<PAGE>
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): September 17, 1998
THE PARTS SOURCE, INC.
d/b/a Ace Auto Parts
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 1-14308 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 33756
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 588-0377
---------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2: Amendment to Acquisition of Assets
On September 30, 1998, 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 an auto
parts distribution center operated by A.P.S., Inc., located in Ocala, Florida.
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.
Item 7: Amendment to File Acquisition Financial Statements
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 November 16, 1998. By
filing this Form 8-K/A, the Company is amending and restating Item 7 of the Form
8-K to include such required financial statements and pro forma financial
information.
1
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
Ocala Distribution Center Financial Statements and Report of
Independent Accountants as of January 25, 1997 and January 31, 1998 and
for the fiscal years then ended.
Ocala Distribution Center Interim Financial Statements as of July 25,
1997 and 1998 and for the six month periods then ended (unaudited).
(b) Pro Forma Financial Information
The Parts Source, Inc. (d/b/a Ace Auto Parts) Pro Forma Condensed
Combined Balance Sheet at June 30, 1998 (unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Notes to Pro Forma
Condensed Combined Balance Sheet at June 30, 1998 (unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Pro Forma Condensed
Combined Statement of Earnings for the year ended December 31, 1997
(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, 1997 (unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Pro Forma Condensed
Combined Statement of Operations for the six months ended June 30, 1998
(unaudited)
The Parts Source, Inc. (d/b/a Ace Auto Parts) Notes to Pro Forma
Condensed Combined Statement of Operations for the six months ended
June 30, 1998 (unaudited)
2
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1998
(unaudited)
The unaudited pro forma condensed combined balance sheet at June 30, 1998 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 six months ended June 30,
1998 and the balance sheet of the Ocala Distribution Center as of July 25, 1998,
and has been prepared to reflect the acquisition of the Ocala Distribution
Center on September 17, 1998 using the purchase method of accounting, after
giving effect to the pro forma adjustments described in Note 2, as if the
acquisition had occurred on June 30, 1998. 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 the Ocala Distribution Center financial statements
and notes thereto, which are included elsewhere in this filing.
<TABLE>
<CAPTION>
7/25/98
6/30/98 Ocala
The Parts Distribution Pro Forma Pro Forma
Source Center Sub-Total Adjustments Combined
ASSETS ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 59,549 $ 2,412 $ 61,961 $ (2,412) (c) $ 59,549
Accounts and notes receivable 5,363,404 6,176,111 11,539,515 (6,176,111) (c) 5,363,404
Inventories 16,159,075 6,743,553 22,902,628 (580,393) (b) 22,322,235
Prepaid expenses and other assets 662,620 641,001 1,303,621 (641,001) (c) 662,620
------------- ------------- ------------- ------------- -------------
Total current assets 22,244,648 13,563,077 35,807,725 (7,399,917) 28,407,808
Property and equipment, net 3,511,739 773,038 4,284,777 (773,038) (b) 3,511,739
Excess of cost over net assets
acquired 1,225,347 - 1,225,347 - 1,225,347
Notes receivable - 6,550,468 6,550,468 (6,550,468) (c) -
Other assets 230,119 1,424,334 1,654,453 (1,424,334) (c) 230,119
------------- ------------- ------------- ------------- -------------
Total assets $ 27,211,853 $ 22,310,917 $ 49,522,770 $(16,147,757) $ 33,375,013
============= ============= ============= ============= =============
LIABILITIES & EQUITY
CURRENT LIABILITIES
Current installments of long-term
liabilities $ 68,667 $ - $ 68,667 $ - $ 68,667
Accounts payable 5,574,932 160,593 5,735,525 (160,593) (c) 5,574,932
Accrued liabilities 671,587 561,553 1,233,140 (561,553) (c) 907,238
174,000 (a)
61,651 (b)
------------- ------------- ------------- ------------- -------------
Total current liabilities 6,315,186 722,146 7,037,332 (486,495) 6,550,837
Long-term debt, less current portion 10,982,088 - 10,982,088 5,927,509 (a) 16,909,597
Deferred income taxes 248,600 - 248,600 - 248,600
Liabilities subject to settlement - 5,230,888 5,230,888 (5,230,888) (c) -
Stockholders' equity 9,665,979 16,357,883 26,023,862 (16,357,883) (c) 9,665,979
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity $ 27,211,853 $ 22,310,917 $ 49,522,770 $(16,147,757) $ 33,375,013
============= ============= ============= ============= =============
</TABLE>
3
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1998
(unaudited)
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
NOTE 1 - ACQUISITION OF ASSETS
On September 17, 1998, The Parts Source, Inc. (d/b/a Ace Auto Parts) ("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 A.P.S., Inc., located in Ocala, Florida. The
Ocala Distribution Center was a separate business unit of APS Holding
Corporation. APS Holding Corporation and its direct and indirect subsidiaries
filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court on February 2, 1998 and have been
operating as a debtor-in-possession.
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. 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. In a separate
transaction, specific accounts and notes receivable of approximately $1,017,000
recorded on the books of the Ocala Distribution Center were sold for
approximately $610,000 to an affiliated entity owned by the principal
shareholders of the Company.
NOTE 2 - PRO FORMA ADJUSTMENTS
Pro forma Condensed Combined Balance Sheet adjustments related to the
acquisition are as follows:
(a) A summary of the purchase price for the acquisition described in
Note 1 is as follows:
Cash $ 613,018
Proceeds from line of credit 5,314,491
Direct acquisition costs 174,000
-----------
$6,101,509
===========
(b) 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. In this transaction, the sum of the fair values assigned to
the identifiable assets acquired less liabilities assumed, exceeded the
purchase price. Such excess was allocated to non-current assets.
Net tangible assets (liabilities)
Inventories $6,163,160
Property and equipment, net 773,038
Less: Excess of fair value over purchase price (773,038)
Accrued liabilities (61,651)
-----------
$6,101,509
===========
The total purchase price was allocated for income tax purposes pursuant
to Internal Revenue Code Section 1060. Therefore, the purchase price
was allocated differently to the net assets acquired for financial and
tax reporting purposes. At the acquisition date, there was not a
difference in basis of the net assets acquired for book and tax
purposes. Accordingly, no deferred income taxes have been recorded.
(c) These assets and liabilities of the Ocala Distribution Center were
not acquired or assumed by the Company.
4
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the year ended December 31, 1997
(unaudited)
The unaudited pro forma condensed combined statement of earnings for the year
ended December 31, 1997 is based on the statement of operations of The Parts
Source, Inc. (d/b/a Ace Auto Parts) as contained in the Company's Form 10-KSB
for the year ended December 31, 1997 and the audited statement of earnings of
the Ocala Distribution Center for the year ended January 31, 1998, after giving
effect to the pro forma adjustments described in Note 1 as if the acquisition
had occurred on January 1, 1997. 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-KSB
and the Ocala Distribution Center financial statements and notes thereto, which
are included elsewhere in this filing.
<TABLE>
<CAPTION>
1/31/98
12/31/97 Ocala
The Parts Distribution Pro Forma Pro Forma
Source Center Sub-Total Adjustments Combined
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 40,052,866 $ 35,508,501 $ 75,561,367 $(18,523,948) (a) $ 57,037,419
Cost of goods sold 25,935,829 29,216,483 55,152,312 (18,523,948) (a) 36,628,364
------------- ------------- ------------- ------------- ------------
Gross profit 14,117,037 6,292,018 20,409,055 - 20,409,055
Operating, selling, general and
administrative expenses 13,919,615 6,367,401 20,287,016 (113,599) (b) 19,131,336
(43,077) (c)
174,600 (d)
486,400 (e)
(1,660,004) (f)
------------- ------------- ------------- ------------- -------------
Earnings (loss) from operations 197,422 (75,383) 122,039 1,155,680 1,277,719
Other income (expense) (623,112) 500,523 (122,589) (645,204) (g) (1,036,950)
(411,342) (h)
142,185 (i)
------------- ------------- ------------- ------------- -------------
Net earnings (loss) before income
taxes (425,690) 425,140 (550) 241,319 240,769
Provision (benefit) for income taxes (166,300) 160,197 (6,103) 96,703 (j) 90,600
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ (259,390) $ 264,943 $ 5,553 $ 144,616 $ 150,169
============= ============= ============= ============= =============
Net earnings (loss) per common
share, basic $ (.08) $ .04
============= =============
Net earnings (loss) per common
share, diluted $ (.08) $ .04
============= =============
Weighted average common shares
outstanding: - basic 3,412,273 3,412,273
============= =============
- diluted 3,412,273 3,471,010
============= =============
</TABLE>
5
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the year ended December 31, 1997
(unaudited)
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
NOTE 1 - PRO FORMA ADJUSTMENTS
Pro forma Condensed Combined Statement of Earnings adjustments related to the
acquisition are as follows:
(a) Represents elimination of sales between the Company and the Ocala
Distribution Center.
(b) Represents reversal of the Ocala Distribution Center's depreciation
expense related to fixed assets that were purchased by the Company and
have been reduced to zero due to the allocation of the excess of fair
value of the net assets over the purchase price.
(c) Represents reversal of the Ocala Distribution Center's amortization
expense related to its intangible assets not acquired by the Company.
(d) Represents a monthly fee of $27,000 to be paid by the Company for
access to APS, Inc.'s computerized inventory system and certain related
inventory maintenance support. The Company believes they will need
access to the system for six and a half months before the warehouse
operation is integrated on to the Company's computerized inventory
system.
(e) Represents costs that will be incurred by the Company related to
additional accounting and data processing personnel and related
expenses.
(f) Represents reversal of allocated overhead costs from the Ocala
Distribution Center's Regional and Corporate Headquarters. Such
allocated overhead costs consist primarily of costs related to
financial, marketing, management information, risk management, legal
and human resource services. Such costs were allocated based upon the
location sales as a percentage of total consolidated sales. Such
allocation was general in nature and was not indicative of the actual
costs that would have been incurred if the Ocala Distribution Center
operated as a separate entity. The Company does not anticipate adding
personnel to handle these functions, except for those mentioned in (e)
above.
(g) Represents elimination of interest charges (income) on customer
financed accounts. The Company does not intend to enter into financing
agreements with its customers.
(h) 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.
(i) Represents elimination of corporate inter-company carrying charges
(expense) on inventory and accounts receivable balances.
(j) Represents the income tax effect of the pro forma adjustments as
set forth above at the statutory rate.
6
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(unaudited)
The unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 1998 is based on the statement of operations of The Parts
Source, Inc. (d/b/a Ace Auto Parts) as contained in the Company's Form 10-Q for
the six months ended June 30, 1998 and the internally prepared statement of
operations of the Ocala Distribution Center for the six months ended July 25,
1998, after giving effect to the pro forma adjustments described in Note 1 as if
the acquisition had occurred on January 1, 1998. 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 the Ocala Distribution Center financial statements
and notes thereto, which are included elsewhere in this filing.
<TABLE>
<CAPTION>
7/25/98
6/30/98 Ocala
The Parts Distribution Pro Forma Pro Forma
Source Center Sub-Total Adjustments Combined
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 22,089,386 $ 13,798,462 $ 35,887,848 $ (7,843,068) (a) $ 28,044,780
Cost of goods sold 13,647,931 11,607,382 25,255,313 (7,843,068) (a) 17,412,245
------------- ------------- ------------- ------------- ------------
Gross profit 8,441,455 2,191,080 10,632,535 - 10,632,535
Operating, selling, general and
administrative expenses 8,065,651 2,671,207 10,736,858 (54,233) (b) 10,446,728
(21,538) (c)
162,000 (d)
243,200 (e)
(619,559) (f)
------------- ------------- ------------- ------------- -------------
Earnings (loss) from operations 375,804 (480,127) (104,323) 290,130 185,807
Other income (expense) (412,426) 273,742 (138,684) (270,912) (g) (617,537)
(207,941) (h)
- (i)
------------- ------------- ------------- ------------- -------------
Net earnings (loss) before income
taxes (36,622) (206,385) (243,007) (188,723) (431,730)
Provision (benefit) for income taxes (11,700) (77,855) (89,555) (72,945) (j) (162,500)
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ (24,922) $ (128,530) $ (153,452) $ (115,778) $ (269,230)
============= ============ ============= ============= =============
Net earnings (loss) per common
share, basic $ (.01) $ (.08)
============= =============
Net earnings (loss) per common
share, diluted $ (.01) $ (.08)
============= =============
Weighted average common shares
outstanding: - basic 3,412,273 3,412,273
============= =============
- diluted 3,412,273 3,412,273
============= =============
</TABLE>
7
<PAGE>
THE PARTS SOURCE, INC.
(d/b/a Ace Auto Parts)
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(unaudited)
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NOTE 1 - PRO FORMA ADJUSTMENTS
Pro forma Condensed Combined Statement of Operations adjustments related to the
acquisition are as follows:
(a) Represents elimination of sales between the Company and the Ocala
Distribution Center.
(b) Represents reversal of the Ocala Distribution Center's depreciation
expense related to fixed assets that were purchased by the Company and
have been reduced to zero due to the allocation of the excess of fair
value of the net assets over the purchase price.
(c) Represents reversal of the Ocala Distribution Center's amortization
expense related to its intangible assets not acquired by the Company.
(d) Represents a monthly fee of $27,000 to be paid by the Company for
access to APS, Inc.'s computerized inventory system and certain related
inventory maintenance support. The Company believes they will need
access to the system for six and a half months before the warehouse
operation is integrated on to the Company's computerized inventory
system.
(e) Represents costs that will be incurred by the Company related to
additional accounting and data processing personnel and related
expenses.
(f) Represents reversal of allocated overhead costs from the Ocala
Distribution Center's Regional and Corporate Headquarters. Such
allocated overhead costs consist primarily of costs related to
financial, marketing, management information, risk management, legal
and human resource services. Such costs were allocated based upon the
location sales as a percentage of total consolidated sales. Such
allocation was general in nature and was not indicative of the actual
costs that would have been incurred if the Ocala Distribution Center
operated as a separate entity. The Company does not anticipate adding
personnel to handle these functions, except for those mentioned in (e)
above.
(g) Represents elimination of interest charges (income) on customer
financed accounts. The Company does not intend to enter into financing
agreements with its customers.
(h) 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.
(i) Represents elimination of corporate inter-company carrying charges
(expense) on inventory and accounts receivable balances. There were no
such charges during the six months ended July 25, 1998.
(j) Represents the income tax effect of the pro forma adjustments as
set forth above at the statutory rate.
8
<PAGE>
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.
November 13, 1998 d/b/a Ace Auto Parts
- ---------------------------------- -------------------------------------
Date (Registrant)
/s/ Robert B. Morgan
--------------------------------------
Robert B. Morgan
Chief Financial and Accounting Officer
9
<PAGE>
OCALA DISTRIBUTION CENTER
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants.................................. F-2
Balance Sheets at January 25, 1997, January 31, 1998,
and July 25, 1997 and 1998 (unaudited)............................. F-3
Statements of Operations for the years ended January 25, 1997 and
January 31, 1998 and for the six months ended July 25, 1997 and
1998 (unaudited)................................................... F-4
Statements of Changes in Owner's Investment for the years ended
January 25, 1997 and January 31,1998 and for the six months ended
July 25, 1998 (unaudited).......................................... F-5
Statements of Cash Flows for the years ended January 25, 1997
and January 31, 1998 and for the six months ended July 25, 1997
and 1998 (unaudited)............................................... F-6
Notes to Financial Statements...................................... F-7
F-1
<PAGE>
OCALA DISTRIBUTION CENTER
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
APS Holding Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in owner's investment and cash flows present fairly, in all
material respects, the financial position of the Ocala Distribution Center (a
business unit of APS Holding Corporation) as of January 25, 1997 and January 31,
1998, and the results of its operations and its cash flows for the fiscal years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of APS Holding Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As further discussed in Note 1, the financial statements have been prepared
presenting the Ocala Distribution Center as a separate unit of APS Holding
Corporation.
/s/ PricewaterhouseCoopers L.L.P.
Dallas, Texas
October 30, 1998
F-2
<PAGE>
<TABLE>
OCALA DISTRIBUTION CENTER
BALANCE SHEETS
<CAPTION>
ASSETS JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash ..................................................... $ 1,000 $ 912 $ 1,000 $ 2,412
Accounts receivable, less allowance for doubtful
accounts of $228,111, $414,292, $110,128 and $463,051..... 6,594,095 4,628,912 6,795,233 5,974,538
Notes receivable, current portion ........................ 313,913 213,805 222,185 201,573
Inventories .............................................. 5,572,054 6,233,719 5,361,474 6,743,553
Prepaid expenses and other current assets ................ 310,650 547,736 422,697 641,001
------------ ------------ ------------ ------------
Total current assets .................................. 12,791,712 11,625,084 12,802,589 13,563,077
Property and equipment, net ................................ 395,593 827,271 790,656 773,038
Notes receivable ........................................... 8,332,287 6,826,385 6,961,484 6,550,468
Intangible assets, less accumulated amortization of
$286,391, $329,468, $307,930 and $351,006 .................. 915,575 872,498 894,035 850,960
Deferred tax asset ......................................... 43,843 115,280 18,078 123,782
Other assets ............................................... 863,073 749,612 823,840 449,592
------------ ------------ ------------ ------------
$23,342,083 $21,016,130 $22,290,682 $22,310,917
============ ============ ============ ============
LIABILITIES AND OWNER'S INVESTMENT
Current liabilities:
Accounts payable ......................................... $ 5,494,046 $ 5,468,097 $ 5,271,857 $ 160,593
Accrued liabilities ...................................... 445,993 549,153 464,619 561,553
------------ ------------ ------------ ------------
Total current liabilities ............................. 5,940,039 6,017,250 5,736,476 722,146
Liabilities subject to settlement .......................... - - - 5,230,888
Commitments and contingencies (Note 2) ..................... - - - -
Owner's investment ......................................... 17,402,044 14,998,880 16,554,206 16,357,883
------------ ------------ ------------ ------------
$23,342,083 $21,016,130 $22,290,682 $22,310,917
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
OCALA DISTRIBUTION CENTER
STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
----------------------------------------------------------------------
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ............................................ $32,432,901 $35,508,501 $18,817,082 $13,798,462
Cost of goods sold ................................... 26,187,420 29,216,483 15,327,392 11,607,382
------------ ------------ ------------ ------------
Gross profit ....................................... 6,245,481 6,292,018 3,489,690 2,191,080
Selling, general and administrative expenses ......... 5,335,932 6,367,401 2,882,483 2,671,207
------------ ------------ ------------ ------------
Operating income (loss) ............................ 909,549 (75,383) 607,207 (480,127)
Other income ......................................... 771,426 500,523 255,567 273,742
------------ ------------ ------------ ------------
Income (loss) before income taxes .................. 1,680,975 425,140 862,774 (206,385)
Provision (benefit) for income taxes ................. 578,747 160,197 279,155 (77,855)
------------ ------------ ------------ ------------
Net income (loss) .................................. $ 1,102,228 $ 264,943 $ 583,619 $ (128,530)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
OCALA DISTRIBUTION CENTER
<CAPTION>
STATEMENTS OF CHANGES IN OWNER'S INVESTMENT
<S> <C>
Balance at January 27, 1996 ......................................... $ 26,587,169
Net income for the year ended January 25, 1997 ...................... 1,102,228
Net transfers to parent company ..................................... (10,287,353)
-------------
Balance at January 25, 1997 ......................................... 17,402,044
Net income for the year ended January 31, 1998 ...................... 264,943
Net transfers to parent company ..................................... (2,668,107)
-------------
Balance at January 31, 1998 ......................................... 14,998,880
Net loss for the six months ended July 25, 1998 (unaudited) ......... (128,530)
Net transfers from parent company (unaudited) ....................... 1,487,533
-------------
Balance at July 25, 1998 (unaudited) ................................ $ 16,357,883
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
OCALA DISTRIBUTION CENTER
STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
-----------------------------------------------------------------------
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
----------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................ $ 1,102,228 $ 264,943 $ 583,619 $ (128,530)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization .............................. 114,581 156,676 79,467 75,771
Bad debt expense ........................................... 63,545 236,605 (145,514) 110,373
Change in operating assets and liabilities:
Accounts receivable ...................................... 4,352,642 1,728,578 (55,624) (1,455,999)
Inventories .............................................. (467,195) (661,665) 210,580 (509,834)
Prepaid expenses and other current ....................... 115,362 (237,086) (112,047) (93,265)
assets
Deferred tax asset ....................................... 6,170 (71,437) 25,765 (8,502)
Accounts payable ......................................... 2,081,888 (25,949) (222,189) (5,307,504)
Accrued liabilities ...................................... (4,791) 103,160 18,626 12,400
Liabilities subject to compromise ........................ - - - 5,230,888
Other assets and liabilities ............................. (414,111) 113,461 39,233 300,020
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities ....... 6,950,319 1,607,286 421,916 (1,774,182)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment ........................... (144,690) (451,821) (359,534) -
Investment in notes receivable ............................... (2,355,365) (261,289) (172,050) -
Repayment of notes receivable ................................ 5,837,089 1,867,299 1,634,581 288,149
------------- ------------- ------------- -------------
Net cash provided by investing activities ................. 3,337,034 1,154,189 1,102,997 288,149
------------- ------------- ------------- -------------
Cash flows from financing activities:
Net transfers (to) from parent company ....................... (10,287,353) (2,761,563) (1,524,913) 1,487,533
------------- ------------- ------------- -------------
Net cash provided by (used in) financing activities ....... (10,287,353) (2,761,563) (1,524,913) 1,487,533
------------- ------------- ------------- -------------
Net increase (decrease) in cash ................................ - (88) - 1,500
Cash at beginning of period .................................... 1,000 1,000 1,000 912
------------- ------------- ------------- -------------
Cash at end of period .......................................... $ 1,000 $ 912 $ 1,000 $ 2,412
============= ============= ============= =============
Supplemental Noncash Investing Activities
Capital asset additions financed through
owner's investment (net of accumulated
depreciation of $54,514) ................................... $ - $ 93,456 $ 93,456 $ -
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
OCALA DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
On February 2, 1998, APS Holding Corporation ("APS Holding") and its direct
and indirect subsidiaries (collectively referred to as "the Company") filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code
("Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware ("Bankruptcy Court"). Since February 2, 1998, the Company has been
operating as a debtor in possession ("DIP").
ORGANIZATION - The Ocala Distribution Center ("Ocala") is a separate
business unit of the Company and is composed of one Distribution Center which
sells automotive replacement parts and accessories to associate jobber stores
located in the Florida area. Ocala is not a legal entity. Ocala's accounts
receivable, inventory and fixed assets serve as collateral for the obligations
of the Company.
ALLOCATIONS - Included in the accompanying financial statements are
allocations of Company corporate overhead to Ocala. Such allocated overhead
costs consist primarily of costs related to financial, marketing, management
information, risk management, legal, and human resource services. Such costs
were allocated based upon Ocala's sales as a percentage of total sales for the
respective periods. Although management believes such method of allocation is
reasonable, they are not able to determine whether the allocations of corporate
overhead costs are indicative of actual expenses that would have been incurred
by Ocala had they operated as an unaffiliated entity. The amounts of such
overhead costs charged were $1,328,820, $1,660,004, $848,666 and $619,559 for
the years ended January 25, 1997 and January 31, 1998 and for the six months
ended July 25, 1997 and 1998, respectively.
Net transfers (to) from the Company are reflected as a component of owner's
investment. No interest is charged on such transfers.
FISCAL YEAR - Ocala's fiscal year ends on the last Saturday in January.
INTERIM FINANCIAL STATEMENTS - The balance sheets at July 25, 1997 and 1998
and the related statements of operations, changes in owner's investment, and
cash flows for the six months ended July 25, 1997 and 1998 are unaudited. In the
opinion of management, such financial statements include all normal recurring
adjustments considered necessary for the fair presentation of such financial
statements. Interim results are not necessarily indicative of results for a full
year.
CUSTOMER NOTES RECEIVABLE - The adequacy of the allowance for losses on
customer notes receivable is periodically evaluated in order to maintain the
allowance at a level that is sufficient to absorb probable credit losses.
Management's evaluation of the adequacy of the allowance includes a review of
each note's credit history, the estimated value of collateral and other
circumstances that may affect the customer's ability to repay principal and
interest. A customer's note receivable is considered impaired when it is
probable that Ocala will be unable to collect all amounts due according to the
scheduled payments and other contractual terms of the note. Impairment losses
are included in the provision for bad debts.
Interest payments on impaired customer notes receivable are typically
applied to principal unless collectibility of the principal amount is fully
assured, in which case interest income is recognized on the cash basis.
Customer notes receivable are generally classified as nonaccrual if they
are past due for 90 days or more, unless such notes are well-collateralized
and/or in the process of collection. Loans may be returned to accrual status
when all principal and interest amounts contractually due are reasonably assured
of repayment within an acceptable period of time, and there is a sustained
portion of repayment performance for a minimum of three months.
F-7
<PAGE>
OCALA DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
INVENTORIES - Inventories consist primarily of replacement automobile parts
and accessories and are stated at the lower of cost (FIFO) or market. Ocala's
cost of inventory is not necessarily indicative of the cost that would have been
incurred by Ocala had it operated as an independent entity.
VENDOR INCENTIVES - Ocala receives from certain of its suppliers discounts
and allowances designated for advertising, promotional and discounting
activities as well as one-time changeover incentives for changing suppliers on
certain product categories. Such discounts and allowances are recorded to cost
of goods sold when earned. Product changeover incentives are recorded to
selling, general, and administrative expenses to offset direct and indirect
costs incurred to carry out the product changeover.
PROPERTY AND EQUIPMENT - Property and equipment of Ocala are stated at
cost. Expenditures for major renewals and betterments, which extend the original
estimated economic useful lives of the applicable assets, are capitalized.
Expenditures for normal repairs and maintenance are charged to expense as
incurred. The cost and accumulated depreciation of assets sold or otherwise
disposed of are removed from the accounts and any gain or loss thereon is
reflected in the current statements of operations.
Depreciation and amortization are computed on a straight-line basis over
the estimated useful lives of the assets as set forth below. Depreciation
expense for property and equipment totaled $71,504, $113,599, $57,927 and
$54,233 for the years ended January 25, 1997 and January 31, 1998 and for the
six months ended July 25, 1997 and 1998, respectively.
<TABLE>
<CAPTION>
CLASSIFICATION JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998 ESTIMATED LIVES
-------------- ----------------- ----------------- ------------- -------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Warehouse and shop equipment ............. $ 152,701 $ 752,492 $ 660,205 $ 752,492 3-15 years
Furniture, fixtures and other equipment .. 329,619 329,619 329,619 329,619 10 years
Leasehold improvements ................... 249,280 249,280 249,280 249,280 the lesser of
------------ ------------ ------------ ------------ useful life or
731,600 1,331,391 1,239,104 1,331,391 lease term
Accumulated depreciation and
amortization ............................. (336,007) (504,120) (448,448) (558,353)
------------ ------------ ------------ ------------
$ 395,593 $ 827,271 $ 790,656 $ 773,038
============ ============ ============ ============
</TABLE>
INTANGIBLE ASSETS - Intangible assets consist of the associate jobber
network and the excess of the purchase price over the fair value of net assets
acquired. Intangible assets are amortized on a straight-line basis over the
estimated life ranging from 5 to 30 years. Amortization expense for intangible
assets totaled $43,077, $43,077, $21,540 and $21,538 for the years ended January
25, 1997 and January 31, 1998 and for the six months ended July 25, 1997 and
1998, respectively.
In the fourth quarter of Fiscal Year 1996, Ocala adopted Statement of
Financial Accounting Standards No. 121, entitled "ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (SFAS No.
121"), which requires evaluation of impairment based on undiscounted future cash
flows. If such cash flows are not expected to recover the unamortized cost , the
intangible assets are written down to fair value.
F-8
<PAGE>
OCALA DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
INCOME TAXES - Ocala utilizes the liability method of accounting for income
taxes. Deferred income taxes are recognized for the tax consequences in future
years of differences in the tax basis of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. A valuation allowance is established when necessary to reduce
deferred income tax assets to an amount that is more likely than not expected to
be realized.
Ocala is included in the consolidated federal and state income tax returns
of the Company. Current and deferred taxes are calculated by Ocala as if it were
a separate taxpayer. The current taxes payable or receivable are reflected as a
component of owner's investment.
REVENUE RECOGNITION - Ocala records sales when its products are shipped. A
reserve is maintained for anticipated returns and allowances, based primarily on
historical experience and current estimates.
MANAGEMENT'S ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS - Ocala will adopt SFAS No. 131, "DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION," no later than the
fourth quarter of Fiscal Year 1999. SFAS No. 131 establishes standards for the
manner in which public business enterprises report selected information about
operating segments.
Ocala will adopt the disclosure requirements of SFAS No. 132, "EMPLOYER'S
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS", in the fourth
quarter of Fiscal Year 1999. SFAS No. 132 revises disclosure requirements for
pension and postretirement benefit plans so as to standardize certain
disclosures and eliminate certain other disclosures no longer deemed useful.
SFAS No. 132 does not change the measurement or recognition criteria for such
plans.
Ocala will adopt SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES," no later than the first quarter of Fiscal Year 2001. SFAS
No. 133 establishes accounting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. Under SFAS No. 133, all derivatives will be recognized as either
assets or liabilities and measured at fair value. The Company is currently
studying this newly-issued accounting rule, and the impact of adopting SFAS No.
133, if any, has not yet been determined.
2. COMMITMENTS AND CONTINGENCIES:
LITIGATION
Legal actions incident to the ordinary course of business are pending
against the Company. In the opinion of management, the eventual disposition of
these matters will have no material adverse effect on the financial position,
results of operation, or cash flows of Ocala.
F-9
<PAGE>
OCALA DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
LEASES
The Ocala Distribution Center and certain equipment are leased under
non-cancelable operating lease agreements which expire at various dates through
2005. The leases generally provide for the payment of taxes, insurance and
maintenance expenses related to the leased assets. The warehouse lease provides
for renewal options of 5 to 10 years. Rental expense for the years ended January
25, 1997 and January 31, 1998 and for the six months ended July 25, 1997 and
1998 was $295,017, $295,017, $147,508 and $147,508, respectively. Future minimum
operating lease payments as of January 31, 1998 are as follows:
FISCAL YEAR
1999........................ $ 300,000
2000........................ 300,000
2001........................ 300,000
2002........................ 300,000
2003........................ 300,000
Thereafter.................. 875,000
-----------
Total minimum obligations... $2,375,000
===========
CONCENTRATION OF CREDIT RISK
For the year ended January 25, 1997, two customers accounted for more than
13% and 44%, respectively, of Ocala's total sales. For the year ended January
31, 1998, two customers accounted for more than 11% and 52%, respectively, of
Ocala's total sales. For the six months ended July 25, 1997, two customers
accounted for more than 11% and 53%, respectively, of Ocala's total sales. For
the six months ended July 25, 1998, one customer accounted for more than 56% of
Ocala's total sales.
For the year ended January 25, 1997, two customers accounted for more than
40% and 18%, respectively, of Ocala's total accounts receivable. For the year
ended January 31, 1998, two customers accounted for more than 48% and 10%,
respectively, of Ocala's total accounts receivable. For the six months ended
July 25, 1997, three customers accounted for more than 42%, 11% and 28%,
respectively, of Ocala's total accounts receivable. For the six months ended
July 25, 1998, two customers accounted for more than 47% and 20%, respectively,
of Ocala's total accounts receivable.
3. EMPLOYEE BENEFIT PLANS:
Certain employees of Ocala are eligible to participate in the APS, Inc.
Partnership Plan ("the Partnership Plan"), a defined contribution savings plan.
An employee becomes eligible to participate in and contribute to the plan after
one year of service and the attainment of age twenty-one. Employees may
contribute 2% to 15% of their annual compensation, which is matched 50% by the
Company up to 6% of the employees' contribution. Employees become fully vested
in the Company's contribution to the plan after five years of service.
Contribution expense related to the Partnership Plan totaled $9,942, $8,502,
$4,380 and $3,669 during the years ended January 25, 1997 and January 31, 1998
and during the six months ending July 25, 1997 and 1998, respectively.
Certain employees of Ocala participate in the A.P.S., Inc. Employees'
Retirement Plan (the "APS Plan"). This defined benefit pension plan covers
substantially all full-time employees who have completed one year of service and
reached the age of twenty-one. Generally, benefits are based on years of service
and the employees' average final compensation integrated with Social Security
benefits as defined in the APS Plan's agreements. The Company's funding policy
is to contribute to the APS Plan such amount that is actuarially required to
fund the benefits of the APS Plan. In September 1992, A.P.S., Inc.'s Board of
Directors authorized a freeze of pension benefits offered under the APS Plan and
participants in the APS Plan became fully vested. Ocala's share of expense
related to the APS Plan is included in the overhead allocation from the Company.
In connection with the disposal of Ocala (see note 6), the purchaser assumes no
assets or liabilities related to the APS Plan.
F-10
<PAGE>
OCALA DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
4. INCOME TAXES:
The provision for income taxes for the years ended January 25, 1997 and January
31, 1998 and for the six months ended July 25, 1997 and 1998, is composed of the
following:
<TABLE>
<CAPTION>
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current federal income tax provision (benefit) $ 572,577 $ 231,634 $ 253,390 $ (69,353)
Deferred federal income tax provision
(benefit) .................................... 6,170 (71,437) 25,765 (8,502)
------------- ------------- ------------- -------------
Total income tax provision (benefit) ......... $ 578,747 $ 160,197 $ 279,155 $ (77,855)
============= ============= ============= =============
</TABLE>
A reconciliation of the income tax expense (benefit) and the amount computed by
applying the statutory federal income tax rate to income (loss) before income
taxes for the years ended January 25, 1997 and January 31, 1998 and for the six
months ended July 25, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statutory tax rate.................................... 34.00% 34.00% 34.00% (34.00)%
Other................................................... 0.43% 3.68% (1.64)% (3.72)%
------------- ------------- ------------- -------------
34.43% 37.68% 32.36% (37.72)%
============= ============ ============= =============
</TABLE>
The tax effects of the temporary differences giving rise to Ocala's net deferred
tax assets at January 25, 1997, January 31, 1998 and July 25, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
JANUARY 25, 1997 JANUARY 31, 1998 JULY 25, 1997 JULY 25, 1998
---------------- ---------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Inventory reserves and capitalization.......... $ 2,047 $ 13,206 $ 4,323 $ 16,463
Allowance for doubtful accounts............... 64,600 136,130 23,263 146,419
Intangible assets.................................... 22,798 26,964 24,885 29,043
------------- ------------- ------------- -------------
89,445 176,300 52,471 191,925
------------- ------------- ------------- -------------
Deferred tax liabilities:
Property and equipment........................... 45,602 61,020 34,393 68,143
------------- ------------- ------------- -------------
Net deferred tax asset................................. $ 43,843 $ 115,280 $ 18,078 $ 123,782
============= ============= ============= =============
</TABLE>
F-11
<PAGE>
OCALA DISTRIBUTION CENTER
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS:
Included in Net sales and Cost of goods sold for the years ended January
25, 1997 and January 31, 1998 and for the six months ended July 25, 1997 are
intercompany sales and returns between Ocala and stores owned by the Company.
Intercompany sales and returns for the years ended January 25, 1997 and January
31, 1998 and for the six months ended July 25, 1997 are $439,149, $20,585 and
$16,992, respectively. Intercompany Cost of goods sold for the years ended
January 25, 1997 and January 31, 1998 and for the six months ended July 25, 1997
are $396,802, $12,589 and $9,298 respectively.
Not included in Net sales and Cost of goods sold for the years ended
January 25, 1997 and January 31, 1998 and for the six months ended July 25, 1997
and 1998 are transfers to (from) other company units in the amount of
$1,108,057, $219,253, $5,265 and $(80,813), respectively. These transfers did
not result in gross profit for Ocala.
6. SUBSEQUENT EVENTS:
On September 17, 1998, the Company sold Ocala to The Parts Source, Inc.
("Parts Source"). These audited financial statements were prepared for the sole
purpose of enabling Parts Source to comply with their financial reporting
requirements. The assets sold to Parts Source include certain inventory and
fixed assets. In addition, specific accounts receivable and notes receivable
were sold to an affiliated entity of Parts Source. Accounts and notes receivable
relating to a specific customer at January 25, 1997, January 31, 1998 and July
25, 1997 and 1998, in the amounts of $6,587,331, $6,475,658, $6,181,720 and
$6,648,799, respectively, were not included in the sale to Parts Source. The
interest income relating to those accounts and notes receivable for the years
ended January 25, 1997 and January 31, 1998 and for the six months ended July
25, 1997 and 1998 amounted to $497,396, $495,474, $243,225 and $250,120,
respectively. Proceeds received from the sale were less than the book value of
the assets sold and a loss was recorded by the Company of $2,960,036.
Additionally, as a result of the Ocala sale and the Company's continued
operations as a debtor in possession, certain Ocala assets retained by the
Company may not be fully recoverable.
F-12
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statement on Form S-8 (No. 333-30319) of The Parts Source, Inc. of our
report dated October 30, 1998, on our audits of the financial
statements of the Ocala Distribution Center as of January 25, 1997 and
January 31, 1998 and for the fiscal years then ended, which report is
included in this Current Report on Form 8-K.
PricewaterhouseCoopers LLP
Dallas, Texas
November 11, 1998
