<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, 1997 Commission file no. 0-6215.
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REPUBLIC AUTOMOTIVE PARTS, INC.
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(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
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(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
Rights to Purchase Junior Participating Cumulative
Preferred Stock - $1.00 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
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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 $46,775,000. The aggregate market value was computed by reference
to the closing price of the stock, on the Nasdaq Stock Market, as of March 2,
1998.
Number of shares (common) outstanding March 2, 1998: 3,401,818
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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.
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(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.
(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.
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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
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<S> <C> <C>
Executive Offices Brentwood, TN 17,830 Leased
Distribution Centers One in Alaska 56,400 Leased
Two in Alabama 36,000 Leased
One in California 17,700 Leased
One in Colorado 50,500 Leased
Four in Georgia 82,800 Leased
Two in Iowa 99,800 Leased
One in Illinois 13,000 Leased
One in Indiana 20,500 Leased
Two in Louisiana 23,000 Leased
One in Michigan 12,000 Leased
One in Minnesota 30,000 Leased
Two in Missouri 93,200 1 Owned
1 Leased
One in Mississippi 62,800 Leased
One in New York 38,100 Leased
One in Pennsylvania 66,000 Leased
Five in Tennessee 199,400 Leased
Seven in Texas 90,200 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
Twelve in Missouri 72,800 Leased
Twenty-four in Pennsylvania 165,500 Leased
Six in Wisconsin 33,200 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.
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.
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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 2, 1998, there were 431 stockholders of record.
<TABLE>
<CAPTION>
CLOSING PRICES
1997 1996
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QUARTER HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
First....................................17 3/4 15 1/2 15 3/4 11 3/4
Second...................................17 14 16 3/4 14
Third....................................18 14 19 15 1/4
Fourth...................................17 1/4 14 1/8 18 1/4 15
</TABLE>
The Company did not pay dividends in 1997 and 1996 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) 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Net sales ............................... $188,953 $184,810 $154,611 $138,295 $91,683
Operating income ........................ 7,614 10,262 6,874 7,462 4,415
Income before income taxes, extraordinary
item and accounting changes .......... 5,501 8,641 3,305 6,908 4,604
Net income .............................. 3,258 5,095 1,884 4,248 1,862
Net income per share-basic* ............. .96 1.50 .56 1.29 .60
Net income per share-diluted* ........... .91 1.42 .53 1.22 .58
Cash dividend declared per share ........ None None None None None
Total Assets ............................ 93,576 105,697 99,788 78,258 62,077
Long-term debt .......................... 24,500 34,884 30,094 18,925 6,945
</TABLE>
*Earnings per share for 1993 include reduction of earnings for the cumulative
effect of changes in accounting principles of $0.30 and $0.28 on a basic and
diluted basis, respectively.
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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.
SIGNIFICANT TRANSACTIONS
On February 18, 1998, the Company jointly announced with Keystone Automotive
Industries, Inc. ("Keystone") that they had entered into a definitive merger
agreement pursuant to which Keystone would acquire the Company. Under the terms
of the agreement, Keystone would issue 0.8 of a share of its common stock in
exchange for each share of the Company's common stock.
The transaction, which has been approved unanimously by the board of directors
of each company, is intended to qualify as a tax-free reorganization. The merger
agreement is subject to certain regulatory approvals as well as approval by the
shareholders of each company at special meetings expected to be held within the
next 90 days. Closing of the merger is expected during the second quarter of
1998.
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,
----------------------------------------------------------------------
1997 1996 1995
--------------------- ----------------------- ----------------------
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 $ 188,953 100.0% $ 184,810 100.0% $ 154,611 100.0%
Cost of products sold 112,466 59.5 111,349 60.2 97,131 62.8
--------- ----- --------- ----- --------- -----
Gross profit 76,487 40.5 73,461 39.8 57,480 37.2
Selling, general and administrative expenses 68,873 36.5 63,199 34.2 50,606 32.7
--------- ----- --------- ----- --------- -----
Operating income 7,614 4.0 10,262 5.6 6,874 4.5
Interest income 510 .3 504 .3 394 .2
Interest expense (2,346) (1.2) (2,220) (1.2) (1,828) (1.2)
Other income and expense (277) (.2) 95 -- (2,135) (1.4)
--------- ----- --------- ----- --------- -----
Income before income taxes 5,501 2.9 8,641 4.7 3,305 2.1
Income taxes 2,243 1.2 3,546 1.9 1,421 .9
--------- ----- --------- ----- --------- -----
Net income $ 3,258 1.7% $ 5,095 2.8% $ 1,884 1.2%
========= ===== ========= ===== ========= =====
</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. 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.
1997 COMPARED TO 1996
Net sales increased $4,143,000 or 2.2% from $184,810,000 in 1996 to $188,953,000
in 1997. Several factors affected the increase in net sales. Sales attributable
to operations included in both 1997 and 1996 were $153,646,000 and $154,232,000,
respectively. Sales attributable to new locations that have not been opened at
least twelve months in either 1997 and 1996 were $15,300,000 in 1997 compared
with $3,734,000 in 1996. Sales attributable to locations which were either sold
or closed in either 1997 or 1996 were $20,007,000 in 1997 compared with
$26,844,000 in 1996. The Company's subsidiary, Fenders & More, Inc. opened eight
distribution centers in 1997 compared to four distribution centers opened and
one distribution center acquired in 1996. The Company sold or closed five
traditional automotive hard parts distribution centers and six jobber stores
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during 1997. Decreases in net sales occurred at the Company's traditional
automotive hard parts distribution centers and jobber stores due to the mild
fourth quarter winter weather, a generally soft retail economy plus competitive
pressures in some of the Company's trading areas.
Gross profit for 1997 was $76,487,000 or 40.5% of net sales, compared with
$73,461,000 or 39.8% of net sales in 1996. The changes in cost of products sold
are generally consistent with changes in net sales; however, the gross profit
percentage for 1997 increased due to the continuing shift in the mix of
wholesale and retail sales as a result of the opening of new distribution
centers by the Company's subsidiary, Fenders & More, Inc., and the sale or
closing of traditional automotive hard parts distribution centers and jobber
stores.
Selling, general and administrative expenses were $68,873,000 or 36.5% of net
sales in 1997 compared with $63,199,000 or 34.2% of net sales in 1996. The
dollar increase in selling, general and administrative expenses principally
resulted from the expenses associated with the increased sales volume generated
at the distribution centers opened by Fenders & More, Inc. in 1997 and 1996 and
acquisitions made in the latter half of 1996.
Operating income was $7,614,000 or 4.0% of net sales in 1997 compared with
$10,262,000 or 5.6% of net sales in 1996. Increased operating expenses related
to new distribution centers accounted for the decrease in operating income.
Interest expense was $2,346,000 or 1.2% of net sales in 1997 compared with
$2,220,000 or 1.2% of net sales in 1996. The increase in interest expense is
principally due to the higher borrowing levels for most of 1997 resulting from
the Company's investment in the expansion of its Fenders & More, Inc. business.
The reduction of debt during the fourth quarter of 1997 tempered the increase in
interest expense that occurred in 1997. Interest rates were slightly lower in
1997 compared to 1996.
The Company's total effective income tax rate was 40.8% in 1997 compared to
41.0% in 1996. 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 $3,258,000 or 1.7% of net sales in 1997 compared with $5,095,000
or 2.8% of net sales in 1996. The decrease in net income resulted primarily from
the increased selling, general and administrative expenses and interest expense
discussed above. The Company also incurred non-recurring expenses associated
with the closing or sale of five traditional automotive hard parts distribution
centers and six jobber stores during 1997.
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 $73,461,000 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
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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 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.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997
---- 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 ............................. $45,785 $50,191 $50,258 $42,719 $188,953
Gross Profit .......................... 18,659 19,958 19,988 17,882 76,487
Net Income ............................ 820 1,296 1,080 62 3,258
Net Income per share basic ............ .24 .38 .32 .02 .96
Net Income per share diluted........... .23 .36 .30 .02 .91
1996
----
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 basic ............ .24 .47 .46 .33 1.50
Net Income per share diluted........... .23 .44 .44 .31 1.42
</TABLE>
A year end adjustment for LIFO expense resulted in decreasing net income during
the fourth quarter of 1997 by approximately $123,000 ($0.03 per diluted share) 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 diluted 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 diluted share).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows: For the year ended December 31, 1997, operating activities provided
$2,468,000 of net cash primarily from net earnings, depreciation and
amortization of intangibles which was offset by decreases in income taxes
recoverable and accounts payable. Investing activities provided $8,050,000 in
cash from the sale of certain business operations. Financing activities used
$11,133,000 in cash primarily for the reduction of long term debt.
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.
Working Capital: The Company's ratio of current assets to current liabilities
was 4.9 at the end of 1997 compared with 4.1 at the end of 1996. Working capital
at December 31, 1997 was $57,594,000 compared with $61,278,000 at December 31,
1996. The decrease in working capital at December 31, 1997 was primarily related
to lower inventories due to the sale or closing of five distribution centers in
1997 which was offset by lower levels of accounts payable. Cash decreased by
$615,000 from $2,898,000 at December 31, 1996 to $2,283,000 at December 31,
1997.
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Credit Facilities: At December 31, 1997, the Company had available cash
resources of $55,000,000 from banks, of which $24,000,000 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. 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 $1,535,000, $2,320,000 and $2,255,000 for 1997, 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 two 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
were 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 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.
YEAR 2000 COMPLIANCE
The Company has assessed its exposure to the impact of the Year 2000 issue on
its information systems. This issue affects computer systems that may not
properly recognize the year 2000. This could result in system failures or
miscalculations that could have a material adverse effect on the operations of
the Company.
For the traditional automotive hard parts distribution centers and jobber
stores, the Company has contracted with a third party provider of software and
hardware systems to the automotive industry to provide all new systems. The
Company believes that the new systems will be Year 2000 compliant. The Company
is utilizing both internal and external resources to install the systems.
Approximately 40% of the Company's traditional hard parts operations have been
installed with the new systems and the remaining locations are scheduled to be
completed not later than December 1998. To date, the Company has incurred and
expensed approximately $100,000 related to the conversion and approximately
$300,000 has been capitalized in connection with the new systems. The total
remaining costs are estimated at $2,100,000 of which $300,000 is expected to be
expensed over the next nine months and $1,800,000 is expected to be capitalized.
For its Fenders & More, Inc. subsidiary ("Fenders"), the Company is presently
concluding a search to replace its software and hardware systems. Presently,
Fenders has two systems: one that was in use when Fenders was acquired in 1994
and one resulting from an acquisition. The Company believes that Fenders needs
new systems to achieve its growth objectives irrespective of the Year 2000
issue. Any new software selected will be Year 2000 compliant. The Company
anticipates that these new systems will be in place prior to July 1999. Total
costs are estimated at $1,600,000 of which $700,000 is expected to be expensed
over the next fifteen months and $900,000 is expected to be capitalized.
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The costs for both new systems are being funded from operating cash flows and
possibly lease financing. The costs of these new systems and the dates on which
the Company plans to complete the projects are based upon management's best
estimates, which were derived utilizing numerous assumptions of future events.
There can be no guarantee that these estimates will be achieved and actual
results could differ materially from those plans. Specific factors that could
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in these systems, the ability to
install the systems without unforseen technical difficulties slowing the
process, and similar uncertainties.
The Company's merger with Keystone, described above, could substantially alter
the above-stated plans, particularly with respect to Fenders. Keystone has
recently selected a software system which they could choose to install at
Fenders after closing of the merger. Given the information known at this time
about the Keystone systems, specific costs and dates on system implementation in
that event are unknown.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and No. 131, "Disclosures about Segments of an Enterprise and Related
Information". In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits". The Company will
adopt these new requirements in 1998. Management believes adoption of these
requirements will not have a material impact on the Company's reported financial
position, results of operation or cash flows.
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 11 through 23 in this report.
10
<PAGE> 11
4400 Harding Road Telephone 615 292 5000
Nashville, TN 37205
PRICE WATERHOUSE LLP LOGO
REPORT OF INDEPENDENT ACCOUNTANTS
February 27, 1998
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 32 present fairly, in all
material respects, the financial position of Republic Automotive Parts, Inc. and
its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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.
PRICE WATERHOUSE LLP
11
<PAGE> 12
Republic Automotive Parts, Inc.
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,283 $ 2,898
Accounts and notes receivable, less allowance for doubtful
accounts of $786,000 and $658,000 14,023 14,897
Inventories 49,028 57,087
Deferred income taxes 3,249 3,304
Income taxes recoverable 1,087
Prepaid expenses and other current assets 2,832 2,779
------- ---------
Total current assets 72,502 80,965
PROPERTY, PLANT AND EQUIPMENT, NET 7,402 9,286
LONG TERM NOTES RECEIVABLE 240 499
DEFERRED PENSION ASSET 2,982 3,137
GOODWILL AND OTHER INTANGIBLES, less accumulated
amortization of $3,134,000 and $2,530,000 10,450 11,810
------- ---------
$93,576 $ 105,697
======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and long term debt due within one year $ 784 $ 1,997
Accounts payable 7,761 11,210
Accrued compensation and employee benefits 3,034 3,480
Accrued taxes and other liabilities 3,329 3,000
------- ---------
Total current liabilities 14,908 19,687
LONG TERM DEBT 24,500 34,884
DEFERRED INCOME TAXES 1,487 1,704
OTHER LONG TERM LIABILITIES 1,125 1,329
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 - 3,474,983 shares in 1997, 3,460,983 shares
in 1996 1,737 1,730
Additional paid-in capital 25,111 24,913
Retained earnings 25,513 22,255
Treasury stock, at cost: 73,165 shares (805) (805)
------- ---------
51,556 48,093
------- ---------
$93,576 $ 105,697
======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
Republic Automotive Parts, Inc.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Year Ended
December 31,
(Dollars and number of shares in thousands, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 188,953 $ 184,810 $ 154,611
COSTS AND EXPENSES
Cost of products sold 112,466 111,349 97,131
Selling, general and administrative expenses 68,873 63,199 50,606
--------- --------- ---------
OPERATING INCOME 7,614 10,262 6,874
INTEREST INCOME 510 504 394
INTEREST EXPENSE (2,346) (2,220) (1,828)
OTHER INCOME AND EXPENSE (Note 12) (277) 95 (2,135)
--------- --------- ---------
INCOME BEFORE INCOME TAXES 5,501 8,641 3,305
PROVISION FOR INCOME TAXES 2,243 3,546 1,421
--------- --------- ---------
NET INCOME $ 3,258 $ 5,095 $ 1,884
========= ========= =========
EARNINGS PER COMMON SHARE-BASIC $ 0.96 $ 1.50 $ 0.56
========= ========= =========
EARNINGS PER COMMON SHARE-DILUTED $ 0.91 $ 1.42 $ 0.53
========= ========= =========
Weighted average common shares outstanding-basic 3,402 3,388 3,353
========= ========= =========
Weighted average common and dilutive common stock
equivalent shares outstanding-diluted 3,593 3,580 3,526
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
Republic Automotive Parts, Inc.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Treasury stock
--------------------- Additional -----------------------
Number paid in Retained Number
(Dollars and number of shares in thousands) of shares Amount capital earnings of shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
Stock issued 14 7 198
Net income 3,258
----- ------ ------- ------- ------- -------
Balance at December 31, 1997 3,475 $1,737 $25,111 $25,513 73 $ (805)
===== ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
Republic Automotive Parts, Inc.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended
December 31,
(Dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 3,258 $ 5,095 $ 1,884
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 2,579 2,649 2,027
Amortization of intangibles 1,360 1,288 1,034
Provision for losses on accounts receivable 425 315 424
Provision for deferred pension expense (income) 155 161 (158)
Loss (gain) on disposal of property, plant and equipment (62) 3 5
Deferred income taxes (162) (330) (210)
Change in assets and liabilities, net of effects from acquisitions:
Accounts and notes receivable (549) (1,037) (560)
Income taxes recoverable (1,087) 1,452 (1,253)
Inventories (458) (1,982) (702)
Prepaid expenses and other current assets (231) (1,740) 84
Accounts payable (2,522) (5,190) 2,190
Accrued compensation and employee benefits (393) 1,004 (246)
Accrued taxes and other liabilities 359 (56) 585
Other long term liabilities (204) (555) (571)
-------- -------- --------
Net cash provided by operating activities 2,468 1,077 4,533
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property, plant and equipment 202 160 116
Acquisitions, net of cash acquired (Notes 3 and 6) (2,648) (11,649)
Proceeds from divestitures (Note 6) 9,383
Capital expenditures (1,535) (2,320) (2,255)
-------- -------- --------
Net cash provided (used) in investing activities 8,050 (4,808) (13,788)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on revolving credit agreement 12,350 12,200 14,375
Payments under revolving credit agreement (21,950) (6,600) (4,575)
Payments on long term debt and notes payable (1,997) (1,963) (649)
Decrease in long term notes receivable 259 194 227
Proceeds from exercise of stock options 205
-------- -------- --------
Net cash (used) provided by financing activities (11,133) 3,831 9,378
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (615) 100 123
Cash and cash equivalents at beginning of year $ 2,898 2,798 2,675
-------- -------- --------
Cash and cash equivalents at end of year $ 2,283 $ 2,898 $ 2,798
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
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 85 warehouse distributor members and 1,800 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:
Land improvements -- 10 to 20 years
Buildings and building improvements -- 5 to 30 years
Equipment and fixtures -- 3 to 15 years
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.
Impairment of Value
Periodically, the Company assesses the recoverability of the carrying value of
all long-lived assets using a cash flow model. If impairment is indicated, a
loss is recognized. At December 31, 1997, no impairment of value was indicated.
16
<PAGE> 17
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.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 128 Earnings per Share ("SFAS 128"). SFAS 128
requires companies with complex capital structures that have publicly held
common stock or common stock equivalents to present both basic and diluted
earning per share ("EPS") on the face of the income statement. The presentation
of basic EPS replaces the presentation of primary EPS previously required by
Accounting Principles Board Opinion No. 15 ("APB 15"). Basic EPS is calculated
as income available to common stockholders divided by the weighted average
number of shares outstanding during the period. Diluted EPS (previously referred
to as fully diluted EPS) is calculated using the "if converted" method for
convertible securities and the treasury stock method for options and warrants as
prescribed by APB 15. Diluted EPS reflects the dilution from common stock
options outstanding of 191,000, 192,000 and 173,000 in 1997, 1996 and 1995,
respectively. These shares do not include options which would be antidilutive.
All prior years EPS calculations have been restated to comply with SFAS 128.
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 prior year balances have been reclassified to conform with current year
presentation.
NOTE 3-SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments during 1997, 1996 and 1995 totalled $2,324,000,
$2,301,000 and $1,839,000, respectively. Cash payments for income taxes net of
refunds totalled $3,324,000 in 1997, $2,562,000 in 1996 and $2,844,000 in 1995.
The following table summarizes non-cash investing and financing activities
related to the Company's acquisitions in 1996 and 1995.
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of assets acquired, other than cash $ 4,620 $ 19,940
Common stock issued (1,000)
Note payable issued (1,186) (3,157)
Cash paid (2,648) (11,649)
------- --------
Liabilities assumed or incurred $ 786 $ 4,134
======= ========
</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 79% of inventories.
Replacement cost of the inventories exceeded the LIFO carrying amount by
approximately $5,331,000 at December 31, 1997 and $4,667,000 at December 31,
1996. The Company also provides a reserve in accordance with SFAS No. 48,
"Revenue Recognition When Right of Return Exists" in the amount of $452,000 at
December 31, 1997 and $523,000 at December 31, 1996.
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) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 348 $ 313
Buildings and building improvements 1,088 1,088
Leasehold improvements 1,655 1,523
Equipment and fixtures 16,707 18,545
-------- --------
19,798 21,469
Accumulated depreciation and amortization (12,396) (12,183)
-------- --------
$ 7,402 $ 9,286
======== ========
</TABLE>
17
<PAGE> 18
NOTE 6-BUSINESS COMBINATIONS AND DIVESTITURES:
The Company sold certain assets of its business located in Tacoma, Washington on
September 29, 1997. The Company also sold certain assets and liabilities of its
businesses located in Charlotte and Raleigh, North Carolina and Columbia, South
Carolina on November 3, 1997. The Company received sales proceeds of $9,383,000
in cash and $1,000,000 in a short term 8.5% note receivable (included in
accounts receivable at December 31, 1997). A net loss of $378,000 was incurred
by the Company on these sales. This loss is recorded under the caption Other
Income and Expense in the consolidated statements of income. The Company remains
contingently liable for collection of certain receivables sold in these
transactions. A reserve for potentially uncollectible amounts is included in the
allowance for doubtful accounts.
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.
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
of $995,000 were earned by the selling parties over the two and one half years
ended December 31, 1997 based on the operations of the acquired business meeting
certain targets. 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 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. 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
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Net sales $168,182
========
Income before income taxes $ 3,823
========
Net income $ 2,195
========
Earnings per common share-diluted $ 0.62
========
</TABLE>
Pro forma results for 1997 and 1996 are not required or they have been omitted
since they do not differ significantly from reported results.
18
<PAGE> 19
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,040 $ 3,149 $ 1,293
State 365 766 330
------- ------- -------
2,405 3,915 1,623
------- ------- -------
Deferred:
Federal (129) (314) (117)
State (33) (55) (85)
------- ------- -------
(162) (369) (202)
------- ------- -------
$ 2,243 $ 3,546 $ 1,421
======= ======= =======
</TABLE>
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) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at statutory rate $ 1,870 $ 2,938 $ 1,124
State income taxes, net of federal tax benefit 219 456 175
Other items, net 154 152 122
------- ------- -------
$ 2,243 $ 3,546 $ 1,421
======= ======= =======
</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) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (current):
Inventory carrying value $ 1,545 $ 1,744
Allowance for doubtful accounts 306 256
Vacation accrual 446 453
Future sales return 176 203
Provision for performance stock 375 329
Non-qualified pension 373 282
Other 28 37
------- -------
Net deferred tax asset $ 3,249 $ 3,304
======= =======
Deferred tax liabilities (non-current):
Prepaid pension asset $ 1,162 $ 1,220
Postretirement benefit obligation (407) (440)
Depreciation 743 949
Other (11) (25)
------- -------
Net deferred tax liability $ 1,487 $ 1,704
======= =======
</TABLE>
NOTE 8 - LONG-TERM DEBT:
Outstanding long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit note, with interest from 6.94% to 7.0%
at December 31, 1997 $ 24,000 $ 33,600
Notes payable in various installments at various
interest rates not exceeding 10.0% through 1999 1,284 3,281
-------- --------
25,284 36,881
Less-current maturities (784) (1,997)
-------- --------
$ 24,500 $ 34,884
======== ========
</TABLE>
19
<PAGE> 20
The maturities of long-term debt at December 31, 1997, for the succeeding years
and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998 $ 784
1999 500
2000 24,000
-------
$25,284
=======
</TABLE>
The Company maintains a revolving credit agreement with two banks that extends
through March 31, 2000. Under this agreement, the Company may borrow up to
$50,000,000 at variable rates based upon the prime or Eurodollar. The Company is
required to restrict declaration or payment of dividends and redemption or
acquisition of capital stock. The Company is also required to maintain various
financial ratios relating to cashflow, working capital, tangible net worth and
indebtedness. The Company has $5,000,000 in credit available through Bankers'
Acceptance agreements with another bank.
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, 1997.
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 750,000 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 this stock option plan is summarized below:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
SHARES Shares
UNDER PRICE Under Price
OPTION RANGE Option Range
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Outstanding, January 1 305,000 $9.75-$16.00 257,000 $9.75-$13.38
Granted 47,500 $16.00 48,000 $16.00
Exercised (14,000) $11.63-$16.00
Expired (13,500) $11.63-$16.00
-------- -------
Outstanding, December 31 325,000 $9.75-$16.00 305,000 $9.75-$16.00
======= =======
Shares exercisable at end of year 230,000 217,400
======= =======
Shares available for grants at end of year 241,411 411
======= =======
</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 (see note 14).
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.
20
<PAGE> 21
The stockholders approved a stock compensation plan for non-employee directors
in 1997. Shares available for issuance under this plan aggregate 60,000. The
plan allows for issuance of non-qualified stock options and is administered by
the board of directors. A total of 30,000 options were granted at $15.88 per
common share to non-employee directors in 1997. These options vest over a three
year period beginning on the first anniversary of the date of grant. Options
expire if not exercised within five years of the date of grant. Options become
fully exercisable and vested in the event of an accelerating event as defined in
the plan.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates for awards in 1997, 1996 and 1995
consistent with the method prescribed by SFAS No. 123, the Company's net income
and earnings per share for 1997, 1996 and 1995 would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
As reported $3,258 $5,095 $1,884
Pro forma 3,092 5,000 1,839
Earning per share-basic
As reported $0.96 $1.50 $0.56
Pro forma 0.91 1.48 0.55
Earnings per share-diluted
As reported $0.91 $1.42 $0.53
Pro forma 0.86 1.39 0.52
</TABLE>
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 1997, 1996 and 1995, respectively: average expected
volatility of 38%, 39% and 42% in 1997, 1996 and 1995, respectively; risk free
interest rates of approximately 5.71%, 6.10% and 5.49% in 1997, 1996 and 1995,
respectively; average expected lives of 5 years; and, no dividend yield for any
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 $6,257,000 in 1997, $5,551,000 in 1996 and
$4,768,000 in 1995.
At December 31, 1997 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>
1998 $ 5,784
1999 4,848
2000 3,692
2001 2,506
2002 2,220
Thereafter 5,231
-------
Total minimum lease payments $24,281
=======
</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.
21
<PAGE> 22
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) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during year $ 881 $ 878 $ 600
Interest cost on projected benefit 614 627 583
Actual return on plan assets (2,257) (1,477) (2,110)
Net amortization and deferral 917 133 769
-------- -------- --------
Net periodic pension expense (income) $ 155 $ 161 $ (158)
======== ======== ========
Projected benefit obligation, December 31 $ (8,924) $ (8,824) $ (8,595)
Plan assets at fair market value, primarily listed stocks 13,746 12,321) 11,985
-------- -------- --------
Excess of plan assets over projected benefit obligation 4,822 3,497 3,390
Unrecognized net asset, December 31 (1,198) (1,498) (1,797)
Unrecognized net (gain) loss and prior service cost (642) 1,138 1,705
-------- -------- --------
Deferred pension asset $ 2,982 $ 3,137 $ 3,298
======== ======== ========
</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 1997, compared to 7.50% and 4.50% in 1996 and
7.50% and 5% in 1995. The expected long-term rate of return on assets was 9.5%
in 1997, 1996 and 1995. The average remaining service lives of plan participants
used to compute amortization of the projected obligation existing as of December
31, 1997 is 15 years.
The actuarial present value of vested and nonvested accumulated benefits as of
January 1, 1997 was $6,121,000 and $812,000, respectively. The assumed average
rate of return in determining the actuarial present value of accumulated plan
benefits was 8.25%.
The Company has two non-qualified supplemental pension plans covering certain
employees, which provide for incremental pension payments, upon retirement, from
the Company's funds. These payments take into consideration the employee's total
compensation without any of the limitations imposed by income tax regulations.
Payments made by the Company under these plans are offset by pension payments
received from the Company's defined benefit pension plan. The projected benefit
obligation relating to these unfunded plans totaled $1,292,000 and $1,278,000 at
December 31, 1997 and 1996, respectively. Pension expense for the plans was
$234,000, $245,000 and $226,000 in 1997, 1996 and 1995, respectively.
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 a percentage of participant
contributions. Net expense under this plan was $408,000 in 1997, $355,000 in
1996 and $318,000 in 1995.
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.
22
<PAGE> 23
The following table summarizes the components of postretirement benefit cost and
accumulated postretirement benefit obligation ("APBO") recognized in the
Company's financial statements at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 25 $ 22 $ 18
Interest cost on projected benefit 98 102 105
Net amortization and deferral 13 10 4
-------- -------- --------
Net postretirement benefit cost $ 136 $ 134 $ 127
======== ======== ========
Accumulated postretirement benefit obligation:
Retirees $ (1,127) $ (1,147) $ (1,177)
Fully eligible participants (91) (90) (77)
Other active participants (207) (174) (145)
-------- -------- --------
(1,425) (1,411) (1,399)
Unrecognized net loss 381 264 264
-------- -------- --------
Net accumulated postretirement benefit obligation $ (1,044) $ (1,147) $ (1,135)
======== ======== ========
</TABLE>
The discount rate used in determining the APBO was 7.50% in 1997, 1996 and 1995.
The assumed health care cost trend rate used in measuring the APBO was 9.0% for
1997, 10% for 1996 and 11% in 1995, and over the next two 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, 1997 would be
increased 4.39%. 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, 1997 would be an increase of 7.92%.
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 diluted 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 $676,000 at December 31, 1997 and $739,000 at
December 31, 1996.
NOTE 14 - SUBSEQUENT EVENTS:
On February 18, 1998, the Company jointly announced with Keystone Automotive
Industries, Inc. ("Keystone") that they had entered into a definitive merger
agreement pursuant to which Keystone would acquire the Company. Under the terms
of the agreement, Keystone would issue 0.8 of a share of its common stock in
exchange for each share of the Company's common stock.
The transaction, which has been approved unanimously by the board of directors
of each company, is intended to qualify as a tax-free reorganization. The merger
agreement is subject to certain regulatory approvals as well as approval by the
shareholders of each company at special meetings expected to be held within the
second quarter of 1998. Closing of the merger is expected during the second
quarter of 1998.
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.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
(a) Directors of Registrant
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
DIRECTOR SINCE AGE PRINCIPAL OCCUPATION
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William F. Ballhaus 1984 79 Private investor; Director, Northrop Corporation, an aerospace
manufacturer (1974-93)
Edgar R. Berner 1968 57 Chairman of the Board of the Company (1986-present);
Managing Director, The Wicks Group of Companies, an
investment company (1990-present); Director, Broadcasting
Partners, Inc.,an owner and operator of radio stations (1993-1995)
Richard O. Berner 1981 45 Partner, Berner & Berner, P.C.,a law firm (1982-present);
Chairman of the Board, Concord Fund, a mutual fund
(1991-present)
Nicholas A. Fedoruk 1973 57 Principal, Verdance & Associates, an environmental consulting
firm (1995-present); Environmental Policy Consultant (1992-
1995)
Oliver R. Grace, Jr. 1982 44 Private investor; President, Andersen Group, Inc., a dental
products and video broadcasting equipment manufacturing
company (1990-present); Director, Take-Two Interactive
Software, Inc. (1997-present)
Donald B. Hauk 1988 53 Executive Vice President and Chief Financial Officer of the
Company (1986-present)
Leroy M. Parker, M.D. 1987 54 Associate Professor of Medicine, Dana Farber Partners Cancer
Care, Dana Farber Cancer Institute, Brigham & Womans
Hospital (1996-present); Associate Professor of Medicine and
Associate Physician, Dana Farber Cancer Institute, Harvard
Medical School (1991-1996); Co-Director, Deaconess-Dana
Farber Oncology Program (1991-1995)
Douglas R. Stern 1994 48 President and CEO, United Media, a licensing and newspaper
syndication company (1993-present); President, National
Research Group, a market research firm (1991-1993)
Keith M. Thompson 1986 57 President and Chief Executive Officer of the Company (1986-
present); Director, Acklands Limited, a Canadian automotive
parts and industrial supplies distributor (1991-1997); Director,
Sirrom Capital Corporation, an investment company (1997-present)
</TABLE>
24
<PAGE> 25
(b) Executive Officers of the Registrant
<TABLE>
<CAPTION>
YEARS SERVED
NAME OFFICE AGE AS OFFICER
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edgar R. Berner Chairman of the Board of Directors 57 12
Keith M. Thompson President and Chief Executive Officer 57 12
Donald B. Hauk Executive Vice President and Chief 53 11
Financial Officer
Douglas G. Goetsch Vice President and Treasurer 43 3
Thomas J. Rutkowski Vice President 55 3
Anthony R. Dainora Secretary 46 3
</TABLE>
Each of the executive officers listed above has served the Company in that
capacity for the past five years except for Messrs. Goetsch, Rutkowski and
Dainora who joined the Company in 1986, 1992 and 1985, respectively, and were
elected executive officers of the Company in 1995. Mr. Rutkowski was employed by
Hayden, Inc., a wholly-owned subsidiary of The Equion Corporation, a supplier of
automotive replacement parts to the Company, as Vice President and General
Manager from 1988 to 1992. Mr. Rutkowski was previously employed by one of the
Company's subsidiaries from January 1987 until July 1988 at which time the
Company sold the business and related assets of the subsidiary, which employed
Mr. Rutkowski, to Hayden, Inc. Mr. Goetsch has been responsible for the
Company's management information systems since 1989. Mr. Dainora is the
Controller and has been responsible for financial and tax reporting and
compliance since 1989.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or to be paid by the
Company and its subsidiaries for the fiscal years ended December 31, 1997, 1996
and 1995 to: (a) the Chief Executive Officer ("CEO") and (b) the four most
highly compensated executive officers other than the CEO:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION OTHER SECURITIES
BONUS ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) COMPENSATION OPTIONS(#) COMPENSATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Edgar R. Berner 1997 $109,600 -- -- -- $45,637(2)
Chairman of Board 1996 109,600 -- -- -- 46,947(2)
1995 109,600 -- -- -- 33,031(2)
Keith M. Thompson 1997 349,032 -- -- 10,000 4,750(3)
President and Chief Executive 1996 324,456 $114,761 -- 9,000 4,750(3)
Officer 1995 314,462 -- -- -- 4,620(3)
Donald B. Hauk 1997 220,356 -- -- 5,000 4,750(3)
Executive Vice President and 1996 204,021 64,947 -- 10,000 4,620(3)
Chief Financial Officer 1995 197,711 -- -- -- 4,620(3)
Thomas J. Rutkowski(4) 1997 135,862 -- $16,910(5) 5,000 3,750(3)
Vice President 1996 126,034 31,205 17,550(5) 5,000 3,750(3)
1995 122,192 -- 16,998(5) 5,000 4,116(3)
Douglas G. Goetsch(4) 1997 101,682 -- 17,150(5) 5,000 3,563(3)
Vice President and Treasurer 1996 93,625 23,181 14,800(5) 5,000 3,253(3)
1995 90,769 -- 17,326(5) 5,000 3,241(3)
</TABLE>
25
<PAGE> 26
(1) Bonuses awarded for fiscal year shown, but paid in subsequent year.
(2) On September 21, 1989, the Company granted Mr. Edgar R. Berner a
performance share program under the Stock Compensation Plan. The program
provides an award cycle commencing September 21, 1989, and continuing until
September 21, 1999. The program target for the program is to compensate and
retain Mr. Berner as Chairman of the Company. If Mr. Berner is employed as
Chairman of the Company on September 21, 1999, the program target will have been
100% met. Mr. Berner will have no rights as a stockholder with respect to any
performance shares. All performance shares shall be forfeited by Mr. Berner in
the event that he terminates his employment with the Company prior to the
occurrence of a "Terminating Event." A "Terminating Event" is defined as one of
the following occurrences: (i) the program target is considered to have been
100% met as provided above; (ii) Mr. Berner is terminated by the Company for any
reason as Chairman; (iii) Mr. Berner dies while he is an employee of the
Company; or (iv) there is a change of control of the Company (as defined in the
Stock Compensation Plan) and Mr. Berner terminates his employment within three
years after such change of control. If the Terminating Event occurs on or after
September 21, 1990, in order to create an ongoing incentive for Mr. Berner to
remain with the Company and to perform the important role he has in the past,
and because the award under the performance share program would not be made
until such later date and is therefore at risk for an extended period of time,
Mr. Berner shall receive an award under the Plan of 65,760 shares of Common
Stock plus an additional amount of shares equivalent to 12% per annum of such
number of shares, as compounded, calculated with a starting date of September
21, 1990 and prorated over the number of days which have elapsed subsequent to
such date and prior to the date the Terminating Event occurs. Effective August
2, 1993, Mr. Berner's interest in the performance share program was transferred
to an irrevocable trust, of which he is neither a trustee nor a beneficiary, for
the benefit of his descendants. Effective April 3, 1997, Mr. Berner's
performance share program was amended to include a provision providing for
earlier payment if there is a change in control of the Company prior to
September 21, 1999. The amount so payable would be equal to the benefits
forfeited under the performance share program granted on September 21, 1989 as a
result of a change in control occurring prior to September 21, 1999. Of the
amounts reported as All Other Compensation for Mr. Berner, $42,349 for 1997,
$43,659 for 1996 and $29,743 for 1995 is calculated by dividing the difference
between 12% and 120% of the long term applicable federal rate at the inception
of the plan by 12% and multiplying the quotient by the December value of the
total number of shares allocated in the year. The balance of $3,288 for 1997,
$3,288 for 1996 and $3,288 for 1995 represents Company contributions under a
defined contribution plan under Section 401(k) of the Internal Revenue Code
equal to that of Mr. Berner's contribution not to exceed 3% of his annual
compensation.
(3) Represents Company contributions under a defined contribution plan under
Section 401(k) of the Internal Revenue Code equal to 50% of each participant's
contribution not to exceed 3% of each participant's annual compensation.
(4) Mr. Goetsch and Mr. Rutkowski were appointed executive officers of the
Company effective January 1, 1995.
(5) Includes car allowances of $13,916, $13,557 and $13,279 for 1997, 1996 and
1995, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL EXERCISE ANNUAL RATES OF STOCK
SECURITIES OPTIONS OR PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE PRICE EXPIRATION OPTION TERM(2)
OPTIONS EMPLOYEES IN (PER DATE ------------------------
NAME GRANTED(#)(1) FISCAL YEAR(%) SHARE) (MM/DD/YY) 5% 10%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Edgar R. Berner ......... 0
Keith M. Thompson ....... 10,000 21.1 $16.00 12/11/02 $44,200 $97,680
Donald B. Hauk .......... 5,000 10.5 16.00 12/11/02 22,100 48,840
Thomas J. Rutkowski ..... 5,000 10.5 16.00 12/11/02 22,100 48,840
Douglas G. Goetsch ...... 5,000 10.5 16.00 12/11/02 22,100 48,840
</TABLE>
26
<PAGE> 27
(1) Options vest 20% upon grant and 20% on the four succeeding
anniversaries of the date of grant.
(2) The amounts shown in these two columns represent the potential realizable
values using the options granted and the exercise price. The assumed rates of
return are set by the SEC proxy statement disclosure rules and are not intended
to forecast the future appreciation of the Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN THE MONEY
FISCAL YEAR- OPTIONS AT
END(#) YEAR END(1)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edgar R. Berner .............. 0 None 0/ 0
Keith M. Thompson ............ 0 None 47,600/16,400 $106,350/$4,130
Donald B. Hauk ............... 0 None 43,000/12,000 100,850/ 2,750
Thomas J. Rutkowski .......... 0 None 37,500/10,000 129,200/ 3,870
Douglas G. Goetsch ........... 0 None 27,500/10,000 80,450/ 3,870
</TABLE>
(1) Calculated based on the share price of the Common Stock on December 31,
1997 of $14.63 less the option exercise price. An option is in-the-money if the
market value of the Common Stock subject to the option exceeds the exercise
price.
PENSION PLANS
The following table shows estimated annual pension benefits payable to a
participant at normal retirement age under the Company's qualified defined
benefit plan and non-qualified supplemental executive retirement plan based on
average compensation that is covered under the plans and years of service with
the Company and its subsidiaries.
PENSION PLAN TABLE
YEARS OF SERVICE
<TABLE>
<CAPTION>
AVERAGE
COMPENSATION 10 15 20 25 30 35
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 75,000 $ 13,352 $ 20,027 $ 26,703 $ 33,379 $ 33,379 $ 33,379
100,000 18,477 27,715 36,953 46,192 46,192 46,192
125,000 23,602 35,402 47,203 59,004 59,004 59,004
150,000 28,727 43,090 57,453 71,817 71,817 71,817
175,000 33,852 50,777 67,703 84,629 84,629 84,629
200,000 38,977 58,465 77,953 97,442 97,442 97,442
225,000 44,102 66,152 88,203 110,254 110,254 110,254
250,000 49,227 73,840 98,453 123,067 123,067 123,067
275,000 54,352 81,527 108,703 135,879 135,879 135,879
300,000 59,477 89,215 118,953 148,692 148,692 148,692
400,000 79,977 119,965 159,953 199,942 199,942 199,942
450,000 90,227 135,340 180,453 225,567 225,567 225,567
500,000 100,477 150,715 200,953 251,192 251,192 251,192
600,000 120,977 181,465 241,953 302,442 302,442 302,442
</TABLE>
The Company and its subsidiaries have a pension plan for substantially all of
their employees. Contributions by the Company are made on an aggregate basis and
no amounts are identified as to any individuals. The amount of benefit payable
under the plan is dependent upon average compensation, age at retirement, length
of service and various other
27
<PAGE> 28
factors. The Company's officers, including those officers who also serve as
directors, participate in the plan on the same basis as other employees. The
above table sets forth the estimated annual straight life annuity benefits under
the plan following retirement at age 65 and indicated average compensation and
years of service levels. Average compensation means the average of the
participant's salary and bonuses during the five highest paid consecutive years
of employment. Covered compensation for 1997 for Messrs. Berner, Thompson, Hauk,
Rutkowski and Goetsch was: $109,930, $160,000, $160,000, $160,000 and $142,350,
respectively. Covered compensation and benefits under the plan are limited by
applicable federal law. Actual benefits will not be offset by applicable Social
Security or other benefits. All named executive officers have twelve years of
credited service except Mr. Goetsch and Mr. Rutkowski with eleven years of
credited service.
On January 1, 1995, the Company adopted a Supplemental Executive Retirement Plan
("SERP") for key executive employees. Messrs. Thompson and Hauk have been
selected by the Company to be participants in the SERP. The plan provides a
supplemental pension benefit calculated based on average compensation as
determined under the Company's pension plan without regard to the limitations
under Sections 401(a)(17) and 415 of the Internal Revenue Code as defined in the
Company's pension plan which is described above less the actual benefit payable
under the Company's pension plan subject to the above limitations. All payments
will be paid in cash from the Company's general funds at the time the payments
become due. For the fiscal year 1997, $143,502 was accrued under the SERP.
On September 21, 1989, the Company granted Mr. Edgar R. Berner a supplemental
retirement benefit. This benefit provides a 100% joint and survivor annuity
commencing at age 60 for Mr. Berner and his surviving spouse commencing at
$35,000 per year, payable monthly, which sum will be increased quarterly by
$1,250 for each additional quarter he is employed by the Company. The starting
date for measuring each such year is September 30, 1989. In no event will the
annuity exceed $75,000 per year. Actual benefits will be offset by applicable
benefits provided from the Company's pension plan described in the preceding
paragraph. In the event of Mr. Berner's death, his spouse will be paid the
annuity as if he had survived until age 60. In the event of a change of control,
three additional years of service will be credited and the pension will be paid
immediately in a cash lump sum reduced actuarially and subject to offset by the
Company's pension plan. If Mr. Berner should terminate his employment before age
60, he will retain a vested benefit payable at age 60 determined by his length
of service. All payments will be paid in cash from the Company's general funds
at the time payments become due. For the fiscal year 1997, $90,016 was accrued
under this plan.
The Company and each of Messrs. Thompson and Hauk have entered into agreements
dated October 26, 1988, which provide that the Company, in order to encourage
its management to remain with the Company and to continue to devote full
attention to the Company's business in the event an effort is made to obtain
control of the Company through a tender offer or otherwise, will continue paying
such executives their then current annual base salary for a period of two years
after termination in the event that a change of control takes place and the
executive is involuntarily terminated. The Company and each of Messrs. Rutkowski
and Goetsch have entered into agreements dated December 11, 1997, which provide
that the Company, in order to encourage its management to remain with the
Company and to continue to devote full attention to the Company's business in
the event an effort is made to obtain control of the Company through a tender
offer or otherwise, will continue paying such executives their then current
annual base salary for a period of one year after termination in the event that
a change of control takes place and the executive is involuntarily terminated.
There are no employment contracts between the Company and any executive officer.
The Company provides a medical reimbursement plan for all executive officers
which covers eligible expenses which are not payable under the basic group
insurance plan.
The Board of Directors has four standing committees, the Audit Committee, the
Compensation and Stock Option Committee, the Executive Committee and the
Retirement Committee. The Board of Directors does not have a nominating
committee. The functions normally performed by a nominating committee are
performed by the Board of Directors.
The Board of Directors' Executive Committee (Messrs. Edgar R. Berner, Richard O.
Berner and Thompson) met four times in 1997. Primarily, it exercises the power
of the Board when the latter is in recess. The Board's Compensation and Stock
Option Committee (Messrs. Ballhaus, Stern and Richard O. Berner) met once in
1997; its primary function is to review officers' and directors' compensation
and to grant awards under the Company's Stock Compensation Plan.
The Board's Audit Committee (Messrs. Ballhaus, Fedoruk and Parker) met two times
in 1997; its primary function is to review the work of the Company's internal
auditors and independent accountants. The Board's Retirement Committee (Messrs.
Richard O. Berner, Fedoruk and Grace) met once in 1997; its primary function is
to review the Company's retirement and Section 401(k) savings plans.
28
<PAGE> 29
The Board of Directors met four times in 1997. During 1997, all directors
attended at least 75% of the aggregate number of meetings of (1) the Board of
Directors held during the period for which they were directors and (2) standing
committees on which they served during the period except Mr. Grace who attended
60% of the aggregate number of scheduled meetings.
Directors (other than the Chairman of the Board, the President and Executive
Vice President) receive monthly retainers of $750. Additionally, directors
(other than the Chairman of the Board, the President and Executive Vice
President) receive $750 for attendance at each meeting of the Board of Directors
or meeting of a Committee of the Board. The Executive Committee members (other
than the Chairman of the Board and the President) receive an additional monthly
retainer of $300. Each nonemployee director, except for Messrs. Ballhaus, Parker
and Stern, is included in a group life insurance policy in the amount of $50,000
for which the Company paid an average annual premium of $144 each in 1997. In
addition, directors may be reimbursed for their expenses for attendance at
meetings of the Board or committees thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Board's Compensation and Stock Option Committee are Messrs.
Ballhaus, Stern and Richard O. Berner. Neither Messrs. Ballhaus nor Stern is or
was, during 1997 or previously, an officer or employee of the Company or any of
its subsidiaries. During 1997, Richard O. Berner served as Assistant Secretary
of the Company, but was not an employee of the Company.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee (the "Committee") of the Board of
Directors is responsible for the administration of the executive compensation
program of the Company. The Committee is composed of three non-employee
Directors who are not eligible to participate in the Company's employee
compensation plans.
In 1997, the Company's executive compensation program consisted of a mixture of
base salary, cash awards under the Executive Bonus Plan (the "Bonus Plan") and
stock option awards under the Company's Stock Compensation Plan. The executive
compensation program is reviewed by the Committee, generally annually, primarily
on the basis of individual performance and contributions to the Company. The
recommendations of the Committee as to base salary adjustments, the parameters
of the Bonus Plan and awards under the Stock Compensation Plan are acted upon by
the Board.
In the case of base salary adjustments, the Committee subjectively considers the
performance and contributions of each executive officer as measured against
formal and informal goals and objectives with respect to the total Company
performance, as appropriate for the respective responsibilities of each officer.
From a quantitative perspective, specific measures of performance considered in
dealing with compensation in the aggregate include net earnings, cash flow and
return on investment. From a qualitative point of view, objectives have included
the quality of long-term planning and progress in organizational and management
development.
At the same time, the Committee has taken into account the relationship of the
compensation of the Company's executive officers to the compensation of
individuals occupying comparable positions in other retail and wholesale
organizations of similar size to the Company, with a view to ensuring that
executives are fairly compensated and thus appropriately motivated and are
retained in the employment of the Company. Base pay levels for the executive
officers are generally in the middle of a competitive range of salaries.
In the case of the Bonus Plan, the amount available each year for awards is
based solely on a formula tied to the increase in earnings of the Company over
the prior year, before income taxes and after deducting such awards. The
Committee establishes a target bonus level for each participant in the Bonus
Plan which represents a specified percentage of the participant's base salary
which will be awarded as a bonus if the Company's earnings exceed a target level
set by the Committee for the year. Certain adjustments beyond the control of the
executive officers are made to the earnings. Additionally, the awards are
increased or decreased based upon a formula tied to the change in return on
investment from the prior year. No cash awards under the Bonus Plan were earned
in 1997 by any of the executive officers.
All executive officers and key management employees participate in the Stock
Compensation Plan under which options granted typically vest 20% upon grant and
20% on the four succeeding anniversaries of the date of grant. Such options
generally expire five years from the date of grant. The Committee believe stock
option grants are an effective way to align the interests of the Company's
executive and key management employees with its shareholders. During 1997, the
Committee awarded stock option grants in the aggregate of 47,500 shares to
certain executive officers and key management employees. The number of options
awarded to each individual was based on the Committee's assessment of the
29
<PAGE> 30
contributions of each individual toward accomplishment of Company objectives.
The size of the previous option grants are considered in determining current
awards.
In making a salary increase of approximately 7.6% effective January, 1997 to Mr.
Keith M. Thompson, President and CEO of the Company, the Committee subjectively
evaluated specific measures of performance of the Company, including
quantitative factors such as percent increase in net earnings, return on
stockholders' equity and return on assets and qualitative factors such as his
progress in developing acquisitions and strategic alternatives for the Company.
For 1997, Mr. Thompson did not receive an award under the Company's Bonus Plan
but did receive an award under the Stock Compensation Plan.
The Omnibus Budget Reconciliation Act of 1993 (the "Act") imposes a limit of $1
million, with certain exceptions, on the amount that a publicly held corporation
may deduct in any year for the compensation paid or accrued with respect to each
of its five most highly compensated officers. None of the Company's executive
officers currently receives compensation exceeding the limits imposed by the
Act. While the Committee cannot predict with certainty how the Company's
executive compensation might be affected in the future by the Act or applicable
tax regulations issued thereunder, the Committee intends to try to preserve the
tax deductibility of all executive compensation while maintaining the Company's
executive compensation plan as described in this report.
Compensation and Stock Option Committee
William F. Ballhaus, Chairman
Richard O. Berner
Douglas R. Stern
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company knows of no person who, as of March 2, 1998, owned beneficially more
than five percent (5%) of the Company's outstanding voting securities, except as
indicated in the table below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
T. Rowe Price Associates, Inc. 316,500 (1) 9.3
T. Rowe Price Small Cap Value Fund, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Dimensional Fund Advisors, Inc. 206,200 (2) 6.1
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Heartland Advisors, Inc. 195,000 5.7
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Franklin Resources, Inc. 192,000 5.7
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403
Verissimo Research & Management, Inc. 193,900 5.7
775 Baywood Drive, #314
Petaluma, California 94954
</TABLE>
(1) These securities are owned by various individuals and institutional
investors including T. Rowe Price Small Cap Value Fund, Inc. (which owns 300,500
shares, representing 8.8% of the shares outstanding) as to which T. Rowe Price
Associates, Inc. ("Price Associates") serves as investment adviser with power to
direct investments and/or sole power to vote the securities. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price Associates
is deemed to be the beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of such
securities.
30
<PAGE> 31
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
adviser, is deemed to have beneficial ownership of 206,200 shares of common
stock as of December 31, 1997, all of which shares are held in portfolios of DFA
Investment Dimensions Group, Inc., a registered open-end investment company, or
in series of the DFA Investment Trust Company, a Delaware business trust, or the
DFA Group Trust and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimension Fund Advisors Inc.
serves as investment manager. Dimensional disclaims beneficial ownership of all
such shares.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENTAGE
DIRECTORS AND NAMED EXECUTIVE OFFICERS BENEFICIALLY OWNED OF CLASS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William F. Ballhaus 7,000 *
Edgar R. Berner 54,626(1) 1.6
Richard O. Berner 47,614(1) 1.4
Nicholas A. Fedoruk 55,186(1) 1.6
Oliver R. Grace, Jr. 10,164 *
Leroy M. Parker, M.D. 48,926(1) 1.4
Douglas R. Stern 1,000 *
Donald B. Hauk 97,026(2) 2.8
Douglas G. Goetsch 39,696(3) 1.2
Thomas J. Rutkowski 41,561(4) 1.2
Keith M. Thompson 172,074(5) 4.9
Directors and Executive
Officers as a group (12 persons) 577,672(6) 16.2
</TABLE>
* Less than one percent
(1) Directors Edgar R. Berner and Richard O. Berner are brothers, Director
Nicholas A. Fedoruk's wife is their sister as is the wife of Director Dr. Leroy
M. Parker. Edgar R. Berner is the controlling shareholder of the general partner
of limited partnerships through which he is deemed to be the beneficial owner of
24,120 shares and the beneficiary of a trust which owns 168 shares. Richard O.
Berner is the controlling shareholder of the general partner of a limited
partnership through which he is deemed to be the beneficial owner of 47,614
shares. Mr. Fedoruk's wife is the controlling shareholder of the general partner
of limited partnerships through which she is deemed to be the beneficial owner
of 30,131 shares. She is also the owner of 12,895 shares directly as to which
Mr. Fedoruk disclaims beneficial ownership of all shares beneficially owned by
his wife. Dr. Parker's wife is the controlling shareholder of the general
partner of limited partnerships through which she is deemed to be the beneficial
owner of 19,513 shares. Dr. Parker's wife also owns 29,413 shares directly. Dr.
Parker disclaims beneficial ownership of all shares beneficially owned by his
wife.
(2) Includes 43,000 shares issuable upon the exercise of stock options which are
either presently exercisable or which may be exercised within sixty days of
March 2, 1998 and 35,803 shares owned by Mr. Hauk's wife as to which Mr. Hauk
disclaims beneficial ownership.
(3) Includes 27,500 shares issuable upon the exercise of stock options which are
either presently exercisable or which may be exercised within sixty days of
March 2, 1998.
(4) Includes 37,500 shares issuable upon the exercise of stock options which are
either presently exercisable or which may be exercised within sixty days of
March 2, 1998.
(5) Includes 47,600 shares issuable upon the exercise of stock options which are
either presently exercisable or which may be exercised within sixty days of
March 2, 1998 and 6,000 shares owned by Mr. Thompson's wife as to which Mr.
Thompson disclaims beneficial ownership.
(6) Includes 173,000 shares issuable upon the exercise of stock options which
are either presently exercisable or which may be exercised within sixty days of
March 2, 1998.
The share totals listed in the table above include the shares for which
directors or their spouses hold voting or dispositive power regardless of
whether beneficial ownership is disclaimed.
31
<PAGE> 32
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total shareholder return of a $100 investment on December 31, 1992 in
the Company's Common Stock against The NASDAQ Stock Market and the Standard &
Poor's Auto Parts & Equipment Stock Price Index, assuming reinvestment of all
dividends.
<TABLE>
<CAPTION>
NASDAQ S&P AUTO
MEASUREMENT PERIOD REPUBLIC STOCK PARTS &
(FISCAL YEAR COVERED) AUTOMOTIVE MARKET EQUIPMENT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1992 100 100 100
1993 126 115 116
1994 141 112 101
1995 136 159 125
1996 178 195 141
1997 154 240 176
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and the beneficial owners of more
than 10 percent of the Company's Common Stock to file reports of ownership and
changes in ownership of their equity securities of the Company. Directors and
executive officers of the Company and such beneficial owners file such reports
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. Directors and executive officers and such beneficial
owners are required to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely upon a review of the copies of Forms 3, 4 and 5 and amendments
thereto received by the Company, and written representations from certain
directors and executive officers and such beneficial owners of the Company that
no Forms 5 were required for such persons, the Company believes that all Section
16(a) filing requirements applicable to its directors and executive officers and
such beneficial owners were complied with during 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Berner & Berner, P.C., a legal firm in New York, New York of which Richard O.
Berner, a director of the Company, is a member, provides legal services to the
Company from time to time in return for fees and certain other benefits. The
Company utilized the services of Berner & Berner, P.C. during 1997. It is
expected that Berner & Berner, P.C. will continue to provide legal services to
the Company during 1998 although the amount of such services is unknown at this
time.
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 11
Consolidated Balance Sheets at December 31, 1997 and 1996 12
Consolidated Statements of Income for the three years ended December 31, 1997 13
Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1997 14
Consolidated Statements of Cash Flows for the three years ended December 31, 1997 15
Notes to Consolidated Financial Statements 16-23
2. Financial Statement Schedules:
VIII.Valuation and Qualifying Accounts and Reserves 36
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
32
<PAGE> 33
<TABLE>
<S> <C> <C>
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.
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. 33-35-317 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
Agreement between the Company and Keith the Company's Annual Report on Form 10-K for the
M. Thompson dated as of October 26, 1988. year 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.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
10.9 Sixth Amended and Restated Revolving Incorporated by reference to Exhibit 10.9 to the
Credit Agreement dated as of March 31, 1997 Company's Quarterly Report on Form 10-Q for the
between the Company and Comerica Bank, as Agent. quarter ended March 31, 1997 filed with the
Commission on May 8, 1997.
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.
10.12 1997 Stock Option Plan for Non-Employee Directors Incorporated by reference to Exhibit A to the
Company's definitive Proxy dated April 25, 1997 sent in
connection with the annual meeting to be held on June
5, 1997 and filed with the Commission on April 25,
1997.
10.13 Key Employee Salary Continuation Agreement
between the Company and Thomas J. Rutkowski
dated as of December 11, 1997.
10.14 Key Employee Salary Continuation Agreement
between the Company and Douglas G. Goetsch
dated as of December 11, 1997***.
10.15 Key Employee Salary Continuation Agreement
between the Company and Anthony R. Dainora
dated as of December 11, 1997***.
11. Statement re: computation of earnings per share
21. Subsidiaries of the Company
23. Consent of Price Waterhouse LLP, independent accountants
27. Financial Data Schedule (for SEC use only)
</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.
*** Document not filed because substantially identical to filed document
identified as Exhibit 10.13.
(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.
34
<PAGE> 35
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 March 4, 1998
-------------------------------------------
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> <C> <C>
/S/EDGAR R. BERNER March 3, 1998 /S/KEITH M. THOMPSON March 4, 1998
- ----------------------------------------- -----------------------------------------------
Edgar R. Berner Date Keith M. Thompson Date
Chairman of the Board of Directors President, Chief Executive Officer and Director
/S/DONALD B. HAUK March 4, 1998 /S/NICHOLAS A. FEDORUK March 3, 1998
- ----------------------------------------- -----------------------------------------------
Donald B. Hauk Date Nicholas A. Fedoruk Date
Executive Vice President, Chief Financial Director
Officer and Director
/S/LEROY M. PARKER March 4, 1998
- -----------------------------------------
Leroy M. Parker Date
Director
</TABLE>
35
<PAGE> 36
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,
1997 $658,000 $425,000 $297,000 $786,000
1996 $490,000 $315,000 $147,000 $658,000
1995 $571,000 $424,000 $505,000 $490,000
</TABLE>
(1) Write-offs in excess of recoveries.
36
<PAGE> 37
LIST OF EXHIBITS
The following Exhibits are filed as a part of this Report:
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
10.13 Key Employee Salary Continuation Agreement between
the Company and Thomas J. Rutkowski dated as of
December 11, 1997 2
11. Statement re: Computation of Earnings Per Share 7
21. Subsidiaries of the Company 8
23. Consent of Independent Accountants 9
27. Financial Data Schedule (for SEC use only) 10
</TABLE>
1
<PAGE> 1
Exhibit 10.13
KEY EMPLOYEE SALARY CONTINUATION AGREEMENT
AGREEMENT, dated as of the 11th day of December 1997 between REPUBLIC
AUTOMOTIVE PARTS, INC., a Delaware corporation (the "Company"), and Thomas J.
Rutkowski (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, in this connection, the Company recognized that the
possibility for a change in control and the uncertainty and questions which it
may raise among management may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has
accordingly, determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management to their assigned duties without distraction in the face of the
potentially disturbing circumstances arising from the possibility of a change in
control of the Company;
WHEREAS, the Executive is a key employee of the Company;
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposals from a third person
concerning a possible business combination with, or acquisition of equity
securities of, the Company, the Board believes it imperative that the Company
and the Board be able to rely upon the Executive to continue in his position,
and that the Company be able to receive and rely upon his advice, if so
requested, as to the best interests of the Company and its stockholders without
concern that he might be distracted by the personal uncertainties and risks
created by such a proposal; and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate;
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
2
<PAGE> 2
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Services During Certain Events.
In the event a third person begins a tender or exchange offer,
circulates a proxy to stockholders, or takes other steps seeking to effect a
Change in Control (as hereafter defined), the Executive agrees that he will not
voluntarily leave the employ of the Company, and will render the services
contemplated in the recitals to this Agreement, until the third person has
abandoned or terminated his or its efforts to effect a Change in Control or
until after such a Change in Control has been effected. In the event that the
Executive breaks his obligations under this paragraph, he shall forfeit his
rights to the benefits conferred hereby (which forfeiture shall constitute the
sole remedy of the Company for such breach). The Company shall promptly notify
the Executive if and when it receives knowledge that steps are being taken to
effect a Change in Control.
2. Change in Control.
For the purposes of this Agreement, "Change in Control" shall have the
same meaning as is set forth in Section 1.2 of the Republic Automotive Parts,
Inc. Stock Compensation Plan as adopted by the Shareholders on April 27, 1989.
3. Circumstances Triggering Receipt of Benefits.
The Company shall provide the Executive with the benefits set forth in
Section 5 immediately upon any "Involuntary Termination" of the Executive's
employment by the Company within one year following a Change in Control.
"Involuntary Termination" shall mean the termination of the Executive's
employment with the Company during such period (a) by the Company unless the
termination is: (i) by reason of the Executive's death or (ii) by reason of the
Executive's inability by reason of illness or other physical and mental
disability to perform his duties for any consecutive 180 day period or (iii)
termination upon the Executive's reaching the normal retirement age specified in
the Company's Retirement Plan; (b) by such Executive after any reduction in his
base salary, any material reduction in his fringe benefits, his relocation to a
location outside a 50 mile radius of his current office without his consent, or
a material decrease in his responsibilities or authority or any other material
adverse change in the condition of his employment.
4. Notice of Termination.
Any termination of the Executive's employment with the Company by the
Company or by the Executive, in each case as contemplated by Section 3, shall be
communicated by written "Notice of Termination" to the other party hereto.
5. Benefits.
3
<PAGE> 3
Subject to the conditions set forth in Section 3, the following
benefits (subject to any applicable payroll or other taxes required to be
withheld) shall be paid to the Executive: (a) the Company shall continue paying
such Executive's then current annual base salary for a period of one year
following such termination, such amount to be in addition to any other coverage,
fringe benefits, payments and distributions to which such Executive is entitled;
and (b) all Stock Options granted to such Executive which the Executive shall
not then have been entitled to exercise shall be accelerated immediately prior
to or concurrently with the occurrence with the change in control and the
optionee shall have the right to exercise all such options. Notwithstanding
clause (a) above, beginning six months following termination from the Company,
benefits otherwise provided by clause (a) shall be reduced dollar for dollar for
any benefits of the nature provided by clause (a) that are received by the
Executive from another employer.
6. Continuing Obligations.
In order to induce the Company to enter into this Agreement, the
Executive hereby agrees that all documents, records, techniques, business
secrets and other information which have come into his possession from time to
time during his employment hereunder, shall be deemed to be confidential and
proprietary to the Company and the Executive further agrees to retain in
confidence any confidential information known to him concerning the Company and
its subsidiaries and their respective businesses so long as such information is
not publicly disclosed.
7. Successors.
(a) The Company will require any successor controlled by the Company's
Board of Directors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to allow substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive to the benefits
provided by Section 5 from the Company in the same amount and on the same terms
as the Executive would be entitled hereunder upon Involuntary Termination within
one year following a Change in Control as provided in Section 3, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of the Involuntary Termination. As
used in the Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 7 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees. If the Executive should
die while any amounts are payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
4
<PAGE> 4
designee, to his estate.
8. Notices.
For purposes of this Agreement, notices and all other communications
provided herein shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Thomas J. Rutkowski
1215 Arrowhead Drive
Brentwood, TN 37027
If to the Company:
Republic Automotive Parts, Inc.
500 Wilson Pike Circle, Suite 115
Brentwood, TN
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware.
10. Miscellaneous.
Except as provided in Section 13, no provisions of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or any prior subsequent time. This agreement supersedes
all prior agreements with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
11. Separability.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
12. Non-assignability.
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this agreement or
any
5
<PAGE> 5
rights or obligations hereunder, except as provided in Section 7. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of security
interest or otherwise, other than a transfer by his will or by the laws of
descent or distribution, and in the event of any attempted assignment or
transfer contrary to this paragraph the Company shall have no liability to pay
any amount so attempted to be assigned or transferred.
13. Termination; Modification.
The Company may terminate or modify this agreement at any time by
written notice of such termination or modification given to the Executive;
except that no such termination or modification shall be made, and if made shall
have no effect, (a) within one year after the Change in Control in question, (b)
following a termination of employment as contemplated by Section 3, or (c)
during any period of time when the Company has knowledge that any third person
has taken steps reasonably calculated to effect a Change in Control until, in
the opinion of the Board, the third person has abandoned or terminated his
efforts to effect a Change in Control. Any decision by the Board made in good
faith as to the nature of any steps taken by such third person or as to whether
the third person has abandoned or terminated his efforts to effect a Change in
Control shall be conclusive and binding on the Executive.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
REPUBLIC AUTOMOTIVE PARTS, INC.
By /s/Keith M. Thompson
--------------------------------------
President & Chief Executive Officer
EXECUTIVE
By /s/Thomas J. Rutkowski
--------------------------------------
6
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computation of basic earnings per share
Weighted average number of shares of
common stock outstanding 3,401,818 3,387,818 3,353,202
========== ========== ==========
Net income $3,258,000 $5,095,000 $1,884,000
========== ========== ==========
Basic earnings per share $ 0.96 $ 1.50 $ 0.56
========== ========== ==========
Computation of diluted earnings per share
Weighted average number of shares of
common stock outstanding 3,401,818 3,387,818 3,353,202
Dilutive stock options 191,133 192,052 173,072
---------- ---------- ----------
3,592,951 3,579,870 3,526,274
========== ========== ==========
Net income $3,258,000 $5,095,000 $1,884,000
========== ========== ==========
Diluted earnings per share $ 0.91 $ 1.42 $ 0.53
========== ========== ==========
</TABLE>
7
<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
Republic Automotive Parts Wholesalers, Inc. Delaware
Republic Automotive Parts Distribution, Inc. Delaware
Fenders & More, Inc. Tennessee
</TABLE>
8
<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 27, 1998, appearing on page 11 of this Annual Report on
Form 10-K.
/s/ PRICE WATERHOUSE LLP
Nashville, Tennessee
March 12, 1998
9
<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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,283
<SECURITIES> 0
<RECEIVABLES> 14,809
<ALLOWANCES> 786
<INVENTORY> 49,028
<CURRENT-ASSETS> 72,502
<PP&E> 19,798
<DEPRECIATION> 12,396
<TOTAL-ASSETS> 93,576
<CURRENT-LIABILITIES> 14,908
<BONDS> 0
0
0
<COMMON> 1,737
<OTHER-SE> 49,819
<TOTAL-LIABILITY-AND-EQUITY> 93,576
<SALES> 188,953
<TOTAL-REVENUES> 188,953
<CGS> 112,466
<TOTAL-COSTS> 112,466
<OTHER-EXPENSES> 68,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,346
<INCOME-PRETAX> 5,501
<INCOME-TAX> 2,243
<INCOME-CONTINUING> 3,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,258
<EPS-PRIMARY> .96
<EPS-DILUTED> .91
</TABLE>
