<PAGE> 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 (Date of earliest event reported): November 27, 1996
THE PARTS SOURCE, INC.
d/b/a Ace Auto Parts
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 0-27864 59-3149403
- --------------------------------------------------------------------------------
(State or other jurisdiction of Commission File Number (I.R.S. Employer
incorporation or organization) Identification No.)
1751 S. Missouri Avenue, Clearwater, Florida 34616
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 588-0377
----------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
Amendment to File Acquisition Financial Statements
On December 11, 1996, The Parts Source, Inc. d/b/a Ace Auto Parts ("the
Company") filed a report on Form 8-K with respect to its acquisition of the
assets of five auto parts stores from Central Motor Supply, Inc., Central Motor
Supply of Alachua, Inc., Central Motor Supply of Williston, Inc., Central Motor
Supply of Hawthorne, Inc. and Central Motor Supply of East Gainesville, Inc. and
the companies majority stockholder, William Stanley. At the time of the filing,
it was impracticable to provide the financial statements and pro forma 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 pro forma financial information as soon as practicable,
but no later than February 10, 1997. 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.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Central Motor Supply, Inc. Combined Financial Statements and
Independent Auditors' Report as of August 31, 1996 and for the year
ended August 31, 1996.
(b) PRO FORMA FINANCIAL INFORMATION
The Parts Source, Inc. (d/b/a Ace Auto Parts) Pro Forma Condensed
Combined Balance Sheet at September 30, 1996 (unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Notes to Pro Forma
Condensed Combined Balance Sheet at September 30, 1996 (unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Pro Forma Condensed
Combined Statement of Earnings for the year ended December 31, 1995
(unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Notes to Pro Forma
Condensed Combined Statement of Earnings for the year ended
December 31, 1995 (unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Pro Forma Condensed
Combined Statement of Earnings for the nine months ended September
30, 1996 (unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Notes to Pro Forma
Condensed Combined Statement of Earnings for the nine months ended
September 30, 1996 (unaudited)
3
<PAGE> 4
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------
Acquired
Business
Previously
Reported
in Form
8-K (Not
included in
ASSETS The The Parts Central
Parts Source, Motor
CURRENT ASSETS Source Historical) Supply
------------- --------------- --------------
<S> <C> <C> <C>
Cash and cash equivalents $ 575,351 $ 2,450 $ -
Temporary investments in marketable equity
securities 705,981
Accounts receivable, net 2,212,358 739,418 264,114
Inventories 9,624,492 1,614,791 867,331
Prepaid expenses and other 124,722 12,277 469,639
------------- ------------- ---------------
Total current assets 12,536,923 2,368,936 2,307,065
PROPERTY AND EQUIPMENT, NET 2,066,593 130,984 443,037
190,545 12,614 -
OTHER ASSETS ------------- ------------- ---------------
$ 14,794,061 $ 2,512,534 $ 2,750,102
============= ============= ===============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term liabilities $ 256,699 $ - $ 152,169
Accounts payable, trade 2,133,534 28,396 222,948
Accrued liabilities 466,820 37,928 119,109
------------- ------------- ---------------
Total current liabilities 2,857,053 66,324 494,226
LONG-TERM OBLIGATIONS 4,527,033 - 35,035
STOCKHOLDERS' EQUITY 7,409,975 2,446,210 2,220,841
------------- ------------- ---------------
$ 14,794,061 $ 2,512,534 $ 2,750,102
============= ============= ===============
Pro Forma
-----------------------------------------------------------
Acquired
Business Central
Previously Motor
Reported Supply
ASSETS Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Combined
CURRENT ASSETS ---------------- ---------------- ---------------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,500,000 (1a) $ - $ 677,097
(2,400,704)(2a)
Temporary investments in marketable equity
securities (705,981)(2b) -
Accounts receivable, net (739,418)(3a) (264,114)(2b) 2,212,358
Inventories - (179,331)(2b) 11,927,283
Prepaid expenses and other (469,639)(2b) 136,999
------------- ------------- ---------------
Total current assets (640,122) (1,619,065) 14,953,737
PROPERTY AND EQUIPMENT, NET - (300,037)(2b) 2,340,577
OTHER ASSETS 1,163,770 (3a) 170,000 (3b) 1,624,315
(12,614)(3a) 100,000 (2b)
------------- ------------- ---------------
$ 511,034 $ (1,649,102) $ 18,918,629
============= ============= ===============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term liabilities $ - $ (152,169)(2b) $ 256,699
Accounts payable, trade (28,396)(3a) (222,948)(2b) 2,133,534
Accrued liabilities 68,690 (2a) (111,109)(2b) 836,438
170,000 (3b)
85,000 (1b)
------------- ------------- ---------------
Total current liabilities 40,294 (231,226) 3,226,671
LONG-TERM OBLIGATIONS 416,950 (2a) (35,035)(2b) 5,781,983
838,000 (1b)
STOCKHOLDERS' EQUITY 2,500,000 (1a) (2,220,841)(2b) 9,909,975
(2,446,210)(3a)
------------- ------------- ---------------
$ 511,034 $ (1,649,102) $ 18,918,629
============= ============= ===============
</TABLE>
4
<PAGE> 5
THE PARTS SOURCE, INC.
(D/B/A ACE AUTO PARTS)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1996
(unaudited)
The unaudited pro forma condensed combined balance sheet at September 30, 1996
is based on the interim balance sheet of The Parts Source, Inc. d/b/a Ace Auto
Parts as contained in the Form 10-Q filed for the nine months ended September
30, 1996, the balance sheet of an acquired business previously reported in Form
8-K, dated October 25, 1996 as subsequently amended, and the combined balance
sheet of Central Motor Supply, Inc. as of August 31, 1996, and has been prepared
to reflect the acquisition of Central Motor Supply, Inc. on November 27, 1996
after giving effect to the pro forma adjustments described in Note 2 as if the
acquisitions had occurred on September 30, 1996. In the opinion of management,
all adjustments have been made that are necessary to present fairly the pro
forma information. This statement should be read in conjunction with the
aforementioned Form 10-Q and Form 8-K, as previously filed, and the Central
Motor Supply, Inc.'s financial statements and notes thereto, which are included
elsewhere in this filing.
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
NOTE 1 - ACQUISITION OF ASSETS
On November 27, 1996, The Parts Source, Inc. d/b/a Ace Auto Parts ("the
Company") acquired certain assets of five auto parts stores from Central Motor
Supply, Inc., Central Motor Supply of Alachua, Inc., Central Motor Supply of
Williston, Inc., Central Motor Supply of Hawthorne, Inc. and Central Motor
Supply of East Gainesville, Inc. The purchase price was approximately $838,000.
The Company acquired at each store location the automotive inventory, machinery,
equipment, furniture and fixtures, signs and vehicles. The purchase price was
funded through the Company's line of credit. In connection with the purchase of
assets, the majority stockholder entered into a five year employment contract
which provided for options to purchase 30,000 shares of common stock of the
Company. The options were issued and are exerciseable at $12.00 per share; the
fair market value at the date of issuance. In addition, the majority
stockholder entered into a non-compete agreement covering the period he is
employed with the Company and for a subsequent five year period. The agreement
provides for total payments of $170,000 to the majority stockholder.
NOTE 2 - PRO FORMA ADJUSTMENTS
A. Pro Forma Condensed Combined Balance Sheet adjustments for an acquired
business previously reported in Form 8-K (not included in The Parts Source,
Inc. d/b/a Ace Auto Parts historical financial statements) are as follows:
(1a.) The Company paid $2.4 million of the purchase price of the
acquisition from the proceeds received from the sale of 227,273
shares of unregistered stock to A.P.S., Inc. at $11.00 per share.
(2a.) A summary of the total consideration paid for an acquired business
previously reported in Form 8-K consisted of the following:
<TABLE>
<S> <C>
Proceeds from sale of common stock $2,400,704
Proceeds from line of credit 416,950
Direct acquisition costs 68,690
----------
$2,886,344
==========
</TABLE>
5
<PAGE> 6
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1996
(unaudited)
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET - CONTINUED
NOTE 2 - PRO FORMA ADJUSTMENTS - Continued
(3a.) The total purchase price of the acquisition was allocated in accordance
with the provisions of APB Opinion No. 16, Business Combinations, and
accordingly, was based on the fair value of the net tangible assets
acquired, as there were no specifically identifiable intangibles
associated with this transaction. The excess purchase price was
allocated to goodwill as follows:
<TABLE>
<S> <C>
Net tangible assets (liabilities)
Cash and cash equivalents $ 2,450
Inventories 1,614,791
Prepaid expenses and other 12,277
Property and equipment 130,984
Accrued liabilities (37,928)
----------
1,722,574
Intangible assets - goodwill 1,163,770
----------
$2,886,344
==========
</TABLE>
The book and tax basis of the acquired assets were the same.
Accordingly, no deferred taxes have been recorded.
B. Pro Forma Condensed Combined Balance Sheet adjustments for the current
acquisition are as follows:
(1b.) A summary of the total consideration paid for the acquisition
described in Note 1 consisted of the following:
<TABLE>
<S> <C>
Proceeds from the line of credit $838,000
Direct acquisition costs 85,000
--------
$923,000
========
</TABLE>
6
<PAGE> 7
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1996
(unaudited)
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
NOTE 2 - PRO FORMA ADJUSTMENTS - Continued
(2b.)The total purchase price of the acquisition was allocated in accordance
with the provisions of APB Opinion No. 16, Business Combinations and
accordingly, was based on the fair value of the net tangible assets
acquired, as there were no specifically identifiable intangibles
associated with this transaction. The excess purchase price was
allocated to goodwill as follows:
<TABLE>
<C> <C>
Net tangible assets (liabilities)
Inventories $688,000
Property and equipment 143,000
Accrued liabilities (8,000)
--------
823,000
Intangible assets - goodwill 100,000
--------
$923,000
========
</TABLE>
The book and tax basis of the acquired assets were the same.
Accordingly, no deferred taxes have been recorded.
(3b.) In connection with the purchase of the assets, the majority stockholder
entered into a ten year non-compete agreement in the amount of $170,000.
7
<PAGE> 8
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the year ended December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------
Acquired
Business
Previously
Reported
in Form 8-K
(Not included
in The Parts
The Parts Source Central Motor
Source Historical) Supply
----------- ------------------- -------------
<S> <C> <C> <C>
Net sales $22,942,783 $7,326,104 $ 3,703,607
Cost of goods sold 14,427,871 4,433,734 2,294,572
----------- ---------- -----------
Gross profit 8,514,912 2,892,370 1,409,035
Operating, selling, general and 7,730,635 2,661,563 1,526,001
administrative expenses
----------- ---------- -----------
Earnings (loss) from operations 784,277 230,807 (116,966)
Other income (expense) (631,892) 3,299 57,329
----------- ---------- -----------
Net earnings (loss) before
income taxes (benefit) 152,385 234,106 (59,637)
Provision (benefit) for income
taxes * 42,800 93,219 12,087
----------- ---------- -----------
Net earnings (loss) $ 109,585 $ 140,887 $ (71,724)
=========== ========== ===========
$ .05
===========
Weighted average common shares
outstanding 2,000,000
===========
<CAPTION>
Pro Forma
---------------------------------------------------------
Acquired
Business Central
Previously Motor
Reported Supply
Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Combined
----------------- ----------------- ----------
<S> <C> <C> <C>
Net sales $ - $ (68,157)(4b) $33,760,337
(144,000)(3b)
Cost of goods sold 130,000 (4a) (50,436)(4b) 21,235,741
----------- ---------- -----------
Gross profit (130,000) (161,721) 12,524,596
Operating, selling, general and (107,232)(3a) (71,000)(5b) 11,567,999
administrative expenses (136,500)(3b)
(141,900)(4b)
106,432 (6b)
----------- ---------- ----------
Earnings (loss) from operations (22,768) 81,247 956,597
Other income (expense) (70,872)(1a) (23,667)(1b) (856,003)
(44,800)(2a) (90,000)(2b)
(55,400)(7b)
----------- ---------- -----------
Net earnings (loss) before
income taxes (benefit) (138,440) (87,820) 100,594
Provision (benefit) for income
taxes (55,126)(5a) (53,507)(8b) 39,473
----------- ---------- -----------
Net earnings (loss) $ (83,314) $ (34,313) $ 61,121
=========== ========= ===========
Net earnings per common share $ .03
===========
Weighted average common shares
outstanding 2,227,273(6a)
===========
</TABLE>
(*) Reflects the Company's pro forma income tax expense for the year ended
December 31, 1995 as the Company was a Subchapter S Corporation for tax
purposes.
8
<PAGE> 9
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the year ended December 31, 1995
(unaudited)
The unaudited pro forma condensed combined statement of earnings for the year
ended December 31, 1995 is based on the statement of earnings of The Parts
Source, Inc. (d/b/a Ace Auto Parts) as contained in the Prospectus Form SB-2,
filed on April 8, 1996, for the year ended December 31, 1995, the statement of
earnings of an acquired business previously reported in Form 8-K dated October
25, 1996 as subsequently amended and the internally prepared combined statement
of operations of Central Motor Supply, Inc. for the year ended December 31,
1995, after giving effect to the pro forma adjustments described in Note 1 as if
the acquisitions had occurred January 1, 1995. In the opinion of management, all
adjustments have been made that are necessary to present fairly the pro forma
information. This statement should be read in conjunction with the
aforementioned Prospectus Form SB-2 and Form 8-K, as previously filed, and the
Central Motor Supply, Inc.'s financial statements and notes thereto, which are
included elsewhere in this filing.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
NOTE 1 - PRO FORMA ADJUSTMENTS
A. Pro Forma Condensed Combined Statement of Earnings adjustments for an
acquired business previously reported in Form 8-K (not included in The
Parts Source, Inc. historical financial statements) are as follows:
(1a.) Represents goodwill amortization expense (using the straight-line
method over a 15 year amortization period). The goodwill amortization
period has been determined based upon various factors including
attainable sales volumes, store locations and competition within the
market.
(2a.) Represents interest expense on the funds advanced against the
Company's credit line to fund the purchase, calculated at the
Company's average rate of interest for the period.
(3a.) Represents a reduction of rent, personnel costs and related facility
costs related to an auto parts store that was not acquired, but the
operations were transferred to an existing Company store.
(4a.) Represents a lower gross margin as a result of the higher cost of
inventory purchased by the Company as compared to that paid by the
acquiree.
(5a.) Represents the income tax effect of the pro forma adjustments as
set forth above at the statutory rate.
(6a.) The pro forma weighted average common shares outstanding includes the
effect of the sale of 227,273 shares of unregistered common stock to
A.P.S., Inc. The proceeds from the sale were used to fund the
purchase price of the acquisition.
9
<PAGE> 10
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PROFORMA CONDENSED STATEMENT OF EARNINGS
For the year ended
December 31, 1995
(unaudited)
NOTES TO PRO FORMA CONDENSED STATEMENT OF EARNINGS
NOTE 1 - PRO FORMA ADJUSTMENTS - Continued
B. Pro Forma Condensed Combined Statement of Earnings adjustments for the
current acquisition are as follows:
(1b.)Represents amortization expense of non-compete agreement and goodwill
using the straight-line method over a 10 and 15 year amortization
period, respectively. The non-compete agreement has been amortized over
the duration of the agreement. The goodwill amortization period has been
determined based upon various factors including sales volumes, store
locations and competition within the market.
(2b.)Represents interest expense on the funds advanced against the Company's
credit line to fund the purchase, calculated at the Company's average
rate of interest for the period.
(3b.)Represents a reduction of sales and related costs associated with a
machine shop which is included in the operations of Central Motor Supply
which was not acquired by the Company.
(4b.)Represents a reduction of sales and related costs associated with a
warehousing operation which is included in the results of Central Motor
Supply which the Company did not acquire.
(5b.)Represents a reduction of compensation to be paid to the majority
stockholder of Central Motor Supply pursuant to an employment
agreement.
(6b.)Represents an increase of rental expense related to leasing the stores,
net of the building depreciation (since the buildings were not
acquired).
(7b.)Represents an elimination of interest income related to temporary
investments in marketable equity securities as the Company did not
acquire these assets.
(8b.)Represents the income tax effect of the pro forma adjustments and
results of operations of Central Motor Supply as set forth at the
statutory rate.
10
<PAGE> 11
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PROFORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the nine months ended September 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------
Acquired Business
Previously Reported
in Form 8-K
(Not included in
The Parts The Parts Source Central Motor
Source Historical) Supply
------------ ------------------- -------------
<S> <C> <C> <C>
Net sales $ 19,158,078 $ 5,633,943 $ 2,621,471
Cost of goods sold 11,993,887 3,462,748 1,501,781
------------ ----------- -------------
Gross profit 7,164,191 2,171,195 1,119,690
Operating, selling, general and
administrative expenses 6,711,855 1,860,782 1,150,921
------------ ----------- -------------
Earnings (loss) from operations 452,336 310,413 (31,231)
Other income (expense) (200,322) 820 20,781
------------ ----------- -------------
Net earnings (loss) before income
taxes (benefit) 252,014 311,233 (10,450)
Provision (benefit) for income
taxes * 94,610 113,410 27,196
------------ ----------- -------------
Net earnings (loss) $ 157,404 $ 197,823 $ (37,646)
============ =========== =============
Net earnings per common share $ .06
============
Weighted average common shares
outstanding 2,758,996
============
<CAPTION>
Pro Forma
-------------------------------------------------------------
Acquired
Business Central
Previously Motor
Reported Supply
Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Combined
-------------- ------------- --------------
<S> <C> <C> <C>
Net sales $ - $ (51,118)(4b) $ 27,254,374
(108,000)(3b)
Cost of goods sold 47,200 (4a) (37,827)(4b) 16,967,789
------------ ----------- ------------
Gross profit (47,200) (121,291) 10,286,585
Operating, selling, general and
administrative expenses (80,424)(3a) (53,250)(5b) 9,460,907
(102,375)(3b)
(106,425)(4b)
79,823 (6b)
------------ ----------- ------------
Earnings (loss) from operations 33,224 60,936 825,678
Other income (expense) (53,154)(1a) (17,750)(1b) (369,475)
(31,300)(2a) (47,000)(2b)
(41,550)(7b)
------------ ----------- ------------
Net earnings (loss) before income
taxes (benefit) (51,230) (45,364) 456,203
Provision (benefit) for income
taxes (18,668)(5a) (48,150)(8b) 168,398
------------ ----------- ------------
Net earnings (loss) $ (32,562) $ 2,786 $ 287,805
============ =========== ============
Net earnings per common share $ .10
============
Weighted average common shares
outstanding 2,986,269(6a)
============
</TABLE>
(*) Reflects the Company's pro forma income tax expense for the nine months
ended September 30, 1996 as the Company was a Subchapter S Corporation for tax
purposes until April 8, 1996.
11
<PAGE> 12
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PROFORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the nine months ended September 30, 1996
(unaudited)
The unaudited pro forma condensed combined statement of earnings for the nine
months ended September 30, 1996 is based on the statement of earnings of The
Parts Source, Inc. (d/b/a Ace Auto Parts) as contained in the Form 10-Q for the
nine months ended September 30, 1996, the statement of earnings of an acquired
business previously reported in Form 8-K, dated October 25, 1996 as
subsequently amended and the combined statement of operations of Central Motor
Supply, Inc. for the year ended August 31, 1996, after giving effect to the
conforming adjustments and the pro forma adjustments described in Note 1 as if
the acquisitions had occurred on January 1, 1996. In the opinion of management,
all adjustments have been made that are necessary to present fairly the pro
forma information. This statement should be read in conjunction with the
aforementioned Form 10-Q and Form 8-K, as previously filed, and the Central
Motor Supply, Inc.'s financial statements and notes thereto, which are included
elsewhere in this filing.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
NOTE 1 - PRO FORMA ADJUSTMENTS
A. Pro Forma Condensed Combined Statement of Earnings adjustments for an
acquired business previously reported in Form 8-K (not included in The
Parts Source, Inc. historical financial statements) are as follows:
(1a.)Represents goodwill amortization expense (using the straight-line
method over a 15 year amortization period). The goodwill amortization
period has been determined based upon various factors including
attainable sales volumes, store locations and competition within the
market.
(2a.)Represents interest expense on the funds advanced against the Company's
credit line to fund the purchase, calculated at the Company's average
rate of interest for the period.
(3a.)Represents a reduction of rent, personnel costs and related facility
costs related to an auto parts store that was not acquired, but the
operations were transferred to an existing Company store.
(4a.)Represents a lower gross margin as a result of the higher cost of
inventory purchased by the Company as compared to that paid by the
acquiree.
(5a.)Represents the income tax effect of the pro forma adjustments as
set forth above at the statutory rate.
(6a.)The pro forma weighted average common shares outstanding includes the
effect of the sale of 227,273 shares of unregistered common stock to
A.P.S., Inc. The proceeds from the sale were used to fund the purchase
price of the acquisition.
12
<PAGE> 13
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PROFORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the nine months ended September 30, 1996
(unaudited)
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS - CONTINUED
NOTE 1 - PRO FORMA ADJUSTMENTS - Continued
B. Pro Forma Condensed Combined Statement of Earnings adjustments for the
current acquisition are as follows:
(1b.)Represents amortization expense of noncompete agreement and goodwill
using the straight-line method over a 10 and 15 year amortization
period, respectively. The non-compete agreement has been amortized over
the duration of the agreement. The goodwill amortization period has been
determined based upon various factors including sales volumes, store
locations and competition within the market.
(2b.)Represents interest expense on the funds advanced against the Company's
credit line to fund the purchase, calculated at the Company's average
rate of interest for the period.
(3b.)Represents a reduction of sales and related costs associated with a
machine shop which is included in the operations of Central Motor Supply
which was not acquired by the Company.
(4b.)Represents a reduction of sales and related costs associated with a
warehousing operation which is included in the results of Central Motor
Supply which the Company did not acquire.
(5b.)Represents a reduction of compensation to be paid to the majority
stockholder of Central Motor Supply pursuant to an employment
agreement.
(6b.)Represents an increase of rental expense related to leasing the stores,
net of the building depreciation (since the buildings were not
acquired).
(7b.)Represents an elimination of interest income related to temporary
investments in marketable equity securities as the Company did not
acquire these assets.
(8b.)Represents the income tax effect of the pro forma adjustments and
results of operations of Central Motor Supply as set forth at the
statutory rate.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 10, 1997 The Parts Source, Inc.
- ---------------------------- d/b/a Ace Auto Parts
(Date) --------------------------------------
(Registrant)
/s/ Robert B. Morgan
--------------------------------------
Robert B. Morgan
Chief Financial and Accounting Officer
14
<PAGE> 15
The Board of Directors
Central Motor Supply, Inc.
Gainesville, Florida
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying combined balance sheet of Central
Motor Supply, Inc. as of August 31, 1996, and the related combined statements of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Central Motor Supply, Inc. at August 31, 1996, and the combined results of its
operations and its combined cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ GRAHAM & COTTRILL, P.A.
December 29, 1996
<PAGE> 16
CENTRAL MOTOR SUPPLY, INC.
COMBINED BALANCE SHEET
August 31, 1996
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Accounts receivable, trade, net $ 250,621
Inventories 867,331
Temporary investment in marketable equity securities 705,981
Prepaid expenses and other 469,639
Due from related parties 13,493
----------
Total current assets 2,307,065
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 443,037
----------
Total assets $2,750,102
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks issued not yet presented $ 39,946
Accounts payable 183,002
Accrued expenses 44,244
Income taxes payable 40,651
Deferred income taxes 34,214
Current portion of long-term debt 135,723
Current portion of obligations under capital leases 16,446
----------
Total current liabilities 494,226
NONCURRENT LIABILITIES:
Long-term debt, net of current portion 30,751
Obligations under capital leases, net of current portion 4,284
----------
Total liabilities 529,261
----------
STOCKHOLDERS' EQUITY:
Common stock 37,908
Additional paid-in capital 34,092
Retained earnings 1,745,519
Unrealized gain on investment securities available-for-sale, net 403,322
----------
Total stockholders' equity 2,220,841
----------
Total liabilities and stockholders' equity $2,750,102
==========
</TABLE>
The Accompanying Notes Are An Integral Part
Of These Combined Financial Statements
1
<PAGE> 17
CENTRAL MOTOR SUPPLY, INC.
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
For The Year Ended August 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET SALES $ 3,495,295
COST OF GOODS SOLD 2,002,374
-----------
GROSS PROFIT 1,492,921
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,534,561
-----------
LOSS FROM OPERATIONS (41,640)
-----------
OTHER INCOME (EXPENSE):
Miscellaneous income 31,410
Dividend income 34,070
Interest expense (27,691)
Loss on sales of investment securities available-for-sale (10,081)
-----------
Other income (expense), net 27,708
-----------
LOSS BEFORE INCOME TAXES (13,932)
INCOME TAX EXPENSE 36,262
-----------
NET LOSS (50,194)
RETAINED EARNINGS - Beginning of year 1,795,713
-----------
RETAINED EARNINGS - End of year $ 1,745,519
===========
</TABLE>
The Accompanying Notes Are An Integral Part
Of These Combined Financial Statements
2
<PAGE> 18
CENTRAL MOTOR SUPPLY, INC.
COMBINED STATEMENT OF CASH FLOWS For
The Year Ended August 31, 1996
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $ (50,194)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 39,445
Bad debt provision (657)
Loss on sales of investment securities available-for-sale 10,081
Change in assets and liabilities:
Accounts receivable 45,105
Inventories (34,368)
Prepaid expenses and other (34,943)
Accounts payable (200,771)
Accrued expenses (18,147)
Income taxes payable 40,651
Deferred income taxes (13,984)
---------
Net cash flows from operating activities (217,782)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,744)
Purchases of investment securities available-for-sale (764)
Proceeds from sales of investment securities available-for-sale 39,919
---------
Net cash flows from investing activities 33,411
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to stockholder (65,543)
Repayments from related party 27,000
Repayments of borrowings (67,397)
---------
Net cash flows from financing activities (105,940)
---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (290,311)
CASH AND CASH EQUIVALENTS - Beginning of year 250,365
---------
CASH AND CASH EQUIVALENTS - End of year $ (39,946)
=========
SUPPLEMENTAL CASH FLOW INFORMATION:
The following amounts were paid:
Interest $ 27,691
=========
Income taxes $ --
=========
</TABLE>
The Accompanying Notes Are An Integral Part
Of These Combined Financial Statements
3
<PAGE> 19
CENTRAL MOTOR SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
August 31, 1996
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations: Central Motor Supply, Inc. ("the Company") engages in the
wholesale and retail sales of auto parts and accessories primarily in
North Central Florida.
Organization: The accompanying combined financial statements include
the accounts of the following corporations as of August 31, 1996:
Central Motor Supply, Inc.; Central Motor Supply of East Gainesville,
Inc.; Central Motor Supply of Hawthorne, Inc.; Central Motor Supply of
Williston, Inc.; and Central Motor Supply of Alachua, Inc. All
significant intercompany accounts and transactions have been eliminated
in combination.
Accounts receivable: The Company provides an allowance for doubtful
accounts based upon the expected collectibility of each specific
account.
Inventories: Inventories are stated at the lower of cost or market
value. The "first-in, first-out" method of cost flow assumption is
used.
Investment securities: Securities available-for-sale consist of mutual
funds and certain equity securities and are carried at fair market
value. Unrealized holding gains and losses on securities
available-for-sale are reported net of tax as a separate component of
stockholder's equity until realized. Gains and losses on the sale of
securities available-for-sale are determined using the
specific-identification method.
Property, plant and equipment: The Company's property, plant and
equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the
respective assets using accelerated methods for financial reporting
purposes.
Income taxes: Income taxes are provided for the tax effects of
transactions in the financial statements and consist of taxes currently
due plus deferred taxes recognized for temporary differences resulting
from assets that have a tax basis different from their recorded value
for financial statement purposes as well as for operating loss
carryforwards. The Company's temporary differences relate principally
to the allowance for doubtful accounts and marketable equity
securities. Valuation allowances are provided, if necessary, for
certain deferred tax asset balances based on the Company's assessment
of the likelihood of realization.
Cash and cash equivalents: For purposes of the statement of cash flows,
the Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Advertising costs: The Company expenses advertising costs as incurred.
Total advertising costs included in "selling, general and
administrative expenses" in the accompanying combined financial
statements amounted to $3,248 for the year ended August 31, 1996.
Fair value of financial instruments: The estimated fair value of the
Company's cash and cash equivalents and trade accounts receivable and
payable approximated their carrying value at year-end. Fair values of
investment securities are based on quoted market prices (see Note D).
It is not practicable to estimate the fair value of other financial
instruments held or owed by the Company including, but not limited to,
other receivables and payables (including notes payable) due to the
lack of readily available information regarding the marketability of
such instruments and the effects of credit risk on the measurement of
fair value for such instruments.
Use of estimates: Management uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and reported revenues and expenses.
Significant estimates used in preparing these financial statements
include those assumed in the allowance for doubtful accounts,
depreciation expense, the unrealized gain on investment securities
available-for-sale, and the valuation allowance for deferred tax
assets. It is at least reasonably possible that the significant
estimates used will change within the next year.
4
<PAGE> 20
CENTRAL MOTOR SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
August 31, 1996
NOTE B - CONCENTRATION OF CREDIT RISK:
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk related to cash and cash equivalents.
NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS:
A summary of the changes in the allowance for doubtful accounts related to
customer accounts receivable is as follows:
Balance - Beginning of year $ 253,674
Provision charged to net loss (657)
----------
Balance - End of year $ 253,017
==========
NOTE D - TEMPORARY INVESTMENT IN MARKETABLE EQUITY SECURITIES:
Investment in marketable equity securities consisted of the following:
Gross
Unrealized
Gains (Losses),
Cost net Value Fair Market
---- --------- -----------
Common stocks and mutual funds $ 207,654 $498,327 $705,981
========= ======== ========
Losses in the amount of $10,081 were recognized on the sales of equity
securities during the year ended August 31, 1996. Unrealized gain on
investment securities available-for-sale is shown in the accompanying
combined balance sheet in the amount of $403,322 which is net of income
tax of $95,005. During the year ended August 31, 1996, the unrealized gain
on investment securities increased by approximately $63,500.
NOTE E - RELATED PARTY TRANSACTIONS:
Due from related parties consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Advance to stockholder, non-interest bearing, due on demand $ 8,493
Advances to estate of former stockholder, of which the
Company's sole stockholder is the executor, non-interest
bearing, due on demand, net of allowance of $322,548 for
which there is no evidence that repayment will occur 5,000
-------
Total due from related parties $13,493
=======
</TABLE>
"Prepaid expenses and other" as shown in the accompanying combined balance
sheet includes prepayments against future stock redemptions to related
parties in the amount of $458,942. The stock was redeemed subsequent to
the balance sheet date for a total of $980,000.
5
<PAGE> 21
CENTRAL MOTOR SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
August 31, 1996
NOTE F - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
Category Cost
------------------------------ -----------
Land $ 220,841
Buildings and improvements 779,258
Equipment under capital leases 102,207
Furniture and equipment 73,533
Vehicles 180,661
Leasehold improvements 18,529
-----------
Total 1,375,029
Less: Accumulated depreciation and amortization (931,992)
-----------
Net property, plant and equipment $ 443,037
===========
Accumulated depreciation and amortization includes accumulated
amortization of $86,313 on equipment under capital leases as of August 31,
1996. Amortization expense of $4,600 for the above equipment is included
in total depreciation and amortization expense for the year ended August
31, 1996. Total depreciation expense for the year ended August 31, 1996,
was $34,845.
NOTE G - LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to bank, interest due monthly at prime plus
1.25%, collateralized by substantially all assets, due on
demand $ 97,913
Mortgage payable, due in monthly installments of $1,812
including interest at 8.5%, collateralized by certain
property, due September 1997 22,626
Note payable to bank, due in monthly installments of $929
including interest at 8.5%, collateralized by a certain
vehicle, due February 1997 5,436
Note payable to bank, due in monthly installments of $1,340
including interest at prime plus 2%, collateralized by
certain property, due May 1999 40,499
---------
Total 166,474
Less: Current portion (135,723)
---------
Net noncurrent portion $ 30,751
=========
</TABLE>
6
<PAGE> 22
CENTRAL MOTOR SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
August 31, 1996
NOTE G - LONG-TERM DEBT (Continued):
Future maturities of long-term debt are as follows:
Year Ending
August 31,
1997 (included in current maturities) $ 135,723
1998 15,307
1999 15,444
---------
Total $ 166,474
=========
NOTE H - OBLIGATIONS UNDER CAPITAL LEASES:
The Company is obligated under capital leases for certain equipment. The
following is a schedule by year of future minimum lease payments pursuant
to the capital leases together with the present value of the net minimum
lease payments as of August 31, 1996:
Year Ending
August 31,
-----------
1997 $ 18,167
1998 4,468
---------
Total minimum lease payments 22,635
Less: Amount representing interest (1,905)
---------
Present value of net minimum lease payments 20,730
Less: Current maturities (16,446)
---------
Net noncurrent portion $ 4,284
=========
NOTE I - STOCKHOLDERS' EQUITY:
Common stock consisted of the following:
Central Motor Supply, Inc.: At August 31, 1996, the Company's stock
consisted of $50 par common stock, 1,000 shares authorized, 582 shares
issued and outstanding.
Central Motor Supply of East Gainesville, Inc. : At August 31, 1996,
the Company's stock consisted of $50 par common stock, 600 shares
authorized, 87.75 shares issued and outstanding.
Central Motor Supply of Hawthorne, Inc.: At August 31, 1996, the
Company's stock consisted of $100 par common stock, 100 shares
authorized, 36.75 shares issued and outstanding.
7
<PAGE> 23
CENTRAL MOTOR SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
August 31, 1996
NOTE I - STOCKHOLDERS' EQUITY (Continued):
Central Motor Supply of Williston, Inc.: At August 31, 1996, the Company's
stock consisted of $5 par common stock, 100 shares authorized, 49 shares
issued and outstanding.
Central Motor Supply of Alachua, Inc.: At August 31, 1996, the Company's
stock consisted of $5 par common stock, 100 shares authorized, 100 shares
issued and outstanding.
NOTE J - INCOME TAXES:
The Company recognized a provision for income taxes as follows:
<TABLE>
<CAPTION>
Current:
<S> <C>
Federal $ 40,217
State 8,501
Deferred:
Federal, net of tax benefit of operating loss carryforward of $7,933 (8,975)
State, net of tax benefit of operating loss carryforward of $3,078 (3,481)
--------
Income tax expense $ 36,262
========
</TABLE>
Differences between the Company's income tax expense and the amount that
would result from applying domestic statutory rates to income before income
taxes are primarily due to state income taxes, nondeductible expenses such
as penalties, the nondeductible portion of meals and entertainment and the
special deduction for dividends received.
The Company had the following deferred income tax balances at August 31,
1996:
Current liabilities $ (95,797)
Current assets 100,639
Asset valuation allowance (39,056)
---------
Net current deferred tax liabilities $ (34,214)
=========
The asset valuation allowance increased $16,458 during the year ended
August 31, 1996. The Company has net operating loss carryforwards totaling
approximately $254,500 that may be offset against future taxable income.
If not used, the carryforwards will begin to expire in the year 2004.
NOTE K - LEASES:
The Company operates one location in premises leased under an operating
lease agreement. The lease has month-to-month terms. Total rent expense
for the year ended August 31, 1996, was approximately $9,700.
NOTE L - SUBSEQUENT EVENT:
The Company sold substantially all of its assets to The Parts Source,
Inc., d/b/a Ace Auto Parts on November 27, 1996.
8
