<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported): June 9, 1998 (January 8, 1997)
TEXAS EQUIPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 000-21813 62-1459870
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification Number)
1305 Hobbs Hwy, Seminole, Texas 79360
(Address of principal executive offices)
Registrant's telephone number, including area code: (915) 758-3643
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 8, 1997, Texas Equipment Corporation (the "Company") entered
into and consummated an Agreement to Purchase two John Deere & Company ("Deere")
agricultural dealerships from J&H Equipment Company. The acquisition is the
result of the Company's desire to create a network of Deere agricultural
dealerships in West Texas. In addition, to more efficient operations, the
Company believes that its customers will be better served with a network of
Deere Dealerships in this area.
The terms of the acquisition, which included the buildings, land,
equipment and inventory of the two stores for approximately $2,400,000, was cash
of $945,000, a note for $258,000 and the assumption of indebtedness due Deere of
$1,197,000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements, Pro Forma Financial Statements and
Exhibits.
1. Audited Financial Statements for the two years ended
December 31, 1996 and 1995.
2. Pro Forma Financial Information.
(b) Exhibits.
EX-2 Agreement of Sale
<PAGE> 3
TEXAS EQUIPMENT CORPORATION AND J & H EQUIPMENT COMPANY
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma consolidated financial statements have been prepared
to show the effects of the acquisition of J&H Equipment Company ("J&H") assets
and liabilities assumed ("acquisition") by Texas Equipment Corporation (the
"Company").
The following unaudited consolidated balance sheet presents the combined
financial position of the Company at December 31, 1996, as if the acquisition of
"J&H" had occurred on December 31, 1996, adjusted for the assets acquired and
liabilities assumed pursuant to the terms of the acquisition agreement.
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1996 reflects the combined results of the Company for its fiscal
year ended December 31, 1996 and J&H for the year December 31, 1996, as if the
acquisition had occurred on January 1, 1996, adjusted to reflect interest on the
acquisition debt, income taxes imputed and depreciation.
The unaudited pro forma consolidated statement of operations does not
necessarily represent actual results that would have been achieved had the
companies been together as of January 1, 1996, nor may it be indicative of
future operations. These unaudited pro forma consolidated financial statements
should be read in conjunction with the Company's and J&H's historical financial
statements and notes thereto.
<PAGE> 4
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
TEXAS J&H Pro-Forma
EQUIPMENT EQUIPMENT Adjustments Consolidated
CORP. COMPANY
1996 1996 Dr. Cr. 1996
---- ---- --- --- ----
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 2,661,058 $ 38,290 (1) $ 38,290
(2) 945,162 $ 1,715,896
Accounts receivable, net 872,815 356,113 (1) 238,879 990,049
Contract in transit 823,516 (1) 823,516 --
Other receivables 204,649 204,649
Inventories 5,380,188 5,192,345 (1) 1,546,831 9,025,702
Prepaid expenses 12,500 12,500
----------- ---------- -----------
Total current assets 9,131,210 6,410,264 11,948,796
----------- ---------- -----------
Property and equipment, net 1,244,442 386,872 (2) 741,129 2,372,443
Finance receivables 731,028 54,782 (1) 54,782 731,028
Receivables from officer 215,810 215,810
Goodwill, net 136,667 136,667
Other assets 153,101 275,418 (1) 275,418 153,101
----------- ---------- -----------
Total assets $11,612,258 $7,127,336 $15,557,845
=========== ========== ===========
Liabilities and Stockholders' equity
Current liabilities
Floor plan payables 2,190,355 4,752,560 (1) 1,005,473 4,937,442
Accounts payable 437,564 32,960 (1) 32,960 437,564
Accrued liabilities 102,271 1,257 (1) 1,257 102,271
Notes payable 300,000 -- (2) 258,500 558,500
Customer deposits 79,500 10,372 (1) 10,372 79,500
Income tax liabilities 810,800 -- 810,800
Current maturities of
long-term debt 396,022 320,715 (1) 320,715 396,022
----------- ---------- -----------
Total current
liabilities 4,316,512 5,117,864 7,322,099
----------- ---------- -----------
Long-term debt, net of
current maturities 1,005,762 175,161 (1) 175,161 (2) 940,000 1,945,762
Deferred tax liabilities 107,200 107,200
Stockholders' equity
Partners' capital 1,834,311 (1) 1,160,968
(2) 673,343 --
Common stock, $001, par
value, authorized
50,000,000 issued and
outstanding 24,547,808
and 24,799,808 24,798 24,798
Paid in capital 2,534,859 2,534,859
Retained earnings 3,623,127 3,623,127
----------- ---------- -----------
Total stockholders'
equity 6,182,784 1,834,811 6,182,784
----------- ---------- -----------
Total liabilities
and stockholders'
equity $11,612,258 $7,127,336 $15,557,845
=========== ========== ===========
</TABLE>
<PAGE> 5
TEXAS EQUIPMENT CORPORATION AND J & H EQUIPMENT COMPANY
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1996 Pro-Forma Adjustments
Adjusted
TEC J&H Dr. Cr. Pro-Forma
<S> <C> <C> <C>
Revenues $ 28,094,196 $ 17,483,100 $ 45,577,296
Cost of sales 24,001,389 15,328,218 39,329,607
------------ ------------ -------------
Gross profit 4,092,807 2,154,882 6,247,689
Selling, general and administrative
expenses 2,871,729 1,783,440 (3) 27,140 4,682,309
------------ ------------ --------------
Income from operations 1,221,078 371,442 1,565,380
Other income (expense)
Interest income 175,465 31,071 206,536
Gain on sale of assets 823 823
Interest expense (127,151) (66,595) (2) 25,800 (219,546)
Other income 38,756 6,156 44,912
------------ ------------ --------------
Income from continuing operation
before taxes 1,308,148 342,897 1,598,105
Income tax expense 425,033 (1) 110,000 535,033
------------ ------------ --------------
Income from continuing operations 883,115 342,897 1,063,072
Discontinued operations
Loss on discontinued
operations (146,764) (146,764)
------------ ------------ --------------
Net income $ 736,351 $ 342,897 $ 916,308
============ ============ ==============
Net income per share
Basic
Continuing operations $ 0.06
Discontinued operations (0.01)
--------------
Total $ 0.05
==============
Diluted
Continuing operations $ 0.05
Discontinued operations (0.01)
--------------
Total $ 0.04
==============
Number of shares used in computation
Basic 19,499,936
--------------
Diluted 19,531,186
==============
</TABLE>
<PAGE> 6
TEXAS EQUIPMENT CORPORATION AND J & H EQUIPMENT COMPANY
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
On January 8, 1997, the Company purchased the assets (building, land, equipment
and inventory) of J&H for $2,400,000. The $2,400,000 was paid with cash, a
$258,000 note to the seller bearing interest at 10% due on demand and the
assumption of indebtedness due to John Deere.
The acquisition has been accounted for under the purchase method of accounting
with the purchase price being allocated to the assets acquired.
(A) The following pro-forma adjustments are included in the accompanying
unaudited pro-forma consolidated balance sheet as of December 31, 1996
which has been prepared to reflect the January 8, 1997 acquisition as
if it had occurred on December 31, 1996:
1.) To eliminate assets not acquired, liabilities not assumed and
partners' capital.
2.) Record cash paid, note assumed, debt incurred, and increase in
property and equipment acquired due to the purchase agreement.
(B) The following pro-forma adjustments are included in the accompanying
unaudited pro-forma consolidated statement of operations for the year
ended December 31, 1996 which has been prepared to reflect the January
8, 1997 acquisition as if it had occurred on January 1, 1996:
1.) Impute federal and state income taxes as if J&H was a C Corp.
verses a partnership. An average tax rate of 38% was utilized net
of the benefit of items 2 & 3 below.
2.) Record interest expense on note payable to seller at 10%.
3.) Record additional depreciation expense on the stepped up basis in
assets acquired.
<PAGE> 7
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.
Date: June 8, 1998
TEXAS EQUIPMENT CORPORATION
By: /s/ Paul J. Condit
----------------------------------------
Paul J. Condit
President and Chief Executive Officer
<PAGE> 8
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
EX-2 Agreement of Sale
<PAGE> 1
[TEXAS EQUIPMENT COMPANY, INC. LETTERHEAD]
BUY-SELL AGREEMENT
Texas Equipment Co., Inc., of Seminole, Plains and Pecos, Texas and J. & H.
Equipment Co., of Dimmitt and Friona, Texas agree that certain assets of J. &
H. Equipment Co., hereafter called seller, will transfer to Texas Equipment
Co., Inc., hereafter called buyer, subject to approval of John Deere Co., Inc.,
the following:
For the following consideration, Texas Equipment Co., Inc. will take over the
business know as J. & H. Equipment Co.
1. Buyer will purchase the following assets owned by the seller for
approximately $2,400,000.00 in cash:
(a) all facilities and the approximately 10 acres of land at the
present location in Dimmitt, Texas:
(b) all furniture and fixtures contained in the above mentioned
facilities, excluding any personal items that belong to the seller:
(c) all shop tools and equipment contained in the above facilities and
shown on an itemized list of inventory:
(d) all rolling stock (vehicles) owned by the business:
(e) paid for allied equipment.
(f) agreed on used equipment
2. Buyer and Seller will return all parts to their suppliers for credit
to the seller. Buyer will buy all salable parts on a cost basis, less
any discounts and volume, etc. Any parts that can not be returned to
their suppliers will be negotiated on an item by item or lump some
basis. Seller will retain all accounts receivables, volume discount and
note lease reserves. Seller will be responsible for all accounts
payable to date of closing.
3. An environmental impact study of the property and facilities will be
provided.
4. Seller will transfer all assets of J. & H. Equipment Co. to the buyer
upon approval of John Deere Co., Dallas, Texas, said transfer to
include any and all stock and other assets of seller except those
assets in paragraph 2, exempt from said transfer.
Both parties hereto agree that all titles, transfers and any all instruments
necessary to complete this transaction will be executed by each party
responsible thereof.
<PAGE> 2
This agreement is subject to Deere and Company approval
EXECUTED this 29 day of November 1996.
Texas Equipment Co., Inc. J. & H. Equipment Company
by: /s/ PAUL CONDIT by: /s/ HAROLD THOMPSON
----------------------- ------------------------
Paul Condit Harold Thompson
<PAGE> 3
J & H EQUIPMENT COMPANY
Financial Statements and
Supplementary Data
December 31, 1996 and 1995
(With Auditors' Report Thereon)
<PAGE> 4
J & H EQUIPMENT COMPANY
Table of Contents
<TABLE>
<CAPTION>
Page
number
------
<S> <C>
Independent Auditors' Report 1
Balance Sheets 2
Statements of Income 4
Statements of Changes in Partners' Capital 5
Statements of Cash Flows 6
Notes to Financial Statements 8
Supplementary Data:
Independent Auditors' Report on Supplementary Data 14
Analysis of Sales Revenue 15
Schedule of Other Operating Revenues 17
Analysis of Operating Expenses 18
</TABLE>
* * * * * * * * * * * * * * *
<PAGE> 5
[D. WILLIAMS & CO., P.C. LETTERHEAD]
Joe and Harold Thompson
J & H Equipment Company
Dimmitt, Texas
Independent Auditors' Report
We have audited the accompanying balance sheets of J & H Equipment Company (the
Partnership), as of December 31, 1996 and 1995, and the related statements of
income, partners' capital, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of J & H Equipment Company at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ D. WILLIAMS & CO., P.C.
March 19, 1998
<PAGE> 6
J & H EQUIPMENT COMPANY
Balance Sheets
December 31, 1996 and 1995
Assets
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,290 11,321
Accounts receivable 356,113 263,950
Contracts in transit 823,516 152,857
Inventory 5,192,345 5,811,809
Retail finance reserve 54,782 53,372
Prepaid assets -- 605
---------- ----------
6,465,046 6,293,914
---------- ----------
Property, plant and equipment:
Depreciable plant and equipment 1,466,103 1,459,862
Less accumulated depreciation 1,104,364 990,196
---------- ----------
361,739 469,666
Land 25,133 25,133
---------- ----------
386,872 494,799
---------- ----------
Other assets:
Retail finance reserve 273,910 266,858
John Deere reserve 1,508 1,000
---------- ----------
275,418 267,858
---------- ----------
$7,127,336 7,056,571
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 7
Liabilities and Partners' Capital
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current liabilities:
Floor plan notes $ 806,452 790,331
Current portion of long-term debt 320,715 451,194
Due John Deere Company 3,946,108 3,862,493
Accounts payable 32,960 104,089
Accrued expenses 1,257 2,857
Customer deposits 10,372 --
---------- ----------
5,117,864 5,210,964
Long-term liabilities:
Notes payable 175,161 329,193
---------- ----------
5,293,025 5,540,157
---------- ----------
Partners' Capital:
Partners' capital 1,834,311 1,516,414
---------- ----------
$7,127,336 7,056,571
========== ==========
</TABLE>
3
<PAGE> 8
J & H EQUIPMENT COMPANY
Statements of Income
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Operating revenues:
Sales $ 16,980,150 15,061,662
Less cost of sales 15,328,218 13,480,041
------------ ------------
1,651,932 1,581,621
Other operating revenue 502,950 367,072
------------ ------------
2,154,882 1,948,693
------------ ------------
Operating expense:
Labor 1,032,785 957,745
Depreciation 114,169 109,099
Insurance 96,843 141,110
Repairs and maintenance 59,922 41,586
Utilities 35,481 27,534
Other operating expenses 444,240 396,787
------------ ------------
1,783,440 1,673,861
------------ ------------
Operating income 371,442 274,832
------------ ------------
Other income and (expense):
Interest income 31,071 34,234
Gain on sale of assets 823 8,000
Other income 6,156 --
Interest expense (66,595) (91,466)
------------ ------------
(28,545) (49,232)
------------ ------------
Net income $ 342,897 225,600
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 9
J & H EQUIPMENT COMPANY
Statements of Partners' Capital
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Joe Harold
Thompson Thompson Total
-------------------------- ------------------------- -------------------------
1996 1995 1996 1995 1996 1995
---------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance $ 658,207 778,607 858,207 778,607 1,516,414 1,557,214
Capital
Contributions -- -- -- 80,000 -- 80,000
Net Income 171,449 112,800 171,448 112,800 342,897 225,600
Capital
Withdrawals (25,000) (233,200) -- (113,200) (25,000) (346,400)
---------- -------- --------- -------- --------- ---------
$ 804,656 658,207 1,029,655 858,207 1,834,311 1,516,414
========== ======== ========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 10
J & H EQUIPMENT COMPANY
Statements of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 342,897 225,600
--------- ---------
Adjustments to reconcile net margins to net
cash provided by operating activities:
Depreciation 114,169 109,099
(Gain) on sale of fixed assets (823) (8,000)
Changes in assets and liabilities:
(Increase) in accounts receivable (92,163) (23,718)
(Increase) in contracts in transit (670,659) (45,618)
(Increase) decrease in inventory 619,464 (939,992)
Decrease in accrued expenses 605 2,725
(Increase) in dealer finance reserve (8,970) (25,716)
Increase in accounts payable 12,486 716,729
(Decrease) in accrued expenses (1,600) (11,374)
Increase (decrease) in customer deposits 10,372 (19,750)
--------- ---------
Total adjustments (17,119) (245,615)
--------- ---------
Net cash provided (used) by operating
activities 325,778 (20,015)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of fixed assets 823 8,000
Purchases of property, plant and equipment (6,242) (213,874)
--------- ---------
Net cash (used) by investing
activities (5,419) (205,874)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 11
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows from Financing Activities:
Floor plans, net 16,121 (252,272)
Proceeds from short-term borrowings 325,000 287,895
Proceeds from long-term borrowings -- 381,623
Repayments of short-term debt (353,044) (191,295)
Repayments of long-term debt (256,467) (39,315)
Partner capital contributions -- 80,000
Partner capital withdrawals (25,000) (346,400)
--------- ---------
Net cash (used) by financing
activities (293,390) (79,764)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 26,969 (305,653)
Cash and cash equivalents at beginning of year 11,321 316,974
--------- ---------
Cash and cash equivalents at end of year $ 38,290 11,321
========= =========
Supplemental Disclosures of Cash Flow:
Cash paid during the year for:
Interest $ 199,056 175,790
========= =========
</TABLE>
7
<PAGE> 12
J & H EQUIPMENT COMPANY
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Description of the Partnership
J & H Equipment Company (the Partnership) operates as an authorized
John Deere dealership engaged in the sales, service, and rental of new
and used farm equipment. It operates a sales and service facility in
Dimmitt, Texas and a related service center in Friona, Texas.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the partnership considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are shown at estimated net realizable value.
Detail concerning accounts receivable is presented below:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Customer receivables $108,706 118,827
Manufacturer 38,273 4,412
Volume discount 39,287 9,987
Farm plan 35,774 41,461
Dealer reserve adjustment 79,206 50,095
Other 54,867 39,168
-------- --------
$356,113 263,950
======== ========
</TABLE>
continued
8
<PAGE> 13
J & H EQUIPMENT COMPANY
Notes to Financial Statements
The partnership is a John Deere dealership that sells equipment, parts,
and provides repair services with locations in Dimmitt and Friona,
Texas. The partnership grants credit to customers, substantially all of
whom are agricultural producers in the Panhandle - South Plains area of
Texas. The ability of customers to honor their obligations is largely
dependent on the volume of annual harvests.
Contracts in Transit
Contracts in transit are proceeds due on settlements of sales contracts
that have been transferred to a financing institution.
Inventory
New equipment is stated at cost (factory invoice) plus delivery charges
and dealer installed equipment. Any rebates and allowances from the
manufacturer are due upon sale and charged against cost of sales.
Used equipment is stated at the lower of cost or market. Market is
considered to be the lower of wholesale "as is" value, determined by
the current used equipment guidebook, less estimated reconditioning
cost, or estimated current wholesale market value of the unit.
The partnership has a policy of renting new and used equipment to
customers on a seasonal basis. Using a method prescribed by the John
Deere Company, the dealer may charge a portion of the rent received
against inventory cost in lieu of reclassing the equipment as a
depreciable rental unit. This method has the effect of recognizing the
loss in market value due to the rental use of the equipment. As a
result, any equipment that is rented will be carried on a lower of cost
or market basis. Currently, 20% of the rental receipt is recognized in
income with the remaining 80% being charged to inventory.
The cost of all equipment is determined by the specific unit method.
Parts, accessories and supplies are generally stated at John Deere
catalog (Dealer Net) prices which approximate first-in, first-out cost.
continued
9
<PAGE> 14
J & H EQUIPMENT COMPANY
Notes to Financial Statements
Detail concerning inventories is presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
John Deere farm equipment $2,061,642 2,596,502
Used equipment 2,391,818 2,462,559
John Deere attachments 8,670 27,680
Other equipment 47,093 95,075
John Deere service parts 581,935 535,608
Other merchandise 101,187 94,385
---------- ----------
$5,192,345 5,811,809
========== ==========
</TABLE>
Dealer finance reserve
As a contingency against losses on repossessions, John Deere withholds
one percent of each approved financing contract. This amount plus
interest to be paid over the life of the contract, is deposited in a
dealer finance reserve account maintained by John Deere. The base
reserve level is recalculated each year with the dealership eligible
for refunds based upon acceptable experience ratios. Interest is paid
to the dealer on the reserve balance.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. The straight-line and declining balance methods are used
to calculate depreciation with the estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings 15 to 39 years
Service equipment 5 to 7 years
Furniture and fixtures 5 to 7 years
Vehicles 3 to 7 years
</TABLE>
The costs of plant and equipment by major classification for the years
ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Buildings $ 833,007 833,007
Service equipment 70,121 67,452
Furniture and fixtures 299,820 296,248
Vehicles 263,155 263,155
---------- ----------
$1,466,103 1,459,862
========== ==========
</TABLE>
continued
10
<PAGE> 15
J & H EQUIPMENT COMPANY
Notes to Financial Statements
Partners' Capital
Partners' Capital represents the undistributed portion of partners'
capital contributions and net income allocations.
(2) Floor plan notes
The Partnership has a revolving line of credit agreement with American
State Bank, Lubbock, Texas, which provides that it may borrow up to
$1,000,000 at the bank's base rate plus one percent (9.25 percent at
December 31, 1996). The line of credit is secured by inventory and
equipment along with personal guarantees by Joe and Harold Thompson.
The line of credit expires on February 1, 1997 and is renewable
annually by mutual agreement of the parties. The balance due under the
line of credit was $806,452 and $790,331, at December 31, 1996 and
1995, respectively.
(3) Due John Deere Company
During the normal course of business, the partnership, operating as a
franchisee of John Deere, has significant transactions with the John
Deere Company. These transactions are handled through a trade account
with John Deere. Transactions include the purchases of equipment,
parts, insurance and supplies. John Deere also furnishes a line of
credit to the dealer for the floor planning of new equipment.
Settlements on contracts with John Deere Credit are also handled
through this account. Credits due the dealer for returned equipment and
parts are posted to the account, as well as any rebates, bonuses, or
other income due the dealer.
Details concerning the John Deere trade account is presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Floor plans $1,422,873 1,378,272
New equipment 1,819,488 2,141,618
Parts 82,140 60,211
Settlements 576,205 207,109
Interest 4,388 6,308
Miscellaneous 41,014 68,975
---------- ----------
$3,946,108 3,862,493
========== ==========
</TABLE>
(4) Notes payable
A summary of the balances and maturities as of December 31, 1996 and
1995 is as follows:
continued
11
<PAGE> 16
J & H EQUIPMENT COMPANY
Notes to Financial Statements
Term notes
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
American State Bank #1796795
Principal and interest due in
monthly installments of $4,000
Interest rate at December 31, 1996
is 9.25%. Note is unsecured $167,370 170,510
American State Bank
Mortgage note secured by a
10.020 acre tract of land in
Castro County, Texas. Principal
and interest due in monthly
installments of $3,973. Interest
rate at December 31, 1996 is 9.5% 164,767 194,986
American State Bank #1648555
Principal and interest due in
monthly installments of $657
Interest rate at December 31, 1995
is 9.25%. Note secured by a 1994
Chevrolet pickup -- 10,973
American State Bank #1725999
Principal and interest due in
monthly installments of $579
Interest rate at December 31, 1995
is 9.25%. Note is secured by a
1993 Chevrolet -- 13,931
John Deere Credit
Principal and interest due in
monthly installments of $1,573
Interest rate at December 31,
1996 is 10% 57,581 70,316
John Deere Credit
Term notes to finance purchase of
four units for dealer rental
fleet. Three monthly principal
and interest installments of
$122,353 due beginning November 1,
1996. Interest rate at December
31, 1996 is 8.75%. Note secured
by equipment 106,158 319,671
-------- --------
495,876 780,387
</TABLE>
continued
12
<PAGE> 17
J & H EQUIPMENT COMPANY
Notes to Financial Statements
<TABLE>
<S> <C> <C>
Less current portion 320,715 451,194
-------- --------
$175,161 329,193
======== ========
</TABLE>
The aggregate contractual maturities of long-term debt for the five
subsequent years ending December 31, 2001:
<TABLE>
<S> <C>
1998 $ 51,946
1999 57,184
2000 56,337
2001 9,694
--------
$175,161
========
</TABLE>
(5) Federal income taxes
The Partnership operates as a general partnership under the Internal
Revenue Code. The income of the Partnership is reportable by the
partners on their federal income tax returns; accordingly, no provision
for federal income tax is shown in the financial statements.
(6) Commitments
The partners have entered into an agreement with Texas Equipment, Inc.,
to sell essentially all assets of the Partnership effective January 8,
1997, for the sum of $1,378,909 plus the assumption of certain
liabilities.
13
<PAGE> 18
S U P P L E M E N T A R Y D A T A
(See accompanying auditors' report)
<PAGE> 19
[D. WILLIAMS & CO., P.C. LETTERHEAD]
Joe and Harold Thompson
J & H Equipment Company
Dimmitt, Texas
Independent Auditors' Report on Supplementary Data
We have audited and reported separately herein on the financial statements of
J & H Equipment Company, as of and for the years ended December 31, 1996 and
1995.
Our audits were made for the purpose of forming an opinion on the basic
financial statements of J & H Equipment Company taken as a whole. The
supplementary data included in Schedules 1 through 3 is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. Such supplementary data, has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ D. WILLIAMS & CO., P.C.
March 19, 1998
<PAGE> 20
Schedule 1
J & H EQUIPMENT COMPANY
Analysis of Sales Revenue
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Gross Gross
Sales Cost Margin Margin %
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Equipment Sales $13,485,772 13,375,516 110,256 0.82%
Parts Sales 2,343,652 1,610,798 732,854 31.27%
Service Sales 1,150,726 341,904 808,822 70.29%
----------- ----------- ----------- -----
$16,980,150 15,328,218 1,651,932 9.73%
=========== =========== =========== =====
<CAPTION>
1995
--------------------------------------------------------
Gross Gross
Sales Cost Margin Margin %
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Equipment Sales $11,967,688 11,636,884 330,804 2.76%
Parts Sales 2,097,173 1,498,898 598,275 28.53%
Service Sales 996,801 344,259 652,542 65.46%
----------- ----------- ----------- -----
$15,061,662 13,480,041 1,581,621 10.50%
=========== =========== =========== =====
</TABLE>
See accompanying auditors' report on supplementary data.
15
<PAGE> 21
Schedule 2
J & H EQUIPMENT COMPANY
Schedule of Other Operating Revenues
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Volume discount earned $ 456,326 329,587
Activity bonus earned 45,035 36,247
Cash discount earned 1,589 1,238
--------- -------
$ 502,950 367,072
========= =======
</TABLE>
See accompanying auditors' report on supplementary data.
16
<PAGE> 22
Schedule 3
J & H EQUIPMENT COMPANY
Analysis of Operating Expenses
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Labor:
Salaries $ 855,453 787,809
Employee benefits 177,332 169,936
---------- ----------
1,032,785 957,745
---------- ----------
Depreciation 114,169 109,099
---------- ----------
Insurance 96,843 141,110
---------- ----------
Repairs and maintenance 59,922 41,586
---------- ----------
Utilities 35,481 27,534
---------- ----------
Other:
Training 8,681 10,852
Demonstration 3,564 329
Travel 10,446 6,586
Advertising 17,662 22,719
Warranty - MFG. Differential 86,146 81,471
Policy adjustment 11,781 7,394
Vehicle expense 26,779 18,100
Expendable tools 27,418 24,204
Postage 3,479 4,976
Telephone 28,585 29,658
Data processing 21,088 22,537
Dues and subscriptions 3,881 3,968
Contributions 2,515 4,313
Rent 32,577 34,552
Taxes 30,480 21,522
Bad debt 21,479 934
Repossessions 6,122 8,514
Accounting 1,475 1,475
Bank charges 47,772 35,203
Supplies 49,551 50,456
Miscellaneous 2,759 7,024
---------- ----------
444,240 396,787
---------- ----------
$1,783,440 1,673,861
========== ==========
</TABLE>
See accompanying auditors' report on supplementary data.
17
