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
SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10823
HI-LO AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0232254
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2575 W. BELLFORT
HOUSTON, TEXAS
77054
(Address of principal executive offices)
(Zip Code)
(713) 663-6700
(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
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 10,775,109 shares outstanding of the issuer's only class of
common stock as of November 3, 1997.
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
SEPTEMBER 30, 1997
PAGE
Part I - FINANCIAL INFORMATION
Item 1Consolidated Financial Statements and Notes.................... 3
Item 2Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
Part II - OTHER INFORMATION
Item 1Legal Proceedings.............................................. 15
Item 6Exhibits and Reports on Form 8-K............................... 15
SIGNATURE PAGE............................................................ 16
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
A S S E T S
<S> <C> <C>
CURRENT ASSETS:
Cash ........................................................... $ 420 $ 1,180
Accounts receivable -
Trade, net of allowance for doubtful accounts of $511 and $929 7,800 5,651
Other (includes a federal income tax receivable of $2862) .... 5,845 6,878
Inventories .................................................... 92,381 91,401
Prepaids and other assets ...................................... 3,261 3,281
--------- ---------
Total current assets .................................... 109,707 108,391
PROPERTY AND EQUIPMENT, net ..................................... 29,716 31,980
DEFERRED INCOME TAXES AND OTHER ................................. 3,412 3,717
--------- ---------
$ 142,835 $ 144,088
========= =========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Current maturities of long-term debt ........................... 574 750
Accounts payable and accrued liabilities ....................... 34,492 34,350
--------- ---------
Total current liabilities ............................. 35,066 35,100
LONG-TERM DEBT, net of current maturities ...................... 42,654 45,612
OTHER LIABILITIES ............................................... 3,888 4,082
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued ................................................. -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 10,775,109 and 10,775,109 shares issued
and outstanding ............................................. 108 108
Additional paid-in capital .................................... 68,316 68,316
Retained earnings (deficit) ................................... (7,197) (9,130)
--------- ---------
Total stockholders' equity ............................... 61,227 59,294
--------- ---------
$ 142,835 $ 144,088
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
---------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales................................. $65,293 $64,396 $184,559 $192,323
Costs and expenses:
Cost of goods sold, buying and
distribution......................... 39,430 44,665 111,195 122,822
Operating, selling,
general and administrative........... 22,727 28,406 67,020 75,690
Provision for asset impairment and
store closings....................... -- 51,352 -- 51,352
------- ------- ------- -------
Operating income (loss)............... 3,136 (60,027) 6,344 (57,541)
Interest expense...................... 1,090 1,085 3,320 3,161
Other expense, net.................... 62 184 53 714
------- ------- ------- -------
Income (loss) before taxes (benefit)
on income (loss) 1,984 (61,296) 2,971 (61,416)
Taxes (benefit) on income (loss)...... 671 (9,637) 1,038 (9,511)
------- -------- ------- ------
Net income (loss)..................... $ 1,313 $(51,659) $ 1,933 $(51,905)
======= ======== ======= ========
Net income (loss) per common and common
equivalent share...................... $ 0.12 $ (4.80) $ 0.18 $(4.83)
======= ======= ======= ======
Weighted average common and common
equivalent shares outstanding...... 10,775,000 10,756,000 10,775,000 10,756,000
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
-------------------- ---------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 .............. 10,756,350 $ 108 $68,277 $ 44,593
Issuance of common stock ................ 18,759 -- 39 --
Net loss ................................ -- -- -- (53,723)
----------- ------- ------- --------
Balance, December 31, 1996 .............. 10,775,109 $ 108 $68,316 $ (9,130)
Net income .............................. -- -- -- 1,933
----------- ------- ------- --------
Balance, September 30, 1997 10,775,109 $108 $68,316 $(7,197)
=========== ======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................................ $ 1,933 $(51,905)
------- --------
Adjustments to reconcile net income (loss) to cash provided by
operating activities -
Depreciation and amortization ............................................ 3,066 5,272
Cost in excess of net assets acquired .................................... -- 37,668
Provision for impairment of assets and other ............................. -- 21,774
Deferred tax benefit ..................................................... (1,751) (9,682)
Gain on sale of fixed assets ............................................. (22) (17)
Changes in assets and liabilities -
Accounts receivable, net of allowances for doubtful accounts (1,774) (525)
Inventories ............................................................ (980) (5,671)
Prepaids and other assets .............................................. 20 540
Accounts payable and other accrued liabilities ......................... 1,234 5,309
Income taxes payable/receivable ........................................ 1,315 (2,032)
------- --------
Total adjustments .................................................... 1,108 52,636
------- --------
Net cash provided by operating activities .......................... 3,041 731
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................................... (1,287) (3,551)
Proceeds from the sale of fixed assets ....................................... 649 20
------- --------
Net cash used in investing activities .............................. (638) (3,531)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds from indebtedness ..................................... (3,163) 1,374
------- --------
Net cash provided by (used in) financing activities(3,163) ......... (3,163) 1,374
INCREASE (DECREASE) IN CASH .................................................... (760) (1,426)
CASH AT BEGINNING OF PERIOD .................................................... 1,180 1,800
------- --------
CASH AT END OF PERIOD .......................................................... $ 420 $ 374
======= ========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures are adequate to make
the information presented not misleading. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations for the
periods presented have been included. Operating results for the current quarter
and year to date period ended September 30, 1997, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997. For
further information, reference should be made to the annual consolidated
financial statements and notes thereto for the year ended December 31, 1996.
Balance sheet information for December 31, 1996, has been derived from the
1996 annual audited financial statements. Certain reclassifications of amounts
previously reported have been made to conform to the current year presentation.
The Company costs its inventory on the last-in, first-out (LIFO) method.
Had the first in, first out (FIFO) inventory costing method been used,
inventories would have been equal to the LIFO balance at December 31, 1996 and
1995; March 31, 1997 and 1996; June 30, 1997 and 1996; and September 30, 1997
and 1996.
B. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is based on the weighted
average number of common shares outstanding and assumes exercise of outstanding
options for Common Stock which are dilutive, using the treasury stock method.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share."
SFAS No. 128 revises the standards for computing earnings per share previously
prescribed by APB Opinion No. 15. SFAS No. 128 will be effective for the Company
for the year ending December 31, 1997. The earnings per share in the
accompanying financial statements were computed pursuant to APB Opinion No. 15
and is the same that would be required for basic earnings per share under SFAS
No. 128, which is determined using only the weighted average shares outstanding.
The Company also has outstanding options that would not be included in the
computation of diluted earnings per share under SFAS No. 128 because to do so
would be anti-dilutive.
C. DEBT
BORROWINGS
Debt consisted of the following (in thousands):
SEPTEMBER 30,
1997
-------------
Note payable to a bank............................. $ 41,816
Long-term debt..................................... 1,263
Capital lease obligations.......................... 149
--------
43,228
Less - Current maturities.......................... 574
--------
$ 42,654
========
At September 30, 1997, the weighted average interest rate on the note payable to
a bank was 7.9%.
-7-
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On October 23, 1996, the Company entered into a financing agreement with a
new lender. Initial funding under this financing agreement was used to repay
amounts outstanding under the Company's prior credit facility. The new financing
agreement provides for up to $60.0 million of borrowings under a revolving
credit facility, which matures October 22, 1999, with annual renewals at the
option of the Company and the lenders. Credit availability is limited to 60% of
the value of saleable inventory and 85% of accounts receivable, subject to
certain adjustments and reserves which may be made at the discretion of the
lender. The facility is secured by all inventories, receivables, and fixed
assets of the Company and its subsidiaries. The borrowings may be priced, at the
Company's option, at the lenders' prime rate, plus 1/4 of 1% or London Interbank
Offered Rates (LIBOR) plus 2.25%. The Company pays a commitment fee of 3/8 of 1%
per annum on all unused portions of the credit facility. Loan covenants relate
to the Company's net worth, cash flow, liquidity and acquisitions, and restrict
capital expenditures to $5.9 million for 1997, $5.0 million for 1998 and 1999;
and restricts operating lease payments to $16.0 million per annum through 1999.
The Company was in compliance with this financing agreement as of September 30,
1997.
At September 30, 1997, the Company had $41.8 million outstanding under the
credit facility and total unutilized credit facilities of approximately $13.6
million.
The Company has established irrevocable letters of credit totaling $1.2
million as security for various insurance contracts.
The book values of cash, trade accounts receivable and accounts payable
approximate their face values principally because of the short-term maturities
of these instruments. The estimated fair value of long-term debt approximates
the book value as the debt is priced based upon a floating rate.
D. SUPPLEMENTAL CASH FLOW INFORMATION
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
--------- -------
Cash paid during the period for:
Interest..................................... $3,478 $3,067
Income taxes................................. $ 400 $ --
E. STOCKHOLDERS' EQUITY
The Board of Directors and the Company's stockholders have approved the
Hi-Lo Automotive, Inc. 1990 Stock Option and 1991 Associate Stock Purchase
Plans, as amended. The Stock Option Plan reserves 1,400,000 shares of the
Company's Common Stock for issuance to directors, officers and employees. At
September 30, 1997, options for 1,081,066 shares were outstanding, options for
39,723 shares had been exercised, and 279,211 shares were available for
issuance.
Under the Stock Purchase Plan, each eligible employee has the right to
purchase shares as determined by the Plan formula. As of September 30, 1997, of
the 175,000 shares of the Company's Common Stock reserved for issuance under
this Plan, 132,270 shares had been issued and 42,730 shares of the Company's
Common Stock remained reserved for issuance.
Preferred Share Purchase Rights
On August 23, 1996, the Company's Board of Directors adopted a Stockholder
Rights Plan to help assure that all of the Company's stockholders receive fair
and equal treatment in the event of a proposed take over of the Company. The
Rights Plan was effected by issuing one preferred share purchase right for each
outstanding share of common stock. These rights are not currently exercisable
and will become exercisable only upon the occurrence of specified events related
to a change in control of the Company. When exercisable, each right will entitle
the holder to purchase 1/1000 of a share of the Company's Series A Junior
Participating Preferred Stock at an initial exercise price of $14.00 per right.
The rights expire on September 2, 2006, unless extended or redeemed.
-8-
<PAGE>
F. IMPAIRMENT OF ASSETS
In the third quarter of 1996, the Company concluded that a short-term
recovery in sales volume and operating profits was unlikely. Therefore, the
Company, which incurred a net loss in the third quarter before such charges,
recorded pre-tax charges in the amount of $59.4 million.
These charges included a $37.7 million impairment charge, with no
associated tax benefit, relating primarily to cost in excess of net assets
acquired (goodwill); and a $13.7 million charge for future store closings, the
impairment of certain assets in underperforming stores and at the Company's
distribution center, and the write-down of the cost of real estate held for
future expansion.
The charge for store closings was for future occupancy and leasehold
improvement costs related to planned store closings of approximately 11 stores,
including three closed in 1996 and five closed during the first nine months of
1997. Certain store and distribution center assets and real estate held for
future expansion were written down to their estimated realizable values.
In determining the amount of the asset reserves and impairment charges
that were made, the Company developed its best estimate of future operating cash
flows. Undiscounted cash flows were compared to the carrying value of the assets
to ascertain that an impairment had occurred. Estimated future cash flows,
excluding interest charges, then were discounted using an estimated 8.0%
discount rate. Sales were estimated to increase 2.0% annually, and operating
expenses were held constant as a percent of sales. These projections resulted in
discounted cash flows that supported the amounts recorded. These projections
were prepared solely to determine the appropriate amount of write-off, based on
assumptions that management believed to be reasonable at the time; however, no
assurance can be given that such projections will be accurate.
These analyses contained forward-looking information that involve a number
of risks, uncertainties and assumptions, including, but not limited to, customer
demand and trends in the auto parts, products and accessories industry, related
inventory risks due to shifts in customer demand, the effect of economic
conditions, the impact of competitors' locations and pricing, difficulties with
respect to new technologies such as point of sales systems, parts catalogs,
supply constraints or difficulties and the results of financing efforts. Should
one or more of these or other risks or uncertainties materialize or should the
underlying assumptions prove incorrect, actual outcomes could vary materially.
G. SUBSEQUENT EVENTS
On October 17, 1997 the Company entered into an Agreement and Plan of
Merger ("Merger Agreement") with Discount Auto Parts, Inc. ("Discount"). The
Merger Agreement contemplates that, subject to the satisfaction of certain
conditions set forth therein, including the approval and adoption of the Merger
Agreement by the requisite vote of the Company's stockholders, the Company would
become a wholly-owned subsidiary of Discount. Pursuant to the Merger Agreement,
each outstanding share of the Company's common stock would be exchanged for
0.1485 of a share of the common stock of Discount so long as the market price of
Discount's common stock is between $22.727 and $26.148 (based on the average
closing prices of Discount's common stock during the ten trading days ending
three days before the Company's stockholders meeting held to consider the
Merger). If the average price of Discount's common stock during the specified
period is less than $22.727 but above $20.78, then the exchange ratio will be
increased to provide the Company's stockholders with $3.37 of Discount's common
stock for each share of the Company common stock, but if the average price of
Discount's common stock during the specified period is less than $20.78, the
Company's stockholders will receive 0.1624 of a share of Discount's common stock
for each outstanding share of the Company common stock. If the average price of
Discount's common stock during the specified period is more than $26.148, then
the exchange ratio will be reduced to provide the Company's stockholders with
$3.88 of Discount's common stock for each share of the Company common stock. The
Merger is intended to be a tax-free reorganization, and is intended to be
accounted for as a purchase.
The Board of Directors of each company has approved the Merger. In
connection with approving the Merger Agreement, the Board of Directors of the
Company also approved an amendment to the Company's Stockholder Rights Plan to
prevent the proposed merger from triggering the Stockholder Rights Plan. The
Merger, which is expected to be completed by February 1998, is subject to
approval by the Company's stockholders and certain other conditions, including
the termination of the waiting period under the Hart-Scott-Rodino Improvements
Act of 1976.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Certain statements contained in this section which are not historical
facts are forward-looking statements that involve risks, uncertainties, and
assumptions including, but not limited to, customer demand and trends in the
auto parts, products and accessories industry, related inventory risks due to
shifts in customer demand, the effect of economic conditions, the impact of
competitors' locations and pricing, difficulties with respect to new
technologies such as point-of-sale systems, parts catalogs, supply constraints
or difficulties, and the results of financing efforts. Should one or more of
these or other risks or uncertainties materialize or should the underlying
assumptions prove incorrect, actual outcomes could vary materially.
On October 17, 1997 the Company entered into an Agreement and Plan of
Merger ("Merger Agreement") with Discount Auto Parts, Inc. ("Discount"). The
Merger Agreement contemplates that, subject to the satisfaction of certain
conditions set forth therein, including the approval and adoption of the Merger
Agreement by the requisite vote of the Company's stockholders, the Company would
become a wholly-owned subsidiary of Discount. Pursuant to the Merger Agreement,
each outstanding share of the Company's common stock would be exchanged for
0.1485 of a share of the common stock of Discount so long as the market price of
Discount's common stock is between $22.727 and $26.148 (based on the average
closing prices of Discount's common stock during the ten trading days ending
three days before the Company's stockholders meeting held to consider the
Merger). If the average price of Discount's common stock during the specified
period is less than $22.727 but above $20.78, then the exchange ratio will be
increased to provide the Company's stockholders with $3.37 of Discount's common
stock for each share of the Company's common stock, but if the average price of
Discount's common stock during the specified period is less than $20.78, the
Company stockholders will receive 0.1624 of a share of Discount's common stock
for each outstanding share of the Company common stock. If the average price of
Discount's common stock during the specified period is more than $26.148, then
the exchange ratio will be reduced to provide the Company's stockholders with
$3.88 of Discount's common stock for each share of the Company common stock. The
Merger is intended to be a tax-free reorganization, and is intended to be
accounted for as a purchase.
The Board of Directors of each company has approved the Merger. In
connection with approving the Merger Agreement, the Board of Directors of the
Company also approved an amendment to the Company's Stockholder Rights Plan to
prevent the proposed merger from triggering the Stockholder Rights Plan. The
Merger, which is expected to be completed by February 1998, is subject to
approval by the Company's stockholders and certain other conditions, including
the termination of the waiting period under the Hart-Scott-Rodino Improvements
Act of 1976.
The Company sells automotive aftermarket parts, products and accessories
to retail and commercial customers in Texas, Louisiana and California. During
the third quarter of 1997, the Company opened one store and closed two stores
reducing its total store count to 187. The Company's store openings generally
have been in markets where existing national competitors already have and/or are
opening stores. Certain national competitors have also continued to open new
stores in Hi/LO's existing markets. Management believes that the markets in
which it operates will continue to see increasing competition in the foreseeable
future. New store competition has a significant short-term impact on retail
sales of the Company's nearby stores. Future successful financial results are
dependent upon the Company's ability to compete effectively with these national
competitors.
To respond to increased competition, the Company is continuing to remodel
older stores located near recently opened competitor stores, improve customer
service, reduce operating, selling, and general and administrative costs when
appropriate, and improve distribution efficiencies. These initiatives are being
supported by changes in product assortment, including more high quality product
offerings and increased sales and marketing efforts in the commercial markets.
Additionally, the Company has plans to open two to four additional new stores
during 1997, and is focusing on the performance of its existing stores to
improve profitability. The Company identified up to 11 under performing stores
during 1996, three of which were closed in 1996 and five of which have been
closed through September 30, 1997. The commercial program is also being
streamlined and consolidated, including the opening of a centralized call center
for receiving commercial orders.
Management believes the Company is regaining its momentum and as a result
of the initiatives begun in response to increased competition, as well as
expected seasonal increases in sales and profitability, the Company's financial
results have continued to improve in the third quarter of 1997. Historically,
the Company's second and third quarters are strongest because of seasonal sales
volume increases. The Company can not, however, provide any assurance that its
results will continue to improve or even remain at current levels.
-10-
<PAGE>
In the third quarter of 1996, the Company recorded a $37.7 million charge
to write off its goodwill. Cash flow projections prepared by the Company
indicated that it would not be able to realize its goodwill through future
operations. In addition, the Company recorded $13.7 million in charges for
future store closings, the impairment of certain fixed assets in under
performing stores and of certain assets at the Company's distribution center,
and the liquidation of real estate held for future store expansion. The Company
also recorded to cost of goods sold and buying and distribution, $3.7 million in
write-downs of certain inventory items and $4.3 million to operating, selling,
general and administrative expenses.
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included in Part I, Item 1.
RESULTS OF OPERATIONS
The following table sets forth the income statement data of the Company
expressed as a percentage of sales and the percentage change in such income
statement data from period to period.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED PERCENTAGE CHANGE
SEPTEMBER 30, SEPTEMBER 30, QUARTER NINE MONTHS
------------- ----------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales.................... 100.0% 100.0% 100.0% 100.0% 1.4% (4.0)%
Cost of sales............ 60.3 69.4 60.2 63.9 (11.7) (9.4)
---- ---- ---- ----
Gross profit............. 39.7 30.6 39.8 36.1 31.0 5.5
Operating, selling, general
and administrative expenses 34.8 44.1 36.4 39.3 (19.9) (11.4)
Provision for asset impairment
and store closings..... -- 79.7 -- 26.7 (100.0) (100.0)
--- ---- ---- ----
Operating income......... 4.9 (93.2) 3.4 (29.9) 105.2 111.0
Interest expense......... 1.8 1.7 1.8 1.6 0.4 5.0
Other expense, net....... 0.1 0.3 0.1 0.4 (66.3) (92.5)
--- ---- ---- ---
Income (loss) before taxes (benefit) 3.0 (95.2) 1.5 (31.9) 103.2 104.8
Taxes (benefit) on income (loss) 1.0 (15.0) 0.5 (4.9) 106.9 110.9
--- ------ ---- -----
Net income (loss)........ 2.0% (80.2)% 1.0% (27.0)% 102.5 103.7
=== ====== ==== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 (THIRD QUARTER) COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1996
Sales increased for the third quarter of 1997 by $0.9 million, or 1.4%,
from the comparable 1996 quarter. The increase was due primarily to same store
sales increases of $1.7 million, or 2.8% of sales, and new store sales increases
of $0.1 million, which were partially offset by store closings through the end
of the third quarter of 1997. Same store sales represent a comparison of sales
by the same stores between corresponding full periods. At the end of the third
quarter of 1997, the Company had 187 stores in operation compared to 192 at the
end of the third quarter of 1996.
Gross profit for the third quarter of 1997 was $25.9 million, or 39.7% of
sales, compared with $19.7 million, or 30.6% of sales, for the third quarter of
1996. The increase in gross profit dollars was attributable to higher sales and
improved product margins together with a shift in the mix of sales to the higher
margin retail business compared to 1996. In addition, the third quarter of 1996
included $3.8 million in expense related to the writedown of certain inventory
to net realizable value.
Operating, selling, general and administrative expenses for the third
quarter of 1997 were $22.7 million, or 34.8% of sales, compared to $28.4
million, or 44.1% of sales, for the third quarter of 1996. This 19.9% decrease
is primarily the result of cost reductions in store operating costs in 1997 and
the inclusion in the third quarter of 1996 of a $4.3 million charge related to
store costs, and the costs of improving the Company's information systems.
A provision for asset impairment and store closings of $51.4 million was
recorded in the third quarter of 1996. The provision included a $37.7 million
charge for intangibles, primarily cost in excess of net assets acquired
(goodwill), and a $13.7 million charge for store closings, write offs of certain
store fixed assets and of certain assets at the Company's distribution center,
and liquidation of real estate previously acquired for future expansion.
Operating income for the third quarter of 1997 was $3.1 million, or 4.9%
of sales, compared to an operating loss of $60.0 million in the third quarter of
1996 as a result of the factors discussed above.
-11-
<PAGE>
Interest expense for the third quarter of 1997 was $1.1 million, or 1.8%
of sales, compared to $1.1 million, or 1.7% of sales, for the third quarter of
1996.
The Company's effective income tax rate for the third quarter of 1997 was
33.8% of pre-tax income compared to an income tax benefit of (15.7)% of pre-tax
loss for the third quarter of 1996. This expense increase as a percent of
pre-tax income in the third quarter of 1997 is primarily the result of the
factors discussed above. The relatively small tax benefit as a percent of
pre-tax loss in the third quarter of 1996 is a result of the $37.7 million
provision for asset impairment relating to costs in excess of net assets
acquired (goodwill). The Company did not receive a tax benefit from writing off
these costs in excess of net assets acquired as they are not deductible for
federal income tax purposes.
Net income of $1.3 million in the third quarter of 1997 compares to a net
loss of $51.7 million in the third quarter of 1996, due to the factors
previously discussed.
NINE MONTHS ENDED SEPTEMBER 30, 1997 (1997 PERIOD) COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Sales for the 1997 Period of $184.6 million decreased by $7.8 million, or
4.0%, from $192.3 million for the comparable period in 1996. The decrease
resulted from same store sales decreases of 2.8% of sales and five store
closings during the period. Same store sales represent a comparison of sales by
the same stores between corresponding full periods.
Gross profit for the 1997 Period was $73.4 million, or 39.8% of sales,
compared with $69.5 million, or 36.1% of sales, in 1996 . The 5.5% increase in
gross profit was attributable primarily to the shift in mix of sales to the
higher margin retail business. Additionally, the Company in the third quarter of
1996 recorded a charge of $3.8 million to cost of goods sold relating to the
writedown of certain inventories to their net realizable values.
Operating, selling, general and administrative expenses for the 1997
Period decreased by $8.7 million, or 2.9% of sales over 1996 levels. This was
primarily the result of lower sales volume and better cost control.
Additionally, the decrease reflects the impact of a $4.3 million charge related
to store costs in the third quarter of 1996. Operating, selling, general and
administrative expenses decreased as a percent of sales to 36.4% in the 1997
Period from 39.3% in 1996.
A provision for asset impairment and store closings of $51.4 million was
recorded in the third quarter of 1996. The provision included $37.7 million of
intangibles, primarily cost in excess of net assets acquired (goodwill), and a
$13.7 million charge for store closings, write-offs of certain store fixed
assets and of certain assets at the Company's distribution center, and
liquidation of real estate previously acquired for future expansion.
Operating income in the 1997 Period of $6.3 million, or 3.4% of sales,
compared to an operating loss of $57.5 million, or (29.9)% of sales, during 1996
due to the factors discussed previously.
Interest expense for the 1997 Period was $3.3 million, or 1.8% of sales,
compared to $3.2 million, or 1.6% of sales, in 1996 because of higher interest
rates during the 1997 Period.
The Company's effective income tax rate for the 1997 Period was 34.9% of
pre-tax income compared to a benefit of (15.5)% of pre-tax loss for 1996. The
increase in expense as a percent of pre-tax income is a result of the increase
in pre-tax income during the 1997 Period. The relatively small tax benefit as a
percent of the pre-tax loss in 1996 is a result of $37.7 million provision for
asset impairment relating to costs in excess of net assets acquired (goodwill).
The Company did not receive a tax benefit for writing off these costs in excess
of net assets acquired as they were not deductible for federal income tax
purposes.
Net income for the 1997 Period was $1.9 million, or 1.0% of sales,
compared to the 1996 net loss of $51.9 million, or (27.0)% of sales, due
primarily to the writeoffs recorded in the third quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities during the first nine months of 1997
provided net cash of $3.0 million. Investing activities utilized $0.6 million of
cash, principally related to the Company's capital expenditures. Financing
activities utilized $3.1 million of cash, principally to reduce indebtedness
under the Company's credit agreement.
-12-
<PAGE>
Inventories have increased $1.0 million since December 31, 1996. This is
primarily a result of seasonal variances. Inventories at September 30, 1997 were
$7.4 million less than inventories at September 30, 1996. Average Company
inventories per store, including distribution center inventories, were
approximately $494,000 at the end of September 30, 1997, compared to
approximately $479,000 at December 31, 1996 and $520,000 at September 30, 1996.
The Company has historically financed its growth and operations through a
combination of internally generated funds, bank borrowings, sale and lease back
transactions, and issuance of common stock. Capital expenditures were $1.3
million during the first nine months of 1997 compared to $3.6 million for the
same period of 1996.
The Company opened one store during the third quarter of 1997 and plans to
open two to four stores during the remainder of the year. The Company also plans
to remodel or relocate approximately five additional stores prior to the end of
1997. Planned capital expenditures for the remainder of 1997, including those
associated with remodels, relocations and conversions, will be approximately
$3.9 to $4.6 million before sale and lease back and direct lease transactions.
The Company's existing credit facility contains covenants relating to the
Company's working capital, net worth, leverage, liquidity and certain
acquisitions. The Company funds its capital and liquidity needs through existing
working capital, cash flows from operations, bank borrowings and sale and lease
back of real properties. For a more detailed description of the Company credit
facilities see the Notes to Consolidated Financial Statements.
On October 23, 1996, the Company entered into a financing agreement with a
new lender. Initial funding under this financing agreement was used to repay
amounts outstanding under the Company's prior credit facility. The new financing
agreement provides up to $60.0 million of borrowings under a revolving credit
facility, which matures October 22, 1999, with annual renewals at the option of
the Company and the lenders. Credit availability is limited to 60% of the value
of saleable inventory and 85% of accounts receivable, subject to certain
adjustments and reserves which may be made at the discretion of the lender. The
facility is secured by all inventories, receivables and fixed assets of the
company and its subsidiaries. The borrowings may be priced, at the Company's
option, at the lender prime rate, plus 1/4 of 1% or London Interbank Offered
Rates (LIBOR) plus 2.25%. The Company pays a commitment fee of 3/8 of 1% per
annum on all unused portions of the credit facility. Loan covenants relate to
the Company's net worth, cash flow, and restrict capital expenditures. Capital
expenditures are limited to $5.9 million for 1997 and $5.0 million for 1998 and
1999. Additionally, operating lease payments are restricted to $16.0 million per
annum through 1999. The Company is in compliance with this financing agreement
as of September 30, 1997.
Future compliance with the financial covenants of the Company's financing
agreement is dependent on its ability to generate sufficient earnings and cash
flow to meet such covenants. In the event the Company is not able to remain in
compliance with the provisions of the financing agreement, it will attempt to
renegotiate the terms of the financing agreement so as to remain in compliance
or to refinance amounts outstanding under the credit facility. However, there
can be no assurance that the Company would be successful in such negotiations,
in which case the Company's funds available for its operating needs would be
limited to internally generated funds.
At September 30, 1997, the Company had $41.8 million outstanding under the
credit facility and total unutilized credit facilities of approximately $13.6
million.
The Company believes that existing working capital, cash flows from
operations, bank borrowings, sale lease backs of retail properties and sales of
excess real estate will be sufficient to fund both capital and liquidity needs
of the Company for the next year. However, the Company's ability to access
capital, due to its operating results in recent periods, could have an adverse
impact on the Company's ability to compete effectively in its markets.
The book values of cash, trade accounts receivables and accounts payable
approximate their fair values principally because of the short-term maturities
of these instruments. The estimated fair value of long-term debt approximates
the book value as the note payable to a bank is priced based upon a floating
rate.
The Company accepts payment for sales by cash, including checks and major
credit cards, and offers accounts to commercial customers.
SEASONALITY
The Company's business is seasonal in nature, with store sales and profits
historically running higher in the second and third quarters (April through
September) of each year than in the Company's first and fourth quarters. Sales
-13-
<PAGE>
for the combined second and third quarters of 1996 were 52.9% of annual sales.
The Company's business is also influenced by weather conditions. Weather
extremes tend to enhance sales by causing a higher incidence of parts failure,
and thus, increasing sales of seasonal products. Rainy weather, however, tends
to reduce sales by causing deferral of elective maintenance.
INSURANCE
The Company maintains insurance for on-the-job injuries to its associates
and other coverages for normal business risks. A substantial portion of the
Company's current and prior year insurance coverages are "high deductible"
policies in which the Company, in many cases, is responsible for the payment of
incurred claims up to specified individual and aggregate limits, over which a
third party insurer is contractually liable for any additional payment of such
claims. Accordingly, the Company bears certain economic risks related to these
coverages. On a continual basis, and as of each balance sheet date, the Company
records an accrual equal to the estimated costs expected to result from incurred
claims plus an estimate of claims incurred, but not reported as of such date
based on the best available information at such date. However, the nature of
these claims is such that actual development of these claims may vary from the
estimated accruals. All changes in the accrual estimates are accounted for on a
prospective basis and can have a significant impact on the Company's financial
position or results of operations.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1997, the Company's operating subsidiary, Hi-Lo Auto Supply, L.P.
("Hi/LO") was served with a purported class action petition styled "Charles
Beresky vs. Hi-Lo Auto Supply, L.P.," Cause No. B-157-070 in the District Court
of Jefferson County, Texas, 60th Judicial District. The petition alleges that
Hi/LO developed a scheme to promote, offer and sell "old," "used" and "out of
warranty" batteries as if the batteries were new and seeks certification as a
class action on behalf of all persons and entities in the United States that
have purchased a battery from Hi/LO during the period May 5, 1990 to the
present. In the petition, the plaintiffs purport to state causes of action for
deceptive trade practices violations, breach of contract, negligence, fraud,
negligent misrepresentation and breach of warranty, and the plaintiffs seek
actual damages, treble damages, punitive damages, attorneys' fees and pre- and
post-judgement interest.
This lawsuit is similar to class action litigation brought against a
number of retail auto parts chains and other retailers of aftermarket automotive
batteries. While it is too early to predict the impact of this litigation, Hi/LO
believes the claims are without merit and intends to vigorously defend this
action.
The Company and/or its subsidiaries is also party to various routine
claims and lawsuits arising in the normal course of the Company's business. The
Company does not believe that such claims and lawsuits, individually or in the
aggregate, will have a material adverse effect on the Company's results of
operations or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 2.1 Agreement and Plan of Merger among Discount Auto
Parts, Inc., HLA Acquisition, Inc. and Hi-LO
Automotive, Inc., dated October 17, 1997 (incorporated
by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed with the Commission on
October 22, 1997).
Exhibit 4.1 Amendment, dated October 17, 1997, to Rights
Agreement between Hi-Lo Automotive Inc. and
ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, dated as of August 28, 1996.
Exhibit 10.1 Letter dated September 16, 1997, amending the
Financing Agreement dated as of October 23, 1996,
and as amended on December 20, 1996, among
registrant's operating subsidiary, Hi-Lo Auto
Supply, L.P., and the lenders named therein.
Exhibit 11.1 Schedule of Computation of Earnings Per Share
(b) Reports on Form 8-K
A Current Report on Form 8-K, was filed with the Commission on
October 22, 1997, to report under Item 5 "Other Events" that on
October 17, 1997, the Registrant entered into an Agreement and Plan
of Merger with Discount Auto Parts, Inc. ("Discount") and a wholly
owned subsidiary of Discount, pursuant to which Registrant would
become a wholly owned subsidiary of Discount.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hi-Lo Automotive, Inc.
Date: November 13, 1997 /s/ T. MICHAEL YOUNG
T. Michael Young
Chairman of the Board,
President and
Chief Executive Officer
Date: November 13, 1997 /s/ GARY D. WALTHER
Gary D. Walther
Vice President-Finance and
Chief Financial Officer
Date: November 13, 1997 /s/ DAN HENNEKE
Dan Henneke
Controller and
Chief Accounting Officer
-16-
EXHIBIT 4.1
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of October 17, 1997 (the "Amendment"), to the Rights
Agreement dated as of August 28, 1996 (the "Rights Agreement") between HI-LO
AUTOMOTIVE, INC., a Delaware corporation (the "Company"), and CHASEMELLON
SHAREHOLDER SERVICES, L.L.C. (the "Rights Agent").
WHEREAS, DISCOUNT AUTO PARTS, INC. a Florida corporation ("Discount"), HLA
ACQUISITION, INC., a Delaware corporation and a wholly owned subsidiary of
Discount ("Sub"), and the Company intend to enter into an Agreement and Plan of
Merger pursuant to which Sub will merge with and into the Company; and
WHEREAS, pursuant to and in compliance with Section 29 of the Rights
Agreement, the Company and the Rights Agent desire to amend the Rights Agreement
as set forth in this Agreement to reflect the foregoing;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein and in the Rights Agreement, the parties hereto hereby agree as
follows:
1. Section 1 of the Rights Agreement is hereby amended to add the
following at the end of the existing definition of "Acquiring Person" thereof:
"Anything in this Agreement to the contrary notwithstanding,
"Acquiring Person" shall not include Discount Auto Parts, Inc., a
Florida corporation ("Discount"), HLA Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of Discount ("Sub"), or
any Affiliates or Associates of Discount or Sub, by virtue of (x)
the announcement, approval, execution or delivery of the Agreement
and Plan of Merger among Discount, Sub and the Company, dated as of
October 17, 1997 and any amendments thereto in accordance with its
terms (the "Merger Agreement"), pursuant to which, among other
things, Sub shall merge with and into the Company (the "Merger") or
(y) the consummation of the Merger and the transactions contemplated
by the Merger Agreement."
2. Section 3(d) of the Rights Agreement is hereby amended by inserting
after "August 28, 1996" in line 3 of the legend set forth therein the phrase "as
amended as of October17, 1997."
3. Section 14 of the Rights Agreement is hereby amended to add the
following paragraph at the end thereof:
"Notwithstanding any other provision of this Agreement, neither of
the following events shall constitute an occurrence of the events
referred to in Section 14(a)(i), (ii) or (iii) hereof: (A) the
announcement, approval,
-1-
<PAGE>
execution or delivery of the Merger Agreement or (B) the
consummation of the Merger."
4. The Rights Agreement is hereby amended to add a new Section 36 which
shall read in its entirety as follows:
"Anything in this Agreement to the contrary notwithstanding, the
announcement, approval, execution or delivery of the Merger
Agreement, the acquisition of beneficial ownership of the Common
Stock of the Company pursuant to the Merger and the consummation of
the transactions contemplated by the Merger Agreement shall not
cause Discount, Sub or any Affiliates or Associates of Discount or
Sub to be deemed an Acquiring Person or to give rise to a
Distribution Date, any event referred to in Section 12 hereof, any
of the events referred to in Section 14 (a)(i), (ii) or (iii) hereof
or a Shares Acquisition Date."
5. The Form of Right Certificate attached to the Rights Agreement as
Exhibit B is hereby amended by inserting after "August 28, 1996" in lines 3 and
4 thereof the phrase "as amended as of October 17, 1997."
6. This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to principles of conflicts of
laws.
7. This Amendment may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
8. Except as expressly set forth herein, this Amendment shall not by
implication or otherwise alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Rights
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered and to become effective, all as of the day and year
first above written.
ATTEST: HI-LO AUTOMOTIVE, INC.
By: /s/ K. GRANT HUTCHINS By: /s/ T. MICHAEL YOUNG
Name: K. Grant Hutchins Name: T. Michael Young
Title: Secretary Title: Chairman of the Board,
President and Chief
Executive Officer
ATTEST: CHASEMELLON SHAREHOLDER SERVICES, LLC
As Rights Agent
By: /s/ R. JOHN DAVIS By: /s/ BARBARA J. ROBBINS
Name: R. John Davis Name: Barbara J. Robbins
Title: Vice President Title: Vice President
-3-
EXHIBIT 10.1
September 16, 1997
Hi-Lo Auto Supply, L.P.
2575 W. Bellfort
Houston, Texas 77054
Gentlemen:
Reference is made to (i) the Financing Agreement between us dated October 23,
1996, as amended, including but not limited to the amendment letters between us
dated December 20, 1996 (herein the "Financing Agreement") and (ii) the various
letter agreements between us granting to the Company additional time to satisfy
the Condition Precedent set forth in Section 2, paragraph v), subparagraph i)
relating to the Blocked Account Agreements required by the Agent (herein the
"Waiver Letters"). Capitalized terms used herein shall have the meanings
ascribed to them in the Financing Agreement unless otherwise specifically
defined herein.
Pursuant to the mutual understanding of the undersigned parties, the Financing
Agreement is hereby amended as follows:
1.) The definition of "Availability Reserve" appearing in Section 1 of the
Financing Agreement is hereby amended as follows: (i) by deleting clause
(c) at the end of such definition and deleting the word ";and" immediately
preceding (c) and adding a period in lieu thereof.
2.) The definition of "Eligible Accounts Receivable" appearing in Section
1 of the Financing Agreement is hereby amended by deleting clause (c) at
the end of such definition and by deleting the word ", and" immediately
preceding (c) and adding a period in lieu thereof.
3.) The definition of "Eligible Inventory" appearing in Section 1 of the
Financing Agreement is hereby amended by a) deleting clause viii) at the
end of such definition, b) adding the Standard Reserve Component and c)
deleting the word "and" immediately preceding clause viii) and
substituting a period in lieu thereof.
4.) Section 7, paragraph 10(B) of the Financing Agreement is hereby
amended by deleting the two full paragraphs at the end of such paragraph
10(B) commencing with the language "Within 30 days after the Agent's
receipt of the Company's Consolidated Financial Statements" through the
end of the last line in such paragraph 10 (B).
5.) The Company has advised the Agent and the Lenders that it has been
unable to obtain Blocked Account Agreements with the sixteen banks where
it has bank accounts, as listed on Exhibit A attached hereto, and,
therefore, such sixteen
<PAGE>
Depository Accounts have not yet become Blocked Accounts.
6.) The Company has advised the Agent that its Concentration Account shall
be changed from NationsBank to Bank One, and therefore, the Company hereby
confirms that it shall obtain fully executed amendments to i) the Blocked
Account Agreements and ii) the credit card remittance letters providing
for instructions to each bank and credit card company/clearing house to
remit the collections to the new Concentration Account, such amendments to
be delivered to the Agent no later than October 31, 1997 or such failure
to deliver any of the foregoing on or before October 31, 1997 shall be
deemed an Event of Default under the Financing Agreement.
Notwithstanding anything to the contrary contained in the Financing Agreement or
the Waiver Letters, the undersigned parties hereby agree that with respect to
such sixteen Depository Accounts listed on Exhibit A attached hereto, the
requirements of Section 2, paragraph v), subparagraph i) of the Financing
Agreement are hereby permanently waived provided, however, that upon any change
to another bank, the Company shall then deliver to the Agent Blocked Account
Agreements for the new Depository Accounts and provided further that,
notwithstanding the foregoing, all collections must be remitted to the
Concentration Account pursuant to paragraph 4 of Section 3 of the Financing
Agreement.
No other change, amendment or waiver in the terms or conditions of the Financing
Agreement is intended or implied. If the foregoing is in accordance with your
understanding please so indicate by signing and returning the enclosed copy of
this letter.
Very truly yours,
THE CIT GROUP/BUSINESS CREDIT,
INC., as Agent
By: /S/ DAN HUGHES
Title: Vice President
Read and Agreed to:
HI-LO AUTO SUPPLY, L.P.
By: /s/ GARY D. WALTHER
Title: Vice President
Read and Confirmed:
FLEET CAPITAL CORP.
By: /s/ BRUCE CLARK
Title: Vice President
LASALLE NATIONAL BANK
By: /s/ JOE FUDAZZ
Title: Sr. Vice President
<PAGE>
EXHIBIT A
STORE CITY BANK
----- ---- ----
33 Alvin First National Bank of Alvin
37 Clute Texas Gulf Bank
39 New Caney PrimeBank
4 Beaumont Community Bank
56 Bryan First National Bank
69 Slidell, L.A. First National Bank of Commerce
77 Houma, L.A. Hibernia Bank
108 Dickinson CitizensStateBank
109 League City League City Bank Trust
110 Orange Prime Bank
123 Crowley, L.A. First Bank
126 Jennings, L.A. American Bank
139 Pharr First Valley Bank
168 Del Rio Del Rio Bank & Trust
205 Elgin Elgin Bank
206 New Caney Prime Bank
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
COLUMN A COLUMN B
- ----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
AVERAGE COMMON SHARES OUTSTANDING ....... 10,775,109 10,756,350 10,775,109 10,756,350
COMMON EQUIVALENT SHARES RESULTING FROM
STOCK OPTIONS ISSUED .................. 0 0 0 0
----------- ------------ ----------- ------------
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING .................... 10,775,109 10,756,350 10,775,109 10,756,350
NET INCOME (LOSS) ....................... $ 1,313 $ (51,659) $ 1,933 $ (51,905)
=========== ============ =========== ============
EARNINGS PER COMMON SHARE:
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE ...................... $ 0.12 $ (4.80) $ 0.18 $ (4.83)
=========== ============ =========== ============
</TABLE>
Earnings per share have been computed by dividing net income by the
average number of common and common equivalent shares outstanding. Common
equivalent shares outstanding were computed using the treasury stock method. The
difference between shares for primary and fully diluted earnings per share was
not significant in any period. On November 1, 1994, a note was issued that is
convertible, effective November 1, 1996, into 93,859 shares of the Company's
Common Stock. Since September 30, 1997, this note had no significant effect on
earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 SEP-30-1996 JUN-30-1996
<CASH> 420 604 374 3,874
<SECURITIES> 0 0 0 0
<RECEIVABLES> 14,156 13,246 10,468 11,574
<ALLOWANCES> (511) (573) (930) (938)
<INVENTORY> 92,381 93,819 99,766 99,944
<CURRENT-ASSETS> 109,707 108,940 116,861 118,202
<PP&E> 76,783 77,582 76,751 76,060
<DEPRECIATION> (47,067) (46,307) (43,441) (29,991)
<TOTAL-ASSETS> 142,835 143,554 151,360 204,096
<CURRENT-LIABILITIES> 35,066 31,559 40,819 37,597
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 108 108 108 108
<OTHER-SE> 61,119 59,805 60,965 112,624
<TOTAL-LIABILITY-AND-EQUITY> 142,835 143,554 151,360 204,096
<SALES> 184,559 119,265 192,323 127,927
<TOTAL-REVENUES> 184,559 119,265 192,323 127,927
<CGS> 111,195 71,765 122,822 78,157
<TOTAL-COSTS> 177,937 115,908 249,546 125,362
<OTHER-EXPENSES> 53 (8) 714 530
<LOSS-PROVISION> 278 150 318 79
<INTEREST-EXPENSE> 3,320 2,230 3,161 2,076
<INCOME-PRETAX> 2,971 985 (61,416) (120)
<INCOME-TAX> 1,038 366 (9,511) 126
<INCOME-CONTINUING> 1,933 619 (51,905) (246)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,933 619 (51,905) (246)
<EPS-PRIMARY> .18 .06 (4.83) (.02)
<EPS-DILUTED> .18 .06 (4.83) (.02)
</TABLE>
