<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (EVENT): March 10, 1999
--------------
RANKIN AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NO: 0-28812
-------
Louisiana 72-0838383
---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3709 S. MacArthur Drive
Alexandria, LA 71302
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(318) 487-1081
--------------
Registrant's telephone number, including Area Code
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
On March 25, 1999, Rankin Automotive Group, Inc. ("the Company") filed
a report on Form 8-K with respect to its acquisitions of two auto parts
companies, US. Parts Corporation in Houston, Texas, and Automotive & Industrial
Supply Co., Inc. of Shreveport, Louisiana. Subsequently, on April 27, 1999, the
Company consummated the purchase of Allied Distributing Company of Houston, Inc.
and its subsidiary, Auto Parts Investment Group, Inc. At the time of the filing,
it was impracticable to provide the financial statements and proforma 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 proforma financial information as soon as practicable,
but no later than May 24, 1999. By filing this Form 8-K/A, the Company is
amending and restating Item 2 and Item 7 of the Form 8-K to include actual
purchase prices and such financial statements and pro forma financial
information.
The Company is providing three years of audited financial statements
for Allied Distributing Company, Inc. and subsidiary, and one year of audited
financial statements for Automotive & Industrial Supply Co., Inc. as required by
the regulations. The Company is providing two years of audited financial
statements for US. Parts Corporation rather than the three years required by the
regulations. It is impractical to provide audited financial statements for US.
Parts Corporation for the year ended December 31, 1996 since those financial
statements have not previously been audited and it is not practical to have them
audited at this time. US. Parts Corporation's inventories, which have not
previously been audited as of the beginning of the year ended December 31, 1996,
enter materially into the determination of its results of operations and of cash
flows for the year ended December 31, 1996.
Item 2. Acquisition of Assets
On March 10,1999, the Company acquired from US. Parts Corporation its
auto parts distribution center located in Houston, Texas as well as the
seventeen stores that it operates throughout Houston. The total purchase price
included 600,000 shares of Rankin Automotive Group, Inc. common stock, $13.6
million of cash (including $5.6 million to repay certain of US. Parts'
obligations), issuance of a note payable for $40,000, the assumption of certain
liabilities estimated at $4.5 million and certain other consideration. The cash
portion of the purchase price was paid using proceeds from a credit facility
established by the Company with Heller Financial, Inc.
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 Rankin Automotive Group, Inc. common stock, $3.4 million of cash, the
assumption of certain liabilities estimated at $1.2 million and certain other
consideration. The cash portion of the purchase price was paid using proceeds
from a credit facility established by the Company with Heller Financial, Inc.
On April 27, 1999, the Company acquired from Allied Distributing
Company of Houston, Inc. and it subsidiary, Auto Parts Investment Group, Inc.,
its auto parts distribution center and automotive paint division located in
Houston, Texas and its auto parts distribution center in San Antonio as well as
nine stores that it operates throughout Central and South Texas. The total
purchase price included $9.7 million of 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 was paid using proceeds from a credit facility established by
the Company with Heller Financial, Inc.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
a. Financial Statements of Businesses Acquired.
US. Parts Corporation Financial Statements for the years ended December
31, 1998 and 1997 and Independent Auditors' Report.
Automotive & Industrial Supply Co., Inc. Financial Statements for the
year ended December 31, 1998 and Independent Auditors' Report.
Allied Distributing Company of Houston, Inc. and subsidiary
Consolidated Financial Statements for the years ended December 31,
1997; 1996; and 1995 and Independent Auditors' Report.
Allied Distributing Company of Houston, Inc. and subsidiary Unaudited
Condensed Consolidated Financial Statements for the nine months
ended September 30, 1998 and 1997.
b. Pro Forma Financial Information
Rankin Automotive Group, Inc. Pro Forma Condensed Financial Statements
Rankin Automotive Group, Inc. Pro Forma Condensed Balance Sheet at
November 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Notes to Pro Forma Condensed Balance
Sheet at November 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Pro Forma Condensed Statement of
Operations for the year ended February 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Pro Forma Combined Statement of
Operations for the nine months ended November 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Notes to Pro Forma Condensed Statement of
Operations for the year ended February 25, 1998 (unaudited) and
nine months ended November 25, 1998 (unaudited)
<PAGE> 4
SIGNATURE
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, thereto duly authorized.
Rankin Automotive Group, Inc.
-----------------------------
(Registrant)
Dated: May 24, 1999 /s/ Randall B. Rankin
---------------------
Randall B. Rankin, Chief Executive
Officer
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIALS
a. Financial Statements of Businesses Acquired.
US. Parts Corporation Financial Statements for the years ended December
31, 1998 and 1997 and Independent Auditors' Report.
Automotive & Industrial Supply Co., Inc. Financial Statements for the
year ended December 31, 1998 and Independent Auditors' Report.
Allied Distributing Company of Houston, Inc. and subsidiary
Consolidated Financial Statements for the years ended December 31,
1997; 1996; and 1995 and Independent Auditors' Report.
Allied Distributing Company of Houston, Inc. and subsidiary Unaudited
Condensed Consolidated Financial Statements for the nine months
ended September 30, 1998 and 1997.
b. Pro Forma Financial Information
Rankin Automotive Group, Inc. Pro Forma Condensed Financial Statements
Rankin Automotive Group, Inc. Pro Forma Condensed Balance Sheet at
November 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Notes to Pro Forma Condensed Balance
Sheet at November 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Pro Forma Condensed Statement of
Operations for the year ended February 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Pro Forma Combined Statement of
Operations for the nine months ended November 25, 1998 (unaudited)
Rankin Automotive Group, Inc. Notes to Pro Forma Condensed Statement of
Operations for the year ended February 25, 1998 (unaudited) and
nine months ended November 25, 1998 (unaudited)
<PAGE> 6
US. PARTS CORPORATION
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors'
Report Thereon)
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
US. Parts Corporation:
We have audited the accompanying balance sheets of US. Parts Corporation (the
Company) as of December 31, 1998 and 1997 and the related statements of income
and retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of US. Parts Corporation at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
February 22, 1999
<PAGE> 8
US. PARTS CORPORATION
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 120,239 74,690
Accounts receivable, less allowance for
doubtful accounts of $496,848 and $329,543
for December 31, 1998 and 1997, respectively 2,848,584 2,005,143
Other receivables 1,091,599 260,872
Inventories, less allowance for overstocked
and obsolete inventory of $199,869 for
December 31, 1998 and 1997, respectively 12,891,626 9,941,990
Prepaid expenses 283,606 68,790
------------ ------------
Total current assets 17,235,654 12,351,485
------------ ------------
Plant and equipment, net 764,335 686,169
Goodwill, less accumulated amortization 43,414 46,750
------------ ------------
$ 18,043,403 13,084,404
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 116,136 84,000
Accounts payable and accrued liabilities 5,388,676 3,447,667
------------ ------------
Total current liabilities 5,504,812 3,531,667
------------ ------------
Long-term debt, excluding current maturities 5,247,248 5,010,700
Stockholder loans 300,123 300,123
------------ ------------
Total liabilities 11,052,183 8,842,490
------------ ------------
Stockholders' equity:
Common stock, $1.00 par value;
authorized 1,000 shares, issued
and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 610,671 610,671
Retained earnings 6,379,549 3,630,243
------------ ------------
Total stockholders' equity 6,991,220 4,241,914
Commitments and contingencies
------------ ------------
$ 18,043,403 13,084,404
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 9
US. PARTS CORPORATION
Statements of Income and Retained Earnings
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 49,307,122 33,931,798
Cost of sales 30,447,059 21,625,954
------------ ------------
Gross profit 18,860,063 12,305,844
Operating expenses:
Personnel expenses 9,408,501 6,606,761
Warehouse expenses 4,139,210 2,782,296
Administrative expense 947,762 952,857
------------ ------------
Operating income 4,364,590 1,963,930
Interest expense 513,716 396,826
------------ ------------
Net income 3,850,874 1,567,104
Retained earnings, beginning of the year 3,630,243 2,063,139
Less distributions to stockholders (1,101,568) --
------------ ------------
Retained earnings, end of the year $ 6,379,549 3,630,243
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 10
US. PARTS CORPORATION
Statements of Cash Flows
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,850,874 1,567,104
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 241,805 198,303
Changes in operating assets and liabilities net of effects
of acquisition:
Accounts receivable (843,441) (886,278)
Other receivable/prepaid expenses (1,045,543) (262,321)
Inventory (2,949,636) (2,064,908)
Accounts payable and accrued liabilities 1,941,009 1,067,632
------------ ------------
Net cash provided by (used in) operating activities 1,195,068 (380,468)
------------ ------------
Cash flows from investing activities:
Purchase of equipment (316,635) (190,549)
Acquisition (purchase of assets) -- (2,794,615)
------------ ------------
Net cash used in investment activities (316,635) (2,985,164)
------------ ------------
Cash flows from financing activities:
Borrowings, net 268,684 3,489,700
Payment of dividends and amounts due to stockholder (1,101,568) (232,927)
------------ ------------
Net cash provided by (used in) financing activities (832,884) 3,256,773
------------ ------------
Net increase (decrease) in cash 45,549 (108,859)
Cash, beginning of the year 74,690 183,549
------------ ------------
Cash, end of the year $ 120,239 74,690
============ ============
Supplemental information - interest paid during
the year $ 500,392 374,231
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 11
US. PARTS CORPORATION
Notes to Financial Statements
December 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES
(a) ORGANIZATION AND NATURE OF BUSINESS
US. Parts Corporation (the Company) was incorporated in the state
of Texas on January 17, 1985, and commenced business on the same
day. The Company sells auto parts and supplies to automotive
dealers, automotive repairs shops and service stations.
The Company has entered into a letter of intent to sell the net
assets of the Company. Completion of the sale is subject to due
diligence and various regulatory approvals.
(b) INVENTORIES
Inventories consist of auto parts, supplies and equipment and are
valued at the lower of cost or market. Cost is determined using
the first-in, first-out method.
(c) MACHINERY AND EQUIPMENT
Machinery and equipment are stated at cost. Depreciation expense
is computed using the double declining balance and straight-line
methods over the estimated useful lives of the assets or lease
term.
(d) INCOME TAXES
The Company and its shareholders have elected to have its income
taxed under Subchapter S of the Internal Revenue Code which
provides that, in lieu of corporation income taxes, the
shareholders are taxed on their proportionate share of the
Company's taxable income. Therefore, no provision of liability for
federal income taxes is reflected in these financial statements.
(e) GOODWILL
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line
basis over 15 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of
the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired
operation.
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(g) RECLASSIFICATION
Certain reclassifications have been made to the 1997 amounts to
conform to the 1998 presentation.
5
<PAGE> 12
US. PARTS CORPORATION
Notes to Financial Statements
December 31, 1998 and 1997
(2) ACQUISITION
In February 1997, the Company purchased selected operating assets from a
Houston based auto parts distributor that was exiting the business. The
purchase price of acquiring these assets was approximately $2.8 million,
of which approximately $2.5 million represented inventory.
(3) MACHINERY AND EQUIPMENT
Machinery and equipment at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
ESTIMATED
1998 1997 USEFUL LIVES
------------ ------------ ------------
<S> <C> <C> <C>
Transportation equipment $ 224,550 74,398 5
Warehouse fixtures 385,373 325,087 7
Office furniture 808,446 748,723 5
Leasehold improvement 113,300 66,827 Various
------------ ------------
1,531,669 1,215,035
Less accumulated depreciation 767,334 528,866
------------ ------------
$ 764,335 686,169
============ ============
</TABLE>
(4) RELATED PARTY TRANSACTIONS
A note payable to stockholder bears interest at 10% per year and matures
in June 2000. The interest expense on the stockholder loan for the years
ended December 31, 1998 and 1997 was $36,500 and $18,000.
In addition, the Company leases three of the store facilities from its
shareholder. The rents paid for the years ended December 31, 1998 and
1997 for these facilities were $70,630 and $46,200.
6
<PAGE> 13
US. PARTS CORPORATION
Notes to Financial Statements
December 31, 1998 and 1997
(5) LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Line of credit for a maximum amount of $6.5 million,
interest at prime lending rate plus 0.50% (8.25% and
9% at December 31, 1998 and 1997, respectively)
payable monthly, secured by a first lien on all
accounts receivable, certain inventory and all
furniture and equipment; principal due June 2000 $ 5,193,990 4,883,150
Noninterest-bearing unsecured note payable in monthly
installments of $7,000; due March 2000 113,550 211,550
Several car loans at interest rates between 8.86% and
9.645%; due between July 1999 and December 2001 55,844 --
------------- -------------
Total long-term debt 5,363,384 5,094,700
Less current maturities 116,136 84,000
------------- -------------
Long-term debt, excluding current
maturities $ 5,247,248 5,010,700
============= =============
</TABLE>
Future maturities of long-term debt subsequent to December 31, 1998 are
as follows:
<TABLE>
<S> <C>
1999 $ 116,136
2000 5,233,623
2001 13,625
-------------
$ 5,363,384
=============
</TABLE>
(6) EMPLOYEE BENEFIT PLAN
Employees of the Company are eligible to participate in the retirement
and savings plan adopted in April 1996. The plan requires a participant
to have at least one year of service as a full-time employee and be age
21 or older to be eligible. Participants may contribute up to 15% of
their salary with matching contributions from the Company on the first
3%. The employer's match is 50%. Approximately $43,600 and $35,000 was
contributed to the plan during the year ended December 31, 1998 and 1997,
respectively.
(7) COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse facilities under noncancelable
operating leases which include a main warehouse, and 13 satellite stores
as of December 31, 1997 and 15 satellite stores as of December 31, 1998.
Most of the leases for its facilities contain one of the following
options: (a) the Company can, after the initial lease term, purchase the
property at the then fair value of the property, or (b) the Company can,
at the end of the initial lease term, renew its lease at the then fair
rental value. These leases generally contain renewal options for periods
of five to ten years.
7
<PAGE> 14
US. PARTS CORPORATION
Notes to Financial Statements
December 31, 1998 and 1997
Future minimum rental payments under noncancelable operating leases that
have initial or remaining noncancelable lease terms in excess of one year
as of December 31, 1998 are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999 $ 725,500
2000 641,400
2001 522,400
2002 476,800
2003 181,000
==========
Total minimum lease payments $2,547,100
==========
</TABLE>
The rent expense for the years ended December 31, 1998 and 1997 was
$706,902 and $591,393, respectively.
8
<PAGE> 15
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Financial Statements
December 31, 1998
(With Independent Auditor's
Report Thereon)
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Automotive & Industrial Supply Co., Inc.:
We have audited the accompanying balance sheet of Automotive & Industrial Supply
Co., Inc. as of December 31, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the management of Automotive & Industrial
Supply Co., Inc. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Automotive & Industrial Supply,
Inc., as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
March 10, 1999
<PAGE> 17
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Balance Sheet
December 31, 1998
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 21,675
Trade accounts receivable 470,937
Other receivables 193,486
Inventories 2,781,134
Prepaid expenses and other current assets 2,633
-----------
Total current assets 3,469,865
Property and equipment, net 391,273
Due from stockholder 50,000
Other assets 103,083
-----------
$ 4,014,221
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long term debt $ 1,865,004
Accounts payable 637,208
Accrued expenses and other current liabilities 137,372
-----------
Total current liabilities 2,639,584
Long term debt 485,875
-----------
Total liabilities 3,125,459
-----------
Stockholders' equity:
Common stock, no par value, no stated value;
20,000 shares authorized; 100 shares issued; 20
shares outstanding 1,000
Treasury stock, 80 shares at cost (96,000)
Retained earnings 983,762
-----------
Total stockholders' equity 888,762
Commitments and contingencies
-----------
$ 4,014,221
===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 18
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Statement of Operations
For the year ended December 31, 1998
<TABLE>
<S> <C>
Net sales $ 8,172,768
Cost of sales 5,097,738
-----------
Gross profit 3,075,030
Operating, selling, general, and administrative expenses 2,544,787
-----------
Operating income 530,243
Other income (expense):
Interest expense (235,290)
Other 2,561
-----------
(232,729)
-----------
Net income $ 297,514
===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 19
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Statement of Stockholders' Equity
For the year ended December 31, 1998
<TABLE>
<CAPTION>
COMMON TREASURY RETAINED
STOCK STOCK EARNINGS TOTAL
------ -------- -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 1,000 (96,000) 571,266 476,266
Stockholders' Contributions -- -- 114,982 114,982
Net Income -- -- 297,514 297,514
------- ------- ------- -------
Balance at December 31, 1998 $ 1,000 (96,000) 983,762 888,762
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 20
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Statement of Cash Flows
For the year ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 297,514
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 109,167
Gain on sale of property and equipment (3,000)
Changes in certain operating assets and liabilities:
Trade accounts receivable (4,260)
Other receivables (56,008)
Inventories 213,244
Prepaid expenses and other current assets (975)
Other assets (7,623)
Accounts payable (174,675)
Accrued expenses and other current liabilities (115,081)
---------
Net cash provided by operating activities 258,303
---------
Cash flows from investing activities:
Capital expenditures (16,364)
Other (10,700)
---------
Net cash used in investing activities (27,064)
---------
Cash flows from financing activities:
Decrease in bank overdraft (1,719)
Payments on long term debt (322,827)
Stockholders' contributions 114,982
---------
Net cash used in financing activities (209,564)
---------
Net increase in cash 21,675
Cash at beginning of period --
---------
Cash at end of period $ 21,675
=========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 21
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Notes to Financial Statements
December 31, 1998
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Automotive & Industrial Supply Co., Inc. (the "Company") is a specialty
wholesaler and retailer of automotive replacement parts, maintenance
items and accessories for the professional installer and "do it yourself"
markets. The Company has two locations in Shreveport, Louisiana, one in
Bossier City, Louisiana and one in East Texas. The company provides
delivery service to its corporate customers. The Company is owned by two
related shareholders.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months
or less to be cash equivalents. The Company did not have any cash
equivalents at December 31, 1998.
INVENTORIES
Inventories, consisting primarily of automotive and other parts and
equipment, are stated at the lower of cost or market, using the first-in,
first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred, and additions and
improvements that significantly extend the lives of assets are
capitalized. When a sale or disposal of property occurs, the original
cost and accumulated depreciation are removed from the related accounts
and any gain or loss is reflected in operations.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Equipment held
under capital leases are amortized straight line over the shorter of the
lease term or estimated useful life of the asset.
INCOME TAXES
The stockholders of the Company have elected under Section 1362(a) of the
Internal Revenue Code to be treated as a small business corporation
(Subchapter S Corporation). Therefore, the Company has no federal income
tax provision or liability since taxable income is allocated to the
stockholders based on their percentage of stock ownership.
(Continued)
6
<PAGE> 22
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Notes to Financial Statements
December 31, 1998
CONCENTRATION OF CREDIT RISK
The Company grants credit to customers who meet pre-established credit
requirements. The Company does not require collateral when trade credit
is granted to customers. Credit losses are provided for in the financial
statements as soon as they become probable.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) LONG-TERM DEBT
As of December 31, 1998 long-term debt consisted of the following:
<TABLE>
<S> <C>
Borrowings under a line of credit with a bank at 8.25% $ 1,729,545
Note payable to a bank at 8.75%, secured by property,
guaranteed by Small Business Administration, due
in installments through March 18, 2003 360,132
Note payable to a bank at 8.75%, secured by property,
due in installments through April 18, 2000 20,134
Note payable to Ford Motor Credit at 2.9% secured by vehicle,
due in installments through November 28,
2002 26,158
Note payable to finance company at 9.5%, secured
by computer equipment, due February 2002
(obligation under capital lease) 214,910
-----------
2,350,879
Current installments of long-term debt 1,865,004
-----------
Long-term debt $ 485,875
===========
</TABLE>
At December 31, 1998, $1,729,545 was outstanding under a $2,350,000
revolving line of credit agreement with a bank. Restrictive covenants are
contained within the revolving line of credit agreement requiring the
maintenance of a minimum level of net worth, cash flow coverage, and debt
to net worth position. The Company was not in compliance with such
covenants as of December 31, 1998, therefore the outstanding amount is
callable by the bank. The revolving line of credit expires on March 31,
1999, and is secured by accounts receivable, inventory, equipment, and
personal guarantees of the owners of the Company. The revolving line of
credit bears interest at 1.0% over the New York prime rate (7.25% at
December 31, 1998) and interest is payable monthly.
(Continued)
7
<PAGE> 23
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Notes to Financial Statements
December 31, 1998
On February 26, 1998, the Company renegotiated the terms of the line of
credit facility. This second amendment to the loan agreement required
additional procedures to be performed by management and also acknowledged
that the existing defaults of covenants would be waived until May 1,
1998. Again on May 1, 1998 and on August 1, 1998, the bank agreed to
waive the existing covenant violations on the line of credit until
December 31, 1998. On February 8, 1999, the bank waived the violation
existing at December 31, 1998 until March 31, 1999, reserving the right
to call the balances if any other defaults occur. See Note 7.
Maturities of long term debt, by year, at December 31, 1998, are as
follows:
<TABLE>
<S> <C>
1999 $ 1,865,004
2000 136,576
2001 143,252
2002 87,440
2003 76,070
Thereafter 42,537
-----------
$ 2,350,879
===========
</TABLE>
Interest paid during the year ended December 31, 1998 totaled $232,793.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Delivery vehicles $ 80,489
Furniture and fixtures 107,877
Computer equipment 335,659
Sales training equipment 2,407
Warehouse equipment 214,638
Leasehold improvements 117,933
---------
859,003
Less accumulated depreciation 467,730
---------
Net property and equipment $ 391,273
=========
</TABLE>
Computer equipment net of accumulated depreciation of $93,767 is leased
under a capital lease arrangement.
(4) EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) plan for the benefit of substantially all
employees who meet minimum service requirements. The participants may
elect to contribute certain percentages of their compensation to the
plan. The Company contributes a 25% matching amount. The Company may also
elect to contribute a profit sharing amount to the plan at the discretion
of the Board of Directors. Company matching contributions to the plan
included in the statements of operations approximated $8,109 for the year
ended December 31, 1998. No profit sharing contribution was made during
the current year.
(Continued)
8
<PAGE> 24
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Notes to Financial Statements
December 31, 1998
(5) CREDIT CONCENTRATIONS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Although the Company does not require collateral for trade
accounts receivable, the credit risk is somewhat limited due to the large
number of customers.
The Company estimates an allowance for doubtful accounts based on the
credit worthiness of its customers as well as general economic
conditions. Consequently, an adverse change in these factors could affect
the Company's estimate of bad debts.
(6) OPERATING LEASES
The Company has entered into numerous leases which provide for delivery
vehicles and building space in addition to other miscellaneous items. The
leases for delivery vehicles usually run four years with an option to
purchase at the end of the lease.
In addition, the Company leases two buildings from a stockholder for
$115,200 annually and is payable each month.
The following is a schedule of future minimum lease payments required
under the Company's operating leases:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
1999 $ 198,425
2000 191,513
2001 171,223
2002 143,686
2003 140,226
---------
$ 845,073
=========
</TABLE>
Total rental expense for 1998 was $180,250.
(7) LIQUIDITY
Considering the recent violations of the loan agreement covenants, the
bank's waiver of these violations only through March 31, 1999, and the
uncertainty as to further bank action, there existed some uncertainty as
to the ability of the Company to meet its current obligations for the
foreseeable future. However, on February 26, 1999, the Company signed a
definitive agreement to sell the assets of the Company to Rankin
Automotive Group for approximately $4,600,000 which closed on March 10,
1999. The culmination of this sale will provide funds for the
satisfaction of all Company obligations within the required time frames.
(8) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
(Continued)
9
<PAGE> 25
AUTOMOTIVE & INDUSTRIAL SUPPLY CO., INC.
Notes to Financial Statements
December 31, 1998
o Cash, Trade Accounts Receivable, Franchise Tax Receivable, Due from
Employees, Rebates Receivable, Certain Other Assets, Accounts
Payable, and Accrued Expenses and Other Liabilities - The carrying
amounts approximate fair value because of the short maturity of
these instruments.
o Long-term debt - The fair values of the Company's long-term debt,
representing the amount at which the debt could be exchanged on the
open market, are determined based on the Company's current
borrowing rate for similar types of borrowing arrangements. The
fair value of long-term debt including current installments at
December 31, 1998 approximated $2,285,000.
(9) YEAR 2000 (UNAUDITED)
In 1998, the Company initiated a plan ("Plan") to identify, assess, and
remediate "Year 2000" issues within each of its significant computer
programs and certain equipment which contain micro-processors. The Plan
is addressing the issue of computer programs and embedded computer chips
being unable to distinguish between the year 1900 and the year 2000, if a
program or chip uses only two digits rather than four to define the
applicable year. Systems which have been determined not to be Year 2000
compliant are being either replaced or reprogrammed, and thereafter
tested for Year 2000 compliance.
The Company is in the process of identifying and contacting critical
suppliers and customers whose computerized systems interface with the
Company's systems, regarding their plans and progress in addressing their
Year 2000 issues. The Company has received varying information from such
third parties on the state of compliance or expected compliance.
Contingency plans developed in the event that any critical supplier or
customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's operations, liquidity and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's operations, liquidity or financial condition.
10
<PAGE> 26
ALLIED DISTRIBUTING CO. OF HOUSTON, INC.
AND SUBSIDIARY
-----------------------
CONSOLIDATED FINANCIAL STATEMENTS
WITH SUPPLEMENTARY INFORMATION
For the years ended
December 31, 1997 and 1996
---------------------
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allied Distributing Co. of Houston, Inc. and Subsidiary
Houston, Texas
We have audited the accompanying consolidated balance sheets of Allied
Distributing Co. of Houston, Inc. and Subsidiary as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allied Distributing Co. of
Houston, Inc. and Subsidiary as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ HILL, LONG, FRIERSON & CO., P.C.
Houston, Texas
April 8, 1998
<PAGE> 28
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 160,043 $ 29,947
Receivables 3,834,750 3,162,022
Notes receivable 89,119 129,310
Inventory 11,017,359 9,370,083
Prepaid expenses and other assets 5,125 2,735
------------ ------------
TOTAL CURRENT ASSETS 15,106,396 12,694,097
PROPERTY AND EQUIPMENT - At cost,
less accumulated depreciation 705,171 701,944
OTHER ASSETS:
Investment in affiliated companies 2,325,669 2,215,230
Goodwill, net of accumulated amortization 62,678 64,418
Other long-term assets 151,130 59,782
------------ ------------
TOTAL OTHER ASSETS 2,539,477 2,339,430
------------ ------------
TOTAL ASSETS $ 18,351,044 $ 15,735,471
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,715,347 $ 4,410,873
Accrued expenses and other liabilities 383,536 323,376
Accrued employee benefit plan contribution 200,000 250,000
Federal income tax payable 114,321 27,995
Note payable 4,060,750 4,730,000
Current maturities of long-term debt 1,182,481 136,202
Current maturities of long-term lease obligations 4,780 --
------------ ------------
TOTAL CURRENT LIABILITIES 11,661,215 9,878,446
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 3,092,387 2,607,173
Long-term obligation under capital lease,
less current maturities 17,077 --
------------ ------------
TOTAL LONG-TERM LIABILITIES 3,109,464 2,607,173
------------ ------------
TOTAL LIABILITIES 14,770,679 12,485,619
STOCKHOLDERS' EQUITY:
Common stock 494,270 473,770
Additional paid-in capital 2,165,887 2,011,112
Retained earnings 920,208 764,970
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,580,365 3,249,852
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,351,044 $ 15,735,471
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-3-
<PAGE> 29
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET SALES $ 35,428,305 $ 29,317,405
COST OF GOODS SOLD 26,220,918 21,607,916
------------ ------------
Gross Profit 9,207,387 7,709,489
OPERATING EXPENSES 8,124,515 6,825,632
------------ ------------
Operating Profit 1,082,872 883,857
OTHER INCOME:
Gain from disposition of assets 7,886 220,059
Partnership income (loss) (10,281) 10,302
Interest income 11,482 20,713
Other 135 --
------------ ------------
Total Other Income 9,222 251,074
OTHER EXPENSES:
Interest expense 712,061 612,863
Employee benefit plan contribution 200,000 250,000
Other -- 3,602
------------ ------------
Total Other Expenses 912,061 866,465
------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 180,033 268,466
PROVISION FOR INCOME TAXES:
Current (expense) benefit (114,321) (101,761)
Deferred benefit 89,526 110,370
------------ ------------
(24,795) 8,609
------------ ------------
NET INCOME $ 155,238 $ 277,075
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-4-
<PAGE> 30
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 461,790 $ 1,923,059 $ 487,895 $ 2,872,744
ISSUANCE OF 1,198 SHARES OF
STOCK TO ESOP 11,980 88,053 -- 100,033
NET INCOME -- -- 277,075 277,075
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996
Common stock, $10 par
value, 50,000 authorized,
47,377 issued and
outstanding 473,770 2,011,112 764,970 3,249,852
ISSUANCE OF 2,050 SHARES OF
STOCK TO ESOP 20,500 154,775 -- 175,275
NET INCOME -- -- 155,238 155,238
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997
Common stock, $10 par
value, 50,000 authorized,
49,427 issued and
outstanding $ 494,270 $ 2,165,887 $ 920,208 $ 3,580,365
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-5-
<PAGE> 31
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 155,238 $ 277,075
Adjustments to reconcile net income to net
cash (used in) operating activities:
Depreciation and amortization 149,717 141,224
Gain from disposition of assets (7,886) (220,059)
Loss on sale of assets -- 2,593
Share of loss/(income) from investment in
affiliated company 10,281 (10,302)
Decrease (increase) in assets:
Receivables (632,537) (542,625)
Inventory (1,647,276) (1,130,268)
Other assets (93,738) (59,313)
Increase (decrease) in liabilities:
Accounts payable 1,304,474 458,611
Accrued expenses and other liabilities 60,160 87,318
Income taxes payable 86,326 5,980
Other liabilities (50,000) (50,000)
----------- -----------
Total adjustments (820,479) (1,316,841)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (665,241) (1,039,766)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (63,824) (327,288)
Investment in affiliated companies (120,720) (165,872)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (184,544) (493,160)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable (669,250) 604,000
Net borrowings of long-term debt 1,473,856 593,587
Proceeds from issuance of capital stock 175,275 100,033
Proceeds from insurance settlement -- 251,834
Proceeds from sale of assets -- 400
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 979,881 1,549,854
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 130,096 16,928
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 29,947 13,019
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 160,043 $ 29,947
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-6-
<PAGE> 32
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Allied
Distributing Co. of Houston, Inc. (the parent) and its wholly owned subsidiary,
Auto Parts Investment Group, Inc., (the subsidiary), collectively, the
"Company". All intercompany transactions and balances have been eliminated in
consolidation.
BUSINESS ACTIVITY
The parent Company distributes wholesale automotive supplies to retailers,
primarily in the South and Central regions of Texas. The subsidiary consists of
eight retail automotive stores operating in the South and Central regions of
Texas.
INVENTORY
Inventory of the parent is valued at the lower of last-in, first out (LIFO) cost
or market. The LIFO reserve at December 31, 1997 and 1996 was $1,704,440 and
$1,483,749, respectively.
Inventory of the subsidiary is stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the
straight-line method.
INVESTMENT IN AFFILIATE
The parent Company owns 42.50% interest in ADCO Development Partnership (ADCO),
a general partnership whose primary activity is to lease a building and
equipment to the Company. This investment is stated at cost and adjusted for the
Company's equity in undistributed income and losses since acquisition.
GOODWILL
Goodwill represents the excess of the cost of the Company acquired over the fair
value of the net assets at date of acquisition and is being amortized on the
straight-line method over forty years. Amortization for the years ended December
31, 1997 and 1996 was $1,740 for each year.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements to
conform with the 1997 financial statement presentation. Such reclassifications
had no effect on net income as previously reported.
INCOME TAXES
Deferred tax assets and liabilities are based on differences between the
financial statement bases of assets and liabilities and the tax bases of those
same assets and liabilities. Deferred tax assets and liabilities at the end of
each period are determined using the statutory tax rates in effect when these
temporary differences are expected to reverse and are individually classified as
current and noncurrent based on their characteristics. Deferred income tax
expense is measured by the change in the net deferred income tax asset or
liability during the year. Such assumptions have been considered in the
calculation of deferred taxes.
Continued
-7-
<PAGE> 33
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31, 1997 and 1996
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 45,000 $ 45,000
Automotive equipment 99,379 168,376
Data processing equipment 177,372 135,671
Building and improvements 510,406 502,469
Furniture and fixtures 661,383 517,678
---------- ----------
1,493,540 1,369,194
Less accumulated depreciation (788,369) (667,250)
--------- ---------
$ 705,171 $ 701,944
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was $147,977
and $139,483, respectively.
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE
At December 31, 1996, the Company had two lines of credit with a bank, secured
by accounts receivable, inventory, real property, and the personal guarantees of
four stockholders of the Company, maturing November 1, 1997. Interest accrued at
one-half percent (.5%) over prime and is paid monthly. The maximum amount to be
advanced was $4,500,000 and $250,000 respectively.
During the year, the lines of credit mentioned above were combined and renewed.
The maximum amount to be advanced is $4,750,000, maturing October 1, 1998 at an
interest rate of one-half percent (.5%) over prime paid monthly, secured by
inventory, accounts receivable, real property, and the personal guarantees of
four stockholders. The outstanding balance at December 31, 1997 and 1996 was
$4,060,750 and $4,730,000 respectively.
The Company is subject to certain covenants pursuant to the line of credit
agreement. The Company was in compliance with, or has obtained a waiver from,
these covenants at December 31, 1997.
Continued
-8-
<PAGE> 34
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
<TABLE>
<CAPTION>
LONG-TERM DEBT 1997 1996
- -------------- ---- ----
<S> <C> <C>
Notes payable to stockholders and other related parties with interest only
due, paid monthly at 10.0% and maturing March 15,1999, renewable and not
collateralized. $ 2,014,500 $ 2,150,500
Note payable to individual, payable in monthly installments of $4,275
including interest at 8% and maturing January, 1999, unsecured but jointly
and severally guaranteed by the parent Company. 49,142 94,517
Note payable to a company, payable in monthly installments of $3,258 plus
interest at 1/2% plus prime, maturing January, 2003, secured by inventory,
fixtures, equipment, supplies and goodwill. 198,709 237,800
Note payable to a company, payable in monthly installments of $2,448 plus
interest at 1/2% plus prime, maturing January, 2003, secured by inventory,
fixtures, equipment, supplies and goodwill. 149,311 178,684
Note payable to a bank in the amount of $1,000,000 payable in 20 monthly
principal payments of $5,200 plus interest at 1% plus prime, with one
final interest and principal payment of $902,907 maturing October, 1998
and secured by inventory and accounts receivable. 937,600 --
Note payable to a company, payable in monthly installments of $3,240 including
interest at 8%, maturing June, 2007, secured by inventory, equipment
and vehicles. 258,171 --
Note payable to a company, payable in monthly installments of $4,314 including
interest at 8%, maturing June, 2007, secured by inventory equipment
and vehicles. 343,722 --
</TABLE>
Continued
-9-
<PAGE> 35
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
<TABLE>
<CAPTION>
LONG-TERM DEBT 1997 1996
- -------------- ---- ----
<S> <C> <C>
Note payable to a company, payable in monthly
installments of $1,755 including interest at 8%,
maturing February, 2007, unsecured. $ 136,475 $ --
Note payable to a company, payable in monthly
installments of $5,587 including interest at 8%,
maturing February, 2000, unsecured. 132,957 --
Notes payable to a financial institution, payable in
monthly installments of $512 including interest at
8.55%, maturing July, 2002, secured by equipment. 23,409 --
Note payable to a company, payable in monthly
installments of $905 plus interest at 6.5%, maturing
December, 2000, secured by equipment. 30,872 --
Note payable to a company, payable in monthly
installments of $1,039 including interest at 6.5%,
maturing February, 1998, secured by equipment. -- 12,213
Note payable to a financial institution, payable in monthly
installments of $356 including interest at 10.25%, maturing
February, 1999, secured by a vehicle. -- 17,586
Note payable to a financial institution, payable in
monthly installments of $337 including interest at
11.5%, maturing April, 1999, secured by a vehicle. -- 18,364
Note payable to a bank, payable in monthly
installments of $744 including interest at 9.5%,
maturing July, 2001, secured by a vehicle. -- 33,711
----------- ------------
Total long-term debt 4,274,868 2,743,375
Less current portion (1,182,481) (136,202)
----------- -----------
Long-term debt, net of current portion $ 3,092,387 $ 2,607,173
=========== ===========
</TABLE>
Continued
-10-
<PAGE> 36
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
Principal maturities of long-term debt during subsequent years are as follows:
<TABLE>
<CAPTION>
Year AMOUNT
---- ------
<S> <C>
1998 ...................................................... $ 1,182,481
1999 ...................................................... 2,220,465
2000 ...................................................... 159,682
2001 ...................................................... 143,416
2002 ...................................................... 147,074
Thereafter ................................................ 421,750
-----------
$ 4,274,868
===========
</TABLE>
Interest paid or accrued to stockholders and other related parties for the years
ended December 31, 1997 and 1996 was $203,853 and $208,175, respectively.
NOTE 4 - COMMITMENTS
Allied Distributing Co. of Houston, Inc., under a guarantee agreement dated
October 1, 1982, guaranteed $3,000,000 of Industrial Development Revenue Bonds
issued by the Harris County Industrial Development Corporation to Adco
Development Partnership (a general partnership, in which the Company and certain
stockholders of the Company are partners). The funds were used to finance the
acquisition and improvements of a building which is leased to the Company by
Adco Development Partnership. The monthly repayments are $19,230 principal plus
interest through December 1, 1997.
Future minimum payments under the lease agreement between the Company and Adco
Development Partnership are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998 .................................. $ 240,000
1999 .................................. 240,000
2000 .................................. 240,000
2001 .................................. 240,000
2002 .................................. 240,000
-----------
$ 1,200,000
===========
</TABLE>
Continued
-11-
<PAGE> 37
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS - (CONTINUED)
The total payments were $129,220 and $165,872 for the years ended December 31,
1997 and 1996, respectively. These amounts include rent, insurance and real
estate taxes which are included in warehouse and delivery expense. In December,
1997, ADCO Development Partnership paid a capital distribution to Allied
Distributing Co. of Houston, Inc. in the amount of $8,500.
NOTE 5 - EMPLOYEE BENEFIT PLAN
Effective January 1, 1985 the Company converted its Profit Sharing Plan into an
Employee Stock Ownership Plan (ESOP). The ESOP was adopted as an amendment to
the Company's present Profit Sharing Plan and the assets under the Profit
Sharing Plan were transferred to the Trustee under the amended plan. Pursuant to
terms of the ESOP, all of the non-voting Class B common shares were converted to
voting Class A common shares during 1985. The original purchase for the ESOP in
1985 consisted of 4,000 and 4,152 shares of common stock from the Company and
the stockholders, respectively.
All employees with three months or more of employment are considered
participants in the amended plan. Contributions to the ESOP are determined by
resolution of the Company's Board of Directors and benefits are paid at
retirement or death.
In 1997, the Company contributed 2,050 shares of its stock to the plan at a
value of $20,500 plus additional paid-in capital of $154,775 and cash in the
amount of $74,725 for a total of $250,000 which was accrued as of December,
1996. The Company's contribution to the ESOP for the year ended December 31,
1997 is $200,000 which is reflected as an accrual in the financial statement.
NOTE 6 - ADDITIONAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash paid for interest and income taxes is as follows:
Interest $ 712,621 $ 609,952
========= =========
Income Taxes Paid $ 25,510 $ 57,461
========= =========
</TABLE>
For purposes of the Statement of Cash Flows, cash and cash equivalents include
any highly liquid debt instruments with an original maturity date of three
months or less, cash on hand and amounts due from banks, including certificates
of deposit.
Continued
-12-
<PAGE> 38
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INVESTMENT IN AFFILIATED COMPANIES
Undistributed losses of Adco Development Partnership included in retained
earnings were $34,392 and $24,111 at December 31, 1997 and 1996, respectively.
Following is a summary of condensed financial information pertaining to Adco
Development Partnership.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets $ 1,275 $ 31,612
Other assets 1,054,545 1,665,662
----------- -----------
$ 1,055,820 $ 1,697,274
=========== ===========
Liabilities $ -- $ 230,880
Partners' capital 1,055,820 1,466,394
----------- -----------
$ 1,055,820 $ 1,697,274
=========== ===========
</TABLE>
In addition, the Company owns one (1) share of Auto Value Associates, Inc., a
corporation which provides the automotive parts and supplies bearing its
trademark and service marks. This investment is being carried at cost.
NOTE 8 - FEDERAL INCOME TAXES
The following is a reconciliation between the expected tax provision using
federal statutory income tax rates and the actual provision for income taxes:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory rate 34% 34%
Expected tax (expense) benefit provision $ (61,211) $ (91,278)
Inventory valuation (62,067) (22,870)
Net operating loss carryforward - parent -- 59,402
Net operating loss carryforward - subsidiary 35,986 --
Net operating loss benefit - subsidiary -- 20,543
Alternative minimum tax (20,301) --
Alternative minimum tax credit -- (48,766)
Other (6,728) (18,792)
---------- ----------
Actual provision for income taxes (expense) $ (114,321) $ (101,761)
========== ==========
</TABLE>
Continued
-13-
<PAGE> 39
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL INCOME TAXES - (CONTINUED)
Deferred taxes are recognized for temporary differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to depreciable assets (using accelerated
depreciation methods for tax purposes), the allowance for doubtful accounts
(deductible for financial statement purposes but not for income tax purposes)
and the capitalization of certain general and administrative expenses in
inventory for tax purposes while deducting the same expenses for financial
purposes.
The above deferred tax assets at December 31, 1997 for the company are included
in other assets on the financial statements.
The subsidiary Company has elected to file a separate return from the parent.
The subsidiary has net operating income (loss) of $153,611 and $(104,607) for
Federal income tax purposes for the years 1997 and 1996, respectively. The
subsidiary's 1996 net operating loss of $104,607 resulted in a tax benefit
totaling $20,543 in 1996. The subsidiary elected to carryback $1,822 of the net
operating loss to 1995 which is included in other receivables and carryforward
the remaining benefit of $18,631 which is included in other assets in 1996. In
1997, the subsidiary elected to utilize the net operating loss carryforward from
1996 to reduce current income tax expense.
NOTE 9 - OPERATING LEASES
The Company leases warehouse and office facilities in San Antonio. Additionally,
the Company leases retail space in Brenham, Goliad, Port Lavaca, Palacios,
Bacliff, Austin and San Antonio, Texas with minimum annual payments as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ------
<S> <C>
1998 .......................................................... $ 208,340
1999 .......................................................... 107,800
2000 .......................................................... 62,700
2001 .......................................................... 2,700
---------
$ 381,540
=========
</TABLE>
See Note 5 for the minimum annual payments related to the Houston location.
Continued
-14-
<PAGE> 40
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LEASE COMMITMENTS
The Company acquired equipment under a noncancellable lease agreement which is
being accounted for as a capital lease. The lease expires July, 2002. The leased
equipment is included in fixed assets at December 31, 1997 as follows:
<TABLE>
<S> <C>
Equipment ............................................. $ 23,900
Accumulated depreciation .............................. (1,167)
--------
$ 22,733
========
</TABLE>
The following future minimum lease payments and the net present value as of
December 31, 1997 follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998 ........................................................ $ 6,192
1999 ........................................................ 6,192
2000 ........................................................ 6,192
2001 ........................................................ 6,192
2002 ........................................................ 3,612
--------
Amount representing interest ............................................. (6,523)
--------
Total future minimum lease payment ....................................... 28,380
Net present value ........................................................ 21,857
Less current portion ..................................................... (4,780)
--------
Long-term obligation under capital lease ................................. $ 17,077
========
</TABLE>
NOTE 11 - CONTINGENCY
The IRS is currently examining the Company's federal income tax returns for the
years 1994 and 1995. The IRS has proposed certain adjustments to the returns
that would result in additional income tax due. The Company is currently
contesting these proposed adjustments, and in our opinion as the Company's tax
expert, the resulting settlement of additional tax due would not be material.
The accompanying financial statements do not reflect an accrual for any
potential additional income tax as a result of this IRS examination.
-15-
<PAGE> 41
SUPPLEMENTARY INFORMATION
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTARY INFORMATION
The Board of Directors
Allied Distributing Co. of Houston, Inc. and Subsidiary
Houston, Texas
Our report on our audits of the basic financial statements of Allied
Distributing Co. of Houston, Inc. and Subsidiary as of December 31, 1997 and
1996 appears on page two. The audits were conducted for the purpose of forming
an opinion on the basic financial statements taken as a whole. The Consolidated
Statements of Operating Profit by Location is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ HILL, LONG, FRIERSON & CO., P.C.
Houston, Texas
April 8, 1998
<PAGE> 43
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATING PROFIT BY LOCATION
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET SALES
Houston automotive warehouse $ 18,732,378 $ 14,970,935
Austin automotive warehouse 1,362,827 2,192,874
Houston autobody warehouse 4,805,006 5,039,414
San Antonio automotive warehouse 5,847,509 4,626,542
Subsidiary 4,680,585 2,487,640
------------ ------------
35,428,305 29,317,405
COST OF GOODS SOLD 26,220,918 21,607,916
------------ ------------
GROSS PROFIT 9,207,387 7,709,489
------------ ------------
OPERATING EXPENSES
Selling 975,980 968,039
Houston automotive warehouse 2,151,557 1,894,507
Austin automotive warehouse 169,962 283,786
Houston autobody warehouse 430,105 412,135
San Antonio automotive warehouse 658,865 550,196
Subsidiary 1,513,707 799,512
General and administrative 2,074,622 1,776,233
Depreciation and amortization 149,717 141,224
------------ ------------
8,124,515 6,825,632
------------ ------------
OPERATING PROFIT $ 1,082,872 $ 883,857
============ ============
</TABLE>
-18-
<PAGE> 44
ALLIED DISTRIBUTING CO. OF HOUSTON, INC.
AND SUBSIDIARY
-----------------------
CONSOLIDATED FINANCIAL STATEMENTS
WITH SUPPLEMENTARY INFORMATION
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
---------------------
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allied Distributing Co. of Houston, Inc. and Subsidiary
Houston, Texas
We have audited the accompanying consolidated balance sheets of Allied
Distributing Co. of Houston, Inc. and Subsidiary as of December 31, 1996 and
1995 and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allied Distributing Co. of
Houston, Inc. and Subsidiary as of December 31, 1996 and 1995 and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ HILL, LONG, FRIERSON & CO., P.C.
Houston, Texas
June 2, 1997
<PAGE> 46
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,947 $ 13,019
Receivables 3,162,022 2,559,190
Notes receivable 129,310 189,517
Inventory 9,370,083 8,239,815
Prepaid expenses and other assets 2,735 3,203
------------ ------------
TOTAL CURRENT ASSETS 12,694,097 11,004,744
PROPERTY AND EQUIPMENT - At cost,
less accumulated depreciation 701,944 474,393
OTHER ASSETS:
Investment in affiliated companies 2,215,230 2,039,057
Goodwill, net of accumulated amortization 64,418 66,158
Other long-term assets 59,782 --
------------ ------------
TOTAL OTHER ASSETS 2,339,430 2,105,215
------------ ------------
TOTAL ASSETS $ 15,735,471 $ 13,584,352
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,410,873 $ 3,952,262
Accrued expenses and other liabilities 323,376 236,058
Accrued employee benefit plan contribution 250,000 300,000
Federal income tax payable 27,995 22,015
Note payable 4,730,000 4,126,000
Current maturities of long-term debt 136,202 51,881
------------ ------------
TOTAL CURRENT LIABILITIES 9,878,446 8,688,216
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 2,607,173 2,023,392
------------ ------------
TOTAL LIABILITIES 12,485,619 10,711,608
STOCKHOLDERS' EQUITY:
Common stock 473,770 461,790
Additional paid-in capital 2,011,112 1,923,059
Retained earnings 764,970 487,895
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,249,852 2,872,744
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,735,471 $ 13,584,352
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
<PAGE> 47
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET SALES $ 29,317,405 $ 25,098,920
COST OF GOODS SOLD 21,607,916 18,515,783
------------ ------------
Gross Profit 7,709,489 6,583,137
OPERATING EXPENSES 6,825,632 5,631,143
------------ ------------
Operating Profit 883,857 951,994
OTHER INCOME:
Gain from disposition of assets 220,059 --
Interest income 20,713 32,644
Partnership income 10,302 6,070
------------ ------------
Total Other Income 251,074 38,714
OTHER EXPENSES:
Interest expense 612,863 531,815
Employee benefit plan contribution 250,000 300,000
Other 3,602 12,546
------------ ------------
Total Other Expenses 866,465 844,361
------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 268,466 146,347
PROVISION FOR INCOME TAXES -
Current (expense) benefit 8,609 (27,600)
------------ ------------
NET INCOME $ 277,075 $ 118,747
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
<PAGE> 48
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 437,790 $1,744,259 $ 369,148 $2,551,197
ISSUANCE OF 2,400 SHARES OF
STOCK TO ESOP 24,000 178,800 -- 202,800
NET INCOME -- -- 118,747 118,747
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995
Common stock, $10 par
value, 50,000 authorized,
46,179 issued and
outstanding 461,790 1,923,059 487,895 2,872,744
ISSUANCE OF 1,198 SHARES OF
STOCK TO ESOP 11,980 88,053 -- 100,033
NET INCOME -- -- 277,075 277,075
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996
Common stock, $10 par
value, 50,000 authorized,
47,377 issued and
outstanding $ 473,770 $2,011,112 $ 764,970 $3,249,852
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-5-
<PAGE> 49
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 277,075 $ 118,747
Adjustments to reconcile net income to net
cash (used in) operating activities:
Depreciation and amortization 141,224 108,243
Gain from disposition of assets (220,059) --
Loss on sale of assets 2,593 12,546
Share of (income) from investment in
affiliated company (10,302) (6,070)
Decrease (increase) in assets:
Receivables (542,625) (117,794)
Inventory (1,130,268) (1,598,027)
Other assets (59,313) 138,244
Increase (decrease) in liabilities:
Accounts payable 458,611 288,784
Accrued expenses and other liabilities 87,318 (6,911)
Income taxes payable 5,980 20,287
Other liabilities (50,000) --
------------ ------------
Total adjustments (1,316,841) (1,160,698)
------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,039,766) (1,041,951)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (327,288) (27,833)
Investment in affiliated companies (165,872) (171,846)
NET CASH (USED IN) INVESTING ACTIVITIES (493,160) (199,679)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable 604,000 1,076,000
Net borrowings of long-term debt 593,587 (41,822)
Proceeds from issuance of capital stock 100,033 202,800
Proceeds from insurance settlement 251,834 --
Proceeds from sale of assets 400 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,549,854 1,236,978
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 16,928 (4,652)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,019 17,671
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 29,947 $ 13,019
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-6-
<PAGE> 50
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Allied
Distributing Co. of Houston, Inc. (the parent) and its wholly owned subsidiary,
Auto Parts Investment Group, Inc., (the subsidiary), collectively, the
"Company". All intercompany transactions and balances have been eliminated in
consolidation.
BUSINESS ACTIVITY
The parent Company distributes wholesale automotive supplies to retailers,
primarily in the South and Central regions of Texas. The subsidiary consists of
five retail automotive stores operating in the South and Central regions of
Texas.
INVENTORY
Inventory of the parent is valued at the lower of last-in, first out (LIFO) cost
or market. The LIFO reserve at December 31, 1996 and 1995 was $1,483,749 and
$1,792,951, respectively.
Inventory of the subsidiary is stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the
straight-line method.
INVESTMENT IN AFFILIATE
The parent Company owns 42.50% interest in ADCO Development Partnership (ADCO),
a general partnership whose primary activity is to lease a building and
equipment to the Company. This investment is stated at cost and adjusted for the
Company's equity in undistributed income and losses since acquisition.
GOODWILL
Goodwill represents the excess of the cost of the Company acquired over the fair
value of the net assets at date of acquisition and is being amortized on the
straight-line method over forty years. Amortization for the years ended December
31, 1996 and 1995 was $1,741 for each year.
Continued
-7-
<PAGE> 51
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements to
conform with the 1996 financial statement presentation. Such reclassifications
had no effect on net income as previously reported.
INCOME TAXES
Deferred tax assets and liabilities are based on differences between the
financial statement bases of assets and liabilities and the tax bases of those
same assets and liabilities. Deferred tax assets and liabilities at the end of
each period are determined using the statutory tax rates in effect when these
temporary differences are expected to reverse and are individually classified as
current and noncurrent based on their characteristics. Deferred income tax
expense is measured by the change in the net deferred income tax asset or
liability during the year. Such assumptions have been considered in the
calculation of deferred taxes.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 45,000 $ 45,000
Automotive equipment 168,376 97,889
Data processing equipment 135,671 178,822
Building and improvements 502,469 385,449
Furniture and fixtures 517,678 406,319
------------ ------------
1,369,194 1,113,479
Less accumulated depreciation (667,250) (639,086)
------------ ------------
$ 701,944 $ 474,393
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1995 was $139,483
and $106,502, respectively.
Continued
-8-
<PAGE> 52
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE
The Company has a line of credit with a bank, secured by accounts receivable,
inventory, real property, and the personal guarantees of four stockholders of
the Company, maturing November 1, 1997. Interest accrues at one-half percent
(.5%) over prime and is paid monthly. The maximum amount to be advanced is
$4,500,000. The outstanding balance at December 31, 1996 and 1995 was $4,500,000
and $4,126,000, respectively.
During November, 1996, the Company obtained a second line of credit, secured by
inventory, accounts receivable, and the personal guarantee of a stockholder.
Interest accrues at one-half percent (.5%) over prime and is paid monthly. The
maximum amount to be advanced is $250,000. The outstanding balance at December
31, 1996 was $230,000.
In January, 1997, the lines of credit mentioned above were combined and renewed.
The maximum amount to be advanced is $4,750,000, maturing October 1, 1997 at an
interest rate of one-half percent (.5%) over prime paid monthly, secured by
inventory, accounts receivable, real property, and the personal guarantees of
four stockholders.
Additionally, in January, 1997, the Company obtained a promissory note from a
bank in the amount of $1,000,000 payable in 20 principal payments of $5,200 plus
interest monthly and one final principal and interest payment of $902,907,
maturing October, 1998. Interest accrues at one percent (1%) over prime. The
note is secured by inventory and accounts receivable. Principal maturities of
the note during 1997 and 1998 are $57,200 and $942,800, respectively.
The Company is subject to certain covenants pursuant to the line of credit
agreement. The Company was in compliance with, or has obtained a waiver from,
these covenants at December 31, 1996.
Continued
-9-
<PAGE> 53
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
<TABLE>
<CAPTION>
LONG-TERM DEBT
- --------------
1996 1995
---- ----
<S> <C> <C>
Notes payable to stockholders and other
related parties with interest only due,
paid monthly at 10.0% and maturing
March 15,1998. The notes are renewable
and not collateralized. $2,150,500 $1,912,000
Note payable to individual, payable in monthly
installments of $4,055 including interest at
8% and maturing January, 1999. The note is
unsecured but jointly and severally guaranteed
by the parent Company. 94,517 139,759
Notepayable to a company, payable in monthly
installments of $1,039 including interest at
6.5%, maturing February, 1998, secured by
equipment. 12,213 23,514
Note payable to a company, payable in monthly
installments of $3,258 plus interest at 1/2%
plus prime, maturing January, 2003, secured by
inventory, fixtures, equipment, supplies and
goodwill. 237,800 --
Note payable to a company, payable in monthly
installments of $2,448 plus interest at 1/2%
plus prime, maturing January, 2003, secured by
inventory, fixtures, equipment, supplies and
goodwill. 178,684 --
Note payable to a financial institution, payable
in monthly installments of $356 including
interest at 10.25%, maturing February, 1999,
secured by a vehicle. 17,586 --
</TABLE>
Continued
-10-
<PAGE> 54
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
<TABLE>
<CAPTION>
LONG-TERM DEBT
- --------------
1996 1995
---- ----
<S> <C> <C>
Note payable to a financial institution, payable
in monthly installments of $337 including
interest at 11.5%, maturing April, 1999,
secured by a vehicle. $ 18,364 $ --
Note payable to a bank, payable in monthly
installments of $744 including interest at
9.5%, maturing July, 2001, secured by a
vehicle. 33,711 --
----------- ----------
Total long-term debt 2,743,375 2,075,273
Less current portion (136,202) (51,881)
----------- ----------
Long-term debt, net of current portion $ 2,607,173 $2,023,392
=========== ==========
</TABLE>
Principal maturities of long-term debt during subsequent years are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997 .................................. $ 136,202
1998 .................................. 2,277,274
1999 .................................. 105,748
2000 .................................. 76,489
2001 .................................. 73,478
Thereafter ............................ 74,184
-----------
$ 2,743,375
===========
</TABLE>
Interest paid or accrued to stockholders and other related parties for the years
ended December 31, 1996 and 1995 was $208,175 and $198,378, respectively.
Continued
-11-
<PAGE> 55
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS
Allied Distributing Co. of Houston, Inc., under a guarantee agreement dated
October 1, 1982, guaranteed $3,000,000 of Industrial Development Revenue Bonds
issued by the Harris County Industrial Development Corporation to Adco
Development Partnership (a general partnership, in which the Company and certain
stockholders of the Company are partners). The funds were used to finance the
acquisition and improvements of a building which is leased to the Company by
Adco Development Partnership. The monthly repayments are $19,230 principal plus
interest through December 1, 1997.
Certain covenants of the guarantee agreement are in effect while the bonds are
outstanding, unless the purchaser gives prior written consent. The covenants are
as follows:
1. No dividends will be paid on any shares of capital stock, and bonuses
and salaries for officers and stockholders in the aggregate is limited
to not more than $607,200.
2. No capital expenditures will be made in any calendar year in excess of
$75,000.
3. The Company must maintain tangible net worth of not less than
$700,000.
Future minimum payments under the lease agreement between the Company and Adco
Development Partnership are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997 ....................................... $144,000
1998 ....................................... 132,000
--------
$276,000
========
</TABLE>
The total payments were $165,872 and $171,846 for the years ended December 31,
1996 and 1995, respectively. These amounts include rent, insurance and real
estate taxes which are included in warehouse and delivery expense.
Continued
-12-
<PAGE> 56
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - EMPLOYEE BENEFIT PLAN
Effective January 1, 1985 the Company converted its Profit Sharing Plan into an
Employee Stock Ownership Plan (ESOP). The ESOP was adopted as an amendment to
the Company's present Profit Sharing Plan and the assets under the Profit
Sharing Plan were transferred to the Trustee under the amended plan. Pursuant to
terms of the ESOP, all of the non-voting Class B common shares were converted to
voting Class A common shares during 1985. The original purchase for the ESOP in
1985 consisted of 4,000 and 4,152 shares of common stock from the Company and
the stockholders, respectively.
All employees with three months or more of employment are considered
participants in the amended plan. Contributions to the ESOP are determined by
resolution of the Company's Board of Directors and benefits are paid at
retirement or death.
In September, 1996, the Company contributed 1,198 shares of its stock to the
plan at a value of $11,980 plus additional paid-in capital of $88,053 and cash
in the amount of $199,967 for a total of $300,000 which was accrued as of
December, 1995. The Company's contribution to the ESOP for the year ended
December 31, 1996 is $250,000 which is reflected as an accrual in the financial
statement.
NOTE 6 - ADDITIONAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash paid for interest and income
taxes is as follows:
Interest $609,952 $541,557
======== ========
Income Taxes Paid $ 57,461 $ 7,313
======== ========
</TABLE>
For purposes of the Statement of Cash Flows, cash and cash equivalents include
any highly liquid debt instruments with an original maturity date of three
months or less, cash on hand and amounts due from banks, including certificates
of deposit.
Continued
-13-
<PAGE> 57
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INVESTMENT IN AFFILIATED COMPANIES
Undistributed losses of Adco Development Partnership included in retained
earnings were $24,111 and $34,413 at December 31, 1996 and 1995, respectively.
Following is a summary of condensed financial information pertaining to Adco
Development Partnership.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current assets $ 31,612 $ 25,764
Other assets 1,665,662 1,715,861
------------ ------------
$ 1,697,274 $ 1,741,625
============ ============
Current liabilities $ -- $ --
Other liabilities 230,880 461,640
Partners' capital 1,466,394 1,279,985
------------ ------------
$ 1,697,274 $ 1,741,625
============ ============
</TABLE>
The Company owns one (1) share of Auto Value Associates, Inc., a corporation
which provides the automotive parts and supplies bearing its trademark and
service marks. This investment is being carried at cost.
Continued
-14-
<PAGE> 58
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL INCOME TAXES
The following is a reconciliation between the expected tax provision using
federal statutory income tax rates and the actual provision for income taxes:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Statutory rate 34% 27%
Expected tax (expense) benefit provision $ (91,278) $ (40,325)
Depreciation and amortization (12,360) (2,350)
Inventory valuation (22,870) 8,822
Bad debt expense 3,657 (6,596)
Nondeductible expenses (3,996) (1,039)
Net operating loss carryforward 59,402 --
Alternative minimum taxable credit 48,766 --
Alternative minimum tax in excess of regular tax -- (6,913)
Net operating loss benefit - subsidiary 20,543 --
Subsidiary effective tax rate differential -- 6,335
Other 6,745 14,466
------------ ------------
Actual provision for income taxes $ 8,609 $ (27,600)
============ ============
</TABLE>
Continued
-15-
<PAGE> 59
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL INCOME TAXES - (CONTINUED)
Deferred taxes are recognized for temporary differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to depreciable assets (using accelerated
depreciation methods for tax purposes), the allowance for doubtful accounts
(deductible for financial statement purposes but not for income tax purposes)
and the capitalization of certain general and administrative expenses in
inventory for tax purposes while deducting the same expenses for financial
purposes.
The above deferred tax assets at December 31, 1996 for the parent company are
included in other assets on the financial statements. At December 31, 1995, no
provision for deferred taxes was made due to the immaterial net tax effect of
all cumulative timing differences.
The subsidiary Company has elected to file a separate return from the parent.
The subsidiary has net operating (loss) income of $(104,607) and $51,241 for
Federal income tax purposes for the years 1996 and 1995, respectively. The
subsidiary's 1996 net operating loss of $104,607 resulted in a tax benefit
totaling $20,543. The subsidiary elected to carryback $1,822 of the net
operating loss to 1995 which is included in other receivables and carryforward
the remaining benefit of $18,631 which is included in other assets.
NOTE 9 - OPERATING LEASES
The Company leases warehouse and office facilities in Austin and San Antonio.
Additionally, the Company leases retail space in Brenham, Goliad, Port Lavaca,
Palacios and Bacliff, Texas with minimum annual payments as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ------
<S> <C>
1997 .................................... $148,860
1998 .................................... 136,240
1999 .................................... 61,400
2000 .................................... 38,400
2001 .................................... 1,400
--------
$386,300
========
</TABLE>
See Note 5 for the minimum annual payments related to the Houston location.
Continued
-16-
<PAGE> 60
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUBSEQUENT EVENTS
During February, 1997, the Company purchased a retail automotive store in Texas
for a total amount of $291,248. The purchase price was paid in the form of two
promissory notes bearing interest at the rate of 8% per annum maturing March,
2007, and March, 2000, respectively. The first six installments are interest
only. The remaining payments of $1,755 and $5,587, including interest,
respectively, are to be amortized over the term of the notes.
Principal maturities of the long-term debt described above are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997 ................................ $ 16,308
1998 ................................ 68,579
1999 ................................ 74,275
2000 ................................ 28,790
2001 ................................ 13,272
Thereafter .......................... 90,024
--------
$291,248
========
</TABLE>
NOTE 11 - CONTINGENCY
The IRS is currently examining the Company's federal income tax returns for the
years 1994 and 1995. The IRS has proposed certain adjustments to the returns
that would result in additional income tax due. The Company is currently
contesting these proposed adjustments, and in our opinion as the Company's tax
expert, the resulting settlement of additional tax due would not be material.
The accompanying financial statements do not reflect an accrual for any
potential additional income tax as a result of this IRS examination.
-17-
<PAGE> 61
SUPPLEMENTARY INFORMATION
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTARY INFORMATION
The Board of Directors
Allied Distributing Co. of Houston, Inc. and Subsidiary
Houston, Texas
Our report on our audits of the basic financial statements of Allied
Distributing Co. of Houston, Inc. and Subsidiary as of December 31, 1996 and
1995 appears on page two. The audits were conducted for the purpose of forming
an opinion on the basic financial statements taken as a whole. The Consolidated
Statements of Operating Profit by Location is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ HILL, LONG, FRIERSON & CO., P.C.
Houston, Texas
June 2, 1997
<PAGE> 63
ALLIED DISTRIBUTING CO. OF HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATING PROFIT BY LOCATION
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET SALES
Houston automotive warehouse $ 14,970,935 $ 13,960,083
Austin automotive warehouse 2,192,874 2,026,293
Houston autobody warehouse 5,039,414 5,209,225
San Antonio automotive warehouse 4,626,542 3,299,578
Subsidiary 2,487,640 603,741
------------ ------------
29,317,405 25,098,920
COST OF GOODS SOLD 21,607,916 18,515,783
------------ ------------
GROSS PROFIT 7,709,489 6,583,137
------------ ------------
OPERATING EXPENSES
Selling 968,039 915,223
Houston automotive warehouse 1,894,507 1,688,790
Austin automotive warehouse 283,786 262,388
Houston autobody warehouse 412,135 403,136
San Antonio automotive warehouse 550,196 410,918
Subsidiary 799,512 187,599
General and administrative 1,776,233 1,654,846
Depreciation and amortization 141,224 108,243
------------ ------------
6,825,632 5,631,143
------------ ------------
OPERATING PROFIT $ 883,857 $ 951,994
============ ============
</TABLE>
-20-
<PAGE> 64
ALLIED DISTRIBUTING COMPANY OF HOUSTON, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997*
------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 134 $ 160
Trade accounts receivable 5,308 3,924
Inventories 11,269 11,017
Prepaid expenses and other current assets 58 5
------------ ------------
Total current assets 16,769 15,106
INVESTMENT IN AFFILIATED COMPANIES 2,348 2,326
PROPERTY AND EQUIPMENT - net 693 705
OTHER 70 214
------------ ------------
TOTAL $ 19,880 $ 18,351
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,710 $ 5,715
Accrued expenses 296 698
Notes payable and current portion of long-term debt 4,122 5,248
------------ ------------
Total current liabilities 12,128 11,661
LONG-TERM DEBT, less current portion 4,226 3,110
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock, $10 par value, 50,000 shares authorized,
49,427 shares issued 494 494
Additional paid-in capital 2,166 2,166
Retained earnings 866 920
------------ ------------
Total stockholders' equity 3,526 3,580
------------ ------------
TOTAL $ 19,880 $ 18,351
============ ============
</TABLE>
*The balance sheet at December 31, 1997 has been taken from the audited balance
sheet at that date.
See notes to condensed consolidated financial statements.
<PAGE> 65
ALLIED DISTRIBUTING COMPANY OF HOUSTON, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ------------
(In Thousands)
<S> <C> <C>
NET SALES $ 29,905 $ 26,242
COST OF GOODS SOLD 22,497 19,410
------------ ------------
Gross profit 7,408 6,832
OPERATING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,909 6,202
------------ ------------
EARNINGS FROM OPERATIONS 499 630
NET INTEREST EXPENSE 558 525
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (CREDIT) (59) 105
INCOME TAXES (CREDIT) (5) 20
------------ ------------
NET INCOME (LOSS) $ (54) $ 85
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 66
ALLIED DISTRIBUTING COMPANY OF HOUSTON, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 57 $ (370)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (93) (50)
Investment in affiliated companies -- (100)
------------ ------------
Net cash used in investing activities (93) (150)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Net proceeds from notes payable and long-term debt 10 570
------------ ------------
NET INCREASE (DECREASE) IN CASH (26) 50
CASH, BEGINNING OF PERIOD 160 30
------------ ------------
CASH, END OF PERIOD $ 134 $ 80
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 67
ALLIED DISTRIBUTING COMPANY OF HOUSTON, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Rule 10-01 of
Regulation S-X. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for interim periods are
not necessarily indicative of the results that may be expected for the
entire year. These condensed consolidated financial statements should be
read in conjunction with the Company's consolidated financial statements
for the year ended December 31, 1997 included elsewhere herein.
******
<PAGE> 68
RANKIN AUTOMOTIVE GROUP, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited Pro Forma Condensed Balance Sheet gives effect to acquisitions by
the Company of the auto parts distribution center and stores operated by US
Parts Corporation ("US Parts") on March 10, 1999, Automotive & Industrial Supply
Co., Inc. (A&I) on March 11, 1999, and Allied Distributing Company of Houston,
Inc. and its subsidiary, Auto Parts Investment Group, Inc (Allied") on April 27,
1999 as if they had occurred on November 25, 1998. The unaudited Pro Forma
Condensed Statement of Operations for the nine months ended November 25, 1998
gives effect to the acquisitions referred to above as well as auto parts
distribution center operated by A.P.S., Inc. ("A.P.S.") in Monroe, Louisiana
("Monroe DC") on October 13, 1998 as if they had occurred on February 26, 1998.
The unaudited Pro Forma Condensed Statement of Operations for the year ended
February 25, 1998 gives effect to the acquisitions as if they had occurred on
February 26, 1997.
The unaudited Pro Forma Condensed Financial Statements are based on (i) the
Company's audited Statement of Operations for the year ended February 25, 1998,
unaudited Statement of Operations for the nine months ended November 25, 1998
and unaudited Balance Sheet as of November 25, 1998 and the (ii) US Parts, A&I,
and Allied audited Statements of Income for the year ended December 31, 1997,
unaudited Statements of Income for the nine months ended September 30, 1998 and
unaudited Balance Sheets as of September 30, 1998 and (iii) the Monroe DC's
audited Statement of Income for the year ended January 31, 1998 and unaudited
Statement of Income for the seven and one-half months ended September 15, 1998.
The acquisitions are being accounted for under the purchase method of
accounting. The total purchase prices for the acquisitions are being allocated
to tangible and identifiable intangible assets and liabilities based on
management's preliminary estimates of their fair values. The Company is
currently evaluating the fair market value of the assets purchased and
liabilities assumed and will make appropriate adjustments as soon as those
evaluations are complete.
The Company acquired the US Parts, A&I, Allied and the Monroe DC with the intent
of being able to purchase merchandise at a lower cost and of gaining other
operating efficiencies. No adjustments have been made to reflect these potential
savings, if any, in these pro forma financial statements since management of the
Company has no objective basis to arrive at the exact amount of these potential
savings.
The unaudited Pro Forma Condensed Financial Statements do not purport to be
indicative of the combined results of operations that actually would have
occurred if the transactions described above had been effected at the dates
indicated or to project future results of operations for any period. The
unaudited Pro Forma Condensed Financial Statements should be read in conjunction
with the Company's audited financial statements included in it's Form 10-KSB for
the year ended February 25, 1998, the Company's unaudited financial statements
included in its Form 10-Q for the quarter ended November 25, 1998, the US Parts
audited financial statements for the years ended December 31, 1998 and 1997
included herein, the A&I audited financial statements for the year ended
December 31, 1998, the Allied audited financial statements for the year ended
December 31, 1997 included herein and the Monroe DC's audited financial
statements for the year ended January 31, 1998 included in the Company's Form
8-K filed in December 1998.
Readers of these pro forma financial statements should consider that operating
results for interim periods are not necessarily indicative of the results that
may be expected for the entire year.
<PAGE> 69
RANKIN AUTOMOTIVE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
NOVEMBER 25, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
US
ASSETS RANKIN PARTS A&I ALLIED
(2) (2) (2)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 396 $ 13 $ 42 $ 134
Accounts receivable 3,627 3,263 683 5,308
Inventories 18,074 13,254 2,913 11,269
Prepaid expenses and other current assets 292 220 121 58
---------- ---------- ---------- ----------
Total current assets 22,389 16,750 3,759 16,769
PROPERTY AND EQUIPMENT, Net 2,229 765 387 693
OTHER NONCURRENT ASSETS 289 137 2,348
INTANGIBLE ASSETS 594 44 32 70
---------- ---------- ---------- ----------
TOTAL $ 25,501 $ 17,559 $ 4,315 $ 19,880
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 4,561 $ 4,965 $ 979 $ 7,710
Accrued expenses 503 1,238 211 296
Notes payable and current portion of
long-term debt 295 120 1,825 4,122
---------- ---------- ---------- ----------
Total current liabilities 5,359 6,323 3,015 12,128
LONG-TERM DEBT, less current portion 7,216 4,570 490 4,226
STOCKHOLDERS' EQUITY:
Common stock 46 1 1 494
Additional paid-in capital 13,084 610 2,166
Retained earnings (accumulated deficit) (9) 6,055 905 866
Treasury stock (195) (96)
---------- ---------- ---------- ----------
12,926 6,666 810 3,526
---------- ---------- ---------- ----------
TOTAL $ 25,501 $ 17,559 $ 4,315 $ 19,880
========== ========== ========== ==========
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------------------- PRO FORMA
US AS
PARTS A&I ALLIED TOTAL ADJUSTED
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ -- $ (34) $ -- $ (34)(4) $ 551
Accounts receivable -- 12,881
Inventories 1,700 1,700 (3) 47,210
Prepaid expenses and other current assets (116) (116)(4) 575
---------- ---------- ---------- ---------- ----------
Total current assets -- (150) 1,700 1,550 61,217
PROPERTY AND EQUIPMENT, Net 293 293 (3) 4,367
OTHER NONCURRENT ASSETS (111) (2,348) (2,459)(4) 315
INTANGIBLE ASSETS 2,900 838 (70) 3,668 (6) 4,408
---------- ---------- ---------- ---------- ----------
TOTAL $ 2,900 $ 577 $ (425) $ 3,052 $ 70,307
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ -- $ -- $ -- $ -- $ 18,215
Accrued expenses 300 300 2,548
Notes payable and current portion of
long-term debt (1,765) (3,822) (5,587)(5) 775
---------- ---------- ---------- ---------- ----------
Total current liabilities 300 (1,765) (3,822) (5,287) 21,538
LONG-TERM DEBT, less current portion 8,000 2,952 6,923 17,875 34,377
STOCKHOLDERS' EQUITY:
Common stock 5 (494) (489)(8) 53
Additional paid-in capital 650 199 (2,166) (1,317)(8) 14,543
Retained earnings (accumulated deficit) (6,055) (905) (866) (7,826)(8) (9)
Treasury stock 96 96 (8) (195)
---------- ---------- ---------- ---------- ----------
(5,400) (610) (3,526) (9,536) 14,392
---------- ---------- ---------- ---------- ----------
TOTAL $ 2,900 $ 577 $ (425) $ 3,052 $ 70,307
========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited pro forma condensed balance sheet.
<PAGE> 70
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(1) On October 13, 1998, the Company acquired the auto parts distribution
center operated by A.P.S., Inc. ("APS") in Monroe, Louisiana ("Monroe
DC"). The total purchase price approximated $7.3 million consisting of
$5.8 million and a note payable to A.P.S., Inc. totaling $1.5 million with
10% interest for 30 days.
On March 10, 1999, the Company acquired from US Parts Corporation its auto
parts distribution center located in Houston, Texas as well as the
seventeen stores that it operates throughout Houston. The total purchase
price included 600,000 shares of Rankin Automotive Group, Inc. common
stock, $13.6 million of cash (including $5.6 million to repay certain of
US Parts' obligations), issuance of a note payable for $40 thousand, the
assumption of certain liabilities estimated at $4.5 million and certain
other consideration. The cash portion of the purchase price was paid using
proceeds from a credit facility established by the Company with Heller
Financial, Inc.
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 Rankin Automotive Group, Inc.
common stock, $3.4 million of cash, the assumption of certain liabilities
estimated at $1.2 million and certain other consideration. The cash
portion of the purchase price was paid using proceeds from a credit
facility established by the Company with Heller Financial, Inc.
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 and its auto parts distribution center in San Antonio as
well as nine stores that it operates throughout Central and South Texas.
The total purchase price included $9.7 million of 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 was paid using
proceeds from a credit facility established by the Company with Heller
Financial, Inc.
(2) Represents the historic balance sheet of US Parts, A&I, and Allied as of
September 30, 1998.
(3) Adjustment of historic cost to estimated fair value
(4) Elimination of assets not to be purchased
(5) Adjustment to reflect the incurrence of borrowings under the Company's
line of credit with Heller to finance the cost of the US Parts, A&I, and
Allied acquisitions, net of amounts of other borrowings repaid.
(6) Adjustment to reflect goodwill in connection with the US Parts and A&I
acquisitions.
(7) Other adjustments
(8) To eliminate historic stockholders' equity accounts of US Parts, A&I, and
Allied, net of the effect of the value of 600,000 shares issued in
connection with the US Parts acquisition and 51,613 shares issued in
connection with the A&I acquisitions.
<PAGE> 71
RANKIN AUTOMOTIVE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 25, 1998 (IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MONROE US PRO FORMA AS
RANKIN DC PARTS A&I ALLIED ADJUSTMENTS ADJUSTED
(1) (3) (3) (3)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES $ 38,656 $22,211 $ 33,932 $ 7,385 $35,428 $(12,000)(5) $ 125,612
COST OF GOODS SOLD 25,824 17,577 21,626 4,743 26,221 (12,000)(5) 83,991
-------- ------- ------- ------- ------- -------- ---------
Gross profit 12,832 4,634 12,306 2,642 9,207 -- 41,621
OPERATING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 13,628 3,768 10,342 2,582 8,315 15 (6) 38,650
-------- ------- ------- ------- ------- -------- ---------
Earnings (loss) from operations (796) 866 1,964 60 892 (15) 2,971
-------- ------- ------- ------- ------- -------- ---------
INTEREST EXPENSE 52 -- 397 206 712 1,700 (7) 3,067
-------- ------- ------- ------- ------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME
TAXES (CREDIT) (848) 866 1,567 (146) 180 (1,715) (96)
INCOME TAXES (CREDIT) (60) 300 -- -- 25 (275)(8) (10)
-------- ------- ------- ------- ------- -------- ---------
NET EARNINGS (LOSS) $ (788) $ 566 $ 1,567 $ (146) $ 155 $ (1,440) $ (86)
======== ======= ======= ======= ======= ======== =========
NET LOSS PER COMMON
SHARE $ (.17) $ (.02)
======== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,539 5,191
======== =========
</TABLE>
See notes to unaudited pro forma condensed statements of operations.
<PAGE> 72
RANKIN AUTOMOTIVE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED NOVEMBER 25, 1998 (IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
MONROE US PRO FORMA AS
RANKIN DC PARTS A&I ALLIED ADJUSTMENTS ADJUSTED
(2) (4) (4) (4)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES $ 30,270 $12,100 $37,609 $ 6,452 $ 29,905 $ (6,700)(5) $ 109,636
COST OF GOODS SOLD 19,327 9,900 23,554 4,077 22,497 (6,700)(5) 72,655
-------- ------- ------- ------- -------- -------- ---------
Gross profit 10,943 2,200 14,055 2,375 7,408 -- 36,981
OPERATING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 10,416 1,955 10,223 1,905 6,909 10 (6) 31,418
-------- ------- ------- ------- -------- -------- ---------
Earnings from operations 527 245 3,832 470 499 (10) 5,563
-------- ------- ------- ------- -------- -------- ---------
INTEREST EXPENSE 245 -- 306 181 558 1,050 (7) 2,340
-------- ------- ------- ------- -------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME
TAXES 282 245 3,526 289 (59) (1,060) 3,223
INCOME TAXES (CREDIT) -- 85 -- -- (5) 1,020 (8) 1,100
-------- ------- ------- ------- -------- -------- ---------
NET EARNINGS (LOSS) $ 282 $ 160 $ 3,526 $ 289 $ (54) $ (2,080) $ 2,123
======== ======= ======= ======= ======== ======== =========
NET EARNINGS PER COMMON
SHARE $ .06 $ .41
======== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,535 5,187
======== =========
</TABLE>
See notes to unaudited pro forma condensed statements of operations.
<PAGE> 73
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(1) Represents the historical results of operations of the Monroe DC for the
year ended January 31, 1998.
(2) Represents the historical results of operations of the Monroe DC for the
seven and one half month months ended September 15, 1998.
(3) Represents the historical results of operations of US Parts, A&I and Allied
for the year ended December 31, 1997.
(4) Represents the historical results of operations of US Parts, A&I and Allied
the for the nine months ended September 30, 1998.
(5) Adjustment to eliminate sales from Monroe DC to the Company and related
cost of goods sold recorded by the Company.
(6) Adjustment to reflect the amortization expense of intangible assets in
connection with the US Parts, A&I and Allied acquisitions, net of
amortization of the recently determined negative goodwill relating to the
Monroe DC acquisition and certain other adjustments of approximately
$70,000.
(7) Adjustment to reflect the increase in interest on debt that would have been
incurred to finance the acquisition of US Parts, A&I, Allied and the Monroe
DC if they had been acquired as of the beginning of the period presented.
(8) Adjustment to income taxes due to pro forma adjustments.
