<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 EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 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
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(g) of the Act: Common stock - $.50 par value
Rights to Purchase Junior Participating Cumulative
Preferred Stock - $1.00 par value
</TABLE>
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 $48,048,000. The aggregate market value was computed by
reference to the closing price of the stock, on the Nasdaq Stock Market, as of
March 14, 1997.
Number of shares (common) outstanding March 14, 1997: 3,387,818
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the Annual Meeting of Stockholders scheduled to be
held June 5, 1997 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.
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.
(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 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.
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 the majority 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, primarily
Taiwan. No material part of the Company's purchases is dependent on a single
supplier. The Company's purchases of products from suppliers in foreign
countries are subject to the customary risks of doing business abroad,
including, among other things, transportation delays, currency fluctuations,
political instability, the imposition of tariffs, import and export controls or
quotas, as well as the uncertainty regarding the future relationship between
China and Taiwan.
(iv) Patents, licenses, franchises, concessions held, research
activities and environmental control are not significant in the business of the
Company.
2
<PAGE> 3
(v) No material part of the Company's business is significantly
seasonal; however, summer sales generally exceed winter sales.
(vi) The number of domestic and imported automotive vehicle models in
the United States continues to increase each year. A result of the increasing
number of vehicle models is the proliferation in the number of automotive
replacement parts supplied by distributors, which requires a substantial
investment in inventory and warehousing space. The Company distributes in
excess of 100,000 separate parts of nationally and privately branded items.
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.
(x) 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.
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.
(xiii) The Company employs approximately 1,500 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
Ft. Oglethorpe, Georgia 18,200 Leased
Indianapolis, Indiana 20,500 Leased
Jackson, Mississippi 62,800 Leased
Jackson, Tennessee 5,000 Leased
LaFeria, Texas 6,500 Leased
Latham, New York 38,100 Leased
Macon, Georgia 9,400 Leased
Marquette, Michigan 12,000 Leased
Monroe, Louisiana 7,500 Leased
Nashville, Tennessee 78,000 Leased
Pelham, Alabama 6,000 Leased
St. Louis, Missouri 60,700 Leased
San Antonio, Texas 17,500 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
Two in Illinois 12,800 Leased
Six in Indiana 23,200 Leased
Eight in Iowa 46,900 Leased
Six in Michigan 67,200 Leased
Six in Minnesota 38,500 Leased
Thirteen in Missouri 74,700 Leased
One in North Carolina 1,000 Leased
Twenty-seven in Pennsylvania 178,800 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 14, 1997, there were 459 stockholders of record.
<TABLE>
<CAPTION>
CLOSING PRICES
1996 1995
-------------------------------------------------------------
QUARTER HIGH LOW HIGH LOW
- --------------------------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First . . . . . . . . . . . . . . . . . 15 3/4 11 3/4 16 3/4 13
Second . . . . . . . . . . . . . . . . 16 3/4 14 15 1/4 12 3/4
Third . . . . . . . . . . . . . . . . . 19 15 1/4 15 1/2 14
Fourth . . . . . . . . . . . . . . . . 18 1/4 15 14 3/4 11 1/2
</TABLE>
The Company did not pay dividends in 1996 and 1995 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) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . $184,810 $154,611 $138,295 $91,683 $84,205
Operating income . . . . . . . . . . . . . . . . . . 10,262 6,874 7,462 4,415 3,553
Income before income taxes, extraordinary
item and accounting changes . . . . . . . . . . . . 8,641 3,305 6,908 4,604 3,615
Net income . . . . . . . . . . . . . . . . . . . . . 5,095 1,884 4,248 1,862 2,194
Net income per share* . . . . . . . . . . . . . . . . 1.42 .53 1.22 .58 .70
Cash dividend declared per share . . . . . . . . . . None None None None None
Total Assets . . . . . . . . . . . . . . . . . . . . 105,717 99,788 78,258 62,077 47,250
Long-term debt . . . . . . . . . . . . . . . . . . . 34,884 30,094 18,925 6,945 5,758
</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.
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,
--------------------------------------------------------------
1996 1995 1994
------------------- ------------------- ------------------
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 . . . . . . . . . . . . . . . . . . . . $ 184,810 100.0% $ 154,611 100.0% $ 138,295 100.0%
Cost of products sold . . . . . . . . . . . . . . 111,349 60.2 97,131 62.8 87,691 63.4
---------- ---- ---------- ---- ---------- ---
Gross profit . . . . . . . . . . . . . . . . . . 73,461 39.8 57,480 37.2 50,604 36.6
Selling, general and administrative expenses . . 63,199 34.2 50,606 32.7 43,142 31.2
---------- ---- ---------- ---- ---------- ---
Operating income . . . . . . . . . . . . . . . . 10,262 5.6 6,874 4.5 7,462 5.4
Interest income . . . . . . . . . . . . . . . . . 504 .3 394 .2 397 .3
Interest expense . . . . . . . . . . . . . . . . (2,220) (1.2) (1,828) (1.2) (1,042) (.8)
Other income and expense . . . . . . . . . . . . 95 - (2,135) (1.4) 91 .1
---------- ---- ---------- ---- ---------- ---
Income before income taxes . . . . . . . . . . . 8,641 4.7 3,305 2.1 6,908 5.0
Income taxes . . . . . . . . . . . . . . . . . . 3,546 1.9 1,421 .9 2,660 1.9
---------- ---- ---------- ---- ---------- ---
Net income . . . . . . . . . . . . . . . . . . . $ 5,095 2.8% $ 1,884 1.2% $ 4,248 3.1%
========== ==== ========== ==== ========== ====
</TABLE>
This report contains certain forward-looking statements. Specifically, the
forward-looking statements relate to anticipated future growth through
acquisitions and openings of new distribution centers by the Company's
subsidiary, Fenders & More, Inc. and to the successful renegotiation of the
terms and conditions of the Company's revolving credit agreement. The ability
of the Company to achieve the expectations expressed in these forward-looking
statements will be subject to several factors that could cause actual results
to differ materially from those expressed in the forward-looking statements,
such as the cost of acquired businesses and new distribution centers,
difficulties in integrating newly acquired businesses and the availability of
capital to finance both acquisitions and openings of new distribution centers.
Results actually achieved thus may differ materially from expected results
included in such statements.
1996 COMPARED TO 1995
Net sales increased $30,199,000, or 19.5%, from $154,611,000 in 1995 to
$184,810,000 in 1996. A full year of sales from acquisitions in 1995 plus
distribution centers opened in 1995 and 1996 by Fenders & More, Inc. accounted
for the increase in net sales. Sales attributable to properties and operations
included in both years ended December 31,1996 and 1995 were $131,765,000 and
$131,224,000, respectively. The number of jobber stores owned and operated by
the Company increased by a net of four stores in 1996. Acquisitions added six
new jobber stores while two marginally profitable stores were closed.
Gross profit for 1996 was $73,641,000, or 39.8% of net sales, compared with
$57,480,000, or 37.2% of net sales in 1995. The changes in cost of products
sold are generally consistent with changes in net sales; however, the gross
profit percentage for 1996 increased due to the shift in the mix of wholesale
and retail sales as a result of the acquisitions and new distribution center
openings discussed above.
Selling, general and administrative expenses were $63,199,000, or 34.2% of net
sales, compared with $50,606,000, or 32.7% of net sales in 1995. The dollar
increase in selling, general and administrative expenses principally resulted
from the increased sales volume generated by the acquisitions made in mid-1995.
Operating income was $10,262,000, or 5.6% of net sales, compared with
$6,874,000, or 4.5% of net sales in 1995. The increase in operating income was
generally consistent with the increase in net sales.
Interest expense was $2,220,000, or 1.2% of net sales, compared with
$1,828,000, or 1.2% of net sales in 1995. The increase in interest expense is
principally due to the higher borrowing levels resulting from the Company's
investment in acquisitions and
6
<PAGE> 7
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 41.0% in 1996 compared to 43.0% in 1995. 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 $5,095,000, or 2.8% of net sales, compared with $1,884,000, or
1.2% of net sales in 1995.
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.
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.
7
<PAGE> 8
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996
---- 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 . . . . . . . . . . . . . . . . . . $44,296 $48,322 $47,238 $44,954 $184,810
Gross Profit . . . . . . . . . . . . . . . . 16,909 18,650 18,530 19,372 73,461
Net Income . . . . . . . . . . . . . . . . . 814 1,583 1,572 1,126 5,095
Net Income per share . . . . . . . . . . . . .23 .44 .44 .31 1.42
1995
----
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
</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 increasing net income during
the fourth quarter of 1996 by approximately $381,000 ($0.11 per share). 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).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows: For the year ended December 31, 1996, operating activities
provided $1,077,000 of net cash primarily from net earnings, depreciation,
amortization and income taxes recoverable which was offset by increases in
inventories and reduction of accounts payable as favorable terms granted by
suppliers in 1995 expired. Investing activities used $4,808,000 of cash,
principally consisting of the Company's investment in acquisitions and capital
expenditures. Financing activities provided $3,831,000 of cash principally
from net borrowings under the Company's Revolving Credit Agreement.
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.
Working Capital: The Company's ratio of current assets to current liabilities
was 4.1 at the end of 1996 compared with 3.2 at the end of 1995. Working
capital at December 31, 1996 was $61,278,000 compared with $51,741,000 at
December 31, 1995. The increase in working capital at December 31, 1996 was
primarily related to higher inventories and lower levels of accounts payable.
This increase in working capital was primarily financed by borrowings under the
Revolving Credit Agreement. Cash increased by $100,000 from $2,798,000 at
December 31, 1995 to $2,898,000 at December 31, 1996.
Credit Facilities: At December 31, 1996, the Company had available cash
resources of $35,000,000 from banks, of which $33,600,000 was utilized. The
Company's ability to open new distribution centers, to expand sales at existing
distribution centers and to make strategic acquisitions of competitors in
existing and new markets is dependent on the availability of capital. The
Company is currently renegotiating the terms and conditions of its revolving
credit agreement. The Company has requested an increase of $15,000,000 in its
line of credit from $35,000,000 to $50,000,000. The Company believes it will
be able to successfully obtain this increase in its line of credit. Note 8 to
the consolidated financial statements contains a more complete explanation of
the Company's credit facilities.
8
<PAGE> 9
Capital Expenditures and Acquisitions: Capital expenditures, excluding new
business acquisitions, were $2,320,000 and $2,255,000 for 1996 and 1995,
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, 1996. 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. Eight new distribution centers
are planned to be opened by Fenders & More, Inc. in 1997.
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 the increased line of credit discussed above will be
sufficient to support cash outlays for additional location openings and
anticipated acquisitions, if any.
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.
The Company does not believe its operations have been materially affected by
inflation. In general, the Company offsets increased costs from suppliers by
increasing sales prices to customers.
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 adopted 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 20, 1997
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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, 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.
/s/ Price Waterhouse LLP
10
<PAGE> 11
Republic Automotive Parts, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,898 $ 2,798
Accounts and notes receivable, less allowance for doubtful
accounts of $658,000 and $490,000 14,897 14,063
Inventories 57,087 52,732
Deferred income taxes 3,324 2,972
Income taxes recoverable 1,452
Prepaid expenses and other current assets 2,779 1,031
--------------------------------
Total current assets 80,985 75,048
PROPERTY, PLANT AND EQUIPMENT, NET 9,286 9,266
LONG-TERM NOTES RECEIVABLE 499 693
DEFERRED PENSION ASSET 3,137 3,298
GOODWILL AND OTHER INTANGIBLES, less accumulated
amortization of $2,530,000 and $1,802,000 11,810 11,483
--------------------------------
$105,717 $99,788
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and long-term debt due within one year $ 1,997 $ 1,964
Accounts payable 11,210 15,800
Accrued compensation and employee benefits 3,480 2,467
Accrued taxes and other liabilities 3,020 3,076
--------------------------------
Total current liabilities 19,707 23,307
LONG-TERM DEBT 34,884 30,094
DEFERRED INCOME TAXES 1,704 1,682
OTHER LONG-TERM LIABILITIES 1,329 1,707
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 1,730 1,730
Additional paid-in capital 24,913 24,913
Retained earnings 22,255 17,160
Treasury stock, at cost: 73,165 shares (805) (805)
--------------------------------
48,093 42,998
--------------------------------
$105,717 $99,788
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
Republic Automotive Parts, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Year Ended
December 31,
(Dollars in thousands, except per-share data) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $184,810 $154,611 $138,295
COSTS AND EXPENSES
Cost of products sold 111,349 97,131 87,691
Selling, general and administrative expenses 63,199 50,606 43,142
---------------------------------------
OPERATING INCOME 10,262 6,874 7,462
INTEREST INCOME 504 394 397
INTEREST EXPENSE (2,220) (1,828) (1,042)
OTHER INCOME AND EXPENSE (Note 12) 95 (2,135) 91
---------------------------------------
INCOME BEFORE INCOME TAXES 8,641 3,305 6,908
PROVISION FOR INCOME TAXES 3,546 1,421 2,660
---------------------------------------
NET INCOME $ 5,095 $ 1,884 $ 4,248
=======================================
EARNINGS PER COMMON SHARE $ 1.42 $ 0.53 $ 1.22
=======================================
Weighted average common and common
equivalent shares outstanding: 3,593 3,526 3,479
=======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
Republic Automotive Parts, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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, 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)
Net income 5,095
-----------------------------------------------------------------------------
Balance at December 31, 1996 3,461 $1,730 $24,913 $22,255 - 73 $(805)
=============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
Republic Automotive Parts, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended
December 31,
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,095 $ 1,884 $ 4,248
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation 2,649 2,027 1,611
Amortization of intangibles 1,288 1,034 806
Provision for losses on accounts receivable 315 424 259
Provision for deferred pension expense (income) 161 (158) (289)
Loss (gain) on disposal of property, plant and equipment 3 5 (38)
Deferred income taxes (330) (210) 82
Change in assets and liabilities net of effects from acquisitions:
Accounts and notes receivable (1,037) (560) (564)
Income taxes recoverable 1,452 (1,253)
Inventories (1,982) (702) (4,416)
Prepaid expenses and other current assets (1,740) 84 (72)
Accounts payable (5,190) 2,190 (3,498)
Accrued compensation and employee benefits 1,004 (246) 205
Accrued taxes and other liabilities (56) 585 127
Other long-term liabilities (555) (571) (454)
---------------------------------------
Net cash provided (used) by operating activities 1,077 4,533 (1,993)
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property, plant and equipment 160 116 273
Acquisitions, net of cash acquired (Notes 3 and 6) (2,648) (11,649) (3,093)
Capital expenditures (2,320) (2,255) (1,933)
---------------------------------------
Net cash used in investing activities (4,808) (13,788) (4,753)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on revolving credit agreement 12,200 14,375 18,400
Payments under revolving credit agreement (6,600) (4,575) (6,200)
Payments on long-term debt and notes payable (1,963) (649) (6,499)
Decrease in long-term notes receivable 194 227 16
Proceeds from exercise of stock options 180
---------------------------------------
Net cash provided by financing activities 3,831 9,378 5,897
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 100 123 (849)
Cash and cash equivalents at beginning of year 2,798 2,675 3,524
---------------------------------------
Cash and cash equivalents at end of year $ 2,898 $ 2,798 $ 2,675
=======================================
</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, tools, supplies and accessories through a
network of distribution centers and jobber stores. The Company also
distributes new replacement parts to repair vehicles damaged in collisions
through a network of distribution centers located in the Southeast United
States. The Company is a member of the All Pro/Bumper to Bumper distribution
group 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 87 warehouse distributor members
and 1,900 jobber store members throughout the United States. As a member of
the group, 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.
Concentration of Credit Risk
The Company grants credit to certain customers who meet the Company's
pre-established credit requirements. The Company's customers are not
concentrated in one geographic region nor does any single customer account for
a significant amount of sales or accounts receivable. Credit losses are
provided for in the Company's consolidated financial statements and
consistently have been within management's estimates.
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> <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 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.
15
<PAGE> 16
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.
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.
Reclassifications
Certain balances in 1995 and 1994 have been reclassified to conform with
current year presentation.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments during 1996, 1995 and 1994 totalled $2,301,000,
$1,839,000 and $936,000, respectively. Cash payments for income taxes net of
refunds totalled $2,562,000 in 1996, $2,844,000 in 1995 and $2,535,000 in 1994.
The following table summarizes non-cash investing and financing activities
related to the Company's acquisitions in 1996, 1995 and 1994.
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets acquired, other than cash $ 4,620 $ 19,940 $ 12,595
Common stock issued (1,000) (2,805)
Note payable issued (1,186) (3,157) (835)
Cash paid (2,648) (11,649) (3,093)
------------------------------------------
Liabilities assumed or incurred $ 786 $ 4,134 $ 5,862
==========================================
</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 85% of
inventories. Replacement cost of the inventories exceeded the LIFO carrying
amount by approximately $4,667,000 at December 31, 1996 and $4,807,000 at
December 31, 1995. 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 $523,000 at December 31, 1996 and $381,000 at
December 31, 1995.
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) 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 313 $ 261
Buildings and building improvements 1,088 1,083
Leasehold improvements 1,523 1,261
Equipment and fixtures 18,545 16,791
---------------------------
21,469 19,396
Accumulated depreciation and amortization (12,183) (10,130)
---------------------------
$ 9,286 $ 9,266
===========================
</TABLE>
NOTE 6 - BUSINESS COMBINATIONS:
The Company acquired certain assets of an affiliated group of companies based
in Davenport, Iowa on September 30, 1996. The purchase price was $922,000.
The Company also acquired certain assets of a distributor of automotive crash
parts based in Ft. Oglethorpe, Georgia on November 4, 1996. The purchase price
was $572,000. Both acquisitions are subject to post-closing adjustments which
are not expected to be material. The acquisitions have been accounted for by
the purchase method of accounting. The operating results of these acquired
businesses are included in the Consolidated Statements of Income from the
acquisition date. The Company also acquired three jobber stores in the
Pittsburgh, Pennsylvania metropolitan area and one jobber store in Dixon,
Illinois during 1996. Total consideration paid for these four jobber stores
was approximately $947,000 for inventories and equipment.
16
<PAGE> 17
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 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 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 and for 1994, as though both BAP and F&M had been acquired at the
beginning of 1994. 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
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Net sales $168,182 $167,460
===========================
Income before income taxes $ 3,823 $ 8,083
===========================
Net income $ 2,195 $ 4,942
===========================
Earnings per common share $ 0.62 $ 1.39
===========================
</TABLE>
Pro forma results for 1996 have been omitted since they do not differ
significantly from reported results.
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $3,149 $1,293 $2,182
State 766 330 424
----------------------------------------
3,915 1,623 2,606
----------------------------------------
Deferred:
Federal (314) (117) 45
State (55) (85) 9
----------------------------------------
(369) (202) 54
----------------------------------------
$3,546 $1,421 $2,660
========================================
</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) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at statutory rate $2,938 $1,124 $2,349
State income taxes, net of federal tax benefit 456 175 283
Other items, net 152 122 28
----------------------------------------
$3,546 $1,421 $2,660
========================================
</TABLE>
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) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (current):
Inventory carrying value $1,766 $1,705
Allowance for doubtful accounts 256 192
Vacation accrual 453 399
Future sales return 203 150
Provision for performance stock 329 287
Other 317 239
---------------------
Net deferred tax asset $3,324 $2,972
=====================
Deferred tax liabilities (non-current):
Prepaid pension asset $1,220 $1,295
Postretirement benefit obligation (440) (458)
Depreciation 949 861
Other (25) (16)
----------------------
Net deferred tax liability $1,704 $1,682
=====================
</TABLE>
In connection with the business acquisitions made in 1995 (see Note 6), net
deferred tax assets of $94,000 were recorded.
NOTE 8 - LONG-TERM DEBT:
Outstanding long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit note, with interest from 6.50% to 8.25%
at December 31, 1996 $33,600 $28,000
Notes payable in various installments at various
interest rates not exceeding 10.0% through 1999 3,281 4,058
----------------------
36,881 32,058
Less - current maturities (1,997) (1,964)
----------------------
$34,884 $30,094
======================
</TABLE>
The maturities of long-term debt at December 31, 1996, for the succeeding years
and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
1997 $ 1,997
1998 784
1999 34,100
-------
$36,881
=======
</TABLE>
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.
18
<PAGE> 19
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-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, 1996.
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. Options are granted at fair market value on the date of
grant, and typically vest 20% upon grant and 20% on the four succeeding
anniversaries. Such options generally expire five years from the date of
grant.
The activity of the stock option plans is summarized below.
<TABLE>
<CAPTION>
1996 1995
------------------------- ----------------------
SHARES Shares
UNDER PRICE Under Price
OPTION RANGE Option Range
------------------------- ----------------------
<S> <C> <C> <C> <C>
Outstanding, January 1 257,000 $9.75-$13.38 208,000 $9.75-$13.25
Granted 48,000 $16.00 49,000 $13.38
Exercised
Expired
------- -------
Outstanding, December 31 305,000 $9.75-$16.00 257,000 $9.75-$13.38
======= =======
Shares exercisable at end of year 217,400 118,000
======= =======
Shares available for grants at end of year 411 23,411
======= =======
</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.
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant dates for awards in 1996 and 1995 under the plan
consistent with the method prescribed by SFAS No. 123, the Company's net income
and earnings per share for 1996 and 1995, would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net income
As reported $5,095 $1,884
Pro forma 5,000 1,839
Earnings per share
As reported $ 1.42 $ 0.53
Pro forma 1.39 0.52
</TABLE>
19
<PAGE> 20
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions using grants in 1996 and 1995, respectively: average expected
volatility of 39% in 1996 and 42% in 1995; risk-free interest rates of
approximately 6.10% in 1996 and 5.49% in 1995; average expected lives of 5
years; and, no dividend yield for either year.
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 $5,551,000 in 1996, $4,768,000 in 1995
and $4,146,000 in 1994.
At December 31, 1996 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>
1997 $ 5,215
1998 4,706
1999 3,493
2000 2,500
2001 1,681
Thereafter 5,647
-------
Total minimum lease payments $23,242
=======
</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) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during year $ 878 $ 600 $ 508
Interest cost on projected benefit 627 583 546
Actual return on plan assets (1,477) (2,110) 575
Net amortization and deferral 133 769 (1,918)
---------------------------------------
Net periodic pension expense (income) $ 161 $ (158) $ (289)
=======================================
Projected benefit obligation, December 31 $ (8,824) $ (8,595) $ (6,812)
Plan assets at fair market value, primarily listed stocks 12,321 11,985 10,529
---------------------------------------
Excess of plan assets over projected benefit obligation 3,497 3,390 3,717
Unrecognized net asset, December 31 (1,498) (1,797) (1,729)
Unrecognized net loss and prior service cost 1,138 1,705 1,152
---------------------------------------
Deferred pension asset $ 3,137 $ 3,298 $ 3,140
=======================================
</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 4.50%, respectively in 1996, compared to 7.50% and 5% in 1995 and
8.25% and 5% in 1994. The effect of the discount rate charge in 1995 was to
increase the projected benefit obligation at December 31, 1995 by $924,000.
The expected long-term rate of return on assets was 9.5% in 1996 and 1995 and
1994. The average remaining service lives of plan participants used to compute
amortization of the projected obligation existing as of December 31, 1996 is 15
years.
The actuarial present value of vested and nonvested accumulated benefits as of
January 1, 1996, for the plan was $5,688,000 and $646,000, respectively; net
assets available for plan benefits at December 31, 1996 amounted to
$12,321,000. The assumed average rate of return in determining the actuarial
present value of accumulated plan benefits was 8.25%.
20
<PAGE> 21
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 $355,000 in 1996, $318,000 in 1995 and $261,000
in 1994.
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 $28,000 in 1996, $29,000 in 1995 and $30,000 in
1994.
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 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 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) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 22 $ 18 $ 22
Interest cost on projected benefit 102 105 85
Net amortization and deferral 10 4
-------------------------------------
Net postretirement benefit cost $ 134 $ 127 $ 107
=====================================
Accumulated postretirement benefit liability:
Retirees $(1,147) $(1,177) $ (880)
Fully eligible participants (90) (77) (108)
Other active participants (174) (145) (147)
-------------------------------------
(1,411) (1,399) (1,135)
Unrecognized net loss 264 264 6
-------------------------------------
Net accumulated postretirement benefit liability $(1,147) $(1,135) $(1,129)
=====================================
</TABLE>
The discount rate used in determining the APBO was 7.50% in 1996, 7.50% in 1995
and 8.25% in 1994. The assumed health care cost trend rate used in measuring
the APBO was 10% for 1996 and 11% in 1995 and 1994, and over the next three
years, ultimately declining to a rate of 7% in 1999 and later. If the health
care cost trend rate assumptions were increased by 1%, the APBO as of December
31, 1996 would be increased 4.09%. 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, 1996 would be an increase of 4.30%.
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 $739,000 at December 31, 1996 and $780,000
at December 31, 1995.
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 5, 1997 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 5, 1997 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 5, 1997 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 5, 1997 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 5, 1997 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> <C>
1. Financial Statements.
Report of Independent Accountants 10
Consolidated Balance Sheets at December 31, 1996 and 1995 11
Consolidated Statements of Income for the three years ended December 31, 1996 12
Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1996 13
Consolidated Statements of Cash Flows for the three years ended December 31, 1996 14
Notes to Consolidated Financial Statements 15-21
2. Financial Statement Schedules:
VIII.Valuation and Qualifying Accounts and Reserves 26
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.
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
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.
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.
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C>
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.
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 20, 1997
---------------------------------------------
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 6, 1997 /S/KEITH M. THOMPSON February 20, 1997
- ------------------------------------------ -------------------------------------------------
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 20, 1997 /S/NICHOLAS A. FEDORUK February 20, 1997
- -------------------------------------------- --------------------------------------------------
Donald B. Hauk Date Nicholas A. Fedoruk Date
Executive Vice President, Chief Financial Director
Officer, and Director
/S/LEROY M. PARKER February 20, 1997 /S/WILLIAM F. BALLHAUS February 20, 1997
- --------------------------------------------- -------------------------------------------------
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,
1996 $490,000 $315,000 $147,000 $658,000
1995 $571,000 $424,000 $505,000 $490,000
1994 $701,000 $259,000 $389,000 $571,000
</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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computation of net income per share (primary basis)
Weighted average number of shares of common stock outstanding 3,387,818 3,353,202 3,299,024
Incremental shares from exercise of stock options 192,052 173,072 180,140
---------- ---------- ----------
3,579,870 3,526,274 3,479,164
========== ========== ==========
Net income $5,095,000 $1,884,000 $4,248,000
Net income per share (primary basis) $1.42 $0.53 $1.22
========== ========== ==========
Computation of net income per share (fully-diluted basis)
Weighted average number of shares of common stock outstanding 3,387,818 3,353,202 3,299,024
Incremental shares from exercise of stock options 205,126 173,072 180,140
---------- ---------- ----------
3,592,944 3,526,274 3,479,164
========== ========== ==========
Net income $5,095,000 $1,884,000 $4,248,000
========== ========== ==========
Net income per share (fully-diluted basis) $ 1.42 $ 0.53 $ 1.22
========== ========== ==========
</TABLE>
<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 20, 1997, appearing on page 10 of the Annual Report to
Stockholders which is incorporated in this Annual Report Form 10-K. We also
consent to 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 26, 1997
<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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,898
<SECURITIES> 0
<RECEIVABLES> 15,555
<ALLOWANCES> 658
<INVENTORY> 57,087
<CURRENT-ASSETS> 80,985
<PP&E> 21,469
<DEPRECIATION> 12,183
<TOTAL-ASSETS> 105,717
<CURRENT-LIABILITIES> 19,707
<BONDS> 0
0
0
<COMMON> 1,730
<OTHER-SE> 46,363
<TOTAL-LIABILITY-AND-EQUITY> 105,717
<SALES> 184,810
<TOTAL-REVENUES> 184,810
<CGS> 111,349
<TOTAL-COSTS> 111,349
<OTHER-EXPENSES> 63,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,220
<INCOME-PRETAX> 8,641
<INCOME-TAX> 3,546
<INCOME-CONTINUING> 5,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,095
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
