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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 25, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-66412
APS HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0306940
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15710 JOHN F. KENNEDY BLVD., SUITE 700
HOUSTON, TEXAS 77032-2347
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 507-1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
$.01 PAR VALUE CLASS A COMMON STOCK NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT:
NONE
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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 such 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
--- ---
There were 13,764,321 shares of the Registrant's Class A Common Stock
outstanding as of the close of business on April 14, 1997. The aggregate
market value of the Registrant's Class A Common Stock held by non-affiliates
was $91,174,430 (based upon the closing price of $9.625 on April 14, 1997 as
reported on the NASDAQ National Market System).
DOCUMENTS INCORPORATED BY REFERENCE - NONE
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
APS Holding Corporation ("APS Holding") and its subsidiaries
(collectively referred to as the "Company") is a leading warehouse distributor
of automotive replacement parts in the United States, supplying over 1,800
parts stores owned by associated jobbers and approximately 300 Company-owned
stores as of January 25, 1997. The Company principally serves the wholesale
segment of the automotive parts aftermarket. Through the Company's network of
28 distribution centers in 26 states, the Company offers over 160,000 SKUs,
including a broad array of nationally recognized replacement parts, tools,
equipment, supplies and accessories under its Big A(R) brand name as well as
manufacturers' brands. In addition, as of January 27, 1996, the Company
operated more than 270 Installers' Service Warehouses ("ISWs"), which directly
serve the needs of the professional installer by stocking a select number of
high demand products and emphasizing availability and quick delivery.
The Company's Big A program offers a number of benefits to the
associated jobbers that participate in the program, including (i) a broad
selection of product lines; (ii) brand name identity, including national
advertising programs; (iii) access to flexible purchasing programs; (iv)
overnight delivery of parts; and (v) a comprehensive package of services,
including assistance in marketing, cataloging, inventory control, accounting,
management and employee training. Many of the Company's associated jobbers and
Company-owned stores are located in communities with populations of less than
25,000 people. The Company believes that jobbers located in smaller communities
are well suited to the Big A program because the customer base within these
communities generally is not large enough to support the investment necessary
to enable a jobber to obtain on its own the benefits of the Big A program. In
contrast, ISWs target customers in larger metropolitan areas typically not
served by the Company's associated jobbers or Company-owned stores by focusing
on a select number of high demand products (typically undercar products such as
chassis, suspension, steering and brake parts) and emphasizing availability and
quick delivery.
APS Holding, which was formed in 1989 to acquire A.P.S., Inc., ("APS")
from Wickes Companies, Inc. ("Wickes"), first offered its Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), to the public in
September 1993.
The PI Acquisition
On January 25, 1996, the Company acquired all of the outstanding stock
of Parts, Inc. ("PI"), an automotive parts distributor, from GKN Parts
Industries Corporation ("GKN Parts") for a purchase price, as adjusted, of
$74.9 million (the "PI Acquisition"). At the time of the PI Acquisition, the
PI distribution network was comprised of approximately 850 parts stores owned
by PI's associated jobbers and more than 125 company-owned stores, all of which
were serviced through PI's 14 distribution centers. PI's customer base at such
time was primarily located in markets where the Company had a relatively minor
presence, including Arkansas, Oklahoma, Texas, Tennessee, Kentucky,
Mississippi, Alabama, West Virginia and Michigan.
INTEGRATION AND CONSOLIDATION PLAN
During the fiscal year ended January 25, 1997 ("Fiscal Year 1997"),
the Company implemented an aggressive plan to integrate PI's operations with
those of the Company. The integration plan, which has been substantially
completed, called for the closure of numerous PI facilities, including nine
distribution centers and 27 stores, as well as the closure of two APS
distribution centers. As a result of such closures and the sale of certain
store facilities in Mississippi and Florida in October 1996, there were five PI
distribution centers and 74 PI company-owned stores
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remaining at January 25, 1997. In addition, the integration plan called for
the changeover of PI's product lines from Parts Plus to Big A brands. While
product line changeovers were substantially completed during Fiscal Year 1997,
the Company expects to complete any remaining product line changeovers during
the fiscal year ending January 31, 1998 ("Fiscal Year 1998").
CUSTOMER RETENTION
The benefits to be received by the Company from the PI Acquisition are
highly dependent upon whether the Company retains a significant percentage of
sales to PI's associated jobbers, especially to larger customers. In line with
the Company's expectations, at January 25, 1997, the Company had retained
approximately 550 of PI's associated jobbers.
PURCHASING ECONOMIES AND VENDOR SUPPORT
The PI Acquisition has enabled the Company to achieve significant
purchasing savings, primarily through volume incentives with its suppliers.
The Company expects to realize the full benefit of these purchasing savings
upon completion of its product line changeovers, which were substantially
completed in Fiscal Year 1997.
The Company also negotiated deferred payment terms, changeover and
acquisition incentives and other one-time special privileges from its suppliers
in connection with the integration of PI and the changeover of product lines.
Such deferred payment terms, which allowed the Company to defer the payment of
certain accounts payable, will require the Company to make payments beginning
in the current fiscal year and continuing through the following two fiscal
years. The Company's costs of integrating PI and changing over product lines
were offset by these changeover and acquisition incentives. In addition to
offsetting direct integration costs, the Company used a portion of such
incentives to offset indirect costs, operational inefficiencies and general
business disruption resulting from the PI integration. See Part II, Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Pretax Charges; Business Initiatives - Integration of PI" below.
INDUSTRY OVERVIEW
The total market for automotive replacement parts (excluding tires and
service) was approximately $97.8 billion (based upon the price paid by end
users) in 1996 as measured by Lang Marketing Resources, Inc. ("Lang"). (Unless
otherwise indicated, the industry size and growth, market share and competitive
position data contained in this Form 10-K are based on retail sales by dollar
amount.) The market is composed of two basic segments: Passenger car and
light truck products, a market accounting for sales of $70.1 billion in 1996,
and heavy duty truck and other products, a market accounting for sales of $27.7
billion in 1996. The Company principally operates in the passenger car and
light truck market, and currently does not have a significant presence in the
heavy duty truck market.
The market for passenger car and light truck products has two basic
sales channels: (i) wholesale or installed parts service, serving professional
installers, vehicle dealers, retail auto parts stores and other distributors,
and (ii) retail, serving do-it-yourself retail customers. The wholesale
segment is the Company's primary area of focus. Based on Lang data, the
Company believes that the wholesale segment represents over two-thirds of
sales, or approximately $50.5 billion, of the passenger car and light truck
product market (based upon the price paid by end- users), while the retail
segment accounts for the remaining approximately $19.6 billion.
The size of the entire automotive parts aftermarket has continued to
increase in recent years. In addition, according to industry sources, revenues
generated by sales to professional installers have grown more quickly during
this period than revenues from the do-it-yourself sector. The Company believes
that this growth is attributable in part to
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several favorable market trends, including the following: (i) continuing growth
in the size of the national fleet of vehicles; (ii) growth in the miles driven
each year; (iii) growth in the number of vehicles in the prime repair age range
of five to ten years old, and the continued aging of the U.S. vehicle fleet;
(iv) proliferation of the number of automotive parts resulting from an increase
in the number of domestic and imported automotive vehicle models; and (v)
increasing complexity of vehicles and the maturing of the population (and
related increase in purchasing power), which the Company believes will lead to
an increasing propensity for vehicle owners to favor installed parts service
over do- it-yourself repairs. The increasing quality of new vehicles and
extended manufacturers' warranties, however, are reducing the impact of these
trends on the growth of the automotive parts aftermarket.
WHOLESALE DISTRIBUTION
Three-Step Distribution.
The Company has principally operated in the wholesale distribution
segment. Traditionally, this segment has distributed automotive parts using a
three-step distribution process. With three-step distribution, parts
manufacturers deliver parts to warehouse distributors ("WDs"), who then deliver
to local jobbers who sell individual parts to end users. Three-step
distribution allows jobbers to provide rapid parts availability to local area
professional installers, including service stations, garages and national
accounts such as Firestone Service Centers and Sears Tire Group. Three-step
distribution is characterized at the WD level by large product assortments.
The Company believes that this distribution method is most suited to less
densely populated areas, as three-step distribution allows the associated
jobber access to a broad number of SKUs without the capital costs associated
with maintaining large inventories at the store level. By making available
lower-turnover SKUs from a WD on a next-day basis, the jobber provides local
professional installers with timely access to the specific assortment of parts
they need to complete repair jobs as they arise.
The proliferation of the number of vehicle models, resulting in an
increase in the number of automotive parts, has created large inventory
requirements which, in turn, have had dramatic effects on both WDs and jobbers.
Increased inventory typically translates into slower inventory turnover and a
larger working capital investment. In order to compete effectively, WDs and
jobbers require more capital to fund the purchase of additional inventory and
to invest in other expenditures which improve productivity. As a result, many
less well-capitalized WDs and jobbers have sold or merged their businesses with
WDs and jobbers with greater access to capital. As an alternative to selling
or combining their businesses, WDs and jobbers have increasingly joined
programmed distribution groups. Programmed distribution groups are largely
comprised of WDs, independently-owned jobbers and jobber chains who join
together in order to benefit from purchasing efficiencies, increased
informational and financial support, and services including marketing,
cataloging, accounting, management, employee training and inventory control.
The Company's competitors include several national programmed distribution
groups as well as a number of regional programmed distribution groups. Three
leading, nationally recognized programmed distribution groups are National
Automotive Parts Association ("NAPA"), APS/Big A and Carquest. The Company
competes with NAPA, Carquest and other programmed distribution groups on the
basis of product availability, service and price.
Two-Step Distribution.
The two-step distribution process has evolved in response to
increasing capital needs and shrinking margins, and to date has been more
successful in metropolitan areas where there are higher concentrations of
professional installers. Two-step distributors eliminate a level of
distribution (and thereby a layer of margin) from the traditional three-step
distribution process. For example, a large jobber may purchase directly from
manufacturers and sell directly to professional installers, thereby eliminating
the WD level, or a WD may skip the jobber level and sell parts directly to
installers. The Company's ISWs further refine the two-step concept by carrying
a narrow but deep product line while emphasizing availability and quick
delivery, and focusing exclusively on the professional installer. The
advantage of the two-step approach is a reduction in costs associated with the
elimination of a level of distribution, including
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inventory storage, shipping and handling. High volume is critical to the
two-step strategy, however, because manufacturers generally are willing to
deliver inventory directly only when a customer's aggregate purchase levels
warrant such treatment. Consequently, the two-step concept may be more
effective in high-density metropolitan areas where there are a sufficient
concentration of repair facilities in a small square mile radius. In addition,
in many cases two-step distribution methods may be available only to WDs and
jobbers having sales volume that is high enough to enable such WDs or jobbers
to obtain direct delivery of inventory from manufacturers.
RETAIL DISTRIBUTION
The retail segment of aftermarket distribution channels has undergone
significant changes in recent years as a result of, among other factors,
intensified competitive pressures, parts proliferation and computer-driven
efficiencies. Jobbers have tended not to focus on or market effectively to the
retail or do-it-yourself customer. In response, companies such as AutoZone
have developed an effective alternative to the traditional jobber for the
retail customer by emphasizing convenient locations, advertising and product
lines focused on the retail customer.
The wholesale segment, as previously mentioned, accounts for over
two-thirds of the automotive parts aftermarket, while the retail segment
accounts for the remainder. The Company believes that gross margins are
generally higher in the retail segment. In the past several years, certain
retailers such as AutoZone have added programs that are intended to add the
professional installer to their customer profile. Typically, in order to serve
the professional (or wholesale) market, a retailer has to provide experienced
customer service, rapid delivery, more extensive inventory directed toward
professional installers and merchandise credit. The extent to which retailers
will be able to make inroads into the wholesale market will be dependent upon
whether they are able to provide the best availability, service, quality and
price.
THE BIG A PROGRAM AND ASSOCIATED JOBBERS
The Company provides the associated jobbers that participate in the
Big A program with (i) brand name recognition; (ii) access to flexible
purchasing programs; and (iii) a comprehensive package of services, including
assistance in marketing, cataloging, accounting, management and employee
training and inventory control. The cornerstones of the Company's Big A
program merchandising strategy include Big A brand name parts, a national
cooperative advertising program, a store merchandising assistance program and
Big A store identification.
The jobbers that participate in the Big A program generally operate
independently owned, full-line automotive parts stores that sell parts to a
wide variety of customers, including service stations, repair shops, garages,
dealers, farmers, fleet operators and "do-it-yourself " retail customers.
Management estimates that the average associated jobber purchases from the
Company approximately three-quarters of its inventory in the product lines
carried by the Company. While in general, associated jobbers are not
contractually obligated to buy all of their products from the Company or to
maintain their relationships with the Company, a number of associated jobbers,
including new associated jobbers, have entered into agreements to purchase
their inventory from the Company. Such agreements typically have five year
terms and require the associated jobber to purchase an average of 80% of their
inventory from the Company.
The Company's traditional jobber base has been composed predominantly
of single-store jobbers, a majority of which have been located in rural and
suburban areas. As part of its long-term business strategy, the Company
targets higher volume, multi-store jobbers.
While the total number of associated jobber stores that participate in
the Big A program increased significantly as a result of the PI Acquisition,
the Company typically gains and loses a limited number of associated jobber
stores during any given year. Associated jobber stores are typically lost or
removed by the Company as a result of store closures or inadequate financial
performance. Associated jobbers are also lost because they change
distributors, become
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independent or are purchased by one of the Company's competitors. Per store
average annual purchases made by the associated jobber stores that have been
added to the Big A program since January 1993, excluding PI jobber stores, have
been higher than those of the stores that were lost during the same period.
As part of the Big A program, the Company has assisted a number of its
associated jobbers in establishing Installers' Express outlets. An Installers'
Express outlet utilizes a modified two-step distribution arrangement, in which
approximately two-thirds of the inventory sold to it by the Company (including
most high volume product lines) is shipped to it directly from manufacturers,
and the remainder is delivered by the Company's distribution centers. This
distribution format provides the high volume jobber with the cost benefits of
two-step distribution for its highest volume product lines, while also
providing the product selection and depth of three-step distribution. At
January 25, 1997, there were 57 Installers' Express outlets operated by
associate jobbers.
The Company also has an on-line point-of-sale ordering system that
enables each distribution center to receive daily orders from most of the
Company's Big A associated jobbers and Company-owned stores. At January 25,
1997, over 80% of the Company's Big A jobbers and company-owned stores were
directly connected to their sponsoring distribution center by computer, thus
minimizing order processing time and improving the Company's ability to control
its inventory. The Company provides overnight delivery on almost all orders to
its associated jobbers. During Fiscal Year 1997, the average order fill rate
was approximately 92.5%.
The Company also offers inventory management and accounting services
to each associated jobber as part of the Big A program. The Company's TransAm
software package and other Company-developed software packages provide the Big
A associated jobber with a variety of management reports. In addition, each
such associated jobber is assigned a Company territory sales manager. In
conjunction with the Company's classification/obsolescence program, which
recommends what parts the jobber should stock to best serve its market,
territory sales managers review the inventory position of each of the jobbers.
In addition to providing marketing advice and merchandising assistance, the
territory sales managers recommend to the jobber the parts and products it
should return to the Company. During Fiscal Year 1997, Big A associated
jobbers returned approximately 11% of their annual purchases to the Company (in
addition to returns of defective and recyclable products and returns in
connection with changeovers of jobber inventory to the lines carried by the Big
A program). Most such returns are either resold or returned to the Company's
suppliers. While the return policies of the Company's suppliers vary, almost
all permit some returns and the Company has not generally had significant
levels of obsolete inventory that could not be returned to its suppliers.
Over 200 manufacturers' representatives work exclusively with Big A
jobbers and call on independent professional mechanics to promote Big A brand
products and provide technical support. In addition, there are over 1,000
non-exclusive manufacturers' representatives that promote Big A brand products
in addition to manufacturers' national brands. This marketing approach
develops "pull-through" at the installer level and keeps the independent
mechanic abreast of changes in products, competitive circumstances and business
building opportunities.
COMPANY-OWNED STORES
During the past three fiscal years, the Company has made a number of
strategic acquisitions, including the PI Acquisition, increasing the number of
Company-owned and operated stores at January 25, 1997 to approximately 300
locations in 30 states. Acquisitions such as these have provided the Company
with the opportunity to penetrate markets not previously serviced by its
associated jobbers and leverage its fixed costs over a larger revenue base.
Company- owned Big A stores generally operate in more competitive markets and,
therefore, have higher net sales per store and a greater concentration of
higher volume customers than the associated jobbers. The benefits of these
higher net sales may be offset, however, by the additional selling, general and
administrative expenses incurred in connection with the operation of these
stores. While the Company-owned stores acquired in the PI Acquisition also
generally operate in more competitive markets, a greater percentage of such
stores' sales are made to the retail segment and their net sales
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per store generally are not as high as the Company owned Big A stores.
The Company continually reviews the position of its Company-owned
stores in the respective markets in which they operate. This review process
has led and will continue to lead to the rationalization of stores whose
performance does not achieve targeted return on investment objectives and to
additional selective acquisitions of stores that either enhance existing store
chain performance or increase market presence. See Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Pretax Charges; Business Initiatives" below.
INSTALLERS' SERVICE WAREHOUSES
The Company has aggressively established multiple ISWs in targeted
metropolitan areas not typically serviced by the Company's Big A associated
jobbers. The Company believes that it was the first major distributor of
automotive parts to implement a two-step delivery system on a national level.
The ISWs have been designed to meet the needs of their targeted customer base
- -- the professional installer -- and typically sell undercar products such as
chassis, suspensions, steering and brake parts, emphasizing availability, rapid
delivery and price. ISWs generally stock approximately 17,000 SKUs in nine
core product lines, compared to the average jobber store which carries
approximately the same number of SKUs in a much greater number of product
lines.
The ISWs are able to offer their customers competitive prices for high
quality parts in part because they utilize a two-step distribution system,
rather than the traditional three-step system used by most of the automotive
parts distribution industry. The ISWs do not participate in the Company's Big
A program or its distribution center network. Instead, automotive parts are
delivered by manufacturers directly to the ISWs, which in turn deliver parts to
the professional installer. The Company believes that the ISWs complement the
Company's existing distribution network by enabling the Company to compete
successfully in densely populated areas not currently served by the Company's
Big A associated jobbers. The Company believes that programs that focus on
high volume and selected product lines, such as the ISW program, generally are
not well suited to markets lacking a high concentration of professional
installer repair bays, such as many rural or suburban markets, in which the
traditional three-step distribution system remains dominant. In these areas
there are fewer high volume installer customers, and customers often require a
wider availability of product lines than the ISWs provide.
Compared to the Company's distribution centers, which are located in
larger facilities and serve a broader market area, the ISWs are characterized
by their relatively modest unit investment requirements. The Company selects
sites for ISWs in areas with both inexpensive rent and high concentration of
repair bays. For the typical ISW, the Company leases approximately 3,000 to
6,000 square feet in a commercial or industrial area without retail frontage.
In most cases, ISW store leases have a term of three to five years, enabling
the Company to close or move poorly located stores. The typical ISW site would
have approximately from 120 to 150 professional installers within a five mile
radius, enabling the Company to provide prompt delivery to its customers.
During Fiscal Year 1997, the Company increased the total number of ISW
locations from 252 to 272. The Company, as part of its overall business plan,
may continue to add ISWs in the future, although the Company does not currently
plan to add a significant number of ISWs in Fiscal Year 1998 and, after the
currently planned closure of 15 under- performing ISWs, the total number of
ISWs may decrease during Fiscal Year 1998. To date, operating margins for the
ISW division have been below those of the Company's traditional businesses and,
thus far, the ISW division has generally experienced operating losses. The
Company's operating results have experienced and are expected to continue to
experience earnings and cash flow pressure due to the large number of less
mature ISWs, the growth of the ISW base and the expiration, generally after a
period of six to fifteen months, of deferred payment terms extended to the
Company by vendors in connection with the opening of new ISW locations. In
addition, the majority of the pretax charges recorded in the fourth quarter of
Fiscal Year 1997 related to the ISW business, as discussed in Part II, Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Pretax Charges; Business
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Initiatives" below.
Looking forward, the Company remains convinced of the viability of the
ISW concept, although the Company remains cautious in its outlook until the ISW
business demonstrates sustained improvement in its operations. During Fiscal
Year 1998, the Company plans to shift its focus from aggressive growth of the
ISW business to refining and improving both the execution of this division's
business strategy and its systems. The Company's initiatives to achieve such
improvement in execution have included changes in the ISW senior management
team in Fiscal Year 1997. In addition, the Company conducted a comprehensive
review of under-performing ISW units. Such review resulted in the closure or
consolidation of 13 ISW units in Fiscal Year 1997, in addition to those closed
in connection with the asset impairment and restructuring charge which the
Company recorded in the fiscal year ended January 27, 1996 (see Part II, Item
7, - "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Pretax Charges; Business Initiatives" below), and a plan to
close or consolidate an estimated additional 15 under-performing ISWs in Fiscal
Year 1998. Such closures are expected to allow ISW management to focus its
efforts and resources on the division's more productive units. In addition,
the Company currently intends to return approximately $24.0 million of excess
and slow moving inventory to suppliers during Fiscal Year 1998. Certain
additional inventory may be returned in connection with the ISW closures
described above. Such returns are expected to have a positive impact on the
Company's interest expense in Fiscal Year 1998 as the proceeds from such
returns are used to reduce the Company's outstanding bank loans. The Company's
initiatives to improve the ISW division's systems and controls include the
development of a centralized management system for the ISW business, as well as
for the Company's traditional businesses, with a particular focus on
controlling inventory (See Part II, Item 7, - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Pretax Charges;
Business Initiatives" below), as well as controlling expenses and managing
working capital. In addition, the Company is currently developing an accounts
receivable system which will facilitate collection of accounts receivable and
improve working capital management in the ISW business as well as for the
Company's traditional businesses.
THE COMPANY'S PRODUCTS
The Company's current Big A program inventory system contains over
160,000 SKUs, which are sourced from over 150 suppliers. It carries a diverse
line of high quality automotive replacement parts marketed by the Company under
the nationally recognized brand name Big A. These parts include brakes, belts,
hoses, filters, temperature control parts, tune-up parts, shock absorbers,
batteries, exhaust systems and remanufactured alternators, water pumps,
clutches and starters. The Company also distributes various related products,
including tools, equipment, supplies and accessories. In addition, the Company
carries a more limited line of lower priced automotive replacement parts and
related products distributed under the brand name AutoPro (R). For Fiscal Year
1997, approximately 63% of the Company's net sales were derived from the Big A
product line and related Company private label brand names. The remainder of
the Company's net sales were derived from manufacturers' branded products.
SUPPLIERS
Most major categories of automotive replacement parts have more than
one competitive supplier. However, the Company typically sources each of its
Big A program product lines from one supplier and in many cases is its
supplier's largest customer. The Company's management believes that the
Company's status as a key customer leads suppliers to provide flexible pricing
and delivery terms and substantial marketing support, as well as service,
training and other inducements. From time to time, the Company's suppliers
allow the Company to defer payment for certain product lines for several months
or longer, typically in connection with an acquisition and the related
changeover of a group of auto parts stores to the Big A program product lines.
For example, the Company negotiated significant deferred payment terms and
other changeover incentives from its suppliers in connection with the PI
Acquisition. From time to time, the Company is also extended deferred payment
terms in connection with promotional programs or seasonal products, in which
case the Company generally will then offer the same terms to its customers.
The Company
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has a central purchasing department which deals directly with manufacturers,
and also has a computerized inventory control program for its distribution
centers that tracks sales and recommends adjustments to inventory levels as
needed.
During Fiscal Year 1997, Cooper Industries, Inc. (including its Wagner
Brake business unit), Standard Motor Products, Inc. ("Standard Motor") and
Federal-Mogul Corporation accounted for approximately 14%, 13% and 11%,
respectively, of all of the Company's product purchases. While no other single
supplier supplies more than 10% of the Company's products, approximately 72% of
the Company's products are provided by ten suppliers. Management believes that
alternative sources are available for each of the Company's Big A program
product lines. The Company's suppliers are generally able to meet the
Company's demand for products.
In 1989 APS entered into long-term supply contracts with Standard
Motor for tune-up and temperature control products. Each such contract
provides for purchases of products by the Company on an exclusive basis,
subject to limited exceptions. Such contracts, which originally expired on
October 5, 1997, have been extended through December 31, 2003 and may only be
terminated earlier by the Company under limited circumstances. In April 1993,
in connection with the sale to Standard Motor by APS Supply, Inc., a wholly
owned subsidiary of the Company ("APS Supply"), of certain product inventories,
primarily accessories and other related assets, the Company entered into a
ten-year agreement with Standard Motor, under which the Company is required to
purchase its requirements for such accessories and related products. Under
such agreement, the Company is subject to substantial specified penalties for
its failure to purchase at least $15.5 million of inventories annually or for
its termination of the supply agreement without cause (as defined). The
Company has met, and expects to continue to meet, the terms outlined in the
supply agreement. Although long-term supply contracts are uncommon in the
industry, and the Standard Motor supply contracts limit the Company's
flexibility, management believes that such contracts contain adequate
safeguards against discriminatory pricing and deterioration in product quality
and deliverability.
JOBBER FINANCING
APS's wholly owned subsidiary, Autoparts Finance Company, Inc.
("AFCO"), provides loans to Big A associated jobbers. The Company believes
that its ability to assist in financing a potential jobber's conversion to the
Big A program or providing an existing Big A jobber with capital to grow has
been an effective tool in maintaining existing jobber loyalty and recruiting
new jobbers. The Company also assists jobbers in obtaining appropriate
financing from banks and other third party lenders.
At January 25, 1997, AFCO's average initial principal loan balance was
approximately $185,000. All AFCO loans are collateralized by substantially all
of the assets of the borrower, including inventories, and generally by personal
guarantees from principals of the borrowers. At January 25, 1997, AFCO had 155
loans in its portfolio with an aggregate principal balance of $23.4 million. A
majority of these loans are amortizing and have a seven-year maturity with a
variable interest rate tied to a prime rate. During Fiscal Year 1997, total
loan losses attributable to AFCO after liquidation of collateral were
equivalent to a loan loss ratio of approximately 0.93%.
At January 25, 1997, the largest loans in AFCO's loan portfolio were
to three of the Company's Big A associated jobbers, who had, in the aggregate,
outstanding principal balances of $2.5 million, $1.4 million and $0.7 million,
respectively. As part of the Company's business strategy to target high
volume, multi-store associated jobbers, the Company expects to continue to
provide loans in comparable amounts, subject to the availability of funds, as
further opportunities arise to assist potential multi-store associated jobbers
with their financing needs.
Through a bank loan program sponsored by PI (the "PI Loan Program"),
PI historically also provided its associated jobbers with assistance in
obtaining financing in order to fund the operation and expansion of such
jobbers' businesses. The Company has guaranteed the jobbers' obligations under
the PI Loan Program and has secured its guarantee with the deposit of a $4
million letter of credit. At January 25, 1997, there were 25 loans outstanding
under
9
<PAGE> 10
the PI Loan Program, having an original aggregate principal amount of $2.8
million and an outstanding aggregate principal amount of $1.6 million. Such
loans are collateralized by substantially all of the assets of each borrower,
including inventories, and bear interest at a rate tied to a prime rate. These
loans are generally for a term of eleven months, although the terms of these
loans are often extended (at the Company's option) from year to year and they
generally amortize over a period of from 24 months to 84 months. The Company
does not intend to guarantee any additional jobber loans in the future under
the PI loan program.
The Company also helps to finance a small number of Big A associated
jobbers through equity investments. In such instances, the Company may be
required to buy out the individual stockholder's equity interest under certain
circumstances. The Company's total exposure under these buy-out arrangements
was approximately $568,000 at January 25, 1997. The Company also enters into
arrangements with third party lenders to jobbers whereby APS agrees in most
cases to repurchase, under certain circumstances, inventory purchased by the
jobber from the Company at approximately the same price the Company would
purchase the items in such inventory from third party suppliers. Occasions on
which the Company has been called upon to repurchase such inventory have been
infrequent, and, on such occasions, the Company has resold the inventory that
it repurchased.
COMPETITION
The automotive parts replacement after market is highly fragmented and
competitive. The Company competes most directly with national and regional
warehouse distribution networks. Based on available statistics and other
published data covering the automotive aftermarket industry, the Company
believes that the largest warehouse distribution network is NAPA, the largest
member of which is Genuine Parts Company. The warehouse distribution market
contains numerous other participants, including programmed distribution groups
such as Carquest. These programmed distribution groups are collections of
distribution companies that have joined together to gain purchasing power and
to benefit from supplier concessions. The Company competes with these groups
on the basis of product availability, service and price. The Company believes
that there are several programmed distribution groups whose members have
combined sales that are comparable to or greater than those of the Company.
The Company also faces competition from national and regional retail
chain stores and, to a lesser extent, from oil companies, automobile dealers,
independent jobbers and installers who sometimes skip the warehouse
distribution level and purchase directly from manufacturers. In particular,
certain retail chain stores such as AutoZone have added programs that are
specifically designed to add the professional installer to their customer
profile. In these instances, the Company believes that such retail chain
stores have increased their share of both the retail and wholesale automotive
parts aftermarket, which the Company believes has tended to occur at the
expense of traditional jobbers located in the markets in which they have
competed. The Company believes that such trends have resulted in pressures on
warehouse distributors to sell products to jobbers at lower prices in order to
replace lost sales volume. The Company's operating and growth strategies have
been designed in part to respond to these pressures on margins by positioning
the Company to sell products at a lower cost, to develop alternative
distribution channels in selected markets, such as the ISWs, and to increase
sales volume, and thereby increase the Company's operating income. The Company
has also focused on assisting its associated jobbers in meeting the demands of
an increasingly competitive market through improved pricing, marketing and
merchandising.
One current industry trend arises from the increase in the number of
domestic and imported automotive vehicle models in the United States, which has
resulted in the proliferation in the number of automotive replacement parts
supplied by distributors. The Company believes that it is at a competitive
advantage to certain of its regional competitors which are not able to carry
the range of supplies of automotive replacement parts and related products
stocked by the Company. The Company also believes that industry trends toward
consolidation at the warehouse and jobber levels, and for independent jobbers
to become associated with program distributors, may also provide the Company
with a competitive advantage over independent warehouse distributors. However,
some of the Company's competitors are
10
<PAGE> 11
larger and have access to greater financial resources than the Company and are
not as leveraged as the Company. Accordingly, these competitors may be able to
take greater advantage of market and industry trends.
TRADEMARKS
The Big A (including design(R), Big A Plus (including design)(R), ISW
(including design)(R), Installers' Express(R), Installers' Service
Warehouse(R), APS(R) and AutoPro(R) trade and service marks, which are
registered in the United States Patent and Trademark Office, and the Big A Auto
Parts trade name, are considered material to the Company's business.
In February 1996, the Company sold its interest in the Parts Plus
group of marks, which had been acquired by the Company in the PI Acquisition,
to the Association of Automobile Aftermarket Distributors ("AAAD") for cash
consideration of $3.5 million. PI had previously licensed the same marks to
AAAD for a small yearly license fee.
EMPLOYEES
At January 25, 1997, the Company employed approximately 4,800
full-time employees and approximately 2,000 part- time employees, of which
approximately 140 are represented by unions. The Company believes its labor
relations generally to be good. The Company has made increasing use of
part-time employees, which has afforded it greater operating flexibility and
reduced its labor and benefit costs.
11
<PAGE> 12
ITEM 2. PROPERTIES
The Company's primary distribution system consists of 28 distribution
centers located in 26 states, each delivering parts daily to the jobbers and
Company-owned stores within its service area. In addition, certain of the
distribution centers have stores within the distribution facilities that sell
parts directly to customers. Each distribution center supports an average of
75 auto parts stores and carries between 41,000 and 70,000 SKUs. The locations
and sizes of the Company's distribution centers are indicated in the following
table.
<TABLE>
<CAPTION>
Location Square Footage
-------- --------------
<S> <C>
Phoenix, Arizona . . . . . . . . . . . . . . . . . . . . . 54,000
Fairfield, California . . . . . . . . . . . . . . . . . . 59,500
Riverside, California . . . . . . . . . . . . . . . . . . 70,034
(a) Denver, Colorado . . . . . . . . . . . . . . . . . . . . . 116,000
Manchester, Connecticut . . . . . . . . . . . . . . . . . 50,000
Ocala, Florida . . . . . . . . . . . . . . . . . . . . . . 100,000
Atlanta, Georgia . . . . . . . . . . . . . . . . . . . . . 53,000
East Moline, Illinois . . . . . . . . . . . . . . . . . . 105,600
(a) Indianapolis, Indiana . . . . . . . . . . . . . . . . . . 104,688
(a) Great Bend, Kansas . . . . . . . . . . . . . . . . . . . . 62,748
Monroe, Louisiana . . . . . . . . . . . . . . . . . . . . 76,000
Peabody, Massachusetts . . . . . . . . . . . . . . . . . . 42,132
Minneapolis, Minnesota . . . . . . . . . . . . . . . . . . 63,420
Jackson, Mississippi . . . . . . . . . . . . . . . . . . . 100,118
(a) St. Louis, Missouri . . . . . . . . . . . . . . . . . . . 52,480
Omaha, Nebraska . . . . . . . . . . . . . . . . . . . . . 61,750
(a) Albuquerque, New Mexico . . . . . . . . . . . . . . . . . 40,000
Latham, New York . . . . . . . . . . . . . . . . . . . . . 36,000
Charlotte, North Carolina . . . . . . . . . . . . . . . . 76,310
(b) Columbus, Ohio . . . . . . . . . . . . . . . . . . . . . . 53,000
Gallipolis, Ohio . . . . . . . . . . . . . . . . . . . . . 110,600
Tulsa, Oklahoma . . . . . . . . . . . . . . . . . . . . . 87,453
Malvern, Pennsylvania . . . . . . . . . . . . . . . . . . 52,400
Memphis, Tennessee . . . . . . . . . . . . . . . . . . . . 131,000
Carrollton, Texas . . . . . . . . . . . . . . . . . . . . 88,500
(a) Salt Lake City, Utah . . . . . . . . . . . . . . . . . . . 40,000
(a) Winchester, Virginia . . . . . . . . . . . . . . . . . . . 52,500
Seattle, Washington . . . . . . . . . . . . . . . . . . . 39,168
</TABLE>
__________________________
(a) These locations are owned by the Company or are held pursuant to leases
that were entered into inconnection with industrial development bond
financings that grant the Company an option to acquire the property at a
nominal price when the bonds are paid. The remaining locations are
occupied pursuant to leases having remaining terms that, at January 25,
1997, varied from seven months to nine years, six months. At January 25,
1997, the annual rentals payable under such leases totaled approximately
$4,731,508, with no facility having an annual rental in excess of
$326,000. The Company expects that it will be able either to renew such
leases as they expire, to lease alternative premises or to consolidate
operations, as appropriate. All of these leases are operating leases, other
than those covering the Phoenix and Charlotte distribution centers.
(b) The Company has announced its intent to close this location and to
consolidate the business activities at this location with its distribution
center in Gallipolis, Ohio.
12
<PAGE> 13
Each distribution center is linked to a computer at either the
Company's data processing center in Houston, Texas or a center in Memphis,
Tennessee. The Company also leases approximately 337 store facilities,
including 51 closed stores, in 39 states with square footage ranging from
approximately 1,980 to 39,105 square feet per store. In addition, the Company
leases approximately 301 ISW facilities, including 23 closed ISWs, in 32 states
with square footage ranging from approximately 3,000 to 15,000 square feet per
ISW. The Company's corporate headquarters' offices are located in a facility in
Houston, Texas, of which the Company currently has approximately 55,000 square
feet under the lease agreements. Management believes that the stores, ISW
facilities and distribution centers are currently adequate for the intended
purposes and provide sufficient expansion capacity for contemplated growth. The
Company's headquarters are currently adequate for the intended purposes,
although the Company may seek expanded space to the extent required in
connection with the consolidation of certain administrative functions.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and disputes arising in
the normal course of business. One such case involved the matter of Jo M.
Smith et al v. A.P.S., Inc. et al, which was filed in July 1994 in the District
Court of Harris County, Texas. The plaintiffs (four former and one existing
employee) claimed to have been the recipients of acts of intimidation and/or
retaliatory conduct as a result of their filing of workers' compensation claims
and filed this suit against the Company and one of its former officers under
various sections of Texas state statutes prohibiting such actions, claiming
aggregate specified actual damages of $3.2 million, punitive damages of $6.3
million and damages for emotional distress of $5.0 million. Such suit was
settled_during Fiscal Year 1997 for an aggregate $350,000 payment to the
plaintiffs and is reflected in the Company's results of operations for Fiscal
Year 1997.
The Company has become a party to a number of pre-existing
litigation matters and claims as a result of the PI Acquisition. Among those
cases is the matter of Karon S. Adkisson v. GKN Parts Industries Corporation
(the "Adkisson Case"), a suit filed in the United States District Court for the
Western District of Oklahoma. The plaintiff, a former employee of PI, alleged
several claims against PI, including violation of Title VII of the Civil Rights
Act of 1964 and the negligent retention and supervision of its employees as a
result of being raped by a fellow employee, who has been convicted of that
crime. This matter was resolved during Fiscal Year 1997 with a structured
settlement at a cost of $395,000. Such amount was charged against a reserve
created at the time of the PI Acquisition for litigation related matters and,
therefore, had no impact upon the Company's results of operations for Fiscal
Year 1997.
The Company is also a defendant in the matter of Barry S. Lamm
and Lamm Auto Stores, Inc. v. Parts, Inc., Parts Plus, et al, which was filed
in The Circuit Court of Mobile County, Alabama on June 21, 1996. The plaintiff
in such case seeks both compensatory and punitive damages in making a number of
claims, including both willful and reckless misrepresentation, suppression of
material fact and promissory fraud (all in violation of the Code of Alabama),
and conspiracy, breach of contract and intentional interference with
contractual or business relationships, all in connection with the operation of
an automotive parts business by the plaintiff while a customer of PI.
Discovery has just commenced in such action. The Company believes that the
costs of defending such action, as well as any loss that could be sustained by
the Company as a result of an adverse decision in such action, are the subject
of a contractual indemnification by GKN. The Company has made a claim for
indemnity to GKN, which has neither been accepted nor denied.
APS and its subsidiaries are subject to regulation at the U.S.
federal, state and local levels and are required to obtain permits from
governmental agencies in order to conduct certain of their operations.
Compliance by the Company with the federal, state and local environmental
protection laws has had no material adverse effect upon the Company, and the
Company believes that its operations are in material compliance with all
applicable permits and environmental regulations. The Company cannot presently
determine the full consequences to it of compliance in the
13
<PAGE> 14
future with the environmental regulations and standards that have been and may
be issued thereunder. However, based on current laws and regulations and the
interpretation thereof, the Company has no reason to believe that the costs of
future environmental compliance would be likely to materially adversely affect
its business, results of operations, cash flows, or financial position.
The Company has been notified that it is considered a potentially
responsible party in connection with federal or state environmental clean-up
investigations at a landfill location, which is a "Superfund" site identified
on the National Priorities List of the Environmental Protection Agency in
connection with the Comprehensive Environmental Response, Compensation and
Liability Act of 1980. The Company has not incurred, and does not expect to
incur, any material liability, either individually or in the aggregate, in
connection with this site, although no assurance can be given in this regard.
In addition, the Company is aware of investigations of two other
locations, including one site formerly operated by a former APS subsidiary. In
part because these investigations are in the preliminary stages, the Company
cannot currently estimate what liabilities, if any, it may have with respect to
these matters. The Company believes that, pursuant to an agreement with Wickes
(which is now an indirect wholly owned subsidiary of Collins & Aikman
Corporation), Wickes will be required to indemnify the Company against any
liabilities associated with such former APS subsidiary's operations. Since the
divestiture from Wickes, the Company has not incurred any material liabilities
in connection with any matter for which Wickes has indemnified the Company, nor
has the Company experienced any difficulties in obtaining appropriate
indemnification for such matters as have arisen. The Company believes,
however, that Wickes may be a highly leveraged entity, and there can be no
assurance that the Company will not experience any such difficulties in the
future.
ITEM 4. SUBMISSION OF MATTERS TO AND VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 15
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and present positions of the
executive officers of APS Holding as of April 25, 1997.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Hubbard C. Howe . . . . . . . . . . . . . . . . . . . . . 68 Chairman & Chief Executive Officer
David C. Barbeau . . . . . . . . . . . . . . . . . . . . 49 Senior Vice President
Clarence Gabriel . . . . . . . . . . . . . . . . . . . . 43 Senior Vice President
John L. Hendrix . . . . . . . . . . . . . . . . . . . . . 49 Senior Vice President & Chief Financial
Officer
Ralph Nemeth . . . . . . . . . . . . . . . . . . . . . . 41 Senior Vice President
Michael L. Preston . . . . . . . . . . . . . . . . . . . 52 Senior Vice President
Vince Heiker . . . . . . . . . . . . . . . . . . . . . . 54 Vice President
E. Eugene Lauver . . . . . . . . . . . . . . . . . . . . 50 Vice President & Secretary
Charles M. Popik . . . . . . . . . . . . . . . . . . . . 47 Vice President
</TABLE>
Hubbard C. Howe has been Chairman of the Board of APS Holding since
August 1992. Effective March 4, 1997, as a result of the resignation of the
Company's President and Chief Executive Officer ("CEO"), he was appointed to
the position of interim Chief Executive Officer of the Company until a new CEO
is recruited. Mr. Howe has been Chairman of the Board and Chief Executive
Officer of Remington Arms Company, Inc. since December 1993. Mr. Howe has
served as Vice-Chairman since February 1994, Chairman from April 1992 to
February 1994, Vice Chairman from April 1991 to April 1992, and Chief Executive
Officer from March 1989 to April 1992, of Nu-kote International, Inc., an
office and printing supplies manufacturer. Mr. Howe is a principal and a
professional employee of CD&R, a private investment company, and a general
partner of Clayton & Dubilier Associates IV Limited Partnership ("Associates"),
the general partner of The Clayton & Dubilier Private Equity Fund IV Limited
Partnership, an investment partnership managed by CD&R ("Fund IV"). Mr. Howe
is also Vice-Chairman of Nu-kote Holding, Inc., a corporation in which an
investment partnership managed by CD&R formerly had an investment, and member
of the Board of Riverwood Holding, Inc., a corporation in which an investment
partnership managed by CD&R has an investment, and its indirect wholly-owned
subsidiary, Riverwood International Corporation.
David C. Barbeau has been Senior Vice President of Distribution
Operations since January 1993. He had been Vice President, Treasurer and Chief
Financial Officer prior to 1992.
Clarence Gabriel joined the Company as Senior Vice President -
Installers' Service Warehouse in October 1996. From prior to 1992 until
joining the Company, he held various positions, most recently Vice President,
Sales and Operations, with Pepsi Cola North America, a subsidiary of PepsiCo,
Inc., an international beverage company.
John L. Hendrix joined the Company as Senior Vice President - Finance
and Chief Financial Officer in October 1996. From prior to 1992 until joining
the Company he held various positions, most recently Senior Vice President,
Chief Financial Officer, Treasurer, and Secretary, with Kay-Bee Toy Stores, a
national retail organization.
Ralph Nemeth joined the Company as Vice President - Company Stores in
September 1996. From prior to 1992 until joining the Company, he held various
positions, most recently Senior Vice President and Regional Manager of Venture
Store, Inc., a retail organization.
Michael L. Preston has been Senior Vice President of Sales & Business
Development since January 1993. He had been Vice President of New Market
Development since prior to 1992.
15
<PAGE> 16
E. Eugene Lauver has been Vice President, Secretary and General
Counsel of APS Holding since prior to 1992.
Vince Heiker has been Vice President-Management Information Systems
since September 1993. From prior to 1992 until joining APS Holding, he was
Vice President, Systems Development of Foxmeyer Corporation, a pharmaceutical
distribution company.
Charles M. Popik has been Vice President - Purchasing since March
1995. From prior to 1992 until joining the Company he held various purchasing
positions, most recently Vice President of Purchasing, with Parts Depot
Company, L.P., a distributor of automotive parts.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
APS Holding's Class A Common Stock, which began trading in the
over-the-counter market on September 24, 1993, is quoted in the NASDAQ National
Market System under the symbol "APSI". At January, 25, 1997, there were
approximately 680 holders of record of APS Holding's Class A Common Stock. At
January 25, 1997, no shares of APS Holding's Class B Common Stock had been
issued.
The following table sets forth the high and low sales prices for the
quarters indicated:
<TABLE>
<CAPTION>
Fiscal Year 1997: High Low
- ----------------- ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . . . . 18 3/4 14 3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . 23 3/4 18
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 29 1/4 20
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 23 1/4 8 1/2
Fiscal Year 1996:
- -----------------
First Quarter . . . . . . . . . . . . . . . . . . . . . . 30 1/4 19 3/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . 27 1/8 20 1/2
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 26 3/8 20 1/2
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 23 3/4 14 3/4
</TABLE>
No dividends have been paid by APS Holding on any class of its common
stock. The Company has not paid cash dividends and does not anticipate paying
cash dividends in the foreseeable future. The Company's credit agreement and
subordinated note indenture contain covenants which indirectly restrict the
declaration and payment of dividends on APS Holding's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical financial
data of the Company on a consolidated basis. The selected consolidated
financial data was derived from the consolidated financial statements of the
Company. The selected consolidated financial data should be read in
conjunction with the consolidated financial statements of the Company appearing
elsewhere in this Form 10-K. Certain reclassifications have been made to the
prior years' financial statements to conform to the current year presentation.
The reclassifications did not affect net income (loss), stockholders' equity or
cash flows for any period
17
<PAGE> 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JAN. 25, 1997 JAN. 27, 1996 JAN. 28, 1995 JAN. 29, 1994 JAN. 30, 1993
------------- ------------- ------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 858,739 $ 603,737 $ 523,508 $ 438,298 $ 409,381
Cost of goods sold . . . . . . . . . . . . . . . . . . 583,146 397,164 344,845 297,150 281,995
--------- --------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . 275,593 206,573 178,663 141,148 127,386
Selling, general and administrative expenses. . . . . . 271,754 171,210 145,722 119,304 111,642
Asset impairment and restructuring charge . . . . . . . - 11,224 - - -
--------- --------- --------- --------- ---------
Operating income . . . . . . . . . . . . . . . . . . . 3,839 24,139 32,941 21,844 15,744
Interest income . . . . . . . . . . . . . . . . . . . . 5,609 5,265 3,896 3,023 2,435
Gain on pension curtailment . . . . . . . . . . . . . . - - - - 3,288
Other income (expense) . . . . . . . . . . . . . . . . 1,765 1,535 1,535 1,277 (990)
--------- --------- --------- --------- ---------
Income before interest expense, income taxes,
extraordinary item and cumulative effect of
accounting change . . . . . . . . . . . . . . . . . 11,213 30,939 38,372 26,144 20,477
Interest expense . . . . . . . . . . . . . . . . . . . 27,296 16,256 10,500 22,039 25,875
--------- --------- --------- --------- ---------
Income (loss) before income taxes, extraordinary
item and cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . . . . (16,083) 14,683 27,872 4,105 (5,398)
Provision (benefit) for income taxes . . . . . . . . . (5,247) 5,447 (4,495) (1,550) 285
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item and
cumulative effect of accounting change . . . . . . . (10,836) 9,236 32,367 5,655 (5,683)
Extraordinary item . . . . . . . . . . . . . . . . . . - (2,468) - (14,404) -
Cumulative effect of accounting change . . . . . . . . - - - (2,330) -
--------- --------- --------- --------- ---------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (10,836) $ 6,768 $ 32,367 $ (11,079) $ (5,683)
========= ========= ========= ========= =========
Income (loss) per share:
Before extraordinary item and cumulative
effect of accounting change . . . . . . .. . . . . . $ (0.79) $ 0.67 $ 2.36 $ 0.65 $ (0.97)
Extraordinary item . . . . . . . . . . . . . . . . . - (0.18) - (1.65) -
Cumulative effect of accounting change . . . . . . . - - - (0.27) -
--------- --------- -------- --------- ---------
$ (0.79) $ 0.49 $ 2.36 $ (1.27) $ (0.97)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JAN. 25, 1997 JAN. 27, 1996 JAN. 28, 1995 JAN. 29, 1994 JAN. 30, 1993
------------- ------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . . . . . . . $ 293,623 $ 302,684 $ 176,176 $ 102,984 $ 76,007
Total assets . . . . . . . . . . . . . . . . . . . . . . 598,205 600,159 387,062 251,224 215,752
Long-term debt . . . . . . . . . . . . . . . . . . . . . 305,941 302,512 158,965 117,132 176,035
Total stockholders' equity (deficit) . . . . . . . . . . 114,569 124,030 117,218 76,761 (18,430)
</TABLE>
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain data (in thousands) from the
Consolidated Statements of Operations of APS Holding Corporation ("Holding",
and together with its subsidiaries, the "Company") for the fiscal years ended
January 25, 1997 ("Fiscal Year 1997"), January 27, 1996 ("Fiscal Year 1996")
and January 28, 1995 ("Fiscal Year 1995"). Certain reclassifications have been
made to the prior years' financial statements to conform to the current year
presentation. The reclassifications did not affect net income (loss),
stockholders' equity or cash flows for any period.
<TABLE>
<CAPTION>
FISCAL YEAR 1997 % FISCAL YEAR 1996 % FISCAL YEAR 1995 %
--------------- ----- ---------------- ----- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $ 858,739 100.0 $ 603,737 100.0 $ 523,508 100.0
Cost of goods sold . . . . . . . . . . . . . . . . 583,146 67.9 397,164 65.8 344,845 65.9
Gross margin . . . . . . . . . . . . . . . . . . . 275,593 32.1 206,573 34.2 178,663 34.1
Selling, general and administrative expenses . . . 271,754 31.6 171,210 28.3 145,722 27.8
Asset impairment and restructuring charge. . . . . - - 11,224 1.9 - -
Operating income . . . . . . . . . . . . . . . . . 3,839 0.4 24,139 4.0 32,941 6.3
Net income (loss). . . . . . . . . . . . . . . . . (10,836) (1.3) 6,768 1.1 32,367 6.2
</TABLE>
The PI Acquisition
On January 25, 1996, the Company purchased all of the outstanding
stock of Parts, Inc. ("PI"), an automotive parts distributor, for a purchase
price, as adjusted, of $74.9 million (the "PI Acquisition"). The PI
Acquisition was accounted for as a purchase. PI's results of operations for
the two days between the consummation of the PI Acquisition and the Company's
1996 fiscal year end were immaterial to the Company's results of operations for
Fiscal Year 1996.
Fiscal Year 1997 Compared to Fiscal Year 1996
Net sales for Fiscal Year 1997 increased $255.0 million or 42.2% from
the prior fiscal year. Such increase was primarily attributable to the PI
Acquisition and, to a lesser extent, to increased sales generated by new ISW
locations and increasing sales at existing ISWs. The Company believes that
sales from its traditional businesses (i.e. distribution centers and
Company-owned stores) were lower than expected due to increasing competitive
pressures, business disruption resulting from the PI Acquisition and a general
sluggishness being experienced nationwide in the automotive aftermarket.
Cost of goods sold consists primarily of the purchase cost of products
sold. Cost of goods sold for Fiscal Year 1997 increased $186.0 million or
46.8% from the prior fiscal year. The dollar increase in cost of goods sold
principally resulted from increased sales volume generated by the PI
Acquisition and the growth of the ISW business. Cost of goods sold as a
percentage of net sales for Fiscal Year 1997 increased compared to Fiscal Year
1996 principally as a result of pretax charges to cost of goods sold, in the
amount of approximately $17.1 million, recorded in the fourth quarter of Fiscal
Year 1997. Such charges principally consisted of an inventory loss adjustment
for the ISW business in the amount of approximately $11.8 million (some of
which may be attributable to earlier quarters of the fiscal year). The
remaining $5.3 million in charges to cost of goods sold consisted primarily of
inventory loss adjustments for the Company's traditional businesses, the
write-off of certain receivables from suppliers for returned goods, and
adjustments to inventory pricing reserves. See "Pretax Charges; Business
Initiatives", below. Excluding the approximately $17.1 million of charges
discussed above, cost of goods sold as a percentage of sales would have
remained relatively constant between the two fiscal years. Lower gross profit
margins at the Company's traditional businesses (primarily resulting from
additional sales programs offering reduced selling prices and fewer services)
were offset to some extent by the
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impact of the sales mix containing more ISW sales, which have higher gross
profit margins than the Company's traditional businesses. The Company expects
gross profit margins for the ISW business to continue to be higher (as a
percentage of sales) than for its traditional businesses, although no assurance
can be given in this regard. See "Pretax Charges; Business Initiatives",
below. The Company also intends to continue adding jobbers to sales programs
offering reduced selling prices and fewer services and, consequently, gross
profit margins at its traditional businesses could continue to decrease in
future periods.
Selling, general and administrative expenses, which include
depreciation and amortization, for Fiscal Year 1997 increased $100.5 million or
58.7% compared to Fiscal Year 1996. The dollar increase in selling, general
and administrative expenses principally resulted from the increased sales
volume generated by the PI Acquisition and the growth of the ISW business.
Selling, general and administrative expenses as a percentage of net sales
increased over the prior year, principally as a result of pretax charges in the
amount of $13.0 million, higher distribution center operating costs of the PI
business when compared to those of the Company's other traditional business
operations, costs incurred in integrating PI into the Company, and, to a lesser
extent, the operation of more ISWs (which have, and are expected to continue to
have, higher operating costs as a percentage of net sales than the Company's
traditional businesses). The pretax charges consisted primarily of a reserve
for costs related to facility closures and consolidations, an increase in the
bad debt provision (primarily for the ISW business), and accrued costs of
returning excess and slow moving ISW inventories. See "Pretax Charges;
Business Initiatives", below. The Company believes that with the consolidation
of certain PI distribution centers into those of the Company and the completion
of the integration of PI into the Company, selling, general and administrative
expenses (as a percentage of net sales) for the Company's traditional
businesses should decline in future periods, although no assurance can be given
in this regard. The impact of increased selling, general and administrative
expenses relating to the integration of the PI business was offset by the
recognition of one-time supplier changeover and acquisition incentives in the
amount of approximately $12.1 million. Such incentives were provided by the
Company's major vendors in connection with the PI Acquisition to offset the
impact of one-time expenses related to the integration of PI into the Company
and the changeover of PI stores and distribution centers to the Company's
product lines. In addition to offsetting direct integration and changeover
costs, approximately $4.9 million of such incentives were used to offset
indirect costs, operational inefficiencies and general business disruption
relating to the changeover and integration process. Furthermore, such
incentives improved the Company's liquidity during the integration and
changeover process. No additional such incentives are expected to be
recognized in connection with the PI Acquisition in the fiscal year ending
January 31, 1998 ("Fiscal 1998") or future periods.
Operating income for Fiscal Year 1997 decreased $20.3 million or
84.1%, to $3.8 million in Fiscal Year 1997 from $24.1 million in Fiscal Year
1996. The primary causes of the decrease were the fourth quarter Fiscal Year
1997 pretax charges and costs incurred in Fiscal Year 1997 in connection with
integrating PI into the Company in each case as discussed above. Such charges
and costs were offset in part by the PI Acquisition-related supplier changeover
incentives discussed above and the absence in Fiscal Year 1997 of the $11.2
million asset impairment and restructuring charge, incurred in the prior fiscal
year. See "Pretax Charges; Business Initiatives", below. In addition, during
Fiscal Year 1997, the Company refined the estimated rate used to capitalize
overhead costs incurred by the Company's distribution centers in preparing and
shipping inventory to Company-owned stores. Such change in the Company's
estimate resulted in an increase in operating income for Fiscal Year 1997 of
approximately $1.7 million. See Notes 1 and 12 to the Consolidated Financial
Statements.
Interest income for Fiscal Year 1997 was $5.6 million (0.7% of sales)
compared to $5.3 million (0.9% of sales) for Fiscal Year 1996. The dollar
increase in interest income is due principally to the interest income from past
due accounts receivable, partially offset by decreases in interest income
resulting from lower notes receivable balances. For a discussion of the
Company's notes receivable, see Note 5 to the Consolidated Financial Statements
and Item 1 - "Business - Jobber Financing" of the Company's Annual Report on
Form 10-K for the fiscal year ended January 25, 1997.
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Other income for Fiscal Year 1997 was $1.8 million (0.2% of sales)
compared to $1.5 million (0.3% of net sales) for Fiscal Year 1996. Other
income for Fiscal Year 1997 included a gain of approximately $1.3 million from
the sales of certain stores in Mississippi and Florida. In addition, both
years include the portion allocable to such years ($0.4 million in Fiscal Year
1997 and $1.5 million in Fiscal Year 1996) of the $6.0 million payment received
from a supplier for entering into a ten year supply agreement in April 1993
(the "Supply Agreement"). Such payment was deferred and is being recognized as
income on an accelerated basis over the term of the Supply Agreement; thus,
when compared to previous periods, the amount of revenue recognized from such
payment has declined.
Interest expense for Fiscal Year 1997 was $27.3 million (3.2% of net
sales) compared to $16.3 million (2.7% of net sales) for Fiscal Year 1996. The
$11.0 million increase in interest expense is principally due to the Company's
higher borrowing levels resulting from the Company's investment in acquisitions
(primarily the PI Acquisition) and the expansion of its ISW business. The
extent of future increases in interest expense will depend on a number of
factors, including the magnitude of increases in borrowing levels, changes in
interest rates and the extent to which the Company continues its expansion
efforts utilizing borrowed funds. See "Pretax Charges; Business Initiatives",
below. In addition, for a discussion of the Company's debt, see Note 4 to the
Consolidated Financial Statements and "Liquidity and Capital Resources" below.
Income taxes for Fiscal Year 1997 was a benefit of $5.2 million,
compared to tax expense of $5.4 million for Fiscal Year 1996. The combined
applicable federal and state statutory tax rate is expected to approximate 37%
during Fiscal 1998. The Company believes that it is more likely than not that
sufficient future taxable income will be generated to realize the net deferred
tax asset reflected in the Company's balance sheet as of January 25, 1997. See
Note 6 to the Consolidated Financial Statements.
Net loss for Fiscal Year 1997 was $10.8 million compared to net income
of $6.8 million for Fiscal Year 1996. The decrease in net income was primarily
a result of the $30.1 million of pretax charges discussed above, offset by the
absence in Fiscal Year 1997 of the $11.2 million asset impairment and
restructuring charge, incurred in the prior fiscal year.
Fiscal Year 1996 Compared to Fiscal Year 1995
Net sales for Fiscal Year 1996 increased $80.2 million or 15.3% from
the prior fiscal year. Such increase was primarily attributable to increased
sales generated by new ISW locations and business acquisitions other than the
PI Acquisition. The Company experienced, along with other industry
participants, a general softness in demand for products from its traditional
businesses during Fiscal Year 1996.
Cost of goods sold for Fiscal Year 1996 (as a percentage of net sales)
decreased compared to Fiscal Year 1995 principally as a result of the sales mix
containing more ISW sales, which have higher gross profit margins than sales in
the Company's traditional businesses, and increased supplier incentives
resulting from increased purchases of inventory.
Selling, general and administrative expenses for Fiscal Year 1996
increased $25.5 million or 17.5% compared to Fiscal Year 1995. The dollar
increase in selling, general and administrative expenses principally resulted
from the increased sales volume generated by the growth of ISW and business
acquisitions other than the PI Acquisition. Selling, general and
administrative expenses as a percentage of net sales increased by 0.5% over the
prior year, principally as a result of both the Company's operation of more
ISWs, which have higher operating costs (as a percentage of net sales) than the
Company's traditional businesses, and start-up costs related to immature ISW
units.
In connection with the PI Acquisition, the Company embarked upon a
program to review and rationalize certain of its operations, including the
consolidation of redundant operating and administrative facilities and the
closure of other
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nonperforming facilities. As a result of such program, the adoption of
Statement of Financial Accounting Standards No. 121, entitled "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of" ("SFAS No. 121") and the write-down of certain intangible and other
assets, the Company recorded an $11.2 million pretax charge in the fourth
quarter of Fiscal Year 1996. The charge consisted of $1.8 million of expenses
for estimated costs to close facilities, $3.7 million of expenses for future
lease and other related facility obligations and $5.7 million of asset
write-downs. See "Pretax Charges; Business Initiatives", below.
Operating income for Fiscal 1996 decreased $8.8 million or 26.7%
compared to Fiscal Year 1995 primarily due to the reasons discussed above.
Interest income for Fiscal Year 1996 was $5.3 million (0.9% of sales)
compared to $3.9 million (0.7% of sales) for Fiscal Year 1995. The increase in
interest income was due principally to the increase in customer notes
receivable and the impact of higher interest rates. For a discussion of the
Company's notes receivable, see Note 5 to the Consolidated Financial Statements
and Item 1 - "Business - Jobber Financing" of the Company's Annual Report on
Form 10-K for the fiscal year ended January 25, 1997.
Other income for each of Fiscal Year 1996 and Fiscal Year 1995 was
$1.5 million (0.3% of net sales). Such amounts represent the portion allocable
to such periods of the $6.0 million payment received from a supplier pursuant
to the Supply Agreement in April 1993.
Interest expense for Fiscal Year 1996 was $16.3 million (2.7% of net
sales) compared to $10.5 million (2.0% of net sales) for Fiscal Year 1995. The
increase in interest expense was principally due to the Company's higher
borrowing levels resulting from the Company's investment in acquisitions (other
than the PI Acquisition) and the expansion of its ISW business as well as the
impact of increases in interest rates compared to the prior year.
Income tax expense for Fiscal Year 1996 was $5.4 million compared to a
net tax benefit of $4.5 million for Fiscal Year 1995. Income taxes for Fiscal
Year 1995 include a tax benefit of $14.8 million from the reversal of a
deferred tax asset valuation allowance which resulted from the expected
acceleration of the Company's ability to utilize its net operating loss
carryforwards.
Net income for Fiscal Year 1996 was $6.8 million (1.1% of net sales)
compared to $32.4 million (6.2% of net sales) for Fiscal Year 1995. The
decrease in net income resulted primarily from the asset impairment and
restructuring charge and the increases in income taxes and interest expense, as
well as an extraordinary charge of $2.5 million, net of an income tax benefit
of $1.4 million, for the early extinguishment of debt relating to the
replacement of the Previous Credit Agreement (as defined below).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. For Fiscal Year 1997, operating activities provided net
cash of approximately $14.3 million, due primarily to decreases in accounts
receivable and inventory principally resulting from the closure and
consolidation of certain of the Company's and PI's facilities. See "Pretax
Charges; Business Initiatives", below. Investing activities utilized $12.5
million of cash, principally consisting of capital expenditures, investments in
customer notes receivable and business acquisitions. Such investments were
offset in part by the proceeds from repayment of customer notes receivable and
the sale of assets, including the Company's interest in the "Parts Plus" group
of marks which had been acquired by the Company in the PI Acquisition. See
"Other Matters", below. Financing activities provided $3.6 million of cash,
principally resulting from additional revolving credit borrowings under the New
Credit Agreement (as defined below) offset in part by repayment of long-term
debt.
For Fiscal Year 1996, operating activities utilized net cash of
approximately $41.9 million, resulting primarily
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from increases in inventories and accounts receivable in connection with the
expansion of the Company's ISW business. Investing activities utilized $97.7
million of cash, principally consisting of the Company's investment in business
acquisitions, including the PI Acquisition. Financing activities provided
$147.5 million of cash, principally resulting from the issuance of the
Company's 11.875% senior subordinated notes due 2006 (the "Notes") to finance
the PI Acquisition and a net increase in borrowings under the Company's New
and Previous Credit Agreements to finance its ISW expansion and business
acquisitions other than the PI Acquisition.
For Fiscal Year 1995, operating activities generated net cash of
approximately $0.5 million, reflecting substantial uses of cash from operating
activities in connection with increased accounts receivable, inventories and
other current assets, offset, to some extent, by earnings and increases in
accounts payable and other current liabilities. Investing activities utilized
$49.4 million of cash, principally consisting of the Company's investment in
business acquisitions and customer notes receivable. Financing activities
provided $48.3 million of cash, principally resulting from a net increase in
the Company's revolving credit borrowings under its Previous Credit Agreement
to finance its investing activities.
Working Capital. At January 25, 1997 the Company had $293.6 million
of working capital, including $13.4 million in cash and cash equivalents,
compared to $302.7 million of working capital at January 27, 1996, including
$7.9 million of cash and cash equivalents. During Fiscal Year 1997, current
assets decreased $1.6 million primarily due to decreases in accounts and notes
receivable offset in part by increases in prepaid expenses and other current
assets. In addition, current liabilities increased $7.4 million due primarily
to increases in accrued liabilities and current maturities of long-term debt,
offset, to some extent, by decreases in accounts payable. Looking forward, in
connection with its overall business plan of controlled growth, the Company
does not currently intend to add a significant number of ISWs or make any
significant acquisitions in Fiscal Year 1998. In addition, the Company
currently intends to return approximately $24.0 million of excess and slow
moving inventory to its suppliers in Fiscal Year 1998, the proceeds of which
would be used to repay long-term indebtedness. Certain additional inventory
may be returned in connection with planned ISW closures. See "Pretax Charges;
Business Initiatives", below. As a result, the Company's working capital
requirements could decrease in Fiscal Year 1998, although no assurance can be
given in this regard.
Credit Agreement. Concurrently with the PI Acquisition, APS entered
into an amended and restated senior bank credit agreement (the "New Credit
Agreement") with a lending syndicate led by The Chase Manhattan Bank, formerly
known as Chemical Bank. This New Credit Agreement replaced the credit
facilities previously made available to the Company under a credit agreement
entered into in September 1993 (as amended, the "Previous Credit Agreement").
Pursuant to the New Credit Agreement, the $165.0 million revolving credit
facility existing under the Previous Credit Agreement was increased to $235.0
million, with a final maturity date of December 31, 2000, and the $75.0 million
term loan facilities existing under the Previous Credit Agreement were
consolidated into one term loan facility of $65.0 million, with a final
maturity date of December 31, 1999. As of January 25, 1997, the Company had
aggregate borrowings under the New Credit Agreement of $219.3 million,
consisting of $167.3 million and $52.0 million in borrowings outstanding under
the revolving credit facility and term loan facility, respectively, and
approximately $8.4 million in outstanding letters of credit under the New
Credit Agreement. Undrawn amounts under the revolving credit facility, net
of the aggregate face amount of letters of credit outstanding under the New
Credit Agreement, may be used for working capital and other business needs,
subject to compliance with a borrowing base requirement and other customary
borrowing conditions. Borrowing availability under the New Credit Agreement at
January 25, 1997, after taking into account borrowing base restrictions and
outstanding letters of credit, was $32.2 million. Borrowings under the New
Credit Agreement bear interest at variable rates. Effective as of January 25,
1997, the Net Worth covenant requirement of the New Credit Agreement was
amended to lower the minimum required Net Worth amount from $115.0 million to
$109.8 million. After giving effect to such amendment, the Company was in
compliance with this covenant as of such date. See Note 4 to the Consolidated
Financial Statements.
Senior Subordinated Notes. The PI Acquisition was financed through
the issuance and sale of $100.0 million
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principal amount of the Notes. The net proceeds from the sale of the Notes
were used to pay a $79.7 million cash payment at closing for the PI Acquisition
(of which $4.0 million was subsequently refunded to the Company), to pay
related fees and expenses and to repay a portion of the borrowings under the
Previous Credit Agreement. The Notes mature on January 15, 2006 and bear
interest at a rate of 11.875% per annum. See Note 4 to the Consolidated
Financial Statements. During the year ended January 25, 1997, the Company
filed a registration statement with the Securities and Exchange Commission (the
"SEC"), pursuant to which it made and completed an offer to exchange registered
Notes for all of the initially issued Notes.
Interest Rate Swap Agreements. During Fiscal Year 1996, the Company
entered into interest rate swap agreements to hedge interest costs and risks
associated with variable interest rates. Such agreements, which cover a
portion of the borrowings under the New Credit Agreement, effectively convert
variable-rate debt to fixed-rate debt with an effective per annum interest rate
of approximately 7.1%. The aggregate notional principal amount of these
agreements is $100.0 million, $75.0 million of which became effective in June
1995 and matures in June 1997 and $25.0 million of which became effective in
January 1996 and matures in January 1998. The counterparties to such
agreements are major financial institutions and, therefore, credit losses from
counterparty nonperformance is not anticipated.
Capital Expenditures and Acquisitions. Capital expenditures for
Fiscal Year 1997, excluding new business acquisitions, were approximately $10.8
million compared to $8.4 million for Fiscal Year 1996. The increase in capital
expenditures was primarily a result of management information system
enhancements. The Company expects capital expenditures will increase to
approximately $12.0 million in Fiscal Year 1998 primarily as a result of
additional management information system enhancements, including the
development of a centralized management system with a particular focus on
controlling inventory and expenses and improving the management of working
capital. See "Pretax Charges; Business Initiatives", below. In addition, the
Company is preparing a plan of action to modify its internally developed
software over the next three years to accommodate the "year 2000" dating
changes necessary to permit correct recording of year dates for 2000 and later
years. The Company has not yet quantified such costs, which will be expensed
as incurred, but expects they will be substantial. If the Company or any of
its significant suppliers or customers does not successfully and timely
complete such changes, the Company's business could be materially affected.
For Fiscal Year 1997, the Company's cash expenditures for business
acquisitions totaled $7.9 million. In order to expand its business, the
Company expects to continue to make occasional strategic acquisitions from time
to time (although it does not currently intend to make any significant
acquisitions) for cash and other consideration to the extent that its debt
service requirements, financing agreement covenants, financial performance and
funding availability permit. To meet the cash funding requirements for any
business expansion efforts, the Company expects to draw on internally generated
funds, borrowings under the New Credit Agreement and other sources of
liquidity, to the extent available, as discussed below. See "Pretax Charges;
Business Initiatives", below.
Sources of Liquidity. Since the completion of the Company's initial
public offering and debt refinancing in 1993, the Company has pursued more
aggressive acquisition and ISW expansion programs, resulting in increased
funding requirements. The principal sources of liquidity for the Company's
operating requirements and business expansion have been internally generated
funds from the operation of its traditional businesses, borrowings under the
Previous Credit Agreement and the proceeds from the issuance of the Notes. The
Company expects that the principal sources of liquidity for its future
operating requirements and any business expansion efforts will be cash flows
from the operation of its traditional businesses and borrowings under the New
Credit Agreement. While the Company expects that such sources will provide
sufficient working capital to operate its business, finance the completion of
the PI integration and any future business expansion efforts, and pay down
accounts payable as deferred payment terms obtained in connection with the PI
Acquisition expire (see "Pretax Charges; Business Initiatives", below), there
can be no assurance that such sources will prove to be sufficient. Further,
the Company expects such sources will provide sufficient funds to meet its
regularly scheduled debt service obligations (which have been significantly
increased as a
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result of the PI Acquisition and related financing) prior to maturity of the
revolving credit facility under the New Credit Agreement, although there can be
no assurances in this regard. The Company currently does not expect, however,
to generate cash flow sufficient to fund the repayment of borrowings due under
such revolving credit facility upon its maturity on December 31, 2000 and,
accordingly, expects that it will seek to refinance such amounts prior to such
maturity. No assurance can be given that such refinancing can be successfully
accomplished.
PRETAX CHARGES; BUSINESS INITIATIVES
Business Strategy
As indicated above, the Company has pursued aggressive acquisition and
ISW expansion programs since its initial public offering in 1993. Principally
as a result of these programs, the Company's net sales have increased 95.9%
from $438.3 million in the fiscal year ended January 29, 1994 to $858.7
million in Fiscal Year 1997; the number of Company- owned stores has increased
from 117 at January 29, 1994 to approximately 300 at January 25, 1997; and the
number of ISWs has increased from 70 at January 29, 1994 to 272 at January 25,
1997. Achieving such levels of growth and, particularly with regard to Fiscal
Year 1997, integrating PI into the Company's business has consumed significant
financial and operating resources and demanded extensive managerial focus and
attention. Looking forward, the Company intends to re- focus its efforts and
resources during Fiscal Year 1998 from such aggressive growth programs to
improving both the execution of its business strategy and its management
information systems. During Fiscal Year 1998, the Company currently plans to
limit its growth to occasional small strategic acquisitions and to
substantially reduce the number of ISW openings compared to prior years.
Fiscal 1997 Pretax Charges
In the fourth quarter of Fiscal Year 1997, the Company recorded
pretax charges of approximately $30.1 million, primarily in connection with the
ISW business. Such pretax charges consisted of charges to cost of goods sold
of approximately $17.1 million and charges to selling, general and
administrative expenses of approximately $13.0 million. The $17.1 million in
pretax charges to cost of goods sold principally consisted of an inventory loss
adjustment in connection with the ISW business in the amount of approximately
$11.8 million (some of which may be attributable to earlier quarters of the
fiscal year). Such adjustment was necessary to resolve discrepancies resulting
from an inability under the existing ISW operating and financial systems to
identify and act on inventory discrepancies in a timely manner, due to
incompatibilities and shortfalls in systems controls. The Company is currently
implementing operational and systems changes designed to ensure that it will be
able to control its inventory and record inventory discrepancies in the ISW
business on a timely basis. The remaining approximately $5.3 million in
charges to cost of goods sold consisted primarily of inventory loss adjustments
for the Company's traditional businesses, the write-off of certain receivables
from suppliers for returned goods and adjustments to inventory pricing
reserves.
The $13.0 million in pretax charges to selling, general and
administrative expenses consisted primarily of a reserve for costs related to
facility closures and consolidations in the amount of approximately $5.7
million, an increase in the bad debt provision in the amount of approximately
$3.8 million, and accrued costs in connection with the return of excess and
slow moving ISW inventories in the amount of approximately $1.5 million. The
reserve for costs related to facility closures and consolidations relates
primarily to the Company's current initiatives to improve its operating
efficiency by, among other things, closing or consolidating under-performing
Company-owned stores and ISW units. In addition, the Company intends to
consolidate certain administrative functions. The increase in the bad debt
provision, primarily attributable to the ISW business, was recorded in
connection with the implementation of a new accounts receivable system which is
open-item based versus the previous balance forward format. The accrual for
costs to return excess and slow moving inventory to suppliers also results from
the Company's current initiatives to improve operating efficiency and inventory
control.
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ISW Business
During Fiscal Year 1997, the Company increased the total number of ISW
locations from 252 to 272. The Company, as part of its overall business plan,
may continue to add ISWs in the future, although the Company does not currently
plan to add a significant number of ISWs in Fiscal Year 1998 and after the
closure of certain ISW units, as discussed below, the total number of ISW units
may decrease during Fiscal Year 1998. To date, operating margins for the ISW
division have been below those of the Company's traditional businesses and, thus
far, the ISW division has generally experienced operating losses. The Company's
operating results have experienced and are expected to continue to experience
earnings and cash flow pressure due to the large number of less mature ISWs,
the growth of the ISW base and the expiration, generally after a period of six
to fifteen months, of deferred payment terms extended to the Company by vendors
in connection with the opening of new ISW locations. In addition, the majority
of the pretax charges recorded in the fourth quarter of Fiscal Year 1997 related
to the ISW business, as discussed above.
Looking forward, the Company remains convinced of the viability of
the ISW concept, although the Company remains cautious in its outlook until the
ISW business demonstrates sustained improvement in its operations. During
Fiscal Year 1998, the Company plans to shift its focus from aggressive growth
of the ISW business to refining and improving both the execution of this
division's business strategy and its systems. The Company's initiatives to
achieve such improvement in execution have included changes in the ISW senior
management team in Fiscal Year 1997. In addition, the Company conducted a
comprehensive review of its under-performing ISW units. Such review resulted
in the closure or consolidation in Fiscal Year 1997 of 25 of its
under-performing ISW units, including 12 ISW units closed in connection with
the approximately $11.2 million asset impairment and restructuring charge which
the Company recorded in Fiscal Year 1996 (see "Integration of PI" below), and
a plan to close or consolidate in Fiscal Year 1998 an estimated additional 15
under-performing ISWs. Such closures are expected to allow ISW management to
focus its efforts and resources on the division's more productive units. In
addition, the Company currently intends to return approximately $24.0 million
of excess and slow moving ISW inventory to suppliers (the anticipated cost of
which has been included in the $13.0 million in Fiscal Year 1997 pretax charges
described above) during Fiscal Year 1998. Certain additional inventory may be
returned in connection with the ISW closures described above. Such returns are
expected to have a positive impact on the Company's interest expense in Fiscal
Year 1998 as the proceeds from such returns are used to reduce its outstanding
indebtedness under the New Credit Agreement. The Company's initiatives to
improve the ISW division's systems and controls include the development of a
centralized management system for the ISW business, as well as for the
Company's traditional businesses, with a particular focus on controlling
inventory (see "Fiscal 1997 Pretax Charges" above) as well as controlling
expenses and managing working capital. The Company expects to implement such
system in multiple phases beginning in the third quarter of Fiscal Year 1998
and extending through the fourth quarter of the fiscal year ending January 30,
1999. In addition, the Company is currently developing a new accounts
receivable system which will facilitate collection of accounts receivable and
improve working capital management in the ISW business, as well as for the
Company's traditional businesses. The Company expects to begin implementing
such system in the second quarter of Fiscal Year 1998 and currently expects
completion in the fourth quarter of Fiscal Year 1998.
Traditional Business Initiatives
In connection with its overall business strategy of controlled growth
and improved execution of its operations, the Company has undertaken certain
additional initiatives in connection with its traditional businesses. During
Fiscal Year 1997, the Company added two new senior executives to strengthen the
management team in the areas of Company-owned stores and finance. In
addition, during Fiscal Year 1997, the Company closed or consolidated
approximately 25 under- performing Company-owned stores, including 15 units
closed in connection with the approximately $11.2 million asset impairment and
restructuring charge which the Company recorded in Fiscal Year
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1996 (see "Integration of PI" below), and currently intends to close or
consolidate in Fiscal Year 1998 an estimated additional 24 of the division's
under-performing units. Such closures are expected to enable management to
focus its efforts and resources on more productive facilities. In connection
with the program initiated in Fiscal Year 1996 to rationalize facilities owned
by the Company prior to the PI Acquisition (see "Integration of PI" below), in
April 1997 the Company announced the consolidation of one of its distribution
centers into a distribution center acquired in the PI Acquisition. Such
consolidation is expected to eliminate certain redundant operations and improve
operating efficiency. In addition, its efforts to improve its operating
systems, the accounts receivable and central management systems currently under
development for the ISW business, as discussed above, are expected to improve
control of expenses and working capital management at the Company's traditional
businesses as well. See "ISW Business", above.
Integration of PI
Following the PI Acquisition, the Company implemented a comprehensive
plan for integrating PI's operations and administrative functions with those of
the Company. Such plan resulted in the closure of nine PI distribution centers
and 27 PI stores and consolidation of the remaining PI operations into those of
the Company. As a result of such closures and the sale of certain
company-owned stores in Mississippi and Florida in October 1996, there were
five PI distribution centers and 74 PI company-owned stores remaining at
January 25, 1997.
During Fiscal Year 1997, the Company also substantially completed the
changeover activities associated with converting the PI distribution centers,
associated jobbers and company-owned stores to the Company's product lines.
The costs associated with this changeover and the overall process of
integrating PI into the Company were offset by the recognition of $12.1 million
in supplier changeover and acquisition incentives provided by the Company's
major vendors in connection with the PI Acquisition. In addition to offsetting
direct integration and changeover costs, approximately $4.9 million of such
incentives were used to offset indirect costs, operational inefficiencies and
general business disruption relating to the changeover and integration process.
Furthermore, such incentives improved the Company's liquidity during the
integration and changeover process. No further such incentives are expected to
be recognized in Fiscal Year 1998 or future periods. Furthermore, in
connection with the PI Acquisition, the Company realized a significant cash
flow benefit resulting from the deferral of a significant amount of accounts
payable owed to suppliers. Such deferred payment terms will require the
Company to make payments of approximately $5.8 million, $6.0 million, and $16.8
million in the fiscal years ending January 1998, 1999 and 2000, respectively.
As discussed above, the Company's plan to integrate PI's operations
and administrative functions with those of the Company resulted in the closure
of certain PI distribution centers and stores and consolidation of these
operations into the Company's remaining facilities, as well as the
consolidation of certain administrative functions. The Company's financial
statements at January 27, 1996 included a liability and reserves of $9.2
million for costs related to such plan. Such costs included estimates of
approximately $4.3 million to close facilities (including $2.6 million of
employee termination and relocation costs), approximately $3.3 million for
future lease and related obligations and approximately $1.6 million for asset
write-offs. During Fiscal Year 1997, the Company charged approximately $6.4
million against such liability and reserves, including approximately $2.4
million of employee termination and relocation costs.
In connection with the PI Acquisition, the Company also embarked upon
a program during the fourth quarter of Fiscal Year 1996 to review and
rationalize certain of its operations, including the consolidation of redundant
operating and administrative facilities, owned by the Company prior to the PI
Acquisition, into existing facilities and closing other nonperforming
facilities. As a result of such program, the adoption of SFAS No. 121 and the
write-down of certain intangible and other assets, the Company recorded an
$11.2 million pretax charge in the fourth quarter of Fiscal Year 1996. During
Fiscal Year 1997, the Company attained a majority of the program's objectives,
including the closure or consolidation of all facilities designated in the plan
except two distribution centers. One such remaining distribution center will
be closed in Fiscal Year 1998 and the closure of the final distribution center
is expected to occur
27
<PAGE> 28
during the fiscal year ending January 30, 1999. The Company's financial
statements at January 27, 1996 included a liability in the amount of $5.5
million for costs related to such program, including approximately $0.5 million
of employee severance benefits related to personnel reductions of approximately
300 employees, primarily warehouse and store personnel. During Fiscal Year
1997, the Company charged approximately $3.4 million of closure and
consolidation costs against such liability, including approximately $0.1
million of employee severance benefits for 133 terminated employees.
The Company has substantially completed its integration of PI's
operations into the operations of the Company. The full realization of the
potential benefits of the PI Acquisition, however, remains dependent upon a
variety of factors, including retaining a significant portion of the Company's
sales to former PI jobbers, maintaining significant reductions in cost of goods
sold resulting from purchasing economies extended to the Company by suppliers,
and achieving further reductions in selling, general and administrative
expenses through the consolidation, closure or more efficient operation of
certain operating and administrative facilities and functions. At the time of
the PI Acquisition, the PI distribution network was comprised of 850 parts
stores owned by PI associated jobbers and more than 125 company-owned stores.
At January 25, 1997, in line with management's expectations, the Company had
retained approximately 550 of such PI associated jobbers and 74 of such
company-owned stores. Changeover activities associated with such jobbers and
company-owned stores are substantially complete. There can be no assurance as
to the extent to which the Company will be able to fully realize the potential
benefits of the PI Acquisition or the timing of such realization. While certain
of these benefits have been realized to date, failure to achieve a substantial
portion of the remaining benefits within the time frame expected by the Company
could materially and adversely affect the Company's future results of
operations and financial position.
SEASONALITY; 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 automotive products is somewhat affected by weather
conditions and, consequently, the Company's results of operations from period
to period may be affected by such conditions. Temperature extremes tend to
enhance sales by causing a higher incidence of parts failure and increasing
sales of seasonal products, while milder weather tends to depress sales. The
Company's management does not believe that its operations have been materially
affected by inflation. In general, the Company has been able to pass on to its
customers any increases in the cost of its inventory.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ( "FASB") issued Statement of
Financial Accounting Standards No. 125, entitled "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No.
125"), in June 1996 and subsequently amended it by issuing Statement of
Financial Accounting Standards No. 127, entitled "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125" ("SFAS No. 127", and
together with SFAS No. 125, "Amended SFAS 125" ). Amended SFAS 125 requires
the Company to adopt a financial-components approach for transfers and
servicing of financial assets and extinguishments of liabilities. Under such
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. Amended SFAS 125 also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The Company will adopt
Amended SFAS 125 for certain transactions occurring after December 31, 1997.
The adoption of Amended SFAS 125 is not expected to have a significant effect
upon the Company's consolidated financial statements.
The FASB issued Statement of Financial Accounting Standards No. 128,
entitled "Earnings per Share" ("SFAS
28
<PAGE> 29
No. 128"), in February 1997. SFAS No. 128 requires standards to replace the
presentation of primary earnings per share ("EPS") with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital structures. The
Company is required to adopt the computation, presentation and disclosure
requirements of SFAS No. 128 for the fiscal year ending January 31, 1998. The
adoption of SFAS No. 128 is not expected to have a significant effect upon the
Company's consolidated financial statements.
The FASB also issued Statement of Financial Accounting Standards No.
129, entitled "Disclosure of Information about Capital Structure" ("SFAS No.
129"), in February 1997. SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure. The Company is required to
adopt the disclosure requirements of SFAS No. 129 for the fiscal year ending
January 31, 1998. The adoption of SFAS No. 129 is not expected to have a
significant effect upon the Company's consolidated financial statements.
FORWARD LOOKING INFORMATION
The statements contained in this Annual Report which are not
historical facts, including, but not limited to, statements found under the
captions "Results of Operations", "Liquidity and Capital Resources" and "Pretax
Charges; Business Initiatives" above, are forward-looking statements that
involve a number of risks and uncertainties. The actual results of the future
events described in such forward-looking statements in this Annual Report could
differ materially from those contemplated by such forward-looking statements.
Among the factors that could cause actual results to differ materially are the
risks and uncertainties discussed in the Annual Report, including without
limitation the portions of such statements under the captions referenced above,
and the uncertainties set forth from time to time in the Company's other public
reports and filings and public statements.
OTHER MATTERS
In February 1996, the Company sold its interest in the "Parts Plus"
group of marks, which had been acquired by the Company in the PI Acquisition,
to Association of Automotive Aftermarket Distributors ("AAAD") for cash
consideration of $3.5 million. PI had previously licensed the same marks to
AAAD for a small yearly license fee.
On October 25, 1996, the Company completed the sale of seventeen
Company-owned stores and one ISW located in Mississippi and Florida to
associated jobbers for a gain of approximately $1.3 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the financial statements, the reports thereon,
the notes thereto and supplementary data commencing at page F-1 of this
Form 10-K, which financial statements, reports, notes and data are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
29
<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information regarding the directors and persons nominated to
become directors of the Company, reference is made to the information presented
in the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation 14A under
the Securities and Exchange Act of 1934 (the "1997 Proxy Statement:). For
information regarding the executive officers of the Company, reference is made
to the information set forth under the caption "Executive Officers of the
Registrant" included in Part I of this Form 10-K. All of such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning the compensation paid by the Company during
fiscal 1997 to its executive officers, reference is made to the information
presented in the 1997 Proxy Statement. Such information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning the beneficial ownership of the common
stock of the Company by its directors and officers and by certain other
beneficial owners, reference is made to the information presented in the
Company's 1997 Proxy Statement. Such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information regarding certain business relationships and related
transactions involving the Company's officers and directors, reference is made
to the information presented in the 1997 Proxy Statement. Such information is
incorporated herein by reference.
30
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) AND (d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The financial statements and financial statement schedules listed on
the accompanying Index to Financial Statements (see page F-1) are filed as part
of this Form 10-K.
(b) REPORTS ON FORM 8-K.
None
(c) EXHIBITS.
<TABLE>
<CAPTION>
Location of
Exhibit in
Exhibit Sequential
Number Description of Documents Number System
- ------ ------------------------ --------------
<S> <C>
2.1.1 Asset Purchase Agreement, between Sieg Company and A.P.S., Inc., dated
August 27, 1994. (10)
2.1.2 Amendment One, dated September 26, 1994, to Asset Purchase Agreement,
between Sieg Company and A.P.S., Inc. (10)
2.2 Purchase Agreement between A.P.S., Inc. and GKN Parts, dated December 5,
1995 (the "Purchase Agreement"). (Certain portions of the Purchase Agreement
have been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.) (15)
3.1 Second Restated Certificate of Incorporation of APS Holding dated September
20, 1993. (6)
3.2 Amended By-Laws of APS Holding dated November 22, 1993. (7)
4.1.1 Form of Stock Certificate for Class A Common Stock, par value $.01 per
share, of APS Holding. (1)
4.1.2 Form of Stock Certificate for Class B Common Stock, par value $.01 per
share, of APS Holding. (1)
4.2 Second Restated Certificate of Incorporation of APS Holding, dated September
20, 1993. (6)
4.3 Amended By-Laws of APS Holding dated November 22, 1993. (7)
4.4.1 Fund Stock Subscription Agreement, dated as of November 22, 1989, between
The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("Fund
IV") and APS Holding. (1)
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C>
4.4.2 Agreement, dated as of May 11, 1992, between Fund IV and APS Holding. (4)
4.5 Common Stock Purchase Agreement, dated as of November 22, 1989, between APS
Holding and each of certain institutional investors. (1)
4.6.1 Management Stock Subscription Agreement, dated as of November 22, 1989,
between APS Holding and Richard J. Spelleri. (1)
4.6.2 Stock Subscription Agreement, dated as of June 6, 1990, between APS Holding
and H. Jack Meany. (1)
4.6.3 Stock Subscription Agreement, dated as of June 1, 1990, between APS Holding
and John J. Nevin. (1)
4.6.4 Stock Subscription Agreement, dated as of May 31, 1990, between APS Holding
and Lawrence H. Hyde. (1)
4.6.5 Management Stock Subscription Agreements, between APS Holding and each of
Messrs. Mike Allen, David C. Barbeau, Marc and. Beasley, Doug Buscher,
Leland Charley, James E. Clarke, Earl Colvin, Ronald B. Diedring, Walt
Doman, Robert Greathouse, Tom Hartenbower, Richard A. Henricks, Dick Kelly,
E. Eugene Lauver, Bill Licklider, Montie C. Loney, Christopher McGinley, Jim
McWilliams, Ray Mohler, William H. Moore, Ed Morris, John D. Pearce, George
Poe, Michael L. Preston, Greg Rada, S. David Ramsey, Raymond J. Rarey, David
Robison, Elmer H.C. Romeis, Claude T. Salmon, Jr., Ralph Souza, Rogers
Stock, Tom Wacker, Randall B. Walker, Thomas H. Warner, Bob Werner, Paul
Whelton, and Jim Woodward. (2)
4.7.1 Registration and Participation Agreement, dated as of November 22, 1989 (the
"Registration and Participation Agreement"), among Fund IV, certain other
APS Holding stockholders, and APS Holding. (1)
4.7.2 Letter Agreement, dated as of June 26, 1992, between APS Holding and Fund
IV, amending the Registration and Participation Agreement. (1)
4.8 Capital Call Agreement, dated as of November 22, 1989, among Fund IV, APS
Holding, The Connecticut National Bank, First Trust National Association,
and First Bank National Association. (1)
4.9.1 APS Holding's 1990 Employee Stock Option Plan and form of Management Stock
Option Agreement. (1)
4.9.2 APS Holding's 1990 Employee Stock Option Plan as amended through Amendment
No. 1. (1)
4.9.3 Management Stock Option Agreements, dated as of November 14, 1990, between
APS Holding and each of the persons named on the schedule attached thereto.
(2)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
4.10.1 APS Holding's 1993 Employee Stock Option Plan as amended and restated,
effective July 19, 1993. (5)
4.10.2 Management Stock Option Agreement, dated as of December 16, 1992, between
APS Holding and Mark S. Hoffman. (5)
4.10.3 Management Stock Option Agreement, dated as of May 17, 1993, between APS
Holding and Douglas Beckstett. (5)
4.10.4 Stock Option Agreement, dated as of December 16, 1992, between APS Holding
and Theodore Barry. (5)
4.10.5 Stock Option Agreement, dated as of May 17, 1993, between APS Holding and
Theodore Barry. (5)
4.10.6 Management Stock Subscription Agreement, dated as of September 23, 1993,
between APS Holding and Vince Heiker. (7)
4.11 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Douglas Beckstett. (5)
4.12 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Mark S. Hoffman. (5)
4.13 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Steven H. Sattinger. (5)
4.14 Stock Subscription Agreement, dated as of August 24, 1993, between APS
Holding and Wiley N. Caldwell. (5)
4.15 Indenture, dated as of January 25, 1996, among A.P.S., Inc., as Issuer, APS
Holding Corporation and certain of its subsidiaries, as Guarantors, and The
Bank of New York, as Trustee. (14)
4.16 Registration Agreement, dated January 19, 1996, among A.P.S., Inc., Salomon
Brothers Inc and Chemical Securities Inc. (14)
4.17 Purchase Agreement, dated January 19, 1996, among A.P.S., Inc., APS Holding
Corporation, Salomon Brothers Inc and Chemical Securities Inc. (14)
10.1.1 Amended and Restated Credit Agreement, dated as of January 25, 1996, among
A.P.S., Inc., the several lenders from time to time parties thereto, and
Chemical Bank, as agent. (14)
10.1.2 Amended and Restated Guarantee, dated as of January 25, 1996, made by APS
Holding Corporation in favor of Chemical Bank, as agent. (14)
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
10.1.3 Amended and Restated Subsidiaries' Guarantee, dated as of January 25, 1996,
made by certain of the subsidiaries of A.P.S. , Inc. in favor of Chemical
Bank, as agent. (14)
10.1.4 Supplement to the Amended and Restated Subsidiaries' Guarantee, dated as of
May 15, 1996, made by each of the Subsidiaries of A.P.S., Inc. in favor of
Chemical Bank, as agent.
10.1.5 Amended and Restated Security Agreement, dated as of January 25, 1996, made
by A.P.S., Inc. in favor of Chemical Bank, as agent. (14)
10.1.6 Amended and Restated Trademark Security Agreement, dated as of January 25,
1996, made by A.P.S., Inc. in favor of Chemical Bank, as agent. (14)
10.1.7 Trademark Security Agreement, dated May 15, 1996, made by A.P.S. Management
Services, Inc. in favor of Chemical Bank, as agent.
10.1.8 Amended and Restated Security Agreement, dated as of January 25, 1996, made
by certain of the subsidiaries of A.P.S., Inc. in favor of Chemical Bank, as
agent. (14)
10.1.9 Amended and Restated Security and Note Pledge Agreement, dated as of January
25, 1996, made by Autoparts Finance Company, Inc. in favor of Chemical Bank,
as agent. (14)
10.1.10 Amended and Restated Pledge Agreement, dated as of January 25, 1996, made by
A.P.S., Inc. in favor of Chemical Bank, as agent. (14)
10.1.11 Amended and Restated Pledge Agreement, dated as of January 25, 1996, made by
APS Holding Corporation in favor of Chemical Bank, as agent. (14)
10.1.12 Amended and Restated Lockbox Agreement, dated as of January 25, 1995, among
Texas Commerce Bank National Association, Chemical Bank, as Agent, and
Autoparts Finance Company, Inc. (14)
10.1.13 Amended and Restated Lockbox Agreement, dated as of January 25, 1995, among
Texas Commerce Bank National Association, Chemical Bank, as Agent, and
A.P.S., Inc. (14)
10.1.14 Note Pledge Agreement, dated as of January 25, 1996, made by APS Holding in
favor of Chemical Bank, as agent. (14)
10.1.15 Open-End Mortgage and Security Agreement, dated as of January 25, 1996, from
A.P.S., Inc., as mortgagor, to Chemical Bank (as agent), as mortgagee. (14)
10.1.16 Second Amendment to Mortgage in respect of real property located in Indiana,
dated as of January 25, 1996, between A.P.S., Inc., as mortgagor, and
Chemical Bank (as agent), as mortgagee. (14)
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C>
10.1.17 Second Amendment to Deed of Trust in respect of real property located in
Missouri, dated as of January 25, 1996, between A.P.S., Inc., as grantor,
and Chemical Bank (as agent), as beneficiary. (14)
10.1.18 Second Amendment to Deed of Trust in respect of real property located in
Virginia, dated as of January 25, 1996, between American Parts System Inc.,
as grantor, and Chemical Bank (as agent), as beneficiary. (14)
10.1.19 Second Amendment to Deed of Trust, Assignment of Rents and Leases, Security
Agreement and Financing Statement in respect of real property located in New
Mexico, dated as of January 25, 1996, between American Parts System, Inc.,
as trustor, and Chemical Bank (as agent), as beneficiary. (14)
10.1.20 Second Amendment to Deed of Trust in respect of real property located in
Colorado, dated as of January 25, 1996, between A.P.S., Inc., as grantor,
and Chemical Bank (as agent), as beneficiary. (14)
10.1.21 First Amendment, dated as of April 23, 1996, to the Amended and Restated
Credit Agreement dated as of January 25, 1996, among A.P.S., Inc., the
several lenders from time to time parties thereto, and Chemical Bank, as
agent. (16)
10.1.22
Second Amendment, dated as of August 28, 1996, to the Amended and Restated
Credit Agreement dated as of January 25, 1996, among A.P.S., Inc., the
several lenders from time to time parties thereto, and The Chase Manhattan
Bank (formerly Chemical Bank), as agent. (18)
10.1.23
Third Amendment, dated as of January 25, 1997, to the Amended and Restated
Credit Agreement dated as of January 25, 1996, among A.P.S., Inc., the
several lenders from time to time parties thereto, and The Chase Manhattan
Bank (formerly Chemical Bank), as agent.
10.2.1 Fund Stock Subscription Agreement, dated as of November 22, 1989, between
Fund IV and APS Holding. (1)
10.2.2 Indemnification Agreement, dated as of November 22, 1989, among APS Holding,
APS Acquisition Corporation, A.P.S., Inc., Clayton & Dubilier, Inc. and Fund
IV. (1)
10.2.3 Agreement, dated as of May 11, 1992, between Fund IV and APS Holding. (4)
10.3.1 Registration and Participation Agreement. (1)
10.3.2 Letter Agreement, dated as of June 26, 1992, amending the Registration and
Participation Agreement (1).
10.4.1 Sales and Distribution Agreement, made as of October 6, 1989, by and between
Standard Motor Products Company, Inc. and APS for Tune-Up Products. (4)
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
10.4.2 Sales and Distribution Agreement, made as of October 6, 1989, between
Standard Motor and APS for Temperature Control Products. (1)
10.4.3 Amendment to the Sales and Distribution Agreements between A.P.S., Inc. and
Standard Motor Products Company, Inc., for Tune-Up Products and Temperature
Control Products, dated October 26, 1989. (1)
10.4.4 Sales and Distribution Agreement, dated as of April 22, 1993, between APS
and Standard Motor and APS, for Big and Service Line and Specialty Tool Line
Products. (1)
10.5.1 Agreement, executed April 14, 1993, between Big A Auto Parts, Inc., and
Teamsters Local Union No. 429 of Reading, Pennsylvania. (5)
10.5.2 Agreement, executed on March 17, 1993, between APS and Automotive Petroleum
and Allied Industries Employees Union, Local 618 of St. Louis, Missouri. (5)
10.5.3 Agreement, Executed on March 6, 1992, between APS and Truck Drivers,
Chauffeurs and Helpers Local Union No. 384 of Pennsylvania. (5)
10.5.4 Agreement, entered into and effective as of July 1, 1993, between APS and
Teamsters Local Union No. 284 of the International Brotherhood of Teamsters.
(5)
10.6.1 APS Holding's 1990 Employee Stock Option Plan and form of Management Stock
Option Agreement. (1)
10.6.2 APS Holding's 1990 Employee Stock Option Plan as amended through Amendment
No. 1. (1)
10.6.3 Stock Subscription Agreements, between APS Holding and each of the persons
named on the schedule attached thereto. (2)
10.7.1 APS Holding's 1993 Employee Stock Option Plan. (5)
10.7.2 Management Stock Option Agreement, dated as of December 16, 1992, between
APS Holding and Mark S. Hoffman. (5)
10.7.3 Management Stock Option Agreements, dated as of May 17, 1993, between APS
Holding and Douglas Beckstett. (5)
10.7.4 Stock Option Agreement, dated as of December 16, 1992, between APS Holding
and Theodore Barry. (5)
10.7.5 Stock Option Agreement, dated as of May 17, 1993, between APS Holding and
Theodore Barry. (5)
10.7.6 Stock Option Agreement, dated as of September 23, 1993, between APS Holding
and Vince Heiker. (7)
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
10.7.7 Stock Option Agreement, dated as of September 23, 1993, between APS Holding
and Paul G. Hargett. (8)
10.8.1 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Kenneth Caracci. (5)
10.8.2 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Douglas Beckstett. (5)
10.8.3 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Mark S. Hoffman. (5)
10.8.4 Stock Subscription Agreement, dated as of August 24, 1993, between APS
Holding and Wiley N. Caldwell. (5)
10.9 A.P.S., Inc., Executive 401(k) Deferral Plan. (17)
10.10.1 Confirmation for U.S. Dollar Rate Swap Transaction, dated June 6, 1995,
among Nations Bank of Texas, N.A. and A.P.S., Inc. (12)
10.10.2 Confirmation of Conditions of Swap Transaction, dated June 6, 1995, among
Chemical Bank and A.P.S. (12)
10.10.3 Confirmation for U.S. Dollar Rate Swap Transaction, dated July 7, 1995,
among Bank of America National Trust and Savings Association and A.P.S.,
Inc. (13)
10.11 Purchase Agreement between A.P.S., Inc. and GKN Parts Industries
Corporation, dated December 5, 1995 (See item 2.2). (15)
10.12 Agreement of Sale By and Between The Parts Source, Inc. and A.P.S., Inc.,
dated as of October 22, 1996. (18)
10.13 Agreement of Sale By and Between Rankin Automotive Group, Inc., and Parts,
Inc., dated as of September 12, 1996. (18)
11.1 Statement re Computation of Income (Loss) per Share
12 Statement re Computation of Earnings to Fixed Charges
21 List of Subsidiaries of APS Holding
23.1 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
- --------------
(1) Incorporated by reference to the Exhibits filed with APS Holding's
Registration Statement on Form S-1 (Registration No. 33-36102).
37
<PAGE> 38
(2) Incorporated by reference to the Exhibits filed with APS Holding's Annual
Report on Form 10-K for the year ended January 26, 1991.
(3) Not used.
(4) Incorporated by reference to the Exhibits filed with APS Holding's Annual
Report on Form 10-K for year ended January 25, 1992.
(5) Incorporated by reference to the Exhibits filed with APS Holding's
Registration Statement on Form S-1 (Registration No. 33-66412).
(6) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended October 25, 1993.
(7) Incorporated by reference to the Exhibits filed with APS Holding's Annual
Report on Form 10-K for year ended January 29, 1994.
(8) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended April 25, 1994.
(9) Not used.
(10) Incorporated by reference to the Exhibits filed with APS Holding's Form
8-K, as amended, dated September 26, 1994.
(11) Not used.
(12) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended April 25, 1995.
(13) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended July 25, 1995.
(14) Incorporated by reference to the Exhibits filed with APS Holding's Form
8-K dated January 25,1996.
(15) Incorporated by reference to the Exhibits filed with APS Holding's Form
8-K/A dated January 25, 1996.
(16) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended April 25, 1996.
(17) Incorporated by reference to the Exhibits filed with APS Holding
Corporation's Registration Statement on Form S-8, Registration No.
333-10217.
(18) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended October 25, 1996.
38
<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
APS HOLDING CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Accountants ........................................... F-2
Consolidated Balance Sheets at January 25, 1997 and January 27, 1996 ........ F-3
Consolidated Statements of Operations for the years ended January 25, 1997,
January 27, 1996 and January 28, 1995 .................................... F-4
Consolidated Statement of Changes in Common Stockholders' Equity for the years
ended January 25, 1997, January 27, 1996 and January 28, 1995 ............ F-5
Consolidated Statements of Cash Flows for the years ended January 25, 1997,
January 27, 1996 and January 28, 1995 .................................... F-6
Notes to Consolidated Financial Statements .................................. F-7
Schedule I - Condensed Financial Information of APS Holding Corporation as of
January 25, 1997 and January 27, 1996 and for the years ended January 25,
1997, January 27, 1996 and January 28, 1995 ............................. F-26
Schedule II - Valuation and Qualifying Accounts for the years ended
January 25, 1997, January 27, 1996 and January 28, 1995 .................. F-27
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
APS Holding Corporation:
We have audited the consolidated financial statements and financial
statement schedules of APS Holding Corporation and Subsidiaries listed on the
index on page F-1 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of APS Holding
Corporation and Subsidiaries as of January 25, 1997 and January 27, 1996, and
the consolidated results of their operations and their cash flows for the years
ended January 25, 1997, January 27, 1996 and January 28, 1995 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements, during
the year ended January 27, 1996, the Company changed its methods of accounting
for impairment of long-lived assets and impairment of notes receivable.
The selected quarterly financial data in Note 12 contains information that
we did not audit, and, accordingly, we do not express an opinion on that data.
For reasons described in Note 12, we were unable to review the quarterly data
for the year ended January 25, 1997 in accordance with standards established by
the American Institute of Certified Public Accountants.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 27, 1997
F-2
<PAGE> 41
APS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
-------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 13,370 $ 7,886
Accounts and notes receivable, less allowance of
$11,164 and $5,048 ............................................ 103,168 120,848
Inventories ....................................................... 294,816 295,379
Deferred tax asset ................................................ 19,789 13,390
Prepaid expenses and other current assets ......................... 35,543 30,817
---------- ----------
Total current assets .................................... 466,686 468,320
Property and equipment, net ......................................... 44,483 40,777
Notes receivable, less current portion .............................. 21,615 26,235
Intangible assets, net .............................................. 47,073 50,627
Investment in available-for-sale securities ......................... 3,977 --
Deferred tax asset .................................................. -- 681
Deferred costs and other assets ..................................... 14,371 13,519
---------- ----------
$ 598,205 $ 600,159
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdrafts ................................................... $ 6,306 $ 8,314
Current maturities of long-term debt .............................. 15,471 13,453
Accounts payable .................................................. 106,927 103,214
Accrued liabilities ............................................... 44,359 40,655
---------- ----------
Total current liabilities ................................ 173,063 165,636
Long-term debt, less current maturities ............................. 305,941 302,512
Deferred tax liability .............................................. 1,339 --
Deferred income and other liabilities ............................... 3,293 7,981
---------- ----------
Total liabilities ........................................ 483,636 476,129
---------- ----------
Commitments and contingencies (Note 5) .............................. -- --
8% cumulative redeemable preferred stock, liquidation preference
$2.00 per share, authorized 10,000,000 shares; no shares
issued ....................................................... -- --
Stockholders' equity:
Class A common stock, par value $.01, authorized 20,000,000 shares;
issued 13,769,838 shares and 13,733,478 shares ............... 137 137
Class B common stock, par value $.01, authorized 20,000,000 shares;
no shares issued ............................................. -- --
Additional paid-in capital ........................................ 155,363 154,889
Accumulated deficit ............................................... (41,712) (30,876)
Treasury stock, 5,517 shares at cost .............................. (120) (120)
Unrealized gain on available-for-sale securities .................. 901 --
---------- ----------
Total stockholders' equity ......... 114,569 124,030
---------- ----------
$ 598,205 $ 600,159
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 42
APS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales ............................................ $ 858,739 $ 603,737 $ 523,508
Cost of goods sold ................................... 583,146 397,164 344,845
---------- ---------- ----------
Gross profit .................................... 275,593 206,573 178,663
Selling, general and administrative expenses ......... 271,754 171,210 145,722
Asset impairment and restructuring charge ............ -- 11,224 --
---------- ---------- ----------
Operating income ................................ 3,839 24,139 32,941
Interest income ...................................... 5,609 5,265 3,896
Other income ......................................... 1,765 1,535 1,535
---------- ---------- ----------
Income before interest expense, income taxes
and extraordinary item ........................ 11,213 30,939 38,372
Interest expense ..................................... 27,296 16,256 10,500
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item ............................ (16,083) 14,683 27,872
Provision (benefit) for income taxes ................. (5,247) 5,447 (4,495)
---------- ---------- ----------
Income (loss) before extraordinary item ......... (10,836) 9,236 32,367
Extraordinary item - charges resulting from
extinguishment of debt, net of income taxes (Note 4) -- (2,468) --
---------- ---------- ----------
Net income (loss) .................................... $ (10,836) $ 6,768 $ 32,367
========== ========== ==========
Income (loss) per common share:
Before extraordinary item ....................... $ (0.79) $ 0.67 $ 2.36
Extraordinary item .............................. -- (.18) --
---------- ---------- ----------
$ (0.79) $ 0.49 $ 2.36
========== ========== ==========
Weighted average common shares outstanding ........... 13,741 13,901 13,721
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 43
APS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------
(IN THOUSANDS)
<TABLE>
<CAPTION> CLASS A
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN ACCUMULATED TREASURY UNREALIZED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK GAIN EQUITY
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 29, 1994 ..... 13,404 $ 134 $ 146,638 $ (70,011) $ -- $ -- $ 76,761
Issuance of common stock ........ 324 3 8,207 -- -- -- 8,210
Acquisition of treasury stock ... (6) -- -- -- (120) -- (120)
Net income for the year ......... -- -- -- 32,367 -- -- 32,367
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at January 28, 1995 ..... 13,722 137 154,845 (37,644) (120) -- 117,218
Issuance of common stock ........ 6 -- 44 -- -- -- 44
Net income for the year ......... -- -- -- 6,768 -- -- 6,768
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at January 27, 1996 ..... 13,728 137 154,889 (30,876) (120) -- 124,030
Issuance of common stock ........ 36 -- 174 -- -- -- 174
Tax benefit associated with
stock options ................. -- -- 300 -- -- -- 300
Unrealized gain on available-for-
sale securities ............... -- -- -- -- -- 901 901
Net loss for the year ........... -- -- -- (10,836) -- -- (10,836)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at January 25, 1997 ..... 13,764 $ 137 $ 155,363 $ (41,712) $ (120) $ 901 $ 114,569
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 44
APS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ (10,836) $ 6,768 $ 32,367
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Extraordinary item .......................................... -- 2,468 --
Asset impairment and restructuring charge ................... -- 11,224 --
Depreciation and amortization ............................... 12,094 7,794 6,691
Amortization of debt discount and debt issue costs .......... 784 955 794
Gain on sale of stores ...................................... (1,343) -- --
Provision for bad debts ..................................... 9,472 3,786 2,766
Income from supply agreement ................................ (423) (1,535) (1,535)
Deferred income taxes ....................................... (4,955) 2,503 (6,009)
Tax benefit associated with stock options ................... 300 -- --
Change in operating assets and liabilities:
Accounts receivable ...................................... 8,036 (22,697) (15,676)
Inventories .............................................. 7,098 (42,283) (48,966)
Prepaid expenses and other current assets ................ (4,652) (6,343) (7,919)
Accounts payable ......................................... 3,713 449 31,731
Accrued liabilities ...................................... 152 (2,368) 5,638
Other assets and liabilities ............................. (5,117) (2,615) 639
---------- ---------- ----------
Net cash provided by (used in) operating activities .... 14,323 (41,894) 521
---------- ---------- ----------
Cash flows from investing activities:
Investment in notes receivable .................................. (11,572) (9,314) (12,664)
Proceeds from repayment of notes receivable ..................... 15,554 7,841 5,355
Investment in available-for-sale securities ..................... (2,500) -- --
Business acquisitions, net of cash acquired ..................... (7,928) (87,834) (35,574)
Proceeds from disposition of assets ............................. 4,843 -- --
Capital expenditures ............................................ (10,849) (8,422) (6,530)
---------- ---------- ----------
Net cash used in investing activities ....................... (12,452) (97,729) (49,413)
---------- ---------- ----------
Cash flows from financing activities:
Change in book overdrafts ....................................... (2,008) 8,314 --
Proceeds from issuance of common stock .......................... 174 44 --
Proceeds from term loans ........................................ -- 65,000 --
Net borrowings under revolving credit facility .................. 18,900 148,400 53,400
Proceeds from senior subordinated notes ......................... -- 100,000 --
Retirement of long-term debt .................................... (13,453) (167,968) (4,591)
Debt issuance costs ............................................. -- (6,296) (555)
---------- ---------- ----------
Net cash provided by financing activities ................... 3,613 147,494 48,254
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ................. 5,484 7,871 (638)
Cash and cash equivalents at beginning of period ..................... 7,886 15 653
---------- ---------- ----------
Cash and cash equivalents at end of period ........................... $ 13,370 $ 7,886 $ 15
========== ========== ==========
Supplemental disclosures:
Cash paid for interest .......................................... $ 25,070 $ 17,060 $ 9,197
========== ========== ==========
Cash paid for income taxes ...................................... $ 2,289 $ 5,223 $ 861
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE> 45
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL - APS Holding Corporation ("APS Holding") and its subsidiaries
(collectively referred to as the "Company") is a leading warehouse distributor
of automotive replacement parts in the United States supplying over 1,800 parts
stores owned by independent operators and approximately 300 company-owned
stores from a network of 28 distribution centers at January 25, 1997. In
addition, the Company operates over 270 mini-warehouses or Installers' Service
Warehouses ("ISW") which directly serve the needs of the professional
installer.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of APS Holding and its wholly-owned and majority-owned
subsidiaries except for those where control is expected to be temporary. All
significant intercompany balances have been eliminated.
FISCAL YEAR - The Company has adopted a fiscal year which ends on the last
Saturday in January.
CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
CUSTOMER NOTES RECEIVABLE -The Company adopted Statement of Financial
Accounting Standards No.'s 114 and 118, "Accounting By Creditors for Impairment
of a Loan" and "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" (hereinafter collectively referred to as "SFAS No.
114") in the first quarter of the fiscal year ended January 27, 1996 ("fiscal
1996"). Under SFAS No. 114, certain impaired loans are required to be measured
based either on the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. Because the
Company's customer notes receivable are generally collateral dependent, the
Company generally assesses the value of such impaired notes receivable based
upon the fair value of each note's underlying collateral. As a result, the
adoption of SFAS No. 114 did not result in any adjustment to the Company's
financial statements.
The adequacy of the allowance for losses on customer notes receivable is
periodically evaluated in order to maintain the allowance at a level that is
sufficient to absorb probable credit losses. Management's evaluation of the
adequacy of the allowance includes a review of each note's credit history, the
estimated value of collateral and other circumstances that may affect the
customer's ability to repay principal and interest. A customer's note
receivable is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the scheduled payments and other
contractual terms of the note. Impairment losses are included in the provision
for bad debts.
Interest payments on impaired customer notes receivable are typically
applied to principal unless collectibility of the principal amount is fully
assured, in which case interest income is recognized on the cash basis.
Customer notes receivable are generally classified as nonaccrual if they
are past due for 90 days or more, unless such notes are well-collateralized
and/or in the process of collection. Loans may be returned to accrual status
when all principal and interest amounts contractually due are reasonably
assured of repayment within an acceptable period of time, and there is a
sustained period of repayment performance for a minimum of three months.
F-7
<PAGE> 46
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
The following table summarizes impaired loan information (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
------------ ------------
<S> <C> <C>
Impaired customer notes receivable with no loss reserves ... $ 6,029 $ 432
Impaired customer notes receivable with loss reserves ...... -- --
------------ ------------
Total impaired customer notes receivable ................... $ 6,029 $ 432
============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27,
1997 1996
---------- ----------
<S> <C> <C>
Average investment in impaired customer notes receivable ... $ 5,975 $ 2,179
Interest income recognized on impaired loans ............... 523 141
Cash basis interest income recognized on impaired loans .... 184 80
</TABLE>
An analysis of the allowance for credit losses follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of period ............................... $ 350 $ 500
Provisions charged to operating expense ...................... 25 350
Loans charged off, net of recoveries ......................... -- (500)
------------ ------------
Balance at end of period ..................................... $ 375 $ 350
============ ============
</TABLE>
INVENTORIES - Inventories, which consist of finished goods, are carried at
the lower of cost (FIFO) or market. Reserves are maintained for anticipated
customer returns and allowances.
The cost of inventory at Company-owned stores includes overhead costs
incurred by the Company's distribution centers to prepare and ship inventory to
such stores. During the year ended January 25, 1997, the Company refined
its estimate of the rate used to capitalize overhead costs in store inventory.
Such change in estimate resulted in an increase in capitalized overhead in
Company-owned store inventory of approximately $1.7 million at January 25,
1997.
VENDOR INCENTIVES - The Company receives from certain of its suppliers
volume rebates in connection with its inventory purchases as well as discounts
relating to the initial inventory purchased for a new ISW unit. These rebates
and discounts are treated as a component of inventory cost and are recorded to
cost of goods sold over an aggregate inventory turn.
In addition, the Company receives from certain of its suppliers discounts
and allowances designated for advertising, promotional and discounting
activities as well as one-time changeover incentives for changing suppliers on
certain product categories. Such discounts and allowances are recorded to cost
of goods sold when earned. Product changeover incentives are recorded to
selling, general and administrative expenses to offset direct and indirect
costs incurred to carry out the product changeover. Selling, general and
administrative expenses for the year ended January 25, 1997 have been reduced
by the recognition of one-time supplier changeover and acquisition incentives
in the amount of approximately $12.1 million. Such incentives were provided in
connection with the acquisition and integration of Parts, Inc. into the
Company. See Note 2.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost or, in
the case of real property under capital leases, at cost or the present value of
future minimum lease payments. Expenditures for major renewals and betterments,
F-8
<PAGE> 47
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
which extend the original estimated economic useful lives of the applicable
assets, are capitalized. Expenditures for normal repairs and maintenance are
charged to expense as incurred. The cost and accumulated depreciation of assets
sold or otherwise disposed of are removed from the accounts and any gain or
loss thereon is reflected in operations currently.
Upon the decision to close facilities, the Company records a provision to
write down the fixed assets at such facilities to be closed to their net
realizable value. Furthermore, a provision is established at that time to
reserve for estimated future lease costs and related obligations.
Depreciation and amortization, including amortization of real property
leased under capital leases, are computed on a straight-line basis over the
estimated useful lives of the assets or the remaining terms of the leases.
Depreciation and amortization expense for property and equipment totalled $6.4
million, $4.6 million and $3.7 million for fiscal years ended January 25, 1997,
January 27, 1996 and January 28, 1995, respectively. A summary of the cost of
property and equipment and the estimated useful lives for financial reporting
purposes is as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996 ESTIMATED LIVES
------------ ------------ ---------------
<S> <C> <C> <C>
Land .................................. $ 4,034 $ 4,681
Buildings and improvements ............ 12,603 12,502 30 years
Furniture and fixtures ................ 16,003 16,138 10 years
Leasehold improvements ................ 7,964 7,616 2-25 years
Machinery and equipment ............... 24,013 18,929 5-15 years
Real property under capital lease ..... 1,044 1,355 2-10 years
Construction in progress .............. 2,771 19
------------ ------------
68,432 61,240
Accumulated depreciation and
amortization:
Property and equipment ............ (23,086) (19,413)
Capital leases .................... (863) (1,050)
------------ ------------
$ 44,483 $ 40,777
============ ============
</TABLE>
INTANGIBLE ASSETS - Intangible assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996 ESTIMATED LIVES
------------ ------------ ---------------
<S> <C> <C> <C>
Excess of purchase price over fair value
of net assets acquired ............... $ 34,192 $ 32,274 5-40 years
Associate jobber network ............... 18,600 18,600 30 years
Leasehold equity ....................... 4,106 10,204 2-23 years
Other intangible assets ................ 113 3,613 9 years
------------ ------------
57,011 64,691
Accumulated amortization ............... (9,938) (14,064)
------------ ------------
$ 47,073 $ 50,627
============ ============
</TABLE>
Intangible assets are amortized on a straight-line basis over the
estimated life. Amortization expense for intangible assets totalled $2.7
million, $2.2 million and $2.0 million for fiscal years ended January 25, 1997,
January 27, 1996 and January 28, 1995, respectively. Included in other
intangible assets at January 27, 1996 is $3.5 million attributed to certain
F-9
<PAGE> 48
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
trademarks acquired in the acquisition of Parts, Inc. In February 1996, the
Company sold its interest in such trademarks for $3.5 million.
Prior to the fourth quarter of fiscal 1996, intangible assets were
assessed for impairment based on estimated undiscounted future operating
income. In the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, entitled "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed of" ("SFAS No.
121"), which requires evaluation of impairment based on undiscounted future
cash flows. If such cash flows are not expected to recover the unamortized
cost, the intangible assets are written down to fair value. The Company charged
off $1.6 million of excess purchase price over fair value of net assets and
$0.6 million of property and equipment upon the adoption of SFAS No. 121 in
fiscal 1996.
INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES - Securities to be held for
indefinite periods of time, including securities that may be sold in response
to changes in interest rates or other similar factors, are classified as
available-for-sale and are carried at fair value. Fair values of securities are
estimated based on available market quotations. Unrealized holding gains and
losses, net of taxes, on available-for-sale securities are reported as a
separate component of shareholders' equity until realized. Realized gains and
losses upon the sale of available-for-sale securities are determined using the
specific identification method.
The Company reviews its financial position, liquidity and future plans in
evaluating the criteria for classifying investment securities. Securities are
classified among categories at the time the securities are purchased. Declines
in the fair value of individual available for sale securities below their cost
that are other than temporary would result in write-down of the individual
securities to their fair value. The Company did not have any unrealized losses
at January 25, 1997.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS - The Company capitalizes costs to
develop software for internal use once conceptual formulation, design and
testing on each software project have been successfully completed. Such costs
capitalized generally include professional services rendered by third parties,
internal payroll and payroll-related costs for time spent directly on the
project, and interest costs incurred while developing internal-use software.
Software costs capitalized for the year ended January 25, 1997 were $3.6
million, $0.8 million of which were recorded as deferred costs and $2.8 million
of which were recorded as fixed assets - construction in progress in the
accompanying consolidated balance sheet. Upon completion of each software
project, the Company plans to amortize each project's capitalized cost for up
to seven years.
DEBT ISSUE COSTS - Debt issue costs relating to the Company's long-term
debt are included in deferred costs and other assets and are amortized to
interest expense over the scheduled maturity of the debt utilizing the interest
method. Unamortized debt issue costs relating to long-term debt retired prior
to its scheduled maturity are charged off as an extraordinary item. During the
fiscal year ended January 27, 1996, $2.5 million, net of income taxes, was so
charged off.
BOOK OVERDRAFTS - Certain of the Company's cash balances reflect credit
balances to the extent that checks written have not yet been presented to banks
for payment. Such balances are classified as "Book overdrafts" in the Company's
consolidated balance sheet.
INCOME TAXES - The Company utilizes the liability method of accounting for
income taxes. Deferred income taxes are recognized for the tax consequences in
future years of differences in the tax basis of assets and liabilities and
their financial reporting amounts based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. A valuation allowance is established when necessary to reduce
deferred income tax assets to an amount that is more likely than not expected
to be realized.
F-10
<PAGE> 49
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
REVENUE RECOGNITION - The Company records sales when its products are
shipped. A reserve is maintained for anticipated returns and allowances, based
primarily on historical experience and current estimates.
INTEREST RATE SWAPS - The Company uses interest rate swap agreements to
hedge interest costs and risks associated with variable interest rates. Such
agreements were not entered into for trading purposes and involve the exchange
of fixed and floating rate interest payments over the life of the agreement
without the exchange of the underlying principal amounts. The differential to
be paid or received is accrued as interest rates change and is recognized over
the life of the agreements as an adjustment to interest expense.
INCOME (LOSS) PER SHARE - Income (loss) per share is based on the weighted
average number of shares of common stock outstanding during each period after
the consideration of the dilutive effect of stock options.
MANAGEMENT'S 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 and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from these estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
years' financial statements to conform to the current year presentation. The
reclassifications did not affect net income (loss), stockholders' equity or
cash flows for any period.
NEW ACCOUNTING STANDARDS -The Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 125, entitled
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" ("SFAS No. 125"), in June 1996 and subsequently amended it by
issuing Statement of Financial Accounting Standards No. 127, entitled "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125" ("SFAS
No. 127", and together with SFAS No. 125, "Amended SFAS 125". Amended SFAS 125
requires the Company to adopt a financial-components approach for transfers
and servicing of financial assets and extinguishments of liabilities. Under
such approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. Amended SFAS 125 also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The Company will adopt
Amended SFAS 125 for certain transactions occurring after December 31, 1997.
The adoption of Amended SFAS 125 is not expected to have a significant effect
upon the Company's Consolidated Financial Statements.
The FASB issued Statement of Financial Accounting Standards No. 128,
entitled "Earnings per Share" ("SFAS No. 128"), in February 1997. SFAS No. 128
requires standards to replace the presentation of primary earnings per share
("EPS") with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures. The Company is required to adopt the computation,
presentation and disclosure requirements of SFAS No. 128 for the fiscal year
ending January 31, 1998. The adoption of SFAS No. 128 is not expected to have a
significant effect upon the Company's Consolidated Financial Statements.
The FASB also issued Statement of Financial Accounting Standards No. 129,
entitled "Disclosure of Information about Capital Structure" ("SFAS No. 129"),
in February 1997. SFAS No. 129 establishes standards for disclosing information
about an entity's capital structure. The Company is required to adopt the
disclosure requirements of SFAS No. 129 for the fiscal year ending January 31,
1998. The adoption of SFAS No. 129 is not expected to have a significant effect
upon the Company's Consolidated Financial Statements.
F-11
<PAGE> 50
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
2. COST TO EXIT ACTIVITIES:
On January 25, 1996, the Company acquired all of the outstanding stock of
Parts, Inc. ("PI") from GKN Parts Industries Corporation ("GKN") for a purchase
price, as adjusted, of $74.9 million (the "PI Acquisition"). The PI Acquisition
was accounted for as a purchase and, accordingly, the purchase price was
allocated to PI's assets and liabilities based on the estimated fair value as
of the date of acquisition. Such liabilities included $9.2 million of costs to
exit PI facilities. The excess purchase price over the estimated fair value of
identifiable net assets acquired was approximately $18.2 million and is being
amortized using the straight-line method over 30 years. PI's results of
operations for the two days between the consummation of the PI Acquisition and
the Company's fiscal year end were immaterial to the Company's results of
operations for the fiscal year ended January 27, 1996.
Following the PI Acquisition, the Company implemented a comprehensive plan
for integrating PI's operations and administrative functions with those of the
Company. Such plan entailed the closure of certain PI distribution centers and
stores and consolidation of these operations into the Company's remaining
facilities, as well as the consolidation of certain administrative functions.
The Company's financial statements at January 27, 1996 included a liability and
reserves of $9.2 million for costs related to such plan. Such costs included
estimates of approximately $4.3 million to close facilities (including $2.6
million of employee termination and relocation benefits), approximately $3.3
million for future lease and related obligations and approximately $1.6 million
for asset write-offs. During the year ended January 25, 1997, the Company
charged approximately $6.4 million against such liability and reserves,
including approximately $2.4 million of employee termination and relocation
costs.
In connection with the PI Acquisition, the Company also embarked upon a
program during the fourth quarter of the fiscal year ended January 27, 1996 to
review and rationalize its facilities. Such program included consolidation of
redundant operating and administrative facilities, owned by the Company prior
to the PI Acquisition, into existing facilities and closing other nonperforming
facilities. The Company has attained a majority of the program's objectives
during the year ended January 25, 1997 and expects final completion of the
program during the fiscal year ending January 30, 1999. The Company's financial
statements at January 27, 1996 included a liability in the amount of $5.5
million for costs related to such program, including approximately $0.5 million
of employee severance benefits related to personnel reductions of approximately
300 employees, primarily warehouse and store personnel. During the year ended
January 25, 1997, the Company charged approximately $3.4 million of closure and
consolidation costs against such liability, including approximately
$0.1 million of employee severance benefits for 133 terminated employees.
F-12
<PAGE> 51
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
3. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
------------ ------------
<S> <C> <C>
Payroll, benefits and related items ........... $ 12,087 $ 12,204
Facility closure reserves ..................... 7,970 7,655
Insurance reserves ............................ 4,763 5,785
Interest ...................................... 1,748 323
Customer return reserves ...................... 3,413 2,986
Customer rebates and discount ................. 3,823 2,787
Advertising and sales promotion ............... 1,418 736
Other ......................................... 9,137 8,179
------------ ------------
$ 44,359 $ 40,655
============ ============
</TABLE>
4. DEBT:
Components of Long-term Debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
New Credit Agreement:
Term Loans, payable in installments through 1999 ....... $ 52,000 $ 65,000
Revolving Credit Facility, payable in 2000 ............. 167,300 148,400
11.875% Senior Subordinated Notes due 2006 ............... 100,000 100,000
Note payable, related party (Note 11) .................... 992 1,023
Other .................................................... 1,120 1,542
------------ ------------
321,412 315,965
Less current maturities .................................. (15,471) (13,453)
------------ ------------
$ 305,941 $ 302,512
============ ============
</TABLE>
New Credit Agreement
Concurrently with the PI Acquisition, APS entered into an amended and
restated senior bank credit agreement (the "New Credit Agreement") with a
syndicate of bank lenders, led by The Chase Manhattan Bank, formerly known as
Chemical Bank (the "1996 Refinancing"). The New Credit Agreement replaced the
credit facilities previously made available to the Company under the credit
agreement entered into by the Company in September 1993 (as amended, the
"Previous Credit Agreement"). Pursuant to the New Credit Agreement, the $165.0
million revolving credit facility existing under the Previous Credit Agreement
was increased to $235.0 million, with a final maturity date of December 31,
2000, and the $75.0 million term loan facilities existing under the Previous
Credit Agreement were consolidated into one term loan facility of $65.0 million
with a final maturity date of December 31, 1999. Undrawn amounts under the
revolving credit facility, net of the aggregate face amount of letters of
credit outstanding under the New Credit Agreement, may be used for working
capital and other business needs, subject to compliance with a borrowing base
requirement and other customary borrowing conditions. Borrowing availability
under the New Credit Agreement at January 25, 1997 after taking into account
borrowing
F-13
<PAGE> 52
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
base restrictions and outstanding letters of credit was $32.2 million. The
Company has letters of credit of approximately $8.4 million outstanding under
the New Credit Agreement in connection with insurance arrangements and in
connection with the guarantee of equipment leases and loan obligations for
certain of the Company's associated jobbers. The obligations under the New
Credit Agreement are collateralized by pledges of and security interests in
substantially all the Company's owned real property and personal property,
including the capital stock of A.P.S., Inc. and its wholly-owned subsidiaries.
The New Credit Agreement contains customary covenants which require, among
other things, that the Company (1) restrict the payment of dividends, (2)
restrict the incurrence of indebtedness, and (3) maintain minimum levels of net
worth and comply with certain financial ratios, as defined therein. Certain
provisions of the New Credit Agreement prohibit the subsidiaries of APS Holding
from making or paying any loans, advances or cash dividends to APS Holding,
other than to allow it to pay certain expenses, taxes and other limited amounts
in respect of the operation of its business. Substantially all of the Company's
net assets are restricted under such provisions. Effective as of January 25,
1997, the Net Worth covenant requirement of the New Credit Agreement was
amended to lower the minimum required Net Worth amount from $115.0 million to
$109.8 million.
The Company has the option to borrow under the New Credit Agreement at an
alternate base rate plus 0.00%-0.75% or at a Eurodollar rate plus 1.00%-1.50%
(subject in each case to adjustment based on the Company attaining certain
financial ratios). The Company's weighted average interest rate for the
Company's combined borrowings under its credit agreements was 7.23% at January
25, 1997 and 7.08% at January 27, 1996. There is a commitment fee on the unused
portion of the revolving credit facility ranging from 0.375% to 0.5% depending
on certain of the Company's financial ratios. As a result of the 1996
Refinancing, the Company recorded an extraordinary charge of $2.5 million,
consisting of the write-off of unamortized debt issue costs of $3.9 million,
net of an income tax benefit of $1.4 million.
Senior Subordinated Notes
The PI Acquisition was financed through the private placement of $100.0
million principal amount of the Company's senior subordinated notes (the
"Notes"). The net proceeds from the sale of the Notes were used to pay the
approximately $79.7 million cash payment at closing for the PI Acquisition, to
pay related fees and expenses and to repay a portion of the borrowings under
the Previous Credit Agreement. The Notes mature on January 15, 2006 and
currently bear interest at a rate of 11.875%, payable semiannually on January
15 and July 15 of each year. During the year ended January 25, 1997, the
Company filed a registration statement with the Securities and Exchange
Commission (the "SEC"), pursuant to which it made and completed an offer to
exchange registered Notes for all of the initially issued Notes.
Guarantee of Long-term Debt
APS Holding and all of the current wholly-owned subsidiaries of A.P.S.,
Inc. (the "Subsidiaries") have jointly and severally guaranteed the payment of
A.P.S., Inc.'s obligations under the Notes and the New Credit Agreement.
Separate financial statements of A.P.S., Inc. and the Subsidiaries are not
presented herein because the Subsidiaries have jointly and severally guaranteed
payment of A.P.S., Inc.'s obligations under the Notes and because the aggregate
assets, liabilities, net income and equity of A.P.S., Inc. and the Subsidiaries
are substantially equivalent to the assets, liabilities, net income and equity
of APS Holding on a consolidated basis.
F-14
<PAGE> 53
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
Long-term Debt Maturities
The aggregate maturities of long-term debt for the fiscal years subsequent
to the fiscal year ended January 25, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 . . . . . . . . . . . . . . . . $ 15,471
1999 . . . . . . . . . . . . . . . . 17,434
2000 . . . . . . . . . . . . . . . . 20,322
2001 . . . . . . . . . . . . . . . . 167,341
2002 . . . . . . . . . . . . . . . . 45
Thereafter . . . . . . . . . . . . . . 100,799
---------
$ 321,412
=========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various claims and disputes arising in the
normal course of business. One such case involved the matter of Jo M. Smith et
al v. A.P.S., Inc. et al, which was filed in July 1994 in the District Court of
Harris County, Texas. The plaintiffs (four former and one existing employee)
claimed to have been the recipients of acts of intimidation and/or retaliatory
conduct as a result of their filing of workers' compensation claims and filed
this suit against the Company and one of its officers under various sections of
Texas state statutes prohibiting such actions, claiming aggregate specified
actual damages of $3.2 million, punitive damages of $6.3 million and damages
for emotional distress of $5.0 million. Such suit was settled during the fiscal
year ended January 25, 1997 for an aggregate $350,000 payment to the plaintiffs
and is reflected in the Company's results of operations for the fiscal year
ended January 25, 1997.
The Company has become a party to a number of pre-existing litigation
matters and claims as a result of the PI Acquisition. Among those cases is the
matter of Karon S. Adkisson v. GKN Parts Industries Corporation (the "Adkisson
Case"), a suit filed in the United States District Court for the Western
District of Oklahoma. The plaintiff, a former employee of PI, alleged several
claims against PI, including violation of Title VII of the Civil Rights Act of
1964 and the negligent retention and supervision of its employees as a result
of being raped by a fellow employee, who has been convicted of that crime. This
matter was resolved during the fiscal year ended January 25, 1997 with a
structured settlement at a cost of $395,000. Such amount was charged against a
reserve created at the time of the PI Acquisition for litigation related
matters and, therefore, had no impact upon the Company's results of operations
for the fiscal year ended January 25, 1997.
The Company is also a defendant in the matter of Barry S. Lamm and Lamm
Auto Stores, Inc. v. Parts, Inc., Parts Plus, et al, which was filed in The
Circuit Court of Mobile County, Alabama on June 21, 1996. The plaintiff in such
case seeks both compensatory and punitive damages in making a number of claims,
including both willful and reckless misrepresentation, suppression of material
fact, promissory fraud (all in violation of the Code of Alabama), and
conspiracy, breach of contract and intentional interference with contractual or
business relationships, all in connection with the operation of an automotive
parts business by the plaintiff while a customer of Parts, Inc. Discovery has
just commenced in such action. The Company believes that the costs of defending
such action as well as any loss that could be sustained by the Company as a
result of an adverse decision in such action, are the subject of a contractual
indemnification by GKN. The Company has made a claim for indemnity to GKN,
which has neither been accepted nor denied.
F-15
<PAGE> 54
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
Environmental
The Company has been notified that it is considered a potentially
responsible party in connection with federal or state environmental clean-up
investigations at a landfill location, which is a "Superfund" site identified
on the National Priorities List of the Environmental Protection Agency in
connection with the Comprehensive Environmental Response, Compensation and
Liability Act of 1980. The Company has not incurred, and does not expect to
incur, any material liability, either individually or in the aggregate, in
connection with this site, although no assurance can be given in this regard.
In addition, the Company is aware of investigations of two other
locations, including one site formerly operated by a former A.P.S., Inc.
subsidiary. In part because these investigations are in the preliminary stages,
the Company cannot currently estimate what liabilities, if any, it may have
with respect to these matters. The Company believes that, pursuant to an
agreement with Wickes Companies, Inc. ("Wickes") (the predecessor parent
company of A.P.S., Inc., now an indirect wholly owned subsidiary of Collins &
Aikman Corporation), Wickes will be required to indemnify the Company against
any liabilities associated with such former A.P.S., Inc. subsidiary's
operations. Since the divestiture from Wickes, the Company has not incurred any
material liabilities in connection with any matter for which Wickes has
indemnified the Company, nor has the Company experienced any difficulties in
obtaining appropriate indemnification for such matters as have arisen. The
Company believes, however, that Wickes may be a highly leveraged entity, and
there can be no assurance that the Company will not experience any such
difficulties in the future.
Leases
The Company has entered into operating and capital leases for land,
buildings and equipment. Certain land and building leases provide that the
Company pay taxes, maintenance, insurance and other occupancy expenses
applicable to the leased premises. Additionally, certain vehicle and equipment
leases provide for short lease terms with month to month renewal options and
guaranteed residual clauses. Generally, the leases provide for renewal for
various periods at stipulated rates. Rental expense for the years ended January
25, 1997, January 27, 1996 and January 28, 1995 was approximately $28.8
million, $17.2 million and $11.3 million, respectively.
Future minimum lease payments under capital leases and noncancellable
operating leases (net of sublease rental income of $1.4 million) as of January
27, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
Fiscal Year LEASES LEASES
- ----------- ------- ---------
<S> <C> <C>
1998 ..................................... $ 239 $19,352
1999 ..................................... 163 14,660
2000 ..................................... 64 10,355
2001 ..................................... -- 6,428
2002 ..................................... -- 3,310
Thereafter ............................... -- 4,954
------- -------
Total minimum obligations ................ 466 $59,059
=======
Less estimated interest .................. (59)
-------
Present value of net minimum obligations . 407
Less current portion ..................... 207
-------
Long-term obligations under capital leases $ 200
=======
</TABLE>
F-16
<PAGE> 55
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
Concentration of Credit Risk
The Company is engaged in the distribution of automotive replacement parts
and accessories. Approximately 53% of the Company's sales for the fiscal 1997
were derived from independently owned jobbers that participate in the "Big A
Program." The remaining 47% of sales are derived from company-owned stores and
warehouses that sell automotive replacement parts and accessories to service
stations, repair shops, garages, dealers, farmers, fleet operators, retail
consumers and other customers. Allowances are maintained for potential credit
losses on customer accounts which generally do not require collateral. No
single customer accounted for more than 2% of the Company's total sales in
either of the fiscal years ended January 25, 1997, January 27, 1996 or January
28, 1995.
Most major categories of automotive replacement parts have more than one
competitive supplier. However, the Company typically sources each of its Big A
program product lines from one supplier and in many cases is its supplier's
largest customer. Management believes that alternative sources are available
for each of the Company's Big A program product lines.
The Company invests its excess cash in unsecured commercial paper issued
by a major bank. Such cash investments totalled approximately $138,000 at
January 25, 1997 and $23,000 at January 27, 1996.
Notes receivable are comprised of finance arrangements whereby the Company
offers financial assistance to its associated jobbers for inventory purchases
and, to a lesser extent, for general working capital needs. Such notes
receivable are generally collateralized by the business assets including
inventories and guarantees from the principals of the borrowers. Such notes
generally have extended terms for up to ten years and have interest rates at
two to three percent above a floating prime rate (8.5% at January 25, 1997 and
January 27, 1996, respectively). As of January 25, 1997, the average initial
loan principal balance was approximately $185,000 and the largest loans in the
portfolio were to three associated jobbers who had, in the aggregate,
outstanding principal balances of $2.5 million, $1.4 million and $0.7 million,
respectively.
During fiscal 1996, the Company entered into interest rate swap agreements
to hedge interest costs and risks associated with variable interest rates. Such
agreements effectively convert variable-rate debt to fixed-rate debt with an
effective per annum interest rate of approximately 7.1%. The aggregate notional
principal amount of these agreements is $100.0 million, $75.0 million of which
became effective in June 1995 and matures in June 1997 and $25.0 million of
which became effective in January 1996 and matures in January 1998. The
counterparties to such agreements are major financial institutions and,
therefore, credit losses from counterparty nonperformance are not anticipated.
Other Contingencies
Certain of the Company's customers finance a portion of their inventories
through financial institutions. Under the terms of the arrangements with these
financial institutions, the Company may be required, in limited circumstances,
to repurchase inventory collateralizing the borrowings.
F-17
<PAGE> 56
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
6. INCOME TAXES:
The components of deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts ................................ $ 3,518 $ 1,377
Inventories ............................................ 6,953 5,279
Intangible assets ...................................... 1,444 1,365
Accrued expenses ....................................... 4,494 6,734
Deferred income ........................................ 432 579
Other liabilities ...................................... 797 1,096
Net operating loss carryforwards ....................... 4,824 --
------------ ------------
22,462 16,430
------------ ------------
Deferred tax liabilities:
Property and equipment ................................. 1,728 1,355
Prepaid pension cost ................................... 1,008 1,004
Unrealized gain on securities available for sale ....... 576 --
Deferred costs ......................................... 700 --
------------ ------------
4,012 2,359
------------ ------------
Net deferred tax asset ..................................... $ 18,450 $ 14,071
============ ============
</TABLE>
Management believes that it is more likely than not that sufficient future
taxable income will be generated to realize the net deferred tax asset and,
therefore, no valuation allowance was recorded for the years ended January 25,
1997 and January 27, 1996.
The components of income tax expense (benefit) for the years ended January
25, 1997, January 27, 1996 and January 28, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current federal income tax provision (benefit) ......... $ (525) $ 1,283 $ 648
Current state income tax provision ..................... 233 206 866
Deferred federal income tax provision (benefit) ........ (4,955) 2,503 (6,009)
------------ ------------ ------------
(5,247) 3,992 (4,495)
Tax benefit applicable to extraordinary item ........... -- 1,455 --
------------ ------------ ------------
$ (5,247) $ 5,447 $ (4,495)
============ ============ ============
</TABLE>
F-18
<PAGE> 57
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
A reconciliation of the Company's income tax expense (benefit) and the
amount computed by applying the statutory federal income tax rate to income
before income taxes and extraordinary item for the years ended January 25,
1997, January 27,1996 and January 28, 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory tax rate ............................... (35.0)% 35.0% 35.0%
State income taxes, net of federal benefit ....... 1.4 1.2 2.0
Other items ...................................... 1.0 0.9 --
Recognition of deferred tax asset, net of
amount applicable to extraordinary item ...... -- -- (53.1)
------------ ------------ ----------
(32.6)% 37.1% (16.1)%
============ ============ ==========
</TABLE>
As of January 25, 1997, the Company had an estimated net operating loss
carryforward for income tax reporting purposes of $13.8 million which will
expire in fiscal year 2012.
7. STOCK OPTION PLANS:
In March 1990, APS Holding's board of directors approved the APS Holding
Corporation 1990 Employee Stock Option Plan (the "1990 Stock Option Plan"). The
1990 Stock Option Plan, as amended, reserved up to 126,316 shares of Class A
Common Stock and is available to certain officers and key employees of the
Company. Unless otherwise specified, options granted under the 1990 Stock
Option Plan are exercisable for up to ten years at an exercise price of $7.125
per share. Stock option activity under the 1990 Stock Option Plan was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, 1997 JANUARY 27, 1996 JANUARY 28, 1995
---------------- ---------------- ----------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise Shares
Outstanding Price Outstanding Price Outstanding
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Options outstanding, beginning of year ........... 65,459 $ 7.13 71,866 $ 7.13 88,708
Granted .......................................... -- -- -- -- --
Exercised ........................................ (6,893) 7.13 (6,189) 7.13 (16,842)
Terminated ....................................... -- -- (218) 7.13 --
------------ ------------ ------------ ------------ ------------
Options outstanding, end of year ................. 58,566 7.13 65,459 7.13 71,866
============ ============ ============ ============ ============
Available for grant at end of year ............... 37,826 37,826 37,608
============ ============ ============
Exercisable at end of year ....................... 58,566 $ 7.13 65,459 $ 7.13 62,069
============ ============ ============ ============ ============
</TABLE>
In March 1993, APS Holding's board of directors adopted, and APS Holding's
stockholders subsequently approved, the APS Holding Corporation 1993 Stock
Option Plan (the "1993 Stock Option Plan"). The 1993 Stock Option Plan, as
amended, reserved up to 700,000 shares of Class A Common Stock and is available
to key employees (including officers and directors who are also key employees)
of the Company. Options may be granted in the form of either incentive options
within the meaning of Section 422(b) of the Internal Revenue Code of 1986
("Incentive Stock Options") or options which do not constitute Incentive Stock
Options. The exercise price of Incentive Stock Options may not be less than the
fair market
F-19
<PAGE> 58
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
value of Class A Common Stock on the date of grant. The exercise price of
options which do not constitute Incentive Stock Options may not be less than
50% of the fair market value of Class A Common Stock on the date of grant.
Unless otherwise specified, options granted under the 1993 Stock Option Plan
become exercisable in 20% increments on each of the first five anniversaries of
the date of grant. Each option shall terminate and shall not be exercisable on
or after the tenth anniversary of its date of grant. All options granted
through January 25, 1997 vest in increments of one-third or one-fifth per
year. For options issued during the year ended January 29, 1994, deferred
compensation, representing the difference between the option price and
estimated fair market value of the stock at the date of grant, was
approximately $97,000 and was charged to operations over the three year vesting
period of such options. The amount of compensation expense for the years ended
January 25, 1997, January 27, 1996 and January 28, 1995 was approximately
$9,000, $32,000 and $32,000, respectively. Stock option activity under the 1993
Stock Option Plan was as follows:
<TABLE>
<CAPTION>
JANUARY 25, 1997 JANUARY 27, 1996 JANUARY 28, 1995
---------------- ---------------- ----------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise Shares
Outstanding Price Outstanding Price Outstanding
----------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Options outstanding, beginning of year ........... 350,620 $ 16.63 258,040 $ 12.02 162,295
Granted .......................................... 163,399 16.87 93,610 29.50 104,453
Exercised ........................................ (29,474) 5.26 -- -- --
Terminated ....................................... (65,654) 23.90 (1,030) 29.50 (8,708)
------------ ------------ ------------ ------------ ------------
Options outstanding, end of year ................. 418,891 $ 16.39 350,620 $ 16.63 258,040
============ ============ ============ ============ ============
Available for grant at end of year ............... 251,635 42,362 134,942
============ ============ ============
Exercisable at end of year ....................... 172,194 $ 9.89 164,510 $ 7.17 89,128
============ ============ ============ ============ ============
Weighted-average fair value of options
granted during the year ........................ $ 7.25 $ 13.49
============ ============
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, entitled "Accounting for Stock-Based Compensation" ("SFAS No. 123") which
is effective for the Company's fiscal year ending January 25, 1997. SFAS No.
123 establishes financial accounting and reporting standards for stock-based
employee compensation plans. It defines a fair value based method of accounting
for an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans and include the cost in the income statement as compensation
expense. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, entitled "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25"). The Company accounts for
compensation cost for stock option plans in accordance with APB Opinion No. 25.
The fair value of each stock option granted is estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants for the years ended January 25, 1997
and January 27, 1996, respectively: dividend yield of 0.00%; risk-free interest
rates from 5.59% to 6.97%; the expected lives of the options are 5 or 6 years,
depending on vesting schedules; and volatility of 32.95% for all grants.
F-20
<PAGE> 59
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
The following table summarizes information about stock options outstanding
at January 25, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contribution Exercise Exercisable Exercise
Exercise Prices at 1/25/97 Life Price at 1/25/97 Price
- ----------------- ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C>
$ 3.56 to $ 5.25 117,017 5.96 $ 3.56 117,017 $ 3.56
$ 5.25 to $ 8.00 58,565 4.41 7.13 58,565 7.13
$ 12.00 to $18.00 124,553 9.20 15.73 7,096 15.50
$ 18.00 to $27.00 92,911 7.76 21.51 31,184 21.67
$ 27.01 to $29.50 84,411 8.23 29.50 16,882 29.50
- ----------------- ------------ ------------ ------------ ------------ ------------
$ 3.56 to $29.50 477,457 7.38 $ 15.25 230,744 $ 9.18
================= ============ ============ ============ ============ ============
</TABLE>
Had the compensation cost for the Company's stock-based compensation plan
been determined consistent with SFAS No. 123, the Company's net income and net
income per common share for the fiscal years ended January 25, 1997 and January
27, 1996 would approximate the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
(In thousands,
except per share data)
<S> <C> <C>
Net (loss) income - as reported .................. $ (10,836) $ 6,768
Net (loss) income - pro forma .................... (11,198) 6,575
(Loss) earnings per share - as reported .......... $ (0.79) $ 0.49
(Loss) earnings per share - pro forma ............ (0.81) 0.47
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards issued
prior to fiscal year ended January 27, 1996. Accordingly, as most of the
options vest over either a three or five year period, the full impact of the
pro forma disclosure will not be reflected until fiscal years ending January
31, 1998 and January 29, 2000, respectively.
9. RETIREMENT PLANS:
The Company has two defined benefit plans, the A.P.S., Inc. Employees'
Retirement Plan (the "APS Plan") and the A.P.S., Inc. Master Hourly Plan,
formerly "The Mid-Con Corporation Retirement Income Plan" (the "Master Hourly
Plan") (collectively referred to as the "Plans"). These defined benefit pension
plans cover substantially all full-time employees who have completed one year
of service and reached the age of 21. Generally, benefits are based on years of
service and the employees' average final compensation integrated with Social
Security Benefits as defined in the Plans' agreements. The Company's funding
policy is to contribute to the Plans such amounts as are actuarially required
to fund the benefits of the Plans. In September 1992, A.P.S., Inc.'s Board of
Directors authorized a freeze of pension benefits offered under the APS Plan
and participants in the APS Plan became fully vested.
F-21
<PAGE> 60
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
The components of pension income are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost ....................... $ 11 $ 8 $ 15
Interest cost ...................... 379 392 402
Return on plan assets .............. 287 (1,907) 1,027
Net amortization and deferral ...... (809) 1,503 (1,564)
------------ ------------ ------------
$ (132) $ (4) $ (120)
============ ============ ============
</TABLE>
A reconciliation of the Plans' projected benefit obligation to the prepaid
pension asset included in the accompanying consolidated balance sheets is as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits .................................. $ 5,420 $ 5,532
Nonvested benefits ............................... 3 3
------------ ------------
Accumulated benefit obligation ................... 5,423 5,535
Effect of projected salary increases ............. 57 56
------------ ------------
Projected benefit obligation for services
rendered to date ............................... 5,480 5,591
Plan assets at fair value, primarily cash and cash
equivalents and fixed income securities ........... 7,087 7,589
------------ ------------
Plan assets in excess of projected benefit obligation 1,607 1,998
Unrecognized net loss ............................... 1,390 867
------------ ------------
Noncurrent prepaid pension cost ..................... $ 2,997 $ 2,865
============ ============
</TABLE>
The rates used in determining the actuarial present value of benefit
obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 25, 1997 JANUARY 27, 1996
---------------- ----------------
<S> <C> <C>
Actuarial assumptions:
Investment return ........................... 7.75% 8.25%
Discount rate ............................... 7.75% 7.00%
Salary increase ............................. -- --
</TABLE>
The Company also has a defined contribution plan covering substantially
all employees who have completed one year of service and reached the age of 21.
Employees may contribute 2% to 8% of their annual compensation, which is
matched 50% by the Company up to 6% of the employees' contribution. Employees
become fully vested in the Company's contribution to the plan after five years
of service. The cost of Company contributions for the years ended January 25,
1997, January 27, 1996 and January 28, 1995 was approximately $1,225,000,
$926,000 and $771,000, respectively.
During the fiscal year ended January 25, 1997, the Company implemented the
A.P.S., Inc. Executive 401(K)
F-22
<PAGE> 61
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
Deferral Plan (the "Deferral Plan"), a defined contribution plan covering a
group of key management employees who also participate at the maximum
contribution level of 3% in the Company's previously existing defined
contribution plan, the A.P.S., Inc. Partnership Plan (the "Partnership Plan").
Participants in the Deferral Plan may contribute up to 28% of their annual
compensation, in addition to their contribution to the Partnership Plan. Such
contributions will be matched 50% by the Company up to 6% of the participants'
combined contributions to both plans. Participants' vesting rates in the
Partnership Plan carry over to the Deferral Plan and participants become fully
vested in the Company's contributions to both plans after five years. The cost
of the Company contributions for the years ended January 25, 1997 was
approximately $31,000.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The cost, gross unrealized holding gain and fair value of the Company's
available-for-sale securities at January 25, 1997 was approximately
$2,500,000, $1,477,000 and $3,977,000, respectively. The fair value of the
Company's Notes ($106,250,000 at January 25, 1997 and $100,000,000 at January
27, 1996) is based upon quoted market prices. The fair value of the Company's
interest rate swap agreements ($1,615 at January 25, 1997 and ($570,257) at
January 27, 1996) is based on estimates obtained from counterparties and
represents the Company's cash outlay if the agreements had been settled at year
end. The estimated fair values of all of the Company's other financial
instruments approximate their carrying amounts in the Consolidated Balance
Sheets.
11. RELATED PARTY TRANSACTIONS:
Clayton, Dubilier & Rice, Inc. ("CD&R"), which organized APS Holding and
related entities for the purpose of acquiring A.P.S., Inc. (the "Acquisition"),
is a private investment firm specializing in leveraged acquisitions involving
management participation. In connection with the Acquisition, a CD&R-managed
private investment fund, The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D Fund IV"), purchased Class A Common Stock. At January 25,
1997 and January 27, 1996, C&D Fund IV held approximately 30% of APS Holding's
Class A Common Stock that was outstanding as of such dates. In addition, two
professional employees of CD&R hold positions on the Company's board of
directors. As a result, C&D Fund IV is in a position to significantly influence
the Company's affairs. The Company agreed to pay CD&R an annual management fee
of up to $450,000 for financial advisory and management consulting services.
Management fee expense for each of the years ended January 25, 1997, January
27, 1996 and January 28, 1995 was $300,000. Effective March 4, 1997, as a
result of the resignation of the Company's President and Chief Executive
Officer ("CEO"), one of the board members who is a CD&R employee was appointed
to the position of interim Chief Executive Officer of the Company until a new
CEO is recruited.
APS Holding and A.P.S., Inc. have guaranteed bank loans used by employees
of the Company to purchase Class A Common Stock of the Company. The amount of
such loans outstanding at January 25, 1997 and January 27, 1996 was
approximately $332,000 and $505,000, respectively.
In March 1993, the Company entered into an asset purchase agreement with
Prince-Oracle Auto Parts and Equipment, Inc. ("Prince-Oracle") for the purchase
of the assets of six automotive parts stores in Arizona for a purchase price of
approximately $2.9 million, consisting of $1.8 million in cash and a
twenty-year promissory note issued to Prince-Oracle in the principal amount of
$1.1 million. Subsequent to such purchase, the owner of Prince-Oracle joined
the Company as an executive officer and served in such capacity until September
1996. The promissory note bears interest at a rate of 7.5% per annum and is
payable over twenty years in equal monthly installments of principal and
interest. The promissory note
F-23
<PAGE> 62
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
is collateralized by a security interest in certain assets relating to the
former Prince-Oracle stores. Interest expense on the Prince-Oracle note was
approximately $76,000, $78,000 and $80,000 for the years ended January 25,
1997, January 27, 1996 and January 28, 1995, respectively.
12. UNAUDITED QUARTERLY FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
APRIL 25 JULY 25 OCTOBER 25 JANUARY 25
----------- ------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 25, 1997:
Net sales $ 217,566 $ 234,305 $ 217,592 $ 189,276
Gross profit 73,366 79,066 75,950 47,211
Operating income (loss) 7,551 14,627 14,009 (32,348)
Net income (loss) 1,355 5,963 6,100 (24,254)
Net income (loss) per share 0.10 0.43 0.44 (1.76)
</TABLE>
The results for the quarter ended January 25, 1997 include $30.1 million
of pretax charges associated primarily with the Company's ISW division. Such
charges principally include an inventory loss adjustment of $11.8 million as
well as an increase in the bad debts provision, a charge for the cost of
returning excess and slow-moving inventories and a reserve for costs related to
facility closures and consolidations. The inventory loss adjustment, some of
which may be attributable to earlier quarters of the year, is a result of the
Company's inability during fiscal 1997 to quickly identify inventory
discrepancies due to ISW system incompatibilities and shortfalls in systems
controls.
During the quarters ended July 25, 1996, October 25, 1996 and January 25,
1997, the Company recognized one-time supplier changeover and acquisition
incentives in connection with the integration of Parts, Inc. into the Company
in the amounts of $2.2 million, $5.7 million and $4.2 million, respectively.
Such incentives were used to offset direct and indirect costs associated with
the integration effort.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
APRIL 25 JULY 25 OCTOBER 25 JANUARY 27
---------- ------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 27, 1996:
Net sales $ 137,949 $ 154,980 $ 160,329 $ 150,479
Gross profit 46,914 52,299 55,445 51,915
Operating income (loss) 8,092 12,052 10,805 (6,810)
Income (loss) before income taxes
and extraordinary item 6,052 9,744 8,436 (9,549)
Net income (loss) 3,758 6,061 5,423 (8,474)
Income (loss) per share:
Before income taxes and
extraordinary item 0.43 0.70 0.61 (0.69)
Net income (loss) 0.27 0.44 0.39 (0.61)
</TABLE>
Gross profit and selling, general and administrative expenses for the each
of the periods presented above for the year ended January 25, 1997 and for the
quarter ended January 27, 1996 differ from the amounts previously reported in
the Company's Forms 10-Q for such respective periods due to reclassifications
relating to capitalized overhead.
F-24
<PAGE> 63
APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
--------------------
Net results of the quarter ended January 27, 1996 include an $11.2 million
pretax charge for asset impairment and restructuring and a $2.5 million
extraordinary charge, net of a tax benefit of $1.4 million, resulting from the
extinguishment of the Company's debt.
F-25
<PAGE> 64
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF APS HOLDING CORPORATION
(PARENT COMPANY ONLY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE SHEET: January 25, January 27,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................... $ -- $ --
Investment in and advances to subsidiary ..... 114,569 124,030
------------ ------------
$ 114,569 $ 124,030
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Class A common stock ...................... $ 137 $ 137
Additional paid-in capital ................ 155,363 154,889
Accumulated deficit ....................... (41,712) (30,876)
Treasury stock, at cost ................... (120) (120)
Realized gain on available-for-sale
securities .............................. 901 --
------------ ------------
Total stockholders' equity ............ 114,569 124,030
------------ ------------
$ 114,569 $ 124,030
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
STATEMENT OF OPERATIONS: January 25, January 27, January 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Equity in income (loss) of subsidiary ...................... $ (10,701) $ 6,956 $ 32,473
General and administrative expenses ........................ (135) (188) (106)
Interest income ............................................ -- -- --
------------ ------------ ------------
Net income (loss) .......................................... $ (10,836) $ 6,768 $ 32,367
============ ============ ============
STATEMENT OF CASH FLOWS:
Cash flows from operating activities:
Net income (loss) ........................................ $ (10,836) $ 6,768 $ 32,367
Equity in (income) loss of subsidiary .................... 10,701 (6,956) (32,473)
------------ ------------ ------------
Net cash used in operating activities .................... (135) (188) (106)
------------ ------------ ------------
Cash flows from investing activities:
Subsidiary payments on behalf of parent .................. 135 188 105
Investment in subsidiary ................................. (174) (44) --
------------ ------------ ------------
Net cash provided by investing activities ................ 39 144 105
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ................... 174 44 --
------------ ------------ ------------
Net cash provided by financing activities ................ 174 44 --
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ....... -- -- (1)
Cash and cash equivalents at beginning of period ........... -- -- 1
------------ ------------ ------------
Cash and cash equivalents at end of period ................. $ -- $ -- $ --
============ ============ ============
</TABLE>
See notes to consolidated financial statements of
APS Holding Corporation and subsidiaries.
F-26
<PAGE> 65
SCHEDULE II
APS HOLDING CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
============================================================================================================
Balance at Balance at
Beginning End
Description of Period Additions Deductions(1) of Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED January 25, 1997:
Allowance for Doubtful Accounts $ 5,048 $ 9,472 $ 3,356 $ 11,164
Deferred Tax Valuation Allowance - - - -
YEAR ENDED January 27, 1996:
Allowance for Doubtful Accounts $ 2,776 $ 4,899(2) $ 2,627 $ 5,048
Deferred Tax Valuation Allowance - - - -
YEAR ENDED January 28, 1995:
Allowance for Doubtful Accounts $ 2,391 $ 2,766 $ 2,381 $ 2,776
Deferred Tax Valuation Allowance 14,802 - 14,802 -
</TABLE>
- ---------------
(1) With regards to the allowance for doubtful accounts, such amounts
represents accounts written off net of recoveries.
(2) Includes allowance for doubtful accounts of $1,113 acquired in connection
with the PI Acquisition.
F-27
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APS HOLDING CORPORATION
By: /s/ HUBBARD C. HOWE
------------------------------------
Hubbard C. Howe,
Chairman of the Board
and Interim Chief
Executive Officer
Date: April 24, 1996
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 on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ HUBBARD C. HOWE Chairman of the Board and April 24, 1996
- --------------------------------------- Interim Chief Executive Officer
Hubbard C. Howe
/s/ JOHN L. HENDRIX Senior Vice President April 24, 1996
- --------------------------------------- and Chief Financial Officer
John L. Hendrix
/s/ E. EUGENE LAUVER Vice President and Secretary April 24, 1996
- ---------------------------------------
E. Eugene Lauver
/s/ THEODORE BARRY Director April 19, 1996
- ---------------------------------------
Theodore Barry
/s/ WILEY N. CALDWELL Director April 20, 1996
- ---------------------------------------
Wiley N. Caldwell
/s/ MICHAEL J. DUBILIER Director April 24, 1996
- ---------------------------------------
Michael J. Dubilier
/s/ JOSEPH P. FLANNERY Director April 24, 1996
- ---------------------------------------
Joseph P. Flannery
/s/ DONALD J. GOGEL Director April 24, 1996
- ---------------------------------------
Donald J. Gogel
/s/ JERRY K. MYERS Director April 24, 1996
- ---------------------------------------
Jerry K. Myers
/s/ H. JACK MEANY Director April 20, 1996
- ---------------------------------------
H. Jack Meany
</TABLE>
<PAGE> 67
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Location of
Exhibit in
Exhibit Sequential
Number Description of Documents Number System
- ------ ------------------------ --------------
<S> <C>
2.1.1 Asset Purchase Agreement, between Sieg Company and A.P.S., Inc., dated
August 27, 1994. (10)
2.1.2 Amendment One, dated September 26, 1994, to Asset Purchase Agreement,
between Sieg Company and A.P.S., Inc. (10)
2.2 Purchase Agreement between A.P.S., Inc. and GKN Parts, dated December 5,
1995 (the "Purchase Agreement"). (Certain portions of the Purchase Agreement
have been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.) (15)
3.1 Second Restated Certificate of Incorporation of APS Holding dated September
20, 1993. (6)
3.2 Amended By-Laws of APS Holding dated November 22, 1993. (7)
4.1.1 Form of Stock Certificate for Class A Common Stock, par value $.01 per
share, of APS Holding. (1)
4.1.2 Form of Stock Certificate for Class B Common Stock, par value $.01 per
share, of APS Holding. (1)
4.2 Second Restated Certificate of Incorporation of APS Holding, dated September
20, 1993. (6)
4.3 Amended By-Laws of APS Holding dated November 22, 1993. (7)
4.4.1 Fund Stock Subscription Agreement, dated as of November 22, 1989, between
The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("Fund
IV") and APS Holding. (1)
</TABLE>
<PAGE> 68
<TABLE>
<S> <C>
4.4.2 Agreement, dated as of May 11, 1992, between Fund IV and APS Holding. (4)
4.5 Common Stock Purchase Agreement, dated as of November 22, 1989, between APS
Holding and each of certain institutional investors. (1)
4.6.1 Management Stock Subscription Agreement, dated as of November 22, 1989,
between APS Holding and Richard J. Spelleri. (1)
4.6.2 Stock Subscription Agreement, dated as of June 6, 1990, between APS Holding
and H. Jack Meany. (1)
4.6.3 Stock Subscription Agreement, dated as of June 1, 1990, between APS Holding
and John J. Nevin. (1)
4.6.4 Stock Subscription Agreement, dated as of May 31, 1990, between APS Holding
and Lawrence H. Hyde. (1)
4.6.5 Management Stock Subscription Agreements, between APS Holding and each of
Messrs. Mike Allen, David C. Barbeau, Marc and. Beasley, Doug Buscher,
Leland Charley, James E. Clarke, Earl Colvin, Ronald B. Diedring, Walt
Doman, Robert Greathouse, Tom Hartenbower, Richard A. Henricks, Dick Kelly,
E. Eugene Lauver, Bill Licklider, Montie C. Loney, Christopher McGinley, Jim
McWilliams, Ray Mohler, William H. Moore, Ed Morris, John D. Pearce, George
Poe, Michael L. Preston, Greg Rada, S. David Ramsey, Raymond J. Rarey, David
Robison, Elmer H.C. Romeis, Claude T. Salmon, Jr., Ralph Souza, Rogers
Stock, Tom Wacker, Randall B. Walker, Thomas H. Warner, Bob Werner, Paul
Whelton, and Jim Woodward. (2)
4.7.1 Registration and Participation Agreement, dated as of November 22, 1989 (the
"Registration and Participation Agreement"), among Fund IV, certain other
APS Holding stockholders, and APS Holding. (1)
4.7.2 Letter Agreement, dated as of June 26, 1992, between APS Holding and Fund
IV, amending the Registration and Participation Agreement. (1)
4.8 Capital Call Agreement, dated as of November 22, 1989, among Fund IV, APS
Holding, The Connecticut National Bank, First Trust National Association,
and First Bank National Association. (1)
4.9.1 APS Holding's 1990 Employee Stock Option Plan and form of Management Stock
Option Agreement. (1)
4.9.2 APS Holding's 1990 Employee Stock Option Plan as amended through Amendment
No. 1. (1)
4.9.3 Management Stock Option Agreements, dated as of November 14, 1990, between
APS Holding and each of the persons named on the schedule attached thereto.
(2)
</TABLE>
<PAGE> 69
<TABLE>
<S> <C>
4.10.1 APS Holding's 1993 Employee Stock Option Plan as amended and restated,
effective July 19, 1993. (5)
4.10.2 Management Stock Option Agreement, dated as of December 16, 1992, between
APS Holding and Mark S. Hoffman. (5)
4.10.3 Management Stock Option Agreement, dated as of May 17, 1993, between APS
Holding and Douglas Beckstett. (5)
4.10.4 Stock Option Agreement, dated as of December 16, 1992, between APS Holding
and Theodore Barry. (5)
4.10.5 Stock Option Agreement, dated as of May 17, 1993, between APS Holding and
Theodore Barry. (5)
4.10.6 Management Stock Subscription Agreement, dated as of September 23, 1993,
between APS Holding and Vince Heiker. (7)
4.11 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Douglas Beckstett. (5)
4.12 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Mark S. Hoffman. (5)
4.13 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Steven H. Sattinger. (5)
4.14 Stock Subscription Agreement, dated as of August 24, 1993, between APS
Holding and Wiley N. Caldwell. (5)
4.15 Indenture, dated as of January 25, 1996, among A.P.S., Inc., as Issuer, APS
Holding Corporation and certain of its subsidiaries, as Guarantors, and The
Bank of New York, as Trustee. (14)
4.16 Registration Agreement, dated January 19, 1996, among A.P.S., Inc., Salomon
Brothers Inc and Chemical Securities Inc. (14)
4.17 Purchase Agreement, dated January 19, 1996, among A.P.S., Inc., APS Holding
Corporation, Salomon Brothers Inc and Chemical Securities Inc. (14)
10.1.1 Amended and Restated Credit Agreement, dated as of January 25, 1996, among
A.P.S., Inc., the several lenders from time to time parties thereto, and
Chemical Bank, as agent. (14)
10.1.2 Amended and Restated Guarantee, dated as of January 25, 1996, made by APS
Holding Corporation in favor of Chemical Bank, as agent. (14)
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
10.1.3 Amended and Restated Subsidiaries' Guarantee, dated as of January 25, 1996,
made by certain of the subsidiaries of A.P.S. , Inc. in favor of Chemical
Bank, as agent. (14)
10.1.4 Supplement to the Amended and Restated Subsidiaries' Guarentee, dated as of
May 15, 1996, made by each of the Subsidiaries of A.P. S., Inc. in favor of
Chemical Bank, as agent.
10.1.5 Amended and Restated Security Agreement, dated as of January 25, 1996, made
by A.P.S., Inc. in favor of Chemical Bank, as agent. (14)
10.1.6 Amended and Restated Trademark Security Agreement, dated as of January 25,
1996, made by A.P.S., Inc. in favor of Chemical Bank, as agent. (14)
10.1.7 Trademark Security Agreement, dated May 15, 1996, made by A.P.S. Management
Services, Inc. in favor of Chemical Bank, as agent.
10.1.8 Amended and Restated Security Agreement, dated as of January 25, 1996, made
by certain of the subsidiaries of A.P.S., Inc. in favor of Chemical Bank, as
agent. (14)
10.1.9 Amended and Restated Security and Note Pledge Agreement, dated as of January
25, 1996, made by Autoparts Finance Company, Inc. in favor of Chemical Bank,
as agent. (14)
10.1.10 Amended and Restated Pledge Agreement, dated as of January 25, 1996, made by
A.P.S., Inc. in favor of Chemical Bank, as agent. (14)
10.1.11 Amended and Restated Pledge Agreement, dated as of January 25, 1996, made by
APS Holding Corporation in favor of Chemical Bank, as agent. (14)
10.1.12 Amended and Restated Lockbox Agreement, dated as of January 25, 1995, among
Texas Commerce Bank National Association, Chemical Bank, as Agent, and
Autoparts Finance Company, Inc. (14)
10.1.13 Amended and Restated Lockbox Agreement, dated as of January 25, 1995, among
Texas Commerce Bank National Association, Chemical Bank, as Agent, and
A.P.S., Inc. (14)
10.1.14 Note Pledge Agreement, dated as of January 25, 1996, made by APS Holding in
favor of Chemical Bank, as agent. (14)
10.1.15 Open-End Mortgage and Security Agreement, dated as of January 25, 1996, from
A.P.S., Inc., as mortgagor, to Chemical Bank (as agent), as mortgagee. (14)
10.1.16 Second Amendment to Mortgage in respect of real property located in Indiana,
dated as of January 25, 1996, between A.P.S., Inc., as mortgagor, and
Chemical Bank (as agent), as mortgagee. (14)
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
10.1.17 Second Amendment to Deed of Trust in respect of real property located in
Missouri, dated as of January 25, 1996, between A.P.S., Inc., as grantor,
and Chemical Bank (as agent), as beneficiary. (14)
10.1.18 Second Amendment to Deed of Trust in respect of real property located in
Virginia, dated as of January 25, 1996, between American Parts System Inc.,
as grantor, and Chemical Bank (as agent), as beneficiary. (14)
10.1.19 Second Amendment to Deed of Trust, Assignment of Rents and Leases, Security
Agreement and Financing Statement in respect of real property located in New
Mexico, dated as of January 25, 1996, between American Parts System, Inc.,
as trustor, and Chemical Bank (as agent), as beneficiary. (14)
10.1.20 Second Amendment to Deed of Trust in respect of real property located in
Colorado, dated as of January 25, 1996, between A.P.S., Inc., as grantor,
and Chemical Bank (as agent), as beneficiary. (14)
10.1.21 First Amendment, dated as of April 23, 1996, to the Amended and Restated
Credit Agreement dated as of January 25, 1996, among A.P.S., Inc., the
several lenders from time to time parties thereto, and Chemical Bank, as
agent. (16)
10.1.22
Second Amendment, dated as of August 28, 1996, to the Amended and Restated
Credit Agreement dated as of January 25, 1996, among A.P.S., Inc., the
several lenders from time to time parties thereto, and The Chase Manhattan
Bank (formerly Chemical Bank), as agent. (18)
10.1.23
Third Amendment, dated as of January 25, 1997, to the Amended and Restated
Credit Agreement dated as of January 25, 1996, among A.P.S., Inc., the
several lenders from time to time parties thereto, and The Chase Manhattan
Bank (formerly Chemical Bank), as agent.
10.2.1 Fund Stock Subscription Agreement, dated as of November 22, 1989, between
Fund IV and APS Holding. (1)
10.2.2 Indemnification Agreement, dated as of November 22, 1989, among APS Holding,
APS Acquisition Corporation, A.P.S., Inc., Clayton & Dubilier, Inc. and Fund
IV. (1)
10.2.3 Agreement, dated as of May 11, 1992, between Fund IV and APS Holding. (4)
10.3.1 Registration and Participation Agreement. (1)
10.3.2 Letter Agreement, dated as of June 26, 1992, amending the Registration and
Participation Agreement (1).
10.4.1 Sales and Distribution Agreement, made as of October 6, 1989, by and between
Standard Motor Products Company, Inc. and APS for Tune-Up Products. (4)
</TABLE>
<PAGE> 72
<TABLE>
<S> <C>
10.4.2 Sales and Distribution Agreement, made as of October 6, 1989, between
Standard Motor and APS for Temperature Control Products. (1)
10.4.3 Amendment to the Sales and Distribution Agreements between A.P.S., Inc. and
Standard Motor Products Company, Inc., for Tune-Up Products and Temperature
Control Products, dated October 26, 1989. (1)
10.4.4 Sales and Distribution Agreement, dated as of April 22, 1993, between APS
and Standard Motor and APS, for Big and Service Line and Specialty Tool Line
Products. (1)
10.5.1 Agreement, executed April 14, 1993, between Big A Auto Parts, Inc., and
Teamsters Local Union No. 429 of Reading, Pennsylvania. (5)
10.5.2 Agreement, executed on March 17, 1993, between APS and Automotive Petroleum
and Allied Industries Employees Union, Local 618 of St. Louis, Missouri. (5)
10.5.3 Agreement, Executed on March 6, 1992, between APS and Truck Drivers,
Chauffeurs and Helpers Local Union No. 384 of Pennsylvania. (5)
10.5.4 Agreement, entered into and effective as of July 1, 1993, between APS and
Teamsters Local Union No. 284 of the International Brotherhood of Teamsters.
(5)
10.6.1 APS Holding's 1990 Employee Stock Option Plan and form of Management Stock
Option Agreement. (1)
10.6.2 APS Holding's 1990 Employee Stock Option Plan as amended through Amendment
No. 1. (1)
10.6.3 Stock Subscription Agreements, between APS Holding and each of the persons
named on the schedule attached thereto. (2)
10.7.1 APS Holding's 1993 Employee Stock Option Plan. (5)
10.7.2 Management Stock Option Agreement, dated as of December 16, 1992, between
APS Holding and Mark S. Hoffman. (5)
10.7.3 Management Stock Option Agreements, dated as of May 17, 1993, between APS
Holding and Douglas Beckstett. (5)
10.7.4 Stock Option Agreement, dated as of December 16, 1992, between APS Holding
and Theodore Barry. (5)
10.7.5 Stock Option Agreement, dated as of May 17, 1993, between APS Holding and
Theodore Barry. (5)
10.7.6 Stock Option Agreement, dated as of September 23, 1993, between APS Holding
and Vince Heiker. (7)
</TABLE>
<PAGE> 73
<TABLE>
<S> <C>
10.7.7 Stock Option Agreement, dated as of September 23, 1993, between APS Holding
and Paul G. Hargett. (8)
10.8.1 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Kenneth Caracci. (5)
10.8.2 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Douglas Beckstett. (5)
10.8.3 Management Stock Subscription Agreement, dated as of August 24, 1993,
between APS Holding and Mark S. Hoffman. (5)
10.8.4 Stock Subscription Agreement, dated as of August 24, 1993, between APS
Holding and Wiley N. Caldwell. (5)
10.9 A.P.S., Inc., Executive 401(k) Deferral Plan. (17)
10.10.1 Confirmation for U.S. Dollar Rate Swap Transaction, dated June 6, 1995,
among Nations Bank of Texas, N.A. and A.P.S., Inc. (12)
10.10.2 Confirmation of Conditions of Swap Transaction, dated June 6, 1995, among
Chemical Bank and A.P.S. (12)
10.10.3 Confirmation for U.S. Dollar Rate Swap Transaction, dated July 7, 1995,
among Bank of America National Trust and Savings Association and A.P.S.,
Inc. (13)
10.11 Purchase Agreement between A.P.S., Inc. and GKN Parts Industries
Corporation, dated December 5, 1995 (See item 2.2). (15)
10.12 Agreement of Sale By and Between The Parts Source, Inc. and A.P.S., Inc.,
dated as of October 22, 1996. (18)
10.13 Agreement of Sale By and Between Rankin Automotive Group, Inc., and Parts,
Inc., dated as of September 12, 1996. (18)
11.1 Statement re Computation of Income (Loss) per Share
12 Statement re Computation of Earnings to Fixed Charges
21 List of Subsidiaries of APS Holding
23.1 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
- --------------
(1) Incorporated by reference to the Exhibits filed with APS Holding's
Registration Statement on Form S-1 (Registration No. 33-36102).
<PAGE> 74
(2) Incorporated by reference to the Exhibits filed with APS Holding's Annual
Report on Form 10-K for the year ended January 26, 1991.
(3) Not used.
(4) Incorporated by reference to the Exhibits filed with APS Holding's Annual
Report on Form 10-K for year ended January 25, 1992.
(5) Incorporated by reference to the Exhibits filed with APS Holding's
Registration Statement on Form S-1 (Registration No. 33-66412).
(6) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended October 25, 1993.
(7) Incorporated by reference to the Exhibits filed with APS Holding's Annual
Report on Form 10-K for year ended January 29, 1994.
(8) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended April 25, 1994.
(9) Not used.
(10) Incorporated by reference to the Exhibits filed with APS Holding's Form
8-K, as amended, dated September 26, 1994.
(11) Not used.
(12) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended April 25, 1995.
(13) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended July 25, 1995.
(14) Incorporated by reference to the Exhibits filed with APS Holding's Form
8-K dated January 25,1996.
(15) Incorporated by reference to the Exhibits filed with APS Holding's Form
8-K/A dated January 25, 1996.
(16) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended April 25, 1996.
(17) Incorporated by reference to the Exhibits filed with APS Holding
Corporation's Registration Statement on Form S-8, Registration No.
333-10217.
(18) Incorporated by reference to the Exhibits filed with APS Holding's Form
10-Q for the Quarter ended October 25, 1996.
<PAGE> 1
EXHIBIT 10.1.4
SUPPLEMENT, dated as of May 15, 1996, to the Amended and
Restated Subsidiaries' Guarantee, dated as of January 25, 1996 (as amended, the
"Subsidiaries' Guarantee"), made by each of the subsidiaries of A.P.S., Inc.
(the "Borrower") from time to time parties thereto (collectively, the
"Guarantors").
W I T N E S S E T H :
WHEREAS, the Subsidiaries' Guarantee provides that any
Restricted Subsidiary of the Borrower, although not a Guarantor thereunder at
the time of the initial execution thereof, may become a Guarantor under the
Subsidiaries' Guarantee upon the delivery to the Agent of a supplement in
substantially the form of this Supplement; and
WHEREAS, the undersigned was not a Guarantor under the
Subsidiaries' Guarantee at the time of the initial execution thereof but now
desires to become a Guarantor thereunder;
NOW, THEREFORE, the undersigned hereby agrees as follows:
The undersigned agrees to be bound by all of the provisions of
the Subsidiaries' Guarantee applicable to a Guarantor thereunder and
agrees that it shall, on the date this Supplement is accepted by the
Agent, become a Guarantor, for all purposes of the Subsidiaries'
Guarantee to the same extent as if originally a party thereto. Without
limiting the foregoing, subject to the provisions of Section 2(b) of
the Subsidiaries' Guarantee, the undersigned, jointly and severally
with the other Guarantors, unconditionally and irrevocably, guarantees
to the Agent, for the ratable benefit of the Lenders and their
respective successors, indorsees, transferees and assigns, the prompt
and complete payment and performance by the Borrower when due and
payable (whether at the stated maturity, by acceleration or otherwise)
of the Obligations.
Terms defined in the Subsidiaries' Guarantee shall have their
defined meanings when used herein.
<PAGE> 2
2
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
executed and delivered by a duly authorized officer on the date first above
written.
INSTALLERS' SERVICE WAREHOUSE, INC.
By: /s/ E. EUGENE LAUVER
-------------------------------------
Title: Vice President
ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN:
CHEMICAL BANK, as Agent
By: /s/ JULIE S. LONG
-------------------------------------
Title: Vice-President
<PAGE> 1
EXHIBIT 10.1.7
TRADEMARK SECURITY AGREEMENT
TRADEMARK SECURITY AGREEMENT, dated as of May 15, 1996,
made by A.P.S. MANAGEMENT SERVICES, INC., a Delaware corporation (the
"Grantor"), in favor of CHEMICAL BANK, as agent (in such capacity, the "Agent")
for the several banks and other financial institutions (the "Lenders") from
time to time parties to the Amended and Restated Credit Agreement, dated as of
January 25, 1996 (as the same may be amended, supplemented, waived or otherwise
modified from time to time, the "Credit Agreement"), among A.P.S., Inc. (the
"Borrower"), the Agent and the Lenders.
W I T N E S S E T H :
WHEREAS, the Grantor is a party to the Amended and Restated
Security Agreement, dated as of January 25, 1996 (as amended, supplemented or
otherwise modified from time to time, the "Subsidiaries' Security Agreement"),
made by the grantors named therein in favor of the Agent, for the benefit of
the Lenders;
WHEREAS, the Grantor has acquired from the Borrower all of the
Trademarks listed on Schedule 1 hereto; and
WHEREAS, pursuant to the Subsidiaries' Security Agreement, the
Grantor is required, and has agreed, to enter into this Trademark Security
Agreement and to grant to the Agent for the ratable benefit of the Lenders a
security interest in all right, title and interest of the Grantor in, to and
under the Collateral, including all of the property listed on the attached
Schedule 1, together with any renewal or extension thereof, and all Proceeds
thereof, to secure the Secured Obligations;
NOW, THEREFORE, in consideration of the premises, the Grantor
hereby agrees with the Agent, for the ratable benefit of the Lenders, as
follows:
1. Defined Terms. (a) Unless otherwise defined herein,
capitalized terms which are defined in the Credit Agreement and used herein
are so used as so defined; and the following terms shall have the following
meanings:
"Agreement": this Trademark Security Agreement, as the same
may be amended, supplemented, waived or otherwise modified from time
to time.
"Code": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral": as defined in Section 2 of this Agreement.
<PAGE> 2
2
"General Intangibles": as defined in Section 9-106 of the
Code, including, without limitation, all Trademarks now or hereafter
owned by the Grantor to the extent such Trademarks would be included
in General Intangibles under the Code.
"Obligations": the collective reference to the unpaid principal
of and interest on (including, without limitation, interest accruing
after the maturity of the Loans and Reimbursement Obligations and
interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans, the
Reimbursement Obligations and all other obligations and liabilities of
the Borrower to the Agent and the Lenders, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the Notes, the Letters of Credit, any
Interest Rate Agreement entered into with any Lender, the other Loan
Documents or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest,
reimbursement obligations, amounts payable in connection with a
termination of any transaction entered into pursuant to an Interest
Rate Agreement entered into with any Lender, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all reasonable
fees and disbursements of counsel to the Agent or any Lender that are
required to be paid by the Borrower pursuant to the terms of the
Credit Agreement or any other Loan Document).
"Secured Obligations": the collective reference to (a) the
Obligations and (b) all obligations and liabilities of the Grantor
which may arise under or in connection with this Agreement or any
other Loan Document to which the Grantor is a party, whether on
account of reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all reasonable
fees and disbursements of counsel to the Agent or to the Lenders that
are required to be paid by the Grantor pursuant to the terms of this
Agreement or any other Loan Document), provided that anything herein
or in any other Loan Document to the contrary notwithstanding, the
maximum liability of the Grantor hereunder and under the Loan
Documents shall in no event exceed an amount which, under applicable
federal and state laws, including those relating to the insolvency of
debtors, would result in the avoidance or illegality of the
obligations of the Grantor hereunder and under the Loan Documents.
"Trademark License": any written agreement providing for the
grant by the Grantor of any right to use any
<PAGE> 3
3
Trademark, including, without limitation, those listed in Schedule 1
hereto, but excluding the grant of any such right to any automotive
parts store or warehouse (i) to which the Borrower or any of its
Subsidiaries sells goods in connection with the Borrower's Big A(R)
program or which otherwise participates in the Borrower's Big A(R)
program or (ii) in connection with the Installers' Service Warehouse
or Installers Express programs or (iii) any other similar programs
that may be created by the Borrower or any Restricted Subsidiary after
the date hereof.
"Trademarks": (a) all United States trademarks, trade names,
corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers, and the goodwill associated therewith, now existing or
hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or
agency of the United States or any State thereof, including, without
limitation, those listed in Schedule 1 hereto but excluding the trade
name "Prince Oracle", and (b) all renewals thereof.
(b) The words "hereof," "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and section and paragraph references are to this Agreement
unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such
terms.
2. Grant of Security Interest. As collateral security
for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Secured Obligations, the
Grantor hereby grants to the Agent for the ratable benefit of the Lenders a
security interest in all of the following property now owned or at any time
hereafter acquired by the Grantor or in which the Grantor now has or at any
time in the future may acquire any right, title or interest (collectively, the
"Collateral"):
(i) all Trademarks;
(ii) all Trademark Licenses;
(iii) all General Intangibles; and
(iv) to the extent not otherwise included, all Proceeds
and products of any and all of the foregoing;
<PAGE> 4
4
provided that in the case of any Trademark Licenses with or issued by Persons
other than a Subsidiary of the Borrower that would otherwise be included in the
foregoing Collateral, the foregoing will not be deemed to grant a security
interest therein under this Agreement (and such Trademark License shall not be
deemed to constitute a part of the Collateral) for so long as the granting of a
security interest pursuant to the terms hereof would result in a breach,
default or termination of such Trademark License. The Grantor shall use its
reasonable best efforts to cause each Trademark License entered into, created
or made after the date hereof to be subject to the Lien and security interest
created pursuant to this Agreement.
3. Representations and Warranties Concerning Trademarks.
Schedule 1 hereto includes all Trademark Licenses (other than immaterial
non-commercial permissions) to which the Grantor is a party as of the date
hereof which are material to the business of the Borrower and its Restricted
Subsidiaries, taken as a whole, and the Grantor has no material oral or
otherwise unexecuted and binding Trademark Licenses, other than the grant of
the right to use certain of the Grantor's Trademarks (i) to automotive parts
stores and warehouses to which the Borrower or any of its Subsidiaries sells
goods in connection with the Borrower's Big A(R) program or which otherwise
participates in the Borrower's Big A(R) program, (ii) in connection with the
Installers' Service Warehouse or Installers Express programs, (iii) in
connection with any other similar programs that may be created by the Borrower
or any Restricted Subsidiary after the date hereof, and (iv) to Big A
Technologies in connection with the provision of goods and services to
automotive parts stores and warehouses associated with the Borrower and its
Subsidiaries. Schedule 1 hereto includes all registered Trademarks owned by the
Grantor in its own name as of the date hereof which are material to the
business of the Borrower and its Restricted Subsidiaries, taken as a whole. To
the Grantor's knowledge, each such Trademark is valid, subsisting, unexpired,
enforceable and has not been abandoned, except to the extent that any failure
to be valid, subsisting, unexpired or enforceable or any abandonment would not
be reasonably expected to have a Material Adverse Effect, or, in the case of
any abandonment, would be permitted under subsection 8.6 of the Credit
Agreement. Except (i) as set forth in such Schedule, (ii) for immaterial oral
or written non-commercial permissions and settlement agreements, (iii) for the
grant of the right to use certain of the Grantor's Trademarks (w) to automotive
parts stores and warehouses to which the Borrower or any of its Subsidiaries
sells goods in connection with the Borrower's Big A(R) program or which
otherwise participates in the Borrower's Big A(R) program, (x) in connection
with the Installers' Service Warehouse or Installers Express programs, (y) in
connection with any other similar programs that may be created by the Borrower
or any Restricted Subsidiary after the Effective Date, and (z) to Big A
Technologies in connection with the provision of goods and services to
automotive parts stores and warehouses associated
<PAGE> 5
5
with the Borrower and its Subsidiaries, and (iv) agreements entered into the
ordinary course of business, none of such Trademarks is the subject of any
licensing or franchise agreement. No holding, decision or judgment has been
rendered by any Governmental Authority in any litigation, action, investigation
or like proceeding to which the Grantor was or is a party which would be
reasonably expected to limit, cancel or question the validity of any material
Trademark owned by the Grantor and which has had or would reasonably be
expected to have a Material Adverse Effect. No action or proceeding is pending
with respect to any Trademark owned by the Grantor which would be reasonably
expected to have a Material Adverse Effect.
4. Covenants. The Grantor covenants and agrees with the
Agent and the Lenders that, from and after the date of this Agreement until the
payment in full of the Notes, the Reimbursement Obligations and the other
Secured Obligations then due and owing, the termination of the Commitments and
the expiration, termination or return to the Issuing Lender of the Letters of
Credit:
(a) Further Documentation; Pledge of Instruments and
Chattel Paper. At any time and from time to time, upon the written
request of the Agent or the Grantor, as the case may be, and at the
sole expense of the Grantor, the Grantor or the Agent, as the case may
be, will promptly and duly execute and deliver such further
instruments and documents and take such further action as the Agent or
the Grantor may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and
powers herein granted to the Agent, including, without limitation, the
filing of any financing or continuation statements under the Uniform
Commercial Code in effect in any jurisdiction with respect to the
Liens created hereby. The Grantor also hereby authorizes the Agent to
file any such financing or continuation statement without the
signature of the Grantor to the extent permitted by applicable law. A
carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any Jurisdiction.
The Agent agrees to notify the Grantor and the Grantor agrees to not
notify the Agent of any financing or continuation statement filed by
it pursuant to this Section 5(a), provided that any failure to give
any such notice shall not affect the validity or effectiveness of any
such filing.
(b) Limitation on Liens on Collateral. The Grantor will
not create, incur or permit to exist, will defend the Collateral
against, and will take such other action as is reasonably necessary to
remove, any Lien or material adverse claim on or to any of the
Collateral, other than the Liens created hereby and other than as
permitted pursuant to the Loan Documents, and will defend the right,
title and interest of the Agent and the Lenders in and to any of the
<PAGE> 6
6
Collateral against the claims and demands of all Persons whomsoever.
(c) Limitations on Dispositions of Collateral. Without
the prior written consent of the Agent, the Grantor will not sell,
assign, transfer, exchange or otherwise dispose of, or grant any
option with respect to, the Collateral, or attempt, offer or contract
to do so, except as permitted by this Agreement, the Subsidiaries'
Security Agreement or the Credit Agreement.
(d) Notices. The Grantor will advise the Agent and the
Lenders promptly, in reasonable detail, at their respective addresses
set forth in the Credit Agreement, (i) of any Lien (other than Liens
created hereby or permitted under the Loan Documents) on, or material
adverse claim asserted against, Trademarks owned by the Grantor and
(ii) of the occurrence of any other event which would reasonably be
expected in the aggregate to have a material adverse effect on the
aggregate value of the Collateral or the Liens created hereunder.
(e) Trademarks. (i) Except as permitted by subsection 8.6
of the Credit Agreement, the Grantor (either itself or through
licensees) will, except with respect to any Trademark owned by the
Grantor that the Grantor shall reasonably determine is not material to
the business of the Borrower and its Subsidiaries, taken as a whole,
(A) continue to use, and maintain in full force (free from any claim
of abandonment for non-use) each Trademark owned by the Grantor and
(B) not (and not permit any licensee to) do any act or knowingly omit
to do any act whereby any Trademark owned by the Grantor may become
invalidated or abandoned.
(ii) The Grantor either itself or through any agent,
employee, licensee or designee, shall, at the request of the Agent,
provide to the Agent a document confirming the Lenders' security
interest in any Trademark with respect to which the Grantor has filed
an application for registration with the United States Patent and
Trademark Office.
(iii) The Grantor will promptly notify the Agent and the
Lenders of any material infringement of any material Trademark owned
by it of which it becomes aware and will take such actions as it shall
reasonably deem appropriate under the circumstances, in accordance
with its reasonable business judgment, to protect such Trademark
including, where appropriate, the bringing of suit or the settling of
actual or potential suits for infringement, misappropriation or
dilution, seeking injunctive relief and seeking to recover any and all
damages for such infringement, misappropriation or dilution.
<PAGE> 7
7
5. Agent's Appointment as Attorney-in-Fact.
(a) Powers. The Grantor hereby irrevocably constitutes
and appoints the Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of
the Grantor or in its own name, from time to time in the Agent's discretion,
for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, the Grantor
hereby gives the Agent the power and right, on behalf of the Grantor, without
notice to or assent by the Grantor, to do the following at any time when any
Event of Default shall have occurred and be continuing, and to the extent
permitted by law:
(i) in the name of the Grantor or its own name, or
otherwise, to take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any General Intangible (to the extent that the
foregoing constitute Collateral) or with respect to any other
Collateral and to file any claim or to take any other action or
institute any proceeding in any court of law or equity or otherwise
deemed appropriate by the Agent for the purpose of collecting any and
all such moneys due under any such General Intangible or with respect
to any such other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed
on the Collateral, other than Liens permitted under this Agreement or
the other Loan Documents; and
(iii) upon the occurrence and during the continuance of any
Event of Default (A) to direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Agent or as the Agent shall
direct; (B) to ask for, or demand, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to
become due at any, time in respect of or arising out of any of the
Collateral; (C) to sign And indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (E) to defend
any suit, action or proceeding brought against the Grantor with
respect to any of the Collateral; (F) to settle, compromise or adjust
any suit, action or proceeding described in clause (E) above and, in
<PAGE> 8
8
connection therewith, to give such discharges or releases as the
Agent may deem appropriate; (G) to assign any Trademark (along with
the goodwill of the business to which any such Trademark pertains),
for such term or terms, on such conditions, and in such manner, as the
Agent shall in its sole discretion determine; and (H) generally, to
sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Agent were the absolute owner thereof for all purposes, and
to do, at the Agent's option and the Grantor's expense, at any time,
or from time to time, all acts and things which the Agent deems
necessary to protect, preserve or realize upon the Collateral and the
Agent's and the Lenders' Liens thereon and to effect the intent of
this Agreement, all as fully and effectively as the Grantor might do.
The Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until payment in full of the Notes, the
Reimbursement Obligations and the other Secured Obligations then due and owing,
the termination of the Commitments and the expiration, termination or return to
the Issuing Lender of the Letters of Credit.
(b) Other Powers. The Grantor also authorizes the Agent,
from time to time if an Event of Default shall have occurred and be continuing,
to execute, in connection with any sale provided for in Section 8 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
(c) No Duty on the Part of Agent or Lenders. The powers
conferred on the Agent and the Lenders hereunder are solely to protect the
Agent's and the Lenders' interests in the Collateral and shall not impose any
duty upon the Agent or any Lender to exercise any such powers. The Agent and
the Lenders shall be accountable only for amounts that they actually receive as
a result of the exercise of such powers, and neither they nor any of their
officers, directors, employees or agents shall be responsible to the Grantor
for any act or failure to act hereunder, except for their own gross negligence
or willful misconduct.
6. Performance by Agent of Grantor's Obligations. If the
Grantor fails to perform or comply with any of its agreements contained herein
and the Agent, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses of the Agent incurred in connection with
such performance or compliance, together with interest thereon at a rate per
annum 2% above the rate applicable to ABR Loans, shall
<PAGE> 9
9
be payable by the Grantor to the Agent on demand and shall constitute Secured
Obligations secured hereby.
7. Proceeds. It is agreed that if an Event of Default
shall occur and be continuing, (a) all Proceeds of any Collateral received
by the Grantor consisting of cash, checks and other near-cash items shall be
held by the Grantor in trust for the Agent and the Lenders, segregated from
other funds of the Grantor, and at the request of the Agent shall, forthwith
upon receipt by the Grantor, be turned over to the Agent in the exact form
received by the Grantor (duly indorsed by the Grantor to the Agent, if
required), and (b) any and all such Proceeds received by the Agent (whether
from the Grantor or otherwise) may, in the sole discretion of the Agent, be
held by the Agent for the ratable benefit of the Lenders as collateral security
for the Secured Obligations (whether matured or unmatured), and/or then or at
any time thereafter may be applied by the Agent against, the Secured
Obligations then due and owing. Any balance of such Proceeds remaining after
the payment in full of the Notes, the Reimbursement Obligations and the other
Secured Obligations then due and owing, the termination of the Commitments and
the expiration, termination or return to the Issuing Lender of the Letters of
Credit shall be paid over to the Grantor or to whomsoever may be lawfully
entitled to receive the same.
8. Remedies. If an Event of Default shall occur and be
continuing, the Agent, on behalf of the Lenders, may exercise all rights and
remedies of a secured party under the Code, and, to the extent permitted by
law, all other rights and remedies granted to them in this Agreement and in any
other instrument or agreement securing, evidencing or relating to the Secured
Obligations. Without limiting the generality of the foregoing, the Agent,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Grantor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances, to the extent permitted by law, forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do
any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Agent or any Lender shall have the
right, to the extent permitted by law, upon any such sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Grantor, which right or equity is hereby waived or
released. The Grantor further agrees, at the Agent's request, upon the
occurrence and during the continuance of an Event of Default, to assemble the
<PAGE> 10
10
Collateral and make it available to the Agent at places which the Agent shall
reasonably select, whether at the Grantor's premises or elsewhere. The Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral
or the rights of the Agent and the Lenders hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Secured Obligations then due and owing, and only after
such application and after the payment by the Agent of any other amount
required by any provision of law, including, without limitation, Section
9504(l)(c) of the Code, need the Agent account for the surplus, if any, to the
Grantor. To the extent permitted by applicable law, the Grantor waives all
claims, damages and demands it may acquire against the Agent or any Lender
arising out of the repossession, retention or sale of the Collateral, other
than any such claims, damages and demands that may arise from the gross
negligence or willful misconduct of any of them. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such
sale or other disposition. The Grantor shall remain liable for any deficiency
if the proceeds of any sale or other disposition of the Collateral are
insufficient to pay the then outstanding Secured Obligations, including the
reasonable fees and disbursements of any attorneys employed by the Agent or any
Lender to collect such deficiency.
9. Limitation on Duties Regarding Preservation of
Collateral. The Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall he to deal with it in the same manner as the
Agent deals with similar property for its own account. Neither the Agent, any
Lender, nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any part
of the Collateral or for any delay in doing so or shall be under any obligation
to sell or otherwise dispose of any Collateral upon the request of the Grantor
or any other Person.
10. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral are powers coupled
with an interest and are irrevocable until payment in full of the Notes, the
Reimbursement Obligations and the other Secured Obligations then due and owing,
the termination of the Commitments and the expiration, termination or return to
the Issuing Lender of the Letters of Credit.
11. Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
<PAGE> 11
11
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
12. Section Headings. The Section Headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
13. No Waiver; Cumulative Remedies. Neither the Agent nor
any Lender shall by any act (except by a written instrument pursuant to Section
14 hereof), delay, indulgence, omission or otherwise be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Agent or any
Lender, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Agent or any Lender of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Agent or such Lender would otherwise have
on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.
14. Waivers and Amendments; Successors and Assigns. None
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Grantor and the Agent, provided that, if requested by the Grantor, any
provision of this Agreement for the benefit of the Agent and/or the Lenders may
be waived by the Agent in a written letter or agreement executed by the Agent
or by telex or facsimile transmission from the Agent. This Agreement shall be
binding upon the successors and assigns of the Grantor and shall inure to the
benefit of the Agent and the Lenders and their respective successors and
assigns, except that the Grantor may not assign, transfer or delegate any of
its rights or obligations under this Agreement without the prior written
consent of the Agent.
15. Notices. All notices, requests and demands to or upon
the respective parties hereto shall be made in accordance with Section 16 of
the Subsidiaries' Security Agreement.
16. Authority of Agent. The Grantor acknowledges that the
rights and responsibilities of the Agent under this Agreement with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, voting right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Agreement shall, as between the
<PAGE> 12
12
Agent and the Lenders, be governed by the Loan Documents and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and the Grantor, the Agent shall be conclusively presumed
to be acting as agent for the Lenders with full and valid authority so to act
or refrain from acting, and the Grantor shall not be under any obligation to
make any inquiry respecting such authority.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
18. Release of Collateral and Termination. (a) At such
time as the payment in full of the Notes, the Reimbursement Obligations and the
other Secured Obligations then due and owing shall have occurred, the
Commitments have been terminated and the Letters of Credit have expired,
terminated or been returned to the Issuing Lender, the Collateral shall be
released from the Liens created hereby, and this Agreement and all obligations
(other than those expressly stated to survive such termination) of the Agent
and the Grantor hereunder shall terminate, all without delivery of any
instrument or performance of any act by any party, and all rights to the
Collateral shall revert to the Grantor. Upon request of the Grantor following
any such termination, the Agent shall deliver (at the sole cost and expense of
the Grantor) to the Grantor any Collateral held by the Agent hereunder, and
execute and deliver (at the sole cost and expense of the Grantor) to the
Grantor such documents as the Grantor shall reasonably request to evidence such
termination.
(b) If any of the Collateral shall be sold, transferred
or otherwise disposed of by the Grantor in a transaction permitted by the
Credit Agreement, then the Agent shall execute and deliver to the Grantor (at
the sole cost and expense of the Grantor) all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby
on such Collateral.
<PAGE> 13
13
IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be duly executed and delivered as of the date first above written.
A.P.S. MANAGEMENT SERVICES, INC.
By: /s/ E. EUGENE LAUVER
-------------------------------------
Title: Vice President
ACKNOWLEDGED AND AGREED AS OF
THE DATE HEREOF BY:
CHEMICAL BANK, as Agent
By: /s/ JULIE S. LONG
-------------------------------------
Title: Vice-President
<PAGE> 14
Schedule 1
TRADEMARK AND TRADEMARK LICENSES
<TABLE>
<CAPTION>
MARK REGISTRATION NO. REGISTRATION DATE
- ---- ---------------- -----------------
<S> <C> <C>
Husky 559,898 June 10, 1952
Renewed June 10, 1972
Renewed June 10, 1992
A design 776,950 Sept. 15, 1964
American Parts Renewed Sept. 15, 1984
Valu-Test 864,239 Jan. 28, 1969
Renewed Jan. 28, 1989
Big A 1,140,510 Oct. 14, 1980
Carryall 1,041,720 June 22, 1976
Trail Blazer 1,042,721 June 22, 1976
General Service Line 1,088,954 April 4, 1978
Poweready 1,332,869 April 30, 1985
Straight A Way 1,541,510 May 30, 1989
Big A and Design 1,388,039 April 1, 1986
The First Letter In 1,374,295 Dec. 3, 1985
Auto Parts
Autopro 1,122,026 July 10, 1979
Autopro 1,069,546 July 12, 1977
(Professional Parts
People and design)
APS 1,342,411 June 11, 1985
Installers' Express 1,840,109 June 14, 1994
Autopro 1,869,237 Dec. 27, 1994
A design 1,014,372 June 24, 1975
Renewed June 24, 1995
</TABLE>
<PAGE> 15
2
<TABLE>
<CAPTION>
MARK APPLICATION NO. FILING DATE
- ---- --------------- -----------
<S> <C> <C>
Installers' Service 74/351,877 Jan. 25, 1993
Warehouse
Installers' Service 74/489,631 Feb. 14, 1994
Warehouse and design
Big A Stylized 74/591,656 Oct. 27, 1994
ISW-Undercar Parts 74/631,895 Feb. 9, 1995
Specialists and
design
Time Is The New 74/591,099 Oct. 27, 1994
Money
America's Parts Pros 74/591,655 Oct. 27, 1994
I S W 74/592,119 Oct. 28, 1994
Hero Team 75/004,182 Oct. 11, 1995
Freez-Test 882,122 Dec. 9, 1969
Renewed Dec. 9, 1989
Powerx 90 1,653,852 August 13, 1991
Big A Plus 1,709,036 August 18, 1992
</TABLE>
CANADIAN REGISTERED:
<TABLE>
<S> <C>
Val-U-Test 170045
Husky 105716
</TABLE>
<PAGE> 1
EXHIBIT 10.1.23
THIRD AMENDMENT, dated as of January 25, 1997 (this "Amendment"), to
the Amended and Restated Credit Agreement dated as of January 25, 1996 (as
amended pursuant to the First Amendment thereto, dated as of April 23, 1996,
the Second Amendment, dated as of August 28, 1996, and this Amendment and as
the same may be further amended, supplemented, waived or otherwise modified
from time to time, the "Credit Agreement"), among A.P.S., Inc., a Delaware
corporation (the "Borrower"), the several banks and other financial
institutions from time to time parties thereto (collectively, the "Lenders";
individually a "Lender") and THE CHASE MANHATTAN BANK (formerly known as
Chemical Bank), a New York banking corporation, as agent for the Lenders (in
such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders amend the Credit
Agreement in the manner provided for herein; and
WHEREAS, the Agent and the Lenders are willing to agree to the
requested amendments, but only upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises contained herein, the
parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined.
2. Amendment to Subsection 7.1(c). Subsection 7.1(c) of the Credit
Agreement is hereby amended by inserting after the word "Borrower" in the third
line the phrase "(other than a fiscal month which is also the end of a
quarterly period or a fiscal year)".
3. Amendment to Subsection 8.1(a). Subsection 8.1(a) of the Credit
Agreement is hereby amended by (a) deleting the amount "$115,000,000" appearing
therein and inserting the amount "$109,800,000" in lieu thereof and (b)
deleting the date "January 27, 1996" appearing therein and inserting the date
"January 25, 1997" in lieu thereof.
4. Representations and Warranties. On and as of the date hereof and
after giving effect to this Amendment, the Borrower hereby confirms, reaffirms
and restates the representations and warranties set forth in Section 5 of the
<PAGE> 2
2
Credit Agreement mutatis mutandis, except to the extent that such
representations and warranties expressly relate to a specific earlier date in
which case the Borrower hereby confirms, reaffirms and restates such
representations and warranties as of such earlier date, provided that the
references to the Credit Agreement in such representations and warranties shall
be deemed to refer to the Credit Agreement as amended prior to the date hereof
and pursuant to this Amendment.
5. Effectiveness. This Amendment shall become effective as of the date
hereof upon receipt by the Agent of counterparts of this Amendment duly
executed and delivered by the Borrower and the Required Lenders.
6. Continuing Effect; No Other Amendments. Except as expressly amended
hereby, all of the terms and provisions of the Credit Agreement are and shall
remain in full force and effect. The amendments provided for herein are limited
to the specific subsections of the Credit Agreement specified herein and shall
not constitute an amendment of, or an indication of the Agent's or the Lenders'
willingness to amend, any other provisions of the Credit Agreement or the same
subsections for any other date or time period (whether or not such other
provisions or compliance with such subsections for another date or time period
are affected by the circumstances addressed in this Amendment).
7. Expenses. The Borrower agrees to pay and reimburse the Agent for all
its reasonable costs and out-of-pocket expenses incurred in connection with the
preparation and delivery of this Amendment, including, without limitation, the
reasonable fees and disbursements of counsel to the Agent.
8. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Amendment
signed by all the parties shall be delivered to the Borrower and the Agent.
9. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
A.P.S., INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as
Agent and as a Lender
By: /s/ JULIE S. LONG
------------------------------------
Title: Vice President
AMSOUTH BANK OF ALABAMA
By: /s/ J. MAXWELL
------------------------------------
Title: Commercial Banking Officer
BANK OF AMERICA ILLINOIS
BY: /s/ W. THOMAS BARNETT
------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ ALAN F. LYSTER, JR.
------------------------------------
Title: Vice President
BANK ONE, COLUMBUS, N.A.
By: /s/ DOUGLAS H. KLAMFOTH
------------------------------------
Title: Vice President
BANK PARIBUS
By: /s/ PIERRE-JEAN de FILIPPIS
------------------------------------
Title: General Manager
By: /s/ KENNETH E. MOORE, JR.
------------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By: /s/ KATHRYN A. BROTHERS
------------------------------------
Title: Vice President
FLEET BANK OF MASSACHUSETTS, N.A.
By: /s/ KEVIN P. CRONIN
------------------------------------
Title: Senior Vice President
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By: /s/ DAVID L. KELLEY
------------------------------------
Title: Senior Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:
------------------------------------
Title:
NATIONAL BANK OF CANADA
By: /s/ LARRY L. SEARS
------------------------------------
Title: Group Vice President
By: /s/ B. HANDLEY
------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/ F. SCOTT SINGHOFF
------------------------------------
Title: Senior Vice President
NBD
By: /s/ LARRY E. COOPER
------------------------------------
Title: First Vice President
SOCIETE GENERALE
By: /s/ RICHARD A. GOULD
------------------------------------
Title: Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ ROGER FRUENDT
-----------------------------------
Title: Vice President
Each of the undersigned hereby consents to the foregoing Amendment and
hereby confirms, reaffirms and restates that its obligations under or in
respect of the Credit Agreement and the documents related thereto to which it
is a party are and shall remain in full force and effect after giving effect to
the foregoing Amendment.
APS HOLDING CORPORATION
By: /s/ E. EUGENE LAUVER
--------------------------------
Title: Vice President
BIG A AUTO PARTS, INC.
By: /s/ E. EUGENE LAUVER
--------------------------------
Title: Vice President
AUTOPARTS FINANCE COMPANY, INC.
By: /s/ E. EUGENE LAUVER
--------------------------------
Title: Vice President
APS SUPPLY, INC.
By: /s/ E. EUGENE LAUVER
--------------------------------
Title: Vice President
AMERICAN PARTS SYSTEM, INC.
By: /s/ E. EUGENE LAUVER
--------------------------------
Title: Vice President
A.P.S. MANAGEMENT SERVICES, INC.
By: /s/ E. EUGENE LAUVER
---------------------------------
Title: Vice President
PARTS, INC.
By: /s/ E. EUGENE LAUVER
---------------------------------
Title: Vice President
PRESATT, INC.
By: /s/ E. EUGENE LAUVER
---------------------------------
Title: Vice President
INSTALLERS' SERVICE WAREHOUSE, INC.
By: /s/ E. EUGENE LAUVER
---------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 11.1
APS HOLDING CORPORATION
COMPUTATION OF INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
SHARES FOR PRIMARY AND FULLY DILUTIVE COMPUTATIONS:
Weighted average shares of common stock outstanding 13,741 13,725 13,523
Shares issuable on assumed exercise of stock options 0* 176 198
-------- -------- --------
Weighted average shares for primary net income per share 13,741 13,901 13,721
Incremental shares issuable on assumed exercise of stock
options to reflect maximum dilutive effect 0* 3 1
-------- -------- --------
Weighted average shares for fully diluted net income per share 13,741 13,904 13,722
======== ======== ========
NET INCOME (LOSS) FOR PRIMARY AND FULLY DILUTIVE COMPUTATIONS:
Income (loss) before extraordinary item $(10,836) $ 9,236 $ 32,367
Extraordinary item - charges resulting from extinguishment
of debt, net of income taxes -- (2,468) --
-------- -------- --------
Net income (loss) $(10,836) $ 6,768 $ 32,367
======== ======== ========
PRIMARY NET INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item $ (0.79) $ 0.67 $ 2.36
Extraordinary item - charges resulting from extinguishment
of debt, net of income taxes -- (0.18) --
-------- -------- --------
Primary net income (loss) per share $ (0.79) $ 0.49 $ 2.36
======== ======== ========
FULLY DILUTIVE NET INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item $ (0.79) $ 0.67 $ 2.36
Extraordinary item - charges resulting from extinguishment
of debt, net of income taxes -- (0.18) --
-------- -------- --------
Fully dilutive net income (loss) per share $ (0.79) $ 0.49 $ 2.36
======== ======== ========
</TABLE>
- -----------------------
* Due to the anti-dilutive effect of the stock options on both primary and
fully dilutive loss per share ("LPS"), such amounts have been excluded
from LPS.
<PAGE> 1
EXHIBIT 12.0
APS HOLDING CORPORATION
COMPUTATION OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 25, JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1996 1995 1994 1993
------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Earnings before interest expense
and income taxes $11,213 $30,939 $38,372 $26,144 $20,477
Portion of operating rents deemed
representative of an interest factor 9,597 5,745 3,780 2,858 2,618
------- ------- ------- ------- -------
Earnings before fixed charges $20,810 $36,684 $42,152 $29,002 $23,095
======= ======= ======= ======= =======
Interest expense $27,296 $16,256 $10,500 $22,039 $25,875
Portion of operating rents deemed
representative of an interest factor 9,597 5,745 3,780 2,858 2,618
------- ------- ------- ------- -------
Fixed charges $36,893 $22,001 $14,280 $24,897 $28,493
======= ======= ======= ======= =======
Earnings to fixed charges 0.6 1.7 3.0 1.2 0.8
======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF APS HOLDING CORPORATION, INC.
<TABLE>
<CAPTION>
Jurisdiction of Percentage of Issued
Incorporation and Outstanding
Name of Company or Organization Capital Stock Owned
--------------- --------------- -------------------
<S> <C> <C>
I. Subsidiaries of APS Holding Corporation
A.P.S., Inc. Delaware 100%
II. Subsidiaries of A.P.S., Inc.
American Parts System, Inc. Delaware 100%
APS Supply, Inc. Texas 100%
A.P.S. Management Services, Inc. Delaware 100%
Autoparts Finance Company, Inc. Delaware 100%
Big A Auto Parts, Inc. Delaware 100%
Parts, Inc. Tennessee 100%
Presatt, Inc. Delaware 100%
III. Subsidiaries of American Parts System, Inc.
Installers' Service Warehouse, Inc. Delaware 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in registration statements of APS
Holding Corporation on Form S-8 (File Nos. 33-76178, 33-90486, 333-10217 and
333-10233) and Form S-4 (File No. 333-3982) of our report dated March 27, 1997,
on our audits of the consolidated financial statements and financial statement
schedules of APS Holding Corporation and Subsidiaries as of January 25, 1997 and
January 27, 1996, and for the years ended January 25, 1997, January 27, 1996 and
January 28, 1995, which report is included in this Annual Report of Form 10-K.
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> JAN-25-1997
<CASH> 13,370
<SECURITIES> 0
<RECEIVABLES> 103,168
<ALLOWANCES> 0
<INVENTORY> 294,816
<CURRENT-ASSETS> 466,686
<PP&E> 44,483
<DEPRECIATION> 0
<TOTAL-ASSETS> 598,205
<CURRENT-LIABILITIES> 173,063
<BONDS> 305,941
<COMMON> 137
0
0
<OTHER-SE> 114,432
<TOTAL-LIABILITY-AND-EQUITY> 598,205
<SALES> 858,739
<TOTAL-REVENUES> 858,739
<CGS> 583,146
<TOTAL-COSTS> 583,146
<OTHER-EXPENSES> 271,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,296
<INCOME-PRETAX> (16,083)
<INCOME-TAX> (5,247)
<INCOME-CONTINUING> (10,836)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,836)
<EPS-PRIMARY> (.79)
<EPS-DILUTED> 0
</TABLE>
