SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended: Commission File Number
September 30, 1996 0-20984
HAHN AUTOMOTIVE WAREHOUSE, INC.
(Exact name of Registrant as specified in its Charter)
New York 16-0467030
(State of Incorporation) (I.R.S.Employer Identification No.)
415 West Main Street, Rochester, New York 14608
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 235-1595.
Securities registered pursuant to Section 12(b) of the Act and
the Exchange on which such securities are registered:
COMMON STOCK, PAR VALUE $0.01 PER SHARE NASDAQ
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 or No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held
by non-affiliates of the Registrant as of December 16, 1996,
(based upon the closing price of $8.00 on that day, as reported
on the NASDAQ NMS) was approximately $14,731,992. For the sole
purpose of making this calculation, the term "non-affiliate" has
been interpreted to exclude the directors and corporate officers.
Such interpretation is not intended to be, and should not be
construed as an admission by the Registrant or such directors or
corporate officers that such directors or corporate officers are
"affiliates" of the Registrant, as that term is defined in the
Securities Act of 1933.
The number of shares of Registrant's Common Stock, par value $.01
per share, outstanding as of December 16, 1996,: 4,562,513.
Documents Incorporated By Reference
Portions of the Registrant's definitive Proxy Statement for its
1997 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to regulations 14A, not
later than 120 days after September 30, 1996, are incorporated by
reference in Part III (Items 10, 11, 12, and 13) of this Form 10-K.
PART I
Item 1. BUSINESS
(a) General Development of Business
This Annual Report on Form 10-K ("Form 10-K") contains forward-
looking statements. The Company desires to take advantage of the
"safe harbor" which is afforded such statements under the Private
Securities Litigation Reform Act of 1995 when they are
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those in the forward-looking statements. Such
cautionary statements are set forth under the heading "Important
Information Regarding Forward-Looking Statements" located in Item
7 "Management's Discussion and Analysis of Financial Condition
and Results of Operation" of this Form 10-K.
Hahn Automotive Warehouse, Inc. is a regional distributor of
automotive aftermarket products to commercial service
establishments and a regional specialty retailer of automotive
aftermarket products to the Do-It-Yourself ("DIY") consumer.
Hahn was incorporated in the State of New York in 1958. Its
principal executive offices are located in Rochester, New York.
Unless the context indicates otherwise, the term "Company" refers
to Hahn and its consolidated subsidiaries.
The Company's wholesale business, which is conducted through Hahn,
consist of 11 full-service distribution centers, four specialty
distribution centers, and nine direct distribution centers located
along the Eastern Seaboard and in the Midwest. The Company's
wholesale business also includes 82 jobber stores which operate in
the same areas as its full-service distribution centers generally
under the Advantage Auto Store name. The Company's wholly-owned
subsidiary, AUTOWORKS, Inc. ("Autoworks"), operates 129 retail
stores, which are located in Michigan, Indiana, West Virginia,
Kentucky, and Ohio.
During fiscal 1996, the Company made significant progress in the
implementation of the AUTOWORKS retail division re-engineering
plan. This plan, which was designed to improve the division's
financial performance, consists of a number of organizational and
operational changes and an expense reduction program. The changes
included adjusting store count (mainly through unprofitable store
closings), relocating stores, remodeling stores using a new layout
and replacing external store signs. As part of the plan, AUTOWORKS
also introduced new products and increased inventory carried at a
number of locations. These changes led to a significant decline in
the AUTOWORKS operating loss for fiscal 1996 compared to fiscal
1995.
In fiscal 1996 the Company's wholesale business continued to grow,
mainly as a result of progress in the direct distribution division.
During fiscal 1996, the Company's direct distribution centers had a
13.9% comparable net sales increase. On October 14, 1996, the
Company acquired four more direct distribution centers in
Rochester, New York.
Finally, in fiscal 1996, the Company closed a new $47.5 million
multi-bank credit facility. This facility is described in more
detail under the "Liquidity and Capital Resources" section of Item
7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operation" of this Form 10-K.
(b) Industry Segment Information
Certain financial information concerning sales, business segment
earnings, and identifiable assets attributable to each of the
Company's reportable industry segments are set forth in Footnote 9
of this Form 10-K within the Company's consolidated financial
statements for the 1996 fiscal year.
(c) Narrative Description of Business
The Company's operations have been classified into two industry
segments: wholesale and retail sale of automotive aftermarket parts
and products. Below is a description of each segment.
Industry Overview
Multi-tiered distribution systems currently exist within the
automotive aftermarket. Parts are distributed through wholesale,
retail, and direct distribution. The Company believes that the
automotive aftermarket is changing as a result of (i) the
proliferation of the number of auto parts required to serve the
growing number of domestic and foreign vehicle makes and models
available in the United States, and (ii) the consolidation in the
automotive parts aftermarket due to parts proliferation and the
fragmented nature of the industry. The Company further believes
that these developments represent growth opportunities.
In the Company's opinion, distributors such as Hahn are well
positioned to take advantage of these growth opportunities because
of their ability to achieve economies of scale in purchasing,
inventory management and employee training. Further, the Company
believes that the factors cited above for giving rise to such
opportunities are causing a growing number of independent jobbers
to become associated with programmed distribution groups, such as
Auto Value Associates, Inc. ("Auto Value"), and that distributor
members of such groups, like the Company, will be the prime
beneficiaries. (For a description of program, see section entitled
"Auto Value Program.")
At the specialty retailer level, parts proliferation has made it
difficult for smaller independent retailers and less specialized
mass merchandise chains to maintain inventory selection broad
enough to meet customer demands. The Company believes that this
creates a competitive advantage for automotive retailing chains,
such as AUTOWORKS, because they generally have the financial
resources and distribution capability to stock and deliver an
inventory selection broad enough to meet customer demands.
Wholesale Distribution Centers and Jobbing Store Network
Hahn purchases over 130,000 automotive aftermarket stock keeping
units ("SKUs"), consisting predominately of nationally branded
automotive hard parts, as well as maintenance items, accessories,
and private label products, from approximately 320 manufacturers,
and distributes these products through its distribution network to
more than 1,600 independent jobbing stores and 82 Company-owned
jobbing stores, which operate principally under the Advantage Auto
Stores name. These jobbers supply automotive parts to commercial
establishments performing automotive services and, to a much lesser
extent, the DIY market. Hahn's distribution network consists of 11
full-service distribution centers, four specialty distribution
centers, and nine direct distribution centers located along the
Eastern Seaboard and in the Midwest. Hahn generally does not sell
tires or perform automobile repairs or installations through either
its distribution centers or jobbing operations.
Distribution Strategy
Hahn's distribution strategy is based on six key elements:
Rapid Delivery From Extensive Inventory - Hahn maintains a
broad product inventory of approximately 130,000 SKUs throughout
its full-service distribution network, from which it generally
delivers products to customers within 24 hours of receipt of an
order. The Company believes that speed of delivery is essential
for a jobber to meet the time constraints of its service
establishment customers and to manage its own inventory.
Strong Customer Relationships and Trained Work Force - Hahn
is a customer driven company built on strong, long-term
relationships. Hahn provides operational support to its
customers on a regular basis to assist them in many aspects of
their businesses. In addition, Hahn maintains trained and
experienced sales and distribution center personnel to assist
jobbers in selecting parts and filling their inventory needs.
Growth through Acquisition - Hahn seeks to capitalize on
industry consolidation by acquiring distribution centers and
jobbing stores where there are opportunities to enhance financial
performance through the application of Hahn's own marketing and
management methods and operational economies. Hahn's network of
distribution centers presently stretches from Indiana, east
through Ohio and New York, and south along the Eastern Seaboard
to North Carolina.
Growth in Existing Markets - Hahn seeks to build its revenue
base in existing markets by (i) adding new jobbing store
customers within territories presently served, and
(ii) encouraging existing accounts to purchase additional product
lines from Hahn.
Leadership in Auto Value Programmed Distribution Group -
Auto Value is one of the fastest growing independent nationwide
purchasing and marketing programs in the automotive parts
aftermarket. The Company believes that it is the largest
participant by sales volume and number of jobbing customers who
subscribe to Auto Value's marketing program. Hahn seeks to
convert its independent jobbing customers to the Auto Value
program, as the Company requires such customers to source the
preponderance of their inventory needs from Hahn.
Operating Efficiencies - Hahn's operations are structured to
realize operating efficiencies both for itself and for its
customers, to benefit from economies of scale in product
purchasing, information systems and employee training and to
provide an efficient distribution system with the objectives of
ease of order placement and speed of delivery. In addition, Hahn
has been successful in the past at overall integration of its
distribution center and jobbing store acquisitions and improving
the earnings of such acquisitions through implementation of these
operating efficiencies and through the realization of such
economies of scale.
Products
Hahn's distribution centers and Company-owned jobber stores,
operating as Advantage Auto Stores and Genuine Auto Parts in the
Dayton, Ohio, area (herein collectively referred to as "Advantage
Auto Stores"), offer a wide selection of predominantly nationally
branded automotive products for domestic and foreign cars, vans,
and light trucks. The Company stocks a wide range of automotive
aftermarket products throughout its full-service distribution
network, consisting principally of new and remanufactured
automotive hard parts, as well as maintenance items and accessory
products. Hard parts include, among others, brakes, exhaust,
engine parts, suspension parts, and fuel systems.
Hahn's customers purchase name-brand products and private-label
products which carry a larger gross profit margin. These
private-label products, marketed under the Parts Master label, are
manufactured by a variety of vendors for members of the Auto Value
programmed distribution group. Parts Master products accounted for
approximately 17.2%, 15.7%, and 16.9% of Hahn's net sales, within
the wholesale division in each of the last three fiscal years, with
the remainder of net sales derived from manufacturer's branded
products. Since Parts Master brand products enable Hahn to enjoy
higher profit margins as compared to name brand products, Hahn
continually seeks ways to expand sales of Parts Master
products, in some instances by having national brand manufacturers
supply these products under this label.
Distribution Center Operations
Central to Hahn's strategy of providing rapid distribution of a
broad variety of parts is a distribution system comprised of two
varieties of distribution centers: full-service and specialty
(which consist of pick-up and accessory distribution centers).
Full-service distribution centers distribute to jobbers within a
radius of approximately 150 miles, and nine of them serve as hubs
for a surrounding network of Company-owned Advantage Auto Stores.
Hahn extends the distribution area of three of its full-service
distribution centers with smaller pick-up distribution centers.
These pick-up distribution centers carry specialized inventory
categories with slower inventory turns for customer pick-up when
needed, to supplement regular deliveries from the full-service
distribution center. Hahn also maintains a specialty distribution
center to centralize the purchasing and distribution of accessory
items.
As of October 31, 1996, Hahn operated 11 full-service distribution
centers, (which includes the Moraine, Ohio, location, that is
dedicated to AUTOWORKS), three pick-up distribution centers and one
accessory distribution center. The inventory carried by full-
service distribution centers generally range from approximately
34,000 to 75,000 SKUs, while the pick-up distribution centers
stock, on average, approximately 32,000 SKUs and the accessory
distribution center stocks select items, such as floor mats,
antennas and mirrors.
Each full-service distribution center employs a General Manager, a
sales force and an average of 41 clerical, stock-handling and
delivery employees. Customers may place their stock orders by
computer, telephone, fax or in person at service counters.
Direct Distribution
Commencing with the Company's acquisition of Meisenzahl Auto Parts
Inc. and an affiliate company (collectively, "Meisenzahl") at the
end of fiscal 1994, the Company entered the direct distribution
market. During fiscal 1995, the Company established three
additional direct distribution centers (two of which do business as
Professional Auto Warehouse) in targeted metropolitan areas, and in
early fiscal 1997, acquired four direct-distribution centers in the
Rochester, New York, area, all of which generally do not currently
service the Company's jobbers. These direct distribution centers
are characterized by their relatively low overhead and modest
inventory investment (compared to full-service distribution
centers). The Company has selected direct distribution center
locations based on both competative rent and a high concentration
of repair bays.
The Company believes that its direct distribution centers carry a
more complete inventory selection than other national direct
distributors. The average direct distribution center stocks
approximately 27,000 SKUs, with the largest stocking over 57,000
SKUs. These locations stock and sell a complete inventory of
replacement parts for foreign and domestic cars, vans, and light
trucks at competitive prices because they utilize a direct
distribution system, rather than the traditional three-step system
used by other suppliers in the industry. In addition to parts, the
direct distribution centers also supply professional installers
with equipment and tools. Each direct distribution center
maintains a delivery fleet to provide professional installers
orders on a rapid basis.
The Company acquired four direct-distribution locations in early
fiscal 1997 and expects to continue to expand the number of its
direct distribution centers by opening new locations during fiscal
1997, subject to debt service and other funding needs.
As of October 31, 1996, the direct distribution centers had 161
employees, all of whom were management, sales, clerical, and
distribution center employees; of this total, 25 were part time.
Auto Value Program
Hahn is a member of Auto Value, an independent corporation which
was incorporated in 1983 to provide to its shareholders the
benefits of collective purchasing power under arrangements which it
negotiates with vendors from whom its shareholders may purchase
inventory. Auto Value neither purchases nor sells automotive parts
and is not involved in the chain of distribution.
Auto Value offers its shareholders value-added marketing,
merchandising, advertising and promotion and interior and exterior
design layout for delivery to the participating jobber customers of
its shareholders. Auto Value also offers its shareholders access
to private-label products under the Parts Master name.
Auto Value requires its shareholders to participate in its
purchasing programs to a specified degree and to contribute equally
toward its operating expenses, which are generally nominal.
Shareholders whose jobber customers participate in the marketing
service of the Auto Value program are required to pay a basic fee
plus charges for goods and services provided under the program.
Eli N. Futerman, President of Hahn, was the Chairman until December
31, 1995, and is currently a director of Auto Value Associates,
Inc. The primary purpose of Auto Value is to provide its members on
non-discriminatory terms the benefits of collective purchasing
power and the services described above. The Company does not
believe that any material conflicts of interests exist as a result
of Mr. Futerman's positions in the Company and Auto Value.
Jobber Services
Hahn's extensive inventory line provides jobber customers with the
opportunity to purchase aftermarket products from a single source,
which affords its jobber customers the opportunity to reduce
operating expenses and improve inventory planning and control.
Hahn provides support to its customers through its account
executives who visit them on a regular basis, advising such
customers on products and services, assisting in solving
logistical, marketing, merchandising, and other problems as well as
soliciting increased purchases from Hahn. These customer support
services are supplemented by manufacturers' sales representatives
who periodically call on Hahn's customers on behalf of Hahn and by
annual trade shows at various Company locations.
Hahn provides value-added services to its jobber customers that
participate in the Auto Value programmed distribution group.
Through the Auto Value program, Hahn assists its participating
jobber customers in marketing, merchandising, inventory management
and control, store appearance, advertising, and promotion.
During fiscal 1996, 34 new independent jobber customers (net of
departing members) joined the Auto Value program through Hahn.
During fiscal 1996, one independent jobbers resigned from the
program and 14 were terminated, for failing to meet certain program
requirements. As of October 31, 1996, 224 of Hahn's independent
jobber customers and all of Hahn's 82 Advantage Auto Stores
participated in the Auto Value marketing program.
Advantage Auto Stores
To support its distribution center business, Hahn operates a
chain of jobbing stores under the Advantage Auto Store name,
except for certain Company-owned jobbing stores in the Dayton,
Ohio, region which operate under the Genuine Parts Company name;
references to Advantage Auto Stores in this report include these
jobbing stores. The Advantage Auto Stores are located only in
regions supplied by Hahn's full-service distribution centers. As
of October 31, 1996, Hahn owned and operated a total of 82
Advantage Auto Stores.
As the Advantage Auto Stores are members of the Auto Value
program, they typically feature certain consistent appearances
and merchandising programs. The stores emphasize knowledgeable
sales people and rapid availability of parts with daily truck
deliveries. Approximately six years ago, Hahn embarked on a
jobbing store remodeling project. During fiscal 1996, Hahn
remodeled 12 jobbing stores. Hahn plans to remodel or relocate 21
jobbing stores in the next fiscal year.
Purchasing
All product selection and purchasing functions for the
distribution centers and the jobbing stores are centralized at
Hahn's headquarters in Rochester, New York, except for accessory
products which are purchased by management of the specialty
distribution center. Hahn purchases its products from more than
320 suppliers which ship directly to Hahn's distribution centers.
In most areas, the Company sources each of its product lines from
one supplier, although most automotive parts categories have more
than one competitive supplier. Inventory purchases are based
upon quality, price, service, market conditions and, where
appropriate, brand recognition. Suppliers' programs are reviewed
periodically to evaluate product mix, quality, pricing and
service.
The manufacturers of automotive aftermarket products typically
provide replacement warranties, which Hahn extends to its
customers. In general, Hahn has certain privileges with most of
its suppliers that enable it to return slower moving or
overstocked items for full credit, which minimizes inventory
obsolescence. Hahn extends a return policy to its stocking
customers. From time to time, Hahn's suppliers permit it to
defer payments for certain product lines for several months.
Such deferrals are often extended by a supplier in connection
with promotional programs, seasonal products and the opening of
new distribution centers.
In fiscal 1996, Hahn's 15 largest suppliers accounted for
approximately 64% of its total distribution center purchases, and
its largest supplier accounted for approximately 20% of its
distribution center purchases. The Company considers its
relationships with its suppliers to be good and believes that
alternate sources of supply exist at substantially similar costs
for substantially all products which it stocks. Hahn's suppliers
are generally able to meet its demand for products.
Inventory Control and Management Information System
Hahn's management information system is an important element in
its strategy of maintaining margins while offering its customers
competitive prices and rapid delivery of a wide variety of
products. The fully integrated, real-time system, which was
designed for general use by distributors in the automotive
aftermarket, operates on mainframe computers located at the
Company's Rochester, New York, headquarters and links all of
Hahn's distribution centers. The system enables Hahn's Advantage
Auto Stores and independent jobbing customers to communicate
electronically with Hahn. A majority of Hahn's independent
jobber customers have the capability to access pricing and
product availability information in the Company's computer
system. This electronic link streamlines and hastens the order
process by enabling the Advantage Auto Stores, as well as the
independent jobbing customers to electronically determine product
availability and order products, eliminating the need to
telephone or visit a distribution center directly to place an
order.
Advertising
Hahn's Advantage Auto Stores promotes broad product availability,
competitive prices and customer service through direct mail and
local media, including newspapers, yellow pages and radio.
Direct distribution centers are promoted through yellow-page
advertising and direct mail. Full-service distribution centers
provide the Auto Value marketing program to affiliated jobbers
and their installer customers.
Trademarks
Hahn owns and has registered its Advantage Auto Store trademark
in the United States Patent and Trademark Office. In addition,
Hahn is a licensee of the Auto Value and Parts Master trademarks
pursuant to a trademark license agreement which provides for
termination upon the occurrence of certain events. Under the
trademark license agreement, Hahn has the right to use and permit
its jobber customers to use the Auto Value and Parts Master
trademarks. The Company believes that these trademarks are
material to Hahn's business.
Competition
The automotive replacement parts market is highly fragmented and
competitive. Hahn competes most directly with national and
regional warehouse distribution networks. The Company believes
that the largest warehouse distribution network is National
Automotive Parts Association, the largest member of which is
Genuine Parts Company (which is not affiliated with the Company's
Dayton, Ohio, area jobbing stores of the same name), which
distributes under the NAPA trademark. The wholesale distribution
market contains numerous other participants, including programmed
buyer groups. Hahn competes with these groups on the basis of
product availability, service, and price.
Through its chain of Advantage Auto Stores, Hahn also competes
directly with other independent jobbing stores, automotive
specialty retail chains and discount and general merchandise
stores. Hahn also competes indirectly with various original
equipment manufacturers and other manufacturers, distributors and
retailers who sell aftermarket products in alternative
distribution channels. Some of Hahn's current and potential
competitors are larger and have far greater financial resources.
Distribution Center and Jobbing Store Employees
As of October 31, 1996, Hahn had 1,128 employees in full-service
and direct-distribution centers and jobbing operations, of whom
77 were distribution center and jobbing store account executives,
51 were headquarters personnel, 167 were distribution center and
jobbing store management personnel and the remaining 833 were
distribution center workers, drivers, counter persons, data entry
and other personnel. Of these employees, 868 were full time and
260 part time. As of October 31, 1996, a total of 16 employees
at two distribution centers were represented under collective
bargaining agreements. Hahn has never experienced any material
labor disruption and is unaware of any efforts or plans to
organize additional employees. Management believes that its
labor relations with its employees are good.
AUTOWORKS Retail Stores
Retail Operations
The Company's automotive parts and accessories specialty
retailing operations are conducted through its AUTOWORKS
subsidiary. AUTOWORKS operates a chain of 129 traditional over-
the-counter retail stores which serve the DIY market. Each
AUTOWORKS store carries new and remanufactured automotive hard
parts, maintenance items, and accessories for domestic and
foreign cars, vans and light trucks. AUTOWORKS stores do not
provide automotive repairs, installations or other services. In
a continuing effort to support environmental issues, AUTOWORKS
stores offer an oil recycling program, free to the public.
As of October 31, 1996, AUTOWORKS' 129 stores were located in the
following states:
<TABLE>
<CAPTION>
Number of
State AUTOWORKS Stores
<S> <C>
Michigan . . . . . . . . . . . . . 63
West Virginia . . . . . . . . . 7
Illinois. . . . . . . . . . . . . . 1
Ohio . . . . . . . . . . . . . . . .35
Indiana . . . . . . . . . . . . . .20
Kentucky . . . . . . . . . . . . . 3
</TABLE>
Retail Marketing and Merchandising Strategy
AUTOWORKS' marketing and merchandising strategy is to provide
customers with exceptional service and parts selection at well-
designed stores, at a competitive price. To do so, AUTOWORKS
stores employ personnel with technical expertise to advise
customers in regard to the correct part and application and
provides extensive training programs to these personnel.
AUTOWORKS stores are generally open from 8 a.m. to 8 p.m. on
Monday through Saturday and are typically open from 9 a.m. to 6
p.m. on Sunday.
AUTOWORKS stores offer a range of automotive replacement parts,
maintenance items and accessories designed to cover a broad range
of specific vehicle applications. Each AUTOWORKS store carries
the same basic product line, with emphasis on brand names and
other high quality products. During fiscal 1996, more brand
names were added to the product line and the over-all mix was
modified to include more appropriate salable and profitable
items. In addition to brand name products, AUTOWORKS sells a
number of products under its Master One and Master Stop private
branded labels, which generally have higher profit margins than
brand name products. AUTOWORKS stores generally carry
approximately 12,500 SKUs. The Company is currently in the
process of increasing the average number of SKUs carried by its
AUTOWORKS stores.
AUTOWORKS maintains a special order program to assure the
broadest availability of merchandise at its stores. Each store
offers customers the ability to purchase virtually any automotive
part through a network of special order vendors. The majority of
ordered parts are available for the customer usually within 24
hours. The Company also utilizes direct inquiry to its other
full-service distribution centers. These special order parts are
generally available overnight.
Commercial Sales
In addition to retail sales, AUTOWORKS stores also make
commercial sales to professional mechanics, auto repair shops,
auto dealers, fleet owners and general merchandisers with auto
repair facilities, and other commercial repair outlets located
near the AUTOWORKS store. During fiscal 1995, the Company
initiated a program to formalize commercial sales at 40 selected
AUTOWORKS stores to increase the number of, and sales to,
commercial accounts. To support this effort in the commercial-
account designated stores, the average SKU count carried by
these stores was increased to between 12,500 and 14,000 SKUs.
To provide the delivery capability to serve commercial accounts,
the Company maintains light trucks in service at most of these
AUTOWORKS stores. The Company believes that it can offer its
commercial customers an advantage over most traditional
commercial suppliers in parts selection and availability due to
the greater breadth of its in-store and distribution network
inventories and with more convenient store locations.
Pricing
AUTOWORKS generally utilizes an every-day low-price policy.
Pricing of products is determined by the Company at its
Rochester, New York, headquarters.
Store Formats and Visual Merchandising
Each AUTOWORKS store generally has a uniform ("programmed") store
layout system which has been designed to promote consistent
merchandise presentation. The programmed layout was created to
give stores the appropriate linear square footage in which to
accomplish a general merchandising strategy and to permit
AUTOWORKS' management to design display layouts (i.e., end caps,
bulk displays, etc.) for all stores to implement. The Company is
currently using the programmed layout for new stores to further
enhance traffic flow, store set-up, and merchandise presentation.
The AUTOWORKS stores range in size, on average, between 4,000 and
6,000 square feet.
Over the past three years, the Company has relocated 15 AUTOWORKS
stores. The Company plans to continue to relocate stores on an
as-needed basis, with approximately six AUTOWORKS stores planned
for relocation in fiscal 1997. In fiscal 1997, AUTOWORKS also
plans to open 10 new stores, subject to debt service and other
funding needs.
Purchasing and Distribution
Product selection and purchasing functions for all AUTOWORKS
stores are centralized at the Company's Rochester, New York,
headquarters. Substantially all of AUTOWORKS' merchandise is
shipped by vendors to AUTOWORKS' central distribution center in
Moraine, Ohio, (which is located near Dayton, Ohio), for stocking
and delivery to the various AUTOWORKS stores. (For further
information regarding purchases, see "Purchasing" under
"Wholesale Distribution Centers and Jobbing Store Network" in
this Form 10-K.)
Store Automation
Sales data is uploaded from each store to a central location for
further processing and pricing changes are downloaded to each
store. All AUTOWORKS stores have electronic Point of Sale
("POS") computers, and they are linked to the Company's
computerized inventory control system.
The POS system enables management to track store and Company-wide
sales and inventory information by SKU, establish product
pricing, measure product profitability, and generate inventory
replacement orders from the store to the Company's distribution
center. The POS system also permits AUTOWORKS stores to access
pricing and product availability information on a real-time basis
throughout the Company's distribution network.
The Company processing of customer special orders are handled at
the Moraine, Ohio, Distribution Center, and electronically
outsourced through Hahn's linked network to all of the Company's
distribution centers. If the appropriate part is not available
in the Company's distribution center network, then outside
vendors are contacted.
Advertising
AUTOWORKS promotes its operations primarily through printed
newspaper media. During fiscal 1996, the Company also advertised
through the use of television, radio, direct mail, and local
media.
AUTOWORKS Trademarks
AUTOWORKS is developing trademarks under the names of
"Autoworks" and "AUTOWORKS," based upon common-law usage. The
Company believes that trademarks are an important component in
AUTOWORKS' merchandising and marketing strategy. Trademark
applications for Master Cool, Master Flo and Master One are
pending. Registrations for Prostar Express and Master Crank have
been approved.
The Company is developing these proprietary labels to enhance the
merchandise mix in the AUTOWORKS stores. The Company intends for
these new private labels to appear on a wide variety of products
that will offer both quality and value to AUTOWORKS' customers.
Competition
AUTOWORKS competes principally in the retail or DIY segments of
the automotive parts aftermarket, with national, regional and
specialty chains. Several national specialty retail chains which
focus on the DIY customer purchase directly from manufacturers
and supply parts to the customer; some of these chains also
provide repair and installation services. The Company believes
that the primary factors that affect competition in this market
are geographical location, customer service, knowledgeable
employees, product availability, product quality, and competitive
pricing. The Company competes in various geographical markets
with competitors that may have substantial resources or have been
operating longer in particular areas. Competition varies
significantly by geographical market.
International
Hahn and "Pinros" Automotive Spare Parts Ltd. of Tel Aviv,
Israel, through a joint venture operate a retail auto parts store
in Israel, under the AUTOWORKS, Ltd. name. The Company believes
that it is the only American retail auto parts chain with a
presence in Israel, which is currently a fragmented market with
no dominant seller of aftermarket products.
Employees
As of October 31, 1996, AUTOWORKS employed approximately 1,221
persons, of which 1,071 were store personnel, 88 were
distribution center personnel at AUTOWORKS' Moraine, Ohio,
Distribution Center and 62 were headquarters personnel. Of the
1,221 employees, 802 are full-time and 419 are part-time
employees.
Item 2. PROPERTIES
Distribution Center and Jobbing Facilities
The Company's principal executive offices are located in
Rochester, New York, and occupy 22,000 square feet.
As of October 31, 1996, Hahn operated the following distribution
center locations:
<TABLE>
<CAPTION>
Approximate
Gross Ground
Location Level Type
Square Feet
<S> <C> <C>
New York 40,000 Full-Service
Rochester 37,000 Direct Dist.
Rochester-North 11,400 Direct Dist.
Rochester-South 15,000 Direct Dist.
Rochester- 5,000 Direct Dist.
Merchants 4,500 Direct Dist.
Rochester-Greece 5,000 Direct Dist.
Rochester-Gates 35,000 Full-Service
Farmington 34,500 Full-Service
Bronx 27,800 Full-Service
Syracuse 8,000 Direct Dist.
Buffalo 22,000 Full-Service
Buffalo 5,700 Accessory
Newburgh 12,900 Direct Dist.
Batavia
Albany
Ohio
Dayton 59,800 Full-Service
Independence 33,500 Full-Service
Moraine 312,000 Internal
Dist.
North Carolina
Goldsboro 39,000 Full-Service
Virginia
Richmond 32,700 Full-Service
Norfolk 6,500 Pick-Up
Maryland
Bladensburg 18,100 Full-Service
Baltimore 10,700 Pick-Up
Indiana
Indianapolis 13,000 Pick-Up
Pennsylvania
Harrisburg 14,500 Direct Dist.
</TABLE>
The Company owns the Independence, Ohio, site; leases its
Norfolk, Virginia; Albany, New York; and Harrisburg,
Pennsylvania, sites from unaffiliated parties under leases which
expire in 1997, 1999, and 2000, respectively; and leases a
Rochester and Buffalo direct distribution location from David
Appelbaum, a Vice President of Hahn and a shareholder, which
expire in September 2004. A third direct distribution location
in Rochester is also leased from a partnership comprised of Mr.
Appelbaum and an unaffiliated third party and expires
concurrently with other leases held by Mr. Appelbaum. The
Company leases the remaining facilities from members of the
Futerman family or affiliates thereof under leases which expire
in December 1997, December 2001, and in one instance, January
2004. Except for the Independence, Ohio, site (which is subject
to a first mortgage), none of the Company's facilities are
subject to any encumbrance.
As of October 31, 1996, there were 82 Advantage Auto Stores
served by Hahn's distribution centers as follows:
<TABLE>
<CAPTION>
Advantage Advantage
Distribution Center Auto Stores Distribution Center Auto
Location Serviced Location Stores
Serviced
<S> <C> <C> <C>
Rochester, New York 16 Dayton, Ohio 22
Syracuse, New York 10 Goldsboro, North 7
Carolina
Buffalo, New York 6 Richmond, Virginia 11
Newburgh, New York 2 Bladensburg, Maryland 6
Cleveland, Ohio 2
</TABLE>
As of October 31, 1996, Hahn leased 78 and owned four Advantage
Auto Stores sites. As of October 31, 1996, leases on 12 store
sites were month-to-month, leases on 39 store sites had remaining
terms of three years or less, and leases on 31 store sites had
remaining terms of more than three years, excluding renewal
options. Hahn leases certain of these sites from members of the
Futerman family.
The Company believes that the distribution center and jobbing
store leases with members of the Futerman family, taken as a
whole, are no less favorable to the Company than leases which
could have been obtained from third parties dealing at arm's
length.
AUTOWORKS Facilities.
AUTOWORKS leases from an unaffiliated party and operates a
312,000 square foot distribution center located in Moraine, Ohio,
which serves the AUTOWORKS store chain. The lease of the Moraine
distribution center expires in December 1997. The Company is
currently exploring alternative locations for its Moraine
distribution center at the end of the current lease. The Company
expects that it will be able to either renew such lease or lease
alternative premises.
All but one of the AUTOWORKS stores are operated in leased
facilities. The majority of leases have original lease terms
ranging from five to 15 years with one to three renewal options
of five years each.
The Company believes that its facilities are suitable and
adequate for the operations involved and provide sufficient
expansion capacity for contemplated growth.
Item 3. LEGAL PROCEEDINGS.
The Company is involved in various claims and disputes arising in
the normal course of business. The Company's management believes
that it has meritorious defenses and/or insurance coverage
against such matters and that the outcome of all pending
proceedings, individually and in the aggregate, will not have a
material adverse effect upon the Company's business, results of
operations, cash flows or financial position.
On May 31, 1995, a complaint was filed against the Company, an
employee of the Company, Arvin Industries, Inc. and an employee
of Arvin Industries in the U.S. District Court for the District
of Maryland by AP Parts International, Inc. ("AP Parts") being
Civil Action NO. DKC-95-1611. The Complaint alleged
misappropriation of trade secrets by the employee of the Company
(a former employee of AP Parts) and a conspiracy in restraint of
trade in violation of Federal antitrust laws. The Complaint
sought $3 million in damages against the Company under the trade
secret claim and $3 million in damages (or $9 million when
trebled as permitted under the Federal antitrust statues under
the conspiracy claim). The claims arose out of a product line
change over by the Company from AP Parts to Arvin. On July 22,
1996, the lawsuit was dismissed with prejudice at no expense to
the Company.
On October 31, 1995 a complaint was filed against the Company by
27 employees or former employees seeking class action status in
the United States District Court, Southern District of Ohio,
Western Division (Case Number C-3-95-904). The complaint
requests compensatory damages, liquidated damages and attorney's
fees available under the Fair Labor Standards Act based on an
alleged failure on the part of the Company to pay overtime wages
to certain individuals believed by the Company to be exempt
employees. The Company is vigorously defending this action and
maintains that its conduct was appropriate and not wrongful. To
that end, on September 9, 1996, the Company filed a motion for
summary judgment; the plaintiff cross moved for partial summary
judgment. Both motions have been fully briefed and submitted for
decision by the court. While the outcome of this litigation is
inherently uncertain, the Company believes that it is unlikely
that any adverse verdict would have a significant financial
impact on its financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of fiscal 1996
to a vote of the Company's shareholders, through the solicitation
of proxies or otherwise.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS.
The Company's common stock is traded in the over-the-counter
market and quoted on the National Association of Securities
Dealer Automated Quotation System-National Market System
("NASDAQ"). Its trading symbol is HAHN. The table below shows
the range of high and low actual trade prices for the Company's
common stock during each quarterly period of fiscal years 1996
and 1995:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
Sept. 30, 1996 High Low Sept. 30, 1995 High Low
<S> <C> <C> <C> <C> <C>
1st Quarter 7 5 7/16 1st Quarter 16 5/8 14 3/4
2nd Quarter 8 3/4 5 3/4 2nd Quarter 15 3/4 11 7/8
3rd Quarter 9 1/2 8 1/8 3rd Quarter 11 3/4 9 /16
4th Quarter 9 1/4 8 4th Quarter 9 3/4 6 5/8
</TABLE>
The Company did not pay any cash dividends in fiscal years 1993
through 1996. The Company did issue a 4% stock dividend on May
1, 1995 and May 1, 1996, to holders of record on April 10, 1995
and April 10, 1996, respectively. The Company does not intend to
pay any cash dividends for the foreseeable future and intends to
retain earnings, if any, for the future operation and expansion
of the Company's business. Any determination to pay dividends in
the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions and
other factors deemed relevant by the Board of Directors.
Agreements with lenders prohibits the Company from paying cash
dividends on its common stock, provided, however, for each fiscal
year ending after September 30, 1996, the Company may distribute
dividends if it is not in default and would not be put default by
virtue of such dividends. The amount of the aggregate cash
dividend may not exceed certain specified amounts of the
Company's cumulative consolidated net income for such fiscal
year.
On December 3, 1996, there were 77 holders of record of the
Company's common stock and the Company believes there were 863
beneficial owners.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information of the Company for each of the five fiscal years in
the period ended September 30, 1996. This table should be read
in conjunction with the audited consolidated financial statements
of the Company and the related notes thereto included elsewhere
herein and Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
Years Ended September 30,
(In thousands, except share and per
share data)
1996 1995 1994 (1)
<S> <C> <C> <C>
Income Statement Data:
Net sales $221,371 $224,393 $215,415
Cost of products sold 130,435 134,981 131,494
Gross profit 90,936 89,412 83,921
Selling, general and
administrative expense 80,928 84,123 71,838
Depreciation and amortization 3,113 3,126 2,607
Income from operations 6,895 2,163 9,476
Interest expense (4,408) (4,415) (3,171)
Interest and service charge
income 520 505 507
Income (loss) before provision
for income taxes 3,007 (1,747) 6,812
Provision for (benefit from)
income taxes 1,148 (370) 2,671
Net income (loss) $1,859 ($1,377) $4,141
Net income (loss) per share (4) $.41 $(.30) $.96
Weighted average shares
outstanding (4) 4,562,513 4,561,479 4,323,583
Pro Forma (2) (3):
Historical income before
income taxes
Pro forma adjustments other
than income taxes
Pro forma income before
income taxes
Pro forma income taxes
Pro forma net income
Pro forma net income
per share (4)
Pro forma weighted average
shares outstanding (4)
Balance Sheet Data:
Working capital $56,730 $55,729 $52,409
Total assets 108,958 110,480 112,542
Long-term debt and capital
lease obligations, excluding
current maturities 40,893 41,368 38,173
Stockholders' equity 33,499 31,640 32,973
Income Statement Data: 1993 1992
Net sales $119,074 $109,665
Cost of products sold 76,047 72,252
Gross profit 43,027 37,413
Selling, general and
administrative expense 33,767 29,943
Depreciation and amortization 1,785 1,558
Income from operations 7,475 5,912
Interest expense (2,294) (2,461)
Interest and service charge
income 476 491
Income (loss) before provision
for income taxes 5,657 3,942
Provision for (benefit from)
income taxes 1,786 --
Net income (loss) $3,871 $3,942
Net income (loss) per share (4)
Weighted average shares
outstanding (4)
Pro Forma (2) (3):
Historical income before
income taxes $5,657 $3,942
Pro forma adjustments other
than income taxes 208 655
Pro forma income before
income taxes 5,865 4,597
Pro forma income taxes 2,276 1,669
Pro forma net income $3,589 $2,928
Pro forma net income
per share (4) $.83 $.71
Pro forma weighted average
shares outstanding (4) 4,322,939 4,130,090
Balance Sheet Data:
Working capital $39,560 $29,312
Total assets 66,486 61,298
Long-term debt and capital
lease obligations, excluding
current maturities 21,974 23,161
Stockholders' equity 26,548 14,409
</TABLE>
(1) Includes the results of operations of AUTOWORKS from its
date of acquisition on November 29, 1993.
(2) Assumes the following occurred on October 1, 1991: (I) the
acquisition of 11 Futerman family Advantage Auto Stores purchased
January 1, 1992; (ii) the acquisition of nine Futerman family
Advantage Auto Stores purchased April 1, 1992; (iii) the
elimination of intercompany sales between the Company and these
twenty stores; (iv) the termination of arrangements with a
related party partnership and the resulting net reduction of
advertising expense; and (v) the sale of sufficient shares of
Common Stock in the initial public offering and the application
of the net proceeds therefrom to retire certain outstanding
indebtedness and to pay the final S Corporation distribution.
(3) For the period prior to January 1, 1993, the Company was an
S Corporation and was not subject to corporate income taxes. The
pro forma net income has been computed as if the Company were
subject to corporation income taxes for all periods presented,
based on the tax laws in effect during the respective periods.
(4) Net income per share and weighted average shares outstanding
as of September 30, 1995 and 1994 and the pro forma net income
per share and pro forma weighted average shares outstanding for
1993 and 1992, have been restated to reflect 4% stock dividends
to shareholders of record on April 10, 1996 and 1995. The stock
dividends to shareholders of record on April 10, 1996 and 1995.
The stock dividend was distributed on May 1, 1996 and 1995.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information in this Item 7 contains forward-looking statements.
The Company desires to take advantage of the "safe harbor" which is
afforded such statements under the Private Securities Litigation
Reform Act of 1995 when they are accompanied by meaningful
cautionary statement identifying important factors that could cause
results to differ materially from those in the forward-looking
statements. Such cautionary statements are set forth under the
heading "Important Information Regarding Forward-Looking" below in
this Item 7.
The discussion contained in this Item 7 should be read in
connection with the Selected Financial Data and the Consolidated
Financial Statements and accompanying footnotes elsewhere in this
Form 10-K. In all periods discussed herein, the Company's fiscal
year ended on September 30.
General
During the periods discussed below, the Company's results of
operations and financial condition have been affected by two
acquisitions. The first acquisition occurred in November 1993 when
the Company acquired the stock of AUTOWORKS for approximately $12.3
million. At the time, AUTOWORKS operated 159 retail automotive
parts stores principally in the Midwest. The second acquisition
occurred on September 30, 1994 when the Company acquired
Meisenzahl, through a tax-free stock exchange. Meisenzahl operated
three direct distribution centers in Western New York. (For a
further description of the acquisitions, see Footnote 2 of the
Consolidated Financial Statements.)
On October 14, 1996, the Company acquired a former customer with
four direct-distribution centers which operate in the Rochester,
New York area The total purchase price was $2.7 million, of which
the Company paid $600,000 in cash and the balance with deferred
payments. The cash portion of the purchase price was financed with
borrowings under the Company's new Credit Facility described in the
"Liquidity and Capital Resources" section below. These centers
will be integrated into the Company's direct distribution center
division.
Results of Operation
Fiscal Year 1996 Compared to Fiscal Year 1995
Net sales for fiscal 1996 declined $3.0 million, or 1.3%, from the
prior fiscal year to $221.4 million. The decline is attributable
to a 11.4% drop in AUTOWORKS net sales which was substantially
offset by net sales increases of 33.4% at the direct distribution
centers, 4.1% at the Advantage Auto Stores and 3.0% at the full-
service distribution centers.
The direct distribution net sales increase resulted from the
addition of two direct distribution centers since the beginning of
fiscal 1995 and a 13.9% increase in comparable location sales from
the previous fiscal year. Growth in Advantage Auto Stores net
sales resulted from four stores opened since the beginning of
fiscal 1995 (which was offset to a certain extent by four store
closings during fiscal 1996) and a 3.9% comparable store sales
increase. Full-service distribution center sales grew by 3.0%
over fiscal 1995 as a result of additional unit sales. The
AUTOWORKS sales decline is principally due to 11 net store closings
and a 7.0% comparable store sales decrease (primarily as the result
of increased competition in certain markets), both of which were
offset to a certain extent by increased selling prices.
Gross profit for fiscal 1996 was $90.9 million, or 41.0 % of net
sales, compared to $89.4 million, or 39.8% of net sales for fiscal
1995. Gross profit expressed as a percentage of net sales grew as
the result of increased sales prices at AUTOWORKS, purchasing
economies, and to a lesser extent, the changing sales mix (i.e.,
increase of Advantage Auto store sales which generally carry a
higher gross margin than full-service distribution center sales).
Selling, general and administrative expense decreased $3.2 million
from $84.1 million in fiscal 1995, or 37.5% of net sales, to $80.9
million, or 36.6% of net sales, in fiscal 1996. The dollar
decrease is primarily attributable to reduced AUTOWORKS net sales
and the Company's expense reduction program, which was partially
offset by expenses incurred in the closing, relocating, remodeling
and opening of AUTOWORKS and Advantage Auto Stores. The expense
ratio decrease is generally attributable to the Company's expense
reduction program.
The Company plans (subject to debt service and other funding needs)
to open during fiscal 1997 10 AUTOWORKS stores, additional direct
distribution centers and Advantage Auto Stores where there are
opportunities in geographical areas in which the Company operates.
Although the Company expects to incur additional expense related to
these additions, such costs are not expected to have any
significant impact on the overall company. Any costs associated
with the additions are expected to be equaled or exceeded within
the year by the increased gross profit generated from sales of
these new locations.
Depreciation and amortization expense decreased $13,000 for fiscal
1996 from the previous fiscal year. This decrease is attributable
to the Company's increased use of operating leases for replacements
of fixed assets, such as vehicles and computers; the use of
operating leases has resulted from the annual capital expenditure
limitation imposed by the Company's new Credit Facility discussed
under the "Liquidity and Capital Resources" heading below. The
Company expects this trend to continue in fiscal 1997 and result in
additional selling, general and administrative expenses; however,
these expenses should be offset to a certain extent by a decrease
in depreciation expense.
Income from operations for fiscal 1996 increased $4.7 million from
$2.2 million, or 1.0% of net sales in fiscal 1995, to $6.9 million,
or 3.1 % of net sales in fiscal 1996. On a segment basis, the
Company's wholesale business (i.e., full-service distribution
centers, direct distribution centers and Advantage Auto Stores) had
an operating profit of $8.8 million, while the retail business
(i.e., AUTOWORKS) had an operating loss of $1.9 million. Wholesale
operating profits dropped $1 million primarily as a result of
increased corporate expenses and the expiration of incentive
programs for newly opened direct distribution centers; retail
operating losses decreased by $5.7 million as a result of the
factors discussed above, including the AUTOWORKS re-engineering
plan.
Interest expense was $4.4 million for both fiscal years. Average
borrowings outstanding under the Company's revolving credit
facility were slightly lower in fiscal 1996; this was offset by
slightly higher interest rates during the fourth quarter of fiscal
1996. As discussed under "Liquidity and Capital Resources" below,
the rates for the new revolving credit facility vary according to
Company's debt coverage ratio. Interest expense for fiscal 1997 is
expected to increase next year as a result of higher rates and
increased borrowings.
Income taxes for fiscal 1996 were $1.1 million compared to a
benefit of $370,000 for fiscal 1995. The unusual relationship
between the tax expense for 1996 and the tax refund for 1995 is due
to taxes being payable in certain states despite the Company's net
loss for fiscal 1995.
As a result of the factors discussed above, for fiscal 1996, the
Company had a net profit of $1.9 million, or $.41 per share, which
compares favorably to the last fiscal year's net loss of $1.4
million, or $.30 per share. Earnings per share and weighted
average of shares outstanding as of September 30, 1995 and 1994,
and for each of the quarters presented, have been restated to
reflect the 4 % stock dividends to shareholders of record on April
10, 1995 and 1996. This dividend was distributed on May 1 of both
years.
Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales for fiscal 1995 increased $9.0 million or 4.2% over the
prior fiscal year to $224.4 million. The increase is primarily
attributable to the $10.4 million of net sales added by five direct
distribution centers acquired or opened during the fiscal year,
with the balance resulting from a 1.2% increase in AUTOWORKS store
sales and a 2.5% increase in Advantage Auto Store sales. These
increases were offset by a 5.6% drop in full-service distribution
centers sales, which resulted mainly from the loss of Meisenzahl
sales after the Company acquired the former customer.
AUTOWORKS sales increased on a year-over-year basis solely as the
result of AUTOWORKS being operated for the entire year, rather than
only 10 months as occurred in fiscal 1994. On an annualized basis,
AUTOWORKS sales dropped by 15.7% from fiscal 1994, primarily as the
result of 14 net store closings, increased competition in certain
markets and the dramatic swing from the harsh 1993-94 winter to the
mild 1994-95 winter. Temperature extremes tend to enhance sales by
causing a higher incidence of parts failure and increasing sales of
seasonal products, while mild weather tends to depress sales.
Gross profit for fiscal 1995 was $89.4 million, or 39.8% of net
sales, compared with $83.9 million or 39.0% of net sales for fiscal
1994. The dollar increase is attributable to the overall net sales
increase discussed above, while both the dollar and the percentage
increases are due to the change in sales mix (i.e., the addition of
higher margin sales from the direct distribution centers and the
Advantage Auto Stores) and purchasing economies achieved with the
AUTOWORKS and Meisenzahl acquisitions.
Selling, general and administrative expenses increased $12.3
million from $71.8 million in fiscal 1994, or 33.3% of net sales to
$84.1 million, or 37.5% of net sales in fiscal 1995. The dollar
increase resulted from the five new direct distribution centers,
while the percentage increase is primarily due to the addition of
operations with higher expense ratios (including AUTOWORKS for the
full fiscal year). The increases are also due to one-time charges
incurred with closing, opening, relocating, and remodeling
AUTOWORKS stores.
Depreciation and amortization expense increased $519,000 from $2.6
million in fiscal 1994 to $3.1 million in fiscal 1995. This
increase is due to the addition of fixed assets from the AUTOWORKS
and Meisenzahl acquisitions. AUTOWORKS' fixed assets and
corresponding depreciation were present for the entire 1995 fiscal
year compared to 10 months for fiscal 1994. The Meisenzahl fixed
assets and corresponding depreciation were not present during
fiscal 1994.
Income from operations decreased to $2.2 million for fiscal 1995 or
1.0% of net sales from $9.5 million for fiscal 1994 or 4.4% of net
sales. On a segment basis, the wholesale business had income from
operations of $9.8 million and the retail business incurred a loss
from operations of $7.6 million.
Interest expense increased $1.2 million from $3.2 million in fiscal
1994 to $4.4 million in fiscal 1995. The higher interest expense
resulted from Meisenzahl's $2.5 million of debt, carrying the
AUTOWORKS $13 million acquisition debt for an entire fiscal year
(compared to 10 months during the last fiscal year), higher average
borrowings outstanding under the revolving credit facility and
generally higher interest rates.
The net loss of $1.4 million for fiscal 1995 (or $.30 per share)
compared unfavorably to a net profit of $4.1 million for fiscal
1994 (or $.96 per share). The fiscal 1995 net loss is due to the
factors discussed above. Earnings per share and weighted average
shares outstanding as of September 30, 1994 and 1993, and for each
of the quarters presented, have been restated to reflect a 4% stock
dividend to shareholders of record on April 10, 1995. This stock
dividend was distributed on May 1, 1995.
Fiscal Year 1994 Compared to Fiscal Year 1993
Fiscal 1994's net sales of $215.4 million were significantly higher
than fiscal 1993 net sales of $119.0 million. Of this increase,
approximately $92.5 million is attributable to the 159 AUTOWORKS
stores acquired on November 29, 1993, $3.0 million to Advantage
Auto Stores and the remaining $.9 million to full service
distribution centers. Sales increases at both the jobbing stores
and the full service distribution centers arose principally from
increased unit sales. At the distribution center level, sales
increases were offset, in part, by the conversion of the Company's
Baltimore facility from a full-service distribution center to a
pick-up distribution center early in fiscal 1994 and the
discontinuance of the Company's battery distribution centers in the
third quarter of fiscal 1994.
During fiscal 1994, gross profit increased $40.9 million, or 95%,
from $43 million in the previous fiscal year to $83.9 million in
fiscal 1994. Gross profit expressed as a percentage of net sales
grew from 36.1% in the previous fiscal year to 39.0% for fiscal
1994. The addition of AUTOWORKS during fiscal 1994 contributed
significantly to this increase, both in terms of dollars and gross
profit percentage. AUTOWORKS retail store sales generally carry a
higher gross profit percentage than full service distribution
center sales. To a lesser extent, the gross profit improvement
resulted from actions taken by management using increased
purchasing power that resulted from the AUTOWORKS acquisition, to
reduce overall costs of merchandise from suppliers.
Selling, general, and administrative expenses increased $38.1
million to $71.8 million in the 1994 fiscal year, and increased to
33.3% of net sales during fiscal 1994 in comparison to 28.4% for
the previous fiscal year. These increases are primarily
attributable to the addition of AUTOWORKS sales, which have higher
expense ratios.
Depreciation and amortization increased 46.1% from the 1993 fiscal
year to $2.6 million in the 1994 fiscal year. This increase was
primarily caused by the AUTOWORKS acquisition and, to some extent,
the increasing costs of replacing delivery vehicles for the
Advantage Auto Stores and the full service distribution centers.
Income from operations was $9.5 million or 4.4% of net sales for
fiscal 1994, compared to $7.5 million, or 6.3% of net sales for the
prior fiscal year. Although profitable in fiscal 1994, as a
percentage of net sales, AUTOWORKS had a dilutive effect on
operating income. Of the $9.5 million of operating income, the
wholesale business contributed $8.4 million, or 6.9% of net sales
and the retail business contributed $1.1 million, or 1.1% of net
sales.
Interest expense increased from $2.3 million in fiscal 1993 to $3.2
million in fiscal 1994. This increase results primarily from
additional financing incurred to acquire and operate AUTOWORKS and
to a lesser extent, the increases in interest rates during the last
half of the fiscal year.
Net income increased $552,000 or 15.4% from $3.6 million of pro
forma net income in fiscal 1993 to $4.1 million in fiscal 1994.
This increase resulted from the factors discussed above.
Liquidity and Capital Resources
During fiscal 1996, operating activities generated net cash of $3.1
million, resulting from net earnings adjusted for non-cash items
(including depreciation and bad debt) of $5.9 million being reduced
by an increase in long-term notes receivable and other deferred
assets. The increase in long-term receivables and other deferred
assets resulted primarily from Hahn's investment in the "Pinros"
Automotive Spare Parts joint venture and certain financing costs.
For fiscal 1995, operating activities consumed $2.5 million of net
cash, principally resulting from a $3.3 million increase in the
Company's working capital from the previous fiscal year end, which
was partially offset by net earnings adjusted for non-cash items of
$2.7 million. Increases in working capital resulted mainly from
the AUTOWORKS and Meisenzahl acquisition and the opening of three
new direct distribution centers since the beginning of fiscal 1995,
all of which was offset by moderate inventory and accounts
receivables reductions and accounts payables increases during the
fourth quarter of fiscal 1995.
In fiscal 1994, operating activities used $2.2 million of net cash,
reflecting primarily a $12 million payment to AUTOWORKS vendors in
connection with the termination of an extended payment program,
which was partially offset by net earnings adjusted for non-cash
items of $7.6 million. As of the 1994 fiscal year end, working
capital increased $12 million due almost entirely to the AUTOWORKS
and Meisenzahl acquisitions.
Investing activities consist mainly of routine capital expenditures
for delivery vehicles, computer equipment and store and warehouse
fixtures, and periodically, for distribution center, jobbing store
and other acquisitions. Capital expenditures were $1.5 million,
$2.6 million, and $2.9 million (excluding the AUTOWORKS
acquisition) in each of the last three fiscal years. During fiscal
1994, the Company invested $10.8 million (net of cash acquired) in
the acquisition of AUTOWORKS. This acquisition lead to a slight
increases in routine capital expenditures during fiscal 1994. In
the absence of additional acquisitions, the Company anticipates
capital expenditures during fiscal 1997 to be $1.5 million together
with the purchase incurred in the acquisition of the four direct
distribution centers discussed above under the heading "General."
Financing activities for fiscal 1996 consumed $1.9 million of net
cash and, for fiscal 1995 and 1994 provided $5.0 million and $15.8
million of cash, respectively. Funds consumed during fiscal 1996
generally reflect the paydown of long term debt which was partially
offset by net borrowings on the Company's revolving credit facility
and the Futermans' subordinated debt, referred to below. Funds
from financing activities generally represent net borrowings under
the Company's revolving credit facility and are used to finance
working capital growth, capital expenditures and payments due under
the Company's 10 1/4% senior secured notes and capital leases. In
fiscal 1994, the Company obtained a $13 million term loan to fund
the AUTOWORKS acquisition; the Company refinanced this term loan
with proceeds from the Company's new Credit Facility described
below. During fiscal 1994, the Company funded the acquisition of
new computer hardware and software for AUTOWORKS through a five-
year operating lease with monthly payments of $54,750 each; the
operating lease is cross-defaulted to the Company's Credit
Facility.
The Company expects in the future to make small strategic
acquisitions and during fiscal 1997 to open new direct distribution
centers (in addition to the four direct distribution centers
acquired in October 1996), Advantage Auto Stores and 10 new
AUTOWORKS stores, in each case to the extent that its debt service
and other funding needs permit. The Company's ability to continue
to open new direct-distribution centers will depend on the
Company's ability to negotiate extended payment terms from vendors,
which initially minimizes additional working capital requirements.
The Company believes that it will be able to continue to obtain
such financing, but there is no assurance of this. The Company
plans to continue implementing the AUTOWORKS re-engineering plan,
which includes increasing the number of SKUs maintained at, or
available to, each AUTOWORKS store, improving inventory management,
marketing and merchandising strategies and opening, closing and/or
relocating non-performing stores. This initiative will require
additional working capital and capital expenditures and is subject
to the Company's debt service and other funding needs.
On June 30, 1996, the Company, its operating subsidiaries, and a
lending syndicate (the "Syndicate Banks") led by Fleet Bank
("Fleet") entered into a new Credit Facility Agreement ("Credit
Facility"), the proceeds of which were used to refinance the
existing bank debt of the Company and its subsidiaries. The Credit
Facility provides for a $47.5 million (subject to a borrowing base
formula) revolving credit facility which matures in June 1999. As
of December 13, 1996, the Company had outstanding loans of $40.0
million, leaving availability of $7.5 million under the Credit
Facility. Loans made pursuant to the Credit Facility accrue
interest at a variable rate. (See Note 4 to Consolidated Financial
Statements). During fiscal 1996, the Company entered into an
interest rate cap agreement to hedge interest costs and risks
associated with variable interest rates. The agreement covers 50%
of the maximum borrowings under the Credit Facility and establishes
a maximum prime rate of 8.5% for prime-rate borrowings, making the
variable prime-rate borrowings fixed rate debt subject to
adjustment based on the Company's debt coverage ratios. The
aggregate notional principal amount covered by the agreement is
$23.8 million, all of which matures simultaneously with the
maturity of borrowings under the Credit Facility. The agreement's
counterparty is one of the Syndicate Banks and a credit loss from
the counterparty nonperformance is not expected.
The Company's obligations under the Credit Facility are secured by
substantially all of the assets of the Company and its
subsidiaries. The Company and its subsidiaries are subject to
customary secured lending covenants, including restrictions on
additional liens, additional indebtedness, sale of assets, payment
of dividends, affiliate transactions, certain loans, investments,
acquisitions and fundamentals corporate changes (including changes
to the Futerman's stockholdings that would result in the Futermans
no longer having effective voting control over the Company). The
Company and its subsidiaries are also required to comply with
certain financial covenants, including: current ratio, fixed
charges ratio, funded debt ratio, tangible net worth, capital
expenditures, and collateral coverage ratio. The most restrictive
covenants contained in the Credit Facility include the Company's
obligation to maintain a fixed-charge ratio of not less than 1.0 to
1.0 at the last day of each fiscal quarter for the most recent four
(4) quarter periods and a collateral coverage ratio of 1.1 to 1.0
at the last day of each fiscal quarter. In addition, the Credit
Facility's prohibition on incurring capital expenditures beyond
$1.5 million (plus a percentage of the previous year's cash flow)
annually is generally below the Company's average annual
expenditures for fixed asset replacements for the two fiscal years
preceding the new Credit Facility and will require the Company to
replace certain capital assets with operating leases. In addition,
the Credit Facility's capital expenditure limitation effectively
precludes the Company from making future acquisitions without the
consent of the Syndicate Banks.
In connection with the Company's new Credit Facility, the Company
repaid and refinanced the $2.5 million of loans advanced to it by
Michael Futerman and Eli Futerman in February 1996. The Company
repaid $350,000 of this debt and exchanged five (5) year
subordinated notes with the Futermans for the demand notes
representing the remaining $2,150,000 principal balance. The
Futermans' subordinated notes bear interest at the rate of 12% per
annum. Interest is payable monthly. The notes are redeemable at
the option of the Company, in whole or in part, at any time,
subject to a Subordination Agreement with the Syndicate Banks. The
notes are payable in 50 equal monthly principal payments which
commence on January 1, 1997, and continue through and including
February 1, 2001. In the event that the Company at any time has
net income of $4,141,000 or greater, then, in such event, the
Company must prepay principal on the notes in the aggregate amount
equal to 19.186% of its net income above and beyond such net income
amount, provided that the Company is not in default under the
Credit Facility and such payment does not result in the Company
defaulting thereunder. The Futermans' subordinate notes are
unsecured and subordinated to all of the Company's indebtedness to
the Syndicate Banks.
The Company expects to incur additional interest expense during
fiscal 1997 as a result of higher interest rates under the new
Credit Facility and the borrowings from the Futermans.
During the fourth quarter of fiscal 1996, the Company reported that
it may record a charge against earnings to establish a reserve for
costs incurred in the future for certain leases assigned by
AUTOWORKS to a third party prior to the Company's acquisition of
AUTOWORKS. The third party assignee of the leases filed for
protection under the bankruptcy law and has rejected a number of
the assigned leases. As a result, certain landlords have asserted
claims against AUTOWORKS for remaining rents and charges due under
the assigned leases. AUTOWORKS intends to oppose such claims where
defenses exist. The Company is currently negotiating a settlement
with AUTOWORKS former owner, which would result in a
disproportionate sharing by AUTOWORKS and its former owners for
liability resulting from the assigned leases. To the extent that
AUTOWORKS has legal liability to the landlords, it will attempt to
mitigate such liability through the use or reletting of the leased
property or by other means. The Company has not established a
reserve for the expenses which it anticipates incurring in
connection with these leases as it believes existing separate
reserves are sufficient. The statements in this paragraph are
forward-looking and, therefore, are subject to certain risks and
uncertainties, including, among others: the conclusion of
settlement negotiations with AUTOWORKS' former owner on terms
acceptable to the Company; the rejection of additional leases; the
Company's ability to successfully oppose or compromise claims made
by landlords under the assigned leases; the Company's ability to
successfully use or relet the property covered by the assigned
leases; the rate at which the Company relets such property; and the
ability of the Company to succeed in mitigating or offsetting the
liability by any other means which may be available.
The Company's principal sources of liquidity for its operational
requirements are internally generated funds, borrowings under its
revolving credit facility, leasing arrangements and extended
payment terms from vendors. The Company anticipates that these
sources will provide sufficient working capital to operate its
business, make expected capital expenditures, continue
implementation of AUTOWORKS operational and organizational changes
and to meet its other short-term and longer-term liquidity needs,
except for repaying in full borrowings to the Syndicate Banks on
the maturity of the Credit Facility. The Company currently does
not expect to generate cash flow sufficient to fund the repayment
of borrowings due under the Credit Facility upon its maturity in
June 1999 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.
Recent Accounting Pronouncements
In October 1995, Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation"("SFAS 123") was
issued. SFAS 123 encourages companies to adopt a fair value based
method of accounting for stock-based compensation plans in place of
the intrinsic value based method provided for by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees"("APB 25"). Companies which continue to apply the
provisions of APB 25 must make pro forma disclosures in the notes
to their financial statements of net income and earnings per share
as if the fair value based method of accounting defined in SFAS 123
had been applied. The Company has not yet made an election of
which method will be followed for fiscal 1997; the Company does not
believe that the election, when made, will have a significant
impact on the Company's results of operations or financial
condition.
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Asset be Disposed Of"(SFAS 121) was issued. SFAS 121
establishes accounting standards for the recognition of the
impairment of long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used, or to be
disposed of. The Company does not believe the adoption of SFAS 121
in fiscal year 1997 will have a significant impact on the Company's
results of operations or financial conditions.
Inflation
The Company 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.
Seasonality
The Company's business is somewhat seasonal in nature, primarily as
a result of the impact of weather conditions on the demand for
automotive aftermarket products. Historically, the Company's net
sales and gross profits have been higher in the second half of each
fiscal year than in the first half.
________________________________________
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Form 10-K which are not historical
facts, including but not limited to (i) the realization of
continued benefits from the AUTOWORKS re-engineering plan, (ii)
anticipated trends in the Company's business and the automotive
replacement parts industry, (iii) the sufficiency of cash to fund
the Company's debt service requirements and working capital needs
and (iv) the statements found under the captions "Results of
Operation" and "Liquidity and Capital Resources" above, are forward-
looking statements within the meanings of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act of 1934,
as amended; such statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate," "plan" and
similar expressions. These statements involve a number of risks
and uncertainties, certain of which are beyond the Company's
control. The actual results of the future events described in the
forward-looking statements in this Form 10-K could materially
differ from those contemplated in the forward-looking statements in
this Form 10-K. In addition to the risks and uncertainties of
ordinary business operations, some of the factors that could cause
actual results to differ materially are the risks and uncertainties
(i) discussed herein, (ii) contained in the Company's other public
reports and filings and public statements from time to time and
(iii) set forth below:
1. The Company operates in a highly competitive environment and
its dollar sales and unit volume could be negatively affected by
its ability to maintain or increase prices, changes in sales mix
and changes in the demand for automotive products and changes in
the automotive replacement parts industry generally, including
pricing and other changes by the Company's competitors. The
Company 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, have
greater financial resources, and are 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 trends.
2. The Company's financial performance is subject to and could be
negatively impacted by changes in economic conditions, vehicle
quality, new parts warranties and maintenance, vehicle scrappage
rates and weather conditions, which can cause seasonal variations
in the Company's results of operations. The occurrence of violent
weather or mild weather may result in significant fluctuations in
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.
3. The Company's AUTOWORKS retail division is currently
undergoing a re-engineering effort involving a number of actions
discussed elsewhere herein. The cost of continuing this program
(including the cost of terminating leases at non-performing
locations and/or subleasing such properties, the magnitude of the
Company's employee severance obligations, personnel changes and
advertising and promotional expenditures) could exceed the
Company's expectations and negatively impact the Company's
financial performance. In addition, as part of the re-engineering
plan, the Company is continuing to evaluate the AUTOWORKS business
processes and organization structure in an effort to maintain or
improve its competitive position which may result in changes to the
AUTOWORKS business which are not currently contemplated. Such
responses could result in additional expenses and/or unusual items.
4. The Company's continued growth and financial performance
depends, in part, on the Company's ability to secure the consent of
the Syndicate Banks to future acquisitions and the Company's
ability to conclude such acquisitions on favorable terms and to
enhance those acquisitions and integrate them into its operations.
Full realization of the potential benefits of any significant
acquisition will be dependent upon a variety of factors, including
(i) retention of substantial portion of sales, (ii) achieving sales
volumes sufficient to utilize reductions in cost of goods sold (as
a percentage of net sales), (iii) achieving significant reduction
in selling, general and administrative expenses by, among other
things, consolidating redundant operating and administrative
facilities and closure of non-performing facilities, (iv) obtaining
deferred payment terms and other changeover incentives from
suppliers. There can be no assurance as to the extent to which any
such benefits may be realized from any acquisitions or the timing
of any such realization. Failure to achieve a substantial portion
of such potential benefits within time frames anticipated by the
Company could materially and adversely affect the Company's future
results of operations and financial position.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial data
required by this Item 8 are listed at Part IV, Item 14 and are
filed herewith immediately following the signature page hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There has been no change in accountants or reported disagreements
on accounting principles or practices or financial statement
disclosures.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under this Item 10 shall be included in
the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 28, 1997, and the
appropriate information therefrom is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information required under this Item 11 shall be included in
the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 28, 1997, and the
appropriate information therefrom is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required under this Item 12 shall be included in
the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 28, 1997, and the
appropriate information therefrom is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this Item 13 shall be included in
the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 28, 1997, and the
appropriate information therefrom is incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) List of documents filed.
(1) Financial Statements:
Report of Independent Accountants
Balance Sheets at September 30, 1996, and 1995
Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1996, 1995
and 1994
Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994
Notes to Financial Statements
(2) Financial Statement Schedules
Report of Independent Accountants on Financial
Statement Schedule
Schedule II Valuation and Qualifying Account
Reserves for the Years Ended September
30, 1996, 1995 and 1994
(3) Exhibits
Those exhibits required to be filed by Item 601 of Regulation S-K
are listed in the Exhibit Index immediately preceding the
exhibits filed herewith and such listing is incorporated herein
by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HAHN AUTOMOTIVE WAREHOUSE, INC.
Date: December 26, 1996 By: S//Michael Futerman
Michael Futerman, Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Date: December 26, 1996 S//Michael Futerman
Michael Futerman, Director
Date: December 26, 1996 S//Eli N. Futerman
Eli N. Futerman, Director
Date: December 26, 1996 S//Albert J. Van Erp
Albert J. Van Erp, Principal
Financial Officer and Principal
Accounting Officer
Date: December 26, 1996 *Daniel J. Chessin
Daniel J. Chessin, Director
Date: December 26, 1996 *Ira D. Jevotovsky
Ira D. Jevotovsky, Director
Date: December 26, 1996 *Stephen B. Ashley
Stephen B. Ashley, Director
Date: December 26, 1996 *Gordon E. Forth
Gordon E. Forth, Director
Date: December 26, 1996 *Robert I. Israel
Robert I. Israel, Director
Date: December 26, 1996 *E. Philip Saunders
E. Philip Saunders, Director
* By: S//Eli N. Futerman
Eli N. Futerman, Attorney-in-Fact
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FINANCIAL STATEMENTS AND SCHEDULES
September 30, 1996
FORMING A PART OF
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
OF
HAHN AUTOMOTIVE WAREHOUSE, INC.
Hahn Automotive Warehouse, Inc. and Subsidiaries
Index To Consolidated Financial Statements
September 30, 1996
Report of Independent Accountants
Consolidated Balance Sheets at September 30, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants on Financial
Statement Schedules
Schedule II - Valuation and Qualifying Account Reserves
Report of Independent Accountants
To the Board of Directors and Shareholders of Hahn Automotive
Warehouse, Inc. and Subsidiaries
We have audited the consolidated balance sheets of Hahn
Automotive Warehouse, Inc. and Subsidiaries as of September 30,
1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1996.
These financial statements are the responsibility of the
Company'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 consolidated
financial position of Hahn Automotive Warehouse, Inc. and
Subsidiaries as of September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
By: S//Coopers & Lybrand, L.L.P.
Rochester, New York
November 25, 1996
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc. and
Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data)
September
30,
1996 1995
<S> <C> <C>
Current Assets:
Cash $199 $205
Trade receivables, net of allowance for
doubtful accounts of $2,694 in 1996 and
$2,678 in 1995 17,575 17,919
Inventory 70,914 72,156
Other current assets 2,608 2,921
Total current assets 91,296 93,201
Property, equipment and leasehold 13,362 15,269
improvements, net
Other assets 4,300 2,010
$108,958 $110,480
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt and
capital lease obligations $3,389 $6,881
Notes payable-officers and affiliates 2,560 500
Accounts payable 19,452 23,020
Compensation related liabilities 3,274 3,139
Other accrued expenses 5,891 3,932
Total current liabilities 34,566 37,472
Long-term debt 40,443 40,476
Capital lease obligations 450 892
Stockholders' equity:
Common stock (par value $.01 per share;
authorized 20,000,000 shares; issued and
outstanding 4,562,513 in 1996 and 4,387,032
in 1995) 46 44
Additional paid-in capital 24,607 23,161
Retained earnings 8,846 8,435
Total stockholders' equity 33,499 31,640
$108,958 $110,480
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc.
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and
per share data)
For the Years
Ended
September 30,
1996 1995 1994
<S> <C> <C> <C>
Net sales $221,371 $224,393 $215,415
Cost of product sold 130,435 134,981 131,494
Gross profit 90,936 89,412 83,921
Selling, general and
administrative expense 80,928 84,123 71,838
Depreciation and amortization 3,113 3,126 2,607
Income from operations 6,895 2,163 9,476
Interest expense (4,408) (4,415) (3,171)
Interest and service charge income 520 505 507
Income (loss) before provision
for income taxes 3,007 (1,747) 6,812
Provision for (benefit from)
income taxes 1,148 (370) 2,671
Net income (loss) $1,859 ($1,377) $4,141
Net income (loss) per share $.41 $(.30) $.96
Weighted average
shares outstanding 4,562,513 4,561,479 4,323,583
The accompanying notes are an
integral part of the
financial statements.
</TABLE>
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc. and
Subsidiaries
Consolidated Statements of Changes
in Stockholders' Equity
(In thousands, except share and per
share data)
Total Additional Total
Common Stock Paid-In Retained Shareholder'
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 3,996,800 $40 $18,918 $7,590 $26,548
Net income -- -- -- 4,141 4,141
Issuance of common stock 217,500 2 2,282 -- 2,284
Balance at September 30, 1994 4,214,300 42 21,200 11,731 32,973
Net loss -- -- -- (1,377) (1,377)
Stock options exercised 4,000 -- 44 -- 44
Stock dividend 168,732 2 1,917 (1,919) --
Balance at September 30, 1995 4,387,032 44 23,161 8,435 31,640
Net income -- -- -- 1,859 1,859
Stock dividend 175,481 2 1,446 (1,448) --
Balance at September 30, 1996 4,562,513 $46 $24,607 $8,846 $33,499
The accompanying notes are an
integral part of the financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands, except share and per share data)
For the
years
ended
September 30,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,859 ($1,377) $4,141
Items to reconcile net income to cash used in
operating activities:
Depreciation and amortization 3,113 3,126 2,607
Provision for doubtful accounts 897 980 874
Change in assets and liabilities:
Trade receivables (553) (1,358) 754
Inventory 1,242 1,811 586
Other assets (2,009) (899) (6,372)
Accounts payable and other accruals (1,474) (4,831) (4,755)
Net cash provided by (used in) operating activities 3,075 (2,548) (2,165)
Cash flows from investing activities:
Additions to property, equipment and leasehold
improvements, net (1,174) (2,551) (2,892)
Payment for acquisitions, net of cash acquired -- -- (10,756)
Net cash provided by (used in)
investing activities (1,174) (2,551) (13,648)
Cash flows from financing activities:
Net borrowings under line of credit 1,276 8,031 4,879
Proceeds from long-term debt and demand notes -- 842 14,146
Proceeds from notes payable - officers and 2,150 -- --
affiliates
Payment of long-term debt and demand notes (4,765) (3,374) (2,775)
Payment of notes payable - officers and affiliates (90) (82) (74)
Payment of capital lease obligations (478) (461) (327)
Issuance of common stock -- 44 --
Net cash provided by (used in)
financing activities (1,907) 5,000 15,849
Net increase (decrease) in cash (6) (99) 36
Cash at beginning of year 205 304 268
Cash at end of year $199 $205 $304
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $4,467 $4,413 $3,100
Income taxes $1,580 $2,018 $2,114
Supplemental disclosure of non-cash investing
activities:
Issuance of 217,500 shares of common stock for all
outstanding shares of stock of Meisenzahl Auto
Parts, Inc. and Regional Parts, Inc. -- -- $2,284
Supplemental disclosure of non-cash financing
activities:
Issuance of 175,481 and 168,732 shares of common
stock in conjunction with the 4% stock $1,448 $1,919 --
dividend
The accompanying notes are an integral part of the
financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Hahn Automotive Warehouse, Inc. (Company) and its wholly-owned
subsidiaries. All significant intercompany transactions have
been eliminated.
Inventory
Inventory consists primarily of automotive replacement parts and
accessories and is stated at the lower of cost, on a last-in,
first-out (LIFO) basis, or market. The replacement cost of the
inventory exceeded the LIFO value by approximately $4,284 and
$4,364 at September 30, 1996 and 1995, respectively.
Property, Equipment and Leasehold Improvements
Property and equipment are stated at cost and are depreciated
over their estimated useful lives using the straight-line method.
Major renewals and betterments are capitalized. Maintenance,
repairs and minor renewals are expensed as incurred. When
properties are retired or otherwise disposed of, related cost and
accumulated depreciation are removed from the accounts.
Assets Under Capital Leases
Leases which meet the capital lease criteria of Statement of
Financial Standards No. 13, "Accounting for Leases", are recorded
as assets and obligations at the lesser of the present value of
future rental payments or the fair market value of the leased
property at the inception of the lease. Amortization of
capitalized leased property has been provided using the straight-
line method over the estimated useful lives of the assets.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Advertising
Advertising expenses are charged to operations during the year in
which they are incurred and were approximately $1,930, $2,072 and
$1,744 for the years ended September 30, 1996, 1995 and 1994,
respectively.
Income Taxes
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109. This statement requires
the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities.
Net Income Per Share
Net income per share is computed based on the weighted average
number of shares outstanding. Shares issuable upon the exercise
of the stock options under the "treasury stock" method are not
considered since the effect would be insignificant.
Use of Estimates in the Preparation of Financial Statements
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
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value.
Current Assets and Liabilities - The carrying amount of cash
and equivalents, other assets and accrued liabilities approximate
fair value because of the short maturity of those instruments.
Long-Term Debt - The carrying value of the Company's long-
term debt approximates fair value at the balance sheet date.
Concentration of Credit Risk
The Company provides credit, in the normal course of business, to
jobber facilities in the automotive aftermarket. The Company's
customers are not concentrated in any one geographic region nor
does any single customer account for a significant amount of
sales or accounts receivable. The Company performs credit
evaluations of its customers and maintains allowances for
potential credit losses which, when realized, have been within
the range of management's expectations.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock Based Compensation (FAS
123), which will be effective for the Company's 1997 fiscal year.
FAS 123 establishes accounting and reporting standards for stock-
based employee compensation plan utilizing a fair value based
methodology. All entities are encouraged to adopt these
standards but are allowed to continue using APB Opinion No.
25, Accounting for Stock Issued to Employees (APB 25). However,
those electing to remain under APB 25 must make pro forma
disclosures of net income and earnings per share, as if FAS 123
had been adopted. The Company has not made an election at this
time.
2. Acquisitions
On November 29, 1993, the Company completed its acquisition of
the shares of AUTOWORKS Holdings, Inc. (AUTOWORKS), a retail
chain of auto parts stores, for a cash purchase price of
approximately $12,300. The acquisition has been accounted for by
the purchase method of accounting and the operating results of
AUTOWORKS are included in the Company's financial statements from
the date of acquisition. The cost of the acquisition has been
allocated to the basis of the estimated fair market value of the
assets acquired and liabilities assumed, resulting in no
goodwill.
On September 30, 1994, the Company acquired two smaller
companies, Meisenzahl Auto Parts, Inc. and Regional Parts, Inc.
for 217,500 shares of the Company's common stock. The
acquisitions have been accounted for by the purchase method of
accounting. The operating results of these companies are
included in the Company's financial statements beginning October
1, 1994.
3. Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements consist of the
following:
<TABLE>
<CAPTION>
September 30, Useful Lives
1996 1995 (Years)
<S> <C> <C> <C>
Land $335 $335 --
Buildings 1,690 1,690 10-30
Buildings under 3,487 3,136 10-20
capitalized leases
Leasehold improvements 4,554 4,596 10
Computer equipment 2,631 2,740 6
Furniture and fixtures 10,327 9,826 8
Vehicles 3,733 4,028 4-5
26,757 26,351
Less: Accumulated depreciation
and amortization 13,395 11,082
$13,362 $15,269
Depreciation and amortization expense related to property,
equipment and leasehold improvements for the years ended
September 30, 1996, 1995 and 1994 was approximately $3,081,
$3,136 and $2,762, respectively. Included in accumulated
depreciation and amortization at September 30, 1996 and 1995 was
approximately $2,909 and $2,564 respectively, of accumulated
amortization on the capital leases.
4. Long-Term Debt
Long-term debt includes the following:
</TABLE>
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
Revolving line of credit $36,000 $21,724
Term loan -- 13,000
Senior secured notes 6,400 8,550
Other 990 3,605
43,390 46,879
Less: Current portion 2,947 6,403
$40,443 $40,476
</TABLE>
Effective June 26, 1996, the Company replaced the Amended and
Restated Credit Facility Agreement (Prior Credit Agreement) dated
September 30, 1994 with the Credit Facility Agreement (Credit
Agreement) with a group of banks. The Credit Agreement, which
expires June 26, 1999, provides for a revolving line of credit
and a swing line of credit with maximum availabilities of $47,500
and $2,000, respectively. The $13,000 outstanding as a term loan
under the Prior Credit Agreement is now included in the revolving
line of credit under the Credit Agreement. Interest is payable
at LIBOR plus 1.125% to 2.25% and prime plus 0% to 1% for the
revolving line of credit and swing line of credit, respectively.
The exact rate is dependent upon the Company's financial
performance. LIBOR and prime were 6% and 8.25%, respectively, at
September 30, 1996.
The Senior Secured Notes are due June 15, 1999 and require single
annual sinking fund payments of $2,150 with a final payment of
$2,100 due June 15, 1999. The Senior Secured Notes may be
prepaid, subject to a prepayment penalty. Interest at 10.25% is
payable semi-annually in June and December.
As of September 30, 1995 the Company had failed to meet its cash
flow coverage covenant under the Prior Credit Agreement. The
Company was required to obtain waivers or receive additional
proceeds to avoid default. On December 14, 1995, the Company
entered into an agreement with its Chief Executive Officer and
principal shareholder whereby he would, upon request of a Special
Committee of disinterested directors of the Company's Board of
Directors ("Special Committee"), purchase from the Company
subordinated debt up to a maximum aggregate principal amount of
$4,000 on terms and conditions to be negotiated with, but
ultimately determined by the Special Committee. As a result, the
Company executed promissory notes (Notes) with the President of
the Company and the Chief Executive Officer, on January 24 and
February 1, 1996, respectively, in the aggregate amount of
$2,150. This amount represents the annual sinking fund payment
for the Senior Secured Notes for the year ended September 30,
1996. The Notes bear interest which is payable monthly, at the
annual rate of 12%. Commencing January 1, 1997, the Notes
require monthly principal repayments with possible mandatory
prepayments if the Company's net income exceeds certain defined
amounts. Final principal and interest payments are due February
1, 2001.
The Credit Agreement and Senior Secured Notes are collateralized
by substantially all of the Company's assets and contain
covenants and restrictions, including limitations on
indebtedness, liens, leases, mergers and sales of assets, and
investments, and on dividends, stock purchases and other payments
in accordance with capital stock and cash flow coverage
requirements. At September 30, 1996, the Company was in
compliance with all covenants under the Credit Agreement and
Senior Secured Notes agreement.
Upon the failure of the Company to comply with any covenant
contained in the Credit Agreement or upon the occurrence of an
event of default, the rate of interest may be increased to a rate
at all times equal to two percent (2%) above the rate of interest
which would be in effect absent such failure of compliance or
default. Such increased rate is to remain in effect, through and
including the end of the fiscal quarter in which such failure of
compliance is remedied and the Borrower is in compliance with the
covenant, whereby in the case of an event of default, such
increased rate is to remain in effect through payment in full of
all obligations and cancellation of further commitments to lend
under the Credit Agreement, or written waiver of such event of
default by the Bank, whichever is earlier.
Annual maturities of long-term debt for subsequent fiscal years
are:
<TABLE>
<CAPTION>
<S> <C>
1997 $2,947
1998 2,309
1999 38,134
</TABLE>
5. Commitments and Contingencies
Leases
The Company leases certain warehouse facilities from related
parties. The leases, which meet the requirements of a capital
lease under Financial Accounting Standards Board Statement No.
13, range from a term of ten years to twenty years.
The Company also leases warehouse, jobber and retail facilities
under noncancelable operating lease agreements, which expire
through 2004. Certain of the leases are of facilities owned by
related parties. Most of these operating leases include
provisions for rent escalations and increases in operating
expenses (real estate taxes, insurance and maintenance). Rent
expense related to all facility operating leases totaled
approximately $9,326, $9,101 and $7,519 which included
approximately $1,914, $1,200 and $967 of payments to the related
parties for the years ended September 30, 1996, 1995 and 1994,
respectively.
In addition, the Company leases various equipment under
noncancelable operating lease agreements, some of which are with
related parties, expiring through 2001. Rent expense related to
all equipment operating leases totaled approximately $2,085,
$1,489 and $1,237, which included approximately $90, $115 and
$135 of payments to related parties for the years ended September
30, 1996, 1995 and 1994, respectively.
Future minimum rental payments under noncancelable leases for
fiscal years subsequent to September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Capital
Leases Operating
Leases
Related Related
Parties Parties Other
<S> <C> <C> <C>
1997 $442 $1,763 $7,938
1998 450 1,067 6,481
1999 -- 821 5,465
2001 -- 460 3,988
2002 -- 395 3,241
Thereafter -- 832 12,202
$5,338 $39,315
Less: Current Portion 442
Long-term portion $450
</TABLE>
Contingencies
The Company is also a defendant in certain lawsuits which have
arisen in the ordinary course of business. Management is of the
opinion that such lawsuits will not result in any material
liability to the Company. Accordingly, no provision for loss has
been made in the financial statements related to these matters.
6. Income Taxes
Income tax expense (benefit) is comprised of the following for
the years ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Currently payable (receivable):
Federal $1,061 ($831) $2,126
State 353 521 659
1,414 (310) 2,785
Deferred:
Federal (201) (45) (87)
State (65) (15) (27)
(266) (60) (114)
$1,148 ($370) $2,671
</TABLE>
Temporary differences which give rise to deferred tax assets and
liabilities at September 30 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Accounts receivable $1,426 $1,390
Accrued liabilities 1,328 1,209
Capital lease obligations -- 542
Property, equipment and
leasehold improvements 4,859 4,617
Deferred Compensation 153 139
Total assets 7,766 7,897
Liabilities:
Inventory 1,553 1,432
Depreciation 5,659 6,177
Total liabilities 7,212 7,609
Net Assets $554 $288
</TABLE>
The Company believes it will have adequate future income to
offset all deferred tax assets.
Actual tax expense differs from the expected tax expense computed
by applying the Federal statutory rate to income before income
taxes due principally to state income taxes.
7. Employee Retirement Plan
The Company has a 401(k) profit sharing plan for all eligible
employees. Under the plan, employees are entitled to contribute
up to 15% of their base salary, and the Company will match up to
15% of the employee's contributions up to a maximum of 15% of the
employee's compensation. The Company may also make a
discretionary contribution at year end. The Company's matching
contribution under the plan was approximately $166, $136 and $127
for the years ended September 30, 1996, 1995 and 1994,
respectively.
8. Stockholder's Equity and Stock Options
The Company has two stock option plans which provide for the
granting of options of up to 500,000 shares of stock to officers
and key employees of the Company and an aggregate of 40,000
shares to non-employee Directors at the fair value of the common
stock at the date of grant. The options have a maximum duration
of ten years and may be exercised in cumulative annual increments
of 33 1/3% commencing one year after the date of grant. The
following table summarizes the Company's stock option
transactions:
<TABLE>
<CAPTION>
Option Price Range
Shares Per Share
<S> <C> <C>
Options outstanding-September 30, 1993 40,000 12.50
Exercised --
Expired --
Granted 140,000 10.38 to 15.25
Options outstanding-September 30, 1994 180,000 10.38 to 15.25
Exercised (4,000) 10.38 to 12.50
Expired (3,833) --
Granted 191,150 13.50 to 30.69
Stock dividend 14,533 10.38 to 30.69
Options outstanding-September 30, 1995 377,850 10.38 to 30.69
Exercised -- --
Expired -- --
Granted 65,760 8.50 to 10.38
Stock dividend 17,744 8.50 to 30.69
Options outstanding-September 30, 1996 461,354 8.50 to 30.69
Options Exercisable:
September 30, 1994 13,333 12.50 to 13.75
September 30, 1995 116,076 10.38 to 30.69
September 30, 1996 253,149 10.38 to 30.69
</TABLE>
Additionally, on April 29, 1994, 135,200 shares of common stock
of the Company were reserved for sale to the President of the
Company. These options become exercisable annually through April
29, 1997 at an option price ranging from $17.33 to $30.69.
Certain options will expire on April 29, 1999 and 2002, if
certain conditions are not met. The remaining options will
expire no later than April 29, 2004.
On March 15, 1996 and 1995, the Board of Directors declared a 4%
stock dividend on the Company's common stock, payable May 1 of
each year to shareholders of record as of April 10, 1996 and
1995, respectively. Accordingly, amounts equal to the fair
market value of the additional shares issued have been charged to
retained earnings and credited to common stock and additional
paid-in capital at September 30, 1996 and 1995. Earnings per
share and weighted average shares outstanding as of September 30,
1995 and 1994, and for each of the quarters presented, were
restated to reflect this 4% stock dividend.
9. Segment Information
The Company sells and distributes automotive after-market parts
to both the wholesale and retail markets through its network of
warehouses, jobber facilities and the AUTOWORKS chain of retail
stores. The Company's wholesale distribution segment sells to
jobbers, professional installers and repair shops while the
retail segment sells directly to the consumer. Prior to the
acquisition of AUTOWORKS in 1994, the Company operated in a
single segment.
Operating profit is net sales, less cost of product sold and
operating expenses. In computing operating profit, none of the
following items have been added or deducted: general corporate
expenses, interest expense, interest income, and income taxes.
Identifiable assets are those used exclusively by that industry
segment. Corporate assets are principally corporate office
facilities and equipment and net deferred tax assets.
9. Segment Information (con't.)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net sales:
Wholesale $138,394 $130,734
Retail 82,977 93,659
Total net sales $221,371 $224,393
Operating profit:
Wholesale $8,817 $9,782
Retail (1,922) (7,619)
Total operating profit 6,895 2,163
Interest and service charge income 520 505
Interest expense (4,408) (4,415)
Income (loss) before provision for income taxes $3,007 ($1,747)
Identifiable assets:
Wholesale $70,072 $64,680
Retail 38,886 45,800
Total identifiable assets $108,958 $110,480
Capital expenditures
Wholesale $551 $1,063
Retail 940 1,488
Total capital expenditures $1,491 $2,551
Depreciation and amortization
Wholesale $1,757 $1,902
Retail 1,356 1,224
Total depreciation and amortization $3,113 $3,126
</TABLE>
10. Quarterly Financial Data
The following tables set forth the unaudited quarterly results of
operations for each of the fiscal quarters in the years ended
September 30, 1996 and 1995.
<TABLE>
<CAPTION>
December March 31 June 30 September Year
31 30
<S> <C> <C> <C> <C> <C>
Fiscal 1996
Net sales $52,677 $52,079 $60,801 $55,814 $221,371
Gross profit 21,571 22,248 24,303 22,814 90,936
Net income (loss) 73 (281) 984 1,083 1,859
Net income (loss) per share $0.02 ($0.06) $0.22 $0.23 $0.41
Fiscal 1995
Net sales $55,268 $52,007 $57,834 $59,284 $224,393
Gross profit 21,961 20,866 23,179 23,406 $89,412
Net income (loss) 241 (1,005) (427) (186) ($1,377)
Net income (loss) per share $0.06 ($0.23) ($0.10) ($0.03) ($0.30)
</TABLE>
11. Subsequent Event
On October 14, 1996, the Company acquired the assets of Nu-Way
Auto Parts, Inc. (Nu-Way). The Company will include the
operating results of Nu-Way beginning in fiscal 1997. Pro forma
results of this acquisition, assuming it had been made at the
beginning of each year presented, would not be materially
different from the results reported.
Report of Independent Accountants
To the Board of Directors and Shareholders of Hahn Automotive
Warehouse, Inc. and Subsidiaries
Our report on the consolidated financial statements of Hahn
Automotive Warehouse, Inc. and Subsidiaries is included on Page F-
3 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial
statement schedule listed in the index on Page F-2 of this Form
10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information to be included therein.
By: S//Coopers & Lybrand, L.L.P.
Rochester, New York
November 25, 1996
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc
and Subsidiaries
Schedule II-Valuation and
Qualifying Accounts Reserves
For the Years Ended September 30,
1996, 1995 and 1994 (in thousands)
Additions
Balance at Charged to
Beginning Costs and
of Period Expenses Deductions
<S> <C> <C> <C>
Description
1996:
Allowance for doubtful accounts
and notes receivable $2,678 $897 ($881)
1995:
Allowance for doubtful accounts
and notes receivable $2,142 $980 ($444)
1994:
Allowance for doubtful accounts
and notes receivable $1,476 $874 ($524)
Amount attributable to acquired
companies at the acquisition date.
continued: Balance at
End of
Other Period
Description
1996:
Allowance for doubtful accounts
and notes receivable -- $2,694
1995:
Allowance for doubtful accounts
and notes receivable -- $2,678
1994:
Allowance for doubtful accounts
and notes receivable $316* $2,142
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
EXHIBITS FILED WITH
FORM 10-K
OF
HAHN AUTOMOTIVE WAREHOUSE, INC.
FOR FISCAL YEAR ENDED
September 30, 1996
FORMING A PART OF
ANNUAL REPORT PURSUANT TO SECTION 13 OF OR 15(d)
THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT INDEX
Exhibit 3.1 Restated Certificate of Incorporation of
Hahn (Exhibit 3.1 to Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 3.2 Amended and Restated By- Laws of Hahn
(Exhibit 3 to Hahn's Quarterly Report on Form 10-Q for
quarterly period ended March 31, 1994)*
Exhibit 4.1 Shareholders' Agreement, dated September
30, 1994, between Hahn and David Appelbaum (Exhibit 4.1 to
Hahn's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994)*
Exhibit 10.1 1992 Stock Option Plan (Exhibit 10.1 to
Hahn's Registration Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.2 Amendment No. 1 to 1992 Stock Option Plan
(Exhibit A to Hahn's 1995 Proxy Statement)*
Exhibit 10.3 Stock Option Agreement, dated April 29,
1994, between Hahn and Eli N. Futerman (Exhibit 10.3 to Hahn's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1994)*
Exhibit 10.4 1993 Stock Option Plan for Non-Employee
Directors (Exhibit 4 to Hahn's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1994)*
Exhibit 10.5 Amended and Restated Selective Incentive
Plan Agreement, dated June 9, 1992, between Hahn and Eli N.
Futerman (Exhibit 10.2 to Hahn's Registration Statement on
Form S-1 (No. 33-48694) as filed with the SEC on January 19,
1993)*
Exhibit 10.6 Amended and Restated Selective Incentive
Plan Agreement, dated June 9, 1992, between Hahn and Timothy
Vergo (Exhibit 10.3 to Hahn's Registration Statement on Form S-
1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.7 Amended and Restated Selective Incentive
Plan Agreement, dated June 9, 1992, between Hahn and Albert J.
Van Erp (Exhibit 10.4 to Hahn's Registration Statement on Form
S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.8 Amended and Restated Selective Incentive
Plan Agreement, dated June 9, 1992, between Hahn and Daniel J.
Chessin (Exhibit 10.5 to Hahn's Registration Statement on Form
S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.9 Amended and Restated Selective Incentive
Plan Agreement, dated June 9, 1992, between Hahn and Ira D.
Jevotovsky (Exhibit 10.6 to Hahn's Registration Statement on
Form S-1 (No. 33-48694) as filed with the SEC on January 19,
1993)*
Exhibit 10.10 Deferred Compensation Agreement, dated April 1,
1990, between Naftali Futerman and Hahn (Exhibit 10.7 to
Hahn's Registration Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.11 Lease Agreement, executed June 10, 1992,
between Michael Futerman as landlord and Hahn as tenant, as
amended (Exhibit 10.89 to Hahn's Registration Statement on
Form S-1 (No. 33-48694) as filed with the SEC on January 19,
1993)*
Exhibit 10.12 Lease Agreement, executed June 10, 1992,
between Eli N. Futerman as landlord and Hahn as tenant, as
amended (Exhibit 10.9 to Hahn's Registration Statement on Form
S-1 (No. 33-48694), as filed with the SEC on January 19,
1993)*
Exhibit 10.13 Lease Agreement, executed June 11, 1992,
between EDR Associates as landlord and Hahn as tenant (Exhibit
10.10 to Hahn's Registration Statement on Form S-1 (No. 33-
48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.14 Lease Agreement, fully executed June 11, 1992,
between Eli Futerman, Daphne Futerman and Rina F. Chessin as
landlord and Hahn as tenant (Exhibit 10.11 to Hahn's
Registration Statement on Form S-1 (No. 33-48694) as filed
with the SEC on January 19, 1993)*
Exhibit 10.15 Lease Agreement, executed June 12, 1992,
between Futerman Associates as landlord and Hahn as tenant
(Exhibit 10.12 to Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.16 Sublease Agreement, executed June 10, 1992,
between 415 West Main St., Inc. as landlord and Hahn as tenant
(Exhibit 10.13 to Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.17 Amendment to Sublease Agreement, dated December
21, 1994, between 415 West Main St., Inc. and Hahn (Exhibit
10.15 to Hahn's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)*
Exhibit 10.18 Massachusetts Mutual Life Insurance Company
Note Agreement, dated as of December 15, 1989, for
$15,000,000, 10.25% Senior Secured Notes Due June 15, 1999, as
amended (Exhibit 10.14 to Hahn's Registration Statement on
Form S-1 (No. 33-48694), as filed with the SEC on January 19,
1993)*
Exhibit 10.19 Waiver in Respect Of, and Amendment To Note
Agreement, dated as of October 17, 1993, between Massachusetts
Mutual Life Insurance Company and Hahn (Exhibit 10.15 to
Hahn's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993)*
Exhibit 10.20 Lease Agreement, dated October 1, 1989, between
Eli N. Futerman as lessor and Hahn as lessee for lease of
computer equipment, as amended and assigned (Exhibit 10.19 to
Hahn's Registration Statement on Form S-1 (No. 33-48694), as
filed with the SEC on January 19, 1993)*
Exhibit 10.21 Master Equipment Lease Agreement, dated April
19, 1994, between Hahn, AUTOWORKS Holdings, Inc., AUTOWORKS,
Inc. and Fleet Bank (Exhibit 10.22 to Hahn's Annual Report on
Form 10-K for the year ended September 30, 1994)*
Exhibit 10.22 Amendment to Addendum to Master Lease Agreement
dated June 26, 1996 between Fleet Bank of New York as lessor
and Hahn and AUTOWORKS as lessees dated June 26, 1996 (filed
herewith)
Exhibit 10.23 Trademark License and Marketing Agreement,
effective May 1, 1988, between Auto Value Associates, Inc. and
Hahn (Exhibit 10.22 to Hahn's Registration Statement on Form S-
1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.24 Shareholders' Agreement, dated as of December
15, 1983, among Auto Value Associates, Inc. and the
shareholders of Auto Value Associates, Inc., including Hahn,
as amended (Exhibit 10.23 to Hahn's Registration Statement on
Form S-1 (No. 33-48694) as filed with the SEC on January 19,
1993)*
Exhibit 10.25 Hahn's Promissory Note, dated April 1, 1992, in
the principal amount of $250,000 in favor of Eli N. Futerman
(Exhibit 10.27 to Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.26 Hahn's Promissory Note, dated April 1, 1992, in
the principal amount of $250,000 in favor of Michael Futerman
(Exhibit 10.28 to Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.27 Hahn's Promissory Note, dated April 1, 1992, in
the principal amount of $250,000 in favor of Naftali Futerman
(Exhibit 10.29 to Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.28 Hahn's Promissory Note, dated February 1, 1996,
in the principal amount of $1,650,000 in favor of Michael
Futerman (Exhibit 10.2 to Hahn's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996)*
Exhibit 10.29 Hahn's Promissory Note, dated February 1, 1996,
in the principal amount of $500,000 in favor of Eli Futerman
(Exhibit 10.3 to Hahn's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996)*
Exhibit 10.30 Hahn's Promissory Note, dated April 1, 1992, in
the principal amount of $250,000 in favor of Naftali Futerman
(Exhibit 10.29 to Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.31 Deferred Compensation Agreement, dated November
30, 1992, between Hahn and Michael Futerman (Exhibit 10.37 to
Hahn's Registration Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.32 Hahn Automotive Warehouse, Inc. Health Benefit
Retirement Plan (Exhibit 10.38 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as filed with the SEC on
January 19, 1993)*
Exhibit 10.33 Tax Indemnification Agreement, dated as of
December 31, 1992, among Hahn and Michael Futerman, Sara
Futerman, Eli N. Futerman, Rina Chessin, Daphne Futerman and
Naftali Futerman (Exhibit 10.39 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as filed with the SEC on
January 19, 1993)*
Exhibit 10.34 Seller's Trademark License Agreement, dated
November 28, 1993, between Northern Automotive Corporation and
AUTOWORKS (Exhibit 28.2 to Hahn's Current Report on Form 8-K,
dated December 10, 1993 (File No. 0-20984))*
Exhibit 10.35 Buyer's Trademark License Agreement, dated
November 28, 1993, between Northern Automotive Corporation and
AUTOWORKS (Exhibit 28.3 to Hahn's Current Report on Form 8-K,
dated December 10, 1993 (File No. 0-20984))*
Exhibit 10.36 Credit Facility Agreement, dated June 26, 1996,
among Hahn, AUTOWORKS, the several lenders named therein and
Fleet Bank, as agent (Exhibit 10.1 to Hahn's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996)*
Certain instruments respecting long-term debt of Hahn and its
subsidiaries have been omitted pursuant to Regulation Item
601. Hahn hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
Exhibit 10.37 Credit Facility Agreement Amendment Number 1,
dated October 10, 1996, among Hahn, AUTOWORKS, the several
lenders named therein and Fleet Bank, as agent (filed
herewith)
Exhibit 10.38 Lease Agreement, dated as of May 24, 1971,
between Irvin Baron, John A. Cervieri, Jr., Richard S.
Ellwood, Carroll J. Royce, Lathrop S. Haskings, Walter F.
Leinhardt and John C. Slagle as Trustees of Property Capital
Trust as Landlord and John E. Benz as Tenant, and Sublease
Agreement, dated as of May 6, 1986, between John E. Benz as
Landlord and AUTOWORKS Holdings as Tenant, both of which cover
the Moraine, Ohio, distribution center (Exhibit 10.54 to
Hahn's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993)*
Exhibit 10.39 Lease Agreement, dated September 30, 1994,
between Meisenzahl and David Appelbaum (Exhibit 10.47 to
Hahn's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994)*
Exhibit 10.40 Lease Agreement, dated September 30, 1994,
between Meisenzahl and David Appelbaum (Exhibit 10.45 to
Hahn's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994)*
Exhibit 10.41 Non-Competition Agreement, dated September 30,
1994, between Hahn and David Appelbaum (Exhibit 10.49 to
Hahn's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994)*
Exhibit 10.42 Tax Procedures and Indemnity Agreement, dated
September 30, 1994, between Hahn and David Appelbaum (Exhibit
10.50 to Hahn's Annual Report On Form 10-K for the fiscal year
ended September 30, 1994)*
Exhibit 10.43 Indemnification Agreement, dated as of
September 30, 1994, executed by David Appelbaum in favor of
Hahn, Meisenzahl and Regional (Exhibit 10.51 to Hahn's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994)*
Exhibit 10.44 Letter Agreement, dated December 14, 1995,
between Hahn and Michael Futerman (Exhibit 10.53 to Hahn's
Annual Report on Form 10-K for fiscal year ended September 30,
1995)*
Exhibit 22 List of Subsidiaries (filed
herewith)
Exhibit 24 Consent of Coopers & Lybrand L.L.P. with
respect to Financial Statements and Financial Statement Schedules
(filed herewith)
Exhibit 25 Powers of Attorney for Directors
(filed herewith)
Exhibit 27 Selected Financial Data (filed
herewith)
*These exhibits are incorporated herein by reference to the
registration statement or report referenced after each exhibit
which an asterisk appears.
Indicates executive compensation plans and arrangements.
Exhibit 10.22 Amendment to Addendum to Master Lease
Agreement, dated June 26, 1996, between Fleet Bank of New
York as lessor and Hahn and AUTOWORKS as lessees
AMENDMENT TO ADDENDUM TO MASTER LEASE AGREEMENT
This Amendment is made as of June 26, 1996 to the Addendum to Master
Equipment Lease Agreement No. 0883 dated April 19, 1994 and any
Schedules thereto including Schedule 30883-O2 between Fleet Bank of
New York as Lessor and Hahn Automotive Warehouse, Inc., Auto Works
Holdings, Inc., and Auto Works, Inc., collectively as Lessee, and
Equipment Lease Number 30883-01 dated May 29,1991 and any Schedules
thereto by and between Norstar Bank, H.A. as Lessor and, and Hahn
Automotive Warehouse, Inc. as Lessee (with both leases and related
schedules collectively called the "Lease"), with Lessors's interests
in such Lease having been assigned to Fleet Capital Corporation
pursuant to a Restated Assignment of Lease Without Recourse dated as
of June 26,1996.
1. Section 5 of the Addendum to the Lease is hereby amended to
read in its entirety as follows:
Section 5 is amended by adding the following as subsection
(h):
(h) Lessee shall comply with all covenants set forth in Sections
10.7, 11.1, 11.2, 11.3, 11.4, and 11.5 of the Credit Facility
Agreement dated as of June 26, 1996 made by and among Hahn Automotive
Warehouse, Inc, Auto Works, Inc., Meisenzahl Auto Parts, Inc., Fleet
Bank as administrative Agent for the Banks described therein, and the
Banks described therein, incorporated herein by reference, as the same
may be modified, extended, or replaced from time to time (the "Credit
Agreement"), as the same may be modified, extended, or replaced from
time to time, attached hereto and incorporated herein by reference.
In the event Lessee satisfies and terminates all of its obligations to
the Banks under the Credit Agreement, Lessee shall continue to comply
with covenants 10.7, 11.1, 11.2, 11.3, 11.4, and 11.5 as set forth in
the Credit Agreement, at the time immediately preceding the
termination of the Credit Agreement, throughout the remaining term or
any extended term under the Lease.
2. Section 15 of the Addendum to the Lease is hereby amended to
read in its entirety as follows:
The Lease is amended by adding the following Section 20
hereof:
20. This Lease and any and all other obligations of Lessee
including but not limited to leases, security agreements, and loan
agreements whether now existing or hereinafter entered into with Fleet
Capital Corporation (the "Agreements") are entitled to the benefits of
that certain Amended and Restated Security Agreement dated as of June
26, 1996 by and between Hahn Automotive Warehouse, Inc., as grantor,
and Fleet Bank as administrative Agent for and on behalf of the Banks
described therein, as secured party, that certain Amended and Restated
Security Agreement dated as of June 26,1996 by and between Auto Works,
Inc., as grantor, and Fleet Bank as administrative Agent for and on
behalf of the Banks described therein, as secured party, and that
certain Amended and Restated Security Agreement dated as of June 26,
1996 by and between Meisenzahl Auto Parts, Inc., as grantor, and Fleet
Bank as administrative Agent for and on behalf of the Banks described
therein, as secured party (collectively, the "Security -Agreements").
The Agreements constitute "Liabilities" as defined in the Security
Agreements. In the event that Lessee satisfies and terminates all of
its obligations under the Credit Agreement (as defined in Section 5(h)
above), Lessor and Lessor's successors and assigns of this Lease will
waive its rights to marshal assets and will fully subordinate its
interest in the additional collateral provided for under the Security
Agreements (the "Additional Collateral") to the lien of any subsequent
lender providing a loan facility similar to that set forth in the
Credit Agreement (the "New Loan Facility") which New Loan Facility is
expressly conditioned upon the grant of a senior lien on the
Additional Collateral; provided, however, that the maximum amount of
the New Facility Loan that shall be secured by such senior lien shall
be limited to the greater of:
1. The total Collateral Coverage as defined and calculated in
the Credit Agreement, attached hereto, less the principal balance
outstanding from time to time under that certain Note Agreement dated
December 15, 1989, as the same may be modified from time to time, by
and between Lessee and Massachusetts Mutual Life Insurance Company or
its successors or assigns; or
2. $55,000,000 (fifty-five million dollars) or;
3. two times Lessee's Tangible Net Worth, provided that Total
Liabilities divided by Tangible Net Worth is less than or equal to a
ratio of 2.5:1.
3. The parties acknowledge and confirm that Auto Works, Inc. is
the surviving corporation of a merger of Auto Works Holdings, Inc.
into Auto Works, Inc., and that Auto Works, Inc. has assumed all of
the obligations of Auto Works Holdings, Inc. under the Lease by reason
of such merger. The Lessees under the Lease shall be Hahn Automotive
Warehouse, Inc. and Auto Works, Inc. and the Lease and any related
documents shall be deemed amended accordingly without any further
action.
4. This Amendment may be executed in one or more counterparts,
each of which shall be deemed to be an original.
HAHN AUTOMOTIVE WAREHOUSE, INC.
By: /s/ Eli N. Futerman
Title: President
AUTO WORKS, INC.
(also successor by merger to Auto Works
Holdings, Inc.)
By: /s/ Eli N. Futerman
Title: Chief Executive Officer
FLEET CAPITAL CORPORATION
By: /s/
Title: Vice President
Exhibit 10.37 Credit Facility Agreement Amendment
Number 1, dated October 10, 1996, among Hahn, AUTOWORKS, the
several lenders named therein and Fleet Bank, as agent
CREDIT FACILITY AGREEMENT AMENDMENT NUMBER 1
THIS CREDIT FACILITY AGREEMENT AMENDMENT NUMBER 1 is made as of
the 10th day of October, 1996 by and among HAHN AUTOMOTIVE
WAREHOUSE, INC., a New York corporation with offices at 415 West
Main Street, Rochester, New York 14608 ("Hahn"), AUTO WORKS,
INC., a Michigan corporation with offices at 415 West Main
Street, Rochester, New York 14608 ("Auto Works") and MEISENZAHL
AUTO PARTS, INC., a New York corporation with offices at 415 West
Main Street, Rochester, New York 14608 ("Meisenzahl," with Hahn,
Auto Works, and Meisenzahl collectively called "Borrower"), FLEET
BANK, a bank and trust company formed under the laws of the State
of New York with offices at One East Avenue, Rochester, New York
14638 ("Agent"), as administrative agent for the "Banks" whose
signatures appear on this Amendment Number 1, and each of the
Banks ("Banks") whose signatures appear on this Amendment Number
1 and who are parties to the Credit Facility Agreement described
below.
This Credit Facility Agreement Amendment Number I amends the
Credit Facility Agreement dated as of the 26th day of June, 1996
between the Borrower, the Banks, and the Agent (the "Credit
Agreement"). Capitalized terms not otherwise defined herein
shall have the meanings given to them by the Credit Agreement.
The parties hereby agree as follows:
1. The following definitions in Section 1.1 of the Credit
Agreement are hereby amended to read in their entirety as
follows:
"Debt" for any person or entity shall mean
(i) indebtedness of such person or entity for borrowed
money, (ii) obligations of such person or entity for
the deferred purchase price of property or services
(except trade payables, wages, and similar operating
obligations incurred in the ordinary course of business
but including obligations under consulting agreements
or covenants not to compete and the like incurred in
connection with acquisitions of assets), (iii)
capitalized or capitalizable obligations of such person
or entity with respect to leases, (iv) the amount
available for drawing under outstanding standby letters
of credit issued for the account of such person or
entity and the amount of other off-balance sheet
obligations or liabilities, each to the extent not
otherwise treated separately as Debt, (v) all
obligations endorsed (other than for collection in the
ordinary course of business) or guaranteed by such
person or entity directly or indirectly in any manner
including without limitation contingent obligations to
purchase, pay or supply funds to any person or entity
to assure a creditor against loss, (vi) obligations of
such person or entity arising under acceptance
facilities, and (vii) obligations secured by a lien,
security interest, or other arrangement for the purpose
of security on property owned by such person or entity
whether or not the underlying obligations have been
assumed by such person or entity.
"Fixed Charge Coverage Ratio" shall mean, for
the applicable period the ratio of: (i) EBITDA plus
amounts received by Hahn in connection with any
issuance of equity interests (net of expenses incurred
by Borrower in connection therewith) less Capital
Expenditures not paid for with Funded Debt and less
Capital Expenditures paid for with advances under the
Revolving Line (except for $250,000 in Capital
Expenditures made in connection with the Nu-Way
Acquisition) minus any increase in Net Working Capital
Investment or plus any decrease in Net Working Capital
Investment in each case as measured from the last day
of the fiscal quarter immediately preceding such
applicable period, divided by (ii) Fixed Charges.
"Net Working Capital Investment" shall mean,
as of the applicable measurement date, (i) Current
Assets less cash and cash equivalents minus (ii)
Current Liabilities less the current portion of long
term Debt (including without limitation installment,
reimbursement, capital lease. or sinking fund payments
payable within one year after the applicable
measurement date); provided, however, that Net Working
Capital Investment for the applicable measurement dates
for periods prior to the period ending September 30,
1997 shall not include Net Working Capital Investment
relating solely to the Nu-Way Acquisition which has
been separately detailed in calculations of financial
covenants delivered to the Banks.
The following definition shall be added to Section 1.1 of the
Credit Agreement:
"Nu-Way Acquisition" shall mean the
acquisition of assets by Hahn from Nu-Way Auto Parts,
Inc. pursuant to the Asset Purchase Agreement dated
October 9, 1996 and the related transactions
contemplated by such Agreement.
2. The first sentence of Section 2.1 of the Credit
Agreement is hereby amended to read in its entirety as follows:
2.1 Revolving Line. Subject to the terms and
conditions of this Agreement, the Banks (with each Bank
responsible only for its Commitment) hereby establish
for the benefit of the Borrower a revolving line of
credit in the aggregate maximum amount of Forty-Seven
Million Five Hundred Thousand Dollars ($47,500,000),
available for (i) working capital purposes, (ii) to
back letters of credit issued by the Agent for the
account of the Borrower pursuant to Article 4 of this
Agreement, and (iii) to fund up to $600,000 of the
purchase price in connection with the Nu-Way
Acquisition.
3. A new subsection (g) is hereby added to Section 10.2 of the
Credit Agreement to read as follows:
(g) Debt incurred in connection with the Nu-Way
Acquisition.
4. A new subsection (e) is hereby added to Section 10.5 of the
Credit Agreement to read as follows:
(e) the Nu-Way Acquisition.
5. Section 11.5 of the Credit Agreement is hereby amended to
add the following sentence the end of such Section:
The $250,000 in Capital Expenditures made by
Hahn in connection with the Nu-Way Acquisition shall
not be counted in the calculation of Capital
Expenditures for purposes of this Section 11.5.
6. All other terms of the Credit Agreement shall remain
unchanged and in full force and effect.
7. Borrower represents and warrants that (a) each of the
representations and warranties set forth in the Credit Agreement
is true and correct as of the date hereof (and with respect to
the representations and warranties set forth in Section 7.5 of
the Credit Agreement, the financial statements referred to
therein shall mean the financial statements of the Borrower for
the most recent quarterly period ended) except that Auto Works is
a Michigan corporation and except for those facts that Borrowers
have advised Agent of in writing or in financial statements or
SEC reports provided to Agent; and (b) no Event of Default or
event that, with the giving of notice or the passage of time or
both would constitute Event of Default, has occurred and is
continuing.
8. Borrower shall deliver to the Banks a Reconciliation Report
showing the condition of Borrower immediately after the Nu-Way
Acquisition at the time of execution of this Amendment.
9. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same agreement, and any party hereto may execute this
Amendment by signing any such counterpart.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first above written.
HAHN AUTOMOTIVE WAREHOUSE, INC.
By: /s/ Eli N. Futerman
Title: President
AUTO WORKS, INC.
By: /s/ Eli N. Futerman
Title: Chief Executive Officer
MEISENZAHL AUTO PARTS, INC.
By: /s/ Eli N. Futerman
Title: President
FLEET BANK
By: /s/ Jeffrey S. Holmes
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Diana M. Lauria
Title: Vice President
MANUFACTURERS AND TRADERS TRUST
COMPANY
By: /s/ John P. Chantra
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ William N. Paty
Title: Vice President and Manager
By: /s/ James Drum
Title: Vice President New York
Office
Exhibit 22 List of Subsidiaries
Exhibit 22
List of Subsidiaries
AUTOWORKS, Inc. - Michigan
Meisenzahl Auto Parts, Inc. - New York
HFV, Inc. - Delaware
Exhibit 24 Consent of Coopers & Lybrand L.L.P.
with respect to Financial Statements and Financial Statement
Schedules (filed herewith)
To the Board of Directors and Shareholders of Hahn Automotive
Warehouse, Inc. and Subsidiaries
Our report on the consolidated financial statements of Hahn
Automotive Warehouse, Inc. and Subsidiaries is included on Page F-
3 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial
statement schedule listed in the index on Page F-2 of this Form
10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information to be included therein.
By: S//Coopers & Lybrand, L.L.P.
Rochester, New York
November 25, 1996
Exhibit 25 Powers of Attorney
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: S//Michael Futerman
Michael Futerman, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: S//Albert J. Van Erp
Albert J. Van Erp, Principal
Financial Officer and
Principal
Accounting Officer
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: *Daniel J. Chessin
Daniel J. Chessin, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: *Ira D. Jevotovsky
Ira D. Jevotovsky, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: *Stephen B. Ashley
Stephen B. Ashley, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: *Gordon E. Forth
Gordon E. Forth, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: *Robert I. Israel
Robert I. Israel, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc.
(The "Corporation"), does hereby constitute and appoint Eli
N. Futerman, my true and lawful attorney and agent, to
execute the Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and any and all
amendments thereto, and to do any and all acts and things in
my name and on my behalf in my capacity as an officer of the
Corporation, and to execute any and all instruments for me
and in my name in such capacity which he may deem necessary
or advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and any
rules, regulations, and requirements of the Securities and
Exchange Commission, in connection therewith.
Date: December 18, 1996
By: *E. Philip Saunders
E. Philip Saunders, Director
Exhibit 27
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<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 199 205
<SECURITIES> 0 0
<RECEIVABLES> 17,575 17,919
<ALLOWANCES> 0 0
<INVENTORY> 70,914 72,156
<CURRENT-ASSETS> 91,296 93,201
<PP&E> 13,362 15,269
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 108,958 110,480
<CURRENT-LIABILITIES> 34,566 37,472
<BONDS> 0 0
0 0
0 0
<COMMON> 46 44
<OTHER-SE> 33,499 31,640
<TOTAL-LIABILITY-AND-EQUITY> 108,958 108,958
<SALES> 221,371 224,393
<TOTAL-REVENUES> 221,371 224,393
<CGS> 130,435 134,981
<TOTAL-COSTS> 84,041 87,249
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,408 4,415
<INCOME-PRETAX> 3,007 (1,747)
<INCOME-TAX> 1,148 (370)
<INCOME-CONTINUING> 1,859 (1,377)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,859 (1,377)
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