<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MAY 25, 2000
HEAFNER TIRE GROUP, INC.
--------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 333-61713 56-0754594
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(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
2105 Water Ridge Parkway, Suite 500, Charlotte, North Carolina 28217
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (704) 423-8989
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
(a) On May 25, 2000, Heafner Tire Group, Inc. (the "Company"),
purchased all of the outstanding common stock of T.O. Haas Holding Co.
Inc. ("Haas"), a tire wholesaler, retreader and retailer, located in
Lincoln, Nebraska as well as all of the outstanding common stock of
Haas Investment Company ("Haas Investment"). In connection with the
acquisition, the Company sold certain parcels of real estate owned by
Haas to a former shareholder of Haas (at fair market value), including
substantially all of the assets and liabilities of Haas Investment, and
leased them back (at fair market value). The net purchase price of the
Haas acquisition, giving effect to the real estate transaction and
subject to adjustment as provided in the agreement, was approximately
$28.6 million (including $1.6 million of assumed debt), of which
approximately $1.5 million was withheld at closing pending adjustment
as provided in the agreement and $5.2 million of which is payable in
the form of noncompete and stayput payments over a period of 6 years.
The cash portion of the purchase price was funded through the Company's
existing revolving credit facility with various banks, administered by
Fleet Capital Corporation (the "Revolver"). The Revolver provides for
borrowings in the aggregate principal amount of $200 million or the
Borrowing Base, as defined, and matures March 2005, extendable by the
Company and the banks for an additional 5 years.
(b) Haas is a tire wholesaler, retreader and retailer and has warehouse
locations in Nebraska and South Dakota and retail locations in Nebraska
and Kansas. The Company intends for Haas to continue in its current
line of business and has no plans at this time to devote Haas' assets
to any other purpose.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(1) Financial Statements of business acquired
PAGE
----
Independent Auditors' Report........................ F-1
Consolidated Balance Sheet of T.O. Haas Holding
Co., Inc. and Subsidiary - December 31, 1999...... F-2
Consolidated Statement of Earnings of T.O. Haas
Holding Co., Inc. and Subsidiary - Year ended
December 31, 1999................................. F-4
Consolidated Statement of Stockholders' Equity and
Comprehensive Income of T.O. Haas Holding Co., Inc.
and Subsidiary- Year ended December 31, 1999...... F-5
Consolidated Statement of Cash Flows of T.O. Haas
Holding Co., Inc. and Subsidiary- Year ended
December 31, 1999................................. F-6
Notes to Consolidated Financial Statements.......... F-7
Condensed Consolidated Balance Sheet of T.O. Haas
Holding Co., Inc. and Subsidiary - April 1, 2000
(unaudited)....................................... F-15
Condensed Consolidated Statements of Operations of
T.O. Haas Holding Co., Inc. and Subsidiary - Three
Months ended March 27, 1999 and April 1, 2000 F-16
(unaudited).......................................
Condensed Consolidated Statements of Cash Flows of
T.O. Haas Holding Co., Inc. and Subsidiary - Three
Months ended March 27, 1999 and April 1, 2000 F-17
(unaudited).......................................
Notes to Condensed Consolidated Financial Statements F-18
(2) The pro forma financial information furnished herein reflects
the effect of the acquisition of Haas on the consolidated
financial statements of the Company.
PAGE
----
Pro Forma Consolidated Balance Sheet - April 1, 2000 F-20
Pro Forma Consolidated Statement of Operations -
Three Months ended April 1, 2000.................. F-22
Pro Forma Consolidated Statement of Operations - Year
ended December 31, 1999........................... F-23
<PAGE> 3
The exhibits furnished in connection with this report are as follows:
Exhibit
Number Description
------- -----------
2.1 Stock Purchase Agreement dated as of April 14,
2000 by and between Heafner Tire Group, Inc. and
T.O. Haas Holding Co., Randall M. Haas and
Ricky L. Haas
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors
T.O. Haas Holding Co., Inc.:
We have audited the accompanying consolidated balance sheet of T.O. Haas Holding
Co., Inc. and subsidiary as of December 31, 1999 and the related consolidated
statement of earnings, stockholders' equity and comprehensive income, and cash
flows for the year 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of T.O. Haas Holding
Co., Inc. and subsidiary as of December 31, 1999 and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
June 30, 2000
Lincoln, Nebraska
F-1
<PAGE> 5
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1999
Assets (Note 5)
Current assets:
Cash $ 940,999
Trade accounts receivable, less allowance for doubtful
accounts of $586,334 10,809,441
Inventories (note 2) 15,305,130
Deferred income taxes (note 7) 695,300
Prepaid expenses 175,043
------------
Total current assets 27,925,913
------------
Property, plant, and equipment (notes 3 and 6) 12,957,998
Less accumulated depreciation (7,234,235)
------------
Net property, plant, and equipment 5,723,763
------------
Advances to officers/stockholders 201,933
Investment in common stock, at fair market value (note 4) 1,062,000
Other (note 9) 2,410,936
------------
$ 37,324,545
============
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 6
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1999
Liabilities and Stockholders' Equity
Current liabilities:
Net outstanding checks $ 2,334,519
Notes payable (notes 5 and 10) 5,071,415
Current installments of long-term debt (note 6) 550,500
Accounts payable 14,374,975
Accrued expenses 1,500,455
Income taxes payable 1,032,600
Deferred warranty revenue (note 1) 120,000
------------
Total current liabilities 24,984,464
Deferred warranty revenue (note 1) 240,000
Deferred income taxes (note 7) 532,100
Stock margin account (note 4) 654,248
Long-term debt, excluding current installments (note 6) 6,100,620
------------
Total liabilities 32,511,432
------------
Preferred stock of subsidiary (note 1) 142,900
Stockholders' equity:
Common stock, $.01 par value per share. Authorized 500,000
shares; issued and outstanding 125,789 1,258
Additional paid-in capital 868,886
Retained earnings 3,332,010
Accumulated other comprehensive income, unrealized gain
on investment in common stock (note 4) 625,910
Loan to stockholder (note 1) (157,851)
-----------
Total stockholders' equity 4,670,213
Commitments (notes 8 and 9)
-----------
$37,324,545
===========
F-3
<PAGE> 7
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Consolidated Statement of Earnings
Year ended December 31, 1999
Sales $ 107,762,950
Less returns and allowances 4,386,947
-------------
Net sales 103,376,003
Cost of sales 79,543,363
-------------
Gross profit 23,832,640
Selling, general, and administrative expenses 20,966,921
-------------
Operating income 2,865,719
-------------
Other income (expense):
Interest income 107,865
Interest expense (1,370,543)
Finance charges 395,366
Gain on disposal of property, plant, and equipment 10,461
Other, net 26,409
-------------
(830,442)
-------------
Earnings before income tax expense 2,035,277
Income tax expense (note 7) 783,500
-------------
Net earnings $ 1,251,777
=============
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 8
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
Year ended December 31, 1999
<TABLE>
<CAPTION>
Accumulated
other Total
Additional compre- Loan stock-
Common paid-in Retained hensive to stock- holders'
stock capital earnings income holder equity
-------- ---------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 26, 1998 1,258 868,886 2,092,683 713,910 (157,851) 3,518,886
-------- ---------- --------- ------------ --------- ----------
Comprehensive income:
Net earnings -- -- 1,251,777 -- -- 1,251,777
Change in unrealized
gain, net of taxes -- -- -- (88,000) -- (88,000)
-------- ---------- --------- ------------ --------- ----------
Total comprehensive
income -- -- 1,251,777 (88,000) -- 1,163,777
Dividends on preferred
stock -- -- (12,450) -- -- (12,450)
-------- ---------- --------- ------------ --------- ----------
Balances at
December 31, 1999 $ 1,258 868,886 3,332,010 625,910 (157,851) 4,670,213
======== ========== ========= ============ ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 9
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year ended December 31, 1999
Cash flows from operating activities:
Net earnings $ 1,251,777
Adjustments to reconcile net earnings to net cash
used by operating activities:
Depreciation and amortization 709,093
Provision for bad debts 14,448
Deferred income taxes (218,500)
Gain on sale of assets (10,461)
Changes in assets and liabilities:
Trade accounts receivable (2,359,438)
Inventories (1,055,268)
Prepaid expenses (129,528)
Accounts payable 82,894
Accrued expenses 177,109
Income taxes payable 328,011
Deferred warranty revenue 107,000
-----------
Net cash used by operating activities (1,102,863)
-----------
Cash flows from investing activities:
Proceeds from sale of assets 22,226
Additions to property, plant, and equipment (949,617)
Increase in other assets (1,092,595)
Increase in officers' advances, net of payments (47,854)
-----------
Net cash used by investing activities (2,067,840)
-----------
Cash flows from financing activities:
Net borrowings on notes payable 1,887,830
Net borrowings on margin account 17,604
Principal payments on long-term debt (470,767)
Dividends paid on preferred stock (12,450)
Net outstanding checks 777,508
-----------
Net cash provided by financing activities 2,199,725
-----------
Net decrease in cash (970,978)
Cash at beginning of year 1,911,977
-----------
Cash at end of year $ 940,999
===========
Supplemental disclosure of cash flow and noncash
investing/financing activities:
Interest paid $ 1,370,543
===========
Income taxes paid $ 698,990
===========
Debt issued to acquire land, buildings, and equipment $ 584,332
===========
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 10
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
T.O. Haas Holding Co., Inc. (Company) is the parent company of T.O.
Haas Tire Co., Inc., a wholly owned subsidiary, whose operations
consist primarily of wholesale and retail tire sales. All significant
intercompany balances and transactions have been eliminated in
consolidation.
ACCOUNTING PERIOD
The Company maintains its accounting records on a 52-53 week fiscal
year. The fiscal year ends on the Saturday closest to December 31. The
year ended December 31, 1999 included 53 weeks.
INVENTORIES
Inventories are valued at cost primarily under the last-in, first-out
(LIFO) method, which does not exceed market value. Certain inventories
are valued at cost using the first-in, first-out (FIFO) method, which
does not differ materially from replacement cost. Inventories consist
of tires, wheels and other motor vehicle service parts.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the respective assets using
straight-line and declining-balance methods.
INVESTMENT IN COMMON STOCK
Investment in common stock is classified as available-for-sale in
accordance with Statement of Financial Accounting Standards (SFAS) No.
115, as the Company intends to hold these equity securities for an
indefinite period of time. These securities are carried at fair value.
Unrealized holding gains or losses, net of the related income tax
effect, are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. The Company does not
maintain investment securities classified as held-to-maturity or
trading securities.
INCOME TAXES
Certain income and expense items are accounted for in different periods
for income tax purposes than for financial reporting purposes.
Provisions for deferred income taxes are made in recognition of these
temporary differences.
The Company accounts for income taxes under the asset and liability
method which requires the recognition of deferred tax assets and
liabilities for expected future tax consequences of temporary
differences between the financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
For its wholesale operations, the Company recognizes revenue upon
shipment from its distribution centers/warehouse to the customer. For
its retail operations, the Company recognizes revenue at the point of
sale. In the normal course of business, the Company extends credit, on
open accounts, to its customers after performing a credit analysis
based on a number of financial and other criteria. The Company performs
ongoing credit evaluations of its customers' financial condition and
does not normally require collateral; however, letters of credit and
other security are occasionally required for certain new and existing
customers. Allowances are maintained for potential credit losses and
such losses have been within management's expectations. The Company
defers revenue from warranty agreements and recognizes revenues over
the estimated period earned based on Company experience.
F-7
<PAGE> 11
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
LOAN TO STOCKHOLDER
The loan receivable from stockholder relates to the acquisition of
treasury shares during 1998 and is payable on demand with interest at
7%.
COMPREHENSIVE INCOME
Comprehensive income consists of net earnings and unrealized gain
(loss) on investment in common stock and is presented in the
consolidated statements of stockholders' equity and comprehensive
income.
PREFERRED STOCK OF SUBSIDIARY
T.O. Haas Tire Co., Inc. has 8 percent cumulative preferred stock with
a par value of $10 per share. There were 14,290 outstanding shares as
of December 31, 1999. These shares were redeemed by Company
shareholders in connection with the sale of the common stock of the
Company (See note 10).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent 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.
(2) INVENTORIES
The table below presents selected financial information as reported in
the consolidated financial statements as of and for the year ended
December 31, 1999 using the LIFO method of inventory valuation for a
portion of the inventories and the FIFO method for the balance of the
inventories as compared to amounts had all inventories been valued
using the FIFO method:
-
As If
reported reported
under under
LIFO/FIFO FIFO
------------- -------------
Inventories valued using FIFO $ 459,157 459,157
Inventories valued using LIFO 14,845,973 16,028,313
------------- -------------
Total inventories $ 15,305,130 16,487,470
============= =============
Cost of sales $ 79,543,363 79,607,365
============= =============
F-8
<PAGE> 12
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(3) PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment, at cost, as of December
31, 1999 is shown below:
Estimated
useful life
in years
-----------
Land - $ 961,109
Buildings 10 - 40 3,583,180
Leasehold improvements 10 - 20 525,011
Retreading equipment 7 600,202
Service equipment 2 - 7 1,651,524
Transportation equipment 3 - 7 3,652,083
Warehouse equipment 7 890,182
Furniture and fixtures 5 - 10 1,094,707
------------
$ 12,957,998
============
(4) INVESTMENT IN COMMON STOCK
The Company owns common stock of a publicly traded company. The
investment in common stock is recorded at fair value, which exceeds
historical cost. The historical cost, estimated fair value, unrealized
holding gain, and related deferred income tax effect as of December 31,
1999 is shown below:
RELATED UNREALIZED
NUMBER NONCURRENT GAIN TO
OF DEFERRED STOCK-
SHARES HISTORICAL FAIR INCOME HOLDERS'
OWNED COST VALUE TAXES EQUITY
------- ---------- --------- ---------- ----------
169,845 $ 10,089 1,062,000 426,000 625,910
======= ========== ========= ========== ==========
F-9
<PAGE> 13
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
The investment in common stock is collateral for a stock margin account
which the Company has recorded as a non-current liability in the
accompanying consolidated balance sheets. No scheduled payments are
required under the terms of the stock margin account. Company
management has no intention to make payments on the stock margin
account, except in the instance of a margin call. Management has
assessed the potential for a margin call as highly unlikely due to the
historical performance of the common stock. The fair market value of
the common stock is approximately $950,000 as of June 8, 2000. Interest
on the stock margin account is at a variable rate (7.5% as of December
31, 1999), payable monthly.
(5) NOTES PAYABLE
A note payable to US Bank National Association (US Bank) is secured by
all assets of the Company subject to prior liens. The loan agreement
has various provisions, restrictions, and limitations related to
minimum net earnings and net worth levels, asset acquisitions,
indebtedness, and financial reporting requirements. In management's
opinion, the Company has complied with all requirements in the US Bank
loan agreement.
The indebtedness due June 30, 2001 has been segmented into short- and
long-term components as noted below. The revolving portion of the note
payable is repaid from cash collected on accounts receivable; this
portion has been classified as short-term, with interest at .25% above
prime (8.75% as of December 31, 1999). The long-term portion has a
fixed rate equal to the Eurodollar rate plus 250 basis points (8.1% as
of December 31, 1999). Interest is payable monthly. The Company has
borrowed on this note payable as of December 31, 1999 as follows:
Short-term revolving portion $ 5,071,415
Long-term fixed portion (note 6) 4,000,000
============
The Company has a $13 million line of credit available on this note
payable, thus, as of December 31, 1999, the Company had $3,928,585
remaining credit available under this note. See note 10 regarding
payoff of US Bank debt subsequent to year end.
F-10
<PAGE> 14
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
(6) LONG-TERM DEBT
The following is the long-term debt as of December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Long-term portion of US Bank note, due June 30, 2001. (See note 5) $ 4,000,000
Real estate note payable, bearing interest at 10.0%, due in monthly principal
installments of $6,229. A lump-sum payment of the remaining balance is due
June 30, 2003. (US Bank acquired this note during 1999 and extended due date
to June 30, 2003). Secured by real estate with depreciated cost of
approximately $361,000 187,858
Real estate notes payable, bearing interest at 7.33% and 8.29%. Due in monthly
principal installments of $10,000 with a lump-sum payment due June 2003.
Secured by real estate with a depreciated cost of approximately $1,826,000 1,362,904
Land contract note payable with interest at 7.25%, due in monthly
installments of $2,500, including interest, to February 2001, secured
by real estate with a depreciated cost of approximately $236,000 32,210
Various notes payable, bearing interest from 4.9% to 10.45%, due in monthly
installments totaling approximately $43,000, including interest, maturing at
various dates to July 2003, secured by equipment with a depreciated cost of
approximately $1,141,000 1,068,148
------------
6,651,120
Less current installments of long-term debt 550,500
------------
Long-term debt, excluding current installments $ 6,100,620
============
</TABLE>
The aggregate maturities of long-term debt for each of the years in the
five-year period ending December 31, 2004 are approximately as follows:
2000, $550,500; 2001, $488,000; 2002, $326,000; 2003, $274,000; and
2004, $65,000 (see note 10).
(7) INCOME TAXES
Components of income tax expense for the year ended December 31, 1999
are shown below:
Current income tax expense:
Federal $ 881,000
State 121,000
-----------
1,002,000
Deferred income tax benefit (218,500)
-----------
Total income tax expense $ 783,500
===========
F-11
<PAGE> 15
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Income tax expense differs from the "expected" income tax expense
computed by applying the federal and state statutory tax rates to
earnings before income taxes. The reasons for this difference are shown
below:
Computed "expected" income tax expense $ 814,111
Federal tax benefit from state income tax deduction (40,700)
Nondeductible meal and entertainment expenses 18,900
Nondeductible officers' life insurance premiums (6,900)
Other (1,911)
------------
Total income tax expense $ 783,500
============
The sources of deferred income taxes and their tax effects are shown
below:
Current:
Inventory $ (133,500)
Allowance for doubtful accounts (5,800)
Deferred warranty revenue (14,000)
Accrued vacation (13,000)
----------
(166,300)
----------
Noncurrent:
Depreciation (28,200)
Loss on sale of assets 5,000
Deferred warranty revenue (29,000)
----------
(52,200)
----------
Deferred income tax benefit $ (218,500)
==========
F-12
<PAGE> 16
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
The significant components of the deferred income tax assets and the
deferred income tax liabilities as of December 31, 1999 are shown
below:
Deferred tax assets related to:
Inventory $ 295,100
Accounts receivable 236,200
Deferred warranty revenue 144,000
Accrued vacation 116,000
------------
Deferred tax asset 791,300
------------
Deferred tax liabilities related to:
Investment in common stock 426,000
Depreciation 202,100
------------
Deferred tax liability 628,100
------------
Net deferred tax asset $ 163,200
============
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize
the benefits of these deductible differences. Consequently, no
valuation allowance is considered necessary.
(8) SAVINGS PLAN
The Company provides a 401(k) savings plan, a defined contribution
plan, for employees who are at least twenty-one years of age and have
been employed for at least one year. Employees can elect to make a
basic contribution from 1% to 3% of their annual base salary, plus an
additional 10% of their annual base salary. The Company contributes an
amount equal to 20% of the employees' basic contributions, which
approximated $32,000 for the year ended December 31, 1999. Employees
become 100% vested in the Company's contributions after six years.
(9) LEASES
The Company has entered into various operating lease agreements for
building space and equipment. Rental expense for the year ended
December 31, 1999 and terms are as shown on the following page.
F-13
<PAGE> 17
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
Property Terms
--------------------------------- ---------------
Warehouse and storage 1 - 10 years $ 410,766
Retail store 3 - 5 years 535,821
Bandag facility 5 years 60,000
Bandag equipment 5 years 92,465
Service equipment 3 - 5 years --
Transportation equipment 1 - 5 years 413,901
Office equipment 5 years 13,725
Warehouse equipment 3 years 48,541
Computer equipment 3 years 17,892
Other miscellaneous short-term Various 8,789
-----------
$ 1,601,900
===========
Lease payments to related parties, primarily companies owned by
stockholders, directors, and officers, in the normal course of
operations totaled $748,190 for the year ended December 31, 1999. In
the accompanying consolidated balance sheet, other assets include
receivables from related parties of approximately $1,501,000 as of
December 31, 1999.
Future minimum lease payments under noncancelable leases as of December
31, 1999 for the five years 2000 through 2004 are as follows:
2000 $ 2,152,406
2001 2,089,856
2002 1,919,858
2003 1,671,925
2004 1,521,401
============
(10) SUBSEQUENT EVENT
On April 14, 2000, the Company's stockholders signed an agreement to
sell 100% of the outstanding common stock in the Company to Heafner
Tire Group, Inc., headquartered in Charlotte, North Carolina. Heafner
Tire Group, Inc. sells tires and automotive parts from retail and
wholesale locations in the Southeast and West Coast areas of the United
States. The transaction closed on May 25, 2000 and in connection
therewith, the notes payable with US Bank (listed in note 5) were paid
in full.
F-14
<PAGE> 18
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
APRIL 1, 2000
--------------
(UNAUDITED)
ASSETS
Current assets:
Cash ................................................... $ 919
Trade accounts receivable, less allowance of $568....... 10,917
Inventories, net ....................................... 17,215
Other current assets ................................... 876
--------
Total current assets .............................. 29,927
--------
Property, plant and equipment, net ....................... 5,928
Other assets ............................................. 4,131
--------
$ 39,986
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 19,598
Notes payable and current maturities of
long-term debt ....................................... 7,287
Accrued expenses ....................................... 1,144
--------
Total current liabilities ......................... 28,029
--------
Revolving credit borrowings .............................. 4,000
Long-term debt ........................................... 2,887
Other liabilities ........................................ 690
Preferred stock of subsidiary ............................ 143
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share; authorized
500,000 shares; 125,789 shares issued and
outstanding .......................................... 1
Additional paid-in capital ............................. 869
Loan to stockholder .................................... (158)
Accumulated other comprehensive income, unrealized
gain on investment in common stock ................... 506
Retained earnings ...................................... 3,019
--------
Total stockholders' equity ........................ 4,237
--------
$ 39,986
========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-15
<PAGE> 19
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
QUARTERS ENDED
--------------
APRIL 1, 2000 MARCH 27, 1999
------------- --------------
Net sales ..................................... $ 24,041 $ 20,876
Cost of goods sold ............................ 18,869 16,381
-------- --------
Gross profit ................................ 5,172 4,495
Selling, general and administrative expenses... 5,383 4,504
-------- --------
Loss from operations......................... (211) (9)
-------- --------
Other income (expense):
Interest expense, net ....................... (288) (240)
Other income ................................ 52 48
-------- --------
Loss from operations before
income tax benefit .......................... (447) (201)
Income tax benefit ............................ (134) (68)
-------- --------
Net loss ...................................... $ (313) $ (133)
======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-16
<PAGE> 20
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
QUARTERS ENDED
--------------
APRIL 1, 2000 MARCH 27, 1999
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................... $ (313) $ (133)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization ............. 154 139
Change in assets and liabilities:
Accounts receivable, net .................. (108) (422)
Inventories, net .......................... (1,910) (3,052)
Other current assets ...................... (6) (30)
Accounts payable and accrued expenses ..... 3,541 1,710
------- -------
Net cash provided by (used in)
operating activities.................... 1,358 (1,788)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............ (321) (101)
Other, net .................................... (658) (177)
------- -------
Net cash used in investing activities .... (979) (278)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in revolving credit borrowings, net .. 1,690 2,134
Proceeds from long-term debt .................. 228 0
Principal payments on long-term debt .......... (158) (107)
Net outstanding checks ........................ (2,161) 41
------- -------
Net cash provided by (used in) financing
activities ............................. (401) 2,068
------- -------
NET INCREASE (DECREASE) IN CASH ................. (22) 2
CASH, BEGINNING OF PERIOD ....................... 941 1,912
------- -------
CASH, END OF PERIOD ............................. $ 919 $ 1,914
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION --
Cash payments for interest ................... $ 276 $ 206
======= =======
Cash payments for taxes ...................... $ 1,045 $ 331
======= =======
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-17
<PAGE> 21
T.O. HAAS HOLDING CO., INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The unaudited condensed consolidated balance sheet as of April 1, 2000, and the
condensed consolidated statements of operations and cash flows for the quarters
ended April 1, 2000 and March 27, 1999, have been prepared by T.O. Haas Holding
Co., Inc. and subsidiary ("Haas") and have not been audited. In the opinion of
management of Haas, all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial position, the
results of its operations and cash flows have been made. Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction with the
financial statements for the year ended December 31, 1999 and notes thereto
included elsewhere in this document. The results of the operations for the
quarter ended April 1, 2000 are not necessarily indicative of the operating
results for the full fiscal year.
2. COMPREHENSIVE LOSS:
Comprehensive loss consists of the Company's net loss and the unrealized holding
losses, net of the related tax effect, on the Company's investments classified
as available-for-sale. The comprehensive loss for the quarters ended April 1,
2000 and March 27, 1999 was approximately $429,000 and $271,000, respectively.
3. SUBSEQUENT EVENT:
On April 14, 2000, the stockholders of Haas signed an agreement to sell 100% of
the outstanding common stock to Heafner Tire Group, Inc., headquartered in
Charlotte, North Carolina. Heafner Tire Group, Inc. sells tires and automotive
parts from retail and wholesale locations in the Southeast and Western region of
the United States. The transaction closed on May 25, 2000 and in connection
therewith, the notes payable with US Bank were paid in full.
F-18
<PAGE> 22
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Statement of Operations of the
Company for the three months ended April 1, 2000 reflects the May 25, 2000
acquisition of Haas as if the transaction had occurred on January 1, 2000. The
following Unaudited Pro Forma Consolidated Statement of Operations of the
Company for the year ended December 31, 1999 reflects the acquisition of Haas as
if the transaction had occurred on January 1, 1999. The following Unaudited Pro
Forma Consolidated Balance Sheet of the Company as of April 1, 2000 reflects the
acquisition of Haas as if it had occurred on that date.
The pro forma statements do not purport to represent what the Company's
financial position or the results of operations would actually have been if the
transaction had occurred at the beginning of each period presented or on April
1, 2000, or to project the Company's consolidated results of operations or
financial position at any future date or for any future period.
F-19
<PAGE> 23
HEAFNER TIRE GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
HAAS
ACTUAL HAAS AS OF ACQUISITION PRO FORMA
APRIL 1, 2000 APRIL 1, 2000(14) ADJUSTMENTS AS ADJUSTED
------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 11,007 $ 919 $ $ 11,926
Accounts receivable, net............................ 98,100 10,917 (69) (1) 108,948
Inventories, net.................................... 150,400 17,215 896 (2) 168,511
Other current assets................................ 28,106 876 28,982
--------- --------- ---------- ---------
Total current assets........................... 287,613 29,927 827 318,367
--------- --------- ---------- ---------
Property and equipment, net........................... 47,823 5,928 (2,908) (3) 50,843
Goodwill, net......................................... 105,157 0 10,805 (4) 115,962
Other intangible assets, net.......................... 7,210 0 4,137 (5) 11,347
Other assets.......................................... 13,736 4,131 (1,628) (6) 16,239
--------- --------- ----------- ---------
$ 461,539 $ 39,986 $ 11,233 $ 512,758
========= ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 174,235 $ 19,598 $ 0 $ 193,833
Accrued expenses.................................... 29,570 1,144 2,155 (7) 32,869
Current maturities of long-term debt................ 1,890 7,287 (7,000) (8) 2,177
--------- --------- ---------- ---------
Total current liabilities...................... 205,695 28,029 (4,845) 228,879
--------- --------- ---------- ---------
Revolving credit borrowings........................... 67,070 4,000 18,842 (9) 89,912
Long-term debt........................................ 159,315 2,887 (1,960) (10) 160,242
Other liabilities..................................... 9,572 690 3,576 (11) 13,838
Preferred stock....................................... 11,094 143 (143) (12) 11,094
Warrants.............................................. 1,137 0 0 1,137
Commitments and contingencies
Stockholders' equity:
Common stock......................................... 53 1 (1) (12) 53
Additional paid-in capital.......................... 23,981 869 (869) (12) 23,981
Other comprehensive income.......................... 0 506 (506) (12) 0
Notes receivable from stockholders.................. (1,046) (158) 158 (13) (1,046)
Retained earnings (deficit)......................... (15,332) 3,019 (3,019) (12) (15,332)
--------- --------- --------- ---------
Total stockholders' equity..................... 7,656 4,237 (4,237) 7,656
--------- --------- --------- ---------
$ 461,539 $ 39,986 $ 11,233 $ 512,758
========= ========= ========= =========
</TABLE>
F-20
<PAGE> 24
Notes to Unaudited Pro Forma Consolidated Balance Sheet:
(1) Represents repayment of current portion of related party receivables.
(2) Represents adjustment to change inventory valuation from LIFO basis to
FIFO basis at net realizable value.
(3) Reflects (a) a $0.4 million write-up of net fixed assets to fair market
value and (b) $3.3 million elimination of real estate sold back to
former shareholder.
(4) Reflects the net adjustment to goodwill after recording the fair value
of assets and liabilities. Resulting goodwill to be amortized on an
assumed 15-year life.
(5) Reflects the adjustment for noncompete and other covenants. Resulting
intangible to be amortized over a period of 6 years.
(6) Reflects (a) $1.0 million elimination of stock to be contributed to a
third party in connection with the acquisition, (b) $0.5 million
repayment of related party receivables and (c) $0.1 million related to
the elimination of historical intangibles.
(7) Reflects (a) $1.5 million of purchase price withheld at closing,
pending adjustment as provided in the agreement and (b) $0.7 million
payable to former Haas shareholders for noncompete covenants and other
deferred payments.
(8) Reflects the repayment of the current portion of Haas credit
facilities.
(9) Reflects (a) $4.0 million repayment of the long-term portion of the
Haas credit facilities offset by (b) $22.9 million of net additional
borrowings under the Company's Revolver to fund the acquisition.
(10) Reflects (a) elimination of the $1.5 million debt related to the real
estate sold back to former shareholder, (b) elimination of the $0.4
million margin account related to stock to be contributed to a third
party in connection with the acquisition.
(11) Reflects (a) $3.5 million payable to former Haas shareholders for
noncompete covenants and other deferred payments (b) $0.5 million
deferred income tax liability related to fair market value adjustments
offset by $0.6 million elimination of deferred tax liabilities related
to assets subsequently disposed of and (c) $0.2 million adjustment of
long-term liabilities to fair market value.
(12) Reflects the elimination of the historical Haas equity accounts.
(13) Reflects the repayment of loan to a stockholder.
(14) This column reflects the balance sheet of T.O. Haas Holding Co., Inc.
and subsidiary only. The balance sheet of Haas Investment Company is
excluded as, in connection with the acquisition and related
transactions, substantially all of the assets and liabilities of Haas
Investment Company are retained by the seller.
F-21
<PAGE> 25
HEAFNER TIRE GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 2000
(in thousands)
<TABLE>
<CAPTION>
HAAS FOR THE
THREE MONTHS HAAS
ACTUAL ENDED APRIL 1, ACQUISITION PRO FORMA
APRIL 1, 2000 2000 ADJUSTMENTS AS ADJUSTED
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 254,428 $ 24,041 $ 0 $ 278,469
Cost of goods sold........................... 195,419 18,869 0 214,288
--------- --------- -------- ---------
Gross profit............................... 59,009 5,172 0 64,181
Selling, general and administrative expenses. 57,820 5,383 621 (1) 63,824
--------- --------- -------- ---------
Income (loss) from operations.............. 1,189 (211) (621) 357
--------- --------- -------- ---------
Other income (expense):
Interest expense, net...................... (5,829) (288) (381) (2) (6,498)
Other income............................... 577 52 0 629
--------- --------- -------- ---------
Loss from operations before
benefit for income taxes................... (4,063) (447) (1,002) (5,512)
Benefit for income taxes..................... (1,152) (134) (329) (3) (1,615)
--------- --------- -------- ---------
Net loss..................................... $ (2,911) $ (313) $ (673) $ (3,897)
========= ========= ========= =========
</TABLE>
F-22
<PAGE> 26
HEAFNER TIRE GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
HAAS FOR THE HAAS
ACTUAL YEAR ENDED ACQUISITION PRO FORMA
DECEMBER 31, 1999 DECEMBER 31, 1999 ADJUSTMENTS AS ADJUSTED
----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ................................... $1,016,589 $ 103,376 $ 0 $1,119,965
Cost of goods sold........................... 787,480 79,543 0 867,023
---------- ---------- ---------- ----------
Gross profit............................... 229,109 23,833 0 252,942
Selling, general and administrative expenses. 212,739 20,967 2,285 (4) 235,991
Special and nonrecurring charges............. 3,500 0 0 3,500
---------- ---------- ---------- ----------
Income (loss) from operations.............. 12,870 2,866 (2,285) 13,451
---------- ---------- ---------- ----------
Other income (expense):
Interest expense, net...................... (22,053) (1,262) (1,650) (5) (24,965)
Other income............................... 2,247 431 0 2,678
---------- ---------- ---------- ----------
Income (loss) from operations before
provision (benefit) for income taxes....... (6,936) 2,035 (3,935) (8,836)
Provision (benefit) for income taxes......... (348) 783 (1,286) (6) (851)
---------- ---------- ---------- ----------
Net income (loss)............................ $ (6,588) $ 1,252 $ (2,649) $ (7,985)
========== ========== ========== ==========
</TABLE>
F-23
<PAGE> 27
Notes to Unaudited Pro Forma Consolidated Statement of Operations:
(1) Represents (a) $0.1 million additional rent expense related to real
estate transferred to former shareholder and renegotiated related party
leases, reduced by elimination of historical depreciation expense, (b)
$0.2 million amortization on Haas goodwill based on a 15-year life and
(c) $0.3 million amortization of Haas noncompete covenant and other
deferred payments.
(2) Represents (a) $0.6 million increase in interest expense due to
increased borrowings under the Revolver at an assumed interest rate of
9.0%, (b) $0.1 million increase in interest expense due to incurrence
of liability to Haas shareholders for noncompete and other deferred
payments at an assumed rate of 9.0%, offset by (c) elimination of $0.2
million Haas historical interest on line of credit and (d) $0.1 million
elimination of interest expense related to debt associated with real
estate transferred to former shareholder.
(3) Reflects income tax effect of above adjustments (1) and (2) at an
assumed effective rate of 33% as a result of the effect of
nondeductible goodwill.
(4) Represents (a) $0.4 million additional rent expense related to real
estate transferred to former shareholder and renegotiated related party
leases, reduced by elimination of historical depreciation expense, (b)
$0.7 million amortization on Haas goodwill based on a 15-year life and
(c) $1.2 million amortization of Haas noncompete covenant and other
deferred payments.
(5) Represents (a) $2.2 million increase in interest expense due to
increased borrowings under the Revolver at an assumed interest rate of
9.0%, (b) $0.4 million increase in interest expense due to incurrence
of liability to Haas shareholders for noncompete and other deferred
payments at an assumed rate of 9.0%, offset by (c) elimination of $0.8
million Haas historical interest on line of credit and (d) $0.1 million
elimination of interest expense related to debt associated with real
estate transferred to former shareholder.
(6) Reflects income tax effect of above adjustments (4) and (5) at an
assumed effective rate of 33% as a result of the effect of
nondeductible goodwill.
F-24
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 14, 2000
HEAFNER TIRE GROUP, INC.
By: /s/ DAVID H. TAYLOR
--------------------------------
David H. Taylor
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial Officer)