SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1998
Commission File Number 0-20984
HAHN AUTOMOTIVE WAREHOUSE, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 16-0467030
(State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
415 West Main Street Rochester, New York 14608
Address of principal executive offices) (Zip Code)
(716) 235-1595
(Registrant's telephone number, including area code)
<PAGE>1
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Number of shares outstanding of the registrant's common stock,
par value $.01 per share, on May 14, 1998; 4,745,014.
HAHN AUTOMOTIVE WAREHOUSE, INC.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998 and September 30, 1997
Condensed Consolidated Statements of Operations -
for the six months and three months ended March 31,
1998 and March 31, 1997
Condensed Consolidated Statements of Cash Flows -
for the six months ended March 31, 1998
and March 31, 1997
Notes to Condensed Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>2
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<TABLE>
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands except share data)
<CAPTION>
ASSETS 3/31/98 9/30/97
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $332 $632
Trade Accounts Receivable net of
allowance for doubtful accounts 16,140 16,995
Inventory 40,060 42,516
Other Current Assets 2,752 4,862
Total Current Assets 59,284 65,005
Property, Equipment, and Leasehold
Improvements, net 7,487 5,062
Other Assets 7,730 7,725
74,501 77,792
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
and capital lease obligations 1,905 1,330
Notes payable-officers and affiliates 2,320 2,704
Accounts payable 8,463 12,062
Compensation related liabilities 1,622 1,880
Discontinued Operations 4,484 5,066
Other accrued expenses 2,920 3,215
<PAGE>3
Total Current Liabilities 21,714 26,257
Long-term Debt 37,117 38,896
Capital Lease Obligations 3,153 275
Total Liabilities 61,984 65,428
Shareholders' Equity:
Common stock (par value $.01 per share;
authorized 20,000,000 shares;
issued and outstanding 4,745,014) 47 47
Additional Paid-in Capital 25,975 25,975
Retained Earnings (13,505) (13,658)
Total Shareholders' Equity 12,517 12,364
$74,501 $77,792
</TABLE>
<TABLE>
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(In Thousands except for
share and per share data)
(Unaudited)
<CAPTION>
For the 6 Months For the 6 Months
Ended March 31, Ended March 31,
1998 1997
(Restated)
<S> <C> <C>
Net sales $63,852 $67,502
Cost of Products Sold 39,689 41,709
Gross Profit 24,163 25,793
Selling, General and
Administrative Expense 21,435 21,829
Depreciation and Amortization 810 847
<PAGE>4
Operating Income 1,918 3,117
Interest Expense (1,904) (2,245)
Interest and Service Charge
Income 225 235
Income from Continuing
Operations Before
Provisions
for Taxes 239 1,107
Provision for (Benefit from)
Income Taxes 86 425
Income from Continuing
Operations 153 682
Loss from Discontinued
Operations, Net of Income
Tax Benefit 0 (2,086)
Net Income (Loss) $153 ($1,404)
Basic and Diluted Earnings
Per Share:
Income From Continuing
Operations $0.03 $0.14
Loss From Discontinued
Operations $0.00 ($0.44)
Net Income (Loss) $0.03 ($0.30)
Basic and Diluted Weighted
Average Number of Shares 4,745,014 4,745,014
</TABLE
</TABLE>
<TABLE>
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(In Thousands except for
share and per share data)
(Unaudited)
<PAGE>5
<CAPTION>
For the 3 Months For the 3 Months
Ended March 31, Ended March 31,
1998 1997
(Restated)
<S> <C> <C>
Net sales $32,313 $33,630
Cost of Products Sold 20,279 20,938
Gross Profit 12,034 12,692
Selling, General and
Administrative Expense 10,658 11,200
Depreciation and Amortization 413 422
Operating Income 963 1,070
Interest Expense (957) (1,175)
Interest and Service Charge
Income 113 121
Income from Continuing
Operations Before
Provisions
for Taxes 119 16
Provision for (Benefit from)
Income Taxes 43 (10)
Income from Continuing
Operations 76 26
Loss from Discontinued
Operations, Net of Income
Tax Benefit 0 (1,501)
Net Income (Loss) $76 ($1,475)
Basic and Diluted Earnings
Per Share:
Income From Continuing
Operations $0.02 $0.01
<PAGE>6
Loss From Discontinued
Operations $0.00 ($0.32)
Net Income (Loss) $0.02 ($0.31)
Basic and Diluted Weighted
Average Number of Shares 4,745,014 4,745,014
</TABLE>
<TABLE>
HAHN AUTOMOTIVE WAREHOUSE, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
6 Mo. Ended 6 Mo.
Ended
3/31/98 3/31/97
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income (Loss) $153 ($1,404)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 810 847
Provision for doubtful accounts and 289 265
notes
Change in assets and liabilities:
Trade receivables 566 (774)
Inventory 2,456 (2,553)
Other assets 2,076 (4,349)
Accounts payable and other accruals (4,734) 3,799
Net cash provided by (used in) operating
activities 1,616 (4,169)
Cash flows from investing activities:
Additions to property, equip. and
leasehold improvements, net (70) (786)
Net cash used in investing activities (70) (786)
<PAGE>7
Cash flows from financing activities:
Net borrowings under (payment of) line
of credit (1,163) 4,000
Proceeds from long-term debt and demand
notes 62 1,519
Payments of long-term debt and demand
notes (174) (169)
Payment of notes payable-officers and
affiliates (384) (178)
Payment of capital lease obligations (187) (214)
Net cash provided by (used in) financing
activities (1,846) 4,958
Net increase (decrease) in cash (300) 3
Cash at beginning of year 632 79
Cash at end of period 332 82
Supplemental disclosures of cash flow
information Cash paid during the
quarter
for:
Interest $2,071 $2,117
Income taxes paid $50 $135
In January, 1998 the company renewed
capital lease agreements relating to
the rental of Distribution Centers $3,136 $0
</TABLE>
HAHN AUTOMOTIVE WAREHOUSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
<PAGE>8
Basis of Presentation
The condensed interim consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. The condensed consolidated balance sheet at September
30, 1997 has been derived from the Company's audited financial
statements at that date. The interim financial statements
reflect all adjustments which are, in the opinion of management,
necessary to fairly present such information. Although the
Company believes that the disclosures included on the face of the
interim consolidated financial statements and in the other
footnotes herein are adequate to make the information presented
not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that all
condensed consolidated financial statements contained herein be
read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report for the fiscal
year ended September 30, 1997, on Form 10-K, filed with the
Securities and Exchange Commission, Washington, D.C. 20549. This
information may be obtained through the web site of the
Securities and Exchange Commission, EDGAR Filing section at
http://www.sec.gov.
As a result of its Chapter 11 bankruptcy filing, the Company's
AUTOWORKS, Inc. subsidiary (see note 2 below) has been
deconsolidated.
Operating results for the six month period ended March 31, 1998
are not necessarily indicative of the results that may be
expected for the entire fiscal year.
2. Discontinued Operations
In the third quarter of fiscal 1997, the Company made the
decision to exit its retail business. On July 24, 1997, the
Company's retail subsidiary, AUTOWORKS, Inc. ("AUTOWORKS"), filed
for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court in the
Western District of New York to assure orderly administration of
AUTOWORKS' assets and liabilities. Under Chapter 11, AUTOWORKS
has operated as a debtor-in-possession while its assets are sold
or liquidated, and its debts restructured. As a result, the
Company has deconsolidated, and classified as a discontinued
operation, the AUTOWORKS subsidiary. The consolidated financial
statements
<PAGE>9
presented herein, (including all prior period statements which
have been restated to reflect the reclassification and to conform
to current year presentation), reflect discontinued operations
separately from continuing operations.
The assets and liabilities of AUTOWORKS, INC. are summarized as
follows:
Assets 3/31/98 9/30/97
Cash $74 $833
Accounts Receivable, net 6 40
Inventory 0 220
Property, Plant and Equipment 500 712
Other Assets 104 127
Total Assets 684 1,932
Liabilities
Current Liabilities $16,658 $17,906
Due to Affiliates 33,375 33,375
Total Liabilities 50,033 51,281
Liabilities Exceeding Assets $49,349 $49,349
3. Stockholder's Equity
On March 15, 1997, the Board of Directors declared a 4% stock
dividend on the Company's common stock, distributable May 1, 1997
to stockholders of record as of April 10, 1997. Accordingly, an
amount equal to the fair market value of the additional shares
issued has been charged to retained earnings and credited to
common stock and additional paid-in capital at September 30,
1997, which were restated to reflect this 4% stock dividend.
4. Earnings Per Share
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share", which was issued
by the Financial Accounting Standards Board in 1997. SFAS No.
128 requires dual presentation of basic earnings per share (EPS)
and diluted EPS on the face of all statements of earnings for
periods ending after December 15, 1997. Basic EPS is computed as
net earnings divided by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares issuable
through
<PAGE>10
stock-based compensations including stock options. Reported
earnings per share in prior periods have been restated to conform
with the provisions of SFAS 128. This restatement did not have
an impact on earnings per share as reported in prior periods.
Six Months
Ended March 31
1998 1997
BASIC AND DILUTED EARNINGS PER SHARE
Basic and Diluted Shares Outstanding:
Weighted average number of
shares outstanding 4,745,014 4,745,014
Net income (Loss) $153 ($1,404)
Basic and Diluted EPS $.03 ($.30)
The exercise of outstanding stock options has not been included
in the calculation of diluted EPS since the effect would be
antidilutive because all outstanding options were out of the
money as of March 31, 1998.
5. Debt (in thousands)
Long-term debt consists of the following:
3/31/98 9/30/97
Credit Facility Agreement 36,667 37,830
Other Long-term Debt 2,108 2,220
Less Current Maturities (1,658) (1,154)
$37,117 $38,896
The Company's credit facility agreement, which expires on October
22, 2002, provides for a revolving credit facility subject to a
borrowing base, up to a maximum of $50.0 million. Borrowings
under the Credit Facility Agreement bear interest at an annual
rate equal to, at the Company's option, either (a) LIBOR plus
1.75% to 2.5%, dependent upon the Company's financial
performance, or (b) the bank prime rate plus 0% to .75%,
dependent upon the Company's financial performance. LIBOR and
prime were 5.7% and 8.5%, respectively, on March 31, 1998.
As of May 12, 1998, the Company had an outstanding balance of
$35.9 million under the Credit Facility Agreement.
<PAGE>11
Borrowings outstanding under the Credit Facility Agreement are
collateralized by substantially all of the Company's assets. The
Credit Facility Agreement contains covenants and restrictions,
including limitations on indebtedness, liens, leases, mergers and
sales of assets, investments, dividends, stock purchases and
other payments in addition to tangible net worth, fixed charge
ratio, minimum tangible net worth and minimum fixed charge
coverage ratio requirements.
The Company has outstanding subordinated notes to its Chief
Executive Officer and President in the original principal amount
of $2,150,000 that bear interest at an annual rate of 12%. The
Notes require monthly principal and interest payments with
possible mandatory prepayments of principal if the Company's net
income exceeds certain defined amounts. Final principal and
interest payments are due February 1, 2001. The remaining
balance of notes payable due to officers and affiliates is
comprised of a number of notes to related parties with varying
terms.
6. Contingencies
As disclosed in previous filings, the Official Unsecured Creditors'
Committee ("Committee") in the AUTOWORKS, INC. bankruptcy
proceeding had indicated that it may pursue claims against the
Company, for alleged preferential transfers between the Company and
AUTOWORKS, Inc. amounting to approximately $6.5 million and under
the doctrine of substantive consolidation for alleged fraud in
connection with the Company's acquisition of AUTOWORKS, INC., and
under fraudulent conveyance laws. On April 22, 1998, a Settlement
Agreement and Release was negotiated, subject to approval by the
United States Bankruptcy Court in the Western District of New York,
between the Company and the Committee. In exchange for the
Committee releasing all claims against the Company, the Company is
obligated to pay the bankruptcy estate of AUTOWORKS, INC. up to a
maximum of $2.0 million over five years. If certain payments are
made in a timely manner, the Company will pay less than $2.0
million, but not less than $1.6 million by June 15, 2002. Such
amounts are appropriately reserved for in the discontinued
operations line item on the balance sheet.
HAHN AUTOMOTIVE WAREHOUSE, INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussions set forth in this Form 10-Q may contain forward-
looking comments. Such comments are based upon the information
currently available to management of the Company and management's
<PAGE>12
perception thereof as of the date of this report. Actual results
of the Company's operations could materially differ from those
indicated in the forward-looking comments. The difference could be
caused by a number of factors identified from time to time by the
Company in press releases, other communications with the Company's
stockholders and the Company's filings with the Security and
Exchange Commission from time to time including, but not limited
to, those discussed under the heading "Important Information
Regarding Forward-Looking Statements" in the Company's Annual
Report on Form 10-K, dated December 29, 1997, which has been filed
with the United States Securities and Exchange Commission (the
"Commission"). That Annual Report may be obtained by contacting
the Commission's public reference operations or through the
worldwide web site at http://www.sec.gov, EDGAR Filing section.
Readers are strongly encouraged to obtain and consider all such
factors listed in the December 29, 1997, Annual Report and any
amendments or modifications thereof when evaluating any forward-
looking comments concerning the Company. The Company assumes no
obligation to update forward looking statements to reflect events
or circumstances after the date on which such statements were made.
Due to AUTOWORKS, INC. continuing losses and negative cash flow,
the Company decided, during Fiscal 1997 to exit the retail business
and focus its operations in the wholesale automotive aftermarket
segment. AUTOWORKS, INC. filed a Chapter 11 Petition for
Reorganization on July 24, 1997. As a result, the Company has
deconsolidated AUTOWORKS, INC. and classified it as a discontinued
operation in the Company's financial statements and all previous
periods have been restated to reflect this treatment; references
herein to previous period figures are to the restated figures and
do not include AUTOWORKS, INC..
Hahn Automotive Warehouse, Inc. (the "Company") operates its
automotive aftermarket business both through the Company and its
wholly-owned subsidiary, Meisenzahl Auto Parts, Inc. Unless
otherwise indicated, the discussion herein refers to the financial
condition and results of operations of the Company on a
consolidated basis.
Results of Operations - three months ended March 31, 1998, compared
to three months ended March 31, 1997.
The Company's net sales for the fiscal quarter ended March 31, 1998
declined $1.3 million to $32.3 million, from $33.6 million for the
same fiscal quarter last year. This 3.9% decrease resulted from
mild winter weather conditions and increased competition at the
Advantage Store level. For the quarter, on a comparable location
basis, net sales decreased by 4.1% at the full service Distribution
Centers, 6.7% at the Advantage Auto Stores, and .8% at the Direct
<PAGE>13
Distribution Centers.
Gross profit for the current quarter decreased $658,000 as
compared to the second quarter of fiscal 1997. Gross profit
expressed as a percentage of net sales decreased to 37.2% from
37.7% for the previous fiscal year due to an unfavorable change
in sales mix resulting from the decrease in Advantage Auto Store
sales as a percentage of net sales, and a change in entitlements
from the Direct Distribution Division's largest vendor as a
result of the discontinuance of AUTOWORKS, Inc.
Selling, general and administrative expense decreased $542,000
from $11.2 million in the first quarter of fiscal 1997, to $10.7
million for the comparable quarter of fiscal 1998. As a
percentage of net sales, selling, general and administrative
expense decreased to 33.0% from 33.3% as a result of the
Company's efforts to control and reduce expenses.
Depreciation and amortization decreased $9,000 from $422,000
during the corresponding quarter last year, to $413,000 during
the second quarter of the current fiscal year. This decrease is
the result of utilization of operating leases rather than the
purchase of fixed assets (which occurred due to the capital
expenditure limitation imposed by the Company's Credit Facility
Agreement), which was partly offset by an increase in
amortization of goodwill related to the acquisitions of Nu-Way
Auto Parts, Inc. and Finn Auto Parts of Canandaigua, Inc., which
occurred on October 14, 1996, and May 1, 1997 respectively.
As a result of the factors discussed above, operating income
declined $107,000 from $1.1 million in the previous fiscal year
to $963,000 in the current year's second quarter. As a percentage
of net sales, operating income declined to 3.0% from 3.2% in the
same quarter of fiscal 1997.
Interest expense declined $218,000 to $957,000 from $1.2 million
for the same quarter of the previous fiscal year. This decline
is the result of lower average borrowings outstanding on the
Company's revolving line of credit.
As a result of the factors discussed above, income from
continuing operations increased $50,000 to $76,000, or $.02 per
share, from $26,000, or $.01 per share, for the same quarter last
year.
<PAGE>14
Net income increased $1.6 million, from a loss of $1.5 million
for the second quarter of fiscal 1997 to a profit of $76,000 for
the second fiscal quarter of 1998. This increase, taking into
consideration the change in income from continuing operations, is
largely due to the one time charge taken by the Company in June
of 1997 in connection with the discontinuance of the AUTOWORKS,
INC. business.
Basic and diluted earnings per share and weighted average number
of shares outstanding as of March 31, 1997 have been restated to
reflect the 4% stock dividend to shareholders of record on April
10, 1997. This dividend was distributed on May 1, 1997.
Results of Operations - six months ended March 31, 1998, compared
to six months ended March 31, 1997.
The Company's net sales decreased $3.6 million or 5.4% from $67.5
million for the six months ended March 31, 1997 to $63.9 million
for the corresponding six months of fiscal 1998. The major
factors in the sales decline were the net reduction of 3
Advantage Auto Stores since March 31, 1997, increased competition
and the mild winter. On a comparable location basis, net sales
declined by 6.1% at the Distribution Centers, 8.3% at the
Advantage Auto Stores and 0.1% at the Direct Distribution
Centers. Also as a percentage of the Company's net sales,
contributions by each division for the first six months of fiscal
1998 were as follows: Distribution Centers - 48.5%, Advantage
Auto Stores - 37.2% and Direct Distribution Centers - 14.3%.
Gross profit for the first six months of the current fiscal year
decreased by $1.6 million to $24.2 million from $25.8 million for
the same period of the previous fiscal year. As a percentage of
sales, gross profit decreased to 37.8% from 38.2% for the
previous year. This percentage decrease is primarily due to an
unfavorable change in sales mix resulting from the decrease in
Advantage Auto Store sales as a percentage of net sales and a
change in entitlements from the Direct Distribution division's
largest vendor as a result of the discontinuance of AUTOWORKS,
Inc.
Selling, general and administrative expense declined $394,000
from $21.8 million for the first six months of fiscal 1997 to
$21.4 million for the same period of fiscal 1998. This is
primarily due to the Company's efforts to control and reduce
expenses. As a percentage of sales, selling, general and
administrative expense increased to 33.6% from 32.3% in the
previous fiscal year. This decline was largely due to decreased
sales as discussed above.
<PAGE>15
Depreciation and amortization decreased $37,000 from $847,000 in
fiscal 1997 compared to $810,000 for the same period in the
present fiscal year. This decrease is the result of a decrease in
capital expenditures during the previous fiscal year as a result
of the Company's policy of generally leasing certain fixed asset
replacements (i.e. vehicles and computers) instead of purchasing
them due to limitations under the Company's Credit Facility
Agreement, partially offset by an increase in amortization of
goodwill related to the Nu-Way Auto Parts Inc. and Finn Auto
Parts of Canandaigua, Inc. acquisitions which occurred on October
14, 1996 and May 1, 1997, respectively.
As a result of the factors discussed above, operating income
declined $1.2 million from $3.1 million for the first six months
of fiscal year 1997 to $1.9 million for the first six months of
fiscal 1998. As a percentage of sales, operating income declined
to 3.0% from 4.6% in the same six month period of 1997.
Interest expense decreased $341,000, in the first six months of
fiscal 1998, to $1.9 million. This decrease is attributable to
lower average borrowings outstanding under the Company's
revolving line of credit.
As a result of these factors the Company's income from continuing
operations for the six month period ended March 31, 1998,
decreased to $153,000 or $.03 per share, compared to $682,000 or
$.14 per share for the six months ended March 31, 1997.
Net income increased $1.6 million from a loss of $1.4 million for
the six month period ended March 31, 1997, to a profit of
$153,000 for the comparable six month period in fiscal 1998.
This increase, taking into consideration the change in income
from continuing operations, is largely due to the one time charge
taken in June of 1997 in connection with the discontinuance of
the AUTOWORKS, INC. business.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1998, operations provided
net cash of $1.6 million, largely due to decreases in trade
accounts receivable, inventory and other assets of $566,000, $2.5
million and $2.1 million respectively which was substantially
offset by a $4.7 million decrease in accounts payable. These
changes reflect the Company's efforts to improve its working
capital position.
<PAGE>16
Investing activities consist mainly of routine capital
expenditures for delivery vehicles, computer equipment and
fixtures. Capital expenditures, net of disposals, were $70,000
during the first six months of fiscal 1998.
Financing activities during the six months of fiscal 1998
consumed $1.8 million of cash, due to decreased borrowings under
the Company's revolving line of credit and payments on long-term
debt.
On October 22, 1997, the Company entered into a Loan and Security
Agreement (the "New Credit Facility") with Fleet Capital
Corporation which provides for, among other things, a revolving
credit facility with $50.0 million in maximum availability
(subject to borrowing base restrictions), a $2.5 million term
loan, a $3.5 million supplemental availability line and a $2.0
million letter of credit sub-facility. For a description of the
Credit Facility Agreement terms see Note 5 to the Financial
Statements included in Part I Financial Information, Item I
Financial Statements in this Quarterly Report.
As of May 12, 1998, the Company had an outstanding balance of
$35.9 million under its revolving line of credit and availability
of $4.6 million.
In the future the Company expects to make minor strategic
acquisitions and open new direct distribution centers and
Advantage Auto stores to the extent that its debt service and
other funding requirements permit. The Company's ability to
continue to open new direct distribution centers will depend on
its ability to negotiate extended payment terms with vendors,
which initially minimizes additional working capital
requirements. The Company believes that it will be able to
continue to obtain such financing.
The Company is subject to various actual and potential losses,
claims, obligations and proceedings arising out of the AUTOWORKS,
Inc. bankruptcy as disclosed in its annual report on Form 10-K
for the fiscal year ended September 30, 1997, Part I, Item 3, and
in Note 6 to the Financial Statements. The Company has made
provision for certain anticipated operating expenses (such as
certain real estate and equipment lease obligations and self-
insured exposures) of AUTOWORKS, INC. for which it may be jointly
liable with AUTOWORKS, INC., amounting to $4.5 million and $5.1
million on March 31, 1998 and September 30, 1997, respectively.
<PAGE>17
As discussed under Part II Other Information - Item 1, Legal
Proceedings, the Company has negotiated a settlement of the
claims asserted against it by the Official Unsecured Creditor
Committee in the AUTOWORKS, Inc. bankruptcy proceeding. The
settlement requires the Company to pay the AUTOWORKS, Inc.
bankruptcy estate $2.0 million in five equal annual payments
without interest. The loss recorded by the Company for the
AUTOWORKS, Inc. bankruptcy proceeding includes sufficient
reserves for these settlement payments as disclosed in Note 6 to
the Financial Statement.
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 and to meet its
other short-term and longer-term liquidity needs, through the
balance of fiscal 1998.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, in July 1997, the Company's wholly-owned
subsidiary, AUTOWORKS, Inc. filed a petition for relief for
reorganization under Chapter 11 of Bankruptcy Code. The proceeding
was brought in and is presently pending in the United States
Bankruptcy Court for the Western District of New York (the
"Bankruptcy Court"). Subsequent to the filing, the Official
Unsecured Creditor's Committee ("Committee") in the AUTOWORKS, Inc.
bankruptcy proceeding and the Company have reached a compromise and
settlement in connection with the Committee's claim for alleged
preferential transfers between the Company and AUTOWORKS, Inc.
amounting to approximately $6.5 million and under the doctrine of
substansive consolidation for alleged fraud in connection with the
Company's acquisition of AUTOWORKS, Inc., and under fraudulent
conveyance laws. The Committee's request to pursue this claim was
previously rejected by counsel for AUTOWORKS, Inc. on grounds that
the claim did not appear to have merit and no adversary proceeding
has been brought by the Committee. AUTOWORKS, Inc. and the
<PAGE>18
Committee have filed a motion to approve the compromise and
settlement agreement and a hearing has been scheduled for May 20,
1998. The motion seeks Bankruptcy Court approval of a settlement
between AUTOWORKS, Inc. ("Debtor"), the Committee, the Company,
Massachusetts Mutual Life Insurance Company ("Mass Mutual"), Fleet
Bank, The Chase Manhattan Bank, Manufacturers and Traders Trust,
and Sumitomo Bank, Ltd. (collectively, the "Bank Group"). The basic
terms of the Settlement Agreement and Release are as follows: (1)
the Company will make payments to the Debtor's Estate up to a
maximum of $2.0 million over four years. If certain payments are
made in a timely manner, the Company will pay less than $2.0
million, but in no event will the Company pay the Debtor's Estate
less than the amount of $1.6 million by June 15, 2002; (2) the
Company and it insiders and affiliates will release all claims
against the Debtor's Estate; (3) the Bank Group and Mass Mutual
will release all claims against the Debtor and the Company; (4) the
Debtor's Estate and the Committee will release all claims against
the Company, the Bank Group and Mass Mutual; and (5) the Company
will provide reasonable support to the Debtor's Estate in
connection with claims objections and avoidance actions. A
Settlement Agreement and Release will be executed by the parties
upon receipt of Bankruptcy Court approval.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on
March 16, 1998.
(b) At said Annual Meeting of Shareholders the following
nominees were elected to the Board of Directors:
Mike Futerman
Eli N. Futerman
William A. Buckingham
Robert I. Israel
The number of votes cast for the election of directors were as
follows:
Votes
Votes For Withheld
Mike Futerman 4,178,423 566,591
Eli N. Futerman 4,180,611 564,403
William A. Buckingham 4,180,611 564,403
Robert I. Israel 4,180,611 564,403
The terms of the following directors continued after the
meeting:
<PAGE>19
Daniel J. Chessin
Ira D. Jevotovsky
Stephen B. Ashley
E. Philip Saunders
(c) Shareholders approved a third amendment to the Company's
Stock Option Plan for the purpose of repricing options in order to
provide effective incentive to the non-director option holders to
exercise their options and more closely align their interest with
those of the Company's shareholders.
The number of votes cast for the Plan Amendment were as
follows:
Votes For Votes Against Votes Abstained Unvoted
3,980,231 491,766 1,798 271,218
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
HAHN AUTOMOTIVE WAREHOUSE, INC.
(Registrant)
By: s//Mike Futerman
Mike Futerman
Chief Executive Officer
<PAGE>20
By: s//Eli N. Futerman
Eli N. Futerman
President
By: s//Albert J. Van Erp
Albert J. Van Erp
Vice President - Finance
Dated: May 14, 1998
EXHIBIT INDEX
27 Selected financial information as required for Edgar
electronic filing for the six months ended March 31, 1998.
Exhibit 27
Selected financial information as required for Edgar
electronic filing for the six months ended March 31, 1998.
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