-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gawfzv189UkRjndw1O2rkQ8OZPrC1Uv8Vb6UqFAU92jLGPeOOn+J1H7eSXspDk4z dNJWj4k3fMu5W8xP5yr/Pg== 0000912057-96-019848.txt : 19960910 0000912057-96-019848.hdr.sgml : 19960910 ACCESSION NUMBER: 0000912057-96-019848 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960725 FILED AS OF DATE: 19960909 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APS HOLDING CORPORATION CENTRAL INDEX KEY: 0000860420 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLE SUPPLIES & NEW PARTS [5013] IRS NUMBER: 760306940 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22318 FILM NUMBER: 96627298 BUSINESS ADDRESS: STREET 1: 15710 JOHN F KENNEDY BLVD STREET 2: WORLD HOUSTON PLZ STE 700 CITY: HOUSTON STATE: TX ZIP: 77032 BUSINESS PHONE: 7137412470 MAIL ADDRESS: STREET 1: 15710 JOHN F KENNEDY BLVD CITY: HOUSTON STATE: TX ZIP: 77032-2347 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended July 25, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 33-66412 APS HOLDING CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 76-0306940 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 15710 JOHN F. KENNEDY BLVD., SUITE 700 HOUSTON, TEXAS 77032-2347 (Address of Principal Executive Offices) (713) 507-1100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- There were 13,731,222 shares of the Registrant's Class A Common Stock outstanding as of the close of business on September 3, 1996. There were no shares outstanding of the Registrant's Class B Common Stock. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- APS HOLDING CORPORATION Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements and Notes 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 2 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES APS HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS ----------- (IN THOUSANDS)
ASSETS JULY 25, 1996 JANUARY 27, 1996 ------------- ---------------- (UNAUDITED) Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,481 $ 7,886 Accounts and notes receivable, less allowance of $7,411 and $5,048 . . . . . 133,377 120,848 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304,216 295,379 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,755 13,390 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . 22,082 30,817 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . . 487,911 468,320 Property and equipment, less accumulated depreciation of $22,958 and $20,463 . 41,797 40,777 Notes receivable, less current portion . . . . . . . . . . . . . . . . . . . . 20,939 26,235 Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,192 50,627 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498 681 Deferred costs and other assets. . . . . . . . . . . . . . . . . . . . . . . . 15,430 13,519 --------- --------- $ 614,767 $ 600,159 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Book overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,603 $ 8,314 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . 16,468 13,453 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,862 103,214 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,661 40,655 --------- --------- Total current liabilities . . . . . . . . . . . . . . . . . . . 189,594 165,636 Long-term debt, less current maturities. . . . . . . . . . . . . . . . . . . . 288,290 302,512 Deferred income and other liabilities. . . . . . . . . . . . . . . . . . . . . 5,520 7,981 --------- --------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 483,404 476,129 --------- --------- Commitments and contingencies (Note 4) . . . . . . . . . . . . . . . . . . . . - - Stockholders' equity: Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 137 Class B common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 154,904 154,889 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,558) (30,876) Treasury stock, at cost. . . . . . . . . . . . . . . . . . . . . . . . . . . (120) (120) --------- --------- Total stockholders' equity . . . . . . . . . . . . . . . . . . 131,363 124,030 --------- --------- $ 614,767 $ 600,159 --------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 3 APS HOLDING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JULY 25, JULY 25, ----------------------- ------------------------ 1996 1995 1996 1995 --------- --------- --------- --------- Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 234,305 $ 154,980 $ 451,871 $ 292,929 Cost of goods sold . . . . . . . . . . . . . . . . . . 152,645 101,452 294,380 191,332 --------- --------- --------- --------- Gross profit. . . . . . . . . . . . . . . . . . . 81,660 53,528 157,491 101,597 Selling, general and administrative expenses . . . . . 67,033 41,476 135,313 81,453 --------- --------- --------- --------- Operating income. . . . . . . . . . . . . . . . . 14,627 12,052 22,178 20,144 Interest income. . . . . . . . . . . . . . . . . . . . 1,449 1,326 2,812 2,587 Other income . . . . . . . . . . . . . . . . . . . . . 50 384 323 767 --------- --------- --------- --------- Income before interest expense and income taxes . . . . . . . . . . . . . . . 16,126 13,762 25,313 23,498 Interest expense . . . . . . . . . . . . . . . . . . . 6,682 4,018 13,683 7,702 --------- --------- --------- --------- Income before income taxes. . . . . . . . . . . . 9,444 9,744 11,630 15,796 Provision for income taxes . . . . . . . . . . . . . . 3,481 3,683 4,312 5,977 --------- --------- --------- --------- Net income. . . . . . . . . . . . . . . . . . . . $ 5,963 $ 6,061 $ 7,318 $ 9,819 --------- --------- --------- --------- --------- --------- --------- --------- Net income per share . . . . . . . . . . . . . . . . . $ 0.43 $ 0.44 $ 0.53 $ 0.71 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average common shares outstanding . . . . . . 13,920 13,911 13,902 13,912 --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 4 APS HOLDING CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JULY 25, 1996 -------------- (IN THOUSANDS) (UNAUDITED)
CLASS A COMMON STOCK ADDITIONAL TREASURY TOTAL ----------------------- PAID-IN ACCUMULATED STOCK, STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT AT COST EQUITY --------- --------- --------- --------- --------- --------- Balance at beginning of period . . 13,728 $ 137 $ 154,889 $ (30,876) $ (120) $ 124,030 Exercise of stock options. . . . . 2 - 15 - - 15 Net income for the period. . . . . - - - 7,318 - 7,318 --------- --------- --------- --------- --------- --------- Balance at July 25, 1996 . . . . . 13,730 $ 137 $ 154,904 $ (23,558) $ (120) $ 131,363 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 5 APS HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS -------------- (IN THOUSANDS) (UNAUDITED)
SIX MONTHS SIX MONTHS ENDED ENDED JULY 25, 1996 JULY 25, 1995 ------------- ------------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,318 $ 9,819 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . 5,630 3,991 Amortization of debt issue costs. . . . . . . . . . . . . . . . . 393 469 Provision for bad debts . . . . . . . . . . . . . . . . . . . . . 2,319 1,561 Income from supply agreement. . . . . . . . . . . . . . . . . . . (323) (767) Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (182) 5,375 Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (14,819) (19,837) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (5,753) (22,104) Prepaid expenses and other current assets . . . . . . . . . . . 8,742 (9,308) Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . 17,648 18,104 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 1,977 (6,043) Other assets and liabilities. . . . . . . . . . . . . . . . . . (6,695) (1,637) --------- -------- Net cash provided by (used in) operating activities. . . 16,255 (20,377) --------- -------- Cash flows from investing activities: Investment in notes receivable . . . . . . . . . . . . . . . . . . . . (3,933) (2,327) Proceeds from repayment of notes receivable. . . . . . . . . . . . . . 8,781 2,449 Business acquisitions, net of cash acquired. . . . . . . . . . . . . . (3,367) (7,975) Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (4,738) (4,436) Proceeds from sale of intangible assets. . . . . . . . . . . . . . . . 3,500 - --------- -------- Net cash provided by (used in) investing activities . . . . . 243 (12,289) --------- -------- Cash flows from financing activities: Change in book overdrafts. . . . . . . . . . . . . . . . . . . . . . . 1,289 - Net borrowings under revolving credit agreement. . . . . . . . . . . . (4,500) 43,600 Retirement of long-term debt . . . . . . . . . . . . . . . . . . . . . (6,707) (5,728) Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . 15 16 Debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . . . - (500) --------- -------- Net cash (used in) provided by financing activities . . . . . (9,903) 37,388 --------- -------- Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . 6,595 4,722 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 7,886 15 --------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 14,481 $ 4,737 --------- -------- --------- -------- Supplemental disclosures: Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . $ 11,706 $ 7,620 --------- -------- --------- -------- Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . $ 841 $ 4,930 --------- -------- --------- --------
The accompanying notes are an integral part of the consolidated financial statements. 6 APS HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------- 1. BASIS OF PRESENTATION: The consolidated balance sheet of APS Holding Corporation and subsidiaries (the "Company") at January 27, 1996 has been condensed from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at July 25, 1996, the consolidated statements of operations for the three and six months ended July 25, 1996 and 1995, the consolidated statement of changes in stockholders' equity for the six months ended July 25, 1996 and the consolidated statements of cash flows for the six months ended July 25, 1996 and 1995 have been prepared by the Company, without audit. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made. The results of operations for the three months or six months ended July 25, 1996 are not necessarily indicative of the operating results for a full year or of future operations. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been omitted. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended January 27, 1996. 2. NEW ACCOUNTING STANDARD: The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, entitled "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES" ("SFAS No. 125"), in August 1996. The Company is required to adopt the accounting rules of SFAS No. 125 for certain transactions occurring after December 31, 1996. The adoption of SFAS No. 125 is not expected to have a significant impact on the Company's financial position or results of operations. 3. COST TO EXIT ACTIVITIES: On January 25, 1996, the Company acquired all of the outstanding stock of Parts, Inc. ("PI") from GKN Parts Industries Corporation (the "PI Acquisition"). Since the PI Acquisition, the Company has implemented a comprehensive plan for integrating PI's operations and administrative functions with those of the Company. Such plan entails the closure of certain PI distribution centers and stores and consolidation of these operations into the Company's remaining facilities, as well as the consolidation of certain administrative functions. The Company's financial statements at January 27, 1996 included a liability and reserves of $9.2 million for costs related to such plan. During the six months ended July 25, 1996, the Company charged approximately $2.5 million against such liability. Such charge consisted of approximately $2.1 million to close facilities (including approximately $1.3 million of employee termination and relocation costs) and approximately $0.4 million for lease and related obligations. In connection with the PI Acquisition, the Company also embarked upon a program during the fourth quarter of the fiscal year ended January 27, 1996 to review and rationalize its facilities. In conjunction with such program, and in order to achieve its operating performance objectives, the Company has begun to consolidate redundant operating and administrative facilities, owned by the Company prior to the PI Acquisition, into existing facilities and to close other nonperforming facilities. The Company expects to attain a majority of the program's objectives during the fiscal year ending January 25, 1997 with completion of the program during the fiscal year ending January 31, 1998. The Company's financial statements at January 27, 1996 included a liability in the amount of $5.5 million for costs related to such program, including approximately $0.5 million of employee severance benefits related to personnel reductions of 7 APS HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------- approximately 300 employees, primarily warehouse and store personnel. During the six months ended July 25, 1996, the Company charged approximately $2.1 million of consolidation costs against such liability. Such costs included approximately $1.0 million to close facilities (including approximately $0.1 million of employee severance benefits for 129 terminated employees) and approximately $1.1million for lease and related obligations. 4. LITIGATION: The Company is involved in various claims and disputes arising in the normal course of business. One such case involved the matter of JO M. SMITH ET AL V. A.P.S., INC. ET AL, which was filed in July 1994 in the District Court of Harris County, Texas. The plaintiffs (four former and one existing employee) claimed to have been the recipients of acts of intimidation and/or retaliatory conduct as a result of their filing of workers' compensation claims and filed this suit against the Company and one of its officers under various sections of Texas state statutes prohibiting such actions claiming aggregate specified actual damages of $3.2 million, punitive damages of $6.3 million and damages for emotional distress in the amount of $5.0 million. Such suit was settled during the quarter ended July 25, 1996 for an aggregate $350,000 payment to the plaintiffs and is reflected in the Company's net income for the three and six months ended July 25, 1996. In addition, as a result of the PI Acquisition, the Company has become a party to a number of other existing litigation matters and claims. Among those cases is the matter of KARON S. ADKISSON V. GKN PARTS INDUSTRIES CORPORATION, a suit pending in the United States District Court for the Western District of Oklahoma. The plaintiff, a former employee of PI, alleges several claims against PI, including violation of Title VII of the Civil Rights Act of 1964 and the negligent retention and supervision of its employees as a result of being raped by a fellow employee, who has been convicted of that crime. While the outcome of this litigation is inherently uncertain, management believes that the Company has meritorious defenses to such suit, as well as to other pending litigation matters. In any event, the Company has been contractually indemnified by the seller of PI for the costs of defense and any adverse outcome (generally, subject to a $500,000 basket) relating to various PI matters, including all PI litigation matters pending on the date of the PI Acquisition. In addition, the Company has insurance or indemnity coverage against various other pending claims and disputes. 5. RETIREMENT PLAN: Effective September 1, 1996, the Company implemented the A.P.S., Inc. Executive 401(k) Deferral Plan (the "Deferral Plan"), a defined contribution plan covering a group of key management employees who also participate at the maximum contribution level of 3% in the Company's previously existing defined contribution plan, the A.P.S., Inc. Partnership Plan (the "Partnership Plan"). Participants in the Deferral Plan may contribute up to 28% of their annual compensation, in addition to their contribution to the Partnership Plan. Such contributions will be matched 50% by the Company up to 6% of the participants' combined contributions to both plans. Participants' vesting rates in the Partnership Plan carry over to the Deferral Plan and participants become fully vested in the Company's contributions to both plans after five years. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Presented below is a summary of unaudited financial operating information for the three and six months ended July 25, 1996 and 1995 (dollars in thousands):
THREE MONTHS ENDED JULY 25, SIX MONTHS ENDED JULY 25, -------------------------------- ------------------------------- 1996 % 1995 % 1996 % 1995 % ---- --- ---- --- ---- --- ---- --- Net sales $ 234,305 100.0 $ 154,980 100.0 $ 451,871 100.0 $ 292,929 100.0 Cost of goods sold 152,645 65.1 101,452 65.5 294,380 65.1 191,332 65.3 Gross profit 81,660 34.9 53,528 34.5 157,491 34.9 101,597 34.7 Selling, general and administrative expenses 67,033 28.6 41,476 26.8 135,313 29.9 81,453 27.8 Operating income 14,627 6.2 12,052 7.8 22,178 4.9 20,144 6.9 Net income 5,963 2.5 6,061 3.9 7,318 1.6 9,819 3.4
THE PI ACQUISITION On January 25, 1996, the Company purchased all of the outstanding stock of Parts, Inc. ("PI"), an automotive parts distributor, for a net purchase price of $74.9 million (the "PI Acquisition"). FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996 Net sales for the three months and six months ended July 25, 1996 increased $79.3 million (51.2%) and $158.9 million (54.3%), respectively, from the corresponding periods of the prior year. Such increase was primarily attributable to the impact of the PI Acquisition and, to a lesser extent, to increased sales generated by new Installers' Service Warehouse ("ISW") location and increasing sales at less mature ISWs. The Company experienced a decrease in demand for its products at the end of July 1996 and during the month of August 1996 due in part to the unseasonably cool weather experienced in many parts of the United States this summer. Cost of goods sold or the three months and six months ended July 25, 1996 increased $51.2 million (50.5%) and $103.0 million (53.9%), respectively, compared to the corresponding periods of the prior year. The dollar increase in cost of goods sold principally resulted from increased sales volume generated by the PI Acquisition and the growth of the ISW business. Cost of goods sold for the three months and six months ended July 25, 1996 (as a percentage of net sales) decreased slightly compared to that of the corresponding periods of the prior year principally due to the sales mix containing more ISW sales, which have higher gross profit margins than the Company's traditional businesses (i.e., distribution centers and Company-owned stores), offset by lower gross profit margins at the Company's traditional businesses. Such decrease in gross profit margins at the Company's traditional businesses primarily result from a reduction in selling prices to high volume jobbers. The Company intends to continue adding high volume jobbers and, consequently, gross profit margins at its traditional businesses could decrease in future periods. Selling, general and administrative expenses for the three months and six months ended July 25, 1996 increased $25.6 million (61.6%) and $53.9 million (66.1%), respectively, compared to the corresponding periods of the prior year. The dollar increases in selling, general and administrative expenses for both the three and six month periods ended July 25, 1996 principally resulted from increased sales volume generated by the PI Acquisition and the growth of the ISW business. Selling, general and administrative expenses (as a percentage of net sales) for the three months and six months ended July 25, 1996 increased 1.8% and 2.1%, respectively, compared to the respective prior year periods. Such increases (as a percentage of net sales) principally resulted from both the Company's operation of the PI business (which currently has higher distribution center operating costs than those of the Company's other traditional business operations) and, to a lesser extent, its operation of more ISWs (which have higher operating costs (as a percentage of net sales) than the Company's traditional businesses). The Company plans to continue adding new ISWs as part of its overall business plan and expects future operating expenses of its ISWs to continue to be higher (as a percentage of net sales) than the related 9 operating expenses of its traditional businesses. However, the Company believes that, as certain PI distribution centers are consolidated into the Company's other facilities, selling, general and administrative expenses (as a percentage of net sales) for the Company's traditional businesses should decline in corresponding future periods, although no assurance can be given in this regard. Operating income for the three months and six months ended July 25, 1996 increased $2.6 million (21.4%) and $2.0 million (10.1%), respectively, compared to the corresponding periods of the prior year, primarily due to the reasons discussed above. Interest income for the three months and six months ended July 25, 1996 was $1.4 million (0.6% of net sales) and $2.8 million (0.6% of net sales), respectively, compared to $1.3 million (0.9% of net sales) and $2.6 million (0.9% of net sales), respectively, for the corresponding periods of the prior year. Such increases are due primarily to interest income from PI"s accounts receivable. Other income for the three months and six months ended July 25, 1996 was approximately $0.1 million (0.0% of net sales) and $0.3 million (0.1% of net sales) compared to $0.4 million (0.2% of net sales) and $0.8 million (0.3% of net sales), respectively, for the corresponding periods of the prior year. Such amounts represent the portion allocable to such periods of a $6.0 million payment received from a supplier for entering into a ten year supply agreement in April 1993. Such payment was deferred and is being recognized as income on an accelerated basis over the term of the agreement; thus the amount of revenue recognized from such payment is declining. Interest expense for the three months and six months ended July 25, 1996 was $6.7 million (2.9% of net sales) and $13.7 million (3.0% of net sales), respectively, compared to $4.0 million (2.6% of net sales) and $7.7 million (2.6% of net sales), respectively, for the corresponding periods of the prior year. The increase in interest expense for such periods is principally due to higher borrowing levels resulting from the Company's investment in acquisitions (primarily the PI Acquisition) and the expansion of its ISW business. The extent of future increases in interest expense will depend on a number of factors, including the magnitude of increases in borrowing levels, changes in interest rates and the Company's continued access to sufficient sources of funding for its expansion efforts. The PI Acquisition was financed through the private placement on January 25, 1996 of $100.0 million principal amount of the Company's 11.875% senior subordinated notes due 2006 (the "Notes"). Also, concurrently with the PI Acquisition, the Company entered into an amended and restated senior bank credit agreement (the "New Credit Agreement") which replaced the credit facilities previously made available to the Company under a credit agreement entered into in September 1993 (as amended, the "Previous Credit Agreement") and increased, to $235.0 million, the amount that may be borrowed (subject to a borrowing base limitation) under the revolving credit facility of the New Credit Agreement. At July 25, 1996, the Company had $202.4 million outstanding under such agreement, consisting of $143.9 million and $58.5 million in borrowings under the revolving credit facility and term loan facility, respectively. The Company expects to utilize the additional borrowing availability under the New Credit Agreement, to the extent necessary, to fund the integration of PI with the Company's operations and to fund the Company's further expansion efforts. The Company expects that, as a result of such financing and increased borrowings, interest expense for future periods may continue to increase significantly compared to the same periods of the prior year. Income taxes for the three months and six months ended July 25, 1996 were $3.5 million (an effective tax rate of 36.9%) and $4.3 million (an effective tax rate of 37.1%), respectively, compared to $3.7 million and $6.0 million (an effective tax rate of 37.8% for both periods), respectively, for the corresponding periods of the prior year. The combined applicable federal and state statutory tax rate is expected to approximate 37-38% during the fiscal year ending January 25, 1997 ("fiscal 1997"). Net income for the three months and six months ended July 25, 1996 was $6.0 million (2.5% of net sales) and $7.3 million (1.6% of net sales), respectively, compared to a net income of $6.1 million (3.9% of net sales) and $9.8 million (3.4% of net sales), respectively, for the corresponding periods of the prior year. Such decrease in net income is primarily a result of the factors discussed above. 10 LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS. For the six months ended July 25, 1996, operating activities provided net cash of approximately $16.3 million, resulting primarily from increases in accounts payable offset by increases in accounts receivable and inventories. Investing activities provided $0.2 million of cash, primarily from the repayment of notes receivable and from proceeds from the sale of the Company's interest in the "Parts Plus" group of marks which had been acquired by the Company in the PI Acquisition. See "Other Matters" below. Such cash proceeds were partially offset by capital expenditures, investments in notes receivable and business acquisitions. Financing activities utilized $9.9 million of cash, principally resulting from net repayments under the Company's revolving credit facility and retirement of long-term debt. For the six months ended July 25, 1995, operating activities utilized net cash of approximately $20.4 million resulting primarily from increases in accounts receivable, inventories and other current assets in connection with the expansion of the Company's ISW business. Such increases were offset in part by the Company's net earnings and increases in accounts payable. Investing activities utilized $12.3 million of cash, principally consisting of the Company's investment in business acquisitions and capital expenditures. Financing activities provided $37.4 million of cash, principally resulting from net borrowings under the Company's credit agreement to finance its ISW expansion and business acquisitions. WORKING CAPITAL. At July 25, 1996, the Company had $298.3 million of working capital, including $14.5 million in cash and cash equivalents, compared to $302.7 million of working capital at January 27, 1996, including $7.9 million of cash and cash equivalents. During the six months ended July 25, 1996, current assets and current liabilities increased by $19.6 million and $24.0 million, respectively. Such increases are primarily attributable to increases in accounts receivable, inventories and accounts payable resulting from seasonal increases in business and the expansion of its ISW business. A significant portion of the increase in accounts payable was attributable to deferred payment terms negotiated with the Company's suppliers in order to offset the costs of integrating PI and to improve liquidity during such integration. Such deferred payment terms generally expire over a twelve to thirty-six month period. The Company expects to continue adding ISWs and to continue making strategic acquisitions from time to time. As a result, the Company expects its working capital to increase in future periods. INTEREST RATE SWAP AGREEMENTS During the year ended January 27, 1996, the Company entered into interest rate swap agreements to hedge interest costs and risks associated with variable interest rates. Such agreements, which cover a portion of the borrowings under the New Credit Agreement, effectively convert variable-rate debt to fixed-rate debt with an effective per annum interest rate of approximately 7.1%. The aggregate notional principal amount of these agreements is $100.0 million, $75.0 million of which became effective in June 1995 and matures in June 1997 and $25.0 million of which became effective in January 1996 and matures in January 1998. The counterparties to such agreements are major financial institutions and, therefore, credit losses from counterparty nonperformance is not anticipated. CAPITAL EXPENDITURES AND ACQUISITIONS. Capital expenditures for the six months ended July 25, 1996, excluding new business acquisitions, were approximately $4.7 million compared to $4.4 million for the corresponding period of the prior year. The increase in capital expenditures was due primarily to continued management information system enhancements. In connection with the Company's ongoing growth strategy and to facilitate other business needs, the Company expects capital expenditures to increase in the remaining quarters of fiscal 1997 as a result of the PI Acquisition and management information system enhancements. In order to expand its business, the Company expects to continue to make strategic acquisitions from time to time for cash and other consideration and to continue adding new ISWs, in each case to the extent that its debt service requirements, financing agreement covenants, financial performance and funding availability permit. To meet the cash funding requirements for the Company's continuing expansion efforts, the Company expects to draw on internally generated funds, borrowings under the New Credit Agreement, proceeds from the disposition of non-strategic assets and other sources of liquidity, to the extent available, as discussed below. SOURCES OF LIQUIDITY. Since the completion of the Company's initial public offering and debt refinancing in 1993, the Company has pursued more aggressive acquisition and ISW expansion programs, resulting in increased funding requirements. The principal sources of liquidity for the Company's business expansion and operating requirements in prior years have been internally generated funds from the operation of its traditional business, borrowings under the 11 Previous Credit Agreement and the proceeds from issuance of the Notes. The Company expects that the principal sources of liquidity for its future operating requirements and business expansion will be cash flows from the operation of its traditional businesses and borrowings under the New Credit Agreement. In addition, the Company has negotiated deferred payment terms and other changeover and acquisition incentives with its major suppliers in order to offset the costs of integrating PI and to improve its liquidity during such integration. While the Company expects that such sources will provide sufficient working capital to operate its business and finance the integration of the PI business into the Company's distribution network and its currently planned expansion efforts, there can be no assurance that such sources will prove to be sufficient or that such additional vendor incentives will be fully attained. Further, the Company expects such sources will provide sufficient funds to meet its regularly scheduled debt service obligations (which have been significantly increased as a result of the PI Acquisition and related financing) prior to maturity of the revolving credit facility under the New Credit Agreement. The Company currently does not expect, however, to generate cash flow sufficient to fund the repayment of borrowings due under such revolving credit facility upon its maturity on December 31, 2000 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. GROWTH STRATEGY AND INTEGRATION OF PI As indicated above, the Company plans to continue growing by adding ISWs and making strategic acquisitions, in each case to the extent that its debt service requirements, financing agreement covenants, financial performance and availability of funding permit. During the six months ended July 25, 1996, the Company increased the total number of ISW locations from 252 to 266. The Company plans to add approximately 18 new ISWs during the remainder of fiscal 1997. Looking forward, the Company remains convinced of the viability of the ISW concept and is continuing to refine and improve the execution of this division's business strategy. However, operating results have experienced and are expected to continue to experience earnings and cash flow pressure due to the large number of less mature ISWs and the rapid growth of the ISW base, the costs of opening additional ISWs and the expiration, generally after a period of six to fifteen months, of deferred payment terms extended to the Company by vendors in connection with the opening of new ISW locations. Operating margins for the ISWs are currently below those of the Company's traditional businesses. Full realization of the potential benefits of the PI Acquisition will be dependent upon a variety of factors, including (i) retention of a substantial portion of PI's sales, particularly sales to higher volume associated jobbers; (ii) obtaining significant reductions in cost of goods sold resulting from purchasing economies extended to the Company by suppliers; (iii) achieving significant reductions in selling, general and administrative expenses through the consolidation or closure of certain operating and administrative facilities and functions; and (iv) obtaining deferred payment terms and other one-time changeover incentives from suppliers that will be sufficient to offset certain significant one-time cash costs and expenses that the Company expects to incur in connection with the PI Acquisition and will provide additional liquidity during the integration of PI's business into that of the Company. The Company has made substantial progress in its integration of PI's operations into the operations of the Company; however, there can be no assurance as to the extent to which the Company will be able to realize the potential benefits of the PI Acquisition or the timing of such realization. While certain of these benefits have been realized to date, failure to achieve a substantial portion of the remaining benefits within the time frame expected by the Company could materially and adversely affect the Company's future results of operations and financial position. SEASONALITY; INFLATION Historically, the Company's net sales have been higher during April through September of each year than during the other months of the year. In addition, the demand for automotive products is somewhat affected by weather conditions and, consequently, the Company's results of operations from period to period may be affected by such conditions. 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. As discussed in "FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996" above, the Company experienced a decrease in demand for its products at the end of July 1996 and during the month of August 1996 due in part to the unseasonably cool weather experienced in many parts of the United States this summer. 12 The Company's management 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. NEW ACCOUNTING STANDARD The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, entitled "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES" ("SFAS No. 125"), in August 1996. The Company is required to adopt the accounting rules of SFAS No. 125 for certain transactions occurring after December 31, 1996. The adoption of SFAS No. 125 is not expected to have a significant impact on the Company's financial position or results of operations. FORWARD LOOKING INFORMATION The statements contained in this Report on Form 10-Q ("Quarterly Report") which are not historical facts, including, but not limited to, statements found under the captions "Results of Operations"," Liquidity and Capital Resources" and "Growth Strategy and Integration of PI" above, are forward-looking statements that involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements in this Quarterly Report could differ materially from those contemplated by such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in the Quarterly Report and in the Company's Annual Report on Form 10-K for the year ended January 27, 1996, including without limitation, the portions of such reports under the captions referenced above, and the uncertainties set forth from time to time in the Company's other public reports and filings and public statements. OTHER MATTERS In February 1996, the Company sold its interest in the "Parts Plus" group of marks, which had been acquired by the Company in the PI Acquisition, to the Association of Automotive Aftermarket Distributors ("AAAD") for cash consideration of $3.5 million. PI had previously licensed the same marks to AAAD for a small yearly license fee. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. None. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 13 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. EXHIBITS LOCATION OF EXHIBIT EXHIBIT IN SEQUENTIAL NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM ------ ----------------------- ---------------- 10.18 A.P.S., Inc. Executive 401(k) Deferral Plan (Incorporated by reference to the exhibits filed with APS Holding Corporation's Registration Statement on Form S-8, Registration No. 333-10217) 11.1 Statement re Computation of Income Per Share 12.0 Statement re Computation of Earnings to Fixed Charges B. REPORTS ON FORM 8-K None. 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. APS HOLDING CORPORATION Date: September 6, 1996 By: /S/ Mark S. Hoffman ------------------------------- Mark S. Hoffman Director, President and Chief Executive Officer Date: September 6, 1996 By: /S/ Thomas T. McEntire ------------------------------- Thomas T. McEntire Controller EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 APS HOLDING CORPORATION COMPUTATION OF INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JULY 25, JULY 25, ------------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Weighted average shares of common stock outstanding 13,730 13,724 13,729 13,723 Shares issuable on assumed exercise of stock options 190 187 173 189 ---------- ---------- ---------- ---------- Weighted average shares for primary net income per share 13,920 13,911 13,902 13,912 Incremental shares issuable on assumed exercise of stock options to reflect maximum dilutive effect 1 1 19 1 ---------- ---------- ---------- ---------- Weighted average shares for fully diluted net income per share 13,921 13,912 13,921 13,913 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income $5,963 $6,061 $7,318 $9,819 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Primary net income per share $0.43 $0.44 $0.53 $0.71 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fully diluted net income per share $0.43 $0.44 $0.53 $0.71 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EX-12.0 3 EXHIBIT 12.0 EXHIBIT 12.0 APS HOLDING CORPORATION COMPUTATION OF EARNINGS TO FIXED CHARGES (IN THOUSANDS)
Three months ended Six months ended July 25, July 25, ------------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Earnings before income taxes and interest $16,126 $13,762 $25,313 $23,498 Portion of operating rents deemed representative of an interest factor 2,329 1,438 4,668 2,714 ---------- ---------- ---------- ---------- Earnings before fixed charges $18,455 $15,200 $29,981 $26,212 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Interest expense $6,682 $4,018 $13,683 $7,702 Portion of operating rents deemed representative of an interest factor 2,329 1,438 4,668 2,714 ---------- ---------- ---------- ---------- Fixed charges $9,011 $5,456 $18,351 $10,416 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings to fixed charges 2.0 2.8 1.6 2.5 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FOLLOWING FINANCIAL STATEMENTS OF APS HOLDING CORPORATION: CONSOLIDATED BALANCE SHEET AS OF JULY 25, 1996 (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JULY 25, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-25-1997 JAN-28-1996 JUL-25-1996 14,481 0 133,377 0 304,216 487,911 41,797 0 614,767 189,594 288,290 0 0 137 131,226 614,767 451,871 451,871 294,380 294,380 135,313 0 13,683 11,630 4,312 7,318 0 0 0 7,318 .53 0
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