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EXHIBIT 2.1
Value Independent Parts
(An Operating Division of Rainbo Oil Company)
Financial Statements
November 30, 1999 and 1998
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TABLE OF CONTENTS PAGE(S)
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Independent Auditor's Report 1
Financial Statements
Statements of Net Assets Acquired 2
Statements Revenue and Direct Operating Expenses 3
Notes to Financial Statements 4 - 7
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Independent Auditor's Report
To the Board of Directors
Value Independent Parts (A Division
of Rainbo Oil Company)
Dubuque, Iowa
We have audited the accompanying statements of net assets acquired of Value
Independent Parts (A Division of Rainbo Oil Company) as of November 30, 1999 and
1998, and the related statements of revenues and direct operating expenses for
the years then ended. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the statements of net assets acquired and the
statements of revenue and direct operating expenses are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As outlined in Note 1 to the statements, subsequent to year-end, Value
Independent Parts (a division of Rainbo Oil Company) was acquired by Rainbo
Company LLC.
In our opinion, the statements referred to above present fairly, in all material
respects, the statements of net assets acquired of Value Independent Parts (A
Division of Rainbo Oil Company) as of November 30, 1999 and 1998, and the
statements of revenues and direct operating expenses for the years then ended,
in conformity with generally accepted accounting principles.
Dubuque, Iowa
November 21, 2000
1
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Value Independent Parts (A Division of
Rainbo Oil Company)
Statements of Net Assets Acquired
November 30, 1999 and 1998
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<CAPTION>
ASSETS 1999 1998
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<S> <C> <C>
Current Assets
Cash $ 1,435 $ 800
Trade Receivables, Net of Allowance for Doubtful
Accounts - 1999: $25,000 and 1998: $20,000 1,128,065 942,002
Inventory 4,256,264 3,481,314
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Total Current Assets 5,385,764 4,424,116
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Property, Plant and Equipment
Vehicles 414,206 388,246
Warehouse Equipment 123,799 114,609
Office Equipment 161,700 112,198
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Total Property and Equipment 699,705 615,053
Less: Accumulated Depreciation 384,261 286,760
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Property and Equipment, Net 315,444 328,293
---------- ----------
Net Assets Acquired $5,701,208 $4,752,409
========== ==========
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See Accompanying Notes and Auditor's Report
2
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Value Independent Parts (A Division of
Rainbo Oil Company)
Revenue and Net Operating Expenses
Years Ended November 30, 1999 and 1998
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<CAPTION>
1999 1998
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<S> <C> <C>
Merchandise Sales $ 8,795,498 $ 7,179,628
Cost of Sales 6,529,688 5,276,134
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Gross Profit 2,265,810 1,903,494
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Direct Operating Expenses
Salaries and Wages 1,606,995 1,257,276
Other Operating Expenses 994,784 674,265
Bad Debts 9,380 10,855
Depreciation and Amortization 100,231 79,391
----------- -----------
Total Direct Operating Expenses 2,711,390 2,021,787
----------- -----------
Operating (Loss) $ (445,580) $ (118,293)
=========== ===========
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See Accompanying Notes and Auditor's Report
3
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Value Independent Parts (A Division
of Rainbo Oil Company)
Notes to Financial Statements
NOTE 1. Nature of Business and Significant Accounting Policies
Value Independent Parts (VIP Division) is a division of Rainbo Oil Company
principally involved in the retail sale of automotive parts. Rainbo Oil Company
is principally involved in the retail sale of gasoline, convenience store items,
oil and lube products and the wholesale sale of automobile parts. This
distribution is made from warehouse facilities and convenience stores, the
majority of which are located in Northeast Iowa, Northwest Illinois and
Southwest Wisconsin. The Company's main office is located in Dubuque, Iowa.
BASIS OF PRESENTATION
On September 29, 2000, the Value Independent Parts division (VIP Division)
of Rainbo Oil Company was acquired by Rainbo Company LLC, an LLC of which
Universal Mfg. Co. (Universal) and Rainbo Oil Company's majority
stockholder are each 50% members. The accompanying Statements of Net
Assets Acquired include only those assets which were acquired by Rainbo
Company LLC and the accompanying Statements of Revenues and Direct
Operating Expenses include only the revenues and direct operating expenses
of VIP Division. Complete financial statements of VIP Division have not
historically been prepared and preparation of such statements is not
practicable given the occurrence of certain transactions at the Rainbo Oil
Company level which cannot be reasonably allocated to VIP Division in
order to present complete financial statements. Accordingly, the
accompanying Statement of Net Assets acquired excludes certain liabilities
(primarily accounts payable and accrued expenses) which were not assumed
in the acquisition as well as certain Rainbo Oil Company balances
(primarily cash and long-term debt) which were not allocated to VIP
Division. Similarly, the accompanying Statement of Revenues and Direct
Expenses excludes certain Rainbo Oil Company expenses which were not
allocated to VIP Division (primarily interest expense, income taxes and
certain other corporate overhead expenses).
The significant accounting policies of the VIP Division are as follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenue and expense during the reporting period. Actual results could
differ from those estimates.
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Value Independent Parts (A Division
of Rainbo Oil Company)
Notes to Financial Statements
NOTE 1. Nature of Business and Significant Accounting Policies (continued)
CASH EQUIVALENTS
For purposes of the statement of cash flows, the VIP Division considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The accounts receivable arise in the normal course of business. An
allowance for bad debts of $25,000 and $20,000 has been established for
the years ending November 30, 1999 and 1998, respectively.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Expenditures for maintenance
and repairs are charged directly to income, and expenditures for major
replacements and betterments are capitalized. The accumulated depreciation
on property and equipment retired or sold are eliminated from the property
accounts at the time of retirement or sale and the resulting gain or loss
is reflected in income.
Depreciation is being computed using the declining balance and
straight-line methods over the estimated useful lives of the assets as
follows:
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Building 15 - 40 years
Station and Equipment 5 - 15 years
Autos and Trucks 3 - 10 years
Plant and Equipment 5 - 10 years
Office Machines and Equipment 5 - 12 years
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ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $1,115
and $748 and $48,049 for the years ended November 30, 1999 and 1998,
respectively.
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Value Independent Parts (A Division
of Rainbo Oil Company)
Notes to Financial Statements
NOTE 2. Inventories
Inventories at November 30, 1999 and 1998, consisted primarily of auto parts.
NOTE 3. Operating Leases, Rent Expense and Related Party Transactions
Value Independent Parts has the following operating leases in effect at November
30, 1999. The lease amounts presented below represent annual lease amounts.
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* VIP Dubuque $ 12,000
VIP, Rockford 13,200
VIP, Rockford North 19,200
VIP, Cedar Rapids (lease terminated in 1999) 34,300
Freeport, IL 25,920
Peoria, IL 31,292
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$ 135,912
================
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* Lease transaction with Transport Sales Company, an entity related to the
Company through common ownership.
The aforementioned leases are month-to-month oral lease agreements. VIP Division
also has various equipment leases. The lease terms are generally brief and the
leases are cancelable. Total rent expense paid by the VIP Division under all
lease agreements was $198,636 and $117,606 for the years ended November 30, 1999
and 1998, respectively.
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Value Independent Parts (A Division
of Rainbo Oil Company)
Notes to Financial Statements
NOTE 4. Retirement Plan
During 1998, the Rainbo Oil Company implemented 401(k) provisions into the
existing profit-sharing plan under which employees of the VIP Division are
covered. The plan covers employees who reach age, hours, and years of service
requirements. Under terms of the plan, the Rainbo Oil Company makes matching
contributions equal to 25% of the employee's contribution, not to exceed 4% of
eligible compensation. The Rainbo Oil Company can also make discretionary
contributions. The VIP Division's portion of the matching contributions to the
profit-sharing plan totaled $1,455 and $1,525 for the years ended November 30,
1999 and 1998, respectively.
NOTE 5. Operating, Investing and Financing Cash Flows
As indicated in Note 1 to the financial statements, Rainbo Oil Company has not
historically prepared complete financial statements by division. The following
represents VIP Division's cash flows resulting from Net Assets Acquired for the
years ended November 30:
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1999 1998
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Cash Flows from Operating Expenses:
Depreciation and Amortization $ 100,231 $ 79,391
Loss on Sale of Property & Equipment ----- 9,119
(Increase) in Receivables (186,063) (429,876)
(Increase) in Inventory (774,950) (903,601)
Cash Flows from Investing Activities:
Purchase of Property & Equipment $ (87,382) $ (188,548)
Proceeds from Sale of Assets ----- 2,300
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VALUE INDEPENDENT PARTS (A DIVISION OF RAINBO OIL COMPANY)
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
EIGHT-MONTH PERIODS ENDED JULY 31, 2000 AND 1999
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2000 1999
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Merchandise Sales $ 5,490,504 $ 5,893,871
Cost of Sales 3,839,799 4,133,320
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Gross Profit 1,650,705 1,760,551
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Operating Expenses
Salaries and Wages 1,034,533 1,226,802
Other Operating Expenses 481,089 559,202
Bad Debts 1,820 (150)
Depreciation and Amortization 66,160 67,063
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Total Operating Expenses 1,583,602 1,852,917
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Operating Income (Loss) $ 67,103 $ (92,366)
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VALUE INDEPENDENT PARTS (A DIVISION OF RAINBO OIL COMPANY)
STATEMENT OF NET ASSETS ACQUIRED (UNAUDITED)
JULY 31, 2000
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Current Assets
Cash $ 2,336
Accounts Receivable 772,237
Inventory 3,830,849
-----------
Total current assets 4,605,422
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Property, Plant and Equipment:
Vehicles 414,206
Warehouse Equipment 122,181
Office Equipment 164,714
-----------
701,101
Accumulated Depreciation (445,489)
-----------
255,612
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Net Assets Acquired $ 4,861,034
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UNIVERSAL MFG. CO.
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
On August 31, 2000, Universal Mfg. Co. (Company) signed an agreement with Rainbo
Oil Company and its president and majority shareholder (Shareholder) to form
Rainbo Company LLC d/b/a Value Independent Parts (Rainbo LLC). Rainbo LLC, of
which the Company and Shareholder are each 50% members, was formed for purposes
of acquiring and operating the automobile parts distribution division (VIP
Division) of Rainbo Oil Company. On September 29, 2000, the Company, through
Rainbo LLC, executed an asset purchase agreement to acquire substantially all
assets of VIP.
The accompanying unaudited pro forma condensed financial statements as of and
for the year ended July 31, 2000 were prepared using the purchase method of
accounting, assuming the acquisition occurred on the date of the balance sheet
or as of August 1, 1999, the beginning of the most recent fiscal year, for
purposes of the statements of income. The pro forma adjustments are based upon
currently available information and certain related assumptions.
The unaudited pro forma condensed financial statements are provided for
informational purposes only and are not necessarily indicative of the results of
future operations or the future financial condition of Universal or the actual
results of operations that would have been achieved had the acquisition of VIP
Division been consummated as of the beginning of the period presented.
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UNIVERSAL MFG. CO.
CONDENSED PRO FORMA BALANCE SHEET (UNAUDITED)
JULY 31, 2000
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Pro Forma
Universal VIP Division Total Adjustments Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 336,756 $ 2,336 $ 339,092 $ 339,092
Accounts receivable 3,442,410 772,237 4,214,647 4,214,647
Inventories 4,310,809 3,830,849 8,141,658 8,141,658
Deferred income taxes and other 321,533 -- 321,533 321,533
------------ ------------ ------------ ------------ ------------
Total current assets 8,411,508 4,605,422 13,016,930 -- 13,016,930
Property, net 1,539,092 255,612 1,794,704 $ 500,780(a) 2,295,484
------------ ------------ ------------ ------------ ------------
Total assets $ 9,950,600 $ 4,861,034 $ 14,811,634 $ 500,780 $ 15,312,414
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 4,661,174 $ -- $ 4,661,174 $ 4,661,174
Accrued expenses 220,860 -- 220,860 220,860
Dividends payable 122,400 -- 122,400 122,400
------------ ------------ ------------ ------------ ------------
Total current liabilities 5,004,434 -- 5,004,434 -- 5,004,434
Long-term debt -- -- -- 5,261,814(a) 5,261,814
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Total liabilities 5,004,434 -- 5,004,434 5,261,814 10,266,248
------------ ------------ ------------ ------------ ------------
Minority interest 7,591 -- 7,591 100,000(a) 107,591
------------ ------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY
Common stock 816,000 -- 816,000 -- 816,000
Additional paid-in capital 17,862 -- 17,862 -- 17,862
Retained earnings 4,104,713 4,861,034 8,965,747 (4,861,034)(a) 4,104,713
------------ ------------ ------------ ------------ ------------
Total stockholders' equity 4,938,575 4,861,034 9,799,609 (4,861,034) 4,938,575
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 9,950,600 $ 4,861,034 $ 14,811,634 $ 500,780 $ 15,312,414
============ ============ ============ ============ ============
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UNIVERSAL MFG. CO.
CONDENSED PRO FORMA INCOME STATEMENT (UNAUDITED)
YEAR ENDED JULY 31, 2000
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(d) Pro Forma
Universal VIP Division Total Adjustments Total
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Net sales $ 21,631,919 $ 8,392,131 $ 30,024,050 $ 30,024,050
Cost of goods sold 17,879,543 6,236,167 24,115,710 24,115,710
------------ ------------ ------------ ------------ ------------
Gross profit 3,752,376 2,155,964 5,908,340 -- 5,908,340
Selling,general and administrative expenses 3,100,893 2,442,075 (c) 5,542,968 $ 100,156 (b) 5,643,124
------------ ------------ ------------ ------------ ------------
Income from operations 651,483 (286,111) 365,372 (100,156) 265,216
Interest expense -- -- -- 447,254 (b) 447,254
Interest and other income 34,856 -- 34,856 34,856
------------ ------------ ------------ ------------ ------------
Income before minority interest and income taxes 686,339 (286,111) 400,228 (547,410) (147,182)
Minority interest 5,606 -- 5,606 5,606
------------ ------------ ------------ ------------ ------------
Income before income taxes 680,733 (286,111) 394,622 (547,410) (152,788)
Income taxes 230,104 -- 230,104 (291,732)(b) (61,628)
------------ ------------ ------------ ------------ ------------
Net income $ 450,629 $ (286,111) $ 164,518 $ (255,678) $ (91,160)
============ ============ ============ ============ ============
Earnings per share $ 0.55 $ (0.11)
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UNIVERSAL MFG. CO.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
(a) To record the assumed purchase price allocation. The pro forma financial
statements assume a purchase price of $5,361,814 had the acquisition
occurred on July 31, 2000. The actual purchase price on the date of the
transaction, September 29, 2000, based on the values of the assets
acquired, was approximately $5,160,000. For pro forma financial statement
purposes, the July 31, 2000 assumed purchase price was allocated among
VIP's acquired assets in the following amounts:
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Cash and cash equivalents $ 2,336
Accounts receivable 772,237
Inventories 3,830,849
Property, net 756,392
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$5,361,814
==========
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The excess of the purchase price over the net assets acquired has been
preliminarily allocated to property and equipment with an estimated useful life
of 5 years. The ultimate purchase price allocation will be finalized upon
completion of all related asset valuations.
The acquisition was financed through long-term debt borrowings and settlement
of amounts due from Shareholder related to its initial Rainbo LLC
membership contributions. The Rainbo LLC formation agreement required that
both the Company and Shareholder each contribute $100,000 in initial
membership contributions to capitalize Rainbo LLC as well as each loan
$400,000 to Rainbo LLC. As of the acquisition date, Shareholder had not yet
made its required contribution or loan and, accordingly, the cash paid to
Shareholder, based on the assumed purchase price, was as follows:
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Total purchase price $5,361,814
Less amounts due from shareholder (500,000)
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Cash paid to Shareholder $4,861,814
==========
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The pro forma condensed balance sheet reflects long-term borrowings incurred to
finance the $4,861,814 paid to Shareholder, the $400,000 note payable to
Shareholder issued in conjunction with his initial membership contribution and
the $100,000 of minority interest representing Shareholder's initial $100,000
cash membership contribution.
(b) To record the following pro forma income statement items: (1) additional
depreciation expense on property and equipment acquired based on an assumed
average remaining life of 5 years, (2) additional interest expense on
long-term debt incurred based on an assumed average interest rate of 8.5%,
(3) income tax benefit from the VIP net loss calculated at the Company's
assumed effective tax rate of 35% and (4) income tax benefit resulting from
additional depreciation and interest expense calculated at the Company's
assumed tax rate of 35%.
(c) Rainbo Oil Company provided VIP Division with certain general management
and administrative services. These costs were allocated to VIP Division
using allocation methodologies which Rainbo Oil Company management believes
represent VIP Division's proportionate share of these costs. The Company's
management believes they would have incurred similar costs at substantially
the same amounts and accordingly, no pro forma adjustment has been made.
(d) VIP Division's fiscal year-end is November 30. For purposes of the pro
forma condensed financial statements, their income statement information
has been recast to reflect the 12-month period ended July 31, 2000.
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