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, 1998
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
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
3709 S. MacArthur Drive
Alexandria, LA 71302
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(address of principal executive offices) (zip code)
(318) 487-1081
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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, 1998, 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
Condensed Balance Sheets - February 25, 1998 and November 25,
1998 (unaudited)
Condensed Statements of Operations - Three months ended
November 25, 1997 and 1998 and Nine months ended November 25,
1997 and 1998 (unaudited)
Condensed Statements of Cash Flows - Nine months ended November
25, 1997 and 1998 (unaudited)
Notes to Condensed Financial Statements - Nine months ended
November 25, 1997 and 1998 (unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
3
PART I.
ITEM I.
RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED BALANCE SHEETS
*******************************************************************************************************
FEBRUARY 25, NOVEMBER 25,
ASSETS 1998* 1998
-------------- --------------
UNAUDITED
CURRENT ASSETS
Cash $ 3,962,065 $ 395,837
Notes and Accounts Receivable
Trade, net of allowance for doubtful accounts of $61,000 2,317,873 3,566,682
and $61,000
Related party 18,904 40,408
Current Portion of Notes Receivable 0 20,107
Inventories 12,874,352 18,073,509
Prepaid Expenses and other current assets 167,924 292,029
-------------- --------------
Total Current Assets 19,341,118 22,388,572
NOTES RECEIVABLE, less current portion 0 279,949
PROPERTY AND EQUIPMENT, NET 1,994,265 2,228,605
INTANGIBLE ASSETS, NET 629,112 594,141
OTHER ASSETS 0 10,000
-------------- --------------
TOTAL ASSETS $ 21,964,495 $ 25,501,267
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Trade $ 3,383,715 $ 4,561,083
Accrued Expenses 593,477 503,052
Current Portion of Long-Term Debt 155,186 294,916
-------------- --------------
Total Current Liabilities 4,132,378 5,359,051
LONG-TERM DEBT, less current portion 5,188,160 7,215,940
-------------- --------------
Total Liabilities 9,320,538 12,574,991
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COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, 2,000,000 shares authorized,
none issued -- --
Common Stock, $.01 par value, 10,000,000 shares authorized,
4,550,000 shares issued 45,500 45,500
Additional paid-in capital 13,083,830 13,083,830
Retained Earnings (accumulated deficit) (290,373) (8,054)
Less: Treasury Stock (15,000 shares at cost) (195,000) (195,000)
-------------- --------------
Total Stockholders' Equity 12,643,957 12,926,276
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,964,495 $ 25,501,267
============== ==============
* The balance sheet at February 25, 1998 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 NINE MONTHS ENDED
NOVEMBER 25, NOVEMBER 25,
1997 1998 1997 1998
------------ ------------ ------------ ------------
NET SALES $ 9,719,694 $ 9,778,502 $ 30,291,853 $ 30,270,094
COST OF GOODS SOLD 6,251,141 5,950,366 20,032,275 19,327,445
------------ ------------ ------------ ------------
Gross Profit 3,468,553 3,828,136 10,259,578 10,942,649
OPERATING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,513,504 3,590,152 10,139,395 10,416,129
------------ ------------ ------------ ------------
Earnings (loss) from Operations $ (44,951) $ 237,984 $ 120,183 $ 526,520
NET INTEREST (EXPENSE) INCOME (31,235) (121,877) 1,556 (244,200)
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES $ (76,186) $ 116,107 $ 121,739 $ 282,320
INCOME TAXES (36,000) 0 29,000 0
------------ ------------ ------------ ------------
NET EARNINGS $ (40,186) $ 116,107 $ 92,739 $ 282,320
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE $ (0.01) $ 0.03 $ 0.03 $ 0.06
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,535,000 4,535,000 4,540,000 4,535,000
============ ============ ============ ============
See notes to condensed financial statements
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RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
****************************************************************************************************
NINE MONTHS ENDED
NOVEMBER 25,
1997 1998
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 92,739 $ 282,320
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 286,884 380,638
Changes in assets and liabilities
(Increase) decrease in accounts receivable (338,877) 216,334
(Increase) decrease in inventories (2,274,019) 165,083
Increase in accounts payable
and accrued expenses 427,373 1,086,943
(Increase) in other assets, net (4,765) (108,379)
-------------- --------------
Net cash provided by (used in) operating activities $ (1,810,665) $ 2,022,939
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net $ (533,598) $ (459,564)
Purchases of treasury stock (195,000) 0
Purchase of other assets 0 (10,000)
Cash paid in connection with acquisition (408,000) (5,800,466)
-------------- --------------
Net cash (used in) investing activities $ (1,136,598) $ (6,270,030)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from revolving line of credit $ 33,692,416 $ 14,840,337
Repayments of borrowings under revolving line of credit (31,022,038) (12,923,800)
Proceeds from notes payable to stockholder 0 524,112
Repayments of notes payable to stockholder 0 (524,112)
Proceeds from other long-term obligations 254,665 368,928
Repayments of long-term obligations (51,924) (156,219)
Repayments of other short-term obligations 0 (1,448,383)
-------------- --------------
Net cash provided by financing activities $ 2,873,119 $ 680,863
-------------- --------------
NET (DECREASE) IN CASH $ (74,144) ($ 3,566,228)
CASH, BEGINNING OF PERIOD $ 4,022,287 $ 3,962,065
-------------- --------------
CASH, END OF PERIOD $ 3,948,143 $ 395,837
============== ==============
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RANKIN AUTOMOTIVE GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 25, 1998 (UNAUDITED)
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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-Q 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, 1998.
2. ACQUISITION OF BUSINESS
On October 13, 1998, the Company acquired the auto parts distribution
center operated by APS, Inc., in Monroe, Louisiana. The total purchase
price approximated $7.3 million consisting of approximately $5.4
million of inventory, $300 thousand of notes receivables, $120 thousand
of fixed assets and $1.5 million in accounts receivables. 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. APS, Inc., financed the accounts receivables
totaling $1.5 million at 10% interest for 30 business days.
Substantially all of this debt was retired as of November 25, 1998.
The Company intends to continue using the facility as an automotive
distribution center for its auto parts business and for other auto
parts suppliers covering the States of Louisiana and Mississippi.
This acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets based upon estimates of
their fair values as of the date of the acquisition. The results of
operations of this acquisition are included in the accompanying
Statement of Operations from the date of acquisition. The following
unaudited pro forma results of operations give effect to the
acquisition as though it had occurred on February 26, 1997 (Numbers are
in thousands except share data):
NINE MONTHS ENDED
NOVEMBER 25
---------------------------
1997 1998
Net Sales $ 36,991 $ 35,670
Net Earnings $ 263 $ 152
Net Earnings per Share $ .06 $ .04
Weighted Average of Common Shares Outstanding 4,540,000 4,535,000
The unaudited pro forma information is not necessarily indicative
either of the results of operations that would have occurred had the
purchase been made as of February 26, 1997 or of future results of
operations of the combined companies.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations for
the three and nine months ended November 25, 1997 and 1998 should be read in
conjunction with the Condensed Financial Statements of the Company and the
accompanying notes.
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 NINE MONTHS ENDED
NOVEMBER 25, NOVEMBER 25,
1997 1998 1997 1998
NET SALES ......................... 100.0% 100.0% 100.0% 100.0%
COST OF GOODS SOLD ................ 64.3% 60.8% 66.1% 63.8%
GROSS PROFIT ................. 35.7% 39.2% 33.9% 36.2%
OPERATING, SG&A EXPENSES .......... 36.2% 36.7% 33.5% 34.4%
EARNINGS FROM OPERATIONS ..... (0.5)% 2.5% 0.4% 1.8%
INTEREST (EXPENSE) INCOME ......... (0.3)% (1.2)% 0.0% (0.8)%
EARNINGS BEFORE INCOME TAXES ...... (0.8)% 1.3% 0.4% 1.0%
INCOME TAXES ...................... (0.4)% 0.0% 0.1% 0.0%
NET EARNINGS (LOSS) ............... (0.4)% 1.3% 0.3% 1.0%
THREE MONTHS ENDED NOVEMBER 25, 1998 COMPARED TO THREE MONTHS ENDED NOVEMBER 25,
1997
NET SALES. Product sales increased approximately $59 thousand, or 0.6%,
from approximately $9.7 million for the three months ended November 25, 1997 to
$9.8 million for the comparable three month period of 1998. Approximately $1.4
million of sales was due to the new warehouse distribution center opening which
occurred in October of 1998. Store sales for the period decreased approximately
$1.3 million. This decrease in sales is primarily attributable to the
consolidation and closure of two unprofitable stores in Louisiana and one
unprofitable store in Mississippi.
COST OF GOODS SOLD. Cost of Goods Sold for the three months ended
November 25, 1998 amounted to approximately $5.9 million or 60.8% of Net Sales
compared to approximately $6.2 million or 64.3% for the same three month period
ended November 25, 1997. Cost of Goods Sold decreased in dollar amount of
approximately $300 thousand. This decrease is primarily attributable to the
availability of product from the Company's own warehouse distribution center
eliminating the additional costs associated with purchasing from the former
major supplier, APS, Inc.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The OSG&A
expenses for the three months ended November 25, 1998 amounted to approximately
$3.6 million or 36.7% of Net Sales compared to $3.5 million, or 36.2% of Net
Sales, for the same three month period of 1997.
INTEREST EXPENSE (INCOME). For the three months ended November 25,
1998, the Company had $121,877 of net Interest Expense compared to $31,235 net
Interest Expense for the same period of the prior year.
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INCOME TAXES. Income taxes, for the three months ended November 25,
1998, were reflected at zero since the net operating loss carryover from the
fiscal year ended February 25, 1998 was utilized to offset the approximately $35
thousand of income taxes that the earnings of approximately $116 thousand
generated.
NINE MONTHS ENDED NOVEMBER 25, 1998 COMPARED TO NINE MONTHS ENDED NOVEMBER 25,
1997
NET SALES. Product sales remained relatively flat at approximately
$30.3 million for the nine months ended November 25, 1997 and November 25, 1998.
The new warehouse distribution center opening, which occurred in October of
1998, generated an increase in sales of approximately $1.4 million. Store sales
for the period decreased approximately $1.4 million. This decrease in sales is
primarily attributable to the consolidation and closure of two unprofitable
stores in Louisiana and one unprofitable store in Mississippi.
COST OF GOODS SOLD. Cost of Goods Sold for the nine months ended
November 25, 1998 amounted to approximately $19.3 million or 63.8% of Net Sales
compared to $20.0 million, or 66.1% of Net Sales for the same nine month period
of the previous year. Cost of Goods Sold decreased in dollar amount
approximately $705 thousand. This decrease is partially attributable to the
availability of product from the Company's own warehouse distribution center
eliminating the additional cost associated with purchasing from the former major
supplier, APS, Inc.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The OSG&A
expenses for the nine months ended November 25, 1998 amounted to approximately
$10.4 million or 34.4% of Net Sales for the period. This compares to a total of
$10.1 million or 33.5% of Net Sales for the nine months ended November 25, 1997.
This increase in expenses is attributable to, among other things, a decision by
the Company to incur costs to better manage inventory.
INTEREST EXPENSE (INCOME). The Company had net Interest Expense of
$244,200 for the nine months ended November 25, 1998 compared to net Interest
Income of ($1,556) for the nine months ended November 25, 1997.
INCOME TAXES. Income taxes were reflected at zero since the net
operating loss carryover from the fiscal year ended February 25, 1998 was
utilized to offset the approximately $94,000 of income taxes that the earnings
of approximately $282 thousand generated.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.0 million for the nine
months ended November 25, 1998, as compared to net cash used of $1.8 million for
the same period ended November 25, 1997. The cash provided was primarily as a
result of an increase in accounts payables for the nine months ended November
25, 1998. For the nine months ended, November 25, 1997, cash use was primarily
as a result of an increase in inventories.
Net cash used in investing activities was $6.3 million for the nine
months ended November 25, 1998, as compared to $1.1 million for the same period
ended November 25, 1997. In 1998, cash was used primarily for purchasing assets
of the Monroe Distribution Center and in 1997, cash was used primarily for
purchasing fixed assets and to fund the opening of new stores.
Net cash provided by financing activities, utilizing the Company's
credit facilities, was $681 thousand and $2.9 million, for the nine months ended
November 25, 1998 and 1997, respectively. These borrowings were used primarily
for general working capital purposes and to fund the opening of new stores.
The balance sheet continues to reflect a strong, solvent position with
debt to equity ratio of 0.97 to l.00 and a current ratio of 4.18 to 1.00.
Management has continued to improve the internal structure to
accommodate future growth. Costs of this program are still being incurred in the
current period O, S, G, & A costs.
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IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have a time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure of miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 Issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The Company will utilize both internal and external resources to
reprogram, or replace, and test the software for the Year 2000 modifications.
The Company anticipates completing the Year 2000 project within one year but not
later than September 30, 1999, which is prior to any anticipated impact on its
operating systems. The total cost of the Year 2000 project is estimated at
$600,000 and is being funded through operating cash flows. The major portion of
these costs relate to new computer hardware and software and, thus, will be
capitalized. The majority of these costs will be incurred subsequent to August
25, 1999.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimate, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties. The Company has not yet developed a contingency plan
relating to the Year 2000.
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PART II - OTHER INFORMATION
Other Information
Item 1 Legal Proceedings
On May 28, 1998, petition No. 98-CI-04310 was filed
in the District Court, 150 Judicial District, in
Bexar County, Texas. The plaintiff, Bob Beadle, is
suing the defendants, Nichols, Safina, Lerner &
Co., Inc.,; Rankin Automotive Group, Inc.; Randall
B. Rankin; Harris Lake Smith, Jr.; Charles E.
Elliott; Ricky D. Gunn; Ricky L. Sooter; and Otis
Al Cannon, Jr. The petition is a securities class
action alleging violations of the Texas law and the
Securities Act of 1933 arising out of alleged
misrepresentations and omissions regarding the
company's operations and future prospects.
The Company vehemently denies the allegations and
will vigorously defend the Company, its Board of
Directors and Officers.
Item 2 - 5 None
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:
Report on Form 8-K, dated October 13, 1998,
reporting the acquisition from APS, Inc., the
business (consisting of certain assets, principally
inventory and accounts receivables) of one
distribution center located in Monroe, Louisiana.
Report on Form 8-KA, dated December 23, 1998, to
amend report on Form 8-K, dated October 13, 1998,
reporting the Registrant's acquisition from APS,
Inc., the business (consisting of certain assets,
principally inventory and accounts receivable) of
one distribution center located in Monroe,
Louisiana.
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
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Randall B. Rankin, Chief Executive and
Accounting Officer
January 8, 1999
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
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27 Financial Data Schedule