-----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, Mev1j0XjfWcFfaKqruvKi3W+QlCNFHdTjWwESD51VLfiabVQcpjKY4V2QGK9tbMh VJce+Q/q5ZGWWpPkuPrv0g== 0000950148-97-000070.txt : 19970114 0000950148-97-000070.hdr.sgml : 19970114 ACCESSION NUMBER: 0000950148-97-000070 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: THOMPSON PBE INC CENTRAL INDEX KEY: 0000929035 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 954215913 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-25038 FILM NUMBER: 97504954 BUSINESS ADDRESS: STREET 1: 4553 GLENCOE AVE STREET 2: STE 200 CITY: MARINA DEL REY STATE: CA ZIP: 90292 BUSINESS PHONE: 3103067112 10-K405 1 FORM 10-K405 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C 20549 ---------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 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 Identification No.) incorporation or organization) 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 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE (Title of Class) 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [ X ] As of December 31, 1996 the aggregate market value of voting stock held by non-affiliates was approximately $29,985,600 (based upon the last reported sales price of the Common Stock as reported by Nasdaq). Shares of Common Stock held by each executive officer, director and holders of greater than 10% of the outstanding Common Stock of the Registrant have been excluded in that such persons may be deemed to be affiliates. This assumption regarding affiliate status is not necessarily a conclusive determination for other purposes. As of December 31, 1996, there were 8,640,354 shares of the Registrant's Common Stock outstanding. Documents Incorporated by Reference: Proxy Statement for the 1997 Annual Meeting of Stockholders, incorporated partially in Part III hereof. This Report contains a total of 81 pages. The Exhibit Index appears on page 26. ================================================================================ 2 THOMPSON PBE, INC. INDEX TO ANNUAL REPORT ON FORM 10-K For the fiscal year ended September 30, 1996
Page ---- PART I Item 1. Business ............................................................................... 3 Item 2. Properties ............................................................................. 13 Item 3. Legal Proceedings ...................................................................... 13 Item 4. Submission of Matters to a Vote of Security Holders .................................... 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................................................... 14 Item 6. Selected Financial Data ................................................................ 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................. 17 Item 8. Financial Statements and Supplementary Data ............................................ 24 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................................................... 24 PART III Item 10. Directors and Executive Officers of the Registrant ..................................... 25 Item 11. Executive Compensation ................................................................. 25 Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 25 Item 13. Certain Relationships and Related Transactions ......................................... 25 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....................... 26
3 PART I ITEM 1. BUSINESS GENERAL The Company is the nation's leading independent aftermarket distributor of automotive paint and related supplies to the automotive collision repair industry based on annual revenues. As of September 30, 1996, the Company operated 101 distribution sites, with 39 in the Southeast Division, 20 in the Southern California Division, 11 in the Northern California Division, 11 in the Rocky Mountain Division, 13 in the Mid-Atlantic Division and 7 in the Northeast Division. 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 "--Business Risks." The Company maintains its principal executive offices at 4553 Glencoe Avenue, Suite 200, Marina del Rey, California 90292. Its telephone number is (310) 306-7112. INDUSTRY OVERVIEW The end users of the products distributed by the Company are principally independent collision repair shops and automobile dealers. Additionally, businesses and government entities that maintain their own automobile fleets, sellers of automotive salvage, do-it-yourselfers and other commercial and industrial users make up a smaller percentage of the Company's customer base. Automotive paint and related supplies, in contrast to labor and parts, represent only a small portion of the total cost of a typical repair job. However, while paint is a relatively minor component of the total repair cost, it is a critical factor in the customer's level of satisfaction. The domestic wholesale aftermarket for automotive paint and related supplies is characterized by a small number of manufacturers of paint and supplies. The five predominant manufacturers of automotive paint distributed in the United States are E.I. DuPont de Nemours & Co. ("DuPont"), PPG Industries, Inc. ("PPG"), BASF Corporation ("BASF"), The Sherwin-Williams Company ("Sherwin-Williams") and Sikkens bv ("Sikkens"). In addition, several other large foreign manufacturers have recently taken steps to expand the distribution of their paint products in the United States. Minnesota Mining & Manufacturing Co., Inc. ("3M") is the predominant manufacturer of related supplies which include the most frequently used refinishing materials, supplies, accessories and tools. While manufacturing is highly concentrated, distribution and end use is highly fragmented. The Company believes that a large number of independent distributors of automotive paint serve up to 52,000 collision repair shops nationwide. Based on published industry data, the Company believes that the number of collision repair shops has decreased approximately 5% in each of the last two years. Distributors, which tend to be family-owned with only one to three distribution sites, typically serve a highly localized customer base with each distribution site serving customers located within 5 to 10 miles of the site depending upon demographics, road access and geography. Because of the large number of end users, and their increasing demands for personalized services such as multiple daily deliveries, assistance with color-mixing and matching, and assistance with paint application techniques and environmental compliance reporting, manufacturers typically sell through distributors such as the Company. Not withstanding this fact, some of the Company's paint vendors have elected to operate company-owned distribution facilities in selected markets, including markets in which the Company operates. However, the Company believes that the largest automotive paint manufacturers have generally avoided the cost of operating their own distribution network due in part to their ability to offer only a single line of paint which prevents them from leveraging distribution site expenses across a market's entire potential customer base. Consequently, the Company believes that independent distributors such as the Company, which can sell the products of multiple paint manufacturers, are better situated to service end users' needs than are automotive paint manufacturers. Distributors and collision repair shops are in the process of consolidation due to, among other things, the declining number of collision repair jobs. According to the estimates of one industry source, the total number of vehicles on the road has increased from approximately 140 million in 1980 to 180 million in 1990 and a projected 189 million in 1996, while the number of collision repair jobs has declined from approximately 18.5 million in 1980 to 16.5 million in 1990 and further declined to an estimated 13.0 million in 1995. This decline has been due to, among other things, automotive safety improvements such as anti-lock brakes, rear window-placed brakelights and more reliable radial tires. Stricter drunk driving laws, more vigorous law enforcement and the increasing percentage of drivers reaching middle age has also resulted in 4 fewer accidents. Additionally, a growing number of collision damaged cars are being declared a total loss in lieu of repair due to unit body construction and rising repair and refinish costs. Over the past several years, the Company believes that the industry has benefitted from warranty work to repair defective paint finishes on certain domestic vehicles manufactured in the late 1980s and early 1990s. However, the Company believes that the volume of warranty repair work decreased significantly in 1995 and 1996 from the levels experienced in prior years because of steps taken by the major U.S. automobile manufacturers to substantially reduce multi-year warranty programs to repaint certain vehicles. The Company does not expect to realize significant future benefits from this set of warranty programs. The Company believes that environmental and other regulatory pressures and technological advancements in paints and coatings are also significant factors leading to consolidation by distributors and collision repair shops. Historically, the application of paints and coatings has released potentially harmful emissions due to the products' high solvent content. In an effort to reduce these emissions, environmental regulations have been proposed or implemented at federal, state and local levels. Paint manufacturers have responded to these regulations by introducing technologically advanced lower volatile organic compounds ("VOC") and water-borne paints which require more advanced application techniques. As a result, automotive refinishing has become a complex process, often requiring advanced spray booths and air filtration systems to reduce unwanted particulates and harmful emissions. This complexity places new challenges on automotive refinishers who may not have the training or expertise necessary to apply the new paints and coatings or the financial resources to acquire the necessary equipment. The Company believes that its experience in assisting certain customers in their regulatory compliance reporting in California and Colorado will be applicable in other geographic areas. Further, insurance companies have begun to designate certain collision repair shops as so-called "direct repair providers." As such, the designated collision repair shop is directed business by the insurance carriers in return for price concessions from customary rates. The Company believes that this trend favors larger, more efficient repair shops. BUSINESS STRATEGY The Company's business strategy consists of two independent but complementary strategies: an acquisition strategy and an operations strategy. Acquisition Strategy The Company's acquisition strategy is to continue to make add-on acquisitions to augment its existing operations and to capitalize on opportunities to enter new geographic markets. The Company is currently the largest independent distributor in each of the markets it serves and would seek to establish a leading position in new geographic markets it enters. Since its inception in May 1989 through September 30, 1996, the Company has made a total of 50 acquisitions of businesses, including 14 acquisitions completed since September 30, 1995. From time to time, the Company also purchases inventory, equipment and customer lists from distributors going out of business. The following tables show the date, company and location of distribution sites of each add-on acquisition (other than inventory buyouts) made by the Company since its inception in May 1989 through September 30, 1996. Acquired locations shown below include locations that may have subsequently been consolidated into other locations. SOUTHEAST DIVISION ACQUISITIONS (in Florida, except as noted)
DATE OF ACQUISITION COMPANY LOCATIONS - ------------------- ------------------------------------------ ------------------------------------------------------ November 1990 AMP Distributors of Sanford, Inc. Orlando November 1990 Central Auto Paint & Bumpers, Inc. Lakeland April 1991 Gulf Automotive Co. of Clearwater, Inc. Clearwater, New Port Richey, Largo December 1992 Harold's Auto Paints & Body Supplies, Inc. Fort Myers January 1993 Griffin Auto Glass & Paint Co. Palatka January 1993 CSR of Jacksonville, Inc. Jacksonville May 1993 Cadenhead's Auto Paint & Supply, Inc. Vero Beach, Fort Pierce December 1993 Sophers Auto Paint & Supply, Inc. St. Petersburg, Clearwater January 1995 Arnold Paint Company Jacksonville (4 locations), Tampa (3 locations), St. Augustine, Brunswick, GA, Savannah, GA March 1995 D&S Auto Color, Inc. Hollywood, Delray Beach, Pompano, Plantation, West Palm Beach June 1995 Hill Supply Co. Gainesville, Lake City September 1995 Burton and Dunlap Melbourne September 1995 Ole Sarge Paint & Equipment Co., Inc. Cocoa, Titusville
5 SOUTHEAST DIVISION ACQUISITIONS (CONTINUED)
DATE OF ACQUISITION COMPANY LOCATIONS - ------------------- ------------------------------------------ ------------------------------------------------------ March 1996 Auto Colorco, Inc. Huntsville, Decateur, Sheffield, Cullman, AL April 1996 Ralco Equipment Company Tallahasee, Ft. Walton, Valdosta,GA, Dothan, AL June 1996 Hialeah Painters, Inc. Hialeah, South Miami
SOUTHERN CALIFORNIA DIVISION ACQUISITIONS
DATE OF ACQUISITION COMPANY LOCATIONS - ------------------- ------------------------------------------ ------------------------------------------------------ February 1990 R.A. Roberts Pasadena August 1990 Automotive Colours, Inc. Marina del Rey, Beverly Hills October 1990 San Diego Auto Body Specialties, Inc. San Diego October 1990 Bob's Automotive Paint and Body Santa Monica July 1991 Auto Refinishers Supply, Inc. North Hollywood April 1993 DeWitt's A to Z Paint Supply, Inc. San Bernardino, Corona, Hemet, Hesperia, Cathedral City, Montclair May 1994 Don's Automotive Paint and Supplies, Inc. Bakersfield October 1994 K&K Color and Supply, Inc. Bellflower January 1995 Refinishers Supply and Equipment, Inc. Visalia, Hanford February 1995 Vernon G. Nelson Paint & Supply, Inc. Bellflower February 1995 California Car Colours Torrance February 1995 Anaheim Paint Center Anaheim April 1996 A & H Paint & Equipment, Co. Gardena August 1996 Hunter & Price, Inc. Fresno September 1996 Tim's Paint & Wallpaper, Inc. Hanford
NORTHERN CALIFORNIA DIVISION ACQUISITIONS
DATE OF ACQUISITION COMPANY LOCATIONS - ------------------- ------------------------------------------ ------------------------------------------------------ June 1992 Matley's, Inc. and Pikes Services Oakland, Hayward, Dublin August 1993 R.H. Wood Company, Inc. Walnut Creek August 1993 Concord Color Service, Inc. Concord May 1995 SEV Corporation San Francisco, San Rafael, South San Francisco, Campbell September 1995 HEB Autocolor, Inc. Redwood City December 1995 Santa Clara Color, Inc. Mountain View, San Jose, Morgan Hill
ROCKY MOUNTAIN DIVISION ACQUISITIONS (in Colorado, except as noted)
DATE OF ACQUISITION COMPANY LOCATIONS - ------------------- ------------------------------------------ ------------------------------------------------------ April 1994 F.A. Heckendorf, Inc. Denver (4 locations), Boulder, Colorado Springs, Grand Junction April 1994 Al West Paint Co. Denver (4 locations) March 1995 Border Paint & Supply, Inc. Phoenix, AZ, Mesa, AZ April 1995 Car Color Specialists, Inc. Fort Collins April 1995 Auto Paint Specialties, Inc. Tucson, AZ
6 NORTHEAST DIVISION ACQUISITIONS (in Massachusetts, except as noted)
DATE OF ACQUISITION COMPANY LOCATIONS - ------------------- ------------------------------------------ ------------------------------------------------------ February 1996 McNeil & Sons Auto Paint, Inc. Worcester, Lunenberg, Fall River, Marlboro, Hartford, CN September 1996 Greenwich Car Color, Inc. Stamford, CN September 1996 A & M Distributors, Inc. Norwalk, CN
MID-ATLANTIC DIVISION ACQUISITIONS
DATE OF ACQUISITION COMPANY LOCATIONS - ------------------- ------------------------------------------ ------------------------------------------------------ June 1995 State Auto Paint & Supply Co., Inc. Columbia (2 locations), West Columbia, Sumter, Florence, Lancaster; South Carolina January 1996 Central Oil & Supply, Inc. Florence, South Carolina February 1996 Automotive Paint & Supply, Inc. Myrtle Beach, Conway, South Carolina January 1996 Automotive Paint & Equipment Co., Inc. Winston Salem, Highpoint, Greensboro, Hickory, Charlotte, Statesville, North Carolina April 1996 Automotive Paint & Supply, Inc. Roanoke, Virginia; Charlotte, Greensboro, Raleigh, North Carolina
Subsequent to September 30, 1996, the Company has also acquired large, single-site distributors located in Boston, Massachusetts (Northeast Division) and San Leandro, California (Northern California Division). After the Company completes an acquisition, it seeks to integrate the operations of the acquired business while assuring consistent, high quality service to the acquired business' customers. The Company incorporates the acquired operations into its information systems, consolidates its purchasing and centralizes its financial and inventory controls. The Company may also integrate the acquired business by consolidating redundant distribution sites and by serving the acquired company's customers from either the Company's existing distribution sites serving the same local area or the acquired business' distribution site, when preferable. The Company has consolidated operations by closing 55 distribution sites from May 1989 through September 30, 1996. During 1996, the Company encountered delays and other complications in the integration of certain acquired businesses with its existing operations, particularly in the Southeast and Mid-Atlantic Divisions. See"--Business Risks" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's plan is to continue to make complementary add-on acquisitions to its existing operating divisions. In addition, the Company may seek to establish new operating hubs by acquiring distributors with significant market share in strategically located geographic areas and to supplement such acquisitions with appropriate local add-on acquisitions in an effort to capture the operating efficiencies which the Company has benefitted from in its present markets. In evaluating new operating hubs and add-on acquisitions, the Company seeks to identify well-established local distributors (with strong management, customer bases and locations) which are situated in markets which the Company believes will provide additional growth and acquisition opportunities. The Company believes that an opportunity continues to exist to grow through acquisition as its industry consolidates. Although the Company will continue actively to seek acquisitions, during fiscal 1997 it presently expects to emphasize the acquisition of sites in existing markets. The Company's future growth and financial success will continue to be dependent upon a number of factors including, among others, the Company's ability to identify acceptable acquisition candidates, consummate the acquisition of such businesses on terms which are favorable to the Company, promptly and profitably integrate the acquired operations into the Company, retain the key vendor arrangements of the acquired businesses and attain customer retention levels at acquired businesses that are advantageous to the Company. As noted above, the Company has in the past encountered unexpected difficulties in respect of the acquisition and integration process and, accordingly, there can be no assurance that the Company will not encounter such difficulties in the future. To manage its expansion, the Company is continuously evaluating the adequacy of its existing systems and procedures, including, among others, its financial and reporting control systems, data processing systems and management structure. In particular, the Company is currently engaged in a significant multi-year project to upgrade its management information systems including the replacement of its financial and operations systems and the adoption of a common platform across the entire Company. There can be no assurance that the Company will adequately anticipate all of the changing demands its growth will impose on such systems, procedures 7 and structure. Any failure to anticipate and respond to such changing demands could have a material adverse effect on the Company. The Company, in the ordinary course of its business, regularly evaluates and enters into negotiations relating to potential acquisition opportunities. OPERATIONS STRATEGY The goal of the Company's operations strategy is to be the leading distributor in each geographic market the Company serves and to grow internally by increasing the profitability of its existing distribution sites. The Company seeks to implement its operations strategy based upon the following strengths: Industry Leadership. The Company is the nation's leading independent aftermarket distributor of automotive paint and related supplies to the automotive collision repair industry based on annual revenues. The Company's total sales for the fiscal year ended September 30, 1996 were $178.1 million, which management believes are the largest sales of any domestic independent distributor in its industry. Commitment to Service. The Company believes that its dedication to superior customer service is fundamental to maintaining long-term customer relationships and continued growth. The Company offers several value-added services to its customers, including multiple daily deliveries, technical support and inventory management, as well as assistance with environmental compliance reporting (Southern California, Northern California and Rocky Mountain Divisions), and personnel placement. While some of its competitors provide some of these services, the Company believes that it has a competitive advantage over its smaller competitors that lack the resources and economies of scale to provide, on a consistent basis, all of the services which the Company provides. See "--Services." Volume Purchasing. The Company consolidates its purchases on a regional basis to take advantage of the lowest published prices offered by its suppliers. In addition, the Company's size generally permits it to take advantage of periodic supplier special incentive programs which provide additional purchase discounts and extend the due date of purchases beyond normal terms with large volume purchases. Due to the Company's position as the largest independent automotive aftermarket paint distributor, it benefits from such volume discounts which its smaller competitors are either unable to obtain or are able to obtain only in conjunction with high related inventory carrying costs. The Company also benefits from manufacturer provided discounts upon early payment of certain accounts and from other supplier-supported programs. Large Dedicated Sales Force. As of September 30, 1996, the Company's professional sales force consisted of 214 persons. Unlike the sales personnel of many of the Company's smaller competitors, which tend to be owner operated, the Company's sales personnel devote their time exclusively to new customer development and customer maintenance and are relatively free from administrative and managerial responsibilities. As a result, the Company believes that it is able to attract and retain high quality sales professionals that are knowledgeable of product applications and effective at servicing the Company's customers. Management Systems. Accounting, credit, purchasing and management information systems' functions have generally been consolidated into the Company's administrative headquarters in Los Angeles and Clearwater/Tampa. Most of the Company's operations are computerized, from invoicing to inventory control and including all general ledger functions. As a result, employees at the distribution sites and sales personnel are able to focus their attention on servicing the customer and the Company is able to leverage its general and administrative resources across all of its distribution sites. The Company commenced an upgrade of its management information systems in fiscal year 1996 to, among other things, adopt a common platform across the entire Company. Implementation of the new management information system will occur during fiscal year 1997. See "-- Business Risks." 8 PRODUCTS Each of the Company's distribution sites functions as a convenient "one stop" source for the paint and related supply needs of collision repair shops and other customers. The Company's primary emphasis is the supply of paint and paint products which accounted for approximately 70% of sales for the fiscal year ended September 30, 1996. The Company generally supplies paint in all available colors, as well as a wide variety of paint products such as metal washes, primers, sealers and clear coats. The Company also distributes materials, supplies, accessories and tools used in the automotive collision repair industry. Materials and supplies include sandpaper, abrasives, buffing pads and cloths, reusable and disposable towels, masking products and plastic filler. Accessories and tools include spray guns, small hand tools, jacks, hoists, grinders, sanders, polishers and compressors. In addition, the Company is carrying a limited number of auto body repair parts in certain of its distribution sites. If successful, the Company may expand this program. As of September 30, 1996, the stock keeping units available for sale from the Company's various distribution sites ranged from approximately 2,500 to 10,000. SERVICES The Company provides its customers with a number of value added services, including: Multiple Daily Deliveries. The Company has a fleet of approximately 700 delivery trucks. The Company offers multiple daily deliveries per customer to meet its customers' just-in-time inventory needs. Training and Technical Support. Automotive paint manufacturers are continually developing a greater variety of colors and styles with more complex physical properties that require more sophisticated application techniques. The Company's sales personnel and technical support people in each of its operating divisions provide customers with training, demonstrations of new products and application techniques, and also coordinate such activities by automotive paint manufacturers. In addition, the Company maintains technical support vehicles which visit customers to provide this service. The technical support vehicles also provide computerized color mixing at the customer's site. Inventory Management. The Company performs monthly physical inventories for customers in California and Colorado who request this service. The Company also provides its California and Colorado customers with management information reports on product usage. These services permit the Company's customers to reduce their inventory and related costs. Assistance with Environmental Compliance Reporting. California air quality regulations mandate paint and application methods which result in reduced atmospheric emissions of paint and other related materials. In California, the Company provides information to its customers with respect to air quality reporting and arranges demonstrations of new products and applications designed to comply with air quality regulations. In addition, in California and in Colorado, the Company assists its customers with environmental reporting requirements by providing special reports designed to simplify their compliance. The EPA proposed regulations controlling VOC emissions from automobile refinishing nationwide in 1996, and, accordingly, the Company is considering an expansion of these programs. See "--Government Regulation." Personnel Placement. Certain of the Company's divisions maintain an employment data base which includes employment openings and/or persons seeking employment with collision repair shops located in those markets. Upon request from a customer to fill an opening, the Company may provide the names of one or more qualified persons for the position. Similar services are available to persons seeking employment. MARKETING, SALES AND CUSTOMERS The Company believes that its large sales force, its reputation for a high level of customer service and its ability to provide a "one-stop" distribution source are its primary marketing tools. As of September 30, 1996, the Company had a professional sales staff of 214 persons, of whom 76 worked out of the Southeast Division, 55 worked out of the Southern California Division, 24 worked out of the Northern California Division, 23 worked out of the Rocky Mountain Division, 25 worked out of the Mid-Atlantic Division, and 11 worked out of the Northeast Division. See "--Services." The Company sponsors trade fairs and participates in industry trade shows and conferences. In addition, the Company advertises in trade journals and publishes and distributes a periodic newsletter. 9 For its most recent fiscal year, the Company regularly served approximately 12,000 customers, none of which accounted for more than 1% of the Company's sales. The Company believes that it is the principal source of supply of automotive paint and related supplies for most of its customers. In addition to independent collision repair shops and automobile dealers, which are the Company's largest category of customers, the Company's customers include trucking companies, schools, municipalities, government agencies, sellers of automotive salvage, refinishers, do-it-yourselfers, marine and aviation refinishers and other commercial and industrial users. SUPPLIERS The Company is highly dependent on a small number of key suppliers of automotive paint. DuPont, PPG and BASF, together with Sikkens, have historically supplied substantially all of the Company's automotive paint and paint products, and the Company believes that in fiscal 1996 it was the largest purchaser of aftermarket automotive paint in the United States from each of these manufacturers. The Company also acquires a modest amount of its paint requirements from several other foreign manufacturers which have recently taken steps to expand the distribution of their paint products in the United States. As is common industry practice, the Company does not maintain long-term supply contracts with any of its key suppliers. Although each of these suppliers generally competes with the others along product lines, the Company does not believe the products are completely interchangeable because of high brand loyalty among customers. For this reason, the Company's acquisition program is also dependent on the willingness of the principal paint vendors to continue to supply acquired businesses. In November 1995, the Company became aware that Sikkens was advising its existing distributors that it may not consent to transfers by them of its product line upon sale of a business to the Company or at least one other national distributor. Sikkens took this position in connection with several acquisitions effected by the Company during fiscal 1996 in response to which the Company provided alternative products manufactured by other vendors in these markets. In addition, certain other vendors have on occasion objected to specific acquisitions being considered by the Company. See "--Business Risks." In November 1996, the Company was advised that its exclusive wholesaler agreement to distribute the Sikkens paint line in Southern California and Arizona would not be renewed after its expiration on December 31, 1996. As of the date of this Report, Sikkens has stated that the Company will be allowed to distribute the paint line on a non-exclusive basis for a limited transition period. The Company presently offers paint products manufactured by other vendors in the ten locations covered by these agreements and will continue to do so. The Company is evaluating its alternatives to the Sikkens action. Sales to customers using the Sikkens paint line amount to approximately three to four percent of the Company's total revenues. While the impact of this development on the Company's business is dependent on many factors and cannot be predicted at this time, the Company expects, based on its experience with similar situations in connection with acquisition transactions, that this decision by Sikkens will have at least a modest adverse effect on its results of operations. Whenever practical, vendor purchases are made in large volumes to maximize manufacturer volume discounts and optimize payment terms. In addition, the Company's size generally permits it to take advantage of periodic supplier special incentive programs which provide additional purchase discounts and extend the due date of purchases beyond normal terms with large volume purchases. The Company also benefits from manufacturer provided discounts upon early payment of certain accounts and from other supplier-supported programs. Branded products carry the manufacturers' guaranties. Defective products typically may be returned to manufacturers at no charge to the Company and obsolete products generally may be returned for a slight restocking fee. Due to the manufacturers' favorable return policies, the Company also accepts customer returns of defective or obsolete products. The Company has arrangements with its suppliers to balance inventory and credit the Company for a certain percentage of returned merchandise. The Company receives reimbursement from its vendors in the form of products or credits for qualifying services, equipment and discounts provided to its customers. Failure to receive expected reimbursements as a result of changes in vendor policies and practices may have a material adverse effect on the Company. The Company purchases substantially all of its automotive refinishing materials and related supplies directly from 3M, although such supplies are also generally available from independent warehouse distributors at somewhat higher costs. The Company regularly purchases a small number of products not available directly from the manufacturers and certain slow moving items from independent warehouse distributors. Warehouse distributors are intermediate wholesalers that typically purchase products directly from the manufacturer for resale to smaller distributors. 10 In connection with the sale of its warehouse distributor in California in April 1993, the Company entered into a minimum purchase contract which expires in 2003. In connection with the acquisition of a distributor in Colorado in 1994, the Company entered into an agreement with a warehouse distributor providing that such warehouse distributor shall be the Company's primary supplier of certain non-paint supplies sold by the Company in Colorado and neighboring states. The agreement contains a minimum purchase obligation and expires on March 31, 1999. During the fiscal year ended September 30, 1996, the Company sold substantially all of the assets of its Florida wholesale distribution business and in connection with the sale agreed to make annual purchases of at least $5,000,000 from the buyer through fiscal year 2000. None of these agreements are expected to have a material effect on the Company's future results of operations. COMPETITION The automotive paint and related supply distribution system in the United States is highly fragmented and the cost of entry is relatively low. Typical competitors of the Company are owner-managed distributors having one to three distribution sites in the same vicinity as the Company's distribution sites. The Company is the largest independent distributor in each of its principal geographic markets. The Company may encounter significant competition from new market entrants, automotive paint manufacturers, buying groups, or from other large distributors which may seek to enter such markets or may seek to compete with the Company for attractive acquisition candidates. One other domestic automotive paint distributor, FinishMaster, Inc., is publicly held and the Company faces possible competition for acquisition opportunities in some markets from that company or affiliated companies. Although the largest automotive paint manufacturers have generally not operated their own distributors, or have done so only on a limited basis, they may decide to expand such activity in the future. The Company competes primarily on the basis of product availability, service and price. The Company believes that it maintains a competitive advantage over most of its competitors due to its ability to take advantage of high volume discount buying, professional management and economies of scale in providing customer services, specialized employee functions and centralized administration and management information services. GOVERNMENT REGULATION The Company and its customers are subject to increasing environmental regulations which affect the Company's operations and the demand for its services. These regulations impose requirements on the Company and its customers and provide opportunities to the Company for providing services to customers with respect to the use of new products and applications designed to comply with air quality regulations. Although the Company believes that it has been and is currently in substantial compliance with the applicable standards imposed pursuant to environmental and worker safety laws, there can be no assurance that in the future the Company will not be adversely affected by such requirements or incur materially increased operating costs in complying therewith. The Company believes that, on balance, these regulations favorably affect the Company, as it is better able than its smaller competitors to comply with such regulations and to assist its customers with compliance. The principal environmental legislation presently affecting the Company and its customers in a significant manner is described below. Resource Conservation and Recovery Act of 1976 ("RCRA"). RCRA regulates the treatment, storage and disposal of hazardous and solid wastes. Under RCRA, liability and stringent management standards are imposed on a person who is a generator or transporter of a hazardous waste or an owner or operator of a waste treatment, storage or disposal facility. At some of its locations, the Company is subject to RCRA requirements as a small quantity generator. Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). CERCLA addresses cleanup of sites at which there has been or may be a release of hazardous substances into the environment. CERCLA assigns liability for costs of cleanup and for damage to natural resources (i) to any person who, currently or at the time of disposal of a hazardous substance, owned or operated any facility at which hazardous substances were deposited; (ii) to any person who by agreement or otherwise arranged for the disposal or treatment, or arranged with a transporter for transport for disposal or treatment of hazardous substances owned or possessed by such person; and (iii) to any person who accepted hazardous substances for transport to disposal or treatment facilities or sites selected by such person from which there is a release or threatened release of hazardous substances. The Company has acquired a number of businesses which may, in the past, have sent waste to sites which have become subject to government cleanup under CERCLA. To date the Company has not been named as a potentially responsible party at any Superfund site. 11 Clean Air Act and 1990 Amendments. The Clean Air Act requires compliance with national ambient air quality standards ("NAAQS") and empowers the EPA to establish and enforce limits on the emission of various pollutants from specific types of facilities. The Clean Air Act Amendments of 1990 (the "Amendments") modify the Clean Air Act in a number of significant areas. The Amendments, among other things, establish new programs and deadlines for achieving compliance with NAAQS, establish controls for hazardous air pollutants, establish a new national permit program for all major sources of pollutants and create significant new penalties, both civil and criminal, for violations of the Clean Air Act. The Amendments specifically require a review of VOC emissions from commercial products (which encompasses emissions relating to the application of paint to automobiles). Pursuant to this review, the EPA decided to develop regulations controlling automotive refinishing coatings. At some of its locations the Company is subject to the Clean Air Act because it uses paint spraying equipment for paint matching and for training of customers. Other Federal and State Environmental Laws. The Company's operations are subject to regulation under, among others, the following federal laws: the Clean Water Act, the Safe Drinking Water Act, the Occupational Safety and Health Act and the Hazardous Materials Transportation Act. In addition, many states have other regulations and policies to cover more detailed aspects of hazardous materials management. To date, the impact of these regulations on the Company has not been material. Local Air Quality Regulations. The South Coast Air Quality Management District (the "SCAQMD") (Southern California) and the Bay Area Air Quality Management District (the "BAAQMD") (San Francisco Bay Area) have detailed regulations pertaining to metal coating and the use of VOCs. These regulations prohibit the sale of nonconforming automobile paint at the distributor level, which increases somewhat the compliance obligations of the California Divisions' distribution sites. Subsequently, based on published industry data, 15 states have adopted VOC regulations through June 1996. Most of these states have VOC limits similar to the VOC limits proposed by the EPA. The national regulations proposed by the EPA will not override more restrictive state and local regulations such as California's regulations, which have the lowest VOC limits in the country. The Company believes its experience with such regulations, including compliance reporting and the use of paints and equipment designed to meet such regulations, is not matched by smaller competitors. TRADE NAMES The Company currently does business principally under the name "Thompson PBE" and, in certain cases, under the names of other businesses it has acquired. In the future, the Company intends to operate under the name "Thompson PBE" in most markets. EMPLOYEES At September 30, 1996, the Company employed approximately 1,180 persons on a full-time basis. Of these employees, approximately 488 were employed in the Southeast Division, approximately 283 were employed in the Southern California Division (including approximately 38 employees at the corporate level), approximately 108 were employed in the Northern California Division, approximately 110 were employed in the Rocky Mountain Division, approximately 132 were employed in the Mid-Atlantic Division, and approximately 59 were employed in the Northeast Division. The Company is not subject to any collective bargaining agreement and believes that its relationships with its employees are good. 12 BUSINESS RISKS The following factors should be considered in addition to the other information contained in this Report or incorporated herein by reference in evaluating the Company and its business. Acquisition Strategy; Risks Related to Rapid Growth. The principal component of the Company's business strategy is to continue to grow by making additional acquisitions to augment its present Southeast, Southern California, Northern California, Rocky Mountain, Mid-Atlantic and Northeast Divisions as well as to make entry and add-on acquisitions in new geographic markets. The Company's future growth and financial success will be dependent upon a number of factors including, among others, the Company's ability to identify acceptable acquisition candidates, consummate the acquisition of such businesses on terms which are favorable to the Company, promptly and profitably integrate the acquired operations into the Company, retain the key vendor arrangements of the acquired businesses and attain customer retention levels at acquired businesses that are advantageous to the Company. There can be no assurance that the Company will be successful with respect to such factors. During 1996, the Company encountered delays and other complications in the integration of certain acquired businesses with its existing operations, particularly in the Southeast and Mid-Atlantic divisions, and there can be no assurance that it will not encounter such difficulties in the future. To manage its expansion, the Company is continuously evaluating the adequacy of its existing systems and procedures, including, among others, its financial reporting and control systems, data processing systems and management structure. The Company is presently involved in a significant project to upgrade its management information systems. There can be no assurance that the Company will adequately anticipate all of the changing demands its growth will impose on such systems, procedures and structure. Any failure to adequately anticipate and respond to such changing demands would have a material adverse effect on the Company. See "--Business Strategy", "--Installation of New Computer System" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Competition. The automotive paint and related supplies distribution industry in the United States is highly fragmented and the cost of entry is relatively low. The Company may encounter significant competition from new market entrants, automotive paint manufacturers, buying groups or from other large distributors which may seek to enter such markets or may seek to compete with the Company for attractive acquisition candidates. Sherwin-Williams, Sikkens and BASF own and operate distribution sites in certain geographic markets. One other independent automotive paint distributor, FinishMaster, Inc., is publicly held and the Company faces possible competition for acquisition opportunities in some markets from that company or affiliated companies. Although the largest automotive paint manufacturers generally have not operated their own distributors, or have done so only on a limited basis, they may decide to expand such activity in the future. Existing or new competitors, including automotive paint manufacturers, may be significantly larger and have greater financial and marketing resources than the Company. See "--Competition." Consolidation of Customer Base; Trend Toward Fewer Collision Repair Jobs. The Company believes that its customer base of collision repair shops is experiencing significant consolidation. According to one industry publication, the number of annual collision repair jobs declined from approximately 18.5 million to 16.5 million (or approximately 11%) from 1980 to 1990, and further declined to an estiamted 13.0 million repair jobs in 1995. This decrease has been due to, among other things, automotive safety improvements and more rigorous enforcement of stricter drunk driving laws, resulting in fewer accidents. Moreover, unit body construction and higher repair costs have resulted in a larger number of cars being declared a total loss in lieu of repair. Further, insurance companies have begun to require price concessions from collision repair shops which are thereby required to become more efficient and seek concessions from their suppliers, such as the Company. In addition, the Company believes that during 1995 the major U.S. automobile manufacturers took steps to substantially reduce a multi-year warranty program to repaint certain car models that were prone to peeling. Due to a combination of these factors, many of the smaller collision repair shops are either ceasing operations or are being consolidated into larger businesses. To the extent the Company's current customers cease operations or are consolidated into larger businesses, competition for the remaining accounts will increase and may have a material adverse effect on the Company's margins and profits. See "--Industry Overview" and "--Government Regulation." Dependence on Key Suppliers. The Company is highly dependent on a small number of key suppliers of automotive paint. The Company has historically purchased substantially all of its automotive paint from DuPont, PPG and BASF, and a smaller portion from Sikkens. The Company also acquires a modest amount of its paint requirements from several other foreign manufacturers. As is common industry practice, the Company does not maintain long-term supply contracts with any of its key suppliers. Although each of these suppliers generally competes with the others along product lines, the Company does not believe the products are completely interchangeable because of high brand loyalty among customers. For this reason, the Company's acquisition program is also dependent on the willingness of the principal paint vendors to continue to supply acquired businesses. As discussed above, Sikkens has advised the Company that its exclusive right to distribute the paint line in 13 certain parts of Southern California and Arizona will be not be renewed after its expiration on December 31, 1996 and that it will generally prevent the transfer of acquired Sikkens distributors to the Company or at least one other national distributor. While the impact of this development on the Company's business is dependent on many factors and cannot be predicted at this time, the Company expects, based on its experience with similar situations in connection with acquisition transactions, that this decision by Sikkens will have at least a modest adverse effect on its results of operations. More generally, any disruption in the supply of paint products provided by its vendors (whether at existing sites or in connection with an acquisition) has in the past and could in the future have a material adverse effect on the Company. The Company purchases substantially all of its automotive refinishing materials and supplies directly from 3M; as such, the loss of 3M as a direct supplier could have an adverse effect on the Company. In addition, the Company's size generally permits it to take advantage of periodic supplier incentive programs which provide additional purchase discounts, extend the due date for purchases beyond normal terms with large volume purchases. The Company also benefits from manufacturer provided discounts upon early payment of certain accounts and from other supplier- supported programs. To the extent these programs are changed or terminated, there could be a material adverse effect on the Company. See "--Suppliers." and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Seasonality, Quarterly Fluctuations and Other Variations in Business Results. The Company's revenues 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 of supplier price increases. 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. In addition, the timing, location and structure of acquisitions (including the accounting treatment of transactions costs and intangible assets) may cause substantial fluctuations of operating results from quarter to quarter. The Company's revenues and operating results also vary due to other factors 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. The Company takes advantage of periodic supplier special incentive programs that extend the payment date for purchases beyond normal terms with large volume purchases and other supplier supported programs. The Company may also significantly increase its purchases from time to time in advance of expected supplier price increases. The timing of these purchases can contribute to fluctuations in the Company's quarterly cash flow and inventory levels. See "--Industry Overview", "--Suppliers" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Installation of New Computer System. The Company commenced an upgrade of its management information systems in fiscal year 1996. The new system will provide a common platform throughout the Company's operations and will be used for all operations and accounting functions. These functions include sales order processing, credit and collection activities, purchasing, inventory management, and accounting and reporting activities. Implementation of the new system will encompass training of company personnel on use of the new system, changes in certain operating procedures and development of various new procedures and policies. In addition, computer hardware, wiring configurations and telecommunications equipment of the Company's operating sites will be changed or modified. The Company's operations may be adversely affected and could suffer significant disruption if the implementation of the new system is not successful, or if significant problems are encountered and not resolved on a timely basis. Need for Additional Financing. To implement its acquisition strategy, the Company expects to incur additional indebtedness or issue additional equity securities in the future. 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. See "-- Business Strategy" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking Statements and Associated 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 "Business Risks" discussion, 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 14 other competitive factors. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur. ITEM 2. PROPERTIES As of September 30, 1996, the Company conducted its operations through distribution sites and warehouses in the following states:
Number of Number of State distribution sites warehouses ------ ------------------ ---------- Alabama 4 Arizona 3 California 31 2 Colorado 8 Connecticut 3 Florida 34 2 Georgia 2 Massachusetts 4 North Carolina 5 South Carolina 5 Virginia 2
Distribution sites and warehouses are located in proximity to customer concentrations, typically in industrial, commercial or mixed-use zones. The Company's executive offices are located in approximately 11,000 square feet of leased space in Marina del Rey, California. The Company's distribution sites range from approximately 2,000 square feet to 10,000 square feet, consisting mostly of warehouse space, as well as a counter, display space and, in some cases, office space. The warehouses range from approximately 5,000 square feet to 20,000 square feet. All of the Company's properties are leased for terms expiring from 1996 to 2002, many with options to extend the lease terms. In a number of instances, the Company's distribution sites are leased from the former owners of businesses acquired by the Company. The Company believes that all of its leases were at fair market rates when entered into, that presently no single lease is material to its operations, and that alternative sites are presently available at market rates. See Note 9 to the Company's Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of its business, the Company is involved in legal proceedings from time to time. At September 30, 1996 a liability to the Florida Department of Revenue for sales and use taxes was recorded to reflect the results of an audit of the sales and operations of a certain predecessor company for the period September 1989 through August 1994. The Florida Department of Revenue is currently claiming amounts due of approximately $1.8 million. The Company is contesting the manner in which the audit was conducted and the alleged deficiency calculated and assessed. The Company recorded a charge to earnings in fiscal 1996 to establish a reserve sufficient for the assessed amount, although the ultimate amount to be paid can not yet be predicted pending the outcome of the Company's efforts to appeal this matter. As of the date of this Report, management presently believes that all other existing claims will ultimately be resolved without a material effect on the Company's financial position. See Note 9 to the Company's Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth fiscal quarter ended September 30, 1996. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company effected its initial public offering on November 8, 1994 at a price of $11.00 per share. The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "THOM." The following table sets forth for the periods indicated the high and low last reported sales prices for the Common Stock as reported on the Nasdaq National Market.
Fiscal 1995 Quarters Ended -------------------------- Dec. 31 March 31 June 30 Sept. 30 ------------------------------------------------- Low......................................... $10 3/4 $12 7/8 $14 1/2 $15 3/4 High........................................ $13 1/4 $15 $18 1/8 $18 1/4
Fiscal 1996 Quarters Ended -------------------------- Dec. 31 March 31 June 30 Sept. 30 ------------------------------------------------- Low......................................... $13 3/4 $12 $ 9 7/8 $ 9 3/8 High........................................ $19 1/2 $15 1/4 $14 1/4 $13
As of December 31, 1996, there were approximately 200 holders of record of the Company's Common Stock. Based on the broker searches conducted for the annual meeting of stockholders, the Company believes that the number of beneficial owners approximates 1,500, because a large portion of the Common Stock is held of record in "street name" for the benefit of individual investors. DIVIDEND POLICY The Company has not paid any cash dividends on its Common Stock since its formation and does not anticipate paying such dividends in the foreseeable future. Management anticipates that all earnings and other cash resources of the Company, if any, will be retained by the Company for investment in its business or, subject to lender consent, used to fund the repurchase of Common Stock. The Company's debt agreements, including its Credit Agreement, dated as of January 6, 1995, between the Company, Heller Financial, Inc ("Heller") and the other banks named therein, as amended (the "1995 Credit Agreement"), have in the past and are likely in the future to contain significant restrictions or prohibitions on its ability to pay dividends or repurchase shares. 16 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial information with respect to the Company's financial position as of September 30, 1995 and 1996, and its results of operations for the years ended September 30, 1994, 1995 and 1996, has been derived from the audited consolidated financial statements of the Company appearing elsewhere in this Report. This information should be read in conjunction with such consolidated financial statements and the notes thereto. The selected consolidated financial information with respect to the Company's financial position as of March 31, 1992 and September 30, 1992, 1993 and 1994 and with respect to the Company's results of operations for the fiscal year ended March 31, 1992, the six months ended September 30, 1992 and the fiscal year ended September 30 , 1993 has been derived from audited financial statements of the Company which are not included herein. The selected consolidated financial information of the Company for the twelve months ended September 30, 1992 has been derived from unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Fiscal Year Six Months Twelve Months Ended ended ended March 31, September 30, September 30, Fiscal Year Ended September 30, --------- --------- --------- ------------------------------------------------ 1992 1992 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- --------- --------- (in thousands, except acquisition data and per share data) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales ............................... $ 62,546 $ 35,092 $ 64,600 $ 77,292 $ 97,271 $ 131,827 $ 178,139 Cost of revenues ........................ 39,680 22,150 40,816 49,341 60,840 82,562 113,210 --------- --------- --------- --------- --------- --------- --------- Gross profit ............................ 22,866 12,942 23,784 27,951 36,431 49,265 64,929 Selling, general and administrative ..... 18,246 9,936 18,831 22,786 28,463 36,996 55,831 Depreciation expense .................... 858 424 848 991 1,143 1,387 1,848 Amortization of goodwill and other intangible assets (1) ........... 2,352 1,280 2,455 2,700 1,504 1,679 2,267 Interest expense ........................ 2,162 916 2,049 2,094 2,546 2,918 2,600 Certain charges (2): Consulting expense (3) .................. 685 340 699 736 102 Changes in estimated lives of certain intangible assets (4) ................. 1,474 Interest on warrant purchase obligation (5) ........................ 60 30 30 370 2,870 Special incentive stock compensation (6) ....................... 1,472 Merger costs ............................ (7) 340 1,146 --------- --------- --------- --------- --------- --------- --------- Subtotal of certain charges ............. 745 370 729 2,920 5,590 --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item ................ (1,497) 16 (1,128) (3,540) (2,815) 6,285 2,383 Provision (benefit) for income taxes .... 113 103 160 423 805 1,310 --------- --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item .................... (1,610) (87) (1,288) (3,963) (2,815) 5,480 1,073 Extraordinary item - early extinguishment of debt ................ (483) (445) --------- --------- --------- --------- --------- --------- --------- Net income (loss) ....................... $ (1,610) $ (87) $ (1,288) $ (3,963) $ (3,298) $ 5,035 $ 1,073 ========= ========= ========= ========= ========= ========= ========= HISTORICAL PER SHARE DATA (8): .......... Income before extraordinary item ........ $ 0.70 $ 0.12 Extraordinary item- early extinguishment of debt ................ $ (0.07) Net income per share .................... $ 0.63 $ 0.12 Weighted average common and common equivalent shares ............... 6,317 8,850
17
March 31, September 30, ----------- --------------------------------------------------------------- 1992 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- CONSOLIDATED BALANCE SHEET DATA: Working capital ............................ $ 4,625 $ 4,967 $ 6,084 $ 10,279 $ 21,617 $ 30,249 Total assets ............................... 28,088 29,607 33,452 44,440 81,908 124,380 Long term debt ............................. 17,505 17,710 21,605 31,575 46,084 44,307 Heller Warrant purchase obligation ......... 490 500 870 3,740 - - Redeemable stock ........................... 7,602 8,073 9,058 9,704 - - Stockholders' equity (deficit) ............. (7,055) (7,040) (11,487) (13,925) 16,956 51,234
Six Months Fiscal Year ended Total Ended March 31, September 30, Fiscal Year Ended September 30, Since --------------- ------------ ------------------------------------ May, 1992 1993 1993 1994 1995 1996 1989 ACQUISITION DATA (9): Companies acquired................. 1 1 7 4 16 14 50 Starting sites..................... 36 33 36 45 53 74 Sites acquired................. 6 3 14 14 41 38 123 Sites consolidated............. 9 0 5 6 20 11 55 Ending sites....................... 33 36 45 53 74 101
(1) Includes amortization of goodwill and covenants not to compete resulting primarily from the Company's business acquisitions and amortization of debt issuance costs. (2) Certain charges represents significant costs which are of an unusual or nonrecurring nature. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisition Accounting." (3) Reflects amounts, and amortization of amounts, paid to the former owners of businesses acquired for consulting services provided to the Company. (4) In the year ended September 30, 1993, the Company recorded a non-cash charge of $1.5 million to reflect the revised estimate of the economic useful lives of its covenants not to compete and consulting agreements related to certain business acquisitions. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisition Accounting" and Note 2 to the Company's Consolidated Financial Statements. (5) Consists of a non-cash charge to record the increase in the estimated fair market value of the Heller Warrant (as defined herein). Includes a final charge of approximately $1.1 million recorded in the fiscal quarter ended September 30, 1994. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisition Accounting" and Note 7 to the Company's Consolidated Financial Statements. (6) Consists of non-cash, nonrecurring charges related to the transfer of certain options and shares of capital stock of the Company by certain stockholders to certain officers of the Company, which transactions were imputed to the Company for financial reporting purposes. The Company has not, and will not, incur any obligation in connection with such arrangements. See Note 12 to the Company's Consolidated Financial Statements. (7) Consists primarily of nonrecurring costs incurred for legal, accounting, consulting and other services to effect the Company's merger (the "New Horizon Merger") with New Horizon Auto Paint Holdings, Inc. ("New Horizon.") (8) Historical income per share before extraordinary item and historical net income per share have each been computed assuming a charge of $1,078,000 related to the redemption of the Company's redeemable stock and dividends accrued thereon. All outstanding shares of the Company's redeemable stock were redeemed with a portion of the net proceeds from the Company's November 1994 initial public offering. See the Company's Consolidated Financial Statements. (9) New Horizon commenced operations in August 1990 with 21 distribution sites. Accordingly, for all periods, acquisition data includes the acquisition activity of New Horizon. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND OF THE COMPANY The Company was organized in 1989 as "Thompson Capital Corporation" to acquire "Thompson Lacquer Company," a family-owned business that was founded in 1931. As a result of the acquisition in May 1989, the Company commenced operations with 12 distribution sites in Southern California. Since its inception in May 1989 through September 30, 1996 the Company has made a total of 50 acquisitions of businesses, including 14 acquisitions completed since September 30, 1995. With the exception of the merger with New Horizon, all such acquisitions were accounted for as purchases for financial reporting purposes. The Company's merger with New Horizon was consummated on October 14, 1993. New Horizon, now the core of the Company's Southeast Division, was organized in June 1990 to acquire the assets and businesses of two companies, one of which was founded in 1949 and the other of which was founded in 1977. As a result of the acquisitions, New Horizon commenced operations in August 1990 with 21 distribution sites and two warehouses. The New Horizon Merger was accounted for as a "pooling of interests" for financial reporting purposes. This method assumes that the Company and New Horizon have been merged since inception. Accordingly, the recorded assets and liabilities of the Company and New Horizon are carried forward at their historical amounts. The historical financial statements for periods prior to the consummation of the New Horizon Merger (for the combined entity) have been restated as though the Company and New Horizon had been combined for all periods presented. Such restated financial statements have also been adjusted to conform the accounting policies of the separate companies. Prior to the New Horizon Merger, New Horizon used an August 31 fiscal year end for financial reporting purposes. The Company's operations are currently organized into six divisions, including the Northern California Division, the Southern California Division, the Rocky Mountain Division (encompassing Colorado and Arizona), the Southeast Division (encompassing Florida, Georgia and Alabama), the Mid-Atlantic Division (encompassing North Carolina, South Carolina and Virginia) and the Northeast Division (encompassing Massachusetts and Connecticut). At September 30, 1996, the Company operated 101 distribution sites. Subsequent to September 30, 1996, the Company acquired two additional businesses operating two distribution sites. The acquired businesses had historical annual revenues of approximately $8.0 million. ACQUISITION ACCOUNTING The Company's acquisitions have enabled it to enter new markets and increase its penetration of existing markets, resulting in significant revenue growth and cost efficiencies related to the higher sales volumes. Since its inception through September 30, 1996, the Company has acquired or opened 123 distribution sites and has closed or consolidated 55 sites (including transactions effected by New Horizon). Acquisitions have generally been financed through the incurrence of debt and, in the case of certain larger acquisitions, the issuance of equity securities. During the initial integration phase of an acquisition, the Company typically has incurred integration-related selling, general and administrative expenses for training of staff members, for the conversion of information systems and for duplicate rents and other operating costs in connection with the consolidation of distribution sites. Depending upon the size of the acquisition, the Company expects such integration costs to be incurred primarily during the first six months after closing, although it has encountered delays and other complications in this process on certain occasions. Material amounts of goodwill and other intangibles have also been recorded and amortized against earnings as a result of the application of the purchase method of accounting for acquisitions other than the New Horizon Merger. In addition, to protect its purchased market share and to facilitate integration of the acquisition, the Company has also entered into various covenants not to compete and consulting agreements with the former owners of the acquired businesses. 19 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In connection with a $10.0 million term loan and credit facility provided by Heller in May 1989, the Company's predecessor issued to Heller a warrant (the "Heller Warrant"). The Heller Warrant had a "put" feature which provided Heller with the option to require the Company to repurchase the Heller Warrant at fair market value. For financial reporting purposes, the Company was required to record a non-cash charge (equal to the increased difference between the exercise price and the estimated fair market value of the Heller Warrant) during all periods through September 30, 1994 as interest expense, resulting in substantial charges to income over the period the Heller Warrant was outstanding. In connection with the closing of the Company's initial public offering, the Heller Warrant was exercised in full for 365,609 shares of Common Stock, thereby terminating the requirement that such charges be recognized after the recording of a final $1.1 million charge in the fiscal quarter ended September 30, 1994. See Note 7 to the Company's Consolidated Financial Statements. The Company recorded non-cash, nonrecurring charges aggregating $1.5 million in the fiscal year ended September 30, 1994 as a result of the transfer of certain options and shares of capital stock of the Company by certain stockholders to certain officers of the Company, which transactions were imputed to the Company for financial reporting purposes. The Company has not, and will not, incur any obligation in connection with such arrangements. See Note 12 to the Company's Consolidated Financial Statements. In connection with the New Horizon Merger, which was accounted for as a pooling of interests, the Company incurred and expensed in the September 1993 and December 1993 fiscal quarters significant nonrecurring costs for legal, accounting, consulting and other services related to that transaction. For financial reporting purposes, transaction costs related to a business combination accounted for as a pooling of interests are charged to expense as incurred. Also in connection with the New Horizon Merger, the existing debt of New Horizon was refinanced with the Company's principal lender, Heller, resulting in a charge of $483,000 that was recorded as an extraordinary item in the December 1993 quarter. In the fiscal quarter ended December 31, 1994, the Company recorded a non-cash extraordinary charge of $445,000 as a result of the write-off of a portion of unamortized debt issuance costs and discounts related to debt repaid with a portion of the net proceeds to the Company from its initial public offering. See "-- Liquidity and Capital Resources." In the fiscal quarter ended September 30, 1996, the Company recorded charges to income totaling approximately $3.5 million related to a sales and use tax audit of a predecessor company, write-down of inventory carrying value, disputed reimbursements from vendors and other charges. OVERVIEW In recent years, the Company has experienced significant growth in revenues derived principally from an aggressive acquisition program. The Company's revenues are derived primarily from the sale of automotive paint and related supplies to independent collision repair shops and automobile dealers. Additionally, trucking companies, schools, municipalities, government agencies, sellers of automotive salvage, refinishers, do-it-yourselfers, marine and aviation refinishers and other commercial and industrial users make up a smaller percentage of the Company's customer base. Historically, the mix of the Company's revenues has been relatively consistent. Approximately 70% of net sales were attributable to paint and paint products and approximately 30% of net sales were attributable to all related supplies for the fiscal year ended September 30, 1996. The margins on automotive paint and paint products are generally higher than those realized in the sale of related supplies, which include refinishing materials, supplies, accessories and tools. See "Item 1. Business--Industry Overview." 20 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS The following table sets forth for the periods indicated information derived from the Company's consolidated statements of operations expressed as a percentage of net sales, and the percentage change in such items compared to the same period in the prior year. There can be no assurance that the trends in sales growth or operating results will continue in the future.
Fiscal Fiscal Year Ended Year Ended September 30, September 30, 1995 over 1996 over Fiscal Year Fiscal year Year Ended September 30, Ended Ended -------------------------- September 30, September 30, 1994 1995 1996 1994 1995 ----- ----- ----- ----- ---- Net sales ......................... 100.0% 100.0% 100.0% 35.5% 35.1% Cost of sales ..................... 62.5 62.6 63.6 35.7 37.1 ----- ----- ----- Gross profit .................... 37.5 37.4 36.4 35.2 31.8 Selling, general and administrative 29.3 28.1 31.3 30.0 50.9 Depreciation expense .............. 1.2 1.0 1.0 21.3 33.2 Amortization of goodwill and other intangible assets ......... 1.5 1.3 1.3 11.6 35.0 Interest expense, net ............. 2.6 2.2 1.5 14.6 (10.9) Total of certain charges ........ 5.8 -- -- NM -- ----- ----- ----- Income (loss) before income taxes and extraordinary item .......... (2.9%) 4.8% 1.3% NM (62.1) ===== ===== =====
Fiscal year ended September 30, 1996 compared to Fiscal year ended September 30, 1995 Net sales for the fiscal year ended September 30, 1996 increased $46.3 million, or 35.1%, to $178.1 million from $131.8 million for the same period in 1995. This increase was primarily attributable to net sales of 14 businesses acquired since September 30, 1995. Sales in existing operations were approximately flat compared to the same period in 1995, with increased selling prices offsetting a slight decrease in volume. See "--Quarterly Information and Seasonality," "--Inflation" and Item 1. " Businesss--Industry Overview." Gross profit for the fiscal year ended September 30, 1996 increased to $64.9 million from $49.3 million for the fiscal year ended September 30, 1995. Gross profit as a percentage of net sales of 36.4% for the fiscal year ended September 30, 1996 decreased from gross profit as a percentage of net sales of 37.4% for the fiscal year ended September 30, 1995. The decrease in gross profit as a percentage of net sales is due primarily to increased write-downs of inventory values for obsolescence, shrinkage and the effects of increased customer discounts. Gross profit may vary from period to period as a result of, among other factors, increased purchases of inventory in anticipation of vendor price increases, discount and rebate programs of large suppliers to the Company and fluctuations in discounts granted to large customers in certain geographic markets in which the Company operates. 21 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Selling, general and administrative expenses increased by $18.8 million, or 50.9%, to $55.8 million for the fiscal year ended September 30, 1996 as compared to $37.0 million for the fiscal year ended September 30, 1995. For the fiscal year ended September 30, 1996, selling, general and administrative expenses were 31.3% of net sales as compared to 28.1% of net sales for the fiscal year ended September 30, 1995. The absolute increase in selling, general and administrative expenses reflects the increase in costs necessary to support the Company's rapid growth through its acquisition program. Included in fiscal year 1996 selling, general and administrative expenses were costs totaling approximately $3 million relating to reserves for a sales and use tax audit of a certain predecessor company, and disputed reimbursements due from vendors. The increase in selling, general and administrative expenses as a percentage of net sales also reflects increased costs relating to the Company's expansion and development of its administrative and marketing infrastructure, costs of integrating certain acquisitions in the Mid-Atlantic and Southeast Divisions in which paint lines distributed by certain acquired businesses were switched to other manufacturer' product lines, and the effect of increases in operating costs without a corresponding increase in sales of existing distribution sites. Depreciation expense increased to $1.8 million in the fiscal year ended September 30, 1996 from $1.4 million in the fiscal year ended September 30, 1995. The increase in depreciation expense is attributable to an increase in fixed assets related to the expanded operations of the Company. Amortization expense increased to $2.3 million in the fiscal year ended September 30, 1996 from $1.7 million in the fiscal year ended September 30, 1995. The increase in amortization expense reflects additions to intangible assets of $24.3 million during the year ended September 30, 1996. 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 decreased to $2.6 million for the fiscal year ended September 30, 1996 from $2.9 million in the fiscal year ended September 30, 1995. The decrease in interest expense as compared to the prior period is primarily attributable to lower average debt balances outstanding during the fiscal year ended September 30, 1996 as compared to the year earlier period. The lower average debt balances outstanding is attributable primarily to a reduction in October 1995 in senior debt outstanding from the application of the net proceeds of a secondary offering of common stock, and to the timing and amount of debt balances incurred in connection with business acquisition activity during the year ended September 30, 1996. At September 30, 1996, senior debt outstanding under the Company's 1995 Credit Agreement totaled $36.9 million, bearing interest at an effective rate of 7.1%. 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." 22 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Income tax expense increased to $1.3 million for the fiscal year ended September 30, 1996 from $805,000 for the fiscal year ended September 30, 1994. The Company's effective tax rate increased to 55.0% for the fiscal year ended September 30, 1996 from 12.8% for the fiscal year ended September 30, 1995. The effective tax rate for fiscal year 1996 increased as a result of the effect of an increase in amortization of non-deductible intangible assets as a percentage of taxable income as compared to the year earlier period. In fiscal year 1995, the Company's effective tax rate was reduced as a result of changes in its valuation allowance for deferred taxes, which did not recur in fiscal year 1996. Fiscal year ended September 30, 1995 compared to Fiscal year ended September 30, 1994 Net sales for the fiscal year ended September 30, 1995 increased $34.6 million, or 35.5%, to $131.8 million from $97.3 million for the same period in 1994. This increase was primarily attributable to net sales of 16 businesses acquired since September 30, 1994. Sales in existing operations were approximately flat compared to the same period in 1994, with increased selling prices offsetting a slight decrease in volume. See "--Quarterly Information and Seasonality," and "--Inflation" and Item 1. " Businesss--Industry Overview." Gross profit for the fiscal year ended September 30, 1995 increased to $49.3 million from $36.4 million for the fiscal year ended September 30, 1994. Gross profit as a percentage of net sales of 37.4% for the fiscal year ended September 30, 1995 decreased slightly from gross profit as a percentage of net sales of 37.5% for the fiscal year ended September 30, 1994. Gross profit may vary from period to period as a result of, among other factors, increased purchases of inventory in anticipation of vendor price increases, discount and rebate programs of large suppliers to the Company and fluctuations in discounts granted to large customers in certain geographic markets in which the Company operates. Selling, general and administrative expenses increased by $8.5 million, or 30.0%, to $37.0 million for the fiscal year ended September 30, 1995 as compared to $28.5 million for the fiscal year ended September 30, 1994. For the fiscal year ended September 30, 1995, selling, general and administrative expenses were 28.1% of net sales as compared to 29.3% of net sales for the fiscal year ended September 30, 1994. The absolute increase in selling, general and administrative expenses reflects the increase in costs necessary to support the Company's rapid growth through its acquisition program. The decrease in selling, general and administrative expenses as a percentage of net sales reflects growth of revenues through acquisitions of businesses without a corresponding increase in administrative costs or headcount, as well as other cost savings achieved through the consolidation of distribution sites. The Company's increased costs for fiscal 1995 reflect the fact that as of the end of the fourth quarter the Company had not completed the integration of certain acquisitions in the Southeast Division where volume more than doubled over the prior year. Depreciation expense increased to $1.4 million in the fiscal year ended September 30, 1995 from $1.1 million in the fiscal year ended September 30, 1994. The increase in depreciation expense is attributable to an increase in fixed assets related to the expanded operations of the Company. Amortization expense increased slightly to $1.7 million in the fiscal year ended September 30, 1995 from $1.5 million in the fiscal year ended September 30, 1994. This result reflects the net effect of an increase in amortization expense relating to goodwill, offset by a decrease in amortization expense relating to consulting agreements and covenants not to compete with former employees of certain acquired businesses. 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 increased to $2.9 million for the fiscal year ended September 30, 1995 from $2.5 million in the fiscal year ended September 30, 1994. The increase in interest expense as compared to the prior period was attributable to a net increase in the Company's debt as a result of acquisitions subsequent to September 30, 1994. At September 30, 1995, senior debt outstanding under the Company's 1995 Credit Agreement totaled $40.3 million, bearing interest at an effective rate of 7.87%. 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." 23 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company incurred certain charges in the fiscal year ended September 30, 1994 that did not recur in the 1995 period. During the 1994 period, the Company recorded a non-cash charge of $2.9 million (the interest on the Heller warrant purchase obligation) to recognize the increased difference between the exercise price and the fair market value of the Heller Warrant, and a one-time charge of $1.5 million related to certain special incentive stock compensation arrangements between certain stockholders and officers of the Company, which were imputed to the Company for financial reporting purposes. Also during the 1994 period, the Company recorded a charge of $1.1 million representing certain non-recurring legal, accounting, consulting and other services related to the New Horizon Merger. See "--Acquisition Accounting." A non-cash extraordinary charge in the amount of $445,000 was recorded in the fiscal year ended September 30, 1995 in connection with the writeoff of certain unamortized deferred financing costs related to loans which were repaid from proceeds of the Company's initial public offering. The Company also recorded an extraordinary item in the amount of $483,000 in the fiscal year ended September 30, 1994 in connection with the repayment of certain debt of New Horizon as a result of its merger with the Company in October 1993. At September 30, 1994, the Company had deferred tax assets of approximately $2.5 million that were offset by a valuation allowance. During the fiscal year ended September 30, 1995, the Company recognized substantially all of such deferred tax assets through the reduction of the deferred tax assets' valuation allowance to the extent that deferred taxes were anticipated to be realizable. As a result of utilizing available deferred tax assets, the Company's effective tax rate for the fiscal year ended September 30, 1995 was 12.8%. The Company presently anticipates that it will recognize a provision for income taxes in future periods which will approximate currently enacted federal and state statutory rates. SEASONALITY AND OTHER VARIATIONS IN BUSINESS RESULTS The Company's revenues 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 of supplier price increases. 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. Such fluctuations should be reduced somewhat in the future as the Company continues to become more geographically diversified. In addition, the location, timing and structure of acquisitions may cause substantial fluctuations of operating results from quarter to quarter. The Company's revenues 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. See Item 1. "Businesss--Industry Overview." 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 through a combination of secured, subordinated 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 has expended approximately $80.0 million since 1989 and through September, 1996 to acquire businesses. See Notes 7, 10 and 11 to the Company's Consolidated Financial Statements. 24 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company raised approximately $25.1 million in gross proceeds (after payment of underwriting discounts) in its initial public offering which closed November 16, 1994. In that offering, the Company issued and sold 2,450,000 shares of common stock (including the full 330,000 shares covered by the underwriters' overallotment option), and a selling stockholder sold 80,000 shares. The net proceeds from the offering received by the Company were used to repay debt and retire its various classes of redeemable capital stock. In October 1995, the Company completed a secondary public offering in which the Company realized gross proceeds of approximately $34.3 million (after payment of underwriting discounts.) In that offering, the Company sold 2,271,475 shares of Common Stock (including the full 271,475 shares covered by the underwriters' overallotment option) and selling stockholders sold an aggregate of 1,178,525 shares (including the full 178,525 covered by the underwriters' overallotment option). The net proceeds received by the Company were used to prepay debt outstanding under the 1995 Credit Agreement. Cash used by operating activities was $1.4 million for the fiscal year ended September 30, 1996 as compared to cash provided by operating activities of $2.7 million for the fiscal year ended September 30, 1995. The decrease in cash provided by operations is primarily attributable to a decrease in net income and to cash used for increased levels of accounts receivable and inventories. The increase in net income during the 1995 period was substantially offset by increases in the Company's working capital which required a use of cash. The increased level of working capital at September 30, 1996 is primarily the result of the increased level of operations of the Company. The Company's investing activities used cash totaling $22.1 million to acquire 14 businesses during the fiscal year ended September 30, 1996, as compared to a use of cash of $23.2 million to acquire 16 businesses during the fiscal year ended September 30, 1995. In addition, the Company had capital expenditures of $1.9 million and $1.7 million in the fiscal year ended September 30, 1996 and 1995, respectively. Capital expenditures were primarily for refurbishment of distribution sites, upgrades of computer systems and the replacement of delivery vehicles. The Company expects the absolute level of its capital expenditures to increase in fiscal 1997 in connection with the planned upgrade of its management information system and as a result of the increased size of the Company. The Company bills its customers upon delivery of products. The Company's standard payment terms provide for a 2% cash discount if current purchases are paid for by the tenth of the following month; unpaid invoices are generally due by the thirtieth of such month. The average days' sales outstanding for accounts receivable at September 30, 1996 of approximately 38 days increased from the average days' sales outstanding of approximately 33 days at September 30, 1995. The increase in average days sales reflects a slower collection experience at certain acquired businesses, and a change in the mix between customers with COD and weekly credit terms and customers with monthly accounts. The percentage of customers with account balances more than 60 days past due at September 30, 1996 was consistent with the prior year. The Company's inventories at September 30, 1996 represented approximately 89 days' sales, as compared to approximately 83 days' inventory on hand at September 30, 1995. The increase is attributable primarily to increased inventory levels in the Company's Southeast region arising from a transition from a warehouse replenishment (hub and spoke) process to a process whereby large paint orders are shipped directly to distribution sites by vendors. Days' inventory on hand varies based upon, among other factors, the effect of acquired businesses having inventory levels which vary from existing Company operations and the effect on inventory levels of volume buying at various times during a fiscal year to maximize supplier discounts. The Company's accounts payable at September 30, 1996 represented approximately 47 days' purchases, compared to 47 days' at September 30, 1995. 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 will continue to vary from period to period depending on which vendor payment programs are available. Although there can be no assurance that such vendor payment programs will be continued, they have been commonplace in the Company's industry for many years and have routinely been offered by each of its principal suppliers. If, however, these programs were changed or terminated, the Company's liquidity requirements could change materially. 25 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company had working capital of $30.2 million at September 30, 1996. In addition to working capital, the Company's principal source of liquidity was the 1995 Credit Agreement. In fiscal year 1996, the 1995 Credit Agreement was amended to increase the maximum amount available to $75 million from $50 million. The maximum amount available under the 1995 Credit Agreement consists of (i) a revolving credit facility of $18 million, limited to a borrowing base, (ii) a term loan of $30 million, and (iii) an acquisition loan facility of $27 million. Advances under the 1995 Credit Agreement bear interest based upon either a "base rate" or LIBOR at the election of the Company, plus a spread which is determined based on the Company's ratio of senior debt to operating cash flow for the prior twelve months. As of September 30, 1996, borrowings under the 1995 Credit Agreement bore interest at a rate of 7.1% per annum. 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 limit, among other things, 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 (the Third Amendment to Credit Agreement) effective September 30, 1996. As a result of the operating results reported by the Company in the fourth quarter of fiscal 1996, the Company was near the amended limit of several covenant ratios; failure to satisfy the financial 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 financial covenants contained in the 1995 Credit Agreement in future periods, it is likely that the terms of the Credit Agreement would be renegotiated, the outcome of which could result in higher interest rates on debt outstanding under the 1995 Credit Agreement, a reduction of amounts available under the agreement and other adverse changes in the terms under which outstanding debt is repaid, which could be material. The 1995 Credit Agreement requires annual prepayments in an amount equal to 50% of the Company's excess cash flow (as defined) commencing in 1997, and annual repayments, payable quarterly, of the $29.5 million term loan of: $2.25 million in fiscal 1997, $3.50 million in fiscal 1998, $5.25 million in fiscal 1999, $6.25 million in fiscal 2000, $7.00 million in fiscal 2001 and $5.25 in fiscal 2002. Annual repayments of the acquisition loan, payable quarterly, commence in fiscal 1998 based on the following percentages of the aggregate amount of acquisition loans extended to the Company as of July 1998: 3.75% in fiscal 1998, 16.25% in fiscal 1999, 22.50% in fiscal 2000, 31.25% in fiscal 2001 and 26.25% in fiscal 2002. At September 30, 1996, the Company had approximately $852,000 in deferred fees and other origination costs, net of related accumulated amortization, related to the 1995 Credit Agreement. See Notes 2, 4 and 7 to the Company's Consolidated Financial Statements. In October, 1995 the Company completed a secondary public offering in which the Company realized gross proceeds, net of underwriter discounts, of approximately $34.3 million. The net proceeds from the offering were used to prepay debt outstanding under the 1995 Credit Agreement. In connection with the prepayment of such debt, the 1995 Credit Agreement was amended to permit the Company to reborrow amounts under its $25 million acquisition loan facility which were prepaid with the proceeds of the secondary offering. As of November 30, 1996, the maximum amount available to borrow, in circumstances in which the Company did not exceed the resultant ratios of senior total indebtedness to pro forma operating cash flow, were revolving credit loans of up to $10.1 million and acquisition loans of $24.6 million. However, as noted above, the Company was near the limit of certain covenant ratios, and accordingly, in the absence of increases in operating cash flow, future borrowings may be restricted or may not be available. 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. This program does not obligate the Company to acquire any particular amount of Common Stock, has no set time limit and may be suspended at any time at the Company's discretion. Through December 16, 1996, the Company had repurchased 63,700 shares at an average price of $6.69 per share under the program. Any further 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 can not predict whether or when additional shares, if any, will be repurchased. 26 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Following the application of the net proceeds from the Company's public offerings in November 1994 and October 1995, the Company has benefitted from significantly improved liquidity and capital resources because of the replacement of a significant portion of its secured debt, and all of its subordinated debt and redeemable stock (as well as the related interest and dividend obligations), with Common Stock. Management of the Company presently believes that cash flow from operations, together with its present sources of liquidity and its anticipated borrowing capacity will be sufficient to support its operations and general business and capital liquidity requirements for the next twelve months. To finance future acquisitions, the Company expects to utilize its borrowing capacity 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. See Item 1. "Business--Business Risks." INFLATION The Company believes that, to date, inflation has not had a material adverse effect on its business. In recent years, however, automotive paint prices have generally risen at rates in excess of the overall inflation rate due, in part, to the changing paint formulations and related costs incurred by manufacturers to comply with environmental regulations, particularly in California. Historically, the Company has been successful in passing most, if not all, of such increases on to the customer. In addition, price increases have at times created profit opportunities to large distributors (such as the Company) with the resources to buy inventory in anticipation of price increases, which opportunities may or may not be available in the future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the index included at "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item is incorporated by reference from the information under the captions "Election of Directors," "Certain Information With Respect to Executive Officers" and "Compliance With Section 16(a) Under the Securities Exchange Act of 1934" contained in the Proxy Statement relating to the Company's 1997 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the fiscal year covered by this Report. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference from the information under the caption "Executive Compensation" contained in the Proxy Statement relating to the Company's 1997 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the fiscal year covered by this Report. 27 27 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference from the information under the caption "Security Ownership of Certain Beneficial Holders and Management" contained in the Proxy Statement relating to the Company's 1997 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the fiscal year covered by this Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated by reference from the information under the caption "Certain Transactions" contained in the Proxy Statement relating to the Company's 1997 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the fiscal year covered by this Report. 28 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. The following consolidated financial statements for the Company and its predecessor are included as part of this report: Index to Consolidated Financial Statements.................. Page F-1 2. Results of Operations - Unaudited Quarterly Financial Information................................................. Page F-19 3. The following financial statement schedules for the Company and its predecessor are included as part of this report: Independent Auditors' Report on Supplemental Schedule....... Page S-1 Schedule II - Valuation and Qualifying Accounts............. Page S-2 All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements. 4. The following exhibits to this report are filed or incorporated by reference herein as indicated. Management contracts or compensatory plans or arrangements required to be filed as exhibits to this report are identified by an asterisk (*). Exhibits are numbered in accordance with Item 601 of Regulation S-K.
Number Description - ------ ----------- +2.1 Agreement and Plan of Merger dated as of October 14, 1993 by and among the Company, New Horizon Auto Paint Holdings, Inc. ("New Horizon") and New Horizon Auto Paint & Body Supplies, Inc. ("NHH Sub") (Filed as Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) +2.2 Asset Purchase Agreement dated as of February 15, 1993 by and among the Company, Dewitt's A to Z Paint Supply, Inc. ("Dewitt's"), John W. DeWitt, Daniel L. DeWitt, and the controlling shareholders of DeWitt's (Filed as Exhibit 2.2 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) +2.3 Asset Purchase Agreement dated as of March 31, 1994 by and among the Company, Al West Paint Co., Alfred H. West, Scott A. West, Helen Virginia West, Debra West and Cindy Peltiner (Filed as Exhibit 2.3 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) +2.4 Asset Purchase Agreement dated as of March 31, 1994 by and among the Company, F.A. Heckendorf, Inc. and F.A. Heckendorf, Jr. (Filed as Exhibit 2.4 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 2.5 Reincorporation Merger Agreement and Plan of Merger dated as of August 18, 1994 between the Company and Thompson Capital Corporation (Filed as Exhibit 2.5 to the Company's Registration Statement on Form S-1 (Registration No. 33- 83310) and incorporated herein by reference.) +2.6 Stock Purchase Agreement dated as of January 6, 1995, among Herman Lewis, the Company, and Arnold Paint Company, a Florida corporation (Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated January 11, 1995 and incorporated herein by reference.) +2.7 Asset Purchase Agreement dated as of May 9, 1995, as amended, by and among the Company and SEV Corporation (Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated May 31, 1995 and incorporated herein by reference.) 3.1 Amended and Restated Certificate of Incorporation of the Company (Filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994 and incorporated herein by reference.)
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Number Description - ------ ----------- 3.2 Bylaws of the Company (Filed as Exhibit 3.3 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 3.3 First Amendment to Bylaws of the Company (Filed as Exhibit 3.3 to the Company's Registration Statement on Form S-1 (Registration No. 33-96256) and incorporated herein by reference.) 4.1 Common Stock Purchase Warrant dated April 7, 1994 made by the Company in favor of Chase Venture Capital Associates, L.P. ("Chase") (Filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 4.3 Specimen of Common Stock Certificate of the Company (Filed as Exhibit 4.3 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 4.4 Form of Warrant Agreement between the Company and SEV Corporation. (Filed as Exhibit 2.2 to the Company's Current Report on Form 8-K dated May 31, 1995 and incorporated herein by reference.) 10.1 Securities Purchase and Sale Agreement dated as of May 26, 1989 by and among D. Hunt Ramsbottom, Jr. ("Ramsbottom"), Mortimer A. Kline, III ("Kline") and Wedbush Capital Partners ("WCP"), as amended by that certain First Amendment to Securities Purchase and Sale Agreement dated as of June 5, 1992 and as terminated by that certain Termination of Securities Purchase and Sale Agreement dated as of June 30, 1994 (Filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.2 1994 Stock Option Plan (the "1994 Plan") (Filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.3 Amendment to the 1994 Plan (Filed as Exhibit 10.64 to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1995 and incorporated herein by reference.) 10.4 Form of Stock Option Agreement under 1994 Plan (Filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.5 Director's Fee Agreement dated as of March 6, 1990 by and between the Company and Frank C. Alexander as amended by the Amendment to Director's Fee Agreement dated as of June 30, 1994 (Filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.6 1989 Stock Option Plan (the "1989 Plan") (Filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.7 Form of Stock Option Certificate under the 1989 Plan between the Company and Frank C. Alexander ("Alexander") (Filed as Exhibit 10.6 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.8 Memorandum of Understanding and Stock Option Agreement, dated June 29, 1994, by and among CVCA, WCP, Ramsbottom and Kline (Filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.9 Registration Rights Agreement dated as of October 14, 1993, as amended by Amendment No. 1 to Registration Rights Agreement dated as of March 31, 1994, by and among the Company, Robert Thompson, as trustee of The Family Trust, Ramsbottom as trustee of the Voting Trust, Ramsbottom, Kline, WCP, CVC, Heller, Alexander, John F. Kirtley, P. Jeffrey Leck and John B. Norrie (Filed as Exhibit 10.8 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.10 Credit Agreement dated as of January 6, 1995 between the Company and Heller as Agent and Lender (Filed as Exhibit 10.56 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 1994 and incorporated herein by reference.) 10.11 $15,000,000 Revolving Note dated January 6, 1995 in favor of Heller (Filed as Exhibit 10.57 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 1994 and incorporated herein by reference.) 10.12 $10,000,000 Term Note A dated January 6, 1995 in favor of Heller (Filed as Exhibit 10.58 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 1994 and incorporated herein by reference.) 10.13 $25,000,000 Acquisition Note dated January 6, 1995 in favor of Heller (Filed as Exhibit 10.59 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 1994 and incorporated herein by reference.)
30 30
Number Description - ------ ----------- 10.14 Security Agreement dated as of January 6, 1995 between the Company and Heller as Agent for the benefit of all Lenders (Filed as Exhibit 10.60 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 1994 and incorporated herein by reference.) 10.15 Pledge Agreement dated as of January 6, 1995 in favor of Heller as Agent for the benefit of all Lenders (Filed as Exhibit 10.61 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 1994 and incorporated herein by reference.) 10.16 Subordination Agreement dated as of October 14, 1993 by and between BASF Corporation ("BASF") and Heller (Filed as Exhibit 10.18 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.17 Subordination Agreement dated as of October 14, 1993 by and between PPG Industries, Inc. ("PPG") and Heller (Filed as Exhibit 10.19 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.18 Installment Note dated December 15, 1992 by D. Hunt Ramsbottom, Jr. in favor of the Company, in the principal amount of $125,000 (Filed as Exhibit 10.24 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.19 Employment Agreement dated October 14, 1993 between D. Hunt Ramsbottom, Jr. and the Company (Filed as Exhibit 10.25 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.20 Employment Agreement dated October 14, 1993 between Mortimer A. Kline, III and the Company (Filed as Exhibit 10.26 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.21 First Amendment to Employment Agreement, dated as of September 29, 1994, by and between the Company and Mortimer A. Kline, III (Filed as Exhibit 10.45 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.24 Senior Subordinated Notes and Warrant Purchase Agreement dated April 7, 1994 by and between the Company and Chase (Filed as Exhibit 10.30 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.25 $3,000,000 Senior Subordinated Promissory Note dated April 7, 1994 made by the Company in favor of Chase (Filed as Exhibit 10.31 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.26 Note Purchase Agreement dated as of August 31, 1990 between the Company and Chase (Filed as Exhibit 10.32 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.27 Form of Indemnification Agreement between the Company and its directors and executive officers (Filed as Exhibit 10.34 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.28 Letter dated October 14, 1993 from the Company to certain former shareholders of New Horizon regarding indemnification (Filed as Exhibit 10.35 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.30 Security Agreement dated as of October 14, 1993 by and between the Company and BASF (Filed as Exhibit 10.40 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.31 Lease, dated as of August 31, 1990, by and between Central Paint & Body Supplies, Inc. and NHH Sub, for premises at 1407 West Central, Orlando, Florida (Filed as Exhibit 10.42 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.32 7% Promissory Note dated December 1, 1993 by the Company in favor of Sophers Auto Paints & Supply, Inc. (Filed as Exhibit 10.44 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.33 First Amendment to the 1989 Plan (Filed as Exhibit 10.46 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.34 Installment Note dated August 1, 1994 by D. Hunt Ramsbottom, Jr. in favor of the Company in the amount of $21,016.06 (Filed as Exhibit 10.47 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.)
31 31
Number Description - ------ ----------- 10.35 Concurrent Use Agreement dated as of October 14, 1994 between PBE Warehouse, Inc. and the Company (Filed as Exhibit 10.48 to the Company's Registration Statement on Form S-1 (Registration No. 33-83310) and incorporated herein by reference.) 10.36 Resignation and Termination Agreement and Release of All Claims, effective as of August 31, 1994, between John B. Norrie and the Company (Filed as Exhibit 10.55 to the Company's Annual Report on Form 10-K for the year ended September 30, 1994 and incorporated herein by reference.) 10.37 Non-Negotiable Adjustable Promissory Note Subject to Right of Setoff (Filed as Exhibit 2.2 to the Company's Current Report on Form 8-K filed January 24, 1995 and incorporated herein by reference). 10.38 Employment Agreement dated as of May 31, 1995, between the Company and Courtland D. Gates (Filed as Exhibit 2.4 to the Company's Current Report on Form 8-K dated May 31, 1995 and incorporated herein by reference.) 10.39 Agreement Not to Compete, made and entered into as of May 9, 1995 between the Company, SEV Corporation and Courtland D. Gates (Filed as Exhibit 2.3 to the Company's Current Report on Form 8-K dated May 31, 1995 and incorporated herein by reference.) 10.40 Non-Negotiable Promissory Note Subject to Right of Setoff payable to D & S Autocolor, Inc. by the Company (Filed as Exhibit 10.69 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 1995 (File No. 0-25038) and incorporated herein by reference.) 10.41 Non-Negotiable Promissory Note Subject to Right of Setoff payable to Wiebe Enterprises, Inc. by the Company (Filed as Exhibit 10.70 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 1995 (File No. 0-25038) and incorporated herein by reference.) 10.42 Non-Negotiable Promissory Note Subject to Right of Setoff payable to State Auto Paint & Supply Co., by the Company (Filed as Exhibit 10.71 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 1995 (File No. 0-25038) and incorporated herein by reference.) 10.43 Incentive Compensation Plan for Senior Executives (Filed as Exhibit 10.44 to the Company's Registration Statement on Form S-1 (Registration No. 33-96256) and incorporated herein by reference.) 10.45 Stock Option Plan for Outside Directors (the "Outside Director Plan") (Filed as Exhibit 10.46 to the Company's Registration Statement on Form S-1 (Registration No. 33-96256) and incorporated herein by reference.) 10.46 Form of Stock Option Agreement under the Outside Director Plan (Filed as Exhibit 10.47 to the Company's Registration Statement on Form S-1 (Registration No. 33-96256) and incorporated herein by reference.) 10.49 Non-Compete Agreement, dated as of August 31, 1990, between NHH Sub and Robert B. Smithwick, Jr. (Filed as Exhibit 10.50 to the Company's Registration Statement on Form S-1 (Registration No. 33-96256) and incorporated herein by reference.) 10.50 Amendment No. 1, dated as of September 19, 1995 to the Credit Agreement dated as of January 6, 1995 between the Company, Heller and the banks named therein. (Filed as Exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 and incorporated herein by reference.) 10.51 Underwriting Agreement, dated September 28, 1995 between the Company, the Selling Stockholders named therein, and Smith Barney, Inc., PaineWebber Incorporated and William Blair & Company, as representatives of the several underwriters (Filed as Exhibit 10.51 to the Company's Registration statement on Form S-1 (Registration No. 33-96256) and incorporated herein by reference.) **10.52 Amendment No. 2, dated as of July 31, 1996 to the Credit Agreement dated as of January 6, 1995 between the Company, Heller and the banks named therein. **10.53 Third Amendment to Credit Agreement, dated as of September 30, 1996 to the Credit Agreement dated as of January 6, 1995 between the Company, Heller and the banks named therein. **11.1 Computation of Per Share Earnings **21.1 Subsidiaries of the Registrant. **23.2 Consent of Deloitte & Touche LLP **24.1 Power of Attorney (included on page 30)
- ----------- ** Filed herewith. + The schedules and similar attachments to these exhibits have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request. 32 32 (b) A report on Form 8-K 1996 dated September 20, 1996 was filed during the fiscal quarter ended September 30, 1996. The Board of Directors approved a change from a fiscal year that ends on 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 will become effective for the 1997 fiscal year which began on October 1, 1996 and will end on September 27, 1997. (c) Included in "Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K,"subsection (a). (d) None are required to be filed with this report. 33 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. THOMPSON PBE, INC. BY: /S/ Mortimer A. Kline, III -------------------------------- Date: December 31, 1996 Mortimer A. Kline,III Chairman of the Board, Chief Executive Officer, and Secretary KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mortimer A. Kline, III and Charles E. Barrantes, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1934, this Report on Form 10-K has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date - ------------------------------------ ---------------------------- ------------------ /S/ Mortimer A. Kline, III Chairman of the Board, Chief December 31, 1996 - ------------------------------------ Executive Officer Mortimer A. Kline, III and Director (Principal Executive Officer) /S/ Charles E. Barrantes Executive Vice President and December 31, 1996 - ------------------------------------ Chief Financial Officer Charles E. Barrantes (Principal Financial Officer) /S/ Michael O'Donovan Vice President, Corporate December 31, 1996 - ------------------------------------ Controller Michael O'Donovan (Principal Accounting Officer) /S/ Frank C. Alexander Director December 31, 1996 - ------------------------------------ Frank C. Alexander /S/ David L. Ferguson Director December 31, 1996 - ------------------------------------ David L. Ferguson /S/ D. Hunt Ramsbottom, Jr. Director December 31, 1996 - ------------------------------------ D. Hunt Ramsbottom, Jr. /S/ John D. Roach Director December 31, 1996 - ------------------------------------ John D. Roach /S/ Louis A. Simpson Director December 31, 1996 - ------------------------------------ Louis A. Simpson
34 34 THOMPSON PBE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- Consolidated Balance Sheets at September 30, 1995 and 1996 . . . . F-2 Consolidated Statements of Operations for each of the three years in the period ended September 30, 1996 . . . . . . . . . . . . . F-3 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended September 30, 1996 . . . F-4 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1996 . . . . . . . . . . . . . F-5 Notes to Consolidated Financial Statements . . . . . . . . . . . . F-6 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . F-20
F-1 35 THOMPSON PBE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, ------------- 1995 1996 ---- ---- ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 665 $ 482 Accounts receivable, net of allowance for doubtful accounts of $592 (1995) and $1,018 (1996) . . . . . . . 14,195 19,741 Inventory . . . . . . . . . . . . . . . . . . . . . . . . 21,877 31,440 Prepaid expenses and other current assets . . . . . . . . 2,080 4,505 Income tax refund receivable . . . . . . . . . . . . . . 1,435 Deferred income taxes . . . . . . . . . . . . . . . . . . 723 1,485 Deferred offering costs . . . . . . . . . . . . . . . . . 945 -------- ---------- Total current assets . . . . . . . . . . . . . . . . 40,485 59,088 Property and equipment, net . . . . . . . . . . . . . . . 4,811 7,430 Intangible assets . . . . . . . . . . . . . . . . . . . . 35,282 57,403 Other assets . . . . . . . . . . . . . . . . . . . . . . 228 263 Deferred income taxes . . . . . . . . . . . . . . . . . . 906 - Due from officers . . . . . . . . . . . . . . . . . . . . 196 196 -------- ---------- TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 81,908 $ 124,380 ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term obligations . . . . . . . . $ 3,759 $ 7,013 Accounts payable . . . . . . . . . . . . . . . . . . . . 8,901 13,280 Accrued expenses and other current liabilities . . . . . 6,208 8,546 -------- -------- Total current liabilities . . . . . . . . . . . . . 18,868 28,839 Long-term obligations . . . . . . . . . . . . . . . . . . 46,084 44,307 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . 64,952 73,146 -------- -------- Commitments and contingencies . . . . . . . . . . . . . . Stockholders' equity: Preferred stock, par value $0.001 per share; 3,000,000 shares authorized; none issued and outstanding . . . . . Common stock, par value $0.001 per share; 25,000,000 shares authorized; 6,391,946 (1995) and 8,692,438 (1996) shares issued and outstanding . . . . . . . . . 6 9 Additional paid in capital -- common stock . . . . . . . 28,277 61,479 Accumulated deficit . . . . . . . . . . . . . . . . . . . (11,327) (10,254) -------- --------- Total stockholders' equity . . . . . . . . . . . . 16,956 51,234 -------- --------- TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 81,908 $ 124,380 ======== =========
See accompanying notes to consolidated financial statements. F-2 36 THOMPSON PBE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1995 1996 ---- ---- ---- Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ 97,271 $131,827 $178,139 Cost of sales . . . . . . . . . . . . . . . . . . . . . . 60,840 82,562 113,210 -------- -------- -------- Gross profit . . . . . . . . . . . . . . . . . . . . . . 36,431 49,265 64,929 -------- -------- -------- Selling, general and administrative expenses . . . . . . 28,463 36,996 55,831 Depreciation . . . . . . . . . . . . . . . . . . . . . . 1,143 1,387 1,848 Amortization of intangible assets . . . . . . . . . . . 1,504 1,679 2,267 Interest expense . . . . . . . . . . . . . . . . . . . . 2,546 2,918 2,600 Consulting expense . . . . . . . . . . . . . . . . . . . 102 Interest on Heller stock warrant purchase obligation . . 2,870 Special incentive stock compensation . . . . . . . . . . 1,472 Merger costs . . . . . . . . . . . . . . . . . . . . . . 1,146 -------- -------- --------- Total . . . . . . . . . . . . . . . . . . . . . . . 39,246 42,980 62,546 -------- -------- --------- Income (loss) before provision for income taxes and extraordinary item . . . . . . . . . . . . . (2,815) 6,285 2,383 Provision for income taxes . . . . . . . . . . . . . . . (805) (1,310) -------- -------- --------- Income (loss) before extraordinary item . . . . . . . . . (2,815) 5,480 1,073 Extraordinary item - early extinguishment of debt . . . . (483) (445) -------- -------- --------- Net income (loss) . . . . . . . . . . . . . . . . . . . $ (3,298) $ 5,035 $ 1,073 ========= ======== ========= PER SHARE DATA: Income before extraordinary item . . . . . . . . . . . . $5,480 Redemption of redeemable stock and dividends accrued on redeemable stock . . . . . . . . . . . . . . . . . . (1,078) -------- Income available to common stockholders before extraordinary item . . . . . . . . . . . . . . . . . . 4,402 Extraordinary item - early extinguishment of debt . . . . (445) -------- Net income available to common stockholders . . . . . . . $ 3,957 $ 1,073 ======== ========= Income per share before extraordinary item . . . . . . . $ 0.70 $0.12 Extraordinary item - early extinguishment of debt . . . . $ (0.07) Net income per share . . . . . . . . . . . . . . . . . . $ 0.63 $0.12 Weighted average number of common and common equivalent shares outstanding . . . . . . . . . . . . . 6,317 8,850
See accompanying notes to consolidated financial statements. F-3 37 THOMPSON PBE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SECOND JUNIOR THIRD JUNIOR PREFERRED STOCK PREFERRED STOCK COMMON STOCK ------------------------ ------------------------ ------------------------ ADDITIONAL ADDITIONAL ADDITIONAL PAR PAID IN PAR PAID IN PAR PAID-IN SHARES VALUE CAPITAL SHARES VALUE CAPITAL SHARES VALUE CAPITAL ----- ----- ------- ------ ----- ------- ------ ----- ------- Balance, September 30, 1993 . . . . 150,000 $2 $263 133,000 $1 $331 2,908,060 $29 $ 671 Net income of New Horizon for the month ended September 30, 1993 . Stock purchase warrant . . . 282 Deferred option compensation . . . . . . . Accretion of dividends to redeemable preferred stock . . . . . . Accretion to Class A Common Stock . . . . . . . Net loss . . . . . . . . . . ------- --- ---- ------- -- ---- --------- --- ------ Balance, September 30, 1994 . . . . 150,000 $2 $263 133,000 $1 $331 2,908,060 $29 $ 953 Issuance of common stock in initial public offering . . . . . . . . . 2,450,000 2 22,713 Class A Common Stock redemption premium . . . . (1,000) Exercise of Heller Warrant . . . . . . 365,609 3,740 Recapitalization and conversion of preferred stock into common stock . . . . . . . . . . . (150,000) (2) (263)(133,000) (1) (331) 622,600 (25) 622 Reclassification of deferred option compensation and capital charge arising from combination . . . . . . 858 Exercise of stock options, net of retirement of outstanding stock . . . . . 45,677 Issuance of warrants in connection with an acquisition . . . . 100 Tax effect of exercise of options . . . . 291 Net income . . . . . . . . . ------- --- ---- ------- -- ---- --------- --- ------ Balance, September 30, 1995 . . . . - $ - $ - - $ - $ - 6,391,946 $6 $28,277 Issuance of common stock in secondary public offering . . . . . . 2,271,475 3 32,953 Exercise of stock options . . 29,017 200 Tax effect of exercise of options . . . . . . . . 49 Net income . . . . . . . . . ------- --- ---- ------- -- ---- --------- --- ------ Balance, September 30, 1996 . . . . - $ - $ - - $ - $ - 8,692,438 $ 9 61,479 ======= === ==== ======= == ==== ========= === ======
CAPITAL DEFERRED CHARGE OPTION FROM ACCUMULATED COMPENSATION COMBINATION DEFICIT TOTAL ------------ ----------- ------- -------- Balance, September 30, 1993 . . . . $(614) $(12,170) $(11,487) Net income of New Horizon for the month ended September 30, 1993 . 2 2 Stock purchase warrant . . . 282 Deferred option compensation . . . . . . . $1,472 1,472 Accretion of dividends to redeemable preferred stock . . . . . . (614) (614) Accretion to Class A Common Stock . . . . . . . (282) (282) Net loss . . . . . . . . . . (3,298) (3,298) ------ ----- -------- -------- Balance, September 30, 1994 . . . . $1,472 $(614) $(16,362) $(13,925) Issuance of common stock in initial public offering . . . . . . . . . 22,715 Class A Common Stock redemption premium . . . . (1,000) Exercise of Heller Warrant . . . . . . 3,740 Recapitalization and conversion of preferred stock into common stock . . . . . . . . . . . Reclassification of deferred option compensation and capital charge arising from combination . . . . . (1,472) 614 Exercise of stock options, net of retirement of outstanding stock . . . . . Issuance of warrants in connection with an acquisition . . . . 100 Tax effect of exercise of options . . . . 291 Net income . . . . . . . . . 5,035 5,035 ------ ----- -------- -------- Balance, September 30, 1995 . . . . $ - $ - $(11,327) $16,956 Issuance of common stock in secondary public offering . . . . . . 32,956 Exercise of stock options . . 200 Tax effect of exercise of options . . . . . . . . 49 Net income . . . . . . . . . 1,073 1,073 ------ ----- -------- -------- Balance, September 30, 1996 . . . . . $ - $ - $(10,254) $51,234 ====== ===== ======== ========
See accompanying notes to consolidated financial statements. F-4 38 THOMPSON PBE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1994 1995 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $(3,298) $ 5,035 $ 1,073 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . 2,647 3,066 4,115 Interest on Heller Warrant purchase obligation . . . . . . . 2,870 Special incentive stock compensation . . . . . . . . . . . . 1,472 Amortization of discount on debt . . . . . . . . . . . . . . 116 Deferred income taxes . . . . . . . . . . . . . . . . . . . . (1,629) 144 Loss (gain) on sale of property and equipment . . . . . . . . (11) Extraordinary item - early extinguishment of debt . . . . . . 445 Changes in operating assets and liabilities, net of effect of business acquisitions (Note 14) . . . . . . . . . (501) (4,194) (6,749) ------- ------- ------- Net cash provided by (used by) operating activities . . . . . 3,295 2,723 (1,417) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash used in business acquisitions . . . . . . . . . . . . (6,966) (23,241) (22,086) Proceeds from sale of property and equipment . . . . . . . . . 66 Purchases of property and equipment . . . . . . . . . . . . . (1,093) (1,681) (1,866) Increases in other assets . . . . . . . . . . . . . . . . . . . (691) (22) (34) ------- ------- ------- Net cash used in investing activities . . . . . . . . . . . . (8,684) (24,944) (23,986) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . 9,333 (4,782) 5,476 Net proceeds from sale of common stock . . . . . . . . . . . . 23,708 33,153 Repayment of senior debt from offering proceeds . . . . . . . . (33,385) Issuance of long-term obligations . . . . . . . . . . . . . . 6,526 27,985 24,475 Repayment of long-term obligations . . . . . . . . . . . . . . (8,951) (13,131) (4,202) Redemption of redeemable stock . . . . . . . . . . . . . . . . (10,704) Financing fees . . . . . . . . . . . . . . . . . . . . . . . . (754) (297) Increases in note receivable from shareholder . . . . . . . . (250) Increases in deferred offering costs . . . . . . . . . . . . . (841) ------- ------- ------- Net cash provided by financing activities . . . . . . . . . 5,817 22,322 25,220 ------- ------- ------- Net increase (decrease) in cash . . . . . . . . . . . . . . . . . 428 101 (183) New Horizon cash flows for the month ended September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . (184) Cash, beginning of year . . . . . . . . . . . . . . . . . . . . . 320 564 665 ------- ------- ------- Cash, end of year . . . . . . . . . . . . . . . . . . . . . . . . $ 564 $ 665 $ 482 ======= ======= =======
See accompanying notes to consolidated financial statements. F-5 39 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND MERGER The Company is an aftermarket distributor of automotive paint and related supplies to the automotive collision repair industry. At September 30, 1996, the Company operated a total of 101 distribution sites and four warehouses located in eleven states. The Company is highly dependent on a small number of key suppliers. For its most recent fiscal year, the Company regularly served approximately 12,000 customers, none of which accounted for more than 1% of the Company's sales. The Company grants credit to substantially all of its customers. Contemporaneous with the closing of Thompson PBE, Inc.'s initial public offering on November 16, 1994, Thompson Capital Corporation reincorporated in the State of Delaware by merging with and into Thompson PBE, Inc. with Thompson PBE, Inc. as the surviving company (the "Reincorporation Merger"). Prior to the Reincorporation Merger, Thompson PBE, Inc. had no operations. References to Thompson PBE, Inc. ("Thompson") include the operations of the predecessor, Thompson Capital Corporation, unless the context indicates otherwise. On October 14, 1993, Thompson and New Horizon Auto Paint Holdings, Inc. ("New Horizon") (together referred to herein as the "Company") consummated an Agreement and Plan of Merger (the "Plan of Merger") pursuant to which Thompson was the surviving corporation in a merger with New Horizon (the "New Horizon Merger"). After giving effect to the New Horizon Merger, Thompson succeeded to all of the business, assets and liabilities of New Horizon. The consolidated financial statements give retroactive effect to the New Horizon Merger, which was accounted for using the pooling-of-interests method and, as a result, the financial position, results of operations and cash flows are presented as if the combining companies had been consolidated for all periods presented. The consolidated statements of stockholders' equity reflect the Thompson capital stock issued to effect the New Horizon Merger as outstanding for the same periods as the underlying capital stock of New Horizon. Thompson raised approximately $25.1 million in gross proceeds (after payment of underwriting discounts) in its initial public offering which closed in November 1994. In that offering, Thompson issued and sold 2,450,000 shares of common stock (including the full 330,000 shares covered by the underwriters' overallotment option), and a selling stockholder sold 80,000 shares. The net proceeds from the offering received by Thompson were used to repay debt and retire its various classes of redeemable capital stock. The early extinguishment of debt arising from use of the offering proceeds resulted in a non-cash extraordinary charge in the amount of $445,000 related to the write-off of certain deferred financing fees. Concurrent with its initial public offering, Thompson's convertible preferred stock was converted into shares of common stock, and the Heller Warrant (see Note 7) was exercised in full. As a result of the reincorporation and recapitalization, only one class of common stock is authorized and outstanding. In October 1995, Thompson raised approximately $34.3 million in gross proceeds (after payment of underwriting discounts) in a secondary public offering. In that offering, Thompson issued and sold 2,271,475 shares of common stock (including the full 271,475 shares covered by the underwriters' overallotment option), and selling stockholders sold 1,178,525 shares. The net proceeds from the offering received by Thompson were used to repay senior debt. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The accompanying consolidated financial statements include the accounts of Thompson PBE, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventory -- Inventory is stated at the lower of average cost or market. Inventory consists of the direct costs of goods purchased for resale. Intangible Assets -- Intangible assets are recorded at cost and are amortized using the straight-line method over their estimated useful lives of 2.5 years for covenants not to compete and prepaid consulting fees and 15-30 years for goodwill. The recoverability of goodwill attributable to the Company's acquisitions is analyzed annually based on actual and projected levels of profitability of the locations acquired on an undiscounted basis. Debt issuance costs are amortized using the straight-line method over the term of the related debt. F-6 40 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment -- Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets. Useful lives range from three to seven years for vehicles, furniture, fixtures and equipment. Leasehold improvements are amortized over the lesser of the useful life of the asset or the remaining lease term. Revenue Recognition -- The Company recognizes revenues from product sales at the time of delivery. Income Taxes -- Prior to October 1, 1993, deferred income taxes were provided for differences between income for financial statement purposes and income for federal and state income tax purposes. Effective October 1, 1993, the Company changed its method of accounting for income taxes to conform with the requirements of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred tax assets and liabilities based on temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. The adoption of SFAS No. 109 had no effect on the Company's results of operations for the year ended September 30, 1994, nor was there any cumulative effect at October 1, 1993. Recent Accounting Pronouncements -- In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, Accounting for Stock Based Compensation. This statement requires the determination of compensation expense equal to the fair value of the option grant to be estimated, using accepted option pricing formulas, when the option is granted. The computed fair value of option grants to non-employees must be amortized over the vesting period of the option. The effects of amortizing the computed fair value of option grants to employees may either be charged to the statement of operations or set forth as pro forma information in the footnotes to the financial statements, depending on the method elected by the Company upon adoption of the standard. The Company will adopt the disclosure requirements of Statement No. 123 in its fiscal year ending September 27, 1997, but, as permitted, does not intend to charge to the statement of operations the effects of amortizing the fair value of options granted to employees. In March 1995, the Financial Accounting Standard Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of" which requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicatate that the carrying amount of an asset may not be recoverable. If the sum of the expecterd undiscounted future cash flows from the use of the asset is less than the carrying amount of the asset, an impairment loss is recognized. The impairment loss is measured based on the fair value of the assets. The Company will adopt SFAS NO. 121 in the first quarter of its fiscal year ending September 27, 1997 and, based on current circumstances, does not believe the effect of adoption will have a material effect on the consolidated financial statements. 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. As a result of the Company's November 1994 reincorporation and recapitalization, earnings per share for periods prior to 1995 are not meaningful, and are therefore not presented. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The ultimate resolution of such estimates and assumptions may vary from the estimates and assumptions used in the preparation of financial statements. F-7 41 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. BUSINESS ACQUISITIONS The Company's acquisition strategy is to continue to make add-on acquisitions to augment its Southeast Division (comprised of its operations in Alabama, Florida, and Georgia), Southern California Division, Northern California Division, Rocky Mountain Division (comprised of its Arizona and Colorado operations), Mid-Atlantic Division (comprised of its North Carolina, South Carolina and Virginia operations) and Northeast Division (comprised of its operations in Massachusetts and Connecticut) and to capitalize on opportunities to enter new geographic markets. Since its inception in May 1989, the Company has made a total of 50 acquisitions, including 14 acquisitions during the fiscal year ended September 30, 1996. These acquisitions were accounted for in accordance with the purchase method, and accordingly, the purchase consideration has been allocated first to the fair value of identifiable assets acquired and liabilities assumed, and the remaining amounts allocated to goodwill. The following table summarizes the acquisition transactions of the Company in each of the periods presented (in thousands):
Year Ended September 30, ---------------------------------------- 1994 1995 1996 ---------- ---------- --------- Net assets acquired . . . . . . . . . . . . . . . . . . . $ 5,167 $11,313 $10,512 Goodwill and covenants not to compete . . . . . . . . . . 5,788 22,529 24,080 ---------- ---------- --------- 10,955 33,842 34,592 Less liabilities assumed . . . . . . . . . . . . . . . . 1,434 4,322 4,735 ---------- ---------- --------- Purchase price . . . . . . . . . . . . . . . . . . . . . 9,521 29,520 29,857 Seller acquisition debt . . . . . . . . . . . . . . . . . 2,555 6,279 7,771 Issuance of preferred stock . . . . . . . . . . . . . . . - - - ---------- ---------- --------- Purchase price net of acquisition debt . . . . . . . . . $ 6,966 $23,241 $22,086 ========== ========== ========= Number of acquisitions . . . . . . . . . . . . . . . . . 4 16 14
In connection with certain of the Company's fiscal year 1995 acquisitions, the Company agreed to pay a total of approximately $1,600,000 of contingent consideration to the former owners of the businesses acquired. The amount of consideration will be dependent upon the acquired companies retention of sales, as defined, for specified periods subsequent to the closing of the acquisitions and achievement of other specified objectives. In addition, warrants to purchase up to 170,000 shares of Thompson's Common Stock at an exercise price of $21.25 per share are expected to become issuable to the seller of an acquired business in December 1996. In connection with certain of the Company's fiscal year 1996 acquisitions, the Company agreed to pay a total of approximately $3,700,000 of contingent consideration to the former owners of the businesses acquired. The amount of consideration will be dependent upon the acquired companies retention of sales, as defined, for specified periods subsequent to the closing of the acquisitions and achievement of other specified objectives. In addition, in connection with the acquisition of a business during the fiscal year ended September 30, 1996, the Company issued to the seller a five year, adjustable convertible promissory note subject to right of set-off in the initial principal amount of $2,125,000. This note is convertible under certain circumstances into shares of the Company's Common Stock at an initial conversion price of $15.47 per share, subject to adjustment. In addition to customary anti-dilution adjustments, the conversion price will be increased at the rate of 7% per year commencing in April 1998. F-8 42 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. BUSINESS ACQUISITIONS (CONTINUED) The following table sets forth the unaudited pro forma results of operations for each period in which acquisitions occurred as if the acquisitions were consummated at the beginning of the preceding period. The unaudited pro forma results of operations data gives effect to the Company's acquisitions during the fiscal year ended September 30, 1996, and also gives effect to certain acquisitions during the fiscal year ended September 30, 1995, including the acquisition of the stock of Arnold Paint Company and its subsidiary, the acquisition of substantially all of the assets of SEV Corporation, and to other asset acquisitions, consisting of D & S Auto Color, Inc., Border Paint & Supply, Inc., Auto Paint Specialties, Inc., Refinishers Supply and Equipment, Inc. and F.A. Heckendorf. Additional acquisitions made by the Company since October 1, 1993 are either already reflected in the historical statement of operations of the Company or were not significant. The unaudited pro forma results of operations data consists of the historical results of the Company as adjusted to give effect to (i) a decrease in selling, general and administrative expenses for amounts of compensation paid to former owners or employees of acquired businesses who are no longer employed by the Company; (ii) amortization of the excess of purchase price over net assets acquired; and (iii) the interest expense attributable to debt incurred to finance the acquisitions net of the reduction of interest expense attributable to debt and other liabilities that were not assumed by the Company. As a result of the Company's November 1994 reincorporation and recapitalization, the unaudited pro forma weighted average number of common and common equivalent shares outstanding for periods prior to 1995 are not meaningful, and are therefore, not presented. The unaudited pro forma results of operations do not purport to represent what the Company's actual results of operations would have been had such transactions in fact occurred on such dates.
Year Ended September 30, -------------------------------- 1994 1995 1996 ---- ---- ---- PRO FORMA RESULTS OF OPERATIONS DATA (UNAUDITED): Net sales . . . . . . . . . . . . . . . . . . . . . . . . $138,975 $193,738 $202,888 Income (loss) before extraordinary item . . . . . . . . . (2,865) 6,390 2,795 Net income (loss) . . . . . . . . . . . . . . . . . . . (3,348) 5,945 1,314 Income per share before extraordinary item . . . . . . . $1.01 $0.15 Net income per share . . . . . . . . . . . . . . . . . . $0.94 $0.15 Pro forma weighted average number of common and common equivalent shares . . . . . . . . . . . . . . . 6,317 8,850
Supplementary pro forma results of operations data (unaudited) presented below assumes that the acquisitions described above were consummated at the beginning of the preceding period and gives effect to the pro forma adjustments discussed above, and also gives effect to i) the Company's November 1994 initial public offering and recapitalization and the use of the proceeds to the Company therefrom, and, ii) the Company's October 1995 secondary offering of Common Stock and the use of the proceeds to the Company therefrom, in each case as if such transactions had occurred on October 1, 1993. Supplementary pro forma per share data also reflects an assumed reduction of interest expense, net of applicable income tax effects, arising from the assumed use of proceeds of the offerings in November 1994 and October 1995. F-9 43 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. BUSINESS ACQUISITIONS (CONTINUED) Supplementary pro forma weighted average number of common and common equivalent shares (unaudited) used in the calculation of such per share data assumes the issuance of Common Stock from the Company's October 1995 secondary offering occurred in prior periods to the extent that the use of proceeds from that offering would have resulted in a reduction of debt assumed to be outstanding under the Company's primary credit facility.
Year Ended September 30, 1995 ---- SUPPLEMENTARY PRO FORMA RESULTS OF OPERATIONS DATA (UNAUDITED): Supplementary pro forma income before extraordinary item . . . . . . . . . . . . . . $7,936 Supplementary pro forma extraordinary items - early extinguishment of debt . . . . . . . . . . . . . . . . (445) ------ Supplementary pro forma net income . . . . . . . . . . . $7,491 ====== Supplementary pro forma income per share before extraordinary item . . . . . . . . . . . . . . . $ 0.89 Supplementary pro forma extraordinary item - early extinguishment of debt . . . . . . . . . . . . . . . . $(0.05) Supplementary pro forma net income per share . . . . . . $ 0.84 Supplementary pro forma weighted average number of common and common equivalent shares . . . . . . . . . . 8,874
4. INTANGIBLE ASSETS Intangible assets consist of the following (in thousands):
September 30, ----------------------- 1995 1996 -------- --------- Covenants not to compete . . . . . . . . . . . . . . . . $ 1,134 $ 201 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . 37,096 61,176 Debt issuance costs and other . . . . . . . . . . . . . . 861 1,160 -------- --------- Total . . . . . . . . . . . . . . . . . . . . . . . . 39,091 62,537 Less accumulated amortization . . . . . . . . . . . . . . 3,809 5,134 -------- --------- Intangible assets -- net . . . . . . . . . . . . . . . . $35,282 $57,403 ======== =========
Intangible assets and the related accumulated amortization are removed from the accounts when fully amortized. F-10 44 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands):
September 30, ------------------------ 1995 1996 --------- ---------- Vehicles . . . . . . . . . . . . . . . . . . . . . . . . $2,867 $ 3,667 Furniture, fixtures and equipment . . . . . . . . . . . . 2,518 3,216 Leasehold improvements . . . . . . . . . . . . . . . . . 1,662 2,044 Computer equipment . . . . . . . . . . . . . . . . . . . 2,729 4,952 --------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . 9,776 13,879 Less accumulated depreciation and amortization . . . . . 4,965 6,449 --------- ---------- Property and equipment -- net . . . . . . . . . . . . . . $4,811 $7,430 ========= ==========
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands):
September 30, --------------------- 1995 1996 ----- ------ Salaries and wages . . . . . . . . . . . . . . . . . . . $ 853 $1,984 Other . . . . . . . . . . . . . . . . . . . . . . . . 5,355 6,562 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . $6,208 $8,546 ====== ======
7. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (in thousands):
September 30, ----------------------- 1995 1996 -------- -------- 1995 Credit Agreement with Heller Financial, Inc. as agent and lender, bearing interest at an effective annual rate of 7.87% and 7.08% at September 30, 1995 and 1996, respectively . . . . . . . . . . . . . . . . . . $40,288 $36,855 Obligations under various covenant not to compete agreements, payable through September 1999, net of unamortized discounts based on imputed interest rates ranging from 8.5% to 12% . . . . . . . . . . . . . . . 423 340 Notes payable to sellers and capital lease obligations, bearing interest ranging from 5% to 12%, payable through 2005 . 9,132 14,125 -------- -------- Total long-term obligations . . . . . . . . . . . . . . . 49,843 51,320 Less current portion of long-term obligations . . . . . . 3,759 7,013 -------- -------- Total long-term obligations, less current portion . . . . $46,084 $44,307 ======== ========
On January 6, 1995, the Company entered into a new credit agreement with Heller Financial, Inc. as agent and lender (the "1995 Credit Agreement"), which expires January 2002. The 1995 Credit Agreement, as amended, provides for borrowings in an aggregate amount not to exceed $75 million, consisting of (i) a revolving credit facility of $18.0 million, F-11 45 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS limited to a borrowing base, (ii) a term loan of $30.0 million, and (iii) an acquisition loan facility of $27.0 million. Advances under the 1995 Credit Agreement bear interest based upon either a "base rate" or LIBOR at the election of the Company, plus a spread which is determined based on the Company's ratio of senior debt to operating cash flow for the prior twelve months. 7. LONG-TERM OBLIGATIONS (CONTINUED) As of September 30, 1996, borrowings under the 1995 Credit Agreement bore interest at an effective interest rate of 7.08% per annum. 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. At September 30, 1996, the Company was near the amended limit of several covenant ratios. At September 30, 1996, the Company had $11.7 million available to it under its revolving credit facility. The 1995 Credit Agreement requires annual prepayments in an amount equal to 50% of the Company's excess cash flow (as defined) commencing in 1997 and annual repayments, payable quarterly, of the $30.0 million term loan of: $2.3 million in fiscal 1997, $3.5 million in fiscal 1998, $5.3 million in fiscal 1999, $6.2 million in fiscal 2000, $7.0 million in fiscal 2001 and $5.2 million in fiscal 2002. Annual repayments of the acquisition loan, payable quarterly, commence in fiscal 1998 based on the following percentages of the aggregate amount of acquisition loans extended to the Company as of July 1998: 3.75% in fiscal 1998, 16.25% in fiscal 1999, 22.50% in fiscal 2000, 31.25% in fiscal 2001 and 26.25% in fiscal 2002. At September 30, 1996, the Company had approximately $852,000 in deferred fees and other origination costs, net of related accumulated amortization, related to the 1995 Credit Agreement. In connection with the execution of a loan agreement with Heller in May 1989, the Company's predecessor issued a warrant to purchase 382,609 shares of its Class B common stock at $0.45 per share (the "Heller Warrant"). The warrant contained a put feature that required the Company to repurchase the warrant at the option of the holder. The warrant was initially valued at $337,000, and the Company accreted interest so as to provide a liability equal to the warrant's estimated repurchase value. Interest accreted related to the stock warrant purchase obligation was $2,870,000 in the year ended September 30, 1994. The Heller Warrant was exercised and the put feature was terminated in November 1994 concurrent with the Company's initial public offering. In connection with the issuance of a senior subordinated note to Chase Venture Capital Associates, L.P. ("Chase"), the Company issued a detachable stock purchase warrant to Chase. The warrant gives Chase the right to purchase a specified amount of the Company's Class C common stock for $0.005 per share. The number of shares purchasable was based on the amount of the note drawn by the Company as a percentage of the total $5 million available, the number of Class C common shares outstanding, including the shares assumed to be outstanding after giving effect to the exercise of the warrants, and the length of time borrowings remained outstanding. Based on the $3,000,000 borrowed by the Company, Chase received a warrant to purchase 47,806 shares of the Company's Class C common stock. The warrant was valued at $282,000, representing the difference between the aggregate exercise price and the estimated fair market value of the Company's Class C common stock purchasable under the warrant. The amount allocated to these warrants is included in additional paid-in capital in the accompanying consolidated financial statements and the resulting discount on the note was being amortized over the life of the senior subordinated note, resulting in an effective interest rate of 12.7%. In connection with the Company's initial public offering in November 1994, the senior subordinated note payable was repaid, the unamortized portion of the discount on the note was charged to income as a component of the extraordinary item -- early extinguishment of debt and the warrant became exercisable for a like number of shares of the Company's Common Stock. Prior to the New Horizon Merger, New Horizon had a revolving line of credit agreement and several term notes with Sanwa Business Credit ("Sanwa"). New Horizon was obligated to pay a fee to Sanwa of 5% of adjusted earnings before tax, as defined, for each year through 1995 subject to a total minimum fee of $500,000. The amount was recorded at the discounted present value of the minimum fee obligation. The term notes and revolving line of credit agreement were repaid in October 1993 in connection with New Horizon Merger. Accordingly, the Company paid a fee of $563,000 and wrote off the unamortized deferred financing costs related to the Sanwa loans, resulting in an extraordinary charge upon early extinguishment of debt of $483,000 for the fiscal year ended September 30, 1994. F-12 46 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG TERM OBLIGATIONS (CONTINUED) Scheduled payments of long-term obligations at September 30, 1996 are as follows (in thousands): 1997 . . . . . . . . . . . . . . . . . . . $ 7,013 1998 . . . . . . . . . . . . . . . . . . . 14,142 1999 . . . . . . . . . . . . . . . . . . . 8,220 2000 . . . . . . . . . . . . . . . . . . . 8,097 2001 . . . . . . . . . . . . . . . . . . . 8,146 Thereafter . . . . . . . . . . . . . . . . 5,702 ------- Total . . . . . . . . . . . . . . . . . . $51,320 =======
8. INCOME TAXES The components of the Company's provision for income taxes consist of the following (in thousands):
Year ended September 30, ------------------------------------- 1994 1995 1996 ------- ------ -------- Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . $1,901 $ 914 State . . . . . . . . . . . . . . . . . . . . . . . . . . 533 252 ------ -------- Total current . . . . . . . . . . . . . . . . . . . . 2,434 1,166 Deferred . . . . . . . . . . . . . . . . . . . . . . (518) 835 144 Change in valuation allowance . . . . . . . . . . . . . . . 518 (2,464) - ------- ------ -------- Total . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 805 $1,310 ======= ====== ========
At October 1, 1993 the Company recognized deferred tax assets of $1,946,000 with a corresponding valuation allowance upon the adoption of SFAS 109 (see Note 2.) The Company's effective income tax rate differs from the federal statutory income tax rate applied to income before provision for income taxes due to the following:
Year ended September 30, ------------------------------------ 1994 1995 1996 ---- ---- ---- Federal statutory income tax rate . . . . . . . . . . . . . (35.0)% 35.0% 35.0% Increases (reductions) in taxes resulting from: State taxes, net of federal benefit . . . . . . . . . . 6.0 7.2 Amortization of non-deductible intangible assets . . . . 4.2 2.7 11.7 Non-deductible interest on Heller Warrant . . . . . . . 23.9 Nondeductible merger costs . . . . . . . . . . . . . . . 11.3 Nondeductible stock option costs . . . . . . . . . . . 12.6 Changes in valuation allowance . . . . . . . . . . . . . (18.4) (39.2) Other . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 8.3 1.1 ------ ------- ----- Effective tax rate . . . . . . . . . . . . . . . . . . . . 0.0% 12.8% 55.0% ====== ======= =====
F-13 47 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. INCOME TAXES (CONTINUED) The tax effects of temporary differences giving rise to deferred tax assets are as follows (in thousands):
September 30, ------------------ 1995 1996 ---- ---- Deferred tax assets: Accounts receivable . . . . . . . . . . . . . . . . . . . $261 $ 902 Intangible assets . . . . . . . . . . . . . . . . . . . . 689 87 Accrued expenses . . . . . . . . . . . . . . . . . . . . 174 190 Inventory . . . . . . . . . . . . . . . . . . . . . . . . 288 349 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 217 (43) ------- -------- Net deferred tax assets . . . . . . . . . . . . . . . . . . $1,629 $1,485 ====== ======
In the year ended September 30, 1995 the Company reduced the valuation allowance to the extent that deferred tax assets were anticipated to be realizable. Tax benefits arising from the exercise of stock options provide the Company a tax deduction equal to the difference between the exercise price and the fair market value of the stock on the date of exercise. The tax effect of the deduction is excluded from the provision (benefit) for income taxes and credited directly to additional paid in capital. For the year ended September 30, 1995 and 1996, tax benefits credited directly to stockholders' equity totaled $291,000 and $49,000, respectively. 9. COMMITMENTS AND CONTINGENCIES The Company leases substantially all of its operating and office facilities under various operating and capital leases expiring through 2002. Most of these leases provide for increases in rents based on the Consumer Price Index and include renewal options ranging from two to ten years. Future minimum lease payments under such leases as of September 30, 1996 are as follows (in thousands):
Capital Operating Leases Leases -------- -------- 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 619 $4,420 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 518 3,995 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 3,315 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1,933 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . 38 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . 1,434 $ 14,155 ======== Less amount representing interest . . . . . . . . . . . . . 113 -------- Present value of minimum lease payments . . . . . . . . . . 1,321 Less current portion of obligations under capital lease obligations . . . . . . . . . . . . . . . . 652 -------- Long-term portion . . . . . . . . . . . . . . . . . . . . . $ 669 ========
Total rental expense included in the accompanying statements of operations was $1,593,000, $2,544,000 and $4,026,000 for the years ended September 30, 1994, 1995 and 1996, respectively. F-14 48 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. COMMITMENTS AND CONTINGENCIES (CONTINUED) In the ordinary course of business, the Company is subject to examination of its sales tax returns. At September 30, 1996 a liability to the Florida Department of Revenue for sales and use taxes was recorded to reflect the results of an audit of the sales and operations of a predecessor company for the period September 1989 through August 1994. The Florida Department of Revenue is currently claiming amounts due of approximately $1.8 million. The Company is contesting the manner in which the audit was conducted and the alleged deficiency calculated and assessed. The Company recorded a charge to earnings during the year ended September 30, 1996 to establish a reserve sufficient for the assessed amount, although the ultimate amount to be paid can not yet be predicted pending the outcome of the Company's efforts to appeal this matter. Management presently believes that all other existing claims will ultimately be resolved without a material effect on the Company's financial position. The Company has three agreements with warehouse suppliers for the purchase of certain of its paint and non-paint supplies in specified geographic locations. The agreements provide for aggregate specified minimum purchases of $8,100,000 in each of the fiscal years 1997 and 1998, $7,800,000 in each of the fiscal years 1999 and 2000, and $2,800,000 in each of the fiscal years 2001 through 2003. The agreements expire in 1999, 2000 and 2003. 10. REDEEMABLE STOCK A portion of the net proceeds from the Company's November 1994 initial public offering was used to redeem all outstanding shares of Company's redeemable stock. As a result of the reincorporation and recapitalization concurrent with the Company's initial public offering, only one class of common stock is authorized and outstanding. At September 30, 1995, there were no redeemable or preferred stock shares outstanding. The following sets forth activity for each class of redeemable stock for each of the two years ended September 30, 1995 (in thousands, except share data):
First Junior Senior Preferred Stock Senior B Preferred Stock Preferred Stock -------------------------- -------------------------- -------------------------- Additional Additional Additional Par Paid-In Par Paid-In Par Paid-In Shares Value Capital Shares Value Capital Shares Value Capital ------ ----- ------- ------ ----- ------- ------ ----- ------- BALANCE, SEPTEMBER 30, 1993 . . . . . . 633,750 $6 $1,306 48,318 $48 $4,739 704,348 $7 $1,070 Accretion of dividends to redeemable preferred stock . . 132 376 106 Accretion to Class A common stock . . . . . . . . . Note receivable from shareholder . . . . . . . - - - BALANCE, SEPTEMBER 30, 1994 . . . . . . 633,750 6 1,438 48,318 48 5,115 704,348 7 1,176 Accretion to redemption amount of preferred stock and Class A common . . . . . . 72 78 27 Redemption of preferred and common stock . . . . . . . (633,750) (6) (1,510) (48,318) (48) (5,193) (704,348) (7) (1,203) -------- --- ------ ------- --- ------ -------- --- ------ BALANCE, SEPTEMBER 30, 1995 . . . . . . - $- $ - - $ - $ - - $ - $ - ======== === ====== ====== === ====== ======== ==== ======
Class A Common Stock -------------------------- Note Additional Receivable Par Paid-In from Shares Value Capital Shareholder Total ------ ----- ------- ----------- ----- BALANCE, SEPTEMBER 30, 1993 . . . . . . 4,917,645 $49 $2,583 ($750) $9,058 Accretion of dividends to redeemable preferred stock . . 614 Accretion to Class A common stock . . . . . . . . . 282 282 Note receivable from shareholder . . . . . . . (250) (250) - --- ---- ---- BALANCE, SEPTEMBER 30, 1994 . . . . . . 4,917,645 49 2,865 (1,000) 9,704 Accretion to redemption amount of preferred stock and Class A common . . . . . . (177) Redemption of preferred and common stock . . . . . . . (4,917,645) (49) (2,688) 1,000 (9,704) ---------- --- ------ ----- ------ BALANCE, SEPTEMBER 30, 1995 . . . . . . - $ - $ - $ - $ - ========== === ====== ===== ======
F-15 49 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCK OPTION PLANS The Company had two stock option plans in effect at September 30, 1996: the 1994 Stock Option Plan, as amended (the "1994 Plan"), and the Outside Director Stock Option Plan (the "1995 Director Plan"). The 1989 Stock Option Plan (the "1989 Plan") was terminated in August 1995. 1994 Plan The Company has reserved 965,000 shares of Common Stock for issuance under the 1994 Plan. Options may be granted under the 1994 Plan at an exercise price not less than the fair market value of the shares on the date of grant. Options granted under the 1994 Plan generally have terms of five to ten years, and become exercisable in three equal annual installments from the date of grant. The following summarizes activity in the 1994 plan through September 30, 1996:
Aggregate Number of Range of Exercise Options Option Price Price --------- ------------ --------- (in thousands) Granted and outstanding, September 30, 1994 . . . . . . . 300,300 $ 5.91 - $ 6.50 $1,829 Granted . . . . . . . . . . . . 419,966 $11.00 - $17.25 5,772 Exercised . . . . . . . . . . . (35,964) $5.91 - (213) Canceled . . . . . . . . . . . (5,301) $5.91 - $11.00 (47) --------- -------- Outstanding, September 30, 1995 . . . . . . 679,001 $ 5.91 - $17.25 $7,341 Granted . . . . . . . . . . . . 94,000 $9.50 - $14.00 1,193 Exercised . . . . . . . . . . . (29,017) $5.91 - $11.00 (200) Canceled . . . . . . . . . . . (78,868) $5.91 - $16.75 (948) --------- -------- Outstanding, September 30, 1996 . . . . . . 665,116 $ 5.91 - $17.25 $ 7,386 ========= ========
At September 30, 1995 and 1996, options to purchase 63,802 and 319,938 shares, respectively, were exercisable under the 1994 Plan. Outside Director Stock Option Plan In August 1995, the Board of Directors authorized the establishment of a stock option plan for outside directors (the "1995 Director Plan") pursuant to which options to acquire up to 100,000 shares may be granted, which plan was approved by stockholders in February 1996. The 1995 Director Plan provides for specified grants of stock options to outside directors upon their initial election to the board of Directors, and provides for annual grants on a formula basis upon their reelection. The exercise price of all such options will be the last reported sales price of the Common Stock on the Nasdaq Stock Market on the date immediately prior to the date of grant. Options granted under the 1995 Director Plan will be for terms of ten years, and will vest one third at the end of the first, second and third anniversaries of the F-16 50 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS date of grant. As of September 30, 1996, the Company had granted options to acquire 40,000 shares of Common Stock under the 1995 Directors Plan at exercise prices ranging from $13.00 to $17.00. F-17 51 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCK OPTION PLANS (CONTINUED) Other Stock Options In 1989, in connection with the original acquisition of Thompson Lacquer Company by the Company, Wedbush Capital Partners ("Wedbush"), a shareholder of the Company, and certain of the Company's officer/shareholders entered into a Securities Purchase and Sale Agreement (the "SPSA"). Under the terms of the SPSA, among other things, Wedbush had the option to purchase a total of 38,260 shares of Class C common stock from the officer/shareholders at $0.005 per share for each of the years ended March 31, 1992, 1993 and 1994 in which the Company failed to achieve defined levels of earnings before interest and taxes (the "EBIT Target"). The Company did not attain the EBIT Target in either 1992 or 1993. The 38,260 shares subject to the 1992 EBIT Target were transferred to Wedbush in August 1992. In June 1994, the SPSA was terminated. In accordance with the termination agreement, Wedbush transferred the 38,260 Class C shares subject to the 1992 EBIT Target back to the officer/shareholders and all rights and obligations of any of the parties to the SPSA were terminated and rescinded. As a result of the termination of the SPSA, the Company recognized compensation expense of approximately $848,000, which is included in special incentive stock compensation in the accompanying statement of operations for the year ended September 30, 1994. Prior to June 1994, an Incentive Stock Agreement (the "ISA") among Wedbush, Chemical and its officer/shareholders was in effect. Under the terms of the ISA, as amended, Wedbush and Chemical agreed to grant options to purchase up to 96,320 shares of Second Junior preferred stock at $0.91 per share to the officer/shareholders upon the occurrence of a liquidity event, as defined. In June 1994, the ISA was terminated and Wedbush and Chemical granted to the officer/shareholders options to purchase a total of 96,280 shares of common stock owned by the shareholders at $0.91 per share, subject to antidilution provisions. The options are presently exercisable and expire on January 31, 1999. In connection with the issuance of these options, the Company recognized compensation expense of approximately $624,000, which is included in special incentive stock compensation in the accompanying statement of operations for the year ended September 30, 1994. 13. DUE FROM OFFICERS The Company has notes receivable from certain of its officers which amounted to $196,000 at September 30, 1995 and 1996. Such notes bear interest at rates ranging from 6.0% to 7.5%. 14. STATEMENT OF CASH FLOWS Increases (decreases) in operating cash flows arising from changes in operating assets and liabilities, net of the effects of business acquisitions, consist of the following (in thousands):
September 30, -------------------------------------- 1994 1995 1996 ------- ------- ------- Accounts receivable . . . . . . . . . . . . . . . . . . . . $(1,479) $(1,561) (2,126) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 1,072 (219) (4,551) Prepaid expenses and other current assets . . . . . . . . . (300) (2,663) (925) Accounts payable . . . . . . . . . . . . . . . . . . . . . (174) (1,071) 1,812 Income taxes payable . . . . . . . . . . . . . . . . . . . (2,063) Accrued expenses and other current liabilities . . . . . . 380 1,320 1,104 ------- ------- ------- $ (501) $(4,194) $(6,749) ======= ======= =======
F-18 52 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash paid for interest and income taxes is as follows (in thousands):
Fiscal year ended September 30, ------------------------------------- 1994 1995 1996 ------- ------ ------ Interest . . . . . . . . . . . . . . . . . . . . . . . . . $2,340 $2,851 $2,465 Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 80 $1,782 $2,591
Financing and investing activities of the Company in the fiscal year ended September 30, 1995 and 1996 which affect recognized assets or liabilities but that do not result in cash receipts or cash payments are as follows (in thousands): Capital leases acquired in connection with the acquisition of certain businesses and property . . . . . $710 $1,230 Non-cash financing and investing activities during the fiscal year ended September 30, 1994 were not significant. 15. SUBSEQUENT EVENT (UNAUDITED) Subsequent to September 30, 1996 the Company announced the acquisition of two businesses with historical annual revenues of over $8 million. The acquired businesses operated two distribution sites. F-19 53 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. RESULTS OF OPERATIONS - UNAUDITED QUARTERLY FINANCIAL INFORMATION The following table sets forth unaudited consolidated statement of operations data for each of the eight quarters ended September 30, 1996. The unaudited quarterly information has been prepared on the same basis as the annual financial information and, in management's opinion, includes all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information for the quarters presented. The operating results for any quarter are not necessarily indicative of results for any future period. (Amounts in thousands, except per share data.)
1995 Quarters Ended ---------------------------------------------------- Dec. 31 March 31 June 30 Sept. 30 -------- --------- --------- -------- Net sales . . . . . . . . . . . . . . . . . . . . . . $24,952 $31,019 $37,235 $38,621 Cost of sales . . . . . . . . . . . . . . . . . . . . 15,531 19,330 23,336 24,365 -------- --------- --------- -------- Gross profit . . . . . . . . . . . . . . . . . . . . 9,421 11,689 13,899 14,256 Selling, general and administrative expenses . . . . 7,476 8,813 10,158 10,549 Depreciation expense . . . . . . . . . . . . . . . . 294 350 379 364 Amortization of goodwill and other intangible assets 377 351 430 521 Interest expense, net . . . . . . . . . . . . . . . . 584 597 837 900 -------- --------- --------- -------- Income before provision for income taxes and extraordinary item . . . . . . . . . . . 690 1,578 2,095 1,922 Provision for income taxes . . . . . . . . . . . . . (805) -------- --------- --------- -------- Income before extraordinary item . . . . . . . . . . 690 1,578 2,095 1,117 Extraordinary item - early extinguishment of debt . . (445) -------- --------- --------- -------- Net income . . . . . . . . . . . . . . . . . . . . . $ 245 $ 1,578 $ 2,095 $ 1,117 ======== ========= ========= ======== Earnings (loss) per common and common equivalent share available to common stockholders . . . . . . . . . . . . . . . . . . .. $(0.16) $0.24 $0.31 $0.17 Weighted average common and common equivalent shares outstanding . . . . . . . . . . . . . . . . 5,281 6,610 6,667 6,683
1996 Quarters Ended ---------------------------------------------------- Dec. 31 March 31 June 30 Sept. 30 -------- -------- -------- -------- Net sales . . . . . . . . . . . . . . . . . . . . . . $37,145 $41,981 $48,958 $50,055 Cost of sales . . . . . . . . . . . . . . . . . . . . 23,199 26,479 30,627 32,905 -------- -------- -------- -------- Gross profit . . . . . . . . . . . . . . . . . . . . 13,946 15,502 18,331 17,150 Selling, general and administrative expenses . . . . 11,218 12,231 13,684 18,698 Depreciation expense . . . . . . . . . . . . . . . . 419 436 490 503 Amortization of goodwill and other intangible assets 483 525 590 669 Interest expense, net . . . . . . . . . . . . . . . . 344 542 756 958 -------- -------- -------- -------- Income (loss) before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,482 1,768 2,811 (3,678) Provision (benefit) for income taxes . . . . . . . . 615 734 1,166 (1,205) -------- -------- -------- -------- Net income (loss) . . . . . . . . . . . . . . . . . . $ 867 $ 1,034 $ 1,645 $( 2,473) ======== ======== ======= ======== Earnings (loss) per common and common equivalent share . . . . . . . . . . . . . . . . . $0.10 $0.12 $0.19 $(0.28)
F-20 54 THOMPSON PBE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Weighted average common and common equivalent shares outstanding . . . . . . . . . . . . . . . . 8,814 8,903 8,834 8,692
During the fourth quarter of fiscal year 1996, the Company recorded charges to its statement of operations totaling approximately $3.5 million relating to reserves for a sales and use tax audit of a certain predecessor company, disputed reimbursements from vendors and writedowns of inventory carrying value. F-21 55 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Thompson PBE, Inc.: We have audited the accompanying consolidated balance sheets of Thompson PBE, Inc. and its subsidiaries (the "Company") as of September 30, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Los Angeles, California January 10, 1997 F-22 56 INDEPENDENT AUDITORS' REPORT ON SCHEDULE Board of Directors and Stockholders Thompson PBE, Inc.: We have audited the consolidated financial statements of Thompson PBE, Inc. and its subsidiaries (the "Company") as of September 30, 1996 and 1995, and for each of the three years in the period ended September 30, 1996, and have issued our report thereon dated December 19, 1996; such consolidated financial statements and report is included elsewhere in this Annual Report on Form 10-K. Our audits also included the financial statement schedule of the Company listed in Item 14(a). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California January 10, 1997 S-1 57 THOMPSON PBE, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Balance at Provision Balance at Beginning for Doubtful Net End of of Period Accounts Write-Offs Period ---------- -------- ---------- ------ Year ended September 30, 1994 Allowance for doubtful accounts . . . . . . . . . $ 571 $ 471 $ 626 $ 416 Year ended September 30, 1995 Allowance for doubtful accounts . . . . . . . . . $ 416 $ 502 $ 326 $ 592 Year ended September 30, 1996 Allowance for doubtful accounts . . . . . . . . . $ 592 $1,179 $ 753 $1,018
S-2 EX-10.52 2 EXHIBIT 10.52 1 Exhibit 10.52 SECOND AMENDMENT CREDIT AGREEMENT This Second Amendment to Credit Agreement (this "Second Amendment"), made as of this 31st day of July, 1996, 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 the Lenders signatory hereto 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, and ("Borrower"). W I T N E S S E T H: WHEREAS, Borrower, Agent and Lenders have entered into that certain Credit Agreement dated as of January 6, 1995 (as heretofore amended, the "Credit Agreement"); and WHEREAS, Borrower has requested that Lenders restructure the lending arrangements under the Credit Agreement to increase the aggregate amount of Lenders' Commitments under the Credit Agreement; and WHEREAS, the increased amount of credit would be used to provide additional working capital under the Revolving Loan and additional funds to assist Borrower in Making Permitted Acquisitions under the Acquisition Loan; and WHEREAS, Lenders are willing to restructure the terms of the Credit Agreement and provide additional credit to the Borrower pursuant to the terms of this Second Amendment; NOW, THEREFORE, in consideration of the promises set forth herein, Borrower and Lenders agree as follows: ARTICLE I 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Modifications and Additions to Certain Definitions All capitalized terms used in this Second Amendment but not defined in this Second Amendment shall have the meanings given to them in the Credit Agreement. In the event of a conflict between the definitions contained in this Second Amendment and the definitions contained in the Credit Agreement, the definitions contained in this Second Amendment shall prevail. As of the date hereof, the following terms are added to the Credit Agreement in their proper alphabetical order, having the following meanings and/or modified as follows: "Second Amendment" means that certain Second Amendment to Credit Agreement dated as of the 31st day of July 1996. 2 2 "Second Amendment Effective Date" means the first date to the effectiveness of which the conditions precedent set forth in the Second Amendment have been satisfied to the satisfaction of Agent and Lenders. Clause (a) of the first sentence of the defined terms of (i) "Acquisition Loan Commitment," (ii) "Revolving Loan Commitment," and (iii) "Term Loan A Commitment," shall respectively be modified to reflect the new commitments of each Lender as set forth on the signature page of the Second Amendment opposite such Lender's signature. 1.2 Subsection 2.1(A) of the Credit Agreement is hereby amended by deleting subsection 2.1(A) in its entirety and inserting the following in its place and stead: (A) Term Loan A. Subject to the terms and conditions of the Credit Agreement and in reliance upon the representation and warranties of Borrower contained in the Second Amendment and the Credit Agreement, each lender agrees, severally and not jointly, to lend to Borrower on the Second Amendment Effective Date its Pro Rata Share of Term Loan A. The aggregate amount of Term Loan A shall be Thirty Million Dollars ($30,000,000) and shall be comprised of the sum of (i) the aggregate amount of advances heretofore advanced by each Lender under the Acquisition Loan, the principal amount of which remains unpaid as of the Second Amendment Effective Date plus (ii) the aggregate amount advanced by each Lender under Term Loan A on the Closing Date of the Credit Agreement, the principal amount of which remains unpaid as of the Second Amendment Effective Date plus (iii) to the extent necessary for Term Loan A to equal $30,000,000, the Pro Rata Share of any amounts heretofore advanced by each Lender under the Revolving Loan, the principal amount of which remains unpaid as of the Second Amendment Effective Date. The original amount of Term Loan A was funded on the Closing Date and the balance shall be funded in one drawing on the Second Amendment Effective Date. Amounts borrowed under this subsection 2.1(A) and repaid may not be reborrowed. Borrower shall make principal payments in the amounts of the applicable Scheduled Installments (or such lesser principal amount of Term Loan A as shall be outstanding) on the dates and in the amounts set forth below. "Scheduled Installment: means, for each date set forth below, the amount set forth opposite such date. Date Amount ---- ------ The last day of each calendar quarter $500,000 commencing September of 1996 and ending June of 1997 The last day of each calendar quarter $750,000 commencing September of 1997 and ending June of 1998 3 3 The last day of each calendar quarter $1,250,000 commencing September of 1998 and ending June of 1999 The last day of each calendar quarter $1,500,000 commencing September of 1999 and ending June of 2000 The last day of each calendar quarter $1,750,000 commencing September of 2000 and ending March of 2002 The last day of July 2002 $1,750,000 1.3 Subsection 2.1(B) of the Credit Agreement is hereby amended by deleting subsection 2.1(B) in its entirety up to 2.1(B)(1) and inserting the following in its place and stead: (B) Acquisition Loan. Subject to the terms and conditions of the Credit Agreement and in reliance upon the representations and warranties of Borrower contained in the Second Amendment and the Credit Agreement, each Lender agrees, severally and not jointly, to lend to Borrower on each Acquisition Date occurring on or before the second anniversary of the Second Amendment Effective Date its Pro Rata Share of the portion of the Acquisition Loan requested by Borrower on such Acquisition Date. The Proceeds of the Acquisition Loan shall be used solely to fund Permitted Acquisitions and Permitted Small Acquisitions and related fees and expenses. The aggregate amount of advances made under the Acquisition Loan shall be Twenty-Seven Million Dollars ($27,000,000). No advances will be made under the Acquisition Loan after the second anniversary of the Second Amendment Effective Date. Amounts borrowed under this subsection 2.1(B) and repaid may not be reborrowed. On each date set forth below, Borrower shall repay a portion of the principal amount of the Acquisition Loan which is outstanding on the second anniversary of the Second Amendment Effective Date, which portion will be equal to the percentage thereof which is set forth for such date (each such payment being referred to herein as a "Scheduled Installment")." Date Percentage ---- ---------- The last day of each calendar quarter 3.75% commencing September of 1998 and ending June of 1999 The last day of each calendar quarter 5.00% commencing September of 1999 and ending June of 2000 4 4 The last day of each calendar quarter 7.5% commencing September of 2000 and ending June of 2001 The last day of each calendar quarter 8.75% commencing September of 2001 and ending March of 2002 The last day of July 2002 8.75% 1.4 Subsection 2.1(C) of the Credit Agreement is hereby amended by deleting subsection 2.1(C) in its entirety up to 2.1(C)(1) and inserting the following in its place and stead: (C) Revolving Loan. Subject to the terms and conditions of the Second Amendment and the Credit Agreement and in reliance upon the representations and warranties of Borrower contained in the Second Amendment and the Credit Agreement, each Lender agrees, severally and not jointly, to lend to Borrower from time to time during the period from the Second Amendment Effective Date to and excluding the Expiry Date, its Pro Rata Share of the Revolving Loan. The aggregate amount of all Revolving Loan Commitments shall be Eighteen Million Dollars ($18,000,000), as reduced from time to time pursuant to subsection 2.4. Amounts borrowed under this subsection 2.1(C) may be repaid and reborrowed at any time prior to the Expiry Date. No Lender shall have any obligation to make advances under this subsection 2.1(C) to the extent any requested advance would cause the principal balance of the Revolving Loan then outstanding to exceed the Maximum Revolving Loan Amount. 1.5 Subsection 2.1(D)(1) of the Credit Agreement is hereby amended by deleting subsection 2.1(D)(1) in its entirety and inserting the following in its place and stead: "(l) Maximum Amount. The aggregate amount of Lender Guaranty Liability with respect to all Lender Letters of Credit and Lender Guaranties outstanding at any time shall not exceed Five Million Dollars ($5,000,000)." 1.6 Subsection 2.5 of the Credit Agreement is hereby amended by deleting clause (b) of the first sentence thereof and substituting the following in its place "(b) July 31, 2002 (the "Termination Date"), and the Commitments shall (unless earlier terminated) terminate concurrently on the Termination Date." 5 5 1.7 Subsection 6.1 of the Credit Agreement is hereby amended by deleting subsection 6.1 in its entirety and inserting the following in its place and stead: 6.1 Capital Expenditure Limits. The aggregate amount of all Capital Expenditures of Borrower and its Subsidiaries for the Fiscal Years set forth below will not exceed the amount set forth below for such Fiscal Year. The amounts set forth below are exclusive of the capital costs related to the purchase and installation of the Borrower's new information system, which costs shall not exceed $2,000,000.
Fiscal Year Amount ----------- ------ 1996 $2,200,000 1997 $3,000,000 1998 and each Fiscal Year thereafter $4,000,000
Notwithstanding the foregoing, in the event Borrower does not in any Fiscal Year use the permitted amount of Capital Expenditures for such Fiscal Year, Borrower may carry forward to the immediately succeeding Fiscal Year fifty percent (50%) of the unused portion of such permitted amount. All Capital Expenditures shall first be applied to reduce the carry forward from the previous year, if any, and then to reduce the applicable limit for the then current Fiscal Year. 1.8 Subsection 6.3 of the Credit Agreement is hereby amended by deleting subsection 6.3 in its entirety and inserting the following in its place and stead: 6.3 Fixed Charge Coverage. Borrower shall not permit Fixed Charge Coverage for the twelve (12) month period ending on the last day of each month during the periods set forth below to be less than the amount set forth below for such period.
Period Amount ------ ------ Each month after the Second Amendment 1.2 to 1 Effective Date
6 6 ARTICLE II GENERAL PROVISIONS 2.1 Conditions Precedent. The effectiveness of this Second Amendment is subject to the satisfaction of the following conditions precedent (unless specifically waived in writing by Agent and Lenders): (a) there shall have occurred no material adverse change in the business, operations, financial condition, profits or prospects, or in the Collateral of Borrower; (b) Borrower shall have executed and delivered such other documents and instruments as Agent may require; (c) all corporate proceedings taken in connection with the transactions contemplated by the Second Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent and its legal counsel; (d) execution and delivery of all Notes to each of Lenders representing their Pro Rata Share of new Commitments; (e) after giving effect to the payment of, or the creation of a reserve for, all costs, fees and expenses related to the closing of the Second Amendment, Borrower shall have a minimum of Ten Million Dollars ($10,000,000) available to draw under the Revolving Loan on the Second Amendment Effective Date; (f) the conditions of Section 2.11 of the Second Amendment shall have been satisfied to Agent's satisfaction; and (g) Borrower shall have paid or shall pay when due to Heller, individually and as Agent, in addition to Interest and other charges, the following fees: (i) Closing Fee: The amount of $96,563.00 will be due and payable on the Second Amendment Effective Date; (ii) Commitment Affirmation Fee: A commitment affirmation fee in the amount of $61,563.00 will be due and payable on the Second Amendment Effective Date; (iii) Certain Fees: Borrower shall pay to Heller, individually and as Agent, such fees in the amounts and at the times specified in that certain letter agreement of even date herewith between Borrower and Heller 2.2 Ratification. The terms and provisions set forth in the Second Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and, except as expressly modified and superseded by the Second 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 Borrowers set forth in the Credit Agreement, as modified hereby, are hereby restated as of the date hereof. 2.3 Reference to Credit Agreement. The Credit Agreement and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 7 7 2.4 Amendment; Assignment. This Second Amendment may not be modified, altered or amended except by an instrument in writing signed by Borrowers and Lender. Borrowers may not sell, assign or transfer this Second Amendment or any portion thereof, including, without limitation, any of Borrower's rights, titles, interests, remedies, powers and/or duties hereunder or thereunder. 2.5 Severability. If any provision of this Second Amendment or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Second Amendment and the application of such provision to other Persons or circumstances will not be affected thereby and the provisions of this Second Amendment shall be severable in any such instance. 2.6 Counterparts. This Second Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. An executed facsimile of this Second Amendment shall be deemed to be a valid and binding agreement between the parties hereto. 2.7 Headings. All headings used in this Second Amendment are for convenience of reference only and shall not be used in interpreting this Second Amendment. 2.8 Entire Agreement. This Second 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. 2.9 THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 2.10 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH NOTE, SUCH OTHER 8 8 LOAN DOCUMENT OR SUCH OBLIGATION. BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS PROVIDED IN SUBSECTION 10.5 EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER REFUSES TO ACCEPT SERVICE, BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. 2.11 Required Lender Approval. As required by Section 10.3 of the Credit Agreement, this Second Amendment shall become effective as of the date first set forth above upon execution by the Borrower and each of the Lenders, satisfaction of the conditions precedent set forth herein and acknowledgment hereof by Grand Distributing Corp., Arnold Paint Company, McNeil & Sons Auto Paint, Inc. 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. IN WITNESS WHEREOF, this Second Amendment has been duly executed as of the day and year first above written. THOMPSON PBE, INC. By: /s/ CHARLES E. BARRANTES ----------------------------------- Name: CHARLES E. BARRANTES --------------------------------- Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -------------------------------- [SIGNATURES CONTINUE ON THE NEXT PAGE] 9 9 Revolving Loan Commitment: HELLER FINANCIAL, INC., as Agent $4,560,000.00 By: /s/ ELIZABETH PRICE Term Loan A Commitment: ------------------------------ Name: Elizabeth Price $7,600,000.00 ------------------------------ Title: VP Acquisition Loan Commitment: ------------------------------ $6,840,000.00 Revolving Loan Commitment: GIROCREDIT BANK AKTIENGESELLSCHAFT DER SPARKASSEN $2,160,000.00 By: /s/ ANCA TRIFAN Term Loan A Commitment: ------------------------------ Name: Anca Trifan $3,600,000.00 ------------------------------- Title: Vice President Acquisition Loan Commitment: ------------------------------ $3,240,000.00 Revolving Loan Commitment: SANWA BUSINESS CREDIT CORPORATION $4,560,000.00 By: /s/ LAWRENCE J. PLACEK Term Loan A Commitment: ------------------------------ Name: Lawrence J. Placek $7,600,000.00 ------------------------------ Title: Vice President Acquisition Loan Commitment: ------------------------------ $6,840,000.00 [SIGNATURES CONTINUE ON THE NEXT PAGE] 10 10 Revolving Loan Commitment: FLEET BANK OF MASSACHUSETTS, N.A. $4,560,000.00 By: /s/ LINDA COPOULIS Term Loan A Commitment: ------------------------------ Name: Linda Copoulis $7,600,000.00 ------------------------------ Title: Vice President Acquisition Loan Commitment: ------------------------------ $6,840,000.00 Revolving Loan Commitment: UNION BANK $2,160,000.00 By: /s/ STEVEN BIERMAN Term Loan A Commitment: ------------------------------ Name: Steven Bierman $3,600,00.00 ------------------------------ Title: VP Acquisition Loan Commitment: ------------------------------ $3,240,000.00 11 11 ACKNOWLEDGMENT GRAND DISTRIBUTING CORP. acknowledges and consents to the terms of this Second Amendment and hereby affirms, ratifies and confirms all of the terms of its Continuing Guaranty dated January 5, 1995. GRAND DISTRIBUTING CORP. By: /s/ MORT KLINE ----------------------------- Title: CEO -------------------------- 12 12 ACKNOWLEDGMENT ARNOLD PAINT COMPANY acknowledges and consents to the terms of this Second Amendment and hereby affirms, ratifies and confirms all of the terms of its Continuing Guaranty dated February 16, 1995. ARNOLD PAINT COMPANY By: /s/ MORT KLINE ----------------------------- Title: President -------------------------- 13 13 ACKNOWLEDGMENT MCNEIL & SONS AUTO PAINT, INC. acknowledges and consents to the terms of this Second 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/ MORT KLINE ----------------------------- Title: President -------------------------- 14 14 ACKNOWLEDGMENT SANTA CLARA COLOR SERVICE, INC. acknowledges and consents to the terms of this Second 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/ MORT KLINE ----------------------------- Title: President -------------------------- 15 EX-10.53 3 EXHIBIT 10.53 1 EXHIBIT 10.53 THIRD AMENDMENT CREDIT AGREEMENT This Third Amendment to Credit Agreement (this "Third Amendment"), made as of this 30th day of September, 1996, 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, and ("Borrower"). W I T N E S S E T H: WHEREAS, the Borrower and Agent and Lenders have entered into that certain Credit Agreement dated as of January 6, 1995 (as heretofore amended from time to time the "Credit Agreement"); and WHEREAS, the Borrower has requested the Lenders to amend certain financial covenants contained in the Credit Agreement; WHEREAS, Lenders are willing to amend the Credit Agreement pursuant to the terms of this Third Amendment; NOW, THEREFORE, in consideration of the promises set forth herein, Borrower and Lenders agree as follows: ARTICLE I CAPITALIZED TERMS 1.1 All capitalized terms used in this Third Amendment but not defined in this Third Amendment shall have the meanings given to them in the Credit Agreement. In the event of a conflict between the definitions contained in this Third Amendment and the definitions contained in the Credit Agreement, the definitions contained in this Third Amendment shall prevail. 2 2 ARTICLE II AMENDMENTS TO THE CREDIT AGREEMENT 2.1 The definition of "EBITDA" in subsection 1.1 of the Credit Agreement is hereby amended to (i) delete the period at the end of said definition and substitute a semi-colon in its place and stead; and (ii) add the following: PLUS (i) sales tax reserves equal to $1,800,000 recorded in September, 1996 and deducted in the determination of Net Income; PLUS (j) reserves related to amounts due from vendors equal to $500,000, recorded in September, 1996 and deducted in the determination of Net Income. 2.2 Subsection 6.4 of the Credit Agreement is hereby amended to delete said subsection and substitute the following in its place and stead: 6.4 SENIOR LEVERAGE. Borrower shall not permit the ratio of Senior Debt as of the last day of each month during the periods set forth below to Pro Forma Operating Cash Flow for the twelve (12) month period ending on the last day of each month during the periods set forth below to be greater than the ratio set forth for such period. Period Ratio ------ ----- Closing through 9/30/96 3.50 to 1.00 10/1/96 through 2/28/97 4.00 to 1.00 3/1/97 through 5/31/97 3.75 to 1.00 6/1/97 through 8/31/97 3.75 to 1.00 9/1/97 through 9/30/98 3.50 to 1.00 10/1/98 through 9/30/99 3.25 to 1.00 10/1/99 through 9/30/00 2.75 to 1.00 10/1/00 and each month thereafter 2.25 to 1.00 2.3 Subsection 6.5 of the Credit Agreement is hereby amended to delete said subsection and substitute the following in its place and stead: 6.5 TOTAL INDEBTEDNESS LEVERAGE. Borrower shall not permit the ratio of total Indebtedness of Borrower and its Subsidiaries on a consolidated basis as of the last day of each month during the periods set forth below to Pro Forma Operating Cash Flow for the twelve (12) month period ending on the last day of each month during the periods set forth below to be greater than the ratio set forth for such period. Period Ratio ------ ----- Closing through 9/30/96 4.50 to 1.00 10/1/96 through 2/28/97 5.25 to 1.00 3/1/97 through 5/31/97 5.25 to 1.00 6/1/97 through 8/31/97 4.75 to 1.00 9/1/97 through 9/30/98 4.00 to 1.00 10/1/98 through 9/30/99 3.75 to 1.00 10/1/99 through 9/30/00 3.25 to 1.00 10/1/00 and each month thereafter 2.75 to 1.00 3 3 2.4 Subsection 7.1(f) of the Credit Agreement is hereby amended to substitute the number Fifteen Million Dollars ($15,000,000) for the number Ten Million Dollars ($10,000,000) and substitute the number Eighteen Million Dollars ($18,000,000) for the number Twelve Million Dollars ($12,000,000). ARTICLE III GENERAL PROVISIONS 3.1 CONDITIONS PRECEDENT. The effectiveness of this Third Amendment is subject to: (1) Borrower's payment to Lenders of a fee equal to $50,000; (ii) Borrower hereby agrees not to utilize the Acquisition Loan to repurchase its own common stock in accordance with that certain letter dated December 10, 1996, until October 1, 1997; and (iii) Borrower hereby agrees that all acquisitions (including Permitted Small Acquisitions) will require Requisite Lenders' approval until such time as Borrower is in compliance with the Senior Debt and total Indebtedness ratios set forth in subsection 2.1(B)(2)(C) of the Credit Agreement. 3.2 RATIFICATION. The terms and provisions set forth in this Third 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 Third 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 Borrowers set forth in the Credit Agreement, as modified hereby, are hereby restated as of the date hereof. 3.3 REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 3.4 AMENDMENT; ASSIGNMENT. This Third Amendment may not be modified, altered or amended except by an instrument in writing signed in accordance with Section 10.3 of the Credit Agreement. Borrower may not sell, assign or transfer this Third Amendment or any portion thereof, including, without limitation, any of Borrower's rights, titles, interests, remedies, powers and/or duties hereunder or thereunder. 3.5 SEVERABILITY. If any provision of this Third Amendment or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Third Amendment and the application of such provision to other Persons or circumstances will not be affected thereby and the provisions of this Third Amendment shall be severable in any such instance. 4 4 3.6 COUNTERPARTS. This Third Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. 3.7 HEADINGS. All headings used in this Third Amendment are for convenience of reference only and shall not be used in interpreting this Third Amendment. 3.8 ENTIRE AGREEMENT. This Third 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. 3.9 THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 3.10 REQUIRED LENDER APPROVAL. As required by Section 10.3 of the Credit Agreement, this Third 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, 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. IN WITNESS WHEREOF, this Third Amendment has been duly executed as of the day and year first above written. THOMPSON PBE, INC. By: /s/ MORT KLINE ----------------------------------- Name: Mortimer A. Kline, III --------------------------------- Title: President -------------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] 5 5 HELLER FINANCIAL, INC., as Agent By: /s/ ROBERT M. HORACK ----------------------------------- Name: Robert M. Horak --------------------------------- Title: Associate Vice President -------------------------------- GIROCREDIT BANK AKTIENGESELLSCHAFT DER SPARKASSEN By: /s/ ANCA TRIFAN ----------------------------------- Name: Anca Trifan --------------------------------- Title: Vice President -------------------------------- SANWA BUSINESS CREDIT CORPORATION By: /s/ MICHAEL J. COX ----------------------------------- Name: Michael J. Cox --------------------------------- Title: Vice President -------------------------------- FLEET BANK OF MASSACHUSETTS, N.A. By: /s/ ERIC C. VANDERMEN ----------------------------------- Name: Eric C. Vandermen --------------------------------- Title: Vice President -------------------------------- UNION BANK By: /s/ STEVEN C. BIERMAN ----------------------------------- Name: Steven C. Bierman --------------------------------- Title: Vice President -------------------------------- 6 6 ACKNOWLEDGMENT GRAND DISTRIBUTING CORP. acknowledges and consents to the terms of this Third Amendment and hereby affirms, ratifies and confirms all of the terms of its Continuing Guaranty dated January 5, 1995. GRAND DISTRIBUTING CORP. By: /s/ MORT KLINE ----------------------------------- Title: CEO -------------------------------- 7 7 ACKNOWLEDGMENT ARNOLD PAINT COMPANY acknowledges and consents to the terms of this Third Amendment and hereby affirms, ratifies and confirms all of the terms of its Continuing Guaranty dated February 16, 1995. ARNOLD PAINT COMPANY By: /s/ MORT KLINE ----------------------------------- Title: President -------------------------------- 8 8 ACKNOWLEDGMENT McNEIL & SONS AUTO PAINT, INC. acknowledges and consents to the terms of this Third Amendment and thereby affirms, ratifies and confirms all of the terms of its Continuing Guaranty dated February 15, 1996. McNEIL & SONS AUTO PAINT, INC. By: /s/ MORT KLINE ----------------------------------- Title: President -------------------------------- 9 9 ACKNOWLEDGMENT AUTO BODY SUPPLY CORPORATION acknowledges and consents to the terms of this Third 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/ MORT KLINE ----------------------------------- Title: President -------------------------------- 10 10 ACKNOWLEDGMENT AUTOMOTIVE PAINT AND SUPPLY COMPANY, INCORPORATED acknowledges and consents to the terms of this Third 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/ MORT KLINE ----------------------------------- Title: President -------------------------------- 11 11 ACKNOWLEDGMENT SANTA CLARA COLOR SERVICE, INC. acknowledges and consents to the terms of this Third 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/ MORT KLINE ----------------------------------- Title: President -------------------------------- 12 EX-11.1 4 EXHIBIT 11.1 1 Exhibit 11.1 THOMPSON PBE, INC. COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND 1996
1995 1996 --------- --------- Common stock outstanding, beginning of period . . . . . . . . . 2,908,060 6,391,946 Issuance of common stock in connection with public offering . . . . . . . . . . . . . . . . . . . . . . . 2,450,000 2,271,475 Conversion of convertible preferred stock . . . . . . . . . . . 622,600 Exercise of Heller stock warrant . . . . . . . . . . . . . . . 365,609 Exercise of options . . . . . . . . . . . . . . . . . . . . . . 58,756 29,017 Retirement of stock used to pay for exercise of options . . . . (13,079) --------- --------- Common stock outstanding, end of period . . . . . . . . . . . . 6,391,946 8,692,438 ========= ========= PER SHARE DATA: Weighted average shares outstanding during the period, assuming exercise of options and warrants . . . . . . . . . . 6,586,188 9,157,826 Shares assumed to be repurchased under the treasury stock method at an average fair market value per share of $14.59 and $13.08 at September 30, 1995 and 1996, respectively . . . . . (268,777) (307,643) --------- ---------- Total shares used in computing Historical Per Share data . . . 6,317,411 8,850,183 ========= ========= Income before income taxes and extraordinary item . . . . . . $ 5,480,000 Less: assumed redemption of redeemable capital stock . . . . . (1,000,000) Less: dividends accrued on preferred stock and redeemable preferred stock . . . . . . . . . . . . . . . . . (78,000) --------- Income available to common stockholders before income taxes and extraordinary item . . . . . . . . . . . . . . . . 4,402,000 Extraordinary item - early extinguishment of debt . . . . . . . (445,000) ----------- Net income used in computing Historical Per Share data . . . . $ 3,957,000 $1,073,000 =========== ========== Income per share before income taxes and extraordinary item . . $ 0.70 Extraordinary item - early extinguishment of debt . . . . . . . $(0.07) Net income per share . . . . . . . . . . . . . . . . . . . . . $ 0.63 $0.12
EX-21.1 5 EXHIBIT 21.1 1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT 1. Grand Distributing Corp., a California corporation 2. Thompson Lacquer Co., a California corporation 3. Arnold Paint Company, a Florida corporation 4. Lewis Paint Company, a Florida corporation 5. Santa Clara Color, Inc., a California corporation 6. McNeil & Sons Auto Paint, Inc., a Massachusetts corporation 7. Auto Colorco, Inc., an Alabama corporation EX-23.2 6 EXHIBIT 23.2 1 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Forms S-8, in Registration Statement Nos. 33-90712, 333-2916 and 333-2918 of Thompson PBE, Inc., of our report dated December 19, 1996 appearing in this Annual Report on Form 10-K of Thompson PBE, Inc. for the year ended September 30, 1996. DELOITTE & TOUCHE LLP Los Angeles, California January 10, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 482 0 20,759 1,018 31,440 59,088 13,879 6,449 124,380 28,839 0 0 0 9 51,225 124,380 178,139 178,139 113,210 113,210 58,767 1,179 2,600 2,383 1,310 1,073 0 0 0 1,073 .12 .12
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