SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For quarterly period ended August 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission File no: 0-28812
RANKIN AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0838383
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
3838 N. Sam Houston Pkwy E. #600
HOUSTON, TEXAS 77032
(Address of principal executive offices) (Zip code)
281-618-4000
Registrant's telephone number, including Area Code
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of October 15, 1999, 5,186,613 shares of common stock were outstanding.
<PAGE>
RANKIN AUTOMOTIVE GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - August 31, 1999 (unaudited) and
February 25, 1999
Condensed Statements of Income - Three months and six months
ended August 31, 1999 and August 25, 1998 (unaudited)
Condensed Statements of Cash Flows - Six months ended August
31,1999 and August 25, 1998 (unaudited)
Notes to Condensed Financial Statements - Six months ended August
31, 1999 and August 25, 1998 (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market and Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED BALANCE SHEETS
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<TABLE>
<CAPTION>
AUGUST 31, 1999 FEBRUARY 25, 1999
----------------- -------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash ..................................... $ 47,717 $ 346,913
Accounts receivable
Trade, net of allowance
for doubtful accounts
of $1,204,990 and $344,512 ........... 12,480,112 3,704,100
Related party .......................... 15,686 34,663
Inventories .............................. 48,638,239 16,481,982
Prepaid expenses and other ............... 570,898 539,960
------------ ------------
Total current assets ................. 61,752,652 21,107,618
Property and equipment, net ................ 4,180,391 2,155,927
Goodwill, net .............................. 8,346,938 582,484
Deferred financing costs, net .............. 321,750 --
------------ ------------
$ 74,601,731 $ 23,846,029
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade .................. $ 19,815,797 $ 3,747,589
Accrued expenses ......................... 3,902,219 817,045
Current portion of long-term debt ........ 2,053,137 182,525
Income taxes payable ..................... 197,096 --
------------ ------------
Total current liabilities ............ 25,968,249 4,747,159
Long-term debt, less current portion ....... 33,665,144 7,148,085
------------ ------------
Total liabilities .................... 59,633,393 11,895,244
Commitments and contingencies .............. -- --
Stockholders' equity:
Preferred stock, no par value,
2,000,000 shares authorized,
none issued ............................ -- --
Common stock, $.01 par value,
10,000,000 shares authorized,
5,201,613 and 4,550,000 shares
issued, respectively ................... 52,016 45,500
Additional paid-in capital ................. 14,513,154 13,083,830
Retained earnings (deficit) ................ 598,168 (983,545)
Less: Treasury stock (15,000 shares at cost) (195,000) (195,000)
------------ ------------
Total stockholders' equity ........... 14,968,338 11,950,785
------------ ------------
$ 74,601,731 $ 23,846,029
============ ============
</TABLE>
See Notes to Condensed Financial Statements
<PAGE>
RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------- -------------------------------------
AUGUST 31,1999 AUGUST 25, 1998 AUGUST 31, 1999 AUGUST 25, 1998
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales .......................................... $37,681,167 $10,708,845 $66,030,662 $20,491,592
Cost of goods sold ................................. 24,362,390 7,050,569 42,019,291 13,377,079
----------- ----------- ----------- -----------
Gross profit ....................................... 13,318,777 3,658,276 24,011,371 7,114,513
Operating, selling, general and
administrative expenses .......................... 11,624,772 3,565,594 20,952,310 6,825,977
----------- ----------- ----------- -----------
Income from operations ............................. 1,694,005 92,682 3,059,061 288,536
Interest expense ................................... 697,125 62,292 1,280,252 122,323
----------- ----------- ----------- -----------
Income before income taxes ......................... 996,880 30,390 1,778,809 166,213
Income taxes ....................................... 197,096 -- 197,096 --
----------- ----------- ----------- -----------
Net income ......................................... $ 799,784 $ 30,390 $ 1,581,713 $ 166,213
=========== =========== =========== ===========
Earnings per share ................................. $ 0.15 $ 0.01 $ 0.31 $ 0.04
=========== =========== =========== ===========
Earnings per share-assuming
dilution ......................................... $ 0.15 $ 0.01 $ 0.31 $ 0.04
=========== =========== =========== ===========
Weighted average common shares outstanding:
Average common shares outstanding .................. 5,186,613 4,535,000 5,142,301 4,535,000
Dilutive effect of stock option .................... -- -- 750 --
----------- ----------- ----------- -----------
Average common shares outstanding -
assuming dilution ................................ 5,186,613 4,535,000 5,143,051 4,535,000
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements
<PAGE>
RANKIN AUTOMOTIVE GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------
AUGUST 31, 1999 AUGUST 25, 1998
--------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings ............................................ $ 1,581,713 $ 166,213
Adjustments to reconcile
net income to net cash provided by
(used in) operating activities:
Depreciation ............................................ 438,251 248,714
Amortization ............................................ 183,156 --
Provisions for bad debts ................................ 161,164 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable .............. 605,943 (505,292)
(Increase) decrease in inventories ...................... (2,492,694) (613,673)
Increase (decrease) in accounts payable
and accrued expenses .................................. 3,698,474 364,715
(Increase) decrease in other, net ....................... 181,834 (75,170)
Increase (decrease) in income tax payable ............... 197,096 --
------------ ------------
Net cash provided by (used in) operating activities ..... 4,554,937 (414,493)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net ................ (664,925) (267,649)
Purchase of businesses, net of cash acquired ............ (16,456,364)
------------ ------------
Net cash (used in) investing activities ................. (17,121,289) (267,649)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit .............. 21,767,597 626,410
Proceeds from (repayments on) other long-term obligations (11,048,861) 108,557
Issuance of common stock, net of discount ............... 1,435,840 --
Issuance of debt ........................................ 470,080 --
Deferred financing costs incurred ....................... (357,500) --
------------ ------------
Net cash provided by financing activities ............... 12,267,156 734,967
------------ ------------
Net increase (decrease) in cash ......................... (299,196) 52,825
Cash, beginning of period ............................... 346,913 3,962,065
------------ ------------
Cash, end of period ..................................... $ 47,717 $ 4,014,890
============ ============
</TABLE>
See Notes to Condensed Financial Statements
<PAGE>
RANKIN AUTOMOTIVE GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
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1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Rankin Automotive Group, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
August 31, 1999 are not necessarily indicative of the results that may be
expected for the year ended February 29, 2000.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended February 25, 1999. Additionally, refer to the Company's Forms
8-K and 8-K/A filed on March 25, 1999 and May 24, 1999, respectively,
concerning information on the Company's new financing agreement and
acquisitions finalized during the three months ended May 31,1999.
Certain reclassifications have been made to prior period amounts to conform
to the current year presentation.
2. Long-term Debt
Long-term debt consists of the following:
AUGUST 31, FEBRUARY 25,
1999 1999
------------ ------------
Borrowings under revolving line of credit $ 28,522,668 $ 6,755,071
Bank term loans ......................... 5,557,738 --
Other notes payable ..................... 1,637,875 575,539
------------ ------------
35,718,281 7,330,610
Less current maturities ................. (2,053,137) (182,525)
------------ ------------
$ 33,665,144 $ 7,148,085
============ ============
At February 25, 1999, the Company's $ 7.5 million line of credit was with
Hibernia National Bank. On March 10, 1999, the Company entered into a new
financing agreement with Heller Financial, Inc. (Heller). The agreement
provides for term loans in the aggregate amount of $6.0 million and a
revolving line of credit with a maximum amount of $39.0 million. Drawings
under the line of credit are limited to a certain percentage of eligible
trade accounts receivable and inventory. The term loans require minimum
monthly principal payments totaling approximately $90,000 and the revolving
line of credit expires in March 2004. The interest rate on the revolving line
of credit is, at the Company's option, either LIBOR plus 2.25 percent or
prime. The interest rates on the term loans are .5 percent to .75 percent
higher than on the revolving line of credit. The financing agreement contains
certain financial covenants relating to, among other things, "tangible net
worth," "ratio of indebtedness to tangible net worth," "fixed charge
coverage," and "capital expenditures," all of which are as defined in the
financing agreement. Initial borrowings under this financing agreement were
used to repay the Company's existing revolving line of credit and to fund the
acquisitions referred to below.
<PAGE>
3. Acquisitions of assets
On March 10, 1999, the Company acquired from US Parts Corporation (USP) its
auto parts distribution center located in Houston, Texas as well as the
seventeen stores that it operated throughout Houston. The total purchase
price included 600,000 shares of the Company's common stock, $13.6 million of
cash (including $5.6 million to repay certain of USP'S obligations), issuance
of a note payable for $40,000, the assumption of certain liabilities
estimated at $4.5 million and certain other consideration.
On March 11, 1999, the Company acquired from Automotive & Industrial Supply
Co., Inc. (A&I) its auto parts distribution center located in Shreveport,
Louisiana as well as the three stores that it operates in Shreveport and the
store it operates in Marshall, Texas. The total purchase price included
51,613 shares of the Company's Common Stock, $3.4 million of cash, the
assumption of certain liabilities estimated at $1.2 million and certain other
consideration.
On April 27, 1999, the Company acquired from Allied Distributing Company of
Houston, Inc. and its subsidiary, Auto Parts Investment Group, Inc., its auto
parts distribution center and automotive paint division located in Houston,
Texas, its auto parts distribution center in San Antonio and nine stores that
operate throughout Central and South Texas. The total purchase price included
$9.7 million cash (including $8.4 million to repay certain of Allied's
obligations), the assumption of certain liabilities estimated at $7.5 million
and certain other consideration.
The cash portion of the purchase price for the three acquisitions referred to
above was paid using funds drawn under the revolving line of credit with
Heller.
The Company has recorded as goodwill the acquisition costs in excess of net
assets purchased. These amounts have been recorded on a preliminary basis
pending final determination of the fair value of net assets acquired.
The results of operations of each acquisition are included in the Company's
statements of income from the dates of acquisition. The following unaudited
pro forma results of operations for the six months ended August 31, 1999 give
effect to the acquisitions as though they had occurred as of February 25,
1999 (in thousands except per share data):
Net $ 72,365
Net earnings 1,573
Basic and diluted earnings per share 0.31
The unaudited pro forma information is not necessarily indicative either of
the results of operations that would have occurred had the purchases been
made as of February 25, 1999 or of future results of operations of the
combined businesses.
4. Change in reporting periods
The Company has elected to change its financial reporting period from the
25th of each month to the calendar month end. This change became effective
beginning with the three months ended May 31, 1999. Future quarters will be
reported based on results as of May 31, August 31, November 30 and February
28 or 29, as applicable.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since its founding in 1968 the Company has grown from a single store in
Alexandria, Louisiana to 67 stores, two machine shops and six distribution
centers that supply approximately 310 independent operators in Texas, Louisiana,
Mississippi, Alabama and Arkansas. This growth has been the result of the
Company's ongoing acquisition program and selective new store openings.
First and second quarter expansion during 1999 was primarily attributable to the
acquisition of assets of US Parts Corporation of Houston, Texas (USP),
Automotive and Industrial Supply Co., Inc. of Shreveport, Louisiana (A&I) and
Allied Distributing Company of Houston, Texas (Allied).
The USP acquisition on March 10, 1999 and the A&I acquisition on March 11, 1999
were closed concurrently with a $45.0 million financing. The syndicated
financing was led by Heller Financial, Inc. (Heller). Proceeds from the
financing were used to repay then outstanding indebtedness of the Company,
finance the above acquisitions, and provide working capital for the combined
business. On April 28, 1999, the Company acquired Allied's business by again
drawing upon the Heller facility.
The above acquisitions were accounted for as purchases and, accordingly, the
purchase prices were allocated to the assets and liabilities based upon a
preliminary estimate of their fair values as of the dates of acquisition. The
Company paid approximately $26.7 million in cash, assumed liabilities of
approximately $13.2 million and issued 651,613 shares of the Company's Common
Stock in connection with the three acquisitions. The Company also entered into
employment and stock option agreements with certain officers of the acquired
businesses. The results of operations of each acquisition are included in the
Company's statements of income from the dates of acquisition. The following
unaudited pro forma results of operations for the six months ended August 31,
1999 give effect to the acquisitions as though they had occurred as of February
25, 1999 (in thousands except per share data):
Net sales $ 72,365
Net earnings 1,573
Basic and diluted earnings per share 0.31
The unaudited pro forma information is not necessarily indicative either of the
results of operations that would have occurred had the purchases been made as of
February 25, 1999 or of future results of operations of the combined businesses.
The new financing agreement with Heller provides for term loans in the aggregate
amount of $ 6.0 million and a revolving line of credit with a maximum amount of
$39.0 million. Borrowings under the line of credit are limited to a certain
percentage of eligible trade accounts receivable and inventory. The term loans
require minimum monthly principal payments totaling approximately $90,000 and
the revolving line of credit expires March 2004. The interest rate on the
revolving line of credit is at the Company's option, either LIBOR plus 2.25% or
the prime interest rate. The interest rates on the term loans are .5% to .75%
higher than on the revolving line of credit. The financing agreement contains
certain financial covenants relating to, among other things, "tangible net
worth", "ratio of indebtedness to tangible net worth"; "fixed charge coverage"
and "capital expenditures", all of which are defined in the financing agreement.
Approximately $.4 million of costs were incurred in connection with closing the
above financing agreement.
<PAGE>
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The statements contained in this report, in addition to historical information,
are forward-looking statements based on the Company's current expectations, and
actual results may vary materially. Forward-looking statements often include
words like "believe," "plan," "expect," "Intend," or "estimate." The Company's
business and financial results are subject to various risks and uncertainties,
including the Company's continued ability to expand its operations and to
successfully integrate the recent acquisitions, the results of operations of the
recently acquired businesses, competition, and other risks generally affecting
the industry in which the Company operates. Many of these risks and
uncertainties are beyond the Company's ability to control or predict. These
forward-looking statements are provided as a framework for the Company's results
of operations. The Company does not intend to provide updated information other
than as otherwise required by applicable law.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected historical operating
results for the Company as a percentage of net sales. Operating results of the
acquisitions described above are included from the date of acquisition.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------ ------------------------------------
AUGUST 31,1999 AUGUST 25,1998 AUGUST 31,1999 AUGUST 25,1998
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net Sales .............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ..................... 64.7% 65.8% 63.6% 65.3%
----- ----- ----- -----
Gross Profit ........................... 35.3% 34.2% 36.4% 34.7%
Operating, SG&A expenses ............... 30.9% 33.3% 31.7% 33.3%
----- ----- ----- -----
Income from operations ................. 4.4% 0.9% 4.7% 1.4%
Interest expense ....................... 1.9% 0.6% 1.9% 0.6%
----- ----- ----- -----
Income before income taxes ............. 2.5% 0.3% 2.8% 0.8%
----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED AUGUST 31, 1999 COMPARED TO THREE MONTHS ENDED AUGUST 25,
1998
Net sales of $37.7 million for the three months ended August 31,1999
increased approximately $27.0 million, or 251.9%, from approximately $10.7
million for the three months ended August 25,1998. The increase in net sales was
primarily attributable to the acquired businesses, which was offset by a
decrease in same store sales of $1.1 million.
Cost of goods sold for the three months ended August 31,1999 was
approximately $24.4 million, or 64.7% of net sales, compared to approximately
$7.1 million, or 65.8% of net sales, for the three months ended August 25,1998.
The increase was primarily attributable to the increase in net sales. Cost of
goods sold as a percentage of net sales decreased 1.1% for the period, primarily
as a result of economies of scale related to the larger combined business,
including volume rebates, product mix and product changeovers.
Operating, selling, general and administrative expenses for the three
months ended August 31, 1999 were approximately $11.6 million, or 30.9% of net
sales, compared to $3.6 million, or 33.3% of net sales, for the three months
ended August 25,1998. The increase was primarily attributable to the larger
operating scope of the Company as a result of the acquisitions.
Interest expense for the three months ended August 31,1999 was $.7 million
compared to $.1 million for the three months ended August 25,1998. Interest
expense increased as a result of higher debt levels required for the
acquisitions, which was partially offset by lower pricing on outstanding
indebtedness.
Income taxes - For the three months ended August 31,1999 and August
25,1998, the Company recognized net operating losses from prior periods. This
resulted in the Company having an effective tax rate of 19.8% for the three
months ended August 31,1999 and 0.0% for the three months ended August 25, 1998.
Without the net operating loss carry forward, the Company would have recorded
income tax expense of approximately $349,000 in the three months ended August
31,1999 and $11,000 in the three months ended August 25, 1998.
<PAGE>
SIX MONTHS ENDED AUGUST 31, 1999 COMPARED TO SIX MONTHS ENDED AUGUST 25, 1998
Net sales of $66.0 million for the six months ended August 31, 1999
increased approximately $45.5 million, or 222.2%, from approximately $20.5
million for the six months ended August 25, 1998. The increase in net sales was
primarily attributable to the acquired businesses, which was offset by a
decrease in same store sales of $1.2 million.
Cost of goods sold for the six months ended August 31, 1999 was
approximately $42.0 million, or 63.6% of net sales, compared to approximately
$13.4 million, or 65.3% of net sales, for the six months ended August 25, 1998.
The increase was primarily attributable to the increase in net sales. Cost of
goods sold as a percentage of net sales decreased 1.7% for the period, primarily
as a result of economies of scale related to the larger combined business,
including volume rebates, product mix and product changeovers.
Operating, selling, general and administrative expenses for the six months
ended August 31, 1999 were approximately $21.0 million, or 31.7% of net sales,
compared to $6.8 million, or 33.3% of net sales, for the six months ended August
25, 1998. The increase was primarily attributable to the larger operating scope
of the Company as a result of the acquisitions.
Interest expense for the six months ended August 31, 1999 was $1.3 million
compared to $0.1 million for the six months ended August 25,1998. Interest
expense increased as a result of higher debt levels required for the
acquisitions, which was partially offset by lower pricing on outstanding
indebtedness.
Income taxes - For the six months ended August 31, 1999 and August 25,
1998, the Company recognized net operating losses from prior periods. This
resulted in the Company having an effective tax rate of 11.1% for the six months
ended August 31, 1999 and 0.0% for the six months ended August 25, 1998. Without
the net operating loss carry forward, the Company would have recorded income tax
expense of approximately $623,000 in the six months ended August 31,1999 and
$58,000 in the six months ended August 25, 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.6 million, for the six
months ended August 31, 1999 compared to net cash used in operating activities
of $.4 million for the six months ended August 25, 1998. This change was
primarily the result of an increase in net income and accounts payable and
accrued expenses offset by an increase in inventory
Net cash used in investing activities was $17.1 million and $.3 million
for the six months ended August 31, 1999 and August 25, 1998, respectively. In
1999, cash was used primarily for purchasing assets of the previously described
acquisitions, which were funded through the Company's new financing agreement
with Heller.
Net cash provided by financing activities was $12.3 million and $.7
million for the six months ended August 31, 1999 and August 25, 1998,
respectively. These borrowings were used primarily for the acquisitions
described above, repayment of indebtedness previously outstanding or acquired
and working capital purposes.
Additionally the Company issued equity securities (Common Stock)
aggregating 651,613 shares valued at $1.4 million during the six months ended
August 31, 1999 as part of the consideration for the acquisitions. Of these
shares, 600,000 were issued to the Company's chief operating officer. Such
shares are subject to a lock-up agreement and were discounted by approximately
33% to reflect the impact of the lock-up. In connection with the acquisitions,
the Company also assumed indebtedness of $16.9 million and paid a portion of the
USP and Allied purchase price with unsecured obligations of the Company totaling
$.5 million.
The Company has recorded as goodwill the acquisition costs in excess of
net assets purchased. These amounts have been recorded on a preliminary basis
pending final determination of the fair value of net assets acquired.
The Company has a $45.0 million line of credit through syndicated
financing led by Heller. The Company entered into this financing agreement on
March 10, 1999. The agreement provides for term loans in the aggregate of $6.0
million and a revolving line of credit with a maximum amount of $39.0 million.
The term loans require minimum monthly principal payments totaling approximately
$90,000 and the revolving line of credit expires March 2004. The interest rate
on the revolving line of credit is, at the Company's option, either LIBOR plus
2.25 percent or the prime interest rate. The interest rates on the term loans
are .5 percent to .75 percent higher than on the revolving line of credit. The
financing agreement contains certain financial covenants relating to, among
other things, "tangible net worth", "ratio of indebtedness to tangible net
worth"; "fixed charge coverage" and "capital expenditures", all of which are as
defined in the financing agreement. Initial borrowings under this financing
agreement were used to repay the Company's prior lender and to finance the
acquisitions referred to above.
Amounts outstanding at August 31, 1999 were $5.6 million under the term
loan agreements and $28.5 million under the revolving credit agreement.
Additionally, the Company had availability of $2.7 million at August 31, 1999.
<PAGE>
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have a time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure of miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on recent assessment, the Company determined that it would be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company currently believes that with modifications to existing
software and conversions to new software, the Year 2000 Issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue will pose significant operational problems for its computer
systems. Should there be any failure of systems, either at the corporate or
store level, operations would continue with manual processing.
The Company will utilize both internal and external resources to
reprogram, or replace and test the software for the Year 2000 modifications. The
Company anticipates completing the Year 2000 project no later than November 30,
1999, which is prior to any possible impact on its operating systems. The total
cost of the Year 2000 project is estimated at $.6 million and is being funded
through operating cash flows and available credit facilities. The major portion
of these costs relates to new computer hardware and software and, thus, will be
capitalized.
The costs of the project and date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimate,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences, include, but are
not limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties. The Company has developed a contingency plan relating to the Year
2000.
INFLATION AND SEASONALITY
The company does not believe its operations are materially affected by
inflation. The Company has been successful, in some cases in reducing the
effects of merchandise cost increases principally by taking advantage of vendor
incentive programs, economies of scale resulting from increased volume of
purchases and selective forward buying.
Store sales have historically been somewhat higher in the first and second
quarters (March through August) than in the third and fourth quarters (September
through February).
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET AND RISK
In the normal course of business, the Company is exposed to market risk,
primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
The Company does not use derivative financial instruments for trading or to
speculate on changes in interest rates.
INTEREST RATE EXPOSURE
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's long-term debt. At August 31, 1999, approximately
95.4% ($34.1 million) of the long-term debt was subject to variable interest
rates. The detrimental effect of a hypothetical 100 basis point increase in
interest rates would be to reduce income before taxes by $.3 million. At August
31, 1999, the fair value of the Company's fixed rate debt is approximately $1.6
million based upon discounted future cash flows using current market prices.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The following table describes all unregistered sales by the Company of the
Company's securities during the six months ended August 31, 1999. Each sale was
a private placement made in connection with one of the asset acquisitions
described elsewhere herein. No underwriter was involved in any such sale, and no
commission or similar fee was paid with respect thereto. Each sale was not
registered under the Securities Act of 1933 in reliance on Section 4 (2) of such
Act and Rule 506 enacted thereunder.
<TABLE>
<CAPTION>
NUMBERS OF PERSONS
TO WHOM SECURITIES NUMBER OF SHARES AGGREGATE PRINCIPAL
DATE OF TRANSACTION WERE ISSUED OF COMMON STOCK AMOUNT OF NOTES
- ------------------- -------------------- ------------------ ---------------------
<S> <C> <C> <C>
MARCH 10, 1999 4 600,000 40,000
MARCH 11, 1999 1 51,613 -
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders of the Company was held on July 30,
1999, pursuant to notice given to shareholders of record on June 28, 1999 at
which date there were 5,186,613 shares of Common Stock outstanding. At the
Annual Meeting, the shareholders elected five directors to hold office until the
2000 Annual Meeting and until their successors have been duly elected and
qualified. As to the following named individuals, the holders of 3,485,151
shares of the Company's Common Stock voted at the annual meeting with all votes
cast in favor of the election of all five directors.
Directors:
Randall B. Rankin
Ali A. Attayi
Ricky L. Sooter
Gary D. Walther
Thomas M. Hargrove
The shareholders also ratified an amendment to the Company's 1996 Incentive and
Non-Statutory Stock Option Plan to increase the number of shares issuable
pursuant to the exercise of options granted. All 3,485,151 votes were cast in
favor of the amendment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
<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.
RANKIN AUTOMOTIVE GROUP, INC.
/s/ RANDALL B. RANKIN
Randall B. Rankin, Chief Executive Officer
OCTOBER 15, 1999 /s/ STEVE A SATERBAK
Steve A Saterbak, Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> FEB-26-1999
<CASH> 47,717
<SECURITIES> 0
<RECEIVABLES> 13,700,788
<ALLOWANCES> 1,204,990
<INVENTORY> 48,638,239
<CURRENT-ASSETS> 61,752,652
<PP&E> 6,114,381
<DEPRECIATION> 1,933,990
<TOTAL-ASSETS> 74,601,731
<CURRENT-LIABILITIES> 25,968,249
<BONDS> 33,665,144
0
0
<COMMON> 52,016
<OTHER-SE> 14,916,322
<TOTAL-LIABILITY-AND-EQUITY> 74,601,731
<SALES> 37,681,167
<TOTAL-REVENUES> 37,681,167
<CGS> 24,362,390
<TOTAL-COSTS> 35,987,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 697,125
<INCOME-PRETAX> 996,880
<INCOME-TAX> 197,096
<INCOME-CONTINUING> 799,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 799,784
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
