<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------------------------------
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14308
THE PARTS SOURCE, INC.
d/b/a Ace Auto Parts
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-3149403
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1751 S. Missouri Avenue, Clearwater, Florida 33756
-------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(727) 588-0377
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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
----- -----
Common Stock, $.001 par value - 3,412,273 shares outstanding at October 31, 1998
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
<TABLE>
INDEX
<CAPTION>
<S> <C> <C>
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Condensed Statements of Operations--Three and nine months ended
September 30, 1997 and September 30, 1998 (unaudited) 3
Condensed Balance Sheets--December 31, 1997 and
September 30, 1998 (unaudited) 4
Condensed Statements of Cash Flows--Nine months ended
September 30, 1997 and September 30, 1998 (unaudited) 5
Notes to Condensed Financial Statements--September 30, 1998
(unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
PART II. OTHER INFORMATION 14
SIGNATURES 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 10,401,137 $ 11,007,716 $ 30,251,531 $ 33,097,102
Cost of goods sold 6,561,970 6,992,563 19,210,035 20,640,494
------------- ------------- ------------- -------------
Gross profit 3,839,167 4,015,153 11,041,496 12,456,608
Operating, selling, general and
administrative expenses 3,608,838 4,079,101 10,423,004 12,144,752
------------- ------------- ------------- -------------
Operating income (loss) 230,329 (63,948) 618,492 311,856
------------- ------------- ------------- -------------
Other income (expense)
Interest expense (178,437) (228,793) (456,397) (662,214)
Other, net 9,596 5,054 24,612 26,049
------------- ------------- ------------- -------------
(168,841) (223,739) (431,785) (636,165)
------------- ------------- ------------- -------------
Earnings (loss) before income taxes 61,488 (287,687) 186,707 (324,309)
Provision (benefit) for income taxes 9,088 (100,800) 59,788 (112,500)
------------- ------------- ------------- -------------
Net earnings (loss) $ 52,400 $ (186,887) $ 126,919 $ (211,809)
============= ============= ============= =============
Basic earnings (loss) per common share $ .02 $ (.05) $ .04 $ (.06)
============= ============= ============= =============
Diluted earnings (loss) per common share $ .02 $ (.05) $ .04 $ (.06)
============= ============= ============= =============
Average common shares outstanding:
Basic 3,412,273 3,412,273 3,412,273 3,412,273
============= ============= ============= =============
Diluted 3,412,273 3,412,273 3,490,589 3,412,273
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
3
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
December 31, September 30,
1997 1998
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 227,564 $ 128,791
Accounts receivable
Trade, net 2,774,975 3,813,398
Other-primarily suppliers 1,203,292 2,062,531
Inventories 16,488,120 20,841,565
Refundable income taxes 130,812 84,227
Prepaid expenses 124,010 233,058
Deferred tax asset 190,700 165,000
------------- -------------
Total current assets 21,139,473 27,328,570
PROPERTY AND EQUIPMENT, NET 3,559,541 3,448,526
OTHER ASSETS
Excess of cost over net assets acquired, net 1,280,639 1,200,741
Non-compete agreement, net 151,587 107,674
Other 121,650 146,441
------------- -------------
$ 26,252,890 $ 32,231,952
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of
Long-term obligations $ 50,754 $ 40,510
Notes payable, related parties 144,723 27,782
Accounts payable, trade 4,926,079 4,203,346
Accrued liabilities 879,608 1,756,772
------------- -------------
Total current liabilities 6,001,164 6,028,410
LONG-TERM OBLIGATIONS, less current portion 10,397,131 16,724,450
NOTES PAYABLE, RELATED PARTIES, less current portion 25,494 -
DEFERRED INCOME TAXES 138,200 -
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 3,412 3,412
Additional paid-in capital 9,825,158 9,825,158
Accumulated deficit (137,669) (349,478)
------------- -------------
9,690,901 9,479,092
------------- -------------
$ 26,252,890 $ 32,231,952
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
4
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Increase (Decrease) in cash
Cash flows from operating activities:
Net earnings (loss) $ 126,919 $ (211,809)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Depreciation and amortization 470,077 601,343
Deferred income taxes, net (8,400) (112,500)
Other (11,738) (18,782)
Changes in assets and liabilities, net of acquisitions of businesses:
(Increase) in accounts receivable (1,317,268) (1,897,662)
(Increase) decrease in inventories (1,959,796) 1,809,715
Decrease in refundable income taxes 46,400 46,585
(Increase) in prepaid expenses (141,433) (109,048)
(Increase) in other assets (52,359) (47,480)
Increase (decrease) in accounts payable 1,002,444 (722,733)
Increase in income taxes payable 11,788 -
(Decrease) increase in accrued liabilities (36,066) 34,375
------------ ------------
Net cash used in operating activities (1,869,432) (627,996)
------------ ------------
Cash flows from investing activities:
Cash paid for acquisitions of businesses (222,904) (5,314,491)
Purchases of property and equipment (918,548) (306,923)
Proceeds from disposition of property and equipment 41,320 67,355
------------ ------------
Net cash used in investing activities (1,100,132) (5,554,059)
------------ ------------
Cash flows from financing activities:
Net borrowings under line of credit agreement 3,185,984 6,300,361
Repayments of long-term obligations (164,244) (217,079)
Payment of registration fees (3,160) -
------------ ------------
Net cash provided by financing activities 3,018,580 6,083,282
------------ ------------
Increase (Decrease) in cash 49,016 (98,773)
Cash, January 1 20,508 227,564
------------ ------------
Cash, September 30 $ 69,524 $ 128,791
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
5
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. The condensed financial statements as of
September 30, 1998 and for the three and nine months ended September 30, 1997
and 1998 are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim periods. The results of operations for the nine months ended September
30, 1998 are not necessarily indicative of results that may be expected for the
year ending December 31, 1998. The condensed financial statements should be read
in conjunction with the financial statements and notes thereto, together with
management's discussion and analysis or plan of operations, included in the
annual report on Form 10-KSB for the year ended December 31, 1997.
NOTE B: ACQUISITIONS
On September 17, 1998, the Company acquired certain assets, consisting of
inventories and fixed assets, of an auto parts distribution center (hereafter
referred to as the Ocala Distribution Center) operated by APS, Inc., located in
Ocala, Florida. The Ocala Distribution Center was a separate business unit of
APS Holding Corporation. The Company intends to continue the operations of this
automotive distribution center for its auto parts business and for other auto
parts suppliers in the State of Florida.
The Company has accounted for the acquisition as a purchase and accordingly, the
purchase price was allocated to the assets and liabilities based upon estimated
fair value as of the date of the acquisition. The results of operations of the
Ocala Distribution Center are included in the Company's Statements of Operations
from the date of the acquisition. The total purchase price of the warehouse
operation was approximately $5.3 million with an additional amount of $600,000
paid for inventory that was in-transit at the time of closing. The purchase
price was funded primarily through the Company's line of credit (See Note C). Of
the approximate $6.1 million total costs it incurred to complete the
acquisition, the Company allocated approximately $6.2 million to tangible assets
and incurred $235,651 in assumed liabilities. In this transaction, the sum of
the fair values assigned to the identifiable assets acquired less liabilities
assumed exceeded the purchase price. Such excess of $811,015 was allocated to
non-current assets.
6
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE B: ACQUISITIONS (continued)
The following unaudited pro forma information presents the combined results of
operations as if the acquisition of the Ocala Distribution Center had occurred
at the beginning of the three and nine months ended September 30, 1997 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -----------------------------
1997 1998 1997 1998
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 14,647,275 $ 13,985,413 $ 42,989,946 $ 42,030,193
Net earnings (loss) $ 154,790 $ (309,041) $ 434,088 $ (578,271)
Earnings (loss) per common share, basic $ .05 $ (.09) $ .13 $ (.17)
Earnings (loss) per common share, diluted $ .04 $ (.09) $ .12 $ (.17)
</TABLE>
This pro forma financial information is not necessarily indicative of the
results, which would have actually occurred had the transaction been effective
during the same periods indicated or which may result in the future.
During the first nine months of 1997, the Company acquired substantially all the
assets of three auto parts stores. These acquisitions were accounted for as
purchases and accordingly, the purchase price was allocated to the assets and
liabilities based upon estimated fair value as of the date of acquisition. The
total purchase price was approximately $479,000 and liabilities of approximately
$59,000 were assumed in exchange for approximately $515,000 in tangible assets.
Approximately $23,000 in goodwill relating to these acquisitions was recorded.
The results of operations of these acquisitions are included in the accompanying
Statements of Operations from the dates of acquisition. Had the acquisitions
occurred at the beginning of the periods ended September 30, 1997, the results
would not have been materially different from those reported.
NOTE C: LINES OF CREDIT
In connection with the acquisition of the Ocala Distribution Center (See Note
B), the Company amended its revolving line of credit to provide for borrowings
of up to $18 million with an additional $1 million overadvance facility. The
amount of borrowings under the revolving line of credit at any point in time is
subject to the amount of eligible inventory and accounts receivable. Effective
twelve months after the date of acquisition of the Ocala Distribution Center,
the inventory advance rate is to be reduced by one percent per month until the
advance rate is reduced to 50%. The borrowings, at the option of the Company,
bear interest at the prime rate plus .5% or the London Interbank Offered Rates
(LIBOR) plus 2.75%. The Company elected the LIBOR plus 2.75% option (8.125% as
of September 30, 1998). The revolving line of credit matures September 30, 2000.
In addition with the increased borrowing capacity, the loan covenants under the
revolving line of credit were modified. The Company is required to maintain, at
a minimum, a current ratio of 2 to 1, a ratio of liabilities to tangible net
worth not to exceed 3.3 to 1, and a times interest earned multiple of 1.25 or
greater. The Company is also required to achieve a minimum tangible net worth of
$8,759,000 measured as of September 30, 1999 and as of December 31, 1999 and
each subsequent year the minimum tangible net worth is increased by $500,000. At
September 30, 1998, the Company was in compliance with all such loan covenants.
7
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE C: LINES OF CREDIT (continued)
The overadvance facility is available for the first six months after the Ocala
Distribution Center acquisition and is reduced for the next three months to
$750,000 and the last three months to $250,000. The overadvance facility expires
September 17, 1999 and bears interest at the prime rate plus 2%.
NOTE D: OTHER MATTERS
Purchase Commitment
- - -------------------
In February 1998, the Company's principal supplier, APS, Inc. filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court. The Company has terminated its purchase commitment with
this supplier and no longer purchases any product from this vendor.
United States Fair Labor Standards Act Investigation
- - ----------------------------------------------------
In November 1997, as a result of an investigation by the Department of Labor,
the Company paid six previous employees approximately $4,000 related to overtime
violations. The Company believes it would not have been cost beneficial to
defend this action. After further review, the Company determined it was liable
for approximately $80,000 in back compensation to certain past and present
employees. The Company recorded this liability in the nine months ended
September 30, 1998.
NOTE E: STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
Nine Months Ended
September 30,
--------------------------
1997 1998
----------- -----------
(unaudited)
Cash paid for:
Interest $ 464,000 $ 578,000
=========== ===========
Income taxes $ 10,000 $ -
=========== ===========
Supplemental schedule of non-cash investing and financing activities:
During the nine months ended September 30, 1998, the Company acquired computer
equipment under a capital lease obligation and a vehicle with an installment
note, totaling $91,358.
8
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE E: STATEMENTS OF CASH FLOWS (continued)
The Company purchased substantially all of the assets of three auto parts stores
and one distribution center during the nine months ended September 30, 1997 and
1998, respectively (See Note B). In conjunction with the acquisitions, assets
acquired and liabilities assumed were as follows:
Nine Months Ended
September 30,
-----------------------------
(unaudited)
1997 1998
------------ ------------
Fair value of assets acquired $ 538,574 $ 6,163,160
Cash paid 222,904 5,314,491
Acquisition indebtedness 256,168 613,018
------------ ------------
Liabilities assumed $ 59,502 $ 235,651
============ ============
9
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
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 September 30, 1997 and 1998 should be read in conjunction
with the Condensed Financial Statements of the Company with the accompanying
notes.
RESULTS OF OPERATIONS
The following table sets forth selected financial information derived from the
Company's statements of operations expressed as a percentage of net sales for
the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
---------------------- ----------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 63.1 63.5 63.5 62.4
---------- ---------- ---------- ----------
Gross profit 36.9 36.5 36.5 37.6
Operating, selling, general and
administrative expenses 34.7 37.1 34.5 36.7
---------- ---------- ---------- ----------
Operating income (loss) 2.2 (.6) 2.0 .9
Other income (expense)
Interest expense (1.7) (2.1) (1.5) (2.0)
Other, net .1 .1 .1 .1
---------- ---------- ---------- ----------
Earnings (loss) before income taxes .6 (2.6) .6 (1.0)
Provision (benefit) for income taxes .1 (.9) .2 (.4)
---------- ---------- ---------- ----------
Net earnings (loss) .5% (1.7)% .4% (.6)%
========== ========== ========== ==========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
NET SALES. Product sales increased $.6 million, or 5.8%, to $11 million for the
three months ending September 30, 1998. This increase was primarily due to a $.9
million increase in sales from four new stores acquired or opened during 1997
and one warehouse acquired in September 1998. This increase was partially offset
by a $.3 million or 2.7% decrease in same store sales. The same store sales
decrease is calculated based on the change in net sales of only those stores
that were operational for the entire periods being compared. The same store
sales decrease resulted primarily from new competitors entering the wholesale
market. In September 1998, the Company acquired a distribution center from its
previous primary supplier, APS. The Company does not currently purchase any
product from APS. The distribution center allows the Company to purchase product
directly from several manufacturers, thereby eliminating one middleman from the
supply chain. Management believes this distribution center will generate sales
with a new market of independent auto parts stores and should improve same
stores sales in the Company owned auto parts stores due to a new variety of
product lines being offered to its customers.
10
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
COST OF GOODS SOLD. Cost of goods sold increased $.4 million to $7 million (or
63.5% of net sales) for the three months ending September 30, 1998. This
increase was primarily attributable to sales increases. Cost of goods sold as a
percentage of sales increased primarily from sales increases in lower gross
margin wholesale sales and was partially offset by favorable pricing from
vendors. The distribution center acquired in September 1998 will allow the
Company to purchase product directly from the manufacturers, thereby reducing
its product costs. Since the product costs will be lower, cost of goods sold as
a percentage of sales will decrease, however this decrease will be offset by the
lower gross margin sales to the independent auto parts stores.
In order to purchase product at competitive terms, the Company has become a
member of an automotive aftermarket buying group. The Company is in the process
of negotiating purchase agreements with several parts manufacturers made
available under this buying group.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE ("OSG&A") EXPENSES. OSG&A
expenses increased from $3.6 million (or 34.7% of net sales) for the three
months ending September 30, 1997 to $4.1 million (or 37.1% of net sales) for the
three months ending September 30, 1998. This $.5 million increase resulted
primarily from additional store personnel to support the increase in sales
volume and a reduction in reimbursements of promotional expenses received from
suppliers. OSG&A expenses as a percentage of sales increased primarily from a
reduction in reimbursements of promotional expenses received from suppliers.
INTEREST EXPENSE. Interest expense increased from $178,437 (or 1.7% of net
sales) for the three months ending September 30, 1997 to $228,793 (or 2.1% of
net sales) for the three months ending September 30, 1998. This increase
resulted primarily from the increased level of debt incurred to expand
operations, as well as for working capital.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
NET SALES. Product sales increased $2.8 million, or 9.4%, to $33.1 million for
the nine months ending September 30, 1998. This increase was primarily due to a
$3.2 million increase in sales from seven new stores acquired or opened during
1997 and a warehouse acquired in September 1998. This increase was partially
offset by a $.4 million or 1.3% decrease in same store sales. The same store
sales decrease is calculated based on the change in net sales of only those
stores that were operational for the entire periods being compared. The same
store sales decrease resulted primarily from new competitors entering the
wholesale market. In September 1998, the Company acquired a distribution center
from its previous primary supplier, APS. The Company does not currently purchase
any product from APS. The distribution center allows the Company to purchase
product directly from several manufacturers, thereby eliminating one middleman
from the supply chain. Management believes this distribution center will
generate sales with a new market of independent auto parts stores and should
improve same stores sales in the Company owned auto parts stores due to a new
variety of product lines being offered to its customers.
11
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
COST OF GOODS SOLD. Cost of goods sold increased $1.4 million to $20.6 million
(or 62.4% of net sales) for the nine months ending September 30, 1998. This
increase was primarily attributable to sales increases. Cost of goods sold as a
percentage of sales decreased primarily from favorable pricing from vendors and
was partially offset by sales increases in lower gross margin wholesale sales.
The distribution center acquired in September 1998 will allow the Company to
purchase product directly from the manufacturers, thereby reducing its product
costs. Since the product costs will be lower, cost of goods sold as a percentage
of sales will decrease, however this decrease will be offset by the lower gross
margin sales to the independent auto parts stores.
In order to purchase product at competitive terms, the Company has become a
member of an automotive aftermarket buying group. The Company is in the process
of negotiating purchase agreements with several parts manufacturers made
available under this buying group.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE ("OSG&A") EXPENSES. OSG&A
expenses increased from $10.4 million (or 34.5% of net sales) for the nine
months ending September 30, 1997 to $12.1 million (or 36.7% of net sales) for
the nine months ending September 30, 1998. This $1.7 million increase resulted
primarily from additional store personnel and corporate overhead to support the
increase in sales volume and a reduction in reimbursements of promotional
expenses received from suppliers. OSG&A expenses as a percentage of sales
increased primarily from a reduction in reimbursements of promotional expenses
received from suppliers and a one-time charge of $80,000 in back compensation to
certain past and present employees.
INTEREST EXPENSE. Interest expense increased from $456,397 (or 1.5% of net
sales) for the nine months ending September 30, 1997 to $662,214 (or 2% of net
sales) for the nine months ending September 30, 1998. This increase resulted
primarily from the increased level of debt incurred to expand operations, as
well as for working capital.
12
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.9 million for the nine months
ending September 30, 1997 primarily as a result of an increase in accounts
receivable, inventory and accounts payable. For the nine months ending September
30, 1998, net cash used in operating activities was $.6 million primarily as a
result of an increase in accounts receivable and a decrease in inventory and
accounts payable.
Net cash used in investing activities was $1.1 million and $5.6 million for the
nine months ending September 30, 1997 and 1998, respectively. This increase is
primarily from the warehouse acquired in September 1998.
Net cash provided by financing activities, utilizing the Company's credit
facilities, was $3 million and $6.1 million, for the nine months ending
September 30, 1997 and 1998, respectively. These borrowings were used primarily
to fund the opening of new stores, the warehouse acquisition and for general
working capital purposes.
In connection with the acquisition of the Ocala Distribution Center (See Note
B), the Company amended its revolving line of credit to provide for borrowings
of up to $18 million with an additional $1 million overadvance facility. This
line of credit and overadvance facility, among other provisions, requires the
Company to maintain, at the minimum, a current ratio of 2 to 1, the ratio of
liabilities to tangible net worth not to exceed 3.3 to 1 and a times interest
earned multiple of 1.25 or greater. The Company is also required to achieve a
minimum tangible net worth of $8,759,000 measured as of September 30, 1999 and
as of December 31, 1999 and each subsequent year the minimum tangible net worth
is increased by $500,000. The Company was in compliance with all debt covenants
at September 30, 1998, and in November 1998 had approximately $600,000 available
under these credit facilities.
Management believes that the cash expected to be provided by operating
activities, existing cash, existing bank credit facilities and trade credit will
be sufficient to fund both the short and long-term capital and liquidity needs
of the Company for the foreseeable future.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains statements regarding matters that are not historical facts
(including statements as to beliefs or expectations of the Company) which are
forward-looking statements. Because such forward-looking statements include
risks and uncertainties, the Company's actual results could differ materially
from those discussed herein.
13
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a ACE AUTO PARTS)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
Report on Form 8-K, dated September 17, 1998, reporting the
acquisition from APS, Inc., the business (consisting of certain
assets, principally inventory and fixed assets) of one distribution
center located in Ocala, Florida.
Report on Form 8-KA, dated November 13, 1998, to amend report on Form
8-K, dated September 17, 1998, reporting the Registrant's acquisition
from APS, Inc., the business (consisting of certain assets,
principally inventory and fixed assets) of one distribution center
located in Ocala, Florida.
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.
The Parts Source, Inc.
d/b/a Ace Auto Parts
----------------------------------------
(Registrant)
November 16, 1998
- - ------------------------------------
(Date)
/s/ Robert B. Morgan
----------------------------------------
Robert B. Morgan
Chief Financial and Accounting Officer
(Principal Financial and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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