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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended April 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)
(713) 507-1100
(Registrant's telephone number, including area code)
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 13,783,873 shares of the Registrant's Class A Common Stock
outstanding as of the close of business on June 3, 1997. There were no shares
outstanding of the Registrant's Class B Common Stock.
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APS HOLDING CORPORATION
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements and Notes 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
APS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
---------
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS APRIL 25, 1997 JANUARY 25, 1997
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................... $ 12,558 $ 13,370
Accounts and notes receivable, less
allowance of $10,625 and $11,164 ................. 115,486 103,168
Inventories ........................................ 295,306 294,816
Deferred tax asset ................................. 20,439 19,789
Prepaid expenses and other current assets .......... 26,067 35,543
---------- ----------
Total current assets ................. 469,856 466,686
Property and equipment, less accumulated
depreciation of $25,150 and $23,949 ................ 44,999 44,483
Notes receivable, less current portion ............... 21,233 21,615
Intangible assets, net ............................... 46,716 47,073
Investment in available-for-sale securities .......... 4,091 3,977
Deferred costs and other assets ...................... 15,215 14,371
---------- ----------
$ 602,110 $ 598,205
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdrafts .................................... $ 5,306 $ 6,306
Current maturities of long-term debt (Note 4) ...... 221,213 15,471
Accounts payable ................................... 123,443 106,927
Accrued liabilities ................................ 32,469 44,359
---------- ----------
Total current liabilities ............. 382,431 173,063
Long-term debt, less current maturities (Note 4) ..... 101,581 305,941
Deferred tax liability ............................... 1,404 1,339
Deferred income and other liabilities ................ 2,834 3,293
---------- ----------
Total liabilities ..................... 488,250 483,636
---------- ----------
Commitments and contingencies (Note 5) ............... -- --
Redeemable preferred stock ........................... -- --
Stockholders' equity:
Class A common stock ............................... 138 137
Class B common stock ............................... -- --
Additional paid-in capital ......................... 155,518 155,363
Accumulated deficit ................................ (42,648) (41,712)
Treasury stock ..................................... (120) (120)
Unrealized gain on available-for-sale securities ... 972 901
---------- ----------
Total stockholders' equity ............ 113,860 114,569
---------- ----------
$ 602,110 $ 598,205
========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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APS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 25, 1997 APRIL 25, 1996
-------------- --------------
<S> <C> <C>
Net sales ..................................................... $ 211,743 $ 217,566
Cost of goods sold ............................................ 140,000 144,200
--------- ---------
Gross profit ............................................. 71,743 73,366
Selling, general and administrative expenses .................. 67,275 65,815
--------- ---------
Operating income ......................................... 4,468 7,551
Interest income ............................................... 1,265 1,363
Other income .................................................. 50 273
--------- ---------
Income before interest expense and income taxes .......... 5,783 9,187
Interest expense .............................................. 7,317 7,001
--------- ---------
Income (loss) before income taxes ........................ (1,534) 2,186
Income tax provision (benefit) ................................ (598) 831
--------- ---------
Net income (loss) ......................................... $ (936) $ 1,355
========= =========
Net income (loss) per share ................................... $ (0.07) $ 0.10
========= =========
Weighted average common shares outstanding .................... 13,769 13,885
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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APS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 25, 1997
---------
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL TREASURY TOTAL
--------------- PAID-IN ACCUMULATED STOCK, UNREALIZED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT AT COST GAIN EQUITY
------ ------ ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period ... 13,764 $ 137 $ 155,363 $ (41,712) $ (120) $ 901 $ 114,569
Exercise of stock options ........ 14 1 155 -- -- -- 156
Unrealized gain on available-
for-sale securities ............ -- -- -- -- -- 71 71
Net loss for the period .......... -- -- -- (936) -- -- (936)
------ ------ ---------- ---------- ---------- ---------- ----------
Balance at April 25, 1997 ........ 13,778 $ 138 $ 155,518 $ (42,648) $ (120) $ 972 $ 113,860
====== ====== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
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APS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 25, 1997 APRIL 25, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ $ (936) $ 1,355
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................... 3,142 2,756
Amortization of debt issue costs ............................ 295 197
Provision for bad debts ..................................... 318 1,481
Income from supply agreement ................................ (50) (273)
Deferred income taxes ....................................... (585) 688
Change in operating assets and liabilities:
Accounts receivable ..................................... (11,655) (8,249)
Inventories ............................................. (112) (11,134)
Prepaid expenses and other current assets ............... 9,477 4,580
Accounts payable ........................................ 16,516 24,136
Accrued liabilities ..................................... (11,890) 686
Other assets and liabilities ............................ (2,767) (4,518)
-------- --------
Net cash provided by operating activities ............. 1,753 11,705
-------- --------
Cash flows from investing activities:
Investment in notes receivable ................................... (2,275) (1,547)
Proceeds from repayment of notes receivable ...................... 1,676 7,630
Business acquisitions, net of cash acquired ...................... (543) (2,286)
Capital expenditures ............................................. (1,961) (2,013)
Proceeds from sale of intangible assets .......................... -- 3,500
-------- --------
Net cash provided by (used in) investing activities ... (3,103) 5,284
-------- --------
Cash flows from financing activities:
Change in book overdrafts ........................................ (1,000) (2,512)
Net borrowings under revolving credit agreement .................. 5,200 (8,300)
Retirement of long-term debt ..................................... (3,818) (3,319)
Exercise of stock options ........................................ 156 --
-------- --------
Net cash provided by (used in) financing activities ... 538 (14,131)
-------- --------
Net increase (decrease) in cash and cash equivalents ............... (812) 2,858
Cash and cash equivalents at beginning of period ................... 13,370 7,886
-------- --------
Cash and cash equivalents at end of period ......................... $ 12,558 $ 10,744
======== ========
Supplemental disclosures:
Cash paid for interest ........................................... $ 3,842 $ 2,562
======== ========
Cash paid for income taxes ....................................... $ 30 $ 17
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
1. BASIS OF PRESENTATION:
The consolidated balance sheet of APS Holding Corporation and
subsidiaries (the "Company") at January 25, 1997 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at April 25, 1997, the consolidated statements of
operations for the three months ended April 25, 1997 and 1996, the consolidated
statement of changes in stockholders' equity for the three months ended April
25, 1997 and the consolidated statements of cash flows for the three months
ended April 25, 1997 and 1996 have been prepared by the Company, without audit.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. The results of operations
for the three months ended April 25, 1997 are not necessarily indicative of the
operating results for a full year or of future operations.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been omitted. The accompanying consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended January 25, 1997.
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. Such reclassifications
did not affect net income, stockholders' equity or cash flows for any period.
2. NEW ACCOUNTING PRINCIPLES:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, entitled "Earnings per Share" ("SFAS No. 128"),
in February 1997. SFAS No. 128 establishes 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
Company's basic loss per share and diluted loss per share under SFAS No. 128
would have each been $0.07 for the three months ended April 25, 1997.
3. COST TO EXIT ACTIVITIES:
The Company's financial statements at January 25, 1997 included
liabilities and reserves in the aggregate amount of $5.6 million for costs
related to the closure and consolidation of certain facilities and
administrative functions in connection with programs of rationalization
implemented by the Company during the fiscal year ended January 25, 1996
following its acquisition of Parts, Inc. from GKN Parts Industries Corporation
("GKN"). The Company attained a majority of the programs' objectives during
the year ended January 25, 1997 and expects final completion of such programs
during the fiscal year ending January 30, 1999. During the quarter ended April
25, 1997, the Company charged approximately $0.8 million against such
liabilities and reserves, including approximately $0.2 million of employee
termination and relocation costs.
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APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
4. CREDIT AGREEMENT COVENANTS:
Effective as of April 25, 1997, the Company obtained a waiver of its
first quarter Consolidated Leverage Ratio covenant requirement under its
amended and restated senior bank credit agreement (the "Credit Agreement") with
a syndicate of bank lenders led by The Chase Manhattan Bank (the "Senior
Lenders"). Such waiver will be effective until July 15, 1997. Prior to the
expiration of such waiver, the Company intends to propose to the Senior Lenders
that the Consolidated Leverage Ratio and certain other financial covenant
requirements of the Credit Agreement be amended. While the Company does not
believe it likely to occur, in the event that the Senior Lenders do not approve
any necessary amendments, at any time after July 15, 1997, the Senior Lenders
could accelerate the maturity of outstanding loans under the Credit Agreement.
The Senior Lenders have been supportive of the Company in the past, and the
Company believes that they will be receptive to considering any appropriate
changes, but no assurance can be given in this regard. Accordingly, the entire
amount outstanding under the Credit Agreement has been classified as a current
liability at April 25, 1997.
5. LITIGATION:
The Company is involved in various claims and disputes arising in the
normal course of business, including 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 is
continuing 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Presented below is a summary of unaudited financial operating
information for the three months ended April 25, 1997 and 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 25, 1997 % APRIL 25, 1996 %
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales ....................................... $ 211,743 100.0 $ 217,566 100.0
Cost of goods sold .............................. 140,000 66.1 144,200 66.3
Gross profit .................................... 71,743 33.9 73,366 33.7
Selling, general and administrative expenses .... 67,275 31.8 65,815 30.3
Operating income ................................ 4,468 2.1 7,551 3.5
Net income (loss) ............................... (936) (0.4) 1,355 0.6
</TABLE>
Fiscal Year 1998 Compared to Fiscal Year 1997
Net sales for the three months ended April 25, 1997 decreased $5.8
million or 2.7% from the corresponding period of the prior fiscal year. Such
decrease was primarily attributable to the impact of the integration of Parts,
Inc. ("PI"), which was acquired by the Company on January 25, 1996 (the "PI
Acquisition"). As anticipated by the Company's management, during such
integration, which occurred primarily during the second through fourth quarters
of the fiscal year ended January 25, 1997 ("Fiscal Year 1997"), approximately
one-fifth of the more than 125 PI company-owned stores were closed or sold and
approximately one-third of the over 850 former PI associate jobbers were not
changed over to the Company's product lines. In addition, due to facility
closures, continuing general softness in demand for the Company's products and
increasing competitive pressures, sales from the Company's traditional
businesses (i.e. distribution centers and Company-owned stores) were lower than
expected and the Company was not able to fully replace the lost PI related
business.
Cost of goods sold consists primarily of the purchase cost of products
sold. Cost of goods sold for the three months ended April 25, 1997 decreased
$4.2 million or 2.9% from the corresponding period of the prior fiscal year.
The dollar decrease in cost of goods sold principally resulted from the
decrease in sales discussed above. Cost of goods sold as a percentage of net
sales for the three months ended April 25, 1997 decreased slightly compared to
that of the corresponding period of the prior year. Lower gross profit margins
at the Company's traditional businesses (primarily resulting from additional
sales programs offering reduced selling prices and fewer services) were almost
completely offset by the 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 "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. In the fourth quarter of Fiscal Year 1997, the
Company recorded a charge of approximately $11.8 million for an inventory loss
adjustment for the ISW business, a portion of which may be attributable to
earlier quarters of Fiscal Year 1997. As a result, cost of goods sold for the
three months ended April 25, 1997 may not be comparable to cost of goods sold
for the corresponding period of the prior year.
Selling, general and administrative expenses, which include
depreciation and amortization, for the three months ended April 25, 1997
increased $1.5 million or 2.2% compared to the corresponding period of the
prior year. The dollar increase in selling, general and administrative expenses
resulted from the operation of more ISWs as well as from continuing performance
and execution issues in such business. See "Business Initiatives", below.
Selling, general and
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administrative expenses for the three months ended April 25, 1997 as a
percentage of sales also increased over the corresponding period of the prior
year due to the sales mix containing a higher percentage of sales by ISWs,
which have higher operating costs as a percentage of sales than the Company's
traditional businesses. Such increases in selling, general and administrative
expenses in the ISW business were offset in part by decreases in such expenses
at the Company's traditional businesses due to the closure and consolidation of
certain facilities. 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.
Operating income for the three months ended April 25,1997 decreased
$3.1 million or 40.8% compared to the corresponding period of the prior year,
primarily due to the factors discussed above.
Interest income for the three months ended April 25, 1997 was $1.3
million, a decrease of $0.1 million or 7.2%, compared to $1.4 million for the
corresponding period of the prior year. The decrease was primarily due to a
lower average notes receivable balance outstanding during the three months
ended April 25, 1997.
Other income for the three months ended April 25, 1997 was $50,000
compared to $0.3 million for the corresponding period of the prior year. Such
amounts represent the portion allocable to such periods of a $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 the three months ended April 25, 1997 was $7.3
million (3.5% of net sales) compared to $7.0 million (3.2% of net sales) for
the corresponding period of the prior year. The increase in interest expense
was principally due to the Company's higher average borrowings under the
revolving credit facility during the three months ended April 25, 1997 and
increased interest rates. The increase in interest rates resulted in part from
an increase in the margins applicable to various types of loans under the
Company's senior bank credit agreement (the "Credit Agreement") due to the
weakening of certain of the Company's financial ratios and, to a lesser extent,
from an increase in the prime rate charged by the Company's bank lenders. The
extent of future increases in interest expense will depend on a number of
factors, including the magnitude of increases in borrowing levels, the
Company's ability to improve certain financial ratios, changes in interest
rates and the extent to which the Company continues its expansion efforts
utilizing borrowed funds.
Income taxes for the three months ended April 25, 1997 were a benefit
of $0.6 million, compared to income tax expense of $0.8 million for the
corresponding period of the prior year. The combined applicable federal and
state statutory tax rate is expected to approximate 39% during the fiscal year
ending January 31, 1998 ("Fiscal Year 1998").
Net loss for the three months ended April 25, 1997 was $0.9 million
compared to net income of $1.4 million for the corresponding period of the
prior year. The decrease in net income was primarily a result of the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. For the three months ended April 25, 1997, operating
activities provided net cash of approximately $1.8 million, due primarily to
increases in accounts payable and decreases in prepaid expenses, offset in part
by increases in accounts receivable and decreases in accrued liabilities.
Investing activities utilized $3.1 million of cash, principally consisting of
capital expenditures and investments in customer notes receivable. Financing
activities provided $0.5 million of cash, primarily from increased long-term
borrowings.
For three months ended April 25, 1996, operating activities provided
net cash of approximately $11.7 million, resulting primarily from increases in
accounts payable offset by increases in accounts receivable and inventories.
10
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Investing activities provided $5.3 million of cash, primarily from proceeds
from the repayment of customer notes receivable and from proceeds from the sale
of the Company's interest in the "Parts Plus" group of marks which had been
acquired by the Company in the PI Acquisition. Such proceeds were partially
offset by capital expenditures and business acquisitions. Financing activities
utilized $14.1 million of cash, principally resulting from net repayments under
the Company's revolving credit facility and retirement of long-term debt.
Working Capital. The Company's working capital decreased to $87.4
million at April 25, 1997, including $12.6 million in cash and cash
equivalents, from $293.6 million at January 25, 1997, including $13.4 million
of cash and cash equivalents. Such decrease in working capital is principally
due to the reclassification of the Company's outstanding debt under the Credit
Agreement from long-term to current liabilities as of April 25, 1997. See
"Credit Agreement" below. Excluding such reclassification, current assets and
current liabilities increased by $3.2 million and $4.1 million, respectively
during the three months ended April 25, 1997. Such increases are primarily
attributable to seasonal increases in accounts receivable and accounts payable,
offset, to some extent, by decreases in prepaid expenses and other current
assets and liabilities. Looking forward, the Company currently intends to
return over $20.0 million of excess and slow moving inventory to its suppliers
over the remainder of Fiscal Year 1998, the proceeds of which would be used to
reduce indebtedness under the Credit Agreement. Certain additional inventory
may be returned in connection with certain facility closures. See "Business
Initiatives", below. As a result, the Company's working capital could decrease
during the remainder of Fiscal Year 1998, although no assurance can be given
in this regard.
Credit Agreement. Concurrently with the PI Acquisition, the Company
entered into the Credit Agreement with a syndicate of bank lenders led by The
Chase Manhattan Bank, formerly known as Chemical Bank (the "Senior Lenders").
As of April 25, 1997, the Company had aggregate borrowings under the Credit
Agreement of $220.8 million, consisting of $172.5 million and $48.3 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 Credit Agreement. Amounts outstanding under the revolving
credit facility and term loan facility mature on December 31, 2000 and December
31, 1999, respectively. Undrawn amounts under the revolving credit facility,
net of the aggregate face amount of letters of credit outstanding under the
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 Credit Agreement at
April 25, 1997, after taking into account borrowing base restrictions and
outstanding letters of credit, was $28.8 million. Borrowings under the Credit
Agreement bear interest at variable rates based in part upon the Company
attaining certain financial ratios. Effective as of January 25, 1997, the Net
Worth covenant requirement of the Credit Agreement was amended to lower the
minimum required Net Worth amount from $115.0 million to $109.8 million.
Effective as of April 25, 1997, the Company also obtained a waiver of its first
quarter Consolidated Leverage Ratio covenant requirement under the Credit
Agreement. Such waiver will be effective until July 15, 1997. After giving
effect to such amendment and such waiver, the Company was in compliance with
these covenants as of April 25, 1997. Prior to the expiration of such waiver,
the Company intends to propose to the Senior Lenders that the Consolidated
Leverage Ratio and certain other financial covenant requirements of the Credit
Agreement be amended. While the Company does not believe it likely to occur,
in the event that the Senior Lenders do not approve any necessary amendments,
at any time after July 15, 1997, the Senior Lenders could accelerate the
maturity of outstanding loans under the Credit Agreement. The Senior Lenders
have been supportive of the Company in the past, and the Company believes that
they will be receptive to considering any appropriate covenant changes,
although no assurance can be given in this regard. Accordingly, the entire
amount outstanding under the Credit Agreement has been classified as a current
liability at April 25, 1997.
Interest Rate Swap Agreements. 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 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 matures in June 1997 and $25.0 million of which matures in January
1998. The counterparties to such agreements are major financial institutions
and, therefore, credit losses from counterparty nonperformance is not
anticipated.
11
<PAGE> 12
Capital Expenditures and Acquisitions. Capital expenditures,
excluding new business acquisitions, for both the three months ended April 25,
1997 and the three months ended April 25, 1996 were approximately $2.0 million.
The Company estimates capital expenditures for the remainder of the Fiscal Year
1998 will be approximately $10.0 million primarily as a result of management
information system enhancements.
For the three months ended April 25, 1997, the Company's cash
expenditures for business acquisitions totaled $0.5 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 Credit Agreement and
other sources of liquidity, to the extent available, as discussed below. See
"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
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
Credit Agreement and the proceeds from the issuance of the Company's 11.875%
senior subordinated notes due 2006. 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, subject to obtaining any necessary amendments to the financial
covenant requirements of the Credit Agreement, borrowings under the Credit
Agreement. While the Company expects that such sources will provide sufficient
working capital to operate its business, fund any future business expansion
efforts, and pay down accounts payable as deferred payment terms obtained in
connection with the PI Acquisition expire (see "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 result of the PI Acquisition and related financing) prior to
maturity of the revolving credit facility under the 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.
BUSINESS INITIATIVES
As indicated above, the Company has pursued aggressive acquisition and
ISW expansion programs since its initial public offering in 1993. Such
programs and, particularly with regard to Fiscal Year 1997, integrating PI into
the Company's business have consumed significant financial and operating
resources and demanded extensive managerial focus and attention. The Company
has re-focused its efforts and resources from such aggressive growth programs
to improving both the execution of its business strategy and its management
information systems. During the remainder of 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.
ISW Business
During the three months ended April 25, 1997, the total number of ISW
locations decreased from 272 to 262 due to the closure of 15 under-performing
units, which had been previously designated for closure following a performance
review, partially offset by the opening of five new units. 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 may close additional under-performing units. 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
12
<PAGE> 13
experience earnings and cash flow pressure due to the number of less mature
ISWs, the need for improvement of the execution of this division's business
strategy and its systems 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.
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 has shifted 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 resulting in the closure
or consolidation of 25 of its under-performing ISW units in Fiscal Year 1997
and the closure or consolidation of an additional 15 such ISWs during the three
months ended April 25, 1997, as discussed above. 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 over
$20.0 million of excess and slow moving ISW inventory to suppliers (the
anticipated cost of which was accrued in Fiscal Year 1997) during the remainder
of 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 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 inventory and expense
controls and working capital management. 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 third quarter of Fiscal Year 1998 and currently expects
completion in the first quarter of Fiscal Year 1999.
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, the Company closed or consolidated approximately 25 under-performing
Company-owned stores during Fiscal Year 1997, seven additional stores in the
three months ended April 25, 1997 and currently intends to close or consolidate
an estimated additional 17 under-performing stores in the second quarter of
Fiscal Year 1998. Such closures are expected to enable management to focus its
efforts and resources on more productive facilities. In connection with the
program initiated in the fiscal year ended January 27, 1996 to rationalize
facilities owned by the Company prior to the PI Acquisition, in April 1997 the
Company announced the closure and consolidation of its distribution center
located in Columbus, Ohio into its distribution center located in Gallipolis,
Ohio. Such consolidation is expected to eliminate certain redundant operations
and improve operating efficiency. In addition, the Company's efforts to
improve its operating systems, including by installing the accounts receivable
and central management systems currently under development for the ISW
business, as discussed above, are expected to improve inventory and expense
control and working capital management at the Company's traditional businesses
as well.
Integration of PI
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 the retention of the remaining PI jobbers, and
achieving further reductions in selling, general and administrative expenses
through the consolidation, closure or more efficient operation of certain
operating and
13
<PAGE> 14
administrative facilities and functions. At the time of the PI Acquisition,
the PI distribution network was comprised of approximately 850 parts stores
owned by PI associated jobbers and more than 125 company-owned stores. At
April 25, 1997, in line with management's expectations, approximately one-fifth
of the PI company-owned stores had been closed or sold and approximately one-
third of the former PI associated jobbers had not changed over to the Company's
product lines. 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.
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 $8.0 million during the
remainder of Fiscal Year 1998 and $6.0 million and $16.8 million in the fiscal
years ending January 1999 and 2000, respectively.
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 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 Company's basic loss per share and
diluted loss per share under SFAS No. 128 would have both been $0.07 for the
three months ended April 25, 1997.
FORWARD LOOKING INFORMATION
The statements contained in this Quarterly Report on Form 10-Q
("Quarterly Report") which are not historical facts, including, but not limited
to, statements found under the captions "Results of Operations", "Liquidity and
Capital Resources" and "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 Quarterly 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 this
Quarterly 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.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.1.24 Waiver, dated as of April 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
Chemical Bank, as agent.
10.2.3 Loanout Agreement, dated as of March 4, 1997, among APS Holding
Corporation, A.P.S., Inc., and Clayton, Dubilier & Rice, Inc.
10.4.5 Letter agreement dated March 20, 1997 between Standard Motor
Products, Inc. and A.P.S., Inc. (the "Extension Agreement")
amending the Sales and Distribution Agreement, made as of
October 6, 1989, by and between Standard Motor Products Company,
Inc. and A.P.S., Inc. for Tune-up Products, as amended, and the
Sales Distribution Agreement, made as of October 6, 1989,
between Standard Motor Products Company, Inc. and A.P.S., Inc.
for Temperature Control Products, as amended. (Certain portions
of the Extension 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.)
11.1 Statement re Computation of Income Per Share
12.0 Statement re Computation of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
B. REPORTS ON FORM 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APS HOLDING CORPORATION
Date: June 6, 1997 By: /s/ HUBBARD C. HOWE
--------------------------------------------
Hubbard C. Howe, Chairman of the Board
and Interim Chief Executive Officer
Date: June 6, 1997 By: /s/ JOHN L. HENDRIX
--------------------------------------------
John L. Hendrix, Senior Vice President
and Chief Financial Officer
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.1.24 Waiver, dated as of April 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
Chemical Bank, as agent.
10.2.3 Loanout Agreement, dated as of March 4, 1997, among APS Holding
Corporation, A.P.S., Inc., and Clayton, Dubilier & Rice, Inc.
10.4.5 Letter agreement dated March 20, 1997 between Standard Motor
Products, Inc. and A.P.S., Inc. (the "Extension Agreement")
amending the Sales and Distribution Agreement, made as of
October 6, 1989, by and between Standard Motor Products Company,
Inc. and A.P.S., Inc. for Tune-up Products, as amended, and the
Sales Distribution Agreement, made as of October 6, 1989,
between Standard Motor Products Company, Inc. and A.P.S., Inc.
for Temperature Control Products, as amended. (Certain portions
of the Extension 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.)
11.1 Statement re Computation of Income Per Share
12.0 Statement re Computation of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1.24
EXECUTION COPY
WAIVER, dated as of April 25, 1997, (this "Waiver"), 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 the Third Amendment dated as of January 25,
1997, and as 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 waive certain
provisions of the Credit Agreement in the manner provided for herein; and
WHEREAS, the Agent and the Lenders are willing to agree to the
requested waiver, 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. Waiver of Event of Default under Subsection 8.1(c) of the Credit
Agreement. The Lenders hereby waive, until July 15, 1997, any Default or Event
of Default arising out of the failure of the Borrower to comply with the
requirements of subsection 8.1(c) of the Credit Agreement at the last day of
the fiscal quarter ending April 25, 1997, provided that the waiver provided in
this Section shall cease to be effective if the Consolidated Leverage Ratio of
Holding at the last day of such fiscal period is greater than 4.50 to 1.00.
3. Representations and Warranties. On and as of the date hereof and
after giving effect to this Waiver, the Borrower hereby confirms, reaffirms and
restates in all material respects the representations and warranties set forth
in Section 5 of the 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,
<PAGE> 2
2
reaffirms and restates in all material respects 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.
4. Effectiveness. This Waiver shall become effective as of the date
hereof upon receipt by the Agent of counterparts of this Waiver duly executed
and delivered by the Borrower and the Required Lenders.
5. Continuing Effect; No Other Waivers. Except as expressly waived
hereby, all the terms and provisions of the Credit Agreement are and shall
remain in full force and effect. The waiver provided for herein is limited to
the specific subsection of the Credit Agreement specified herein and shall not
constitute a waiver of, or an indication of the Agent's or the Lenders'
willingness to waive, any other provisions of the Credit Agreement or the same
subsection for any other date or time period (whether or not such other
provisions or compliance with such subsection for another date or time period
are affected by the circumstances addressed in this Waiver).
6. Expenses. The Borrower agrees to pay and reimburse the Agent for
all its reasonable costs and out-of-pocket expenses incurred in connection with
preparation and delivery of this Waiver, including, without limitation, the
reasonable fees and disbursements of counsel to the Agent.
7. Counterparts. This Waiver may be executed by one or more of the
parties to this Waiver 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 Waiver
signed by all the parties shall be delivered to the Borrower and the Agent.
8. GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS WAIVER 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.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver 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
<PAGE> 3
3
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: Banking Officer
BANK OF AMERICA ILLINOIS
By: /s/ W. THOMAS BARNETT
------------------------------------
Title: Managing Director
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
BANQUE PARIBAS
By:
------------------------------------
Title:
By:
------------------------------------
Title:
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Title:
<PAGE> 4
4
FIRST INTERSTATE BANK OF TEXAS
By:
------------------------------------
Title:
FLEET BANK OF MASSACHUSETTS, N.A.
By: /s/ ERIC VANDER MEL
------------------------------------
Title: Vice President
THE FUJI BANK, LIMITED, HOUSTON
AGENCY
By: /s/ P.C. LAUINGER III
------------------------------------
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ GARY T. MACIAH
------------------------------------
Title: First Vice President
NATIONAL BANK OF CANADA
By: /s/ LARRY L. SEARS
------------------------------------
Title: Group Vice President
By: /s/ RANDALL K. WILHOIT
------------------------------------
Title:
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/ F. SCOTT SINGHOFF
------------------------------------
Title: Senior Vice President
NBD BANK
By: /s/ KATHLEEN COMELLA
------------------------------------
Title: Vice President
<PAGE> 5
5
SOCIETE GENERALE
By: /s/ RICHARD A. GOULD
------------------------------------
Title: Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:
------------------------------------
Title:
<PAGE> 6
Each of the undersigned hereby consents to the foregoing Waiver 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 Waiver.
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
<PAGE> 7
2
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 10.2.3
LOAN OUT AGREEMENT
This LOANOUT AGREEMENT, dated as of March 4, 1997 (the "Agreement"),
among APS Holding Corporation, a Delaware corporation (the "Company"), A.P.S.,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("APS"), and Clayton, Dubilier & Rice, Inc., a Delaware corporation ("CD&R").
WITNESSETH:
WHEREAS, CD&R provides financial advisory and management consulting
services to the Company, APS and its subsidiaries (the "Consulting
Arrangements"), and the Company, APS and CD&R are parties to an Indemnification
Agreement, dated as of November 22, 1989 (the "Indemnification Agreement"),
among the Company, APS, APS Acquisition Corporation, CD&R and The Clayton &
Dubilier Private Equity Fund IV Limited Partnership;
WHEREAS, the Company and APS desire to obtain the services of Mr.
Hubbard C. Howe, an employee of CD&R ("Howe"), to perform the functions of
interim Chief Executive Officer of the Company, APS and its subsidiaries, and
CD&R is willing to make such services available to the Company, APS and such
subsidiaries upon and subject to the terms and conditions hereof; and
WHEREAS, this Agreement has been approved by the Board of Directors of
the Company and of APS, including a majority of the disinterested directors of
the Company and of APS;
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth and the mutual benefits to be
derived herefrom, the parties hereto hereby agree as follows:
1. Services, etc.
CD&R shall make the services of Howe available to the Company, APS and
its subsidiaries, and the Company, APS and its subsidiaries shall make use of
the services of Howe to serve as interim Chief Executive Officer of each of
them, commencing and effective as of the date hereof, until the expiration of
the Term (as defined in Section 2 hereof). Howe shall be available to render
such services on a part-
<PAGE> 2
time basis mutually agreeable to the Company, APS, CD&R and Howe. Without
limiting the foregoing, Howe will continue to serve as an employee of CD&R and
may serve as an officer or director of CD&R or other corporations or entities
and devote such time to performing such services as Howe, in his sole
discretion, shall deem appropriate. The services of Howe to be made available
to the Company, APS and its subsidiaries hereunder shall be deemed to be part
of the services provided by CD&R pursuant to the Consulting Arrangements. No
separate or additional consideration shall be payable hereunder for the
services of Howe, beyond that payable under the Consulting Arrangements.
2. Term.
(a) This Agreement shall be effective as of the date
hereof. The term of this Agreement (the "Term") shall commence on the date
hereof and shall terminate on the earliest to occur of (i) the termination of
the Consulting Arrangements, (ii) the date that is ten (10) business days
following delivery of written notice of such termination by any party hereto to
the other parties hereto, (iii) the election of a successor Chief Executive
Officer of the Company or of APS by the Board of Directors of the Company or of
APS, as applicable, in accordance with its by-laws and (iv) Howe's death,
permanent disability or resignation from his employment with CD&R.
(b) The expiration of the Term shall not affect the
continuing effectiveness of the Consulting Arrangements or the Indemnification
Agreement, each of which shall continue to be in full force and effect and
enforceable in accordance with their respective terms. Without limiting the
foregoing, each of the Company and APS shall continue to, and to be obligated
to, pay and reimburse all fees, expenses and other amounts as and when due
under the Consulting Arrangements and the Indemnification Agreement and perform
all their other obligations thereunder.
3. Indemnification.
All performance by, and all actions or omissions of, CD&R or
Howe under or in respect of this Agreement shall be deemed to be pursuant to
the Consulting Arrangements, and each of CD&R and Howe shall be entitled to
the benefits of the indemnification and other provisions of the Consulting
Arrangements and the Indemnification Agreement.
2
<PAGE> 3
4. Independent Contractor Status.
Each of CD&R, the Company and APS agree that the furnishing of
Howe's services hereunder by CD&R is solely as an independent contractor, with
CD&R retaining control over and responsibility for its own operations and
personnel, including Howe. Neither CD&R nor any of its directors, officers,
employees or agents (including Howe) shall, solely by virtue of this Agreement
or the arrangements hereunder, be considered employees, principals, partners,
co-ventures or agents of the Company, APS or any of its subsidiaries.
5. Notices.
Any notices or other communication required or permitted to be
given or made under this Agreement by one party to the other parties shall be
in writing an shall be deemed to have been duly given and to be effective (i)
on the date of delivery if delivered personally or (ii) when sent if sent by
prepaid telegram, or mailed first-class, postage prepaid, by registered or
certified mail or confirmed facsimile transmission, as follows (or to such
other address as shall be given in writing by one party to the other parties
in accordance herewith):
(a) If to the Company or APS, to it at:
15710 John F. Kennedy Boulevard
Suite 700
Houston, Texas 77032-2347
ATTN: General Counsel
Telephone: (713) 507-1100
Telecopy:
--------------
(b) If to CD&R, to it at:
375 Park Avenue, 18th Floor
New York, New York 10152
ATTN: Joseph L. Rice, III
Telephone: (212) 407-5200
Telecopy: (212) 407-5252
3
<PAGE> 4
With a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attn: David A. Brittenham, Esq.
Telephone: (212) 909-6000
Telecopy: (212) 909-6836
6. General.
(a) Entire Agreement. This Agreement, together with the Consulting
Arrangements and the Indemnification Agreement, (a) contain the complete and
entire understanding and agreement of CD&R, the Company and APS with respect to
the subject matter hereof and (b) supersede all prior and contemporaneous
understandings, conditions and agreements, oral or written, express or implied,
in respect of the subject matter hereof, including but not limited to in
respect of the furnishing of the services of Howe in connection with the
subject matter hereof. There are no representations or warranties of Howe or
CD&R in connection with this Agreement or the services to be made available
hereunder, except as expressly made and contained in this Agreement.
(b) Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
(d) Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties to this Agreement and their
respective successors and assigns; provided that none of CD&R, the Company or
APS may assign any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto.
(e) Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER, AND IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK. EACH OF THE COMPANY, APS AND CD&R HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
4
<PAGE> 5
COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS OF THE UNITED STATES OF
AMERICA LOCATED IN THE STATE, CITY AND COUNTY OF NEW YORK SOLELY IN RESPECT OF
THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, AND THE
PARTIES HERETO HEREBY IRREVOCABLY AGREE THAT (i) THE SOLE AND EXCLUSIVE
APPROPRIATE VENUE FOR ANY ACTION, SUIT OR PROCEEDING RELATING TO SUCH
INTERPRETATION AND ENFORCEMENT SHALL BE IN SUCH A COURT, (ii) ALL CLAIMS WITH
RESPECT TO SUCH PROVISIONS SHALL BE HEARD AND DETERMINED EXCLUSIVELY IN SUCH A
COURT, (iii) ANY SUCH COURT SHALL HAVE EXCLUSIVE JURISDICTION OVER THE PERSON
OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY DISPUTE RELATING TO SUCH
PROVISIONS AND (iv) EACH HEREBY WAIVES, AND AGREES NOT TO ASSERT, ANY AND ALL
OBJECTIONS AND DEFENSES BASED ON FORUM, VENUE OR PERSONAL OR SUBJECT MATTER
JURISDICTION AS THEY MAY RELATE TO SUCH AN ACTION, SUIT OR PROCEEDING BEFORE
SUCH A COURT IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 6(e), PROVIDED
THAT ENFORCEMENT OF A JUDGMENT RENDERED BY SUCH A COURT MAY BE SOUGHT IN ANY
COURT OF COMPETENT JURISDICTION FOR THE ENFORCEMENT THEREOF. EACH OF THE
COMPANY, APS AND CD&R HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION
OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE
AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH
ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 5, OR IN SUCH OTHER
MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE
THEREOF.
(f) Waiver of Jury Trial. Each party hereto acknowledges and agrees
that any controversy that may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore it hereby irrevocably and
unconditionally waives any right it may have to a trial by jury in respect of
any litigation directly or indirectly arising out of or relating to this
Agreement, or the breach, termination or validity of this Agreement, or the
transactions contemplated by this Agreement. Each party certifies and
acknowledges that (i) no representative, agent or attorney of any other party
has represented, expressly or otherwise, that such other party would not, in
the event of litigation, seek to enforce the foregoing waiver, (ii) it
understands and has considered the implications of this waiver, (iii) it makes
this waiver voluntarily and (iv) it has been induced to enter into this
Agreement by, among other things, the mutual waivers and certifications
contained in this Section 6(f).
(g) Amendment; Waivers. No amendment, modification, supplement or
discharge of this Agreement, and no
5
<PAGE> 6
waiver hereunder, shall be valid or binding unless set forth in writing and
duly executed by the party against whom enforcement of the amendment,
modification, supplement, discharge or waiver is sought (and in the case of the
Company or APS, approved by resolution of the Board of Directors of the Company
or APS, as the case may be). Any such waiver shall constitute a waiver only
with respect to the specific matter described in such writing and shall in no
way impair the rights of the party granting such waiver in any other respect or
at any other time. Neither the waiver by any party hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure by any
party, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed
as a waiver of any other breach or default of a similar nature, or as a waiver
of any of such provisions, rights or privileges hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
APS HOLDING CORPORATION
By: /s/ E. EUGENE LAUVER
---------------------------
Name: E. Eugene Lauver
Title: Vice President
A.P.S., INC.
By: /s/ E. EUGENE LAUVER
---------------------------
Name: E. Eugene Lauver
Title: Vice President
CLAYTON, DUBILIER & RICE, INC.
By: /s/ DONALD GOGEL
---------------------------
Name: Donald Gogel
Title:
6
<PAGE> 1
EXHIBIT 10.4.5
[STANDARD MOTOR PRODUCTS, INC. LETTERHEAD]
Mr. Chuck Popik
Vice President
APS, Inc.
15710 J.F.K. Blvd., Suite 700
Houston, TX 77032
Fax #713-507-1396
Dear Chuck:
After meeting with you in New York and reviewing your requests for the Parts,
Inc. changeover, we submit the following proposal to change Parts, Inc.
warehouses and jobbers to our products lines and to extend our current supply
agreements for Tune-Up, Temperature Control and Service Line products.
TERMS
Effective April 1996, the following terms will apply to your purchases for
APS for three (3) years:
These provisions have been redacted and filed separately
with the Securities and Exchange Commission.
<PAGE> 2
2
Effective at the end of the three year period, all terms will revert to
the following terms:
These provisions have been redacted and filed separately
with the Securities and Exchange Commission.
ISW
These provisions on this page and the following page have been
redacted and filed separately with the Securities and Exchange
Commission.
<PAGE> 3
3
These provisions have been redacted and filed separately
with the Securities and Exchange Commission.
<PAGE> 4
4
C. PAYMENT TERMS FOR ALL ISW PURCHASES
For the first three (3) years effective April 1996:
This provision has been redacted and filed separately
with the Securities and Exchange Commission.
After three (3) years:
This provision has been redacted and filed separately
with the Securities and Exchange Commission.
<PAGE> 5
5
D. FILL RATE & TURNAROUND TIME GUARANTEE
For the remaining terms of the Sales and Distribution Agreement for Tune-Up
Products and Temperature Control Products, Supplier agree to maintain at
all times (i) a Stock Order fill rate of no less than ____ [This provision
has been redacted and filed separately with the Securities and Exchange
Commission.] of Products orders, calculated in WD net dollars and (ii) a
Stock Order turnaround time of _____ [This provision has been redacted and
filed separately with the Securities and Exchange Commission.] business
days (excluding holidays and weekends of receipt (the day of receipt is
defined as beginning 12:01 AM of the business day that the Sock Order is
received at the Supplier's shipping facility using Supplier's customary
ordering procedures). The Stock Order fill rate would be calculated by
excluding from the Stock Order previous back orders, discontinued part
numbers, new part number items and reclassified items. New part number
items are items that are ordered within 180 days of their initial
availability. Changeover orders and promotional orders and promotional
orders are excluded this fill rate and turnaround time guarantee.
This provision has been redacted and filed separately
with the Securities and Exchange Commission.
Such reimbursements shall be in the form of a credit to Supplier's billing
statement to APS for the billing period in which the order was placed
unless this Agreement has expired or is earlier terminated in which
instance the reimbursement shall be in the form of cash payable by
Supplier to APS within thirty (30) days following the date of expiration
or termination. No payment shall be made on a Stock Order of less than
five thousand dollars ($5,000). The order fill rate and turnaround time
guarantees shall not apply to Special Orders which are defined as
emergency orders, changeover orders and new location opening stock orders.
In addition, the above-mentioned Stock Order fill rate and turnaround time
guarantees shall be subject to force majeure as defined in each agreement.
<PAGE> 6
6
The following example is given to clarify the above formula:
These provisions have been redacted and filed separately
with the Securities and Exchange Commission.
All calculations described above shall be made by Supplier. A copy of the
calculations shall be sent to Supplier to APS along with each billing
statement reflecting the appropriate credit. APS shall have the right to
audit any calculations made and data used by Supplier. Supplier shall
provide APS, upon reasonable notice, copies of all such information as
APS may reasonably request, including order receipt date and shipping date
information, to determine the correctness of Supplier's calculations. Any
discrepancies between the credits given by Supplier and credits claimed by
APS shall be adjusted by mutual agreement of the parties. APS must notify
Supplier of any such discrepancy no later than sixty (60) days after the
date of the Supplier's billing statement to APS on which the disputed
credit appears. If no such timely notification is given by APS to
Supplier, the parties agree that any credit given by Supplier pursuant to
this Amendment is correct. If the parties cannot agree, the dispute will
be settled using the arbitration provisions of the Agreements.
<PAGE> 7
7
AGREEMENT EXTENSIONS
There will be extension of the Sales and Distribution Agreements between
APS, Inc. and Standard Motor Products, Inc. for Tune-Up Products,
Temperature Control Products and Service Line/Specialty Tool line Products
through December 31, 2003. All terms and conditions of such Agreements
that are not altered by this letter shall remain and shall be effective
through December 31, 2003.
ADDITIONAL CONSIDERATION
These provisions have been redacted and filed separately
with the Securities and Exchange Commission.
I trust that this proposal reflects our previous discussions. If you need to
discuss anything further, please contact me through my voicemail.
Accepted: Sincerely,
APS, INC. STANDARD MOTOR PRODUCTS, INC.
By: /s/ CHARLES M. POPIK /s/ DAVID KERNER
-------------------------- ---------------------------------
David Kerner
Treasurer
Date: 3/24/97
------------------------
<PAGE> 1
EXHIBIT 11.1
APS HOLDING CORPORATION
COMPUTATION OF INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 25,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Weighted average shares of common
stock outstanding 13,769 13,728
Shares issuable on assumed exercise
of stock options 0 * 157
---------- ----------
Weighted average shares for primary
net income per share 13,769 13,885
Incremental shares issuable on assumed
exercise of stock optons to reflect
maximum dilutive 0 * 14
---------- ----------
Weighted average shares for fully diluted
net income per share 13,769 13,899
========== ==========
Net income $ (936) $ 1,362
========== ==========
Primary net income per share $ (0.07) $ 0.10
========== ==========
Fully diluted net income per share $ (0.07) $ 0.10
========== ==========
</TABLE>
* Due to the anti-dilutive effect of the stock options on both primary and
fully diluted loss per share ("LPS"), such amounts have been excluded from
LPS for the three months ended April 25, 1997.
<PAGE> 1
EXHIBIT 12.0
APS HOLDING CORPORATION
COMPUTATION OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
APRIL 25, 1997 APRIL 25, 1996
-------------- --------------
<S> <C> <C>
Earnings before income taxes and interest $ 5,783 $ 9,187
Portion of operating rents deemed
representative of an interest factor 2,228 2,339
------------ ------------
Earnings before fixed charges $ 8,011 $ 11,526
============ ============
Interest expense $ 7,317 $ 7,001
Portion of operating rents deemed
representative of an interest factor 2,228 2,339
------------ ------------
Fixed charges $ 9,545 $ 9,340
============ ============
Earnings to fixed charges 0.8 1.2
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF APRIL 25, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATION
FOR THE QUARTER ENDED APRIL 25, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> APR-25-1997
<CASH> 12,558
<SECURITIES> 0
<RECEIVABLES> 115,486
<ALLOWANCES> 0
<INVENTORY> 295,306
<CURRENT-ASSETS> 469,856
<PP&E> 44,999
<DEPRECIATION> 0
<TOTAL-ASSETS> 602,110
<CURRENT-LIABILITIES> 382,431
<BONDS> 101,581
0
0
<COMMON> 138
<OTHER-SE> 113,722
<TOTAL-LIABILITY-AND-EQUITY> 602,110
<SALES> 211,743
<TOTAL-REVENUES> 211,743
<CGS> 140,000
<TOTAL-COSTS> 140,000
<OTHER-EXPENSES> 67,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,317
<INCOME-PRETAX> (1,534)
<INCOME-TAX> (598)
<INCOME-CONTINUING> (936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (936)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
