1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (EVENT): October 13, 1998
RANKIN AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NO: 0-28812
Louisiana 72-0838383
- --------------------------------------------- ----------------------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification 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
2
Item 2. Amendment to File Acquisition Financial Statements
On October 28, 1998, Rankin Automotive Group, Inc. ("the Company")
filed a report on Form 8-K with respect to its acquisition of an auto parts
distribution center operated by A.P.S., Inc. located in Monroe, Louisiana. At
the time of the filing, it was impracticable to provide the financial statements
and proforma financial information required to be filed relative to the acquired
assets, and the Company stated in a report on Form 8-K that it intended to file
the required financial statements and proforma financial information as soon as
practicable, but no later than December 28, 1998. By filing this Form 8-K/A, the
Company is amending and restating Item 7 of the Form 8-K to include such
required financial statements and pro forma financial information.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
a. Financial Statements of Businesses Acquired.
Monroe Distribution Center Financial Statements and Report of
Independent Accountants as of July 25, 1998 and 1997 (unaudited) and
January 31, 1998 and January 25, 1997 (audited) and for the six months
ended July 25, 1998 and 1997 (unaudited) and for the years ended
January 31, 1998 and January 25, 1997 (audited).
b. Pro Forma Financial Information
Rankin Automotive Group, Inc. Pro Forma Condensed Financial Statements
Rankin Automotive Group, Inc. Pro Forma Condensed Balance Sheet at
August 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Notes to Pro Forma Condensed Balance
Sheet at August 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Pro Forma Condensed Statement of
Operations for the year ended February 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Pro Forma Combined Statement of
Operations for the six months ended August 25, 1998
(unaudited)
Rankin Automotive Group, Inc. Notes to Pro Forma Condensed Statement
of Operations for the year ended February 25, 1998 (unaudited)
and six months ended August 25, 1998 (unaudited)
3
RANKIN AUTOMOTIVE GROUP, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The unaudited Pro Forma Condensed Balance Sheet gives effect to acquisition by
the Company of the auto parts distribution center operated by A.P.S., Inc. in
Monroe, Louisiana ("Monroe DC") on October 13, 1998 as if it had occurred on
August 25, 1998. The unaudited Pro Forma Condensed Statement of Operations for
the six months ended August 25, 1998 gives effect to the acquisition as if it
had occurred on February 26, 1997. The unaudited Pro Forma Condensed Statement
of Operations for the year ended February 25, 1998 gives effect to the
acquisition as if it had occurred on February 26, 1997.
The unaudited Pro Forma Condensed Financial Statements are based on (i) the
Company's audited Statement of Operations for the year ended February 25, 1998,
unaudited Statement of Operations for the six months ended August 25, 1998 and
unaudited Balance Sheet as of August 25, 1998 and (ii) the Monroe DC's audited
Statement of Income for the year ended January 31, 1998, unaudited Statement of
Income for the six months ended July 25, 1998 and unaudited Balance Sheet as of
July 25, 1998.
The acquisition is being accounted for under the purchase method of accounting.
The total purchase price for the acquisition is being allocated to tangible and
identifiable intangible assets and liabilities based on management's estimate of
their fair values. The Company currently anticipates that the fair market value
of the tangible assets acquired will approximate the cost of the acquisition and
that no significant positive or negative goodwill will result from the
acquisition. The Company is currently evaluating the fair market value of the
assets purchased and will make appropriate adjustments as soon as that
evaluation is complete.
The Company acquired the Monroe DC with the intent of being able to purchase
merchandise at a lower cost and of gaining other operating efficiencies. No
adjustments have been made to reflect these potential savings, if any, in these
pro forma financial statements since management of the Company has no objective
basis to arrive at the exact amount of these potential savings.
The unaudited Pro Forma Condensed Financial Statements do not purport to be
indicative of the combined results of operations that actually would have
occurred if the transaction described above had been effected at the dates
indicated or to project future results of operations for any period. The
unaudited Pro Forma Condensed Financial Statements should be read in conjunction
with the Company's Financial Statements and the Monroe DC's Financial Statements
and respective related notes thereto.
4
RANKIN AUTOMOTIVE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AUGUST 25, 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------
PRO FORMA
MONROE PRO FORMA AS
ASSETS RANKIN DC ADJUSTMENTS ADJUSTED
(1) (2)
CURRENT ASSETS:
Cash $ 4,015 $ 1 $ (3,600)(4) $ 416
Accounts receivable 2,842 3,566 (1,700)(4) 4,708
Inventories 13,488 6,168 (1,023)(4) 18,633
Prepaid expenses and other current assets 243 91 (60)(3) 274
-------- -------- -------- --------
Total current assets 20,588 9,826 (6,383) 24,031
PROPERTY AND EQUIPMENT, Net 2,036 143 -- 2,179
OTHER NONCURRENT ASSETS -- 579 (465)(3) 114
INTANGIBLE ASSETS 606 850 (850)(3) 606
-------- -------- -------- --------
TOTAL $ 23,230 $ 11,398 $ (7,698) $ 26,930
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 3,862 $ 397 $ (397)(3) $ 3,862
Accrued expenses 480 247 (247)(3) 480
Notes payable and current portion of long-term debt 217 -- 1,500 1,717
-------- -------- -------- --------
Total current liabilities 4,559 644 856 6,059
LIABILITIES SUBJECT TO SETTLEMENT -- 2,078 (2,078)(3) --
LONG-TERM DEBT, less current portion 5,861 2,200 8,061
STOCKHOLDERS' EQUITY:
Common stock 46 46
Additional paid-in capital 13,084 13,084
Accumulated deficit (125) (125)
Owners investment -- 8,676 (8,676)(5) --
Treasury stock (195) (195)
-------- -------- -------- --------
12,810 8,676 (8,676) 12,810
-------- -------- -------- --------
TOTAL $ 23,230 $ 11,398 $ (7,698) $ 26,930
======== ======== ======== ========
See notes to unaudited pro forma condensed balance sheet.
5
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(1) On October 13, 1998, the Company acquired the auto parts
distribution-center operated by A.P.S., Inc. ("APS") in Monroe,
Louisiana ("Monroe DC"). The total purchase price approximated $7.3
million consisting of approximately $1.5 million of acounts receivable,
$5.4 million of inventory, $300 thousand of notes receivables and $120
thousand of property and equipment. The purchase price, for all of the
assets except accounts receivables, totaling $5.8 million was paid in
cash at closing from the Company's cash reserves and credit facility.
A.P.S., Inc. financed the accounts receivables totaling $1.5 million at
10% interest for 30 days.
The Company intends to continue using this facility as an automotive
distribution center for its auto parts business and for other auto
parts suppliers covering the States of Louisiana and Mississippi.
(2) Represents historical balance sheet of Monroe DC as of July 25, 1998.
(3) Elimination of assets not to be purchased and liabilities not to be
assumed.
(4) Adjustment to reflect the cost of the purchase of the Monroe DC and
related reduction in the Company's cash, incurrence of borrowings under
the Company's line of credit and incurrence of borrowings to APS to
finance the purchase of accounts receivable. The Company currently
anticipates that the fair market value of the tangible assets acquired
will approximate the cost of the acquisition and that no significant
positive or negative goodwill will result from the acquisition. The
Company is currently evaluating the fair market value of the assets
purchased and will make appropriate adjustments as soon as that
evaluation is complete.
(5) To eliminate owner's investment account of Monroe DC.
6
RANKIN AUTOMOTIVE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 25, 1998 (IN THOUSANDS EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
PRO FORMA
MONROE PRO FORMA AS
RANKIN DC ADJUSTMENTS ADJUSTED
(1)
NET SALES $ 38,656 $ 22,211 $(12,000)(3) $ 48,867
COST OF GOODS SOLD 25,824 17,577 (12,000)(3) 31,401
-------- -------- -------- --------
Gross profit 12,832 4,634 -- 17,466
OPERATING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 13,628 3,768 -- 17,396
-------- -------- -------- --------
Earnings (loss) from operations (796) 866 -- 70
-------- -------- -------- --------
INTEREST EXPENSE 52 -- 600 652
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE INCOME
TAXES (CREDIT) (848) 866 (600) (582)
INCOME TAXES (CREDIT) (60) 300 (300)(5) (60)
-------- -------- -------- --------
NET EARNINGS (LOSS) $ (788) $ 566 $ (300) $ (522)
======== ======== ======== ========
NET LOSS PER COMMON
SHARE $ (.17) $ (.12)
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,539 4,535
======== ========
See notes to unaudited pro forma condensed statements of operations.
7
RANKIN AUTOMOTIVE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 25, 1998 (IN THOUSANDS EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
PRO FORMA
MONROE PRO FORMA AS
RANKIN DC ADJUSTMENTS ADJUSTED
(2)
NET SALES $20,492 $ 9,687 $(5,400)(3) $24,779
COST OF GOODS SOLD 13,377 7,927 (5,400)(3) 15,904
------- ------- ------- -------
Gross profit 7,115 1,760 -- 8,875
OPERATING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,826 1,559 -- 8,385
------- ------- ------- -------
Earnings from operations 289 201 -- 490
------- ------- ------- -------
INTEREST EXPENSE 123 -- (300)(4) 423
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES 166 201 (300) 67
INCOME TAXES -- 71 (71)(5) --
------- ------- ------- -------
NET EARNINGS $ 166 $ 130 $ (229) $ 67
======= ======= ======= =======
NET EARNINGS PER COMMON
SHARE $ .04 $ .01
======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,535 4,535
======= =======
See notes to unaudited pro forma condensed statements of operations.
8
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(1) Represents the historical results of operations of the Monroe DC for
the year ended January 31, 1998.
(2) Represents the historical results of operations of the Monroe DC for
the six months ended July 25, 1998.
(3) Adjustment to eliminate sales from Monroe DC to the Company and related
cost of goods sold recorded by the Company.
(4) Adjustment to reflect the decrease in interest income on the cash that
would have been used and the increase in interest on debt that would
have been incurred to finance the acquisition of the Monroe DC if it
had been acquired as of the beginning of the period presented.
(5) Adjustment to income due to pro forma adjustments.
9
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, thereto duly authorized.
Rankin Automotive Group, Inc.
------------------------------------------
(Registrant)
Dated: December 23, 1998 /s/ Randall B. Rankin
------------------------------------------
Randall B. Rankin, Chief Executive Officer
10
MONROE DISTRIBUTION CENTER
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants ...................................................... F-2
Balance Sheets at January 25, 1997, January 31, 1998, and July 25, 1997 and 1998
(unaudited) ............................................................................ F-3
Statements of Income for the years ended January 25, 1997 and January 31, 1998 and
for the six months ended July 25, 1997 and 1998 (unaudited) ............................ F-4
Statements of Changes in Owner's Investment for the years ended January 25, 1997
and January 31,1998 and for the six months ended July 25, 1998
(unaudited) ............................................................................ F-5
Statements of Cash Flows for the years ended January 25, 1997 and January 31, 1998
and for the six months ended July 25, 1997 and 1998 (unaudited) ........................ F-6
Notes to Financial Statements .......................................................... F-7
F-1
11
REPORT OF INDEPENDENT ACCOUNTANTS
November 30, 1998
To the Board of Directors and Stockholders
APS Holding Corporation:
In our opinion, the accompanying balance sheets and the related statements of
income, changes in owner's investment and cash flows present fairly, in all
material respects, the financial position of the Monroe Distribution Center (a
business unit of APS Holding Corporation) as of January 25, 1997 and January 31,
1998, and the results of its operations and its cash flows for the fiscal years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of APS Holding Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidenced supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As further discussed in Note 1, the financial statements have been prepared
presenting the Monroe Distribution Center as a separate business unit of APS
Holding Corporation.
/s/PricewaterhouseCoopers LLP
Dallas, Texas
F-2
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MONROE DISTRIBUTION CENTER
BALANCE SHEETS
ASSETS JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Current assets:
Cash ................................................. $ 500 $ 490 $ 500 $ 1,490
Accounts receivable, less allowance for doubtful
accounts of $78,686, $198,920, $138,851 and $119,239 . 2,648,188 2,847,663 2,917,069 3,566,668
Notes receivable, current portion .................... 32,812 36,492 34,983 30,701
Inventories .......................................... 3,234,592 4,216,045 4,009,491 6,167,649
Prepaid expenses and other current assets ............ 30,325 65,850 36,944 59,613
----------- ----------- ----------- -----------
Total current assets .............................. 5,946,417 7,166,540 6,998,987 9,826,121
Property and equipment, net ............................ 119,855 138,960 145,160 143,909
Notes receivable ....................................... 383,540 290,678 308,552 113,990
Intangible assets, less accumulated amortization of
$286,391, $329,468, $307,930 and $351,006 .............. 915,575 872,498 894,036 850,960
Deferred tax asset ..................................... 22,212 78,323 43,920 45,852
Other assets ........................................... 778,108 578,862 724,241 418,096
----------- ----------- ----------- -----------
$ 8,165,707 $ 9,125,861 $ 9,114,896 $11,398,928
=========== =========== =========== ===========
LIABILITIES AND OWNER'S INVESTMENT
Current liabilities:
Accounts payable ..................................... $ 1,842,024 $ 2,270,835 $ 2,885,079 $ 396,455
Accrued liabilities .................................. 452,760 345,466 346,641 247,451
----------- ----------- ----------- -----------
Total current liabilities ......................... 2,294,784 2,616,301 3,231,720 643,906
Liabilities subject to settlement ...................... -- -- -- 2,078,770
Commitments and contingencies (Note 2) ................. -- -- -- --
Owner's investment ..................................... 5,870,923 6,509,560 5,883,176 8,676,252
----------- ----------- ----------- -----------
$ 8,165,707 $ 9,125,861 $ 9,114,896 $11,398,928
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-3
13
MONROE DISTRIBUTION CENTER
STATEMENTS OF INCOME
YEARS ENDED SIX MONTHS ENDED
---------------------------------------------------------------------------
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Net sales ........................................ $ 21,205,420 $ 22,211,362 $ 11,673,025 $ 9,686,822
Cost of goods sold ............................... 16,414,513 17,577,044 9,270,228 7,927,081
------------ ------------ ------------ ------------
Gross profit ................................... 4,790,907 4,634,318 2,402,797 1,759,741
Selling, general and administrative expenses ..... 3,375,770 3,831,570 1,928,988 1,567,997
------------ ------------ ------------ ------------
Operating income ............................... 1,415,137 802,748 473,809 191,744
Other income (expense) ........................... (44,540) 63,431 40,579 9,108
------------ ------------ ------------ ------------
Income before income taxes ..................... 1,370,597 866,179 514,388 200,852
Provision for income taxes ....................... 472,430 299,908 177,820 70,621
------------ ------------ ------------ ------------
Net income ..................................... $ 898,167 $ 566,271 $ 336,568 $ 130,231
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-4
14
MONROE DISTRIBUTION CENTER
STATEMENTS OF CHANGES IN OWNER'S INVESTMENT
Balance at January 27, 1996 ...................................... $ 8,247,128
Net income for the year ended January 25, 1997 ................... 898,167
Net transfers to parent company .................................. (3,274,372)
-----------
Balance at January 25, 1997 ...................................... 5,870,923
Net income for the year ended January 31, 1998 ................... 566,271
Net transfers from parent company ................................ 72,366
-----------
Balance at January 31, 1998 ...................................... 6,509,560
Net income for the six months ended July 25, 1998 (unaudited) .... 130,231
Net transfers from parent company (unaudited) .................... 2,036,461
-----------
Balance at July 25, 1998 (unaudited) ............................. $ 8,676,252
===========
The accompanying notes are an integral part of the financial statements.
F-5
15
MONROE DISTRIBUTION CENTER
STATEMENTS OF CASH FLOWS
YEARS ENDED SIX MONTHS ENDED
----------------------------------- -------------------------------
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
----------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income .................................................. $ 898,167 $ 566,271 $ 336,568 $ 130,231
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................. 61,825 68,476 33,364 35,512
Bad debt expense .......................................... 48,923 104,665 40,149 (77,639)
Change in operating assets and liabilities:
Accounts receivable ..................................... 56,781 (304,140) (309,030) (641,366)
Inventories ............................................. 11,765 (981,453) (774,899) (1,951,604)
Prepaid expenses and other current assets ............... 220,837 (35,525) (6,619) 6,237
Deferred tax asset ...................................... (2,265) (56,111) (21,708) 32,471
Accounts payable ........................................ 562,719 428,811 1,043,055 (1,874,380)
Accrued liabilities ..................................... (7,809) (107,294) (106,119) (98,015)
Liabilities subject to compromise ....................... -- -- -- 2,078,770
Other assets ............................................ (324,631) 199,246 53,867 160,766
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities ... 1,526,312 (117,054) 288,628 (2,199,017)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment .......................... (17,411) (44,504) (37,130) (18,923)
Investment in notes receivable .............................. (168,952) -- -- --
Repayment of notes receivable ............................... 1,934,423 89,182 72,817 182,479
----------- ----------- ----------- -----------
Net cash provided by investing activities ............. 1,748,060 44,678 35,687 163,556
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net transfers (to) from parent company ...................... (3,274,372) 72,366 (324,315) 2,036,461
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities ... (3,274,372) 72,366 (324,315) 2,036,461
----------- ----------- ----------- -----------
Net increase (decrease) in cash ............................... -- (10) -- 1,000
Cash at beginning of period ................................... 500 500 500 490
----------- ----------- ----------- -----------
Cash at end of period ......................................... $ 500 $ 490 $ 500 $ 1,490
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-6
16
MONROE DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
On February 2, 1998, APS Holding Corporation ("APS Holding") and its
direct and indirect subsidiaries (collectively referred to as "the Company")
filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code
("Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware ("Bankruptcy Court"). Since February 2, 1998, the Company has been
operating as a debtor in possession ("DIP").
ORGANIZATION - The Monroe Distribution Center ("Monroe") is a separate
business unit of the Company and is composed of one Distribution Center which
sells automotive replacement parts and accessories to associate jobber stores
located in the Louisiana area. Monroe is not a legal entity. Monroe's accounts
receivable, inventory and fixed assets serve as collateral for the obligations
of the Company.
ALLOCATIONS - Included in the accompanying financial statements are
allocations of Company corporate overhead to Monroe. Such allocated overhead
costs consist primarily of costs related to financial, marketing, management
information, risk management, legal, and human resource services. Such costs
were allocated based upon Monroe's sales as a percentage of total sales for the
respective periods. Although management believes such method of allocation is
reasonable, they are not able to determine whether the allocations of corporate
overhead costs are indicative of actual expenses that would have been incurred
by Monroe had it operated as an unaffiliated entity. The amounts of such
overhead costs charged were $764,335, $1,002,035, $484,329 and $437,470 for the
years ended January 25, 1997 and January 31, 1998 and for the six months ended
July 25, 1997 and 1998, respectively.
Net transfers (to) from the Company are reflected as a component of
owner's investment. No interest is charged on such transfers.
FISCAL YEAR - Monroe's fiscal year ends on the last Saturday in
January.
INTERIM FINANCIAL STATEMENTS - The balance sheets at July 25, 1997 and
1998 and the related statements of income, changes in owner's investment, and
cash flows for the six months ended July 25, 1997 and 1998 are unaudited. In the
opinion of management, such financial statements include all normal recurring
adjustments considered necessary for the fair presentation of such financial
statements. Interim results are not necessarily indicative of results for a full
year.
CUSTOMER NOTES RECEIVABLE - The adequacy of the allowance for losses on
customer notes receivable is periodically evaluated in order to maintain the
allowance at a level that is sufficient to absorb probable credit losses.
Management's evaluation of the adequacy of the allowance includes a review of
each note's credit history, the estimated value of collateral and other
circumstances that may affect the customer's ability to repay principal and
interest. A customer's note receivable is considered impaired when it is
probable that Monroe will be unable to collect all amounts due according to the
scheduled payments and other contractual terms of the note. Impairment losses
are included in the provision for bad debts.
Interest payments on impaired customer notes receivable are typically
applied to principal unless collectibility of the principal amount is fully
assured, in which case interest income is recognized on the cash basis.
Customer notes receivable are generally classified as nonaccrual if
they are past due for 90 days or more, unless such notes are well-collateralized
and/or in the process of collection. Loans may be returned to accrual status
when all principal and interest amounts contractually due are reasonably assured
of repayment within an acceptable period of time, and there is a sustained
portion of repayment performance for a minimum of three months.
F-7
17
MONROE DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
INVENTORIES - Inventories consist primarily of replacement automobile
parts and accessories and are stated at the lower of first-in, first-out
("FIFO") cost or market. Monroe's cost of inventory is not necessarily
indicative of the cost that would have been incurred by Monroe had it operated
as an independent entity.
VENDOR INCENTIVES - Monroe receives from certain of its suppliers
discounts and allowances designated for advertising, promotional and discounting
activities as well as one-time changeover incentives for changing suppliers on
certain product categories. Such discounts and allowances are recorded to cost
of goods sold when earned. Product changeover incentives are recorded to
selling, general, and administrative expenses to offset direct and indirect
costs incurred to carry out the product changeover.
PROPERTY AND EQUIPMENT - Property and equipment of Monroe are stated at
cost. Expenditures for major renewals and betterments, which extend the original
estimated economic useful lives of the applicable assets, are capitalized.
Expenditures for normal repairs and maintenance are charged to expense as
incurred. The cost and accumulated depreciation of assets sold or otherwise
disposed of are removed from the accounts and any gain or loss thereon is
reflected in the current statements of income.
Depreciation and amortization are computed on a straight-line basis
over the estimated useful lives of the assets as set forth below. Depreciation
and amortization expense for property and equipment totaled $18,748, $25,399,
$11,825 and $13,974 for the years ended January 25, 1997 and January 31, 1998
and for the six months ended July 25, 1997 and 1998, respectively.
CLASSIFICATION JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998 ESTIMATED LIVES
-------------- ---------------- ---------------- ------------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
Warehouse and shop equipment .............. $ 131,994 $ 173,998 $ 166,624 $ 192,921 3-15 years
Furniture, fixtures and other equipment ... 63,335 63,335 63,335 63,335 10 years
Leasehold improvements .................... 40,484 42,984 42,984 42,984 the lesser of
----------- ----------- ----------- ----------- useful life or
235,813 280,317 272,943 299,240 lease term
Accumulated depreciation and
amortization .............................. (115,958) (141,357) (127,783) (155,331)
----------- ----------- ----------- -----------
$ 119,855 $ 138,960 $ 145,160 $ 143,909
=========== =========== =========== ===========
INTANGIBLE ASSETS - Intangible assets consist of the associate jobber
network and the excess of the purchase price over the fair value of net assets
acquired. Intangible assets are amortized on a straight-line basis over the
estimated life ranging from 5 to 30 years. Amortization expense for intangible
assets totaled $43,077, $43,077, $21,539 and $21,538 for the years ended January
25, 1997 and January 31, 1998 and for the six months ended July 25, 1997 and
1998, respectively.
In the fourth quarter of Fiscal Year ended January 27, 1996 ("Fiscal
Year 1996"), Monroe adopted Statement of Financial Accounting Standards No. 121,
entitled "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" (SFAS No. 121"), which requires evaluation of
impairment based on undiscounted future cash flows. If such cash flows are not
expected to recover the unamortized cost , the intangible assets are written
down to fair value.
OTHER ASSETS - Other assets consist primarily of deferred changeover
costs incurred by Monroe to change the inventory of new customers over to
inventory supplied by Monroe. The changeover costs are amortized on a
straight-line basis between one to five years.
F-8
18
MONROE DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
INCOME TAXES - Monroe utilizes the liability method of accounting for
income taxes. Deferred income taxes are recognized for the tax consequences in
future years of differences in the tax basis of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. A valuation allowance is established when necessary to reduce
deferred income tax assets to an amount that is more likely than not expected to
be realized.
Monroe is included in the consolidated federal and state income tax
returns of the Company. Current and deferred taxes are calculated by Monroe as
if it were a separate taxpayer. The current taxes payable or receivable are
reflected as a component of owner's investment.
REVENUE RECOGNITION - Monroe records sales when its products are
shipped. A reserve is maintained for anticipated returns and allowances, based
primarily on historical experience and current estimates.
MANAGEMENT'S ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS - Monroe will adopt SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," no later than the
fourth quarter of Fiscal Year ending January 30, 1999 ("Fiscal Year 1999"). SFAS
No. 131 establishes standards for the manner in which public business
enterprises report selected information about operating segments.
Monroe will adopt the disclosure requirements of SFAS No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits," no
later than the fourth quarter of Fiscal Year 1999. SFAS No. 132 revises
disclosure requirements for pension and postretirement benefit plans so as to
standardize certain disclosures and eliminate certain other disclosures no
longer deemed useful. SFAS No. 132 does not change the measurement or
recognition criteria for such plans.
Monroe will adopt SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," no later than the first quarter of Fiscal Year ending
January 27, 2001 ("Fiscal Year 2001"). SFAS No. 133 establishes accounting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives will be recognized as either assets or liabilities and measured at
fair value. The Company is currently studying this newly-issued accounting rule,
and the impact of adopting SFAS No. 133, if any, has not yet been determined.
2. COMMITMENTS AND CONTINGENCIES:
Litigation
Legal actions incident to the ordinary course of business are pending
against the Company. In the opinion of management, the eventual disposition of
these matters will have no material adverse effect on the financial position,
results of operation, or cash flows of Monroe.
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MONROE DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
Leases
The Monroe Distribution Center and certain equipment are leased under
non-cancelable operating lease agreements which expire at various dates through
2005. The leases provide for the payment of taxes, insurance and maintenance
expenses related to the leased assets. The warehouse lease provides for renewal
options of 5 to 10 years. Rental expense for the years ended January 25, 1997
and January 31, 1998 and for the six months ended July 25, 1997 and 1998 was
$242,538, $221,791, $116,423 and $90,503, respectively. Future minimum operating
lease payments as of January 31, 1998 are as follows:
FISCAL YEAR
-----------
1999.......................................... $ 171,603
2000.......................................... 157,559
2001.......................................... 123,647
2002.......................................... 115,107
2003.......................................... 113,167
Thereafter.................................... 168,143
------------
Total minimum obligations............... $ 849,226
============
Concentration of Credit Risk
For the year ended January 25, 1997, one customer accounted for more
than 51% of Monroe's total sales. For the year ended January 31, 1998, one
customer accounted for more than 54% of Monroe's total sales. For the six months
ended July 25, 1997, one customer accounted for more than 52% of Monroe's total
sales. For the six months ended July 25, 1998, one customer accounted for more
than 55% of Monroe's total sales.
At January 25, 1997, one customer accounted for more than 53% of
Monroe's total accounts receivable. At January 31, 1998, one customer accounted
for more than 54% of Monroe's total accounts receivable. At July 25, 1997, one
customer accounted for more than 54% of Monroe's total accounts receivable. At
July 25, 1998, one customer accounted for more than 45% of Monroe's total
accounts receivable.
3. EMPLOYEE BENEFIT PLANS:
Certain employees of Monroe are eligible to participate in the APS,
Inc. Partnership Plan ("the Partnership Plan"), a defined contribution savings
plan. An employee becomes eligible to participate in and contribute to the plan
after one year of service and the attainment of age twenty-one. Employees may
contribute 2% to 15% of their annual compensation, which is matched 50% by the
Company up to 6% of their contribution. Employees become fully vested in the
Company's contribution to the plan after five years of service. Contribution
expense related to the Partnership Plan totaled $3,886, $5,361, $2,604 and
$2,055 during the years ended January 25, 1997 and January 31, 1998 and during
the six months ending July 25, 1997 and 1998, respectively.
Certain employees of Monroe participate in the A.P.S., Inc. Employees'
Retirement Plan (the "APS Plan"). This defined benefit pension plan covers
substantially all full-time employees who have completed one year of service and
reached the age of twenty-one. Generally, benefits are based on years of service
and the employees' average final compensation integrated with Social Security
benefits as defined in the APS Plan's agreements. The Company's funding policy
is to contribute to the APS Plan such amount that is actuarially required to
fund the
F-10
20
MONROE DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
benefits of the APS Plan. In September 1992, A.P.S., Inc.'s Board of Directors
authorized a freeze of pension benefits offered under the APS Plan and
participants in the APS Plan became fully vested. Monroe's share of expense
related to the APS Plan is included in the overhead allocation from the Company.
In connection with the disposal of Monroe (see note 6), the purchaser assumes no
assets or liabilities related to the APS Plan.
4. INCOME TAXES:
The provision for income taxes for the years ended January 25, 1997 and January
31, 1998 and for the six months ended July 25, 1997 and 1998, is composed of the
following:
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Current federal income tax provision ... $ 474,695 $ 356,019 $ 199,528 $ 38,150
Deferred federal income tax provision
(benefit) .............................. (2,265) (56,111) (21,708) 32,471
--------- --------- --------- ---------
Total income tax provision ............. $ 472,430 $ 299,908 $ 177,820 $ 70,621
========= ========= ========= =========
A reconciliation of the total income tax provision and the amount computed by
applying the statutory federal income tax rate to income before income taxes for
the years ended January 25, 1997 and January 31, 1998 and for the six months
ended July 25, 1997 and 1998 is as follows:
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Statutory tax rate .................... 34.00% 34.00% 34.00% 34.00%
Other ................................. 0.47% 0.62% 0.57% 1.16%
----- ----- ----- -----
34.47% 34.62% 34.57% 35.16%
===== ===== ===== =====
The tax effects of the temporary differences giving rise to Monroe's net
deferred tax assets at January 25, 1997, January 31, 1998 and July 25, 1997 and
1998 are as follows:
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Deferred tax assets:
Inventory reserves and capitalization ..... $ 3,174 $12,338 $ 5,010 $14,276
Allowance for doubtful accounts ........... 18,073 58,763 35,110 21,256
Intangible assets ......................... 22,798 26,964 24,885 29,043
------- ------- ------- -------
44,045 98,065 65,005 64,575
------- ------- ------- -------
Deferred tax liabilities:
Property and equipment .................. 21,833 19,742 21,085 18,723
------- ------- ------- -------
Net deferred tax asset .................... $22,212 $78,323 $43,920 $45,852
======= ======= ======= =======
F-11
21
MONROE DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS:
Included in Net sales and Cost of goods sold for the year ended January
31, 1998 and for the six months ended July 25, 1997 and 1998 are intercompany
sales between Monroe and stores owned by the Company. Intercompany sales for the
year ended January 31, 1998 and for the six months ended July 25, 1997 and 1998
are $30,936, $26,859 and $506, respectively. Intercompany Cost of goods sold for
the year ended January 31, 1998 and for the six months ended July 25, 1997 and
1998 are $27,970, $24,057 and $535, respectively.
Not included in Net sales and Cost of goods sold for the years ended
January 25, 1997 and January 31, 1998 and for the six months ended July 25, 1997
and 1998 are transfers to other company units in the amount of $46,815, $13,413,
$10,524 and $27,830, respectively. These transfers did not result in gross
profit for Monroe.
6. SUBSEQUENT EVENTS (UNAUDITED):
On October 13, 1998, the Company sold Monroe to Rankin Automotive
Group, Inc. ("Rankin"). These audited financial statements were prepared for the
sole purpose of enabling Rankin to comply with their financial reporting
requirements. The assets sold to Rankin include certain accounts and notes
receivable, inventory and fixed assets. Proceeds received from the sale were
less than the book value of the assets sold and a loss was recorded by the
Company of $2,768,440.
F-12