% compared to the same period of the prior year.
Two new traditional stores were opened during the period, one in Ruston, LA
and the other in Livingston, TX. It was felt that these two locations fit very
well with the Company's market penetration strategies and filled a void in our
overall geographic coverage. This brings the total store count to 43 locations
as of the end of the quarter.
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. During this fiscal
quarter, management continued to consolidate the duties of many of the
divisional activities into the corporate offices to gain operating efficiencies.
In May, the Company developed 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 six months ended November 25, 1997. Management believes the benefits from
this decision will be felt in improved efficiencies and profitability for years
to come. During the month of November, management embarked upon a program to
identify areas within the company where cost efficiencies could be gained. It
was determined that a selective reduction in personnel could be made without
having a detrimental effect on productivity. A 10.7% personnel reduction was
implemented in mid November to assist in bringing S,G & A costs back to
historical levels. It is expected that the full effect of this will not be
noticed until the fourth quarter of this year.
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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.
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 25, NOVEMBER 25,
1996 1997 1996 1997
NET SALES.............................. 100.0% 100.0% 100.0% 100.0%
COST OF GOODS SOLD..................... 64.1% 64.3% 64.9% 66.1%
GROSS PROFIT...................... 35.9% 35.7% 35.1% 33.9%
OPERATING, SG&A EXPENSES............... 32.1% 36.2% 29.7% 33.5%
EARNINGS FROM OPERATIONS.......... 3.8% (0.5%) 5.4% 0.4%
INTEREST (EXPENSE) INCOME.............. (1.8%) (0.3%) (1.8%) 0.0%
EARNINGS BEFORE INCOME TAXES........... 2.0% (0.8%) 3.6% 0.4%
INCOME TAXES........................... 0.6% (0.4%) 1.2% 0.1%
NET EARNINGS (LOSS).................... 1.4% (0.4%) 2.4% 0.3%
THREE MONTHS ENDED NOVEMBER 25, 1997 COMPARED TO THREE MONTHS ENDED NOVEMBER 25,
1996
NET SALES. Product sales increased approximately $2.5 million, or 35.2%,
from approximately $7.2 million for the three months ended November 25, 1996 to
$9.7 million for the comparable three month period of 1997. Approximately $2.7
million of the increase was due to the acquisitions and new store openings which
occurred in October, 1996 and March, June, August and September of 1997. Total
same store sales for the period were relatively flat when compared to the same
period of the prior year.
COST OF GOODS SOLD. Cost of Goods Sold for the three months ended November
25, 1997 amounted to approximately $6.3 million or 64.3% of Net Sales compared
to approximately $4.6 million or 64.1% for the same three month period ended
November 25, 1996. The increase in the dollar amount was primarily attributable
to the increased dollar amount of Net Sales. The Cost of Goods Sold as a
percentage of Net Sales remained relatively constant for the period.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The OSG&A expenses
for the three months ended November 25, 1997 amounted to approximately $3.5
million or 36.2% of Net Sales compared to $2.3 million, or 32.1% of Net Sales,
for the same three month period of 1996. The increase in the dollar amount is
attributable to an increased level of business as reflected by the increased Net
Sales. It is, also, attributable to a decision by the Company to add personnel
at the corporate level in order to consolidate certain Divisional functions at
this location. With any planned consolidation, the cost of implementing the
program is experienced first with the benefits coming afterward. An 11%
reduction in personnel was instituted in mid-November as a reflection of the
initial signs of the costs benefits to come from the consolidations.
The increase in OSG & A as a percentage of Net Sales resulted primarily
from two areas. The first was that prior to November 18, 1996, the Company was
privately owned and had lower operating costs for items such as accounting and
legal fees and liability insurance which was increased to cover Directors &
Officers and raise the coverage limits. Secondly, the acquisition of the
12-store chain in Mississippi took place on October 21, 1996. The OSG &A of
these 12 stores was higher as a percentage
10
of Net Sales than the remaining stores. Only one month of activity was included
in the three months ended November 25, 1996 while a full three months was
included in the three month period ended November 25, 1997.
The specific expense areas where increased costs as a percentage of Net
Sales have been experienced are payroll costs, communications activities, rents,
utilities, accounting and legal expenses, fire & liability insurance and
computer and truck leases. Each of these items are directly attributable to the
increased number of locations from which we operate and took a sizeable jump
with the acquisition of the stores in Mississippi. Payroll costs amounted to
approximately $2.3 million for the three months ended November 25, 1997 or 23.5%
of Net Sales. This compares to payroll costs of approximately $1.6 million or
22.0% of Net Sales for the same three month period of the previous year. The
balance of the aforementioned expense items amounted to approximately 6.8% of
Net Sales in the three month period ended November 25, 1997 while they accounted
for approximately 5.6% during the same period of the previous year.
INTEREST (EXPENSE) INCOME. For the three months ended November 25, 1997,
the Company had $31,235 of net Interest Expense compared to $130,383 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. The change to a net Interest Expense for this third fiscal
quarter being reported is primarily a result of borrowings against the
Company's available line of credit for the startup costs associated with the
opening of two new store locations, one in Ruston, LA and the other in
Livingston, TX.
INCOME TAXES. Income taxes were a credit of $36,000 for the three months
ended November 25, 1997 compared to $45,000 for the same three month period of
1996 as a result of the loss before income taxes for the quarter.
NINE MONTHS ENDED NOVEMBER 25, 1997 COMPARED TO NINE MONTHS ENDED NOVEMBER 25,
1996
NET SALES. Product sales increased approximately $8.8 million, or 40.7%,
from approximately $21.5 million for the nine months ended November 25, 1996 to
$30.3 million for the comparable nine month period of 1997. Sales attributable
to acquisitions and new-store openings which occurred in July and October, 1996
and March, June, August, and September 1997, accounted for the major portion of
this increase.
COST OF GOODS SOLD. Cost of Goods Sold for the nine months ended November
25, 1997 amounted to approximately $20.0 million or 66.1% of Net Sales compared
to $14.0 million, or 64.9% of Net Sales for the same nine 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.
Coupled with the aforementioned are the continuing competitive pressures
that are inevitable in the market place. Management has intensified the
negotiations with the Company's major suppliers over the past several months in
an attempt to improve the pricing received from our vendors. Some improvement
has been noticed with more anticipated.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The OSG&A expenses
for the nine months ended November 25, 1997 amounted to approximately $10.1
million or 33.5% of Net Sales for the period. This compares to a total of $6.4
million or 29.7% of Net Sales for the nine months ended November 25, 1996. This
increase in the dollar amount is attributable to, among other things, an
increased level of business and, as previously described, a decision by the
Company to consolidate certain functions within the corporate offices to gain
efficiencies and reduce costs.
The increase in OSG & A as a percentage of Net Sales for the nine months
ended November 25, 1997 was primarily attributable to those items previously
mentioned, the acquisition of the Mississippi group of stores and the cost of
the IPO. Specific expense items where percentage increases have been
11
noted are payroll costs which amounted to approximately $6.6 million, or 21.9%
of Net Sales for the nine months ended November 25, 1997 compared to
approximately $4.2 million for the nine months ended November 25, 1996, or 19.7%
of Net Sales for that period. In addition, accounting and legal fees,
communication activities and rents amounted to approximately 4.3% of Net Sales
for the nine months ended November 25, 1997 compared to approximately 3.6% of
Net Sales for the same period of the prior year.
INTEREST EXPENSE (INCOME). The Company had Interest Income of $1,556 net of
Interest Expense, for the nine months ended November 25, 1997 compared to
Interest Expense of $395,651 for the nine months ended November 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. With the Company's reduced level of earnings for the nine
months ended November 25, 1997 the income taxes accrued decreased to $29,000 for
an effective tax rate of 23.8%. This compares to a tax of $270,000 for an
effective tax rate of 34.5% for the same period of the prior year.
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INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule (for SEC use only)