<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file no. 0-6215.
----------------- -------
REPUBLIC AUTOMOTIVE PARTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1455545
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(State of incorporation) (I.R.S. Employer Identification No.)
500 Wilson Pike Circle, Suite 115, Brentwood, TN 37027
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (615) 373-2050
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock -
$.50 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $42,785,000. The aggregate market value was computed by
reference to the closing price of the stock, on the Nasdaq Stock Market, as of
March 22, 1996.
Number of shares (common) outstanding March 22, 1996: 3,387,818
---------
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the Annual Meeting of Stockholders scheduled to be held
June 13, 1996 incorporated in part by reference in Part III of this report on
Form 10-K.
1
<PAGE> 2
PART I
ITEM 1. BUSINESS
(a) General: Republic Automotive Parts, Inc. is a Delaware corporation founded
in 1923 as Republic Gear Company. The executive offices of the Company are
located at 500 Wilson Pike Circle, Suite 115, Brentwood, Tennessee 37027 (a
suburb of Nashville), telephone number (615) 373-2050. Unless the context
indicates otherwise, the terms Republic and the Company refer to Republic
Automotive Parts, Inc. and its subsidiaries.
The Company distributes a complete line of replacement parts (other than tires)
for substantially all mass produced makes and models of automobiles
manufactured within the last 15 years and most replacement parts for mass
produced trucks and vans. The Company also distributes a number of replacement
parts for heavy-duty trucks, snowmobiles, motorcycles, farm and marine
equipment and other similar types of machinery through its automotive
distribution centers and jobber stores. There are in excess of 100,000 separate
parts of nationally and privately branded items distributed by the Company.
The Company purchases replacement parts from over 100 principal suppliers and
distributes them through its automotive parts distribution centers. These
centers sell to the Company's jobber stores as well as to approximately 3,000
independent jobber stores. These stores in turn sell to service stations,
repair shops, individuals and others, including automobile and truck dealers,
fleet operators, leasing companies and mass merchandisers. The Company also
distributes new replacement parts to repair vehicles damaged in collisions
through its body parts and accessories distribution centers. These centers sell
to automotive collision repair shops and smaller parts distributors.
The key competitive elements for distribution centers are service, price and
breadth of product line. All Company-owned jobbers and most other independent
jobbers are located within overnight delivery distance by the Company's
delivery fleet or common carrier from one of the Company's distribution
centers. This enables the Company's distribution centers to replenish jobber
merchandise on a daily basis and enables the jobber to carry reduced amounts of
inventory. The Company's jobber stores are served primarily by the Company's
distribution centers.
Most jobber sales are made to repair shops, service stations and mechanics who
perform installation and repairs. A repair facility typically stocks a few
parts and purchases parts from the jobber as required. Thus, delivery time and
product availability are critical competitive factors. Repairs are also made by
car owners who go directly to the jobber for required parts. As a consequence,
many of the Company's jobber stores have been remodeled to provide larger,
well-lighted retail display areas and to utilize promotional displays and
advertising to attract the do-it-yourself car owner. Breadth of parts selection
and customer assistance are primary attractions for the car owner. Some of the
jobber stores have machine shops which offer services such as cylinder head
grinding, brake drum lathe work and valve refacing.
The automotive parts aftermarket is highly fragmented with the majority of
distribution centers and jobbers being relatively small and privately owned.
The Alaskan market is the only one in which the Company is a major factor.
Republic has acquired its distribution centers and jobber stores in what it
considers to be advantageous market areas. New jobber stores opened or acquired
by the Company are located so as to be supplied primarily from Company-owned
distribution centers. This favorably affects economics in material handling,
delivery and local advertising costs.
(b) Industry Segment: Republic sells primarily automotive replacement parts and
related merchandise which the Company considers to be one industry segment
under Statement of Financial Accounting Standards No. 14. No single class of
similar products, services or customers has contributed as much as 10% of total
sales and revenues of the Company.
(c)(1)(i) The Company competes with numerous distribution outlets of parts
manufacturers and automobile manufacturers, as well as other parts
distributors, including some of the large national retail chain stores. The
automotive replacement parts industry is highly competitive and is becoming
more competitive as the major automotive manufacturers now manufacture and
distribute replacement parts for other models in addition to their own. Some of
its competitors have much greater financial resources than the Company. The
sales volume of the entire Company, in the aggregate, represented less than 1%
of the total automotive replacement parts market.
2
<PAGE> 3
Damages and normal wear create a continuing demand for replacement parts. The
number of automobiles and trucks registered in the United States has increased
continually. However, the principal manufacturers of automobiles and trucks in
recent years continue to improve the quality of their products and grant longer
warranties on certain parts included in new vehicles. As a result the average
age of vehicles is increasing. The Company is unable to assess what effect, if
any, these factors may have on demand for the replacement parts it distributes.
(iii) The Company purchases all of its products from approximately 100
principal manufacturers and other suppliers, some of whom are competitors of
the Company and some of whom are in foreign countries. No material part of the
Company's purchases is dependent on a single supplier.
(iv) Patents, licenses, franchises, concessions held, research activities
and environmental control are not significant in the business of the Company.
(v) No material part of the Company's business is significantly
seasonal; however, summer sales generally exceed winter sales.
(vi) The Company provides rights to return merchandise for parts
purchased by its customers in excess of their needs, certain defective items
and used parts which are returned to the Company's suppliers to be
remanufactured, as well as certain obsolete parts which are returned to the
Company's suppliers generally for full credit.
(vii) No material part of the Company's business is dependent upon a
single customer or upon very few customers.
(viii) Backlog is not significant in the business of the Company.
(ix) No material portion of the Company's business is dependent upon the
U.S. Government.
(xiii) The Company employs approximately 1,300 persons. Union contracts in
two states cover less than 2% of these employees and employee relations are
considered satisfactory by the Company.
(d) The Company does not engage in operations in foreign countries and no
material portion of its sales or revenues are derived from customers in foreign
countries.
3
<PAGE> 4
ITEM 2. PROPERTIES.
The Company and its subsidiaries occupy and operate distribution centers and
jobber stores at the following locations:
<TABLE>
<CAPTION>
LEASED
FLOOR SPACE OR
TYPE OF FACILITY LOCATION (SQUARE FEET) OWNED
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Executive Offices Brentwood, TN 17,830 Leased
Distribution Centers Anchorage, Alaska 56,400 Leased
Atlanta, Georgia 44,100 Leased
Austin, Texas 16,600 Leased
Charlotte, North Carolina 66,000 Leased
Chillicothe, Missouri 32,500 Owned
Columbia, South Carolina 20,000 Leased
Cullman, Alabama 30,000 Leased
Davenport, Iowa 42,000 Leased
Denver, Colorado 50,500 Leased
Des Moines, Iowa 57,800 Leased
Duluth, Minnesota 30,000 Leased
El Centro, California 17,700 Leased
Export, Pennsylvania 66,000 Leased
Greensboro, North Carolina 23,600 Leased
Harlingen, Texas 3,600 Leased
Indianapolis, Indiana 20,500 Leased
Jackson, Mississippi 62,800 Leased
Jackson, Tennessee 5,000 Leased
Latham, New York 38,100 Leased
Marquette, Michigan 12,000 Leased
Nashville, Tennessee 78,000 Leased
St. Louis, Missouri 60,700 Leased
San Antonio, Texas 9,000 Leased
Raleigh, North Carolina 33,300 Leased
Tacoma, Washington 57,900 Leased
Tyler, Texas 5,000 Leased
Jobber Stores Thirteen in Alaska 64,000 2 Owned
11 Leased
One in Arizona 8,600 Leased
Four in California 24,900 Leased
One in Colorado 1,000 Leased
One in Illinois 6,000 Leased
Six in Indiana 23,200 Leased
Six in Iowa 30,900 Leased
Six in Michigan 67,200 Leased
Six in Minnesota 38,500 Leased
Fourteen in Missouri 84,300 Leased
Two in North Carolina 6,700 Leased
Twenty-four in Pennsylvania 153,100 Leased
Six in Wisconsin 33,200 Leased
One in Washington 1,000 Leased
</TABLE>
The longest lease binds the Company through July 6, 2007. The Company is fully
utilizing all of its owned and leased facilities. The Company believes its
facilities are adequate for its present and immediately foreseeable needs. The
Company owns substantially all of the equipment used in its facilities.
4
<PAGE> 5
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named as defendant in legal proceedings incidental to the
ordinary conduct of its business operations. Management is vigorously defending
these proceedings and believes none will have a significant impact on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the calendar year covered by this Annual Report on
Form 10-K, no matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The prices in the table below represent the high and low sales price for the
common stock as reported in The Nasdaq Stock Market under the symbol RAUT. At
March 22, 1996, there were 493 stockholders of record.
<TABLE>
<CAPTION>
CLOSING PRICES
1995 1994
---------------------------------
QUARTER HIGH LOW HIGH LOW
- --------------------------------------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First ............................................. 16 3/4 13 18 1/2 11 3/4
Second ............................................ 15 1/4 12 3/4 17 3/4 15 1/4
Third ............................................. 15 1/2 14 18 15
Fourth ............................................ 14 3/4 11 1/2 15 3/4 13
</TABLE>
The Company did not pay dividends in 1995 and 1994 and does not intend to pay
dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per-share amounts) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales ............................................. $154,611 $138,295 $ 91,683 $ 84,205 $ 80,245
Income before income taxes, extraordinary
item and accounting changes ........................ 3,305 6,908 4,604 3,615 2,891
Net income ............................................ 1,884 4,248 1,862 2,194 1,770
Net income per share* ................................. .53 1.22 .58 .70 .56
Cash dividend declared per share ...................... None None None None None
Total Assets .......................................... 99,788 78,258 62,077 47,250 45,411
Long-term debt ........................................ 30,094 18,925 6,945 5,758 7,272
</TABLE>
*Earnings per share for 1993 include reduction of earnings for the cumulative
effect of changes in accounting principles of $0.28 on a fully diluted basis.
Net income per share for 1991 includes an extraordinary credit of $0.01 per
share, from utilization of operating carryforwards.
5
<PAGE> 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of the Company and related notes to consolidated financial
statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
statement data in dollar amount and as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1995 1994 1993
-------------------- ------------------- ------------------
DOLLAR % OF Dollar % of Dollar % of
(Dollars in thousands) AMOUNT NET SALES Amount Net Sales Amount Net Sales
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $154,611 100.0% $138,295 100.0% $91,683 100.0%
Cost of products sold 97,131 62.8 87,691 63.4 56,610 61.7
-------- ------ -------- ----- ------- ------
Gross profit 57,480 37.2 50,604 36.6 35,073 38.3
Selling, general and administrative expenses 50,606 32.7 43,142 31.2 30,658 33.4
-------- ------ -------- ----- ------- ------
Operating income 6,874 4.5 7,462 5.4 4,415 4.9
Interest income 394 .2 397 .3 403 .4
Interest expense (1,828) (1.2) (1,042) (.8) (358) (.4)
Other income and expense (2,135) (1.4) 91 .1 144 .1
-------- ------ -------- ----- ------- ------
Income before income taxes and cumulative
effect of changes in accounting principles 3,305 2.1 6,908 5.0 4,604 5.0
Income taxes 1,421 .9 2,660 1.9 1,837 2.0
Cumulative effect of changes in
accounting principles (905) (1.0)
-------- ------ -------- ----- ------- ------
Net income $ 1,884 1.2% $ 4,248 3.1% $ 1,862 2.0%
======== ====== ======== ===== ======= ======
</TABLE>
1995 COMPARED TO 1994
Net sales increased $16,316,000, or 11.8%, from $138,295,000 in 1994 to
$154,611,000 in 1995. Acquisitions on July 7, 1995 (one distribution center and
23 stores in metropolitan Pittsburgh, Pennsylvania) and August 31,1995 (three
automotive body parts distribution centers in Texas) added $16,313,000 in net
sales. Fenders & More, Inc. distribution centers opened in 1994 (one
distribution center) and 1995 (three distribution centers) added additional net
sales of $5,122,000. These increases in net sales due to acquisitions and new
locations were offset by decreases in net sales at the Company's traditional
automotive hard parts distribution centers and jobber stores due to the mild
1994-95 winter weather, a generally soft retail economy plus competitive
pressures in some of the Company's trading areas. Sales attributable to
properties and operations included in both years ended December 31,1995 and
1994 were $98,958,000 and $102,966,000, respectively. The number of jobber
stores owned and operated by the Company increased by a net of 23 stores in
1995. Acquisitions added 25 new jobber stores. Three new jobber stores were
opened while five marginally profitable stores were either sold or closed.
Gross profit for 1995 was $57,480,000, or 37.2% of net sales, compared with
$50,604,000, or 36.6% of net sales in 1994. The changes in cost of products
sold are generally consistent with changes in net sales; however, the gross
profit percentage for 1995 increased slightly due to the shift in the mix of
wholesale and retail sales as a result of acquisitions, the opening of new
operations and the sale or closing of Company-owned jobber stores.
Selling, general and administrative expenses were $50,606,000, or 32.7% of net
sales, compared with $43,142,000, or 31.2% of net sales in 1994. The dollar
increase in selling, general and administrative expenses principally resulted
from the increased sales volume generated by acquisitions in 1995 and start-up
expenses related to the new Fenders & More, Inc. distribution centers.
Additionally, the aforementioned shift in mix of business, which resulted in
higher gross margins, also resulted in higher expense levels.
Operating income was $6,874,000, or 4.5% of net sales, compared with
$7,462,000, or 5.4% of net sales in 1994. Increased expenses related to
acquisitions and planned start-up expenses at the new Fenders & More, Inc.
distribution centers accounted for the decrease in operating income.
6
<PAGE> 7
Interest expense was $1,828,000, or 1.2% of net sales, compared with
$1,024,000, or 0.8% of net sales in 1994. The increase in interest expense is
principally due to the higher borrowing levels resulting from the Company's
investment in acquisitions and the expansion of its Fenders & More, Inc.
business as well as the impact of changes in interest rates compared to the
prior year. Other income and expense included $2,150,000 to settle an adverse
litigation verdict affirmed by the Michigan State Appellate Court in June 1995.
The Company's total effective income tax rate was 43.0% in 1995 compared to
38.5% in 1994. These differences from the statutory federal rate are due mostly
to the impact of state income taxes as further discussed in Note 7 to the
consolidated financial statements.
Net income was $1,884,000, or 1.2% of net sales, compared with $4,248,000, or
3.1% of net sales in 1994. The decrease in net income resulted primarily from
the litigation settlement, increased selling, general and administrative
expenses and interest expense discussed above.
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1995
---- FIRST SECOND THIRD FOURTH TOTAL
(Dollars in thousands, except per-share amounts) QUARTER QUARTER QUARTER QUARTER FOR YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales ......................................... $ 32,908 $ 36,413 $ 43,752 $ 41,538 $154,611
Gross Profit ...................................... 12,379 13,284 16,294 15,523 57,480
Net Income (Loss) ................................. 627 (395) 1,239 413 1,884
Net Income (Loss) per share* ...................... .18 (.11) .35 .12 .53
1994
----
Net Sales ......................................... $ 30,558 $ 37,808 $ 36,578 $ 33,351 $138,295
Gross Profit ...................................... 10,790 13,409 13,512 12,893 50,604
Net Income ........................................ 589 1,359 1,332 968 4,248
Net Income per share* ............................. .17 .39 .39 .28 1.22
</TABLE>
* (The sum of reported quarterly earnings per share differs from annual earnings
per share due to rounding.)
A year-end adjustment for LIFO expense resulted in decreasing net income during
the fourth quarter of 1995 by approximately $143,000 ($0.04 per share).
1994 COMPARED TO 1993
Net sales increased $46,612,000, or 50.8%, from $91,683,000 in 1993 to
$138,295,000 in 1994. Acquisitions on January 28, 1994 (two automotive body
parts distribution centers in Nashville, Tennessee and Atlanta, Georgia), April
11, 1994 (five jobber stores in Indianapolis, Indiana) as well as a full year
of sales from the acquisition of the Automotive division of AEA, Incorporated
on September 27, 1993 accounted for $46,560,000 in increased net sales. Sales
attributable to properties and operations included in both years ended December
31,1994 and 1993 were $84,420,000 and $82,247,000, respectively. The number of
jobber stores owned and operated by the Company decreased by a net of 7 stores
in 1994. Acquisitions added five new jobber stores. One new jobber store was
opened while 13 marginally profitable stores were either sold or closed.
Gross profit for 1994 was $50,604,000, or 36.6% of net sales, compared with
$35,073,000, or 38.3% of net sales in 1993. The changes in cost of products
sold are generally consistent with changes in net sales; however, the gross
profit percentage for 1994 decreased due to the shift in the mix of wholesale
and retail sales as a result of the acquisitions discussed above and the sale
or closing of Company-owned jobber stores.
Selling, general and administrative expenses were $43,142,000, or 31.2% of net
sales, compared with $30,658,000, or 33.4% of net sales in 1993. The dollar
increase in selling, general and administrative expenses principally resulted
from the increased sales volume generated by the acquisitions made in 1994 and
the latter part of 1993. Additionally, the aforementioned shift in mix of
business, which resulted in lower gross margins, does not require as high an
expense level.
7
<PAGE> 8
Operating income was $7,462,000, or 5.4% of net sales, compared with
$4,415,000, or 4.9% of net sales in 1993. The increase in operating income was
generally consistent with the increase in net sales.
Interest expense was $1,042,000, or 0.8% of net sales, compared with
$358,000, or 0.4% of net sales in 1993. The increase in interest expense is
principally due to the higher borrowing levels resulting from the Company's
investment in acquisitions and the expansion of its Fenders & More, Inc.
business as well as the impact of changes in interest rates compared to the
prior year.
The Company's total effective income tax rate was 38.5% in 1994 compared to
39.9% in 1993. These differences from the statutory federal rate are due mostly
to the impact of state income taxes as further discussed in Note 7 to the
consolidated financial statements.
Net income was $4,248,000, or 3.1% of net sales, compared with $1,862,000, or
2.0% of net sales in 1993. The Company adopted the Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and No. 109, "Accounting for Income Taxes" in
1993 which reduced net income by $905,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows: For the year ended December 31, 1995, operating activities provided
$4,533,000 of net cash primarily from net earnings, depreciation and
amortization and accounts payable which was offset by increases in accounts
receivable and income taxes recoverable. Investing activities used $13,788,000
of cash, principally consisting of the Company's investment in acquisitions and
capital expenditures. Financing activities provided $9,378,000 of cash
principally resulting from net borrowings under the Company's Revolving Credit
Agreement which were used to finance acquisitions.
For the year ended December 31, 1994, operating activities used $1,993,000 of
net cash reflecting uses of cash from operating activities to increase
inventories and reduce accounts payable which was offset by net earnings and
depreciation and amortization. Investing activities used $4,753,000 of cash,
principally consisting of the Company's investment in acquisitions and capital
expenditures. Financing activities provided $5,897,000 of cash principally
resulting from net borrowings under the Company's Revolving Credit Agreement.
For the year ended December 31, 1993, operating activities provided $10,067,000
of net cash primarily from net earnings, depreciation and amortization,
reductions in inventory and increases in accounts payable and other long-term
liabilities. Investing activities used $8,512,000 of cash, principally
consisting of the Company's investment in acquisitions and capital
expenditures. Financing activities were not significant in 1993.
Working Capital: The Company's ratio of current assets to current liabilities
was 3.2 at the end of 1995 compared with 3.8 at the end of 1994. Working
capital at December 31, 1995 was $51,741,000 compared with $44,638,000 at
December 31, 1994. The increase in working capital at December 31, 1995 was
primarily related to higher accounts receivable and inventories offset by
accounts payable resulting from the acquisitions made in 1995. This increase in
working capital was financed by borrowings under the Revolving Credit
Agreement. Cash increased by $123,000 from $2,675,000 at December 31, 1994 to
$2,798,000 at December 31, 1995.
Credit Facilities: At December 31, 1995, the Company had available cash
resources of $35,000,000 from banks, of which $28,000,000 was utilized. A
revolving credit note agreement is the cornerstone of the Company's credit
facilities. Note 8 to the consolidated financial statements contains a more
complete explanation of the Company's credit facilities.
Capital Expenditures and Acquisitions: Capital expenditures, excluding new
business acquisitions, were $2,255,000 and $1,933,000 for 1995 and 1994,
respectively. Normal replacement of equipment and fixtures and the opening of
new Fenders & More, Inc. distribution centers accounted for the majority of
capital expenditures. The Company has made a number of strategic acquisitions
during the three years ended December 31, 1995. Note 6 to the consolidated
financial statements contains a more complete explanation of these
acquisitions. The Company anticipates future growth will come from further
strategic acquisitions as well as additional openings of new distribution
centers by its subsidiary Fenders & More, Inc. Five new locations are planned
to be opened by Fenders & More, Inc. during 1996 including the new distribution
center opened in Tyler, Texas in January 1996.
Sources of Liquidity: Although no other definitive arrangements have been
reached, it is expected that cash generated from operations, other changes in
working capital and existing credit facilities will be sufficient to support
cash outlays for additional location openings and anticipated acquisitions, if
any.
8
<PAGE> 9
SEASONALITY AND INFLATION
Historically, the Company's net sales have been higher during April through
September of each year than during the other months of the year. In addition,
the demand for the Company's traditional automotive hard parts is somewhat
affected by weather conditions as is the automotive body parts business. The
Company's results of operations from period to period may be affected by such
weather conditions. Temperature extremes tend to enhance sales by causing a
higher incidence of parts failure while milder weather tends to depress sales.
Severe winter weather tends to enhance the Company's automotive body part sales
due to a higher incidence of automotive collisions. The mild winter of 1994-95
did not enhance sales of the Company's products.
Although inflation has slowed dramatically in recent years, it is still a
significant factor for the Company as inventories comprise more than one-half
of total assets. In general, the Company offsets increased costs by increasing
sales prices as recommended by suppliers. Price increases due to inflation were
estimated to be less than 2% per year for each of the last three years.
The Company uses the LIFO method of accounting for most of its inventories.
Under this method, the cost of products sold reported in the consolidated
financial statements approximates current costs and thus reduces the distortion
in reported income due to increasing costs. Note 4 to the consolidated
financial statements contains additional detail concerning LIFO's effect on the
Company.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), in October 1995. The Company is required to adopt either the new
accounting rules or the new disclosure rules of SFAS No. 123 no later than its
year ended December 31, 1996. The Company expects to adopt the new disclosure
requirements of SFAS No. 123.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company, together with the Report
of Independent Accountants, are set forth on pages 10 through 21 in this
report.
9
<PAGE> 10
4400 Harding Road Telephone 615 292 5000
Nashville, TN 37205
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 22, 1996
To the Board of Directors
and Stockholders of Republic Automotive Parts, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under item 14 (a) (1) and (2) on page 22 present fairly, in all
material respects, the financial position of Republic Automotive Parts, Inc.
and its subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
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 audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Notes 7 and 11, the Company changed its methods of accounting
for income taxes and postretirement benefits in 1993.
/s/ Price Waterhouse LLP
10
<PAGE> 11
Republic Automotive Parts, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,798 $ 2,675
Accounts and notes receivable, less allowance for doubtful
accounts of $490,000 and $518,000 14,063 12,090
Inventories 52,732 42,075
Deferred income taxes 2,972 2,424
Income taxes recoverable 1,452 199
Prepaid expenses and other current assets 1,031 1,098
--------- ---------
Total current assets 75,048 60,561
PROPERTY, PLANT AND EQUIPMENT, NET 9,266 6,785
LONG-TERM NOTES RECEIVABLE 693 920
DEFERRED PENSION ASSET 3,298 3,140
GOODWILL AND OTHER INTANGIBLES, less accumulated
amortization of $1,802,000 and $1,275,000 11,483 6,852
--------- ---------
$ 99,788 $ 78,258
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and long-term debt due within one year $ 1,964 $ 625
Accounts payable 15,800 10,727
Accrued compensation and employee benefits 2,467 2,401
Accrued taxes and other liabilities 3,076 2,170
--------- ---------
Total current liabilities 23,307 15,923
LONG-TERM DEBT 30,094 18,925
DEFERRED INCOME TAXES 1,682 1,435
OTHER LONG-TERM LIABILITIES 1,707 1,860
COMMITMENTS AND CONTINGENCIES (Notes 10 and 13)
STOCKHOLDERS' EQUITY
Preferred stock of $1.00 par value:
Authorized - 150,000; Issued - none
Junior Participating Cumulative
Preferred Stock at $1.00 par value
Authorized - 50,000 shares; Issued - none
Common stock of $.50 par value:
Authorized - 5,000,000 shares
Issued - 3,460,983 shares in 1995 and 3,391,751 shares in 1994 1,730 1,696
Additional paid-in capital 24,913 23,948
Retained earnings 17,160 15,276
Treasury stock, at cost: 73,165 shares (805) (805)
--------- ---------
42,998 40,115
--------- ---------
$ 99,788 $ 78,258
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
<TABLE>
<CAPTION>
Republic Automotive Parts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended
December 31,
(Dollars in thousands, except per-share data) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $154,611 $138,295 $91,683
COSTS AND EXPENSES
Cost of products sold 97,131 87,691 56,610
Selling, general and administrative expenses 50,606 43,142 30,658
-------- -------- -------
OPERATING INCOME 6,874 7,462 4,415
INTEREST INCOME 394 397 403
INTEREST EXPENSE (1,828) (1,042) (358)
OTHER INCOME AND EXPENSE (Note 12) (2,135) 91 144
-------- -------- -------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 3,305 6,908 4,604
PROVISION FOR INCOME TAXES 1,421 2,660 1,837
-------- -------- -------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 1,884 4,248 2,767
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES (net of related income tax benefit of $484,000) (905)
-------- -------- -------
NET INCOME $ 1,884 $ 4,248 $ 1,862
======== ======== =======
EARNINGS PER COMMON SHARE
Primary:
Income before accounting changes $ 0.53 $ 1.22 $ 0.90
Cumulative effect of changes in accounting principles (0.30)
-------- -------- -------
Net income $ 0.53 $ 1.22 $ 0.60
======== ======== =======
Fully diluted:
Income before accounting changes $ 0.53 $ 1.22 $ 0.86
Cumulative effect of changes in accounting principles (0.28)
-------- -------- -------
Net income $ 0.53 $ 1.22 $ 0.58
======== ======== =======
Weighted average common and common equivalent shares outstanding:
Primary 3,526 3,479 3,064
======== ======== =======
Fully-diluted 3,526 3,479 3,225
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
<TABLE>
<CAPTION>
Republic Automotive Parts, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common stock Restricted Treasury stock
-------------------- Additional stock, ---------------------
Number paid-in Retained unvested Number
(Dollars in thousands) of shares Amount capital earnings portion of shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 2,961 $1,480 $19,856 $ 9,166 $ (57) 23 $(187)
Restricted stock amortized 44
Stock options exercised 176 88 1,235 50 (618)
Net income 1,862
----- ------ ------- ------- ------- ----- -----
Balance at December 31, 1993 3,137 1,568 21,091 11,028 (13) 73 (805)
Restricted stock amortized 13
Restricted stock tax benefit 180
Stock issued 255 128 2,677
Net income 4,248
----- ------ ------- ------- ------- ----- -----
Balance at December 31, 1994 3,392 1,696 23,948 15,276 73 (805)
Stock issued 69 34 965
Net income 1,884
----- ------ ------- ------- ------- ----- -----
Balance at December 31, 1995 3,461 $1,730 $24,913 $17,160 $ - 73 $(805)
===== ====== ======= ======= ======= ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
<TABLE>
<CAPTION>
Republic Automotive Parts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended
December 31,
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,884 $ 4,248 $ 1,862
Adjustments to reconcile net income to net cash
(used) provided by operations:
Depreciation 2,027 1,611 1,022
Amortization of intangibles 1,034 806 211
Provision for losses on accounts receivable 424 259 225
Provision for deferred pension income (158) (289) (213)
Loss (gain) on disposal of property, plant and equipment 5 (38) (57)
Deferred income taxes (210) 82 (278)
Change in assets and liabilities net of effects from acquisitions:
Accounts and notes receivable (560) (564) 126
Income taxes recoverable (1,253)
Inventories (702) (4,416) 1,964
Prepaid expenses and other current assets 84 (72) (84)
Accounts payable 2,190 (3,498) 3,896
Accrued compensation and employee benefits (246) 205 49
Accrued taxes and other liabilities 585 127 (12)
Other long-term liabilities (571) (454) 1,356
-------- -------- -------
Net cash provided (used) by operating activities 4,533 (1,993) 10,067
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property, plant and equipment 116 273 213
Acquisitions, net of cash acquired (Notes 3 and 6) (11,649) (3,093) (8,105)
Capital expenditures (2,255) (1,933) (620)
-------- -------- -------
Net cash used in investing activities (13,788) (4,753) (8,512)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on revolving credit agreement 14,375 18,400 9,800
Payments under revolving credit agreement (4,575) (6,200) (9,300)
Payments on long-term debt and notes payable (649) (6,499) (1,307)
Decrease in long-term notes receivable 227 16 283
Proceeds from exercise of stock options 180 705
-------- -------- -------
Net cash provided by financing activities 9,378 5,897 181
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 123 (849) 1,736
Cash and cash equivalents at beginning of year 2,675 3,524 1,788
-------- -------- -------
Cash and cash equivalents at end of year $ 2,798 $ 2,675 $ 3,524
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
Republic Automotive Parts, Inc.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:
Republic Automotive Parts, Inc. (the "Company") distributes new automotive
aftermarket replacement parts through a network of distribution centers and
jobber stores. The Company is a member of the American Marketing Association
("AMA") through which it is licensed to use the nationally known "All-Pro Auto
Parts" merchandising name. This association of operators of auto parts stores
ranks as one of the largest in the nation with 80 warehouse distributor members
and 1,800 jobber store members throughout the United States. As a member of
AMA, the Company is able to offer high-quality parts at meaningful savings to
its customers in the automotive aftermarket repair parts and service segment of
the United States economy.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying financial statements include the accounts of Republic
Automotive Parts, Inc. and all subsidiary companies. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Highly liquid investments purchased with an original maturity of less than
three months are classified as cash equivalents.
Financial Instruments
The Company has various financial instruments, including cash, accounts and
notes receivable, accounts payable and accrued liabilities and debt. The
carrying values of these financial instruments approximate their fair market
values.
Inventories
Inventories, consisting principally of automotive replacement parts, are stated
at the lower of cost or market. Cost is determined by the last-in, first-out
(LIFO) method for the majority of the Company's inventories. The costs of
remaining inventories are determined by average cost methods.
Inventory Rebates
The Company receives inventory rebates from a majority of its suppliers under
numerous purchasing incentive programs. The volume of rebates received
generally increases as annual purchasing volume increases. The Company records
the receipt of these rebates as an offset to cost of products sold as the
rebates are earned and become estimable.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Land improvements -- 10 to 20 years
Buildings and building improvements -- 5 to 30 years
Equipment and fixtures -- 3 to 15 years
</TABLE>
Leasehold improvements are amortized over the terms of the related leases.
Goodwill and Other Intangibles
Goodwill is amortized using the straight-line method principally over 15 years.
Other intangibles, comprising principally non-competition agreements, are
amortized over their respective terms. The realizability of intangible assets
are periodically reassessed to determine continuing benefit.
Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" in 1993 without retroactive
application to earlier years (Note 7). Under Statement No. 109, the liability
method is used in accounting for income taxes, whereby deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that are expected to be in effect when the differences are
expected to reverse.
Earnings Per Common Share
Earnings per common share are computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each year.
15
<PAGE> 16
Reclassifications
Certain balances in 1994 and 1993 have been reclassified to conform with
current year presentation.
Management 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 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.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments during 1995, 1994 and 1993 totalled $1,839,000, $936,000
and $392,000, respectively. Cash payments for income taxes net of refunds
totalled $2,844,000 in 1995, $2,535,000 in 1994 and $1,440,000 in 1993.
The following table summarizes non-cash investing and financing activities
related to the Company's acquisitions in 1995, 1994 and 1993.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets acquired, other than cash $ 19,940 $ 12,595 $ 14,563
Common stock issued (1,000) (2,805)
Note payable issued (3,157) (835) (4,912)
Cash paid (11,649) (3,093) (8,105)
--------- -------- --------
Liabilities assumed or incurred $ 4,134 $ 5,862 $ 1,546
========= ======== ========
</TABLE>
NOTE 4 - INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for approximately 86% of inventories in
1995 and 90% of inventories in 1994. Replacement cost of the inventories
exceeded the LIFO carrying amount by approximately $4,807,000 at December 31,
1995 and $4,284,000 at December 31, 1994. The Company provides a reserve in
accordance with Statement of Financial Accounting Standards No. 48, "Revenue
Recognition When Right of Return Exists" in the amount of $381,000 at December
31, 1995 and $318,000 at December 31, 1994.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 261 $ 239
Buildings and building improvements 1,083 1,079
Leasehold improvements 1,261 1,247
Equipment and fixtures 16,791 12,944
---------- ---------
19,396 15,509
Accumulated depreciation and amortization (10,130) (8,724)
---------- ---------
$ 9,266 $ 6,785
========== =========
</TABLE>
NOTE 6 - BUSINESS COMBINATIONS:
The Company acquired certain assets of Beacon Auto Parts Company ("BAP), a
privately-held distributor of automotive replacement parts and supplies in
metropolitan Pittsburgh, Pennsylvania on July 7, 1995. The purchase price was
$12,816,000. In addition, the Company assumed $3,305,000 of trade payables and
accrued expenses. Of the purchase price, $1,000,000 was paid through the
issuance of 69,232 shares of common stock, $2,000,000 by the issuance of a
subordinated promissory note, $8,660,000 in cash paid at closing and $1,157,000
to be paid following settlement. Additional contingent purchase price payments
over the next two and one-half years of up to $2,500,000 based on the operations
of the acquired business meeting certain targets may be due to the selling
parties. The Company also entered into a non-competition undertaking providing
for payments aggregating $500,000 over five years. Direct acquisition costs of
$179,000 were also incurred. The assets acquired were recorded at their fair
values of $9,320,000 for inventory, $1,605,000 for accounts receivable,
$1,971,000 for equipment, furniture, fixtures and vehicles, $116,000 for
prepaid expenses, deferred tax asset and petty cash, $418,000 for
non-competition undertaking and $3,288,000 for goodwill. The acquisition was
16
<PAGE> 17
accounted for under the purchase method with the results of Beacon Auto Parts
Company included in the Consolidated Statements of Income from the acquisition
date.
The Company also purchased certain assets of PartsNet Incorporated, a
privately-held distributor of automotive crash parts based in Austin, Texas
with additional facilities in San Antonio and Harlingen, Texas on August 31,
1995. The consideration was given in the form of cash ($2,999,000) and the
undertaking of certain liability payments in the amount of $215,000.
The Company purchased certain assets of Piston Service Company of Indiana, Inc.
("PSC"), a privately-held distributor of automotive parts operating five jobber
stores based in Indianapolis, Indiana, on April 11, 1994. The consideration was
given in the form of cash ($3,927,000 of which $3,092,000 was paid at closing
with the balance due at settlement) and the undertaking of certain liability
payments (in the amount of $435,000). The assets acquired were recorded at
their estimated fair values of $1,675,000 for inventory, $756,000 for accounts
receivable, $321,000 for property, plant and equipment, $13,000 for prepaid
expenses and supplies, $50,000 for non-competition agreement and $1,547,000 for
goodwill.
The Company acquired all of the outstanding common stock of Fenders & More,
Inc. ("F&M"), a privately held distributor of automotive crash parts based in
Nashville, Tennessee on January 28, 1994. The transaction involved a tax-free
exchange of 255,000 shares of common stock of the Company valued at $2,805,000.
The acquisition was accounted for under the purchase method with the results of
Fenders & More, Inc. included in the Consolidated Statements of Income from the
acquisition date. The cost of the acquisition has been allocated on the basis
of the estimated fair value of the assets acquired and the liabilities assumed.
This allocation resulted in goodwill of $3,407,000.
The Company purchased the assets of the Automotive Division of AEA,
Incorporated ("AEA") on September 27, 1993. The consideration was given in the
form of cash ($9,934,000), the undertaking of certain liability payments
($1,546,000) and the issuance of a note payable ($1,154,000). The note payable
was issued with interest computed at six percent with annual payments including
accrued interest over a term of five years. Direct acquisition costs of $85,000
were also incurred. The stockholders of AEA also entered into non-competition
agreements whereby they would receive payments aggregating $2,000,000 over four
years. The assets acquired were recorded at their estimated fair values of
$8,549,000 for inventory, $2,324,000 for accounts receivable, $1,844,000 for
non-competition agreements, $1,785,000 for equipment, furniture, fixtures and
vehicles and $61,000 in prepaid expenses and supplies.
The following unaudited pro forma summary of financial information has been
prepared as follows: for 1995, as though BAP had been acquired at the beginning
of 1995; for 1994, as though both BAP and F&M had been acquired at the
beginning of 1994; and for 1993, as though F&M and AEA had been acquired at the
beginning of 1993. Pro forma results of operations are not necessarily
indicative of the actual results that would have occurred had the purchase been
made at the beginning of the year, or of the results which may occur in the
future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per-share data) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Net sales $ 168,182 $ 167,460 $ 129,379
========== ========== ==========
Income before income taxes $ 3,823 $ 8,083 $ 5,042
========== ========== ==========
Net income $ 2,195 $ 4,942 $ 2,132
========== ========== ==========
Earnings per common share $ 0.62 $ 1.39 $ 0.61
========== ========== ==========
</TABLE>
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,293 $2,182 $1,507
State 330 424 287
------ ------ ------
1,623 2,606 1,794
------ ------ ------
Deferred:
Federal (117) 45 33
State (85) 9 10
------ ------ ------
(202) 54 43
------ ------ ------
$1,421 $2,660 $1,837
====== ====== ======
</TABLE>
17
<PAGE> 18
A reconciliation of the provision for income taxes to the amounts computed at
the federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at statutory rate $1,124 $2,349 $1,565
State income taxes, net of federal tax benefit 293 283 212
Other items, net 4 28 60
------ ------ ------
$1,421 $2,660 $1,837
====== ====== ======
</TABLE>
The Company changed its method of accounting for income taxes from the deferred
method to the liability method required by Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes" effective January 1, 1993. The
cumulative effect of this change ($163,000) is reported in the 1993
Consolidated Statements of Income as a current year charge to operations.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (current):
Inventory carrying value $1,705 $1,445
Allowance for doubtful accounts 192 217
Vacation accrual 399 283
Future sales return 150 121
Provision for performance stock 287 234
Other 239 124
------ ------
Net deferred tax asset $2,972 $2,424
====== ======
Deferred tax liabilities (non-current):
Prepaid pension asset $1,295 $1,196
Postretirement benefit obligation (458) (439)
Depreciation 861 754
Other (16) (76)
------ ------
Net deferred tax liability $1,682 $1,435
====== ======
</TABLE>
In connection with the business acquisitions made in 1995 and 1994 (see
Note 6), net deferred tax assets of $94,000 and $98,000, respectively, were
recorded.
NOTE 8 - LONG-TERM DEBT:
Outstanding long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit note, with interest at 6.75%
at December 31, 1995 $28,000 $18,200
Notes payable in various installments at various
interest rates not exceeding 10.0% through 1999 4,058 1,350
------- -------
32,058 19,550
Less - current maturities (1,964) (625)
------- -------
$30,094 $18,925
======= =======
</TABLE>
The maturities of long-term debt at December 31, 1995, for the succeeding years
and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
1996 $ 1,964
1997 811
1998 783
1999 28,500
-------
$32,058
=======
</TABLE>
18
<PAGE> 19
The Company maintains a revolving credit agreement with a bank that extends
through April 30, 1999. Under this agreement, the Company may borrow up to
$35,000,000 at variable rates based upon the prime or Eurodollar. Credit
availability is determined by a formula based upon accounts receivable and
inventories. The Company is required to restrict declaration or payment of
dividends and redemption or acquisition of capital stock and prior to May 1995
to maintain an average annual compensating balance of not less that $450,000.
The Company is also required to maintain various financial ratios relating to
minimum working capital, tangible net worth and indebtedness.
NOTE 9 - STOCKHOLDERS' EQUITY:
Stockholders' Rights Plan
The Company issued Junior Participating Cumulative Preferred Stock Purchase
Rights to common stockholders in June 1992. Each right entitles the holder to
purchase from the Company one one-hundredth share of Junior Participating
Cumulative Preferred Stock, $1.00 par value. The rights are not and will not
become exercisable unless certain change of control events occur. Authorized
are 50,000 shares, none of which have been issued as of December 31, 1995.
Stock Compensation Plans
The Company maintains an incentive stock option plan for certain management
employees. The plan allows issuance of non-qualified incentive stock options,
restricted stock and/or performance shares to officers, employees and directors
of the Company as approved by a committee of the Board of Directors. Shares
available for issuance under the plan aggregate 450,000 common shares plus any
unused shares reverting to the Company as a result of nonexercise of previously
outstanding options. Compensation cost associated with any grant is charged to
expense over the related vesting period. Options may be exercised in various
amounts subsequent to vesting.
The activity of the stock option plans is summarized below.
<TABLE>
<CAPTION>
1995 1994
--------------------------- ----------------------------
SHARES Shares
UNDER PRICE Under Price
OPTION RANGE Option Range
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Outstanding, January 1 208,000 $9.75-$13.25 125,000 $9.75 - $11.63
Granted 49,000 $13.38 83,000 $13.25
Exercised
Expired
------- -------
Outstanding, December 31 257,000 $9.75-$13.38 208,000 $9.75 - $13.25
======= =======
Shares exercisable at end of year 118,000 66,600
======= =======
Shares available for grants at end of year 23,411 72,411
======= =======
</TABLE>
The Board of Directors granted a performance share program to the Chairman
during September 1989. Under the terms of the program, a maximum of 60,000
common shares, plus an additional number of shares equivalent to 12% per annum,
may be issued. The award is to be credited in varying amounts over a ten year
period as specified in the program; actual issuance of the shares will not
occur until the earlier of September 1999 or occurrence of a terminating event
specified by the program.
The stockholders also approved a restricted stock award plan for directors
during 1989. A total of 42,000 of a maximum allowable 72,000 restricted shares
were issued to directors and recorded as additional common shares issued.
Compensation expense was recognized over a five year vesting period and the
unvested portion of the grant was carried as a reduction of stockholders'
equity. Compensation expense associated with this plan is not material. Until
shares are vested with the directors, the plan precludes sale or transfer of
the securities although the grantees may vote the shares and participate in
dividends or other distributions.
NOTE 10 - LEASE COMMITMENTS:
The Company has numerous operating leases which relate principally to real
estate and generally include renewal options ranging from one to ten years.
Rental expense under these leases was $4,768,000 in 1995, $4,146,000 in 1994
and $3,001,000 in 1993.
19
<PAGE> 20
At December 31, 1995 future minimum rental commitments under non-cancelable
operating leases with terms in excess of one year, excluding payments for
taxes, insurance and other expenses, were (dollars in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
1996 $ 4,717
1997 4,065
1998 3,571
1999 2,524
2000 1,626
Thereafter 5,762
-------
Total minimum lease payments $22,265
=======
</TABLE>
NOTE 11 - PENSION AND POSTRETIREMENT PLANS:
The Company and its subsidiaries sponsor a defined benefit plan covering
substantially all employees. Benefits under this plan generally are based upon
the employee's years of service and compensation preceding retirement. The
Company's general funding policy is to contribute amounts deductible for
federal income taxes.
The following table summarizes the components of periodic pension income, the
funded status of the plan and amounts recognized in the Company's financial
statements.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during year $ 600 $ 508 $ 465
Interest cost on projected benefit 583 546 525
Actual return on plan assets (2,110) 575 (1,503)
Net amortization and deferral 769 (1,918) 300
------- ------- -------
Net periodic pension income $ (158) $ (289) $ (213)
======= ======= =======
Projected benefit obligation, December 31 $(8,595) $(6,812) $(7,881)
Plan assets at fair market value, primarily listed stocks 11,985 10,529 11,671
------- ------- -------
Excess of plan assets over projected benefit obligation 3,390 3,717 3,790
Unrecognized net asset, December 31 (1,797) (1,729) (2,396)
Unrecognized net loss and prior service cost 1,705 1,152 1,457
------- ------- -------
Deferred pension asset $ 3,298 $ 3,140 $ 2,851
======= ======= =======
</TABLE>
The discount rate and the increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation was
7.50% and 5%, respectively in 1995, compared to 8.25% and 5% in 1994 and 7.25%
and 5% in 1993. The effect of the discount rate charge in 1995 was to increase
the projected benefit obligation at December 31, 1995 by $924,000. The effect
of the discount rate change in 1994 was to decrease the projected benefit
obligation at December 31, 1994 by $1,246,000. The expected long-term rate of
return on assets was 9.5% in 1995 and 1994 and 1993. The average remaining
service lives of plan participants used to compute amortization of the
projected obligation existing as of December 31, 1995 is 15 years.
The actuarial present value of vested and nonvested accumulated benefits as of
January 1, 1995, for the plan was $5,472,000 and $748,000, respectively; net
assets available for plan benefits at December 31, 1995 amounted to
$11,985,000. The assumed average rate of return in determining the actuarial
present value of accumulated plan benefits was 8.25%.
The Company also sponsors a defined contribution plan covering all full time,
non-union employees with at least one year of continuous employment who are 21
years or older. Employee participation in the plan is optional. Company
contributions are made monthly and are based upon participant contributions.
Net expense under this plan was $318,000 in 1995, $261,000 in 1994 and $132,000
in 1993.
Certain union employees participate in a retirement plan sponsored by their
union. Amounts charged to pension cost, representing the Company's required
contribution to the plan, were $29,000 in 1995, $30,000 in 1994 and $34,000 in
1993.
The Company provides a maximum defined benefit of $75 per month to retirees and
eligible spouses who took normal retirement from the Company prior to July 1,
1992 to enable them to purchase a Medicare supplement health care plan. The
Company also provides these retirees a $2,500 life insurance death benefit.
Active employees who meet the eligibility
20
<PAGE> 21
requirements for early retirement from the Company are able to purchase from
the Company health care benefits at the Company's monthly COBRA premium rate.
Upon becoming eligible for Medicare, these early retirees are no longer
eligible for coverage under the Company's health care plan. These benefits are
unfunded.
The Company adopted Financial Accounting Standards Board Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
effective January 1, 1993. This statement requires the accrual of the cost of
providing postretirement benefits, including medical and life insurance
coverage, during the active service period of the employee. The Company elected
to immediately recognize the cumulative effect of the change in accounting for
postretirement benefits of $1,226,000 ($742,000 net of related income tax
benefit) which represents the accumulated postretirement benefit obligation
(APBO). Prior to 1993, the Company recognized expense in the year the benefits
were provided.
The following table summarizes the components of postretirement benefit cost
and accumulated postretirement benefit liability recognized in the Company's
financial statements at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 18 $ 22 $ 18
Interest cost on projected benefit 105 85 112
Net amortization and deferral 4
------- ------- -------
Net postretirement benefit cost $ 127 $ 107 $ 130
======= ======= =======
Accumulated postretirement benefit liability:
Retirees $(1,177) $ (880) $(1,209)
Fully eligible participants (77) (108) (89)
Other active participants (145) (147) (170)
------- ------- -------
(1,399) (1,135) (1,468)
Unrecognized net loss 264 6 330
------- ------- -------
Net accumulated postretirement benefit liability $(1,135) $(1,129) $(1,138)
======= ======= =======
</TABLE>
The discount rate used in determining the APBO was 7.50% in 1995, 8.25% in 1994
and 7.25% in 1993. The assumed health care cost trend rate used in measuring
the APBO was 11% for 1995, 1994 and 1993, over the next three years, ultimately
declining to a rate of 7% in 1999. If the health care cost trend rate
assumptions were increased by 1%, the APBO as of December 31, 1995 would be
increased 4.32%. The effect of this change on the sum of the service cost and
interest cost components of net postretirement benefit cost for the year ended
December 31, 1995 would be an increase of 5.95%.
NOTE 12 - LITIGATION SETTLEMENT:
In December 1995, the Company settled an adverse litigation verdict affirmed by
the Michigan State Appellate Court in June 1995 by making a payment of
$2,150,000 ($1,307,200 or $0.37 per share after tax). The Company had
previously recognized a provision of $2,600,000 for this litigation action in
June 1995.
NOTE 13 - CONTINGENT LIABILITIES:
The Company has been named as defendant in legal proceedings incidental to the
ordinary conduct of its business operations. Management is vigorously defending
these proceedings and believes none will have a significant impact on the
Company's financial position or results of operations.
The Company was contingently liable as guarantor of various customers'
installment notes payable to banks, secured by their inventories and other
assets, amounting to approximately $780,000 at December 31, 1995 and $372,000
at December 31, 1994.
21
<PAGE> 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There are no Company Disclosures required by Item 304 of Regulation S-K, 17
C.F.R. Section 229.304.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information with respect to the directors and executive officers of the
Company disclosed in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held June 13, 1996 is incorporated
herein by reference.
The information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 disclosed in the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders scheduled to be held June 13, 1996 is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information with respect to executive compensation, which is disclosed in
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held June 13, 1996 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information with respect to security ownership of certain beneficial owners
and management, which is disclosed in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders scheduled to be held June 13, 1996 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information with respect to certain relationships and related transactions,
which is disclosed in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held June 13, 1996 is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Financial Statements.
Report of Independent Accountants 9
Consolidated Balance Sheets at December 31, 1995 and 1994 10
Consolidated Statements of Income for the three years ended December 31, 1995 11
Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1995 12
Consolidated Statements of Cash Flows for the three years ended December 31, 1995 13
Notes to Consolidated Financial Statements 14-20
2. Financial Statement Schedules:
VIII.Valuation and Qualifying Accounts and Reserves 25
All other schedules are omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
3. Exhibits--Index appears immediately preceding the exhibits.
3(i), 4.1 Restated Certificate of Incorporation of the Incorporated by reference to Exhibit 4.1 to the
Company, as amended. Company's Registration Statement on Form S-8
(No. 33-35-217) filed with the Commission on
June 8, 1990.
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
3(ii), 4.2 By-laws of the Company, as amended. Incorporated by reference to Exhibit 5.1 to the
Company's Current Report on Form 8-K dated
December 12, 1992.
3(ii), 4.2.1 By-laws of the Company, as amended Incorporated by reference to Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 filed with the Commission on November 14,
1995.
4.3 Rights Agreement dated as of June 18, 1992 Incorporated by reference to Exhibit 1 to the
between the Company and Registrar and Company's Current Report on Form 8-K
Transfer Company, Rights Agent. dated June 23, 1992.
10.1 Restricted Stock Plan for Directors. Incorporated by reference to Appendix A to the
Company's definitive Proxy Statement dated
March 27, 1989 sent in connection with the
annual meeting to be held on April 27, 1989 and
filed with the Commission on March 31, 1989.
10.2 Stock Compensation Plan. Incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form
S-8 (No. 33-35-217 filed with the Commission
on June 8, 1990).
10.3 Deferred Compensation Plan. Incorporated by reference to Exhibit 10.3 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 filed with
the Commission on March 31, 1994.
10.4 Key Employee Salary Continuation Incorporated by reference to Exhibit 10.4 to the
Agreement between the Company and Keith Company's Annual Report on Form 10-K for the
M. Thompson dated as of October 26, 1988. year ended December 31, 1993 filed with the
Commission on March 31, 1994.
10.5 Key Employee Salary Continuation
Agreement between the Company and
Donald B. Hauk dated as of October 26, 1988*.
10.6 Key Employee Salary Continuation Incorporated by reference to Exhibit 10.6 to the
Agreement between the Company and Company's Annual Report on Form 10-K for the
Richard M. Boesinger dated as of year ended December 31, 1993 filed with the
October 26, 1988. Commission on March 31, 1994.
10.7 Key Employee Salary Continuation Agreement
between the Company and Larry Lumme dated
as of October 26, 1988**.
10.8 Officer Medical Expense Reimbursement Plan Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1993 filed with the Commission
on March 31, 1994.
10.9 Fifth Amended and Restated Revolving Incorporated by reference to Exhibit 2 to the
Credit Agreement dated as of July 5, 1995 Company's Current Report on Form 8-K dated
between the Company and Comerica Bank. July 7, 1995 filed with the Commission on
July 24, 1995.
10.10 Supplemental Retirement Benefit dated as Incorporated by reference to Exhibit 10.3 to the
of November 9, 1989 between the Company Company's Annual Report on Form 10-K for the
and Edgar R. Berner. year ended December 31, 1993 filed with the
Commission on March 31, 1994.
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C>
10.11 Supplemental Executive Retirement Plan Incorporated by reference to Exhibit 10.11 to the
effective January 1, 1995. Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 filed with the Commission on May 12,
1995.
11. Statement re: computation of earnings per share
21. Subsidiaries of the Company
23. Consent of Price Waterhouse LLP, independent auditors
</TABLE>
*Document not filed because substantially identical to filed document
identified as Exhibit 10.4.
**Document not filed because substantially identical to filed document
identified as Exhibit 10.6.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this Annual Report on Form 10-K.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REPUBLIC AUTOMOTIVE PARTS, INC.
Registrant
By: /S/KEITH M. THOMPSON February 22, 1996
--------------------------------------------
Keith M. Thompson Date
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/S/EDGAR R. BERNER March 22, 1996 /S/KEITH M. THOMPSON February 22, 1996
- ----------------------------------------------------- -----------------------------------------------
Edgar R. Berner Date Keith M. Thompson Date
Chairman of the Board of Directors President, Chief Executive Officer and Director
/S/DONALD B. HAUK February 22, 1996 /S/NICHOLAS A. FEDORUK February 22, 1996
- ----------------------------------------------------- -----------------------------------------------
Donald B. Hauk Date Nicholas A. Fedoruk Date
Executive Vice President, Chief Financial Director
Officer, and Director
/S/LEROY M. PARKER February 22, 1996 /S/WILLIAM F. BALLHAUS February 22, 1996
- ----------------------------------------------------- ------------------------------------------------
Leroy M. Parker Date William F. Ballhaus Date
Director Director
</TABLE>
25
<PAGE> 26
Republic Automotive Parts, Inc.
- --------------------------------------------------------------------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AT END
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS (1) OF PERIOD
----------- --------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts, deducted
from accounts and notes receivable:
Year ended December 31,
1995 $571,000 $424,000 $505,000 $490,000
1994 $701,000 $259,000 $389,000 $571,000
1993 $730,000 $225,000 $254,000 $701,000
</TABLE>
(1) Write-offs in excess of recoveries.
26
<PAGE> 27
LIST OF EXHIBITS
The following Exhibits are filed as a part of this Report:
11. Statement re: Computation of Earnings Per Share
21. Subsidiaries of the Company
23. Consent of Independent Accountants
27. Financial Data Schedule (for SEC use only)
<PAGE> 1
EXHIBIT 11
Statement re: computation of earnings per share
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Computation of net income per share (primary basis)
Weighted average number of shares of common
stock outstanding 3,353,202 3,299,024 3,063,586
Incremental shares from exercise of stock options 173,072 180,140 382
---------- ---------- ----------
3,526,274 3,479,164 3,063,968
========== ========== ==========
Net income $1,884,000 $4,248,000 $1,862,000
========== ========== ==========
Net income per share (primary basis)* $ 0.53 $ 1.22 $ 0.60
========== ========== ==========
Computation of net income per share (fully-diluted basis)
Weighted average number of shares of common
stock outstanding 3,353,202 3,299,024 3,063,586
Incremental shares from exercise of stock options 173,072 180,140 161,832
---------- ---------- ----------
3,526,274 3,479,164 3,225,418
========== ========== ==========
Net income $1,884,000 $4,248,000 $1,862,000
========== ========== ==========
Net income per share (fully-diluted basis)* $ 0.53 $ 1.22 $ 0.58
========== ========== ==========
</TABLE>
- ------------
* Earnings per share for 1993 include reductions for cumulative effect of
changes in accounting principles of $0.30 on a primary basis and $.28 on a
fully-dilutive basis.
<PAGE> 1
EXHIBIT 21
Subsidiaries
Following is a list of the Company's subsidiaries, all of which are 100% owned
by the Company and included in the consolidated financial statements.
<TABLE>
<CAPTION>
State of
Name Incorporation
- ---- -------------
<S> <C>
Republic Automotive Parts Sales, Inc. Delaware
Fenders & More, Inc. Tennessee
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-35-217) of Republic Automotive Parts, Inc. of our
report dated February 22, 1996, appearing on page 10 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent of the incorporation by reference of our report on the Financial
Statement Schedule, which appears as Exhibit 27 to this Form 10-K.
/s/ PRICE WATERHOUSE LLP
Nashville, Tennessee
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Republic Automotive Parts, Inc. for the year ended
December 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,798
<SECURITIES> 0
<RECEIVABLES> 14,553
<ALLOWANCES> 490
<INVENTORY> 52,732
<CURRENT-ASSETS> 75,048
<PP&E> 19,396
<DEPRECIATION> 10,130
<TOTAL-ASSETS> 99,788
<CURRENT-LIABILITIES> 23,307
<BONDS> 0
0
0
<COMMON> 1,730
<OTHER-SE> 41,268
<TOTAL-LIABILITY-AND-EQUITY> 99,788
<SALES> 154,611
<TOTAL-REVENUES> 154,611
<CGS> 97,131
<TOTAL-COSTS> 97,131
<OTHER-EXPENSES> 52,741
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,828
<INCOME-PRETAX> 3,305
<INCOME-TAX> 1,421
<INCOME-CONTINUING> 1,884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,884
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
