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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 July 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 13,795,627 shares of the Registrant's Class A Common Stock
outstanding as of the close of business on August 26, 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> <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 17
</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>
JULY 25, 1997 JANUARY 25, 1997
------------- ----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................ $ 12,461 $ 13,370
Accounts and notes receivable, less allowance of $12,792
and $11,164 ....................................................... 115,263 103,168
Inventories .......................................................... 278,672 294,816
Deferred tax asset ................................................... 25,381 19,789
Prepaid expenses and other current assets ............................ 25,651 35,543
---------- ----------
Total current assets .................................. 457,428 466,686
Property and equipment, less accumulated depreciation of
$28,575 and $23,949 ............................................... 43,577 44,483
Notes receivable, less current portion ............................... 21,313 21,615
Intangible assets, net ............................................... 46,182 47,073
Investment in available-for-sale-securities .......................... 1,364 3,977
Deferred costs and other assets ...................................... 14,480 14,371
---------- ----------
$ 584,344 $ 598,205
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdrafts ...................................................... $ 6,976 $ 6,306
Current maturities of long-term debt (Note 4) ....................... 16,445 15,471
Accounts payable ..................................................... 96,040 106,927
Accrued liabilities .................................................. 40,850 44,359
---------- ----------
Total current liabilities ............................. 160,311 173,063
Long-term debt, less current maturities (Note 4) ......................... 316,570 305,941
Deferred tax liability .................................................... 676 1,339
Deferred income and other liabilities ..................................... 4,150 3,293
---------- ----------
Total liabilities ..................................... 481,707 483,636
---------- ----------
Commitments and contingencies (Note 5) ................................... -- --
Redeemable preferred stock ................................................ -- --
Stockholders' equity
Class A common stock ................................................. 138 137
Class B common stock ................................................. -- --
Additional paid-in capital ........................................... 155,601 155,363
Accumulated deficit .................................................. (52,298) (41,712)
Treasury stock ....................................................... (120) (120)
Unrealized (loss) gain................................................ (684) 901
---------- ----------
Total stockholders' equity ............................ 102,637 114,569
---------- ----------
$ 584,344 $ 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 SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JULY 25, 1997 JULY 25, 1996 JULY 25, 1997 JULY 25, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ................................................ $ 220,391 $ 234,305 $ 432,134 $ 451,871
Cost of goods sold ....................................... 150,755 155,248 290,755 299,440
------------- ------------- ------------- -------------
Gross profit ................................... 69,636 79,057 141,379 152,431
Selling, general and administrative expenses ............. 68,618 64,430 135,893 130,253
Asset impairment and restructuring charge ................ 8,726 -- 8,726 --
------------- ------------- ------------- -------------
Operating income (loss) ........................ (7,708) 14,627 (3,240) 22,178
Interest income .......................................... 1,258 1,449 2,523 2,812
Other income ............................................. 50 50 100 323
------------- ------------- ------------- -------------
Income (loss) before interest expense and
income taxes ................................... (6,400) 16,126 (617) 25,313
Interest expense ......................................... 7,747 6,682 15,064 13,683
------------- ------------- ------------- -------------
Income (loss) before income taxes .............. (14,147) 9,444 (15,681) 11,630
Income tax provision (benefit) .......................... (4,497) 3,481 (5,095) 4,312
------------- ------------- ------------- -------------
Net income (loss) ............................. $ (9,650) $ 5,963 $ (10,586) $ 7,318
============= ============= ============= =============
Net income (loss) per share .............................. $ (0.70) $ 0.43 $ (0.77) $ 0.53
============= ============= ============= =============
Weighted average common shares outstanding ............... 13,780 13,920 13,775 13,902
============= ============= ============= =============
</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 SIX MONTHS ENDED JULY 25, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL TREASURY UNREALIZED TOTAL
--------------------- PAID-IN ACCUMULATED STOCK, GAIN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT AT COST (LOSS) 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 .............. 25 1 238 -- -- -- 239
Unrealized (loss) gain ................ -- -- -- -- -- (1,585) (1,585)
Net loss for the period ................ -- -- -- (10,586) -- -- (10,586)
--------- --------- --------- --------- --------- --------- ---------
Balance at July 25, 1997 .............. 13,789 $ 138 $ 155,601 ($ 52,298) ($ 120) ($ 684) $ 102,637
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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APS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JULY 25, 1997 JULY 25, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................................ $ (10,586) $ 7,318
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Provision for asset impairment and restructuring charges ............. 8,726 --
Depreciation and amortization ........................................ 6,342 5,630
Amortization of debt issue costs ..................................... 591 393
Provision for bad debts .............................................. 3,670 2,319
Inventory write-off in connection with closures ...................... 1,268 --
Income from supply agreement ......................................... (100) (323)
Deferred income taxes ................................................ (5,227) (182)
Change in operating assets and liabilities:
Accounts receivable ............................................... (14,371) (14,819)
Inventories ....................................................... 16,521 (5,753)
Prepaid expenses and other current assets ......................... 9,905 8,742
Accounts payable .................................................. (10,887) 17,648
Accrued liabilities ............................................... (9,078) 1,977
Other assets and liabilities ...................................... (2,647) (6,695)
---------- ----------
Net cash provided by (used in) operating activities ............... (5,873) 16,255
---------- ----------
Cash flows from investing activities:
Capital expenditures ...................................................... (4,435) (4,738)
Investment in notes receivable ............................................ (8,504) (3,933)
Proceeds from repayment of notes receivable ............................... 7,229 8,781
Business acquisitions, net of cash acquired ............................... (1,839) (3,367)
Proceeds from disposition of assets ....................................... -- 3,500
---------- ----------
Net cash provided by (used in) investing activities ............... (7,549) 243
---------- ----------
Cash flows from financing activities:
Retirement of long-term debt .............................................. (7,637) (6,707)
Net borrowings under revolving credit agreement ........................... 19,240 (4,500)
Change in book overdrafts ................................................. 670 1,289
Exercise of stock options ................................................. 240 15
---------- ----------
Net cash provided by (used in) financing activities ............... 12,513 (9,903)
---------- ----------
Net increase (decrease) in cash and cash equivalents ........................... (909) 6,595
---------- ----------
Cash and cash equivalents at beginning of period ............................... 13,370 7,886
---------- ----------
Cash and cash equivalents at end of period ..................................... $ 12,461 $ 14,481
========== ==========
Supplemental disclosures:
Cash paid for interest .................................................... $ 14,126 $ 11,706
========== ==========
Cash paid (received) for income taxes ..................................... $ (4,104) $ 841
========== ==========
</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 July 25, 1997, the consolidated statements of
operations for the three months and six months ended July 25, 1997 and 1996,
the consolidated statement of changes in stockholders' equity for the six
months ended July 25, 1997 and the consolidated statements of cash flows for
the six months ended July 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 and six months ended July 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 or loss, stockholders' equity or cash flows for any
period.
2. NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, entitled "Earnings per Share" 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 each
been $0.70 for the three months and $0.77 for the six months ended July 25,
1997, respectively.
The Company is currently reviewing SFAS No. 130, entitled "Reporting
Comprehensive Income" and SFAS No. 131, entitled "Disclosures About Segments of
an Enterprise and Related Information", but has not yet determined when it will
adopt the provisions of these statements. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131 requires that disclosure be
made with respect to and establishes standards for the manner in which public
business enterprises report selected information about operating segments in
interim financial reports issued to shareholders.
3. ASSET IMPAIRMENT AND RESTRUCTURING CHARGES:
During the quarter ended July 25, 1997, the Company commenced
implementation of a comprehensive program for reducing costs and achieving
profitability. As part of such program, and in order to position the Company to
achieve improved operating performance, the Company intends to consolidate
redundant administrative functions and to close certain under-performing
facilities. Upon completion, which is expected by the end of the fiscal year
ending January 31, 1998, the program is expected to result in the closure of an
estimated 50 Installers' Service Warehouse units ("ISW") and 15 Company-owned
stores. Aggregate revenue from such facilities was approximately $6.4 million
and approximately $12.8 million during the three and six months ended July 25,
1997, respectively, compared to approximately $7.0 million and
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APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
approximately $12.7 million, for the corresponding periods of the prior fiscal
year. Aggregate losses before income taxes and after overhead allocations from
such facilities were approximately $0.8 million and approximately $1.6 million
for the three and six months ended July 25, 1997, respectively, compared to
approximately $0.3 million and approximately $0.5 million for the corresponding
periods of the prior fiscal year. As a result of such program, during the three
months ended July 25, 1997, the Company recorded a restructuring charge of
approximately $8.7 million. Such charge consisted of approximately $2.2 million
for estimated costs to close facilities, approximately $1.4 million of employee
severance benefits related to personnel reductions of approximately 570
employees, approximately $3.2 million for future lease and related obligations
and approximately $1.9 million of asset impairments. Approximately $0.5 million
of the costs provided for in such charges were paid during the quarter ended
July 25, 1997 (primarily for severance benefits of approximately 200 employees)
and approximately $6.3 million were recorded as liabilities at July 25, 1997. In
addition, cost of goods sold for the three months and six months ended July 25,
1997, includes a charge of approximately $1.3 million for inventory write-offs
expected in connection with facility closures, and selling, general and
administrative expenses for the three months and six months ended July 25, 1997,
include approximately $1.8 million for incremental bad debt expected in
connection with such closures.
The Company's financial statements at January 25, 1997 also 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 pursuant to programs of rationalization
implemented by the Company during the fiscal year ended January 25, 1996 in
connection with its acquisition of Parts, Inc. The Company attained a majority
of the program's 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 three and six months ended July 25, 1997, the Company charged
approximately $0.6 million and approximately $1.4 million against such
liability and reserves, including approximately $0.2 million of employee
termination and relocation costs.
4. CREDIT AGREEMENT COVENANTS:
Effective as of July 15, 1997, the Company's Consolidated Leverage
Ratio, Fixed Charge Coverage Ratio and Minimum Net Worth covenant requirements
under its amended and restated senior bank credit agreement with a syndicate of
lenders led by The Chase Manhattan Bank were amended. After giving effect to
such amendments, the Company was in compliance with such covenants as of July
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., 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 and a trial date has been set for November 1997. 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 and six months ended July 25, 1997 and 1996
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 25, SIX MONTHS ENDED JULY 25,
------------------------------------------ ------------------------------------------
1997 % 1996 % 1997 % 1996 %
--------- -------- ----------- --------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $220,391 100.0 $234,305 100.0 $432,134 100.0 $451,871 100.0
Cost of goods sold 150,755 68.4 155,248 66.3 290,755 67.3 299,440 66.3
Gross Profit 69,636 31.6 79,057 33.7 141,379 32.7 152,431 33.7
Selling, general and
administrative expenses 68,618 31.1 64,430 27.5 135,893 31.4 130,253 28.8
Asset impairment &
restructuring charge 8,726 4.0 - - 8,726 2.0 - -
Operating income (loss) (7,708) (3.5) 14,627 6.2 (3,240) (0.8) 22,178 4.9
Net income (loss) (9,650) (4.4) 5,963 2.5 (10,586) (2.5) 7,318 1.6
</TABLE>
Fiscal Year 1998 Compared to Fiscal Year 1997
Net sales for the three months and six months ended July 25, 1997
decreased $13.9 million (5.9%) and $19.7 million (4.4%), respectively, from the
corresponding periods of the prior fiscal year. Such decreases were 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"). In
accordance with the Company's PI integration plans, during such integration,
which occurred primarily during the second through fourth quarters of the fiscal
year ended January 25, 1997 ("Fiscal Year 1997"), approximately two-fifths 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. The majority of such PI jobbers were intentionally
not changed over to the Company's product lines because they did not meet the
Company's standards for sales volume and profitability. In addition, due
primarily 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 adversely affected during the three and six months ended July 25,
1997 in comparison to the corresponding prior periods. Such continuing softness
in demand and competitive pressures contributed to a decline in average same
store sales at the Company-owned stores. Such decrease in sales at the Company's
traditional businesses was offset in part by increased sales at the ISW units
due to increasing average same unit sales and a greater number of ISW units in
operation during the three months and six months ended July 25, 1997 compared to
the same periods of the prior year.
Cost of goods sold consists primarily of the purchase cost of products
sold. Cost of goods sold for the three months and six months ended July 25,
1997, decreased $4.5 million (2.9%) and $8.7 million (2.9%), respectively, from
the corresponding periods of the prior fiscal year. The dollar decreases 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 and six
months ended July 25, 1997 increased compared to that of the corresponding
periods of the prior year, principally as a result of lower gross profit margins
at the Company's traditional businesses (primarily resulting from additional
sales programs offering reduced selling prices and fewer services) being offset
in part by the impact of the sales mix containing more ISW sales, which have
higher gross profit margins than the Company's traditional businesses. In
addition, cost of goods sold for the three months and six months ended July 25,
1997 includes a charge in the amount of approximately $1.3 million for inventory
write-offs expected in connection with facility closures. See "Business
Initiatives", below. In connection with certain working capital management
initiatives (see "Liquidity and Capital Resources -- Working Capital" and
"Business Initiatives", below), the Company expects that its ISW units will
begin purchasing substantial amounts of inventory from the Company's
distribution centers, resulting in somewhat lower gross profit margins on
certain of the ISW business product lines. The Company expects gross profit
margins for the ISW business, however, to continue to be somewhat higher (as a
percentage of sales) than for its traditional businesses, although no assurance
can be given in this regard. 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 the three months and six months ended July
25, 1997 increased $4.2 million (6.5%) and $5.6 million (4.3%), respectively,
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compared to the corresponding periods of the prior year. The dollar increases
in selling, general and administrative expenses primarily resulted from the
operation of a greater number of ISWs than in the prior period, as well as from
continuing performance and execution issues in the ISW business. See "Business
Initiatives", below. 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. In addition, selling, general and administrative expenses
for the three months and six months ended July 25, 1997 include a provision for
incremental bad debt in the amount of approximately $1.8 million recorded in
connection with certain future facility closures. See "Business Initiatives",
below. Selling, general and administrative expenses for the three months and
six months ended July 25, 1997 as a percentage of sales also increased over the
corresponding periods of the prior year, primarily 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.
During the quarter ended July 25, 1997, the Company commenced
implementation of a comprehensive program for reducing costs and achieving
profitability. As part of such program, and in order to position the Company to
achieve improved operating performance the Company intends to consolidate
redundant administrative functions and to close certain under-performing
facilities. Upon completion, the program is expected to result in the closure of
an estimated 50 ISW units and 15 Company-owned stores. See "Business
Initiatives", below. As a result of such program, during the three months ended
July 25, 1997, the Company recorded a restructuring charge of approximately $8.7
million, approximately $6.3 million of which was recorded as a liability at July
25, 1997. Such charge consisted of approximately $2.2 million for estimated
costs to close facilities, approximately $1.4 million of employee severance
benefits related to personnel reductions of approximately 570 employees,
approximately $3.2 million for future lease and related obligations and
approximately $1.9 million of asset impairments.
Operating income for the three months and six months ended July
25,1997 decreased $22.3 million (152.7%) and $25.4 million (114.6%),
respectively, compared to the corresponding periods of the prior year,
primarily due to the factors discussed above.
Other income for the three months and six months ended July 25, 1997
was $50,000 and $100,000, respectively, compared to $50,000 and $323,000,
respectively, for the corresponding periods 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 and six months ended July 25,
1997 was $7.7 million (3.5% of net sales) and $15.1 million (3.5% of net
sales), respectively, compared to $6.7 million (2.9% of net sales) and $13.7
million (3.0% of net sales), respectively, for the corresponding periods 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 and six months ended July 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 due to the decline 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
and changes in interest rates.
Income taxes for the three months and six months ended July 25, 1997
were a benefit of $4.5 million and $5.1 million, respectively, compared to
income tax expense of $3.5 million and $4.3 million, respectively, for the
corresponding periods of the prior year. The Company's combined applicable
federal and state tax rate is expected to approximate 32.5% during the fiscal
year ending January 31, 1998 ("Fiscal Year 1998"). Such combined rate differs
from the statutory tax rate of 35% due to the Company's tax paying status in
certain states.
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Net loss for the three months and six months ended July 25, 1997 was
$9.7 million (4.4% of net sales) and $10.6 million (2.5% of net sales),
respectively, compared to net income of $6.0 million (2.5% of net sales) and
$7.3 million (1.6% of net sales), respectively, for the corresponding periods
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 six months ended July 25, 1997, operating
activities utilized net cash of approximately $5.9 million, due primarily to
seasonal increases in accounts receivable and decreases in accounts payable
resulting from payments to the Company's suppliers pursuant to deferred payment
terms obtained in connection with the PI Acquisition. See "Business
Initiatives", below. Such increases in accounts receivable and decreases in
accounts payable were partially offset by decreases in inventory resulting from
facility closures and the Company's working capital management initiatives. See
"Working Capital", below. Investing activities utilized $7.5 million of cash,
principally consisting of capital expenditures and investments in customer notes
receivable. Financing activities provided $12.5 million of cash, primarily from
increased long-term borrowings.
For the six months ended July 25, 1996, operating activities provided
net cash of approximately $16.3 million, resulting primarily from increases in
accounts payable offset by increases in accounts receivable and inventories.
Investing activities provided $0.2 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, investments in notes receivable and business
acquisitions. Financing activities utilized $9.9 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 increased to $297.1
million at July 25, 1997 including $12.5 million in cash and cash equivalents,
from $293.6 million at January 25, 1997, including $13.4 million of cash and
cash equivalents. Such increase in working capital is principally due to
decreases in accrued liabilities and accounts payable offset by decreases in
inventories. See "Cash Flows", above.
Looking forward, the Company's management is pursuing a number of
working capital management initiatives focused on seeking substantial inventory
reductions and improved liquidity. Such initiatives include (a) the return of
substantial amounts of excess and slow moving inventory to the Company's
suppliers, (b) the redistribution of excess and slow moving inventory from the
ISW division to the Company's distribution centers and Company-owned stores, and
(c) the sourcing of substantial amounts of ISW inventory from the Company's
distribution centers rather than from third party suppliers. The closure of
certain facilities will further reduce working capital requirements. See
"Business Initiatives", below. Such initiatives have resulted in inventory
reductions of approximately $15.0 million during the six months ended July 25,
1997, primarily at the ISW division and management currently expects additional
inventory reductions of approximately $15.0 million during the remainder of
fiscal year 1998. As a result of pursuing these initiatives, management expects
the Company's working capital to decrease during the remainder of Fiscal Year
1998 and future periods, although no assurance can be given in this regard.
Funds generated by such reductions are expected to be used to reduce the
Company's outstanding indebtedness under its senior bank credit agreement.
Credit Agreement. Concurrently with the PI Acquisition, the Company
entered into an amended and restated senior bank credit agreement (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 July 25, 1997, the
Company had aggregate borrowings under the Credit Agreement of $231.0 million,
consisting of $186.5 million and $44.5 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 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 July 25, 1997, after taking into
account borrowing base restrictions and outstanding letters of credit was $16.8
million. Borrowings under the Credit Agreement bear interest at variable rates
based in part upon the Company attaining certain financial ratios. Such rates
are currently at the maximum levels provided for under the interest rate
pricing structure, as a result of the Company's current financial ratios.
Effective as of July 15, 1997, the Company's Consolidated Leverage Ratio, Fixed
Charge Coverage Ratio and Minimum Net Worth covenant requirements under the
Credit Agreement were amended. After giving effect to such amendments, the
Company was in compliance with such covenants as of July 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
11
<PAGE> 12
interest rate of approximately 7.1%. The aggregate notional principal amount of
these agreements is $50.0 million, $25.0 million of which matures in October
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.
Capital Expenditures and Acquisitions. Capital expenditures, excluding
new business acquisitions, for the six months ended July 25, 1997 and 1996 were
approximately $4.4 and $4.7 million, respectively. The Company estimates
capital expenditures for the remainder of the Fiscal Year 1998 will be
approximately $5.0 million, primarily as a result of management information
system enhancements.
For the six months ended July 25, 1997, the Company's cash
expenditures for business acquisitions totaled $1.8 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. Over the last four fiscal years, the Company
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 1996 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 will be
cash flows from the operation of its traditional businesses, on-going working
capital management initiatives (see "Working Capital", above) and revolving
credit borrowings under the Credit Agreement. While the Company currently
expects that such sources will provide sufficient working capital to operate its
business 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 currently 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 over the last four years, 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. In conjunction with such
efforts, the Company has commenced implementation of a comprehensive
restructuring program focused on the goals of reducing costs and achieving
profitability. Such program includes a significant reconfiguration of the ISW
business, the planned closure of an estimated 50 ISW units and 15 Company-owned
stores (in addition to such facilities previously designated for closure in
connection with performance reviews conducted in Fiscal Year 1997),
implementation of Company-wide cost control and cost reduction programs
(including field and corporate level staff reductions) and implementation of new
management information systems pursuant to a multi-year plan developed with
outside consultants. During the quarter ended July 25, 1997, the Company
recognized a charge of approximately $8.7 million for restructuring costs
associated with such program. Additionally, charges for inventory write-offs and
incremental bad debt expense of $1.3 million and $1.8 million, respectively,
were recorded to cost of goods sold and selling, general and administrative
expenses, respectively, in connection with facility closures designated in such
program.
12
<PAGE> 13
ISW Business
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 management currently
believes that the earnings and cash flow pressures historically experienced due
to the ISW business should decrease in future periods due primarily to the
restructuring program discussed above and other initiatives undertaken in
prior periods. 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. To that end, the
Company is significantly reconfiguring its ISW business as part of the
comprehensive restructuring program discussed above. Substantial organizational
and operational changes are being implemented throughout the ISW business, with
a focus on reducing costs, increasing operating efficiencies and improving
profitability. In addition, the Company conducted a comprehensive review of its
ISW units resulting in the planned closure of 50 under-performing units in
Fiscal Year 1998, 26 of which were closed during the quarter ended July 25,
1997. Such closures are in addition to the 15 under-performing units closed in
the quarter ended April 25, 1997 in connection with a performance review
performed in Fiscal Year 1997. As a result of such closures offset by the
opening of 11 new ISWs, the total number of ISW locations decreased from 272 to
242 during the six months ended July 25, 1997. Such closures are expected to
allow ISW management to focus its efforts and resources on the division's more
productive units. Further, management has implemented certain inventory
reduction initiatives that are expected to reduce the Company's inventory
approximately $15 million during the remainder of fiscal 1998, primarily at the
ISW business. See "Working Capital", above. The Company's initiatives to improve
the ISW business systems and controls include the development of a Centralized
Management System (CMS) 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 Oracle based 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.
Other Business Initiatives
As part of the restructuring program discussed above, the Company has
implemented company wide cost controls and has taken steps to significantly
reduce selling, general and administrative expenses, through field and corporate
level staff reductions. In addition, the Company has closed 16 stores during the
six months ended July 25, 1997 and currently intends to close an additional
seven Company-owned stores during the remainder of Fiscal Year 1998 in
connection with performance reviews conducted in Fiscal Year 1997. Further,
under such restructuring program, 15 under-performing Company-owned stores have
been designated for closure during the remainder of Fiscal Year 1998. Such
closures are expected to enable the Company to focus managerial efforts and
resources on more productive facilities. In April 1997 the Company commenced the
consolidation of its Columbus, Ohio distribution center into its Gallipolis,
Ohio distribution center. 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
new Oracle based accounts receivable and Central Management Systems currently
under development, 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
13
<PAGE> 14
operating and 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 July 25, 1997, in line with management's expectations, approximately
two-fifths 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 PI
associated 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 $1.9 million during the
remainder of Fiscal Year 1998 and $6.4 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 each been $0.70 for the three months and
$0.77 for the six months ended July 25, 1997.
The Company is currently reviewing SFAS No. 130, entitled "Reporting
Comprehensive Income" and SFAS No. 131, entitled "Disclosures About Segments of
an Enterprise and Related Information", but has not yet determined when it will
adopt the provisions of these statements. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131 requires that disclosure be
made with respect to and establishes standards for the manner in which public
business enterprises report selected information about operating segments in
interim financial reports issued to shareholders.
FORWARD LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q
("Quarterly Report") that are not historical facts are forward-looking
statements that involve a number of risks and uncertainties. These
forward-looking statements include, without limitation, the statements as to
management's or the Company's expectations or beliefs found under the captions
"Results of Operations," "Liquidity and Capital Resources" and "Business
Initiatives" in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations." 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.
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
following important factors, and those important factors described elsewhere in
this Quarterly Report (including, without limitation, those discussed under the
captions "Liquidity and Capital Resources--Sources of Liquidity" and "Business
Initiatives" in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations") or in other Securities and Exchange
Commission filings of the Company, could affect (and in some cases have
affected) the Company's actual results and could cause such results to differ
materially from estimates or expectations reflected in such forward-looking
statements made by, or on behalf of, the Company.
14
<PAGE> 15
o The Company is highly leveraged, with substantial existing indebtedness,
and consequently is subject to significant principal and interest payment
obligations. The Company's ability to make scheduled payments of principal
or interest on, or to refinance, its indebtedness will depend on its
future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels, and
financial, competitive, business and other factors beyond its control. The
degree to which the Company is leveraged could have important
consequences, including (i) the Company's future ability to obtain
additional financing for working capital or other purposes may be limited,
(ii) a substantial portion of the Company's cash flow from operations will
be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available for operation; (iii) certain of the
Company's borrowings are at variable rates of interest, which could cause
the Company to be vulnerable to increases in interest rates; and (iv) the
Company may be more vulnerable to economic downturns and may be limited in
its ability to withstand competitive pressures.
o If the Company cannot generate sufficient cash flow from operations to
meet its regularly scheduled debt service obligations, the Company might
be required to refinance its debt or to dispose of assets to obtain funds
for such purpose. There is no assurance that such refinancings or asset
dispositions could be effected on satisfactory terms or would be permitted
by the terms of the agreements or instruments covering the Company's
indebtedness.
o The Credit Agreement and the indenture governing the Company's 11.875%
senior subordinated notes due 2006 (the "Indenture") contain numerous
operating covenants that limit the discretion of the Company's management
with respect to certain business matters. These covenants place
significant restrictions on, among other things, the ability of the
Company to incur additional indebtedness, to create liens or other
encumbrances to make certain dividends and other payments, to make certain
investments, loans and guarantees, or to sell or otherwise dispose of
assets or merge or consolidate with another entity. The Credit Agreement
also contains a number of financial covenants that require the Company to
meet certain financial ratios and tests, including maintenance of net
worth, a consolidated fixed charge to interest expense ratio and a
consolidated leverage ratio. The Company has obtained certain waivers
and amendments of these financial covenants, in part as a result of its
recent financial performance. There can be no assurance that, in the event
future waivers or amendments of these covenants should be necessary,
the Senior Lenders will consent thereto.
o Failure to comply with the Company's payment, covenant or other
obligations under the Credit Agreement or the Indenture could result in a
default thereunder that, if not cured or waived, could result in
acceleration of the relevant indebtedness or of other indebtedness
governed by agreements or instruments containing cross-acceleration or
cross-default provisions.
o The Company operates in a highly competitive environment. It competes
directly and indirectly with numerous distributors, retailers and
manufacturers of automotive aftermarket products, some of which distribute
in channels that may be expanding in terms of market share relative to the
channels in which the Company distributes its products. In addition, some
of the Company's current and potential competitors are larger, may have
greater financial resources and may be less leveraged than the Company.
Furthermore, particularly in light of the trend in the automotive parts
industry toward increasing consolidation at the warehouse and jobber
levels, the Company's financial performance may be significantly affected
by the Company's ability to compete successfully for associated jobber
customers, and otherwise take advantage of consolidation opportunities and
other industry trends.
o The demand for automotive products is affected by a number of factors
beyond the Company's control, including economic conditions, vehicle
quality and maintenance, vehicle scrappage rates and weather conditions.
Weather conditions cause seasonal variations in the Company's results of
operations, and the occurrence of extreme weather or mild weather may
result in significant fluctuations in such results. 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. In addition, in recent years there have been, and in the
future there are likely to continue to be, significant improvements in the
quality of new vehicles and vehicle parts and extensions of manufacturers'
warranties that may reduce demand for the Company's products.
15
<PAGE> 16
While the Company periodically reassesses the material trends and uncertainties
affecting its operations and financial condition in connection with its
preparation of management's discussion and analysis of results of operations
and financial condition contained in its quarterly and annual reports, the
Company does not intend to review or revise any particular forward-looking
statement referenced in this report in light of future events.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- ----------------------- -------------------
<S> <C> <C>
10.1.24 Fourth Amendment, dated as of July 15, 1997, to the Amended and
Restated Credit Agreement dated as of January 25, 1996,
among A.P.S., Inc., the several bank and other financial
institutions from time to time parties thereto, and The
Chase Manhattan Bank, as agent.
11.1 Statement re Computation of Income (Loss) Per Share
12.0 Statement re Computation of Earnings (Loss) to Fixed Charges
27 Financial Data Schedule
</TABLE>
B. REPORTS ON FORM 8-K
None
17
<PAGE> 18
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: September 8, 1997 By:
-----------------------------------------
Hubbard C. Howe, Chairman of the Board
and Chief Executive Officer
Date: September 8, 1997 By:
-----------------------------------------
John L. Hendrix, Senior Vice President
and Chief Financial Officer
18
<PAGE> 1
EXECUTION COPY
FOURTH AMENDMENT, dated as of July 15, 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 the Third Amendment, dated as of
January 25, 1997, 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 8.1(a). Subsection 8.1(a) of the Credit
Agreement is hereby amended by (a) deleting the amount "$109,800,000" appearing
therein and inserting the amount $98,000,000 in lieu thereof and (b) deleting
the date "January 25, 1997" appearing therein and inserting the date "July 25,
1997" in lieu thereof.
3. Amendment to Subsection 8.1(b). Subsection 8.1(b) of the Credit
Agreement is hereby amended by deleting subsection 8.1(b) contained therein in
its entirety and inserting in lieu thereof the following:
(b) Maintenance of Consolidated Fixed Charge Coverage Ratio. Permit, for
any period of four consecutive fiscal
<PAGE> 2
2
quarters of the Borrower, the Consolidated Fixed Charge Coverage Ratio of
Holding at the last day of any fiscal quarter of the Borrower set forth below
to be less than the ratio set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Ouarter Ending Ratio
- --------------------- -----
<S> <C> <C>
July 25, 1997 0.70 to 1.00
October 25, 1997 0.70 to 1.00
January 31, 1998 0.75 to 1.00
April 25, 1998 0.90 to 1.00
July 25, 1998 1.10 to 1.00
October 25, 1998 1.15 to 1.00
January 30, 1999 1.25 to 1.00
April 25, 1999 1.25 to 1.00
July 25, 1999 1.50 to 1.00
October 25, 1999 1.75 to 1.00
January 29, 2000 2.00 to 1.00
April 25, 2000 2.00 to 1.00
July 25, 2000 2.25 to 1.00
October 25, 2000 2.50 to 1.00
</TABLE>
4. Amendment to Subsection 8.1(c). Subsection 8.1(c) of the Credit
Agreement is hereby amended by deleting subsection 8.1(c) contained therein in
its entirety and inserting in lieu thereof the following:
(c) Maintenance of Consolidated Leverage Ratio. Permit the
Consolidated Leverage Ratio of Holding at the last day of any fiscal
quarter of the Borrower set forth below to be greater than the ratio set
forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Ouarter Ending Ratio
- --------------------- -----
<S> <C> <C>
April 25, 1997 4.50 to 1.00
July 25, 1997 6.75 to 1.00
October 25, 1997 6.75 to 1.00
January 31, 1998 6.25 to 1.00
April 25, 1998 5.50 to 1.00
July 25, 1998 5.00 to 1.00
October 25, 1998 4.50 to 1.00
January 30, 1999 4.00 to 1.00
April 25, 1999 4.00 to 1.00
July 25, 1999 3.75 to 1.00
October 25, 1999 3.25 to 1.00
January 29, 2000 2.75 to 1.00
April 25, 2000 2.75 to 1.00
July 25, 2000 2.75 to 1.00
October 25, 2000 2.75 to 1.00
</TABLE>
5. Amendment to Annex A. The Credit Agreement is hereby amended by
deleting Annex A thereto in its entirety and
<PAGE> 3
3
inserting in lieu thereof a new Annex A in the form of Annex A hereto.
6. Representations and Warranties. On and as of the date hereof and after
giving effect to this Amendment, 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, 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 and pursuant to this Amendment.
7. 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.
8. 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).
9. 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.
10. 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.
11. 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> 4
4
IN WITNESS THEREOF, 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/ M. DUNCAN MCDUFFIE
------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ ALAN F. LISTER, JR.
------------------------------------
Title: Vice President
BANK ONE, COLUMBUS, N.A.
By: /s/ DOUGLAS H. KLAMFOTH
------------------------------------
Title: Vice President
<PAGE> 5
5
BANQUE PARIBAS
By: /s/
------------------------------------
Title: Vice President
By: /s/
------------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By: /s/ KATHRYN BROTHERS
------------------------------------
Title: Vice President
FLEET BANK OF MASSACHUSETTS, N.A.
By: /s/ ERIC VANDERMEL
------------------------------------
Title: Vice President
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By: /s/
------------------------------------
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ SHINICHI NAKAKUBO
------------------------------------
Title: Executive Vice President
NATIONAL BANK OF CANADA
By: /s/ RANDALL K. WILHOIT
------------------------------------
Title: Vice President
By: /s/ LARRY L. SEARS
------------------------------------
Title: Group Vice President
<PAGE> 6
6
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/
------------------------------------
Title: Vice President
NBD BANK
By: /s/ KATHLEEN COMELLA
------------------------------------
Title: Vice President
SOCIETE GENERALE
By: /s/ PAUL E. CORNELL
------------------------------------
Title: First Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By: /s/
------------------------------------
Title: Vice President
<PAGE> 7
7
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
<PAGE> 8
8
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> 9
ANNEX A
PRICING GRID
<TABLE>
<CAPTION>
===========================================================================
Applicable
Consolidated Consolidated Margin for Applicable
Interest Leverage Eurodollar Margin for Commitment
Expense Ratio Ratio Loans ABR Loans Fee
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
< 1.75 to 1.0 > 5.00 to 1.0 2.50% 1.25% .500%
- ---------------------------------------------------------------------------
< 1.75 to 1.0 < 5.00 to 1.0 2.25% 1.00% .500%
-
but
> 4.00 to 1.0
- ---------------------------------------------------------------------------
< 1.75 to 1.0 < 4.00 to 1.0 2.00% .75% .500%
-
but
> 3.75 to 1.0
- ---------------------------------------------------------------------------
> 1.75 to 1.0 < 3.75 to 1.0 1.75% .50% .500%
- - -
but but
< 2.00 to 1.0 > 3.50 to 1.0
- ---------------------------------------------------------------------------
> 2.00 to 1.0 < 3.50 to 1.0 1.50% .25% .375%
- - -
but but
< 2.50 to 1.0 > 3.00 to 1.0
- ---------------------------------------------------------------------------
> 2.50 to 1.0 < 3.00 to 1.0 1.25% 0.00% .375%
- - -
but but
< 3.25 to 1.0 > 2.50 to 1.0
- ---------------------------------------------------------------------------
> 3.25 to 1.0 < 2.50 to 1.0 1.00% 0.00% .375%
- - -
===========================================================================
</TABLE>
<PAGE> 1
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.1.24 Fourth Amendment dated as of July 15, 1997, to the Amended and
Restated Credit Agreement dated as of January 25, 1996,
among A.P.S., Inc., the several bank and other financial institutions
from time to time parties thereto, and The Chase Manhattan Bank, as agent.
11.1 Statement re Computation of Income (Loss) Per Share
12.0 Statement re Computation of Earnings (Loss) to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
APS HOLDING CORPORATION
COMPUTATION OF INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 25, JULY 25,
--------------------- ---------------------
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Weighted average shares of common stock outstanding 13,780 13,730 13,775 13,729
Shares issuable on assumed exercise of stock options 0 190 0 173
-------- ------- -------- -------
Weighted average shares for primary net income per share 13,780 13,920 13,775 13,902
Incremental shares issuable on assumed exercise of stock
options to reflect maximum dilutive effect 0 1 0 19
-------- ------- -------- -------
Weighted average shares for fully diluted net income per share 13,780 13,921 13,775 13,921
======== ======= ======== =======
Net income (loss) $ (9,650) $ 5,963 $(10,586) $ 7,318
======== ======= ======== =======
Primary net income (loss) per share $ (0.70) $ 0.43 $ (0.77) $ 0.53
======== ======= ======== =======
Fully diluted net income (loss) per share $ (0.70) $ 0.43 $ (0.77) $ 0.53
======== ======= ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> JUL-25-1997
<CASH> 12,461
<SECURITIES> 0
<RECEIVABLES> 115,263
<ALLOWANCES> 12,792
<INVENTORY> 278,672
<CURRENT-ASSETS> 457,428
<PP&E> 43,577
<DEPRECIATION> 0
<TOTAL-ASSETS> 584,344
<CURRENT-LIABILITIES> 160,311
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 102,499
<TOTAL-LIABILITY-AND-EQUITY> 584,344
<SALES> 432,134
<TOTAL-REVENUES> 432,134
<CGS> 290,755
<TOTAL-COSTS> 290,755
<OTHER-EXPENSES> 144,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,064
<INCOME-PRETAX> (15,681)
<INCOME-TAX> (5,095)
<INCOME-CONTINUING> (10,586)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,586)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> 0
</TABLE>
