<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File Number: 0-25038
----------------
THOMPSON PBE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4215913
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4553 GLENCOE AVENUE, SUITE 200
MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 306-7112
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 as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
YES X NO
----- -----
As of August 8, 1997, there were 8,645,084 shares of common stock outstanding.
Total number of sequential pages: 29
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1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOMPSON PBE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Current assets:
Cash ............................................ $ 155 $ 482
Accounts receivable (net of allowances
of $1,376 and $1,018) .......................... 20,453 19,741
Inventory ....................................... 30,668 31,440
Prepaid expenses and other current assets ....... 4,456 4,505
Income tax refund receivable .................... 725 1,435
Deferred income taxes ........................... 2,195 1,485
--------- ---------
Total current assets ........................... 58,652 59,088
Property and equipment, net ....................... 7,810 7,430
Intangible assets, net ............................ 62,333 57,403
Other assets ...................................... 269 459
--------- ---------
$ 129,064 $ 124,380
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and obligations $ 8,430 $ 7,013
Accounts payable ................................ 23,478 13,280
Accrued expenses and other current liabilities .. 8,903 8,546
--------- ---------
Total current liabilities ...................... 40,811 28,839
Long-term debt and obligations, net ............... 39,118 44,307
Stockholders' equity:
Common stock .................................... 9 9
Additional paid-in capital ...................... 61,121 61,479
Accumulated deficit ............................. (11,995) (10,254)
--------- ---------
Total stockholders' equity ..................... 49,135 51,234
--------- ---------
$ 129,064 $ 124,380
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
THOMPSON PBE, INC.
CONSOLIDATED CONDENSED RESULTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .................................. $ 52,296 $ 48,958 $ 151,505 $ 128,084
Cost of sales .............................. 33,659 30,627 97,959 80,305
--------- --------- --------- ---------
Gross profit ............................... 18,637 18,331 53,546 47,779
--------- --------- --------- ---------
Selling, general and administrative expenses 14,693 13,684 44,067 37,133
Depreciation ............................... 614 490 1,646 1,345
Amortization of intangible assets .......... 764 590 2,206 1,598
Interest expense ........................... 1,044 756 3,146 1,642
Charge in connection with sale, closure or
consolidation of certain sites ........... 3,616 -- 3,616 --
--------- --------- --------- ---------
Total ................................ 20,731 15,520 54,681 41,718
--------- --------- --------- ---------
Income (loss) before income taxes .......... (2,094) 2,811 (1,135) 6,061
Provision for income taxes ................. 190 1,166 606 2,515
--------- --------- --------- ---------
Net income (loss) .......................... $ (2,284) $ 1,645 $ (1,741) $ 3,546
========= ========= ========= =========
PER SHARE DATA:
Net income (loss) per common and
common equivalent share .................. $ (0.26) $ 0.19 $ (0.20) $ 0.40
Weighted average common and
common equivalent shares ................. 8,645 8,834 8,656 8,849
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
THOMPSON PBE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $ (1,741) $ 3,546
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization .................... 3,852 2,944
Charge in connection with sale, closure or
consolidation of certain sites.................. 3,616 --
Changes in operating assets and liabilities ...... 7,763 (9,297)
-------- --------
Net cash provided by (used for) operating activities 13,490 (2,807)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ................ (1,832) (1,320)
Cash paid to acquire companies ..................... (5,750) (17,669)
Increase in other assets ........................... 24 (34)
-------- --------
Net cash used for investing activities ............. (7,558) (19,023)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit ... (4,156) 24,268
Payment of financing fees and costs ................ (200) --
Repayment of long-term debt and obligations ........ (1,691) (35,523)
Repurchase of common stock ......................... (426) --
Payments of notes due from officer ................. 146 --
Net proceeds from issuance of common stock ......... 68 33,225
-------- --------
Net cash provided by (used for) financing activities (6,259) 21,970
-------- --------
Net increase (decrease) in cash .................... (327) 140
Cash, beginning of period .......................... 482 665
-------- --------
Cash, end of period ................................ $ 155 $ 805
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL
The consolidated condensed financial statements include the accounts of
Thompson PBE, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. The interim consolidated condensed financial
statements are unaudited. In the opinion of management, such financial
statements include all adjustments, consisting of only normal recurring entries,
necessary for a fair presentation of the Company's financial position, results
of operations and cash flows. These consolidated condensed financial statements
and the accompanying notes should be read in conjunction with the audited
consolidated financial statements and the accompanying notes for the fiscal year
ended September 30, 1996 included in the Company's Annual Report on Form 10-K.
The results of operations for the three-month and nine-month periods presented
are not necessarily indicative of results that may be expected for the full
year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change of Fiscal Year - The Company changed its fiscal year end from
September 30 of each year to a 52/53 week fiscal year that ends on the Saturday
closest to September 30 of each year. The change became effective for the 1997
fiscal year which began on October 1, 1996 and which will end on September 27,
1997. For simplicity of presentation, the Company has described the three months
and nine months ended June 28, 1997 as the three months and nine months ended
June 30, 1997.
3. COMPUTATION OF EARNINGS PER SHARE
Net income per share information is computed using the weighted average
number of shares of common stock outstanding and dilutive common equivalent
shares from stock options and warrants using the treasury stock method. Under
this method, primary net income per share is computed as if options and warrants
were exercised at the beginning of the period (or at time of issuance, if later)
and as if the funds obtained thereby were used to purchase common stock at the
average fair value per common share during the period.
4. STATEMENTS OF CASH FLOWS
Increases (decreases) in operating cash flows arising from changes in
operating assets and liabilities, net of the effect of businesses acquired,
consist of the following (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------
1997 1996
------- -------
<S> <C> <C>
Accounts receivable ..................... $ 160 $ (958)
Inventory ............................... 859 (7,735)
Prepaid expenses and other current assets 134 (861)
Accounts payable ........................ 8,882 1,420
Accrued expenses and other liabilities .. (2,183) (2,053)
Income taxes payable .................... (89) 890
------- -------
$ 7,763 $(9,297)
======= =======
</TABLE>
Cash paid for interest during the nine months ended June 30, 1997 and
1996, was $3,269,000 and $1,417,000, respectively. Cash paid for income taxes
during the nine months ended June 30, 1997 and 1996 was $632,000 and $1,535,000
respectively. Cash paid for income taxes during the nine months ended June 30,
1997 included income tax liabilities assumed in connection with the acquisition
of several business in 1996.
5
<PAGE> 6
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5. ACQUISITIONS OF COMPANIES
The Company acquired four businesses during the nine months ended June
30, 1997. The businesses acquired, the date of acquisition and the geographic
locations of the acquired businesses are as follows:
<TABLE>
<S> <C> <C>
Northern California Division
- ----------------------------
J & M Paint Incorporated December 1996 San Leandro, California
Southern California Division
- ----------------------------
P.V.N., Inc. dba Murphy's June 1997 Fresno, California
Rocky Mountain Division
- ------------------------
Arizona's Southland
Automotive Products May 1997 Tempe, Arizona
Northeast Division
- -------------------
Auto Body Supply Corporation October 1996 Boston, Massachusetts
</TABLE>
The acquired companies operated four distribution sites prior to their
acquisition by the Company, with historical annual revenues totaling
approximately $10 million.
6. LONG-TERM DEBT AND OBLIGATIONS
Long-term debt and obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
-------- -------------
<S> <C> <C>
1995 Credit Agreement with Heller Financial, Inc., as
agent and lender ........................................ $34,582 $36,855
Obligations under various covenant not to
compete agreements .................................... 278 340
Notes payable to sellers and capital lease obligations ... 12,688 14,125
------- -------
Total long-term debt and obligations ..................... 47,548 51,320
Less current portion of long-term debt and obligations ... 8,430 7,013
------- -------
Total long-term debt and obligations, less current portion $39,118 $44,307
======= =======
</TABLE>
At June 30, 1997 the Company had outstanding $34.6 million under its
credit agreement with Heller Financial, Inc. as agent and lender (as amended to
date, the "1995 Credit Agreement"). Borrowings under the 1995 Credit Agreement
are secured by substantially all of the Company's assets, and such agreement
contains significant restrictive covenants which, among other things, require
the Company to maintain certain financial ratios and which limit capital
expenditures, the incurrence of indebtedness and the payment of cash dividends.
Certain of the financial covenant ratios and certain other provisions of the
1995 Credit Agreement were amended effective September 30, 1996 (the "Third
Amendment".)
Effective January 1, 1997, the Company and the banks participating in
the 1995 Credit Agreement entered into a Waiver and Fourth Amendment to Credit
Agreement (the "Fourth Amendment") which, among other things, waived compliance
with certain provisions of the 1995 Credit Agreement and further amended certain
of the financial covenants contained therein. At June 28, 1997 the Company was
not in compliance with certain financial covenants contained within the 1995
Credit Agreement, as amended.
6
<PAGE> 7
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6. LONG-TERM DEBT AND OBLIGATIONS (CONT.)
The Company and the banks participating in the 1995 Credit Agreement
entered into an agreement dated August 11, 1997 (the "Waiver and Fifth Amendment
to Credit Agreement") which waived compliance with certain financial covenants
through September 27, 1997. See Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.
7. STOCKHOLDER RIGHTS PLAN
On May 6, 1997 the Board of Directors declared a dividend distribution
of one Preferred Share Purchase Right (the "Rights") on each outstanding share
of common stock of the Company. If and when the Rights become exercisable, each
Right will entitle stockholders to buy one one-hundredth of a share of newly
created Series A Junior Participating Preferred Stock of the Company at an
initial exercise price of $25.00 per Right. The Rights will, subject to certain
exceptions, be exercisable if a person or group acquires 20% or more of the
Company's common stock or announces a tender offer for 20% or more of the common
stock. The Company's Board of Directors will be entitled to redeem the Rights at
$.01 per Right, payable in cash or stock.
The Rights are designed to assure that all Company stockholders receive
fair and equal treatment in the event of any proposed takeover of the Company
and to guard against partial tender offers, open market accumulations and other
abusive tactics to gain control of the Company without paying all stockholders a
control premium.
If a person acquires 20% or more of the outstanding common stock of the
Company (other than certain exempt persons), each Right will entitle its holder
to purchase, at the Right's then-current exercise price, a number of shares of
Company common stock having a market value at that time of twice the Right's
exercise price. Rights held by the 20% holder will become void and will not be
exercisable to purchase shares at the bargain purchase price. If the Company is
acquired in a merger or other business combination transaction which has not
been approved by the Board of Directors, each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the Right's
exercise price. The exercisability of the Rights will not be triggered by any
person who beneficially owned more than 20% of the Company's common stock at the
close of business on May 6, 1997, provided such exempt person acquires no more
than an additional 0.25% of the outstanding common stock (presently, slightly
more than 21,000 shares) after such date.
The dividend distribution was paid to stockholders of record on May 29,
1997. The Rights will expire on May 6, 2007, unless amended. The declaration of
the Rights dividend did not result in any charge to the Company's results of
operations.
8. RECENT ACCOUNTING PRONOUCEMENTS
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. In June 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, Reporting for
Comprehensive Income and No. 131, Disclosures about Segments of an Enterprise
and Related Information. These statements are effective for financial statements
issued for periods beginning after December 15, 1997. The Company has not yet
analyzed the impact of adopting these statements.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
unaudited consolidated condensed financial statements and accompanying notes
included in Part I - Item 1 of this Quarterly Report, and the audited
consolidated financial statements and accompanying notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended September 30, 1996 contained in the Company's Annual Report on Form
10-K.
Information contained in this Report includes "forward-looking"
statements that are based largely on the Company's current expectations and are
subject to a number of risks and uncertainties. Forward-looking statements can
be identified by the use of forward-looking terminology such as "may," "will,"
"should," "expect," "anticipate," "estimate," "continue," "plans," "intends" or
other similar terminology. See "Forward-looking Statements and Associated
Business Risks", and Item 1., "Business --Business Risks." in the Company's
Annual Report on Form 10-K.
A key component of the Company's business strategy has been to make
add-on acquisitions to augment its existing operations and to capitalize on
opportunities to enter new geographic markets. As described in Note 5 to the
Consolidated Condensed Financial Statements, the Company has completed the
acquisition of four businesses subsequent to September 30, 1996. The businesses
acquired had combined annual sales for their most recent fiscal years of
approximately $10.0 million. The Company's acquisition plan for 1997 is
presently expected to focus on selective acquisitions in existing markets. In
the ordinary course of its business, the Company regularly evaluates, and enters
into negotiations relating to, potential acquisition opportunities. See Note 5
to the Consolidated Condensed Financial Statements and "--Liquidity and Capital
Resources."
SEASONALITY AND OTHER VARIATIONS IN BUSINESS RESULTS
The Company's sales and operating results have historically varied
substantially from quarter to quarter due to certain factors and the Company
expects certain of these fluctuations to continue. Among these factors have been
the timing of acquisitions, the promptness with which the Company integrates
acquired businesses, seasonal buying patterns of the Company's customers,
weather, and the timing and magnitude of supplier price increases and other
incentive programs. Historically, sales have slowed in the fall and early winter
of each year largely due to weather and the reduced number of business days
during the holiday season. As a result, financial performance for the Company's
distribution sites is generally lower during the first and second fiscal
quarters than during the other quarters of the fiscal year. The timing of
acquisitions may also cause substantial fluctuations of operating results from
quarter to quarter. The Company's sales and operating results also vary due to
changes affecting the domestic wholesale aftermarket for automotive paint and
related supplies, such as the volume of warranty repair work and the level of
new and used car sales. During the recent fiscal periods, the Company has
received a smaller benefit from vendor incentive programs than in prior periods.
In addition, the Company also changed certain inventory buying patterns in the
second quarter of fiscal 1997 in order to reduce inventory levels, which
resulted in decreases in volume purchase discounts and gross margins.
RESULTS OF OPERATIONS
Net sales. For the three months ended June 30, 1997, net sales
increased by 6.8% to $52.3 million from $49.0 million for the three months ended
June 30, 1996. For the nine months ended June 30, 1997, net sales increased by
18.3% to $151.5 million from $128.1 million for the nine months ended June 30,
1996. The increases in revenue were primarily attributable to net sales related
to acquisitions completed since March 31, 1996. Sales in existing operations
were down slightly for the three months and nine months ended June 30, 1997 from
the prior year comparable periods, with decreases in volume more than offsetting
increased selling prices. See "- Seasonality and Other Variations in Business
Results."
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
Gross profit. Gross profit for the three months and nine months ended
June 30, 1997 increased to $18.6 million and $53.5 million from $18.3 million
and $47.8 million, respectively, for the comparable periods in 1996. Gross
profit as a percentage of net sales of 35.6% for the three months ended June 30,
1997 decreased from gross profit as a percentage of net sales of 37.4% for the
year earlier period. Gross profit as a percentage of net sales of 35.3% for the
nine months ended June 30, 1997 decreased from gross profit as a percentage of
net sales of 37.3% for the comparable period in 1996. The reduction in gross
profit margins was attributable to a change in the Company's inventory
purchasing patterns, including a reduction in inventory purchases in advance of
scheduled vendor price increases, a reduction in prompt payment discounts
realized on prepayment of inventory purchases made under extended payment terms,
a reduction in volume discounts and increased customer support costs. To a
lesser extent, competitive pressures also contributed to the decline in gross
profit margins.
Selling, General and Administrative expenses. Selling, general and
administrative expenses increased 7.4% to $14.7 million for the three months
ended June 30, 1997 from $13.7 million in the year earlier period. Selling,
general and administrative expenses increased 18.7 % to $44.1 million for the
nine months ended June 30, 1997 from $37.1 million for the comparable period in
1996. The increase in absolute amounts from period to period reflects the
increase in costs necessary to support the Company's expanded operations arising
from its acquisition program. Selling , general and administrative expenses of
28.1% of net sales for the three months ended March 31, 1997 did not vary
significantly from 28.0% of net sales in the year earlier period. Selling ,
general and administrative expenses as a percentage of net sales of 29.1% for
the nine months ended June 30, 1997 did not vary significantly from 29.0% of net
sales in the year earlier period. Although revenues at existing sites declined
slightly in the current periods as compared to the year earlier periods,
selling, general and administrative expenses as a percentage of net sales did
not increase for the three months ended June 30, 1997 as compared to the year
earlier period due to the effects of expense control efforts, including the
effects of decreased management infrastructure, headcount reductions and
consolidation of certain sites into other existing locations.
Depreciation and Amortization expense. Depreciation expense increased
to $614,000 in the three months ended June 30, 1997 from $490,000 in the three
months ended June 30, 1996. Depreciation expense increased to $1,646,000 in the
nine months ended June 30, 1997 from $1,345,000 in the nine months ended June
30, 1996. The increase in depreciation expense is attributable to an increase in
fixed assets related to the expanded operations of the Company. Amortization
expense for the three months ended June 30, 1997 increased to $764,000 from
$590,000 for the three months ended June 30, 1996. Amortization expense for the
nine months ended June 30, 1997 increased to $2,206,000 from $1,598,000 for the
nine months ended June 30, 1996. These results reflect the net effect of an
increase in amortization expense relating to goodwill recorded in connection
with the acquisition of companies. Depreciation and amortization expenses are
expected to continue to increase from period to period as a result of continued
acquisition activity by the Company.
Interest expense. Interest expense increased to $1,044,000 and
$3,146,000 for the three months and nine months ended June 30, 1997,
respectively, from $756,000 and $1,642,000 in the comparable periods in 1996.
The increase in interest expense reflects an increase in the average amount of
debt outstanding as compared to the year earlier periods. Interest expense in
future periods will be dependent upon fluctuations in outstanding debt balances,
prevailing interest rates and changes in the Company's ratio of senior debt to
operating cash flow. See "- Liquidity and Capital Resources."
Charge in connection with sale, closure or consolidation of certain
sites. During the three months ended June 30, 1997, the Company recorded an
aggregate charge of $3,616,000 related to the sale or closure of four sites in
Alabama and one site in Colorado, as well as the consolidation of five sites
into other existing sites. These sales and closures reflected the Company's
decision to exit certain markets that were not contributing to the Company's
results of operations and its continuing efforts to increase the average
revenues per site. The charge consists primarily of unamortized goodwill
related to the Alabama and Colorado stores and future lease costs associated
with the closed sites.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
Provision for income taxes. The Company had net taxable income for tax
reporting purposes for the three months and nine months ended June 30, 1997
although it had a net loss for financial reporting purposes. As described above,
the Company recorded a charge in connection with the sale or closure of certain
sites during the three months ended June 30, 1997. Included in the charge was a
writeoff of unamortized goodwill recorded in connection with an acquisition in
which the Company purchased the outstanding common stock of a business. The
writeoff, which will likely result in a capital loss for tax purposes, may be
carried forward for a period of five years, and may only be utilized by applying
capital gains against the amount carried forward. Because the Company has not
generated significant capital gains in the past, it has recorded a reserve
against the deferred tax asset arising from the capital loss. As a result, the
Company did not recognize a tax benefit in the provision for income taxes for
the three months and nine months ended June 30, 1997 in connection with the
writeoff of such goodwill amount. In addition, the Company has experienced an
increase in its effective tax rate as a result of an increase in nondeductible
expenses as a percentage of income before taxes, as compared to the year earlier
periods. The effect of nondeductible amortization of intangible assets arising
from the acquisition of the stock of certain acquired businesses will continue
to result in fluctuations in the Company's effective tax rate as well as a tax
rate in excess of the statutory rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have been significantly
impacted by acquisitions commencing with the initial acquisition of Thompson
Lacquer Company in May 1989. The Company historically has financed its business
activities and acquisitions principally through a combination of secured and
seller-provided borrowings, augmented by internally generated cash flow. In
addition, the Company has financed certain of its larger acquisitions partially
through the issuance of equity securities.
The Company had working capital of $17.8 million at June 30, 1997. In
addition to working capital, the Company's principal source of liquidity was the
1995 Credit Agreement, as amended, which provides for borrowings in an aggregate
amount not to exceed $70 million, consisting of (i) a revolving credit facility,
with an effective limit of $13.0 million, and (ii) a term loan of $30.0 million,
and (iii) an acquisition loan facility of $27.0 million. Borrowings under the
1995 Credit Agreement are secured by substantially all of the Company's assets
and such agreement contains significant restrictive covenants which require the
Company to maintain certain financial ratios and which limit, among other
things, capital expenditures, the incurrence of indebtedness and the payment of
cash dividends. As of June 30, 1997, the Company had available to borrow
approximately $10.8 million of revolving credit loans under the 1995 Credit
Agreement.
Effective January 1, 1997, the Company and the banks participating in
the 1995 Credit Agreement entered into the Fourth Amendment which, among other
things, waived compliance with certain provisions of the 1995 Credit Agreement
and further amended certain of the financial covenants contained therein. The
banks participating in the 1995 Credit Agreement further waived compliance with
these financial covenants (the "Waiver and Fifth Amendment to Credit Agreement")
through September 27, 1997. In connection with the waiver by the lending banks
as described above, the Company paid a fee of 0.25% of the available facililty,
and agreed to limit its borrowings under its revolving line of credit to $13
million.
Failure to satisfy additional covenants under the 1995 Credit Agreement
could result in a material adverse affect on the Company's financial position
and results of operations. In the event that the Company does not meet the
amended financial covenants contained in the 1995 Credit Agreement in future
periods, the Company could experience higher interest rates on debt outstanding
under the 1995 Credit Agreement, an additional reduction of amounts available
under the agreement, other adverse changes in the terms under which outstanding
debt is repaid, which could be material, or an acceleration of the due dates of
the borrowings.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
On December 5, 1996, the Company announced that its Board of Directors
had approved a stock repurchase program of up to 500,000 shares of the Company's
Common Stock. Through December 16, 1996, the Company had repurchased 63,700
shares at an average price of $6.69 per share under the program. No further
repurchases have been made and any further such repurchases would, among other
things, require the prior consent of the lenders under the 1995 Credit
Agreement, and there can be no assurance that the lenders would grant such
consent if requested. Accordingly, the Company does not expect to repurchase
additional shares under this program at any time in the immediate future.
Cash provided by operations was $13.5 million for the nine months ended
June 30, 1997 as compared to cash used by operations of $2.8 million for the
year earlier period. Although net income decreased by $5.3 million during the
nine months ended June 30, 1997 as compared to the year earlier period, an
increase in depreciation and amortization expense and a reduction in cash used
for changes in operating assets and liabilities resulted in the change in cash
flow from operating activities. During the nine months ended June 30, 1996,
changes in accounts receivable and inventory resulted in a use of cash of $8.7
million, whereas during the nine months ended June 30, 1997, changes in
inventory and accounts payable balances resulted in a source of cash of $9.7
million.
The Company's investing activities used cash totaling $5.8 million to
acquire businesses during the nine months ended June 30, 1997, as compared to a
use of cash of $17.7 million to acquire businesses during the nine months ended
June 30, 1996. In addition, the Company had capital expenditures of $1.8 million
and $1.3 million in the nine months ended June 30, 1997 and 1996, respectively.
Capital expenditures were primarily for refurbishment of distribution sites,
upgrades of computer systems and the replacement of delivery vehicles.
The Company's inventories at June 30, 1997 represented approximately 83
days' sales, as compared to 103 and 89 days' inventory on hand at June 30, 1996
and September 30, 1996, respectively. The decrease in days' inventory at June
30, 1997 as compared to June 30, 1996 is attributable to decreased large volume
purchases of inventory from certain manufacturers in advance of the effective
date of price increases announced by such manufacturers. Also during the period,
the Company reduced its seasonal buying although this change also reduced
somewhat the supplier discounts and rebates realized.
The Company's accounts payable at June 30, 1997 represented
approximately 63 days' purchases, compared to 37 days at June 30, 1996. During
the current fiscal year, the Company has extended payment of accounts payables
to take advantage of payment terms and to increase operating cash flow. As a
general matter, the Company's level of accounts payable is favorably impacted by
the Company's ability to take advantage of periodic supplier incentive programs,
which programs often extend the payment date beyond normal terms with large
volume purchases. Accounts payable levels are also impacted by vendor programs
allowing the Company additional price discounts for prompt payment of purchases.
Accounts payable levels will continue to vary from period to period depending on
which vendor payment programs are available or which the Company elects to take
advantage of. Although there can be no assurance that such extended programs
will be continued, they have been commonplace in the Company's industry for many
years and have been routinely offered by each of its principal suppliers. If,
however, these programs changed or were terminated, the Company's liquidity
requirements could change materially.
Management of the Company presently believes that cash flow from
operations, together with present sources of liquidity and borrowing capacity
under its 1995 Credit Agreement, will be sufficient to support operations and
general business and liquidity requirements for at least the next twelve months.
The Company, in the ordinary course of its business, regularly evaluates, and
enters into negotiations relating to, potential acquisition opportunities. To
finance future acquisitions, the Company expects to utilize its 1995 Credit
Agreement, seller financing and cash flow from operations. Depending on market
conditions, the Company may also incur additional indebtedness or issue equity
securities. There can be no assurance that such additional capital, if and when
required, will be available on terms acceptable to the Company, or at all.
11
<PAGE> 12
FORWARD-LOOKING STATEMENTS AND ASSOCIATED BUSINESS RISKS.
This Report contains certain forward-looking statements pertaining to,
among others things, the Company's future results of operations, growth plans,
sales, gross margin and expense trends, capital requirements, compliance with
contractual obligations and general business, industry and economic conditions
applicable to the Company. These statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from these forward-looking statements. In
addition to the other risks described elsewhere in this Report, important
factors to consider in evaluating such forward-looking statements include
changes in external market factors, changes in the Company's business strategy
or an inability to execute its strategy due to changes in its industry or the
economy generally, the emergence of new or growing competitors and various other
competitive factors. These and certain other significant business risks faced by
the Company are discussed in additional detail under the caption Item 1.,
"Business -- Business Risks" in the Company's Annual Report on Form 10-K for the
1996 fiscal year. In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained or referred to in this
Report will in fact occur.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
(a) On May 6, 1997, the Board of Directors declared a dividend of one
Preferred Share Purchase Right on each outstanding share of common
stock of the Company. See Note 7 to the Consolidated Condensed
Financial Statements.
(b) See response to Item 2(a).
(c) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
The Company announced on July 8, 1997 that it had engaged Donaldson,
Lufkin and Jenrette Securities Corporation as a financial advisor to
assist its Board of Directors in the exploration of strategic
alternatives available to the Company with the objective of maximizing
the Company's value for all its stockholders and other constituents.
There can be no assurance that the Company will elect to pursue any of
the strategic actions it may consider.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Sequential
Description Page Number
----------- -----------
<S> <C> <C>
Exhibit 4.5 Rights Agreement, dated as of May 6, 1997, between Thompson PBE, Inc.
and ChaseMellon Shareholder Services, L.L.C., which includes the
form of Certificate of Designations of the Series A Junior
Participating Preferred Stock of Thompson PBE, Inc. as Exhibit A,
the form of Right Certificate as Exhibit B and the Summary of
Rights to Purchase Preferred Shares as Exhibit C (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on
Form 8-K dated May 6, 1997).
Exhibit 10.56 Waiver and Fifth Amendment to Credit Agreement, dated as
of August 8, 1997 to the Credit Agreement dated as of January 6,
1995 between the Company, Heller Financial, Inc. and the
banks named herein . 15
--------
</TABLE>
(b) REPORTS ON FORM 8-K
The Registrant filed a Current Report on Form 8-K dated May
6, 1997 reporting under Item 5 the adoption by Thompson
PBE, Inc. of a Rights Agreement, dated as of May 6, 1997,
between Thompson PBE, Inc. and ChaseMellon Shareholder
Services, L.L.C.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOMPSON PBE, INC.
(Registrant)
Date: August 11, 1997 /s/ Michael O'Donovan
-----------------------------------------
Michael O'Donovan
Executive Vice President and
Chief Financial Officer
/s/ Walter Lacher
-----------------------------------------
Walter Lacher
Vice President and Corporate Controller
14
<PAGE> 1
Exhibit 10.56
WAIVER AND FIFTH AMENDMENT
TO CREDIT AGREEMENT
This Waiver and Fifth Amendment to Credit Agreement, dated as of August
11, 1997 (this "Agreement"), by and among HELLER FINANCIAL, INC. ("Heller"), a
Delaware corporation with a place of business at 500 West Monroe Street,
Chicago, Illinois 60661, for itself, as Lender and as agent ("Agent") for all
Lenders and THOMPSON PBE, INC., a Delaware corporation ("Thompson"), with its
principal place of business at 4553 Glencoe Avenue, Suite 200, Marina del Rey,
California 90292, ("Borrower").
W I T N E S S E T H :
WHEREAS, Borrower and Agent, on behalf of the Lenders, are parties to
that certain Credit Agreement dated as of January 6, 1995 (as amended from time
to time, the "Credit Agreement"; capitalized terms not otherwise defined herein
shall have the definitions provided therefor in the Credit Agreement) and to
certain other documents executed in connection with the Credit Agreement; and
WHEREAS, the parties wish to amend the Credit Agreement as provided
herein;
NOW, THEREFORE, the parties agree as follows:
1. Amendment to the Credit Agreement.
Subsection 1.1 of the Credit Agreement is hereby amended by
adding the following definition to such subsection:
"Revolving Loan Availability" is equal to the Maximum Revolving Loan
Amount Less outstanding Revolving Loans.
Subsection 5.1 of the Credit Agreement is hereby amended by
adding the following covenant to such subsection:
U. Minimum Revolver Availability Test. During the period in which
the Company's Fixed Charge Coverage (as reported in Subsection 6.3) is
below 1.00, Borrower agrees that it will maintain Revolving Loan
Availability of at least $5,000,000.00.
2. Waiver.
Subsections 6.2, 6.3, 6.4 and 6.5 of the Credit Agreement
require that Borrower maintain certain Total Interest Coverage, Fixed Charge
Coverage, Senior
<PAGE> 2
Leverage and Total Indebtedness levels, respectively, as provided therein. For
the period ending June 30, 1997, Borrower's Total Interest Coverage and Fixed
Charge Coverage did not meet the required levels as set forth in Subsection 6.2
and Subsection 6.3, respectively. Also, for the period ending June 30, 1997,
Borrower's Senior Leverage ratio and Total Indebtedness Leverage ratio exceeded
the permitted levels as set forth in Subsection 6.4 and Subsection 6.5,
respectively. Additionally, Borrower anticipates that it may violate the
provisions of Subsections 6.2 and 6.3 for the period ending September 30, 1997.
Borrower's failure to comply with each of Subsections 6.2, 6.3, 6.4 and
6.5 of the Credit Agreement for the periods stated above constitutes or would
constitute Events of Default under the Credit Agreement. Lenders, in the
exercise of their discretion as prudent lenders, have elected to waive the
Events of Default as described above for the periods stated above; provided,
however, that Lenders do not waive any other Event of Default whether currently
existing or hereinafter arising except as expressly provided in this waiver.
3. Representations and Warranties. To induce Lenders to enter into
this Agreement, Borrower represents and warrants to Lenders that the execution,
delivery and performance by Borrower of this Agreement are within its corporate
powers, have been duly authorized by all necessary corporate action and do not
and will not contravene or conflict with any provision of law applicable to
Borrower, the Certificate of Incorporation or Bylaws of Borrower, or any order,
judgment or decree of any court or other agency of government or any
contractual obligation binding upon Borrower; and the Credit Agreement as
amended as of the date hereof is the legal, valid and binding obligation of
Borrower enforceable against Borrower in accordance with its terms.
4. Conditions. The effectiveness of the amendments stated in this
Agreement is subject to each of the following conditions precedent or
concurrent:
(a) Fee. Borrower's payment to Lenders of a fee equal to
.25% of the total commitments. This fee will be distributed to the Lenders on
a pro-rata basis in accordance with each Lender's total Commitments.
(b) No Default. No Default or Event of Default under the
Credit Agreement, as amended hereby, shall have occurred and be continuing;
(c) Warranties and Representations. The warranties and
representations of Borrower contained in this Agreement shall be true and
correct as of the effective date hereof, with the same effect as though made on
such date.
<PAGE> 3
5. Miscellaneous.
(a) Captions. Section captions used in this Agreement are
for convenience only, and shall not affect the construction of this Agreement.
(b) Governing Law. This Agreement shall be a contract made
under and governed by the laws of the State of Illinois, without regard to
conflict of laws principles. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Agreement.
(d) Successors and Assigns. This Agreement shall be binding
upon Borrower and Lenders and their respective successors and assigns, and
shall inure to the sole benefit of Borrower and Lenders and the successors and
assigns of Borrower and Lenders.
(e) References. Any reference to the Credit Agreement
contained in any notice, request, certificate, or other document executed
concurrently with or after the execution and delivery of this Agreement shall
be deemed to include this Agreement unless the context shall otherwise require.
(f) Continued Effectiveness. Notwithstanding anything
contained herein, the terms of this Agreement are not intended to and do not
serve to effect a novation as to the Credit Agreement. The parties hereto
expressly do not intend to extinguish the Credit Agreement. Instead, it is the
express intention of the parties hereto to reaffirm the indebtedness created
under the Credit Agreement which is evidenced by the Notes and secured by the
Collateral. The Credit Agreement as amended hereby and each of the other Loan
Documents remains in full force and effect.
(g) Costs, Expenses and Taxes. Borrower affirms and
acknowledges that Subsection 10.1 of the Credit Agreement applies to this
Agreement and the transactions and Agreements and documents contemplated
hereunder.
(h) Required Lender Approval. As required by Subsection 10.3
of the Credit Agreement, this Fifth Amendment shall become effective as of the
date first set forth above upon execution by the Borrower and Requisite Lenders
and acknowledgement hereof by Grand Distributing Corp., Arnold Paint Company,
3
<PAGE> 4
McNeil & Sons Auto Paint, Inc., Auto Body Supply Corporation, Automotive Paint
and Supply Company, Incorporated and Santa Clara Color Service, Inc. The
Lenders identified on the signature pages hereof constitute all of the Lenders
as of the date first set forth above.
(i) Ratification. The terms and provisions set forth in this Fifth
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Credit Agreement and, except as expressly modified and superseded
by this Fifth Amendment, the terms and provisions set forth in the Credit
Agreement are ratified and confirmed and shall continue in full force and
effect. All representations, warranties, covenants and agreements of Borrower
set forth in the Credit Agreement, as modified hereby, are hereby restated as
of the date hereof.
(j) Amendment; Assignment. This Fifth Amendment may not be modified,
altered or amended except by an instrument in writing signed in accordance with
Subsection 10.3 of the Credit Agreement. Borrower may not sell, assign or
transfer this Fifth Amendment or any portion thereof, including, without
limitation, any of Borrower's rights, titles, interests, remedies, powers and/or
duties hereunder or thereunder.
(k) Severability. If any provision of this Fifth Amendment or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Fifth Amendment and the application of such
provision to other Persons or circumstances will not be affected thereby and
the provisions of this Fifth Amendment shall be severable in any such instance.
(l) Entire Agreement. This Fifth Amendment, including all Exhibits and
other documents attached hereto or incorporated by reference herein,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all other understandings, oral or written, with
respect to same.
Delivered at Chicago, Illinois, as of the day and year first above
written.
Signature Pages to Follow
4
<PAGE> 5
THOMPSON PBE, INC.
By: /s/ MICHAEL O'DONOVAN
-------------------------------
Name: Michael O'Donovan
-----------------------------
Title: Executive Vice President and
----------------------------
Chief Financial Officer
HELLER FINANCIAL, INC. AS AGENT
By: /s/ ROBERT M. HORAK
-----------------------------
Name: Robert M. Horak
---------------------------
Title: Assistant Vice President
--------------------------
GIROCREDIT BANK
AKTIENGESELLSCHAFT DER SPARKASSEN
By: /s/ ANCA TRIFAN
-----------------------------
Name: Anca Trifan
---------------------------
Title: Vice President
--------------------------
SANWA BUSINESS CREDIT CORPORATION
By: /s/ STANLEY KAMINSKI
-----------------------------
Name: Stanley Kaminski
---------------------------
Title: Vice President
--------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
5
<PAGE> 6
FLEET NATIONAL BANK
By: /s/ ERIC VANDER MEL
--------------------------------
Name: Eric Vander Mel
------------------------------
Title: Vice President
-----------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ RICHARD P. DeGREY
--------------------------------
Name: Richard P. DeGrey
------------------------------
Title: Vice President
-----------------------------
6
<PAGE> 7
ACKNOWLEDGMENT
GRAND DISTRIBUTING CORP. acknowledges and consents to the terms of this
Fifth Amendment and hereby affirms, ratifies and confirms all of the terms of
its Continuing Guaranty dated January 5, 1995.
GRAND DISTRIBUTING CORP.
By: /s/ MORTIMER KLINE
---------------------------------
Title: President
------------------------------
7
<PAGE> 8
ACKNOWLEDGMENT
ARNOLD PAINT COMPANY acknowledges and consents to the terms of this
Fifth Amendment and hereby affirms, ratifies and confirms all of the terms of
its Continuing Guaranty dated February 16, 1995.
ARNOLD PAINT COMPANY
By: /s/ MORTIMER KLINE
--------------------------------
Title: President
-----------------------------
8
<PAGE> 9
ACKNOWLEDGMENT
MCNEIL & SONS AUTO PAINT, INC. acknowledges and consents to the terms
of this Fifth Amendment and hereby affirms, ratifies and confirms all of the
terms of its Continuing Guaranty dated February 15, 1996.
MCNEIL & SONS AUTO PAINT, INC.
By: /s/ MORTIMER KLINE
-------------------------------
Title: President
----------------------------
9
<PAGE> 10
ACKNOWLEDGMENT
SANTA CLARA COLOR SERVICE, INC. acknowledges and consents to the terms
of this Fifth Amendment and hereby affirms, ratifies and confirms all of the
terms of its Continuing Guaranty dated February 15, 1996.
SANTA CLARA COLOR SERVICE, INC.
By: /s/ MORTIMER KLINE
-------------------------------
Title: President
----------------------------
10
<PAGE> 11
ACKNOWLEDGMENT
AUTO BODY SUPPLY CORPORATION acknowledges and consents to the terms of
this Fifth Amendment and hereby affirms, ratifies and confirms all of the terms
of its Continuing Guaranty dated October 4, 1996.
AUTO BODY SUPPLY CORPORATION
By: /s/ MORTIMER KLINE
-------------------------------
Title: President
----------------------------
11
<PAGE> 12
ACKNOWLEDGMENT
AUTOMOTIVE PAINT AND SUPPLY COMPANY, INCORPORATED acknowledges and
consents to the terms of this Fifth Amendment and hereby affirms, ratifies and
confirms all of the terms of its Continuing Guaranty dated April 19, 1996.
AUTOMOTIVE PAINT AND SUPPLY COMPANY,
INCORPORATED
By: /s/ MORTIMER KLINE
-------------------------------
Title: President
----------------------------
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE TWENTY-SIX WEEKS ENDED JUNE 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-28-1997
<CASH> 155
<SECURITIES> 0
<RECEIVABLES> 20,453
<ALLOWANCES> 0
<INVENTORY> 30,668
<CURRENT-ASSETS> 58,652
<PP&E> 15,766
<DEPRECIATION> (7,956)
<TOTAL-ASSETS> 129,064
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 61,121
<TOTAL-LIABILITY-AND-EQUITY> 129,064
<SALES> 151,505
<TOTAL-REVENUES> 151,505
<CGS> 97,959
<TOTAL-COSTS> 51,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,146
<INCOME-PRETAX> (1,135)
<INCOME-TAX> 606
<INCOME-CONTINUING> (1,741)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,741)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> 0
</TABLE>
