-----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, O50iuvcC/MyHe+z3aN1sPFd8/rmrLaC80Im7L+eoTWjXQ5iDgumkeg28+zS12t36 mvTEOPvSrtXGXENM4qAsCw== 0000890566-97-000586.txt : 19970329 0000890566-97-000586.hdr.sgml : 19970329 ACCESSION NUMBER: 0000890566-97-000586 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HI LO AUTOMOTIVE INC /DE CENTRAL INDEX KEY: 0000874188 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 760232254 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10823 FILM NUMBER: 97567450 BUSINESS ADDRESS: STREET 1: 2575 W BELLFORT CITY: HOUSTON STATE: TX ZIP: 77054 BUSINESS PHONE: 7136636700 MAIL ADDRESS: STREET 1: 2575 W BELLFORT CITY: HOUSTON STATE: TX ZIP: 77054 10-K405 1 ANNUAL REPORT ON FORM 10-K 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 DECEMBER 31, 1996, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10823 HI-LO AUTOMOTIVE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0232254 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2575 WEST BELLFORT, HOUSTON, TEXAS 77054 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 663-6700 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED Common Stock, ($.01 par value) New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None 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 twelve 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the 10,409,556 shares of voting stock of the registrant held by non-affiliates of the registrant (excluding, for this purpose, shares held by officers, directors or 10% stockholders) was $36,433,446, based on the last sales price of the Common Stock on March 18, 1997, as reported on the New York Stock Exchange. The number of shares of Common Stock outstanding as of March 18, 1997, was 10,775,109. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's annual stockholders' meeting to be held May 20, 1997, are incorporated by reference into Part III. PART I ITEM 1. BUSINESS GENERAL Hi-Lo Automotive, Inc., sells automotive aftermarket parts, products and accessories for domestic and imported cars, vans and light trucks to do-it-yourself ("DIY") consumers and commercial auto repair outlets. DIY consumers purchase parts, products and accessories and perform their own installation and maintenance. Commercial repair outlets include professional mechanics, auto repair shops, auto dealers, fleet owners, and mass and general merchandisers with auto repair facilities that perform installation and maintenance work for a fee. Hi/LO stores do not sell tires or perform automotive repairs or installations. Since the opening of the first Hi/LO store in the late 1950s, Hi/LO has targeted the DIY consumer by offering a large selection of repair and replacement parts, friendly customer service and high quality parts at low, discount prices. In recent years, Hi/LO has upgraded its retail marketing effort by undertaking a store modernization program, standardizing its merchandising layouts and store signage, and introducing Company-wide sales promotion programs targeted at the DIY consumer. The DIY market segment accounted for approximately 65% of the Company's 1996 sales. Although Hi/LO stores have always served commercial customers, the Company initiated a formal commercial sales program in 1989 to increase such sales. As a result, the Company's participation in the commercial segment of the automotive aftermarket has changed from a retail-related walk-in business to a delivery-oriented commercial business. Sales to the commercial market segment accounted for approximately 35% of the Company's 1996 sales. In early 1992, the Company adopted an everyday low price strategy to strengthen its reputation with DIY customers as a price leader. To support its strategy, the Company regularly reviews its vendor relationships to evaluate and compare price, quality and service, and, as appropriate, may change vendors. At December 31, 1996, the Company had 191 stores, 71 located in the greater Houston metropolitan area, 33 in the Dallas/Fort Worth area, 10 in the Austin area, 8 in San Antonio, 44 located in other cities and communities in Texas, 17 located in Louisiana, and 8 located in Southern California. The Company closed 3 stores during 1996, 2 in the Houston metropolitan area and 1 in San Antonio. The following table sets forth the Company's store activities during the past five years:
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Beginning stores...... 194 178 150 129 114 New stores............ - 8 20 21 15 Acquired stores....... - 8 8 - - Closed stores......... 3 - - - - Ending stores......... 191 194 178 150 129
In order to concentrate on increasing profitability, the Company opened no new stores in 1996, and closed three underperforming stores. New stores generally record a net loss their first year and, accordingly, reduce earnings during that year. The Company recognizes that growth is dependent upon its ability to open and operate profitable new stores. The Company's expansion strategy continues to focus on adding or acquiring stores (i) in strategic locations in Hi/LO's largest market, the greater Houston metropolitan area, (ii) in other metropolitan areas and communities that it currently serves and (iii) in new markets contiguous to those served by Hi/LO stores. The Company expects to open two to five new stores during 1997 and close six to ten underperforming stores. In order to increase its distribution capability, the Company expanded its distribution center in Houston by adding approximately 97,200 square feet during 1994. 2 As used herein, the terms "Hi/LO" and the "Company" refer to Hi-LO Automotive, Inc., its operating subsidiary, Hi-Lo Auto Supply, L.P., and its other subsidiary and predecessor companies, unless the context otherwise requires. Certain statements contained in this section which are not historical facts are forward-looking statements that involve risks, uncertainties, and assumptions including, but not limited to, customer demand and trends in the auto parts, products and accessories industry, related inventory risks due to shifts in customer demand, the effect of economic conditions, the impact of competitors' locations and pricing, difficulties with respect to new technologies such as point-of-sale systems, parts catalogs, supply constraints or difficulties, and the results of financing efforts. Should one or more of these or other risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes could vary materially. BUSINESS STRATEGY Hi/LO's strategy is to serve both the DIY and commercial market segments of the automotive aftermarket through its store network. By serving both market segments through its stores, the Company is able to serve a larger customer base at its stores. As a result, greater store productivity can be attained and a more extensive product selection maintained at the stores. The Company believes its business strategy positions it to sell replacement parts, whether the repair is performed by the DIY consumer or the professional mechanic, reducing the sensitivity of the Company's sales to shifts in demand between the two segments. The Company believes that additional benefits result from serving both market segments. In the DIY segment, the Company has found that the product knowledge gained by its associates from serving the more technically-oriented commercial customers has improved their handling of overall product selection. In the commercial segment, the Company believes that the merchandising capabilities resulting from serving the DIY segment enable it to market its products to commercial customers more effectively than traditional commercial suppliers. The Company's business strategy is supported by the following key merchandising and marketing elements: SELECTION. Company stores generally carry 15,000 to 30,000 Stock Keeping Units ("SKUs"), depending on store size and location. An additional 50,000 SKUs are available from the Company's distribution center. In total, the Company stocks approximately 80,000 SKUs, reflecting primarily a larger selection of repair or replacement "hard parts" than most of its retail competitors. As a result of its broad product selection, the Company believes it has established a reputation with its customers as being more likely than its competitors to have in stock the parts requested by the customer. EVERYDAY LOW PRICES. Hi/LO has an everyday low price strategy. The Company seeks to maintain retail prices that are comparable to those of its major retail competitors and to maintain commercial (delivered) prices comparable to or below those of its major commercial competitors. Hi/LO supplements its everyday low price strategy with special promotional pricing on selected products. To assure DIY consumers of its competitive prices, Hi/LO maintains a "match any price" policy. In addition, the Company's commercial customers are offered reduced prices on hard parts based on the volume of sales to those customers. The Company's pricing strategy is communicated to customers through newsprint, radio and television advertising, as well as in-store promotional signage and displays designed to highlight the Company's everyday low price strategy. AVAILABILITY. To assure superior parts availability at the store level, the Company makes regularly scheduled deliveries to all stores at least once each week from its distribution center in Houston, Texas. To meet customers' product requests, special order deliveries are made as often as twice a day, Monday through Saturday, to most of the Company's greater Houston metropolitan area stores, and usually by the next day to other Hi/LO stores. Commercial customers are serviced through store-based delivery trucks that generally make deliveries from in-store inventories in less than 60 minutes after receipt of an order. 3 KNOWLEDGEABLE ASSOCIATES. Hi/LO emphasizes customer service, technical knowledge and experience in its store associates, who are trained to be professional, courteous and responsive to customers. The Company seeks to hire store sales associates with prior auto parts experience. Customer service is enhanced through the use of a computerized point-of-sale system that assists store associates in selecting the correct parts for customers' needs and in recommending other related parts and products. STORE OPERATIONS Hi/LO stores are generally located on or near major traffic arteries and offer ample parking and easy customer access. Forty-four of the Company's stores in operation on December 31, 1996, were located in multi-tenant facilities, and 147 were freestanding. The Company bases site selection on demographic data, including population density, vehicle traffic counts, and number and type of auto repair facilities located within a three to five mile radius. Current and anticipated competition is also evaluated. To date, the Company has encountered no significant difficulties in locating suitable store sites. The Company's stores generally range in size from approximately 5,000 square feet to 17,000 square feet (averaging approximately 8,300 square feet) of ground floor space, including selling, office, stockroom and receiving areas. Many Hi/LO stores contain an additional second floor or mezzanine area. The Company believes the square footage of its stores is larger than many of its retail competitors' auto parts stores and enables Hi/LO to stock a broader selection of "hard parts." Over the past five years, the Company has remodeled 26 stores and relocated 10 stores. The Company plans to continue to remodel or relocate its stores as needed on an ongoing basis. Although store layout varies slightly among stores based on the physical facilities, emphasis at each store is placed on a clean, bright and well-organized appearance. Exterior and interior signage is highly visible in contrasting yellow and black, and all store associates wear attractive Hi/LO uniforms. Merchandise is displayed in a manner designed to provide ready customer access and to draw the customer through the store. High turnover products and accessories generally are positioned to encourage impulse purchases. In all stores, accessories, maintenance and appearance products are displayed on gondolas using a "plan-o-gram" system to provide uniform and consistent merchandise presentation. Aisle and counter displays are generally used to feature high demand seasonal merchandise, new items and advertised specials. Hi/LO stores offer free testing of starters, alternators and batteries and a liberal policy on returns. Most stores also make available tools and technical manuals and provide minor machining services in order to assist DIY customers in repairing their vehicles. The Company considers customer relations and the product knowledge of store associates to be critical to its marketing approach and in developing customer loyalty. Store sales associates use a computerized point-of-sale system to assist in selecting the correct product for customers' needs, recommending other related parts and products, and pricing transactions. Hi/LO stores typically have one manager, one assistant manager, and may have 5 to 27 additional associates. The store manager is responsible for recruiting, hiring and training store associates, establishing work schedules and maintaining displays and inventory. The Company conducts training programs and is continuously developing additional training programs and improvements to existing programs. These programs encompass both self-study and group presentation formats. The supervisory programs help region managers, store managers and assistant store managers acquire and maintain the skills necessary to carry out their responsibilities professionally and efficiently. Other programs are used to train new store associates in basic job related skills and to address the developmental needs of associates desiring to progress in the Company. Hi/LO stores are generally open Monday through Saturday, 8:00 A.M. to 9:00 P.M., and Sunday, 9:00 A.M. to 8:00 P.M., with extended hours during the summer season. Hi/LO stores accept cash, checks and major credit cards and offer short-term credit to selected commercial customers who satisfy the Company's credit requirements. 4 COMMERCIAL PROGRAM The commercial sales program, marketed under the trade name First Call(R), is targeted at professional mechanics, auto repair shops, auto dealers, fleet owners, mass and general merchandisers with auto repair facilities, and other commercial repair outlets located near the Company's stores. As part of its commercial sales program, the Company maintains a commercial manager in many of its stores, whose primary responsibility is to service commercial accounts. In addition, the Company's commercial sales force assists the commercial managers in developing commercial sales. At December 31, 1996, the commercial sales force numbered 27 people. During 1996, the Company continued to improve its service to commercial customers by centralizing commercial operations for groups of stores. A commercial manager and a number of senior sales associates are dedicated to serving the commercial accounts for all stores in that area. Delivery of product to commercial customers from the nearest store location is also arranged for by these associates. The Company feels that by centrally serving customers, service levels improve because more qualified associates are available to meet the commercial customers' needs. To provide the delivery capability required to serve commercial customers, the Company maintains light trucks in service at many of its stores. During 1996, the Company provided this service in certain markets through an independent delivery service, permitting the Company to downsize its fleet of light trucks. Deliveries of in-store inventories are generally made to commercial customers in less than 60 minutes after receipt of an order. Hi/LO believes it can offer its commercial customers an advantage over most traditional commercial suppliers in parts selection and availability due to the greater breadth of its in-store and distribution center inventories together with more convenient store locations. PRODUCT LINE AND PRICING Hi/LO's product line consists of approximately 80,000 SKUs, providing a wide selection of items for domestic and imported cars, vans and light trucks. The Company's larger SKU count relative to its retail competitors reflects primarily the broader selection of "hard parts" carried by the Company, such as engine and transmission parts, chassis parts, brake parts, batteries, shock absorbers and struts, mufflers and other exhaust system parts. In addition, the Company's product line includes accessories, such as tools and hardware, seat covers, floor mats, gauges, mirrors, and car radios and speakers; maintenance products, such as motor oils, filters, antifreeze, paints, and oil and fuel additives; and appearance products, such as polishes, waxes, and cleaners. The Company's product mix includes both nationally recognized brand names and quality private label products. Hi/LO has an everyday low price strategy. The Company seeks to maintain retail prices that are comparable to those of its major retail competitors and to maintain commercial prices comparable to or below those of its major commercial competitors. Hi/LO supplements its everyday low price strategy with special promotional pricing on selected products. To assure DIY consumers of its competitive prices, Hi/LO maintains a "match any price" policy. In addition, the Company's commercial customers may be offered reduced prices on selected items. ADVERTISING Hi/LO promotes its everyday low prices, broad product selection and availability, knowledgeable associates and customer service through direct mail and local media, including newsprint, radio and television, as well as in-store promotional signage and displays designed to highlight the Company's everyday low price strategy. Total advertising expense before vendor rebates has historically averaged 2% to 3% of sales. PURCHASING Product selection and purchasing functions are centralized at Hi/LO's general offices in Houston, Texas. The Company selects its suppliers based upon several criteria, including product quality, price, and brand recognition. To support the Company's everyday low price strategy, Hi/LO regularly reviews each vendor to evaluate and compare price, quality, and service and, if appropriate, changes vendors. 5 The manufacturers of automotive parts and products generally provide repair or replacement warranties, which the Company extends to its customers. The Company's experience has been that defective parts from manufacturers not offering such warranties generally can be returned to the manufacturer for refund or credit. Hi/LO's vendors generally permit the Company to return any slower moving or overstocked items for full credit. The Company purchases its products from over 250 vendors. In 1996, the Company's five largest suppliers provided approximately 30% of the dollar value of the Company's total purchases, and its largest supplier provided approximately 8% of the dollar value of total purchases. The Company generally does not rely on long-term purchase contracts. The Company considers its relationships with its vendors to be good. The Company believes that alternative sources of supply exist, at substantially similar costs, for substantially all parts, products and accessories stocked by the Company. DISTRIBUTION The Company supplies its stores from its distribution center in Houston. Products are shipped by vendors to the distribution center for stocking and delivery to Hi/LO stores. The Company maintains an inventory of approximately 80,000 SKUs at its distribution center. The Company's Houston warehouse facility is used for receiving, warehousing and shipping replacement parts, accessories, certain maintenance products and fast-moving, high volume bulk products, such as motor oils, antifreeze and batteries. A 97,200 square feet expansion of the Company's Houston warehouse facility was completed in mid-1994, increasing the size of this facility to approximately 374,600 square feet of warehouse space. New automated materials handling systems, including conveyors, carousels and pick-to-belt order filling modules have been installed as part of the expansion. The Company utilizes the improved facilities to better serve its customers. Hi/LO's stores generally receive deliveries from the Houston distribution center at least once a week. In addition, to meet customers' special order requests, deliveries are made from the distribution center as often as twice a day, Monday through Saturday, to most of the Company's greater Houston metropolitan area stores, and usually by the next day to its other Texas and Louisiana stores. The Company's California stores are able to meet special order requests through local warehouse/distributors. Hi/LO operates a fleet of leased and owned trucks to make deliveries from its warehouse facilities to the stores. INVENTORY CONTROL AND MANAGEMENT INFORMATION SYSTEM Hi/LO utilizes a computerized inventory control and electronic point-of-sale ("POS") system for inventory control and management. The POS system enables management to track store and company-wide sales and inventory information by SKU, establish product pricing, measure product profitability, and generate inventory replacement orders from the store to the Company's distribution center. In addition, the POS system has enabled the Company to develop several store inventory models that are used to provide stores with a customized inventory depending on store size and location. Inventory at each store is reviewed and adjusted on a regular basis to meet changing market requirements. COMPETITION Hi/LO competes in both the DIY and commercial segments of the automotive aftermarket parts, products and accessories industry. The Company's primary competitors in the DIY segment include automotive parts chains such as AutoZone, The Pep Boys, Chief Auto Parts and Western Auto; jobber stores; automobile dealers; and mass and general merchandise, discount, convenience and drugstore chains that carry automotive parts, products and accessories. In the commercial segment, the Company's primary competitors include independent warehouse distributors and jobbers; automobile dealers; national warehouse distributors and associations, such as National Automotive Parts Association (NAPA) and Carquest, and their associated jobbers; and undercar parts specialty outlets. Certain of the Company's principal competitors are larger and have greater capital and management resources. Over the past three years, the Company's same store sales have been adversely impacted by increased competition in its markets. During these years, major competitors, both retail and commercial, opened more 6 stores in direct competition with Hi/LO stores than during prior periods. New store competition has a significant impact on retail sales of the Company's nearby stores. Approximately 95 stores have been opened by national competitors over the last three years within five miles of a Company store. This challenging competitive environment has resulted in increased pricing pressure and lower same store sales levels in most of the markets where the Company operates. The Company competes on the basis of price, merchandise selection and availability, store location and customer service. Hi/LO also competes with other retail establishments for qualified store associates and suitable store sites. ASSOCIATES At December 31, 1996, 2,625 persons were employed at Hi/LO, of whom 2,145 were employed at the stores, 322 were employed at the warehouse and 158 were employed in the Company's general offices. Of these, 2,045 were full-time and 580 were part-time. All persons employed by the Company are referred to as associates in recognition of management's view that every member of the organization is significant to the Company's success. None of the Company's associates are subject to a collective bargaining agreement. The Company has not had any significant difficulty in hiring associates and considers its relations with its associates to be good. SERVICE MARKS AND TRADEMARKS The Company believes that its "HI-LO," "Hi/LO" and "First Call" trademarks and service marks are important to its merchandising strategy, but that its business is not otherwise dependent on any patent, trademark, service mark or copyright. There are no infringing uses known by the Company that could materially affect the use of such marks. REGULATION The Company is subject, both directly and indirectly, to various laws and governmental regulations relating to its business. However, the Company believes that compliance with such laws and regulations does not have a material impact on its operations. The Company may become subject to further or more extensive regulation in the future. ITEM 2. PROPERTIES Hi/LO owns a warehouse facility of approximately 384,700 square feet (including approximately 10,100 square feet of office space) and a separate office building of approximately 10,600 square feet in Houston. The Company leases an office building in Houston of approximately 57,500 square feet, where the Company's headquarters have been located since May 1993. The Company occupies approximately 37,300 square feet of the building, and the remainder is subleased or available for sublease by the Company to other tenants. Of the Company's 191 store sites at December 31, 1996, 13 are owned and 178 leased. Generally, the Company leases store sites for a 15-year initial period with two five-year renewal options. As of December 31, 1996, minimum commitments on all noncancelable long-term leases were $88,797,000. Leases on 75 stores, assuming exercise of all renewal options, expire on or before December 31, 2001. ITEM 3. LEGAL PROCEEDINGS Hi/LO is not a party to any legal proceedings, other than various routine claims and lawsuits arising in the normal course of the Company's business. The Company does not believe that such claims and lawsuits, individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31,1996. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange under the symbol HLO. The following table sets forth, for the periods indicated, the high and low sales price per share for the Common Stock: HIGH LOW 1996 First Quarter.................................... $ 6-1/8 $ 3-3/8 Second Quarter................................... 6-1/4 4-1/4 Third Quarter.................................... 4-3/4 3-1/8 Fourth Quarter................................... 3-5/8 2-1/4 1995 First Quarter.................................... 11-5/8 8 Second Quarter................................... 10-7/8 7-7/8 Third Quarter.................................... 10-7/8 7 Fourth Quarter................................... 7-1/4 4-1/2 Hi/LO has never paid cash dividends on any of its capital stock and currently intends to retain its earnings, if any, for the operation and expansion of the Company's business. At March 18, 1997, there were 454 stockholders of record. The Company believes that there are over 3,000 beneficial owners of the Company's Common Stock. 8 ITEM 6. SELECTED FINANCIAL DATA The following tables present selected consolidated financial and operating data of the Company. The selected consolidated financial data for each of the five years ended December 31, 1996, are derived from the consolidated financial statements of the Company, which have been audited by Arthur Andersen LLP, independent public accountants, whose report appears elsewhere in this Annual Report. The information set forth below should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1996 1995 1994(1) 1993 1992 ---------- ---------- --------- ---------- ------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER STORE DATA) INCOME STATEMENT DATA: Sales...................................... $ 248,599 $ 262,486 $ 235,384 $205,235 $ 187,182 Cost of goods sold, buying and distribution............................. 157,461 159,102 139,688 126,449 111,382 ---------- ---------- --------- ---------- ---------- Gross profit............................... 91,138 103,384 95,696 78,786 75,800 Operating, selling, general and administrative expenses.................. 99,102 94,955 78,188 65,408 58,220 Provision for asset impairment and store closings.......................... 51,352 -- -- -- -- ---------- ---------- --------- ---------- ---------- Operating income (loss).................... (59,316) 8,429 17,508 13,378 17,580 Interest expense........................... 4,268 4,145 2,201 1,801 2,999 Other expense, net......................... 471 1,218 948 849 934 ---------- ---------- --------- ---------- ---------- Income (loss) before taxes on income (benefit from loss).................... (64,055) 3,066 14,359 10,728 13,647 Taxes on income (benefit from loss)........ (10,332) 1,378 5,226 4,016 4,987 ---------- ---------- --------- ---------- ---------- Net income (loss).......................... $ (53,723) $ 1,688 $ 9,133 $ 6,712 $ 8,660 ========== ========== ========= ========== ========== Net income (loss) per common and common equivalent share......................... $ (4.99) $ .16 $ .85 $ .64 $ .89 ========== ========== ========= ========== ========== Weighted average common and common equivalent shares outstanding............... 10,756,000 10,733,000 10,736,000 10,543,000 9,784,000
9
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1996 1995 1994 (1) 1993 1992 ----------- ----------- ----------- ----------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER STORE DATA) OPERATING DATA: Number of stores at period end............. 191 194 178 150 129 Total store square footage at period end (2).................................. 1,570,000 1,590,000 1,476,000 1,172,000 1, 008,000 Weighted average sales per store (3)....... $ 1,288,000 $ 1,380,000 $ 1,499,000 $ 1,520,000 $ 1,547,000 Weighted average sales per store square foot (3).......................... $ 157 $ 169 $ 191 $ 195 $ 201 Percentage increase (decrease) in same store sales (4)..................... (7.0%) (4.1%) 1.3% 0.5% 12.3% BALANCE SHEET DATA (AT END OF PERIOD): Working capital............................ $ 73,388 $ 78,392 $ 72,167 $ 54,237 $ 51,411 Total assets............................... 142,338 198,973 186,182 154,627 139,532 Current maturities of long-term debt....... 750 742 729 3,919 1,918 Long-term debt, net of current maturities....................... 45,612 44,132 43,373 28,444 39,663 Stockholders' equity....................... 59,294 112,978 111,176 101,792 77,095
- -------------------- (1) Includes the results of operations of the former Wesco stores from their acquisition date in November 1994. (2) Total square footage includes ground floor space used for selling, offices, stockroom and receiving on which rental rates are based, but excludes second floor or mezzanine space contained in most stores. (3) Weighted average sales per store and weighted average sales per store square foot are weighted based on the number of months each store was open during the period. (4) Beginning in 1995, same store sales data is calculated based on the change in sales of only those stores open during corresponding full periods of both the current and the previous year. Prior to 1995, same store sales data is calculated based on the change in sales of only those stores open during both the current and the previous full years. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Certain statements contained in this section which are not historical facts are forward-looking statements that involve risks, uncertainties, and assumptions including, but not limited to, customer demand and trends in the auto parts, products and accessories industry, related inventory risks due to shifts in customer demand, the effect of economic conditions, the impact of competitors' locations and pricing, difficulties with respect to new technologies such as point-of-sale systems, parts catalogs, supply constraints or difficulties, and the results of financing efforts. Should one of more of these or other risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes could vary materially. Store openings by the Company and by certain competitors of the Company in the Company's markets have contributed to the decline in the Company's operating results over the past several years. The Company's new store openings since 1993 were generally in markets where existing national competitors already had and/or were opening stores. During 1996, certain national competitors continued to open new stores in Hi/LO's existing markets. Management believes that the markets in which it operates will continue to see increasing competition for the foreseeable future. New store competition may have a significant impact on sales of the Company's nearby stores. Future financial results are dependent upon the Company's ability to compete effectively with these national competitors. To respond to increased competition, the Company is continuing to remodel older stores located near recently opened competitor stores, and is focusing on improving customer service, reducing operating, selling, and general and administrative costs when appropriate, and improving distribution efficiencies. These initiatives are being supported by changes in product assortment, including more high quality product offerings and increased sales and marketing efforts in the commercial markets. Because new stores are generally unprofitable during their first year of operation, the Company opened no new stores during 1996, to avoid the near term adverse impact on profitability associated with new stores and instead focused on the performance of its existing stores. The Company identified up to 11 underperforming stores during 1996 which it plans to close by year end 1997, three of which were closed in 1996. The Commercial program is also being streamlined and consolidated including the outsourcing of commercial delivery in many locations. Over the past three years, the Company has experienced a significant increase in competition, which has largely contributed to a decline in sales and in operating earnings since the fourth quarter of 1994. A net loss was reported by the Company in four of the eight quarters included in the two-year period ended December 31, 1996. In the third quarter of 1996, the Company concluded that a short-term recovery in sales volume and operating profits was unlikely. Therefore, the Company, which incurred a net loss in the third quarter before such charges, recorded pre-tax charges in the amount of $59.4 million. These charges included a $37.7 million impairment charge, with no associated tax benefit, relating primarily to cost in excess of net assets acquired (goodwill); and a $13.7 million charge for future store closings, the impairment of certain assets in underperforming stores and at the Company's distribution center, and the write-down of the cost of real estate held for future expansion. Additionally, a $3.8 million charge for certain inventory related items and a $4.3 million charge related to store operating costs were recorded. The charge for store closings is for future occupancy and leasehold improvement costs related to planned store closings of approximately 11 stores, including three closed in 1996. Certain store and distribution center assets and real estate held for future expansion were written down to their estimated realizable values. The charge to cost of goods sold, buying and distribution for certain inventory related items resulted from valuing them at net realizable value, which was less than cost. The charge related to store operating costs was recorded as an operating, selling, general and administrative expense. In determining the amount of the asset reserves and impairment charges that were made, the Company developed its best estimate of future operating cash flows. Undiscounted cash flows were compared to the carrying value of the assets to ascertain that an impairment had occurred. Estimated future cash flows, excluding interest charges, then were discounted using an estimated 8.0% discount rate. Sales were estimated 11 to increase 2.0% annually, and operating expenses were held constant as a percent of sales. These projections resulted in discounted cash flows that supported the amounts recorded. These projections were prepared solely to determine the appropriate amount of write-off, based on assumptions that management believed to be reasonable at the time; however, no assurance can be given that such projections will be accurate. On June 1, 1995, the Company announced that it had entered into a definitive merger agreement with Chief Auto Parts Inc. ("Chief") and a subsidiary of Chief, pursuant to which Chief agreed to acquire all of the Company's outstanding Common Stock. On July 28, 1995, after Chief advised Hi/LO that it did not believe that certain conditions of its financing facility entered into to acquire the Company could be met, the parties agreed to terminate the merger agreement. Management believes that the disruption occurring as a result of the announcement of the proposed merger and of its subsequent termination has had an adverse impact on the Company's results of operations and financial position; however, the impact cannot be precisely measured. On November 1, 1994, the Company purchased inventory and operating assets, and assumed certain lease liabilities of eight auto parts stores of Wesco, a Division of Reddi Brake Supply Company, Inc. ("Reddi Brake"). These stores serve the retail and commercial automotive aftermarket in the greater Los Angeles, California area. The Company paid approximately $9.8 million in cash and notes and assumed certain lease obligations of the Wesco Division. Approximately $6.6 million of the purchase price was paid in cash, which was financed under the Company's Credit Agreement with commercial banks. The balance of the purchase price is payable over up to five years. From November 1, 1996, through October 31, 1999, Reddi Brake will have the right to convert $1,263,347 of the deferred portion of the purchase price into 93,859 shares of the Company's Common Stock. The following discussion of the Company's results of operations and financial condition should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this Annual Report. RESULTS OF OPERATIONS The following table sets forth the income statement data of the Company expressed as a percentage of sales and the percentage change in such income statement data from period to period.
PERCENTAGE CHANGE PERCENTAGE OF SALES INCREASE (DECREASE) -------------------------- ------------------ 1996 1995 1994 1996-95 1995-94 ---- ---- ---- ------- ------- Sales..................................................... 100.0% 100.0% 100.0% (5.3)% 11.5% Cost of sales............................................. 63.3 60.6 59.3 (1.0) 13.9 ------- ------- ------- Gross profit.............................................. 36.7 39.4 40.7 (11.8) 8.0 Operating, selling, general and administrative expenses............................... 39.9 36.2 33.2 4.4 21.4 Provision for asset impairment and store closings......... 20.7 -- -- NM -- ------- ------- ------- ------ ------ Operating income (loss)................................... (23.9) 3.2 7.5 NM (51.9) Interest expense.......................................... 1.7 1.6 1.0 3.0 88.3 Other expense, net........................................ .2 0.5 0.4 (61.3) 28.5 ------- ------- ------- Income (loss) before taxes on income...................... (25.8) 1.1 6.1 NM (78.6) Taxes on income (benefit from loss)....................... (4.2) 0.5 2.2 NM (73.6) -------- ------- ------- Net income (loss)......................................... (21.6)% 0.6% 3.9% NM (81.5)% ======= ====== =======
NM=Not Meaningful 12 1996 COMPARED TO 1995 Sales for the year ended December 31, 1996, were $248.6 million, reflecting a decrease of 5.3% from 1995 sales of $262.5 million, while a net loss of $53.7 million, or $4.99 per share was recorded, compared to net income of $1.7 million, or $.16 per share in 1995. The $13.9 million decrease in sales resulted from same store sales decreases of $17.5 million, or 7.0% and decreases of $.8 million due to closed stores, partially offset by sales increases of $4.4 million for the 16 stores opened or acquired after the beginning of 1995. Same store sales represent sales at stores opened during corresponding full periods of both the current and previous years. Same store sales were adversely affected primarily by increased competition. Gross profit for 1996 was $91.1 million, or 36.7% of sales, compared with $103.4 million, or 39.4% of sales, for 1995. The $12.3 million (11.8%) decrease in gross profit was attributable primarily to lower sales at existing stores. The 2.7% decline in gross profit as a percent of sales was the result of product margins decreasing by approximately 0.3%, a reduction in vendor incentives of 0.4%, third quarter charges previously discussed of 1.5%, and distribution costs increasing by approximately 0.5% over the prior year. The product margins were impacted by sales mix and the slow down in store openings that eliminated certain product pricing incentives that had been made available by certain suppliers. Operating, selling, general and administrative expenses were $99.1 million, or 39.9% of sales for 1996, compared to $95.0 million, or 36.2% of sales, for 1995. The $4.1 million increase was primarily related to the third quarter charge of $4.3 million discussed above. Store openings during 1995, together with reduced leveraging because of lower same store sales, resulted in operating expenses increasing by 3.7% as a percent of sales. A provision for asset impairment and store closings of $51.4 million was recorded in the third quarter of 1996. The $51.4 million provision includes a $37.7 million charge, relating primarily to cost in excess of net assets acquired (goodwill), and a $13.7 million charge for future store closings, the impairment of certain assets in underperforming stores and at the Company's distribution center, and the write-down of the cost of real estate previously held for future expansion. Operating loss in 1996 of $59.3 million, or 23.9% of sales, decreased from operating income in 1995 of $8.4 million, or 3.2% of sales, due to the factors discussed previously. Interest expense was $4.3 million, or 1.7% of sales, compared to $4.1 million, or 1.6% of sales, for 1995. The increase of $0.2 million, or 3.0%, was due to higher average debt levels outstanding and higher interest rates in 1996. The Company's effective income tax rate was 16.1% of the pre-tax loss in 1996, compared to 44.9% of pre-tax income for 1995. The small benefit as a percent of pre-tax loss results from the write-off of goodwill which is not deductible for Federal income tax purposes. The Company recorded a net loss in 1996 of $53.7 million, or 21.6% of sales, a decrease from net income of $1.7 million, or 0.6% of sales in 1995, due to the factors discussed previously. 1995 COMPARED TO 1994 Sales for the year ended December 31, 1995, were $262.5 million, reflecting an increase of 11.5% over 1994, while net income decreased to $1.7 million, or $.16 per share, compared to $9.1 million, or $.85 per share in 1994. The $27.1 million increase in sales resulted from sales of $36.1 million for the 44 stores opened or acquired after the beginning of 1994 and same store sales decreases of $9.0 million, or 4.1%. The Company's California stores acquired in 1994 contributed $19.4 million of sales in 1995. Same store sales represent sales at stores opened during corresponding full periods of both the current and previous years. Same store sales were 13 adversely affected by mild weather during the summer of 1995 (hot weather causes a higher incidence of auto parts failures) and competition. Gross profit for 1995 was $103.4 million, or 39.4% of sales, compared to $95.7 million, or 40.7% of sales, for 1994. The $7.7 million (8.0%) increase in gross profit was attributable to sales at new stores. The 1.3% decline in gross profit as a percent of sales was the result of product margins decreasing by approximately 0.7% and distribution costs increasing by approximately 0.6% over the prior year. The product margins were impacted by sales mix and the slowdown in store openings that eliminated some extra product pricing incentives that had been made available by certain suppliers. Operating, selling, general and administrative expenses were $95.0 million, or 36.2% of sales for 1995, compared to $78.2 million, or 33.2% of sales, for 1994. The $16.8 million increase was primarily due to the increase in store operating costs related to increased sales, together with expenses, related to new store openings and the Company's California stores. New store openings, together with reduced leveraging because of lower same store sales, resulted in operating expenses increasing by 3% as a percent of sales. Operating income in 1995 of $8.4 million, or 3.2% of sales, decreased 51.9% from operating income in 1994 of $17.5 million, or 7.5% of sales, due to the factors discussed previously. Interest expense was $4.1 million, or 1.6% of sales, compared to $2.2 million, or 1.0% of sales, for 1994. The increase of $1.9 million, or 88.3%, was due to higher average debt levels outstanding and higher interest rates. The Company's effective income tax rate increased to 44.9% of pre-tax income, as compared to 36.4% for 1994, primarily as a result of lower pre-tax income that increased the impact of the amortization of cost in excess of net assets acquired, which is a permanent book-tax difference, and the elimination of the jobs tax credit. Net income in 1995 of $1.7 million, or 0.6% of sales, decreased $7.4 million, or 81.5%, over the 1994 level of $9.1 million, or 3.9% of sales, due to the factors discussed previously. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities during 1996 provided net cash of $2.2 million, primarily from net income before depreciation and amortization and decreases in inventory. Investing activities utilized $4.1 million of cash, principally related to the Company's investment in capital expenditures for improving and remodeling stores. Financing activities provided $1.3 million of cash, principally resulting from net borrowings under the Company's credit agreement. Inventories decreased $5.5 million since December 31, 1995. This is primarily a result of a decrease in existing store and distribution center inventories to reduce inventory investments and improve turnover. Average Company inventories per store, including distribution center inventories at December 31, 1996 were approximately $479,000 compared to approximately $499,000 at December 31, 1995. The Company's primary capital requirements have been for new store openings, including related inventories and for store remodelings, relocations and acquisitions. Capital expenditures, which principally related to new, remodeled or relocated stores, were $4.3 million in 1996, $12.1 million in 1995, and $22.0 million in 1994. From the beginning of 1994 through the end of 1996, the Company opened or acquired 44 stores and closed three stores, and total merchandise inventories increased by approximately $26.9 million. The Company has financed this growth through a combination of equity, sale-leaseback transactions, borrowings and internally generated funds. Most of the Company's store sites are leased. The Company evaluates all capital expenditures on a case by case basis to determine whether such expenditures are prudent under current market conditions. The Company did not open any new stores during 1996. The Company remodeled or relocated ten stores during 1996. Total capital expenditures, including those associated with remodels, relocations and conversions, were approximately $4.3 million. 14 On November 1, 1994, the Company purchased inventory and operating assets, and assumed certain lease liabilities, of Wesco, a Division of Reddi Brake Supply Company, Inc. The Company paid approximately $9.8 million, ($6.6 million in cash and $3.2 million in notes) and assumed certain lease obligations of the Wesco Division. The cash portion was financed under the Company's then existing credit agreement with commercial banks. The balance of the purchase price is payable over up to five years. From November 1, 1996, through October 31, 1999, Reddi Brake will have the right to convert $1,263,347 of the deferred portion of the purchase price into 93,859 shares of the Company's Common Stock. On October 23, 1996, the Company entered into a financing agreement with a new lender. Initial funding under this financing agreement was used to repay amounts outstanding under the Company's prior credit facility. The new financing agreement provides for a borrowing of up to $60.0 million of availability under a revolving credit facility, which matures October 22, 1999, with annual renewals at the option of the Company and the lender. Credit availability is limited to 60% of the value of saleable inventory and 85% of accounts receivable, subject to certain adjustments and reserves which may be made at the discretion of the lender. The facility is secured by all inventories, receivables and fixed assets of the Company and its subsidiaries. The borrowings may be priced, at the Company's option, at the lender's prime rate, plus 1/4 of 1% or London Interbank Offered Rates (LIBOR) plus 2.25%. The Company pays a commitment fee of 3/8 of 1% per annum on all unused portions of the credit facility. Loan covenants relate to the Company's net worth, cash flow, and restrict capital expenditures to $6.0 million for 1996, $5.9 million for 1997, and $5.0 million for 1998 and 1999; and restrict operating lease payments to $16.0 million per annum through 1999. The Company was in compliance with this financing agreement as of December 31, 1996. Future compliance with the financial covenants of the Company's financing agreement is dependent on its ability to generate sufficient earnings and cash flow to meet such covenants. In the event the Company is not able to remain in compliance with the provisions of the financing agreement, it will attempt to renegotiate the terms of the financing agreement so as to remain in compliance or to refinance amounts outstanding under the credit facility. However, there can be no assurance that the Company would be successful in such negotiations, in which case the Company's funds available for its operating needs would be limited to internally generated funds. At December 31, 1996, the Company had $44.2 million outstanding under the credit facility and total unutilized credit facilities of approximately $7.4 million. The Company currently has plans to open or acquire two to five new stores during 1997 and remodel or relocate approximately seven stores during the year. The Company expects that capital expenditures for 1997, including those associated with new stores, remodels, relocations and conversions, will be approximately $5.9 million before sale-leaseback and direct lease transactions. Although the Company believes that existing working capital, cash flows from operations, bank borrowings, sale-leasebacks of retail properties and sales of excess real estate will be sufficient to fund both capital and liquidity needs of the Company for the next year, the Company's ability to access capital due to its declining operating results in recent periods could have an adverse impact on the Company's ability to compete effectively in its markets. The Company accepts payment for sales by cash, including checks and major credit cards, and offers accounts to commercial customers. The book values of cash, trade accounts receivables and accounts payable approximate their fair values principally because of the short-term maturities of these instruments. The estimated fair value of long-term debt approximates the book value as the debt is priced based upon a floating rate. SEASONALITY The Company's business is seasonal in nature with store sales and profits historically running higher in the second and third quarters (April through September) of each year than in the Company's first and fourth quarters. Sales for the combined second and third quarters of 1996 were 52.9% of annual sales. The Company's business is also influenced by weather conditions. Weather extremes tend to enhance sales by 15 causing a higher incidence of parts failure, thus increasing sales of seasonal products. Rainy weather, however, tends to reduce sales by causing deferral of elective maintenance. INSURANCE The Company maintains insurance for on the job injuries to its associates and other coverages for normal business risks. A substantial portion of the Company's current and prior year insurance coverages are "high deductible" policies in which the Company, in many cases, is responsible for the payment of incurred claims up to specified individual and aggregate limits, over which a third party insurer is contractually liable for any additional payment on such claims. Accordingly, the Company bears certain economic risks related to these coverages. On a continual basis, and as of each balance sheet date, the Company records an accrual equal to the estimated costs expected to result from incurred claims plus an estimate of claims incurred but not reported as of such date based on the best available information at such date. However, the nature of these claims is such that actual development of the claims may vary from the estimated accruals. All changes in the accrual estimates are accounted for on a prospective basis and can have a significant impact on the Company's financial position or results of operations. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Hi-Lo Automotive, Inc.: We have audited the accompanying consolidated balance sheets of Hi-Lo Automotive, Inc., (a Delaware corporation) and subsidiaries, as of December 31, 1996 and 1995, and the related consolidated statements of income (loss), stockholders' equity and cash flows for each of the three years ended December 31, 1996. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hi-Lo Automotive, Inc. and subsidiaries, as of December 31, 1996 and 1995, and the results of their operations and cash flows for each of the three years ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed on page 33 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Houston, Texas January 23, 1997 17 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ----------------------- ASSETS 1996 1995 ------ ----------- ------- CURRENT ASSETS: Cash............................................................................... $ 1,180 $ 1,800 Accounts receivable-- Trade, net of allowance for doubtful accounts of $929 and $1,459................. 5,651 5,685 Other............................................................................ 6,878 4,118 Inventories........................................................................ 91,401 96,900 Prepaids and other assets.......................................................... 1,628 3,532 ---------- ---------- Total current assets...................................................... 106,738 112,035 PROPERTY AND EQUIPMENT, net............................................................. 31,980 47,823 INTANGIBLE ASSETS AND OTHER............................................................. 3,620 39,115 ---------- ---------- $ 142,338 $ 198,973 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt............................................... $ 750 $ 742 Accounts payable and accrued liabilities........................................... 32,600 32,901 ---------- ---------- Total current liabilities................................................. 33,350 33,643 LONG-TERM DEBT, net of current maturities............................................... 45,612 44,132 DEFERRED INCOME TAXES PAYABLE AND OTHER................................................. 4,082 8,220 COMMITMENTS AND CONTINGENCIES........................................................... -- -- STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value, 5,000,000 shares authorized, none issued.......... -- -- Common Stock, $.01 par value, 30,000,000 shares authorized, 10,775,109 and 10,756,350 shares issued and outstanding....................................... 108 108 Additional paid-in capital......................................................... 68,316 68,277 Retained earnings (deficit)........................................................ (9,130) 44,593 ---------- ---------- Total stockholders' equity................................................ 59,294 112,978 ---------- ---------- $ 142,338 $ 198,973 ========== ==========
See Notes to Consolidated Financial Statements. 18 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 ----------- ----------- ------- Sales...................................................................... $248,599 $ 262,486 $ 235,384 Costs and expenses: Cost of goods sold, buying and distribution........................... 157,461 159,102 139,688 Operating, selling, general and administrative........................ 99,102 94,955 78,188 Provision for asset impairment and store closings..................... 51,352 -- -- ---------- ---------- ---------- Operating income (loss).................................................... (59,316) 8,429 17,508 Interest expense........................................................... 4,268 4,145 2,201 Other expense, net......................................................... 471 1,218 948 ---------- ---------- ---------- Income (loss) before taxes on income....................................... (64,055) 3,066 14,359 Taxes on income (benefit from loss)........................................ (10,332) 1,378 5,226 ---------- ---------- ---------- Net income (loss).......................................................... $ (53,723) $ 1,688 $ 9,133 ========== ========== ========== Earnings (loss) per common share: Net income (loss) per common and common equivalent share.............. $ (4.99) $ .16 $ .85 ========== ========== ========== Weighted average common and common equivalent shares outstanding.................................................. 10,756,000 10,733,000 10,736,000
See Notes to Consolidated Financial Statements. 19 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL RETAINED --------------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL (DEFICIT) ----------- ------------ ----------- -------- Balance, December 31, 1993................................ 10,702,516 $ 107 $ 67,913 $ 33,772 Issuance of Common Stock............................. 30,090 -- 251 -- Net Income........................................... -- -- -- 9,133 ------------ -------------- ----------- ---------- Balance, December 31, 1994................................ 10,732,606 $ 107 $ 68,164 $ 42,905 Issuance of Common Stock............................. 23,744 1 113 -- Net Income........................................... -- -- -- 1,688 -------------- -------------- ----------- ---------- Balance, December 31, 1995................................ 10,756,350 $ 108 $ 68,277 $ 44,593 Issuance of Common Stock............................. 18,759 -- 39 -- Net Loss............................................. -- -- -- (53,723) ------------ -------------- ----------- ----------- Balance, December 31, 1996................................ 10,775,109 $ 108 $ 68,316 $ (9,130) ============== ============== =========== ===========
See Notes to Consolidated Financial Statements. 20 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).......................................................... $(53,723) $ 1,688 $ 9,133 -------- -------- -------- Adjustments to reconcile net income (loss) to net cash provided by operating activities-- Depreciation and amortization.......................................... 6,588 6,737 6,262 Write-off of cost in excess of net assets acquired..................... 37,668 -- -- Provision for impairment of assets and other........................... 21,774 -- -- Deferred tax provision (benefit)....................................... (7,384) 829 392 (Gain) loss on sales of fixed assets................................... (138) 96 (6) Changes in assets and liabilities-- Accounts receivable, net of allowance for doubtful accounts ...... (4) 118 (3,018) Inventories....................................................... 2,694 (11,783) (13,972) Prepaids and other assets......................................... 380 (261) (344) Accounts payable and other accrued liabilities.................... (2,491) 8,566 6,374 Income taxes receivable/payable................................... (3,206) (460) 941 -------- -------- -------- Total adjustments................................................. 55,881 3,842 (3,371) -------- -------- -------- Net cash provided by operating activities...................... 2,158 5,530 5,762 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures....................................................... (4,301) (12,088) (22,005) Proceeds from sale-leaseback of real estate................................ -- 9,071 13,280 Payments for acquisitions, net of cash acquired ........................... -- (2,633) (6,567) Proceeds from real estate sold............................................. 240 -- -- -------- -------- -------- Net cash used in investing activities.......................... (4,061) (5,650) (15,292) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (payments on) debt, net...................................... 1,598 869 8,800 Proceeds from issuance of Common Stock..................................... 39 114 251 Repayments of capital lease obligations.................................... (110) (97) (219) Payments for loan acquisition costs........................................ (244) -- -- -------- -------- -------- Net cash provided by financing activities...................... 1,283 886 8,832 -------- -------- -------- INCREASE (DECREASE) IN CASH..................................................... (620) 766 (698) CASH AT BEGINNING OF YEAR....................................................... 1,800 1,034 1,732 -------- -------- -------- CASH AT END OF YEAR............................................................. $ 1,180 $ 1,800 $ 1,034 ======== ======== ========
See Notes to Consolidated Financial Statements. 21 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY'S BUSINESS consists principally of the sale of automotive aftermarket parts, products and accessories. CONSOLIDATED FINANCIAL STATEMENTS include all subsidiaries. All significant intercompany transactions have been eliminated. CASH includes cash on hand, cash held in banks and certificates of deposit with an initial maturity of three months or less. ACCOUNTS RECEIVABLE - TRADE are for commercial accounts only and are classified as current assets. Finance charges are not assessed on commercial accounts. INVENTORIES are stated at the lower of cost or market. Substantially all inventories represent finished goods, which are costed using the last-in, first-out (LIFO) method. PROPERTY AND EQUIPMENT are carried at cost. Maintenance, repairs and minor renewals are expensed as incurred. IMPAIRMENT OF LONG-LIVED ASSETS reflects that effective January 1, 1995, Financial Accounting Standard (FAS) No. 121 was adopted. Accordingly, in the event that facts and circumstances indicate that the cost in excess of net assets acquired or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset carrying amount to determine if a write-down to market value or discounted cash flow value is required. See Note D for the impact of the Company's impairment analysis for the year ended December 31, 1996. PREOPENING EXPENSES, which consist primarily of payroll and occupancy costs, are expensed as incurred. DEPRECIATION AND AMORTIZATION are computed using the straight-line method over the estimated useful lives of the assets or remaining lease lives, whichever is shorter. Gains or losses on disposition of property and equipment are included in income in the period of disposal. Intangible assets consisted primarily of the cost in excess of net assets acquired (goodwill) which was amortized on a straight-line basis over 40 years (see Note D). Loan costs are amortized using the effective interest method over the life of the loan. DEFERRED INCOME TAXES PAYABLE includes deferred taxes arising from the recognition of revenues and expenses in different periods for income tax and financial statement purposes. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE is based on the weighted average number of common shares outstanding and Common Stock options which are dilutive, using the treasury stock method. RISKS DUE TO USE OF ESTIMATES IN THE FINANCIAL STATEMENTS are inherent in the preparation of financial statements in conformity with generally accepted accounting principles and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 22 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS B. SUPPLEMENTAL CASH FLOW INFORMATION Cash interest paid was $4,082,000, $4,187,000 and $2,268,000 during the years ended December 31, 1996, 1995 and 1994. Income tax payments were $0, $1,039,000 and $4,701,000 during the years ended December 31, 1996, 1995 and 1994. C. INVENTORIES The Company believes that the LIFO method of inventory valuation results in a better matching of current costs and revenues. Current replacement cost of inventories on hand was the same as recorded costs at December 31, 1996, 1995 and 1994. D. IMPAIRMENT OF ASSETS In the third quarter of 1996, the Company concluded that a short-term recovery in sales volume and operating profits was unlikely. Therefore, the Company, which incurred a net loss in the third quarter before such charges, recorded pre-tax charges in the amount of $59.4 million. These charges included a $37.7 million impairment charge, with no associated tax benefit, relating primarily to cost in excess of net assets acquired (goodwill); and a $13.7 million charge for future store closings, the impairment of certain assets in underperforming stores and at the Company's distribution center, and the write-down of the cost of real estate held for future expansion. The charge for store closings is for future occupancy and leasehold improvement costs related to planned store closings of approximately 11 stores, including three closed in 1996. Certain store and distribution center assets and real estate held for future expansion were written down to their estimated realizable values. In determining the amount of the asset reserves and impairment charges that were made, the Company developed its best estimate of future operating cash flows. Undiscounted cash flows were compared to the carrying value of the assets to ascertain that an impairment had occurred. Estimated future cash flows, excluding interest charges, then were discounted using an estimated 8.0% discount rate. Sales were estimated to increase 2.0% annually, and operating expenses were held constant as a percent of sales. These projections resulted in discounted cash flows that supported the amounts recorded. These projections were prepared solely to determine the appropriate amount of write-off, based on assumptions that management believed to be reasonable at the time; however, no assurance can be given that such projections will be accurate. These analyses contain forward-looking information that involve a number of risks, uncertainties and assumptions, including, but not limited to, customer demand and trends in the auto parts, products and accessories industry, related inventory risks due to shifts in customer demand, the effect of economic conditions, the impact of competitors' locations and pricing, difficulties with respect to new technologies such as point of sales systems, parts catalogs, supply constraints or difficulties and the results of financing efforts. Should one or more of these or other risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes could vary materially. 23 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) E. PROPERTY AND EQUIPMENT The Company's property and equipment consisted of the following (in thousands):
DECEMBER 31, ------------------------ ASSET LIFE 1996 1995 - ---------- ---------- ---------- 5-30 years Land, buildings and improvements........................................... $ 38,805 $ 37,078 3-15 years Furniture and equipment.................................................... 36,738 35,682 Construction in progress................................................... 1,105 2,347 ---------- ---------- 76,648 75,107 Accumulated depreciation and amortization.................................. (44,668) (27,284) ---------- ---------- $ 31,980 $ 47,823 ========== ==========
Land, buildings and improvements included $1,975,000 leased under capital leases at December 31, 1996 and 1995. Accumulated amortization under these arrangements aggregated $1,738,000, $1,628,000 and $1,531,000 at December 31, 1996, 1995 and 1994. Depreciation and amortization of these assets was $5,673,000, $5,558,000 and $5,197,000 for the years ended December 31, 1996, 1995 and 1994. Accumulated depreciation and amortization of these assets in 1996 was also increased by $12,727,000 as a result of the impairment previously discussed in Note D. F. INTANGIBLE ASSETS AND OTHER The Company's intangible assets and other consisted of the following (in thousands): DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cost in excess of net assets acquired........ $ -- $ 46,665 Loan acquisition costs....................... 244 200 Other, net................................... 3,395 498 ---------- ---------- 3,639 47,363 Accumulated amortization..................... (19) (8,248) ----------- ---------- $ 3,620 $ 39,115 ========== ========== As discussed in Note D to the Consolidated Financial Statements, the Company evaluated the carrying value of its cost in excess of net assets acquired and concluded an impairment occurred during 1996. Accordingly, those assets were written off. The other assets are primarily real estate held for sale and deferred income tax assets. Amortization of cost in excess of net assets acquired was $872,000, $1,148,000 and $1,036,000 for the years ended December 31, 1996, 1995 and 1994. Amortization of loan acquisition costs was $43,000, $31,000 and $29,000 for the years ended December 31, 1996, 1995 and 1994. In the third quarter of 1996, the unamortized portion of the loan acquisition costs associated with the Company's revolving credit agreement with prior lenders was written off. 24 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The Company's accounts payable and accrued liabilities consisted of the following (in thousands): DECEMBER 31, ------------------------ 1996 1995 ------------------------ Accounts payable....................... $ 16,685 $ 19,823 Accrued salaries and bonuses........... 3,294 2,635 Accrued property taxes................. 4,294 4,009 Other accrued liabilities.............. 8,327 6,434 ---------- ---------- $ 32,600 $ 32,901 ========== ========== The Company is insured for employee indemnity, automobile, general, and product liability losses through a risk retention program. The Company accrues for the estimated losses occurring from both asserted and unasserted claims. The estimate of the liability for unasserted claims arising from unreported incidents is based on an analysis of historical claims data. H. LEASES The Company leases store locations, certain equipment and office space under noncancelable long-term capital and operating leases which extend through 2014. Total rental expense on all operating leases was approximately $12,939,000, $12,043,000 and $7,967,000 for the years ended December 31, 1996, 1995 and 1994. As of December 31, 1996, minimum commitments on all noncancelable long-term leases were as follows (in thousands): YEAR ENDED CAPITAL OPERATING DECEMBER 31, LEASES LEASES - ------------- -------- -------- 1997 ............................................ 144 13,678 1998 ............................................ 104 12,317 1999 ............................................ 25 9,234 2000 ............................................ 0 7,881 2001 ............................................ 0 7,516 Thereafter........................................ 0 37,898 ------- -------- Total minimum lease payments...................... 273 $88,524 ======== Amount representing interest...................... 36 ------- Present value of net minimum lease payments....... 237 Less--Current portion....................... 118 ------- Capital lease obligations......................... $ 119 ======= 25 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) I. DEBT Long-term debt consisted of the following (in thousands): DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Notes payable to a bank............. $ 44,230 $ 42,000 Long-term debt...................... 1,895 2,527 Capital lease obligations........... 237 347 ---------- ---------- 46,362 44,874 Less-Current maturities............. 750 742 ---------- ---------- $ 45,612 $ 44,132 ========== ========== The long-term debt outstanding at December 31, 1996, matures as follows: $750,000 in 1997, $95,000 in 1998, and $45,517,000 in 1999. At December 31, 1996, the weighted average interest rate on the notes payable to a bank was 7.8%. On October 23, 1996, the Company entered into a financing agreement with a new lender. Initial funding under this financing agreement was used to repay amounts outstanding under the Company's prior credit facility. The new financing agreement provides for a borrowing of up to $60.0 million of availability under a revolving credit facility, which matures October 22, 1999, with annual renewals at the option of the Company and the lender. Credit availability is limited to 60% of the value of saleable inventory and 85% of accounts receivable, subject to certain adjustments and reserves which may be made at the discretion of the lender. The facility is secured by all inventories, receivables and fixed assets of the Company and its subsidiaries. The borrowings may be priced, at the Company's option, at the lender's prime rate, plus 1/4 of 1% or London Interbank Offered Rates (LIBOR) plus 2.25%. The Company pays a commitment fee of 3/8 of 1% per annum on all unused portions of the credit facility. Loan covenants relate to the Company's net worth, cash flow, and restrict capital expenditures to $6.0 million for 1996, $5.9 million for 1997, and $5.0 million for 1998 and 1999; and restrict operating lease payments to $16.0 million per annum through 1999. The Company was in compliance with this new financing agreement as of December 31, 1996. At December 31, 1996, the Company had $44.2 million outstanding under the credit facility and total unutilized credit facilities of approximately $7.4 million. The Company has established irrevocable letters of credit totaling $900,000 as security for various insurance contracts. The book values of cash, trade accounts receivables and accounts payable approximate their fair values principally because of the short-term maturities of these instruments. The estimated fair value of long-term debt approximates the book value as the debt is priced based upon a floating rate. J. INCOME TAXES Federal and state income tax provision (benefit) consisted of the following (in thousands): YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ---------- --------- --------- Current provision (benefit)........ $ (2,948) $ 549 $ 4,834 Deferred provision (benefit)....... (7,384) 829 392 ----------- --------- --------- $ (10,332) $ 1,378 $ 5,226 =========== ========= ========= 26 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A reconciliation of the statutory federal income tax rate to the effective tax rate follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1996 1995 1994 --------- --------- ------ Income tax, statutory rate...................................................... 34 % 34% 34% Amortization of cost in excess of net assets acquired........................... (50) 10 2 Other, net...................................................................... -- 1 -- ------ ------ ------ Income tax, effective rate...................................................... (16)% 45% 36% ====== ====== ======
Deferred income taxes resulted from temporary differences as follows (in thousands): YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 ----------- ----------- Inventories..................................... $ (757) $ (294) Property and equipment.......................... (2,198) 3,990 Intangible assets and other..................... 235 2,077 Accounts payable and accrued liabilities........ (78) (1,187) ------------ ----------- Net (asset) liability........................... $ (2,798) $ 4,586 ============ =========== K. STOCKHOLDERS' EQUITY The Company has one stock option plan (the 1990 Stock Option Plan) originally adopted on December 11, 1990 and amended thereafter, for which a total of 1,400,000 shares of Common Stock have been reserved for issuance; 474,611 of those shares were available for grant to directors and associates of the Company at December 31, 1996. The Plan provides for the granting of both incentive and nonqualified stock options. Options granted under the Plan have a maximum term of ten years and are exercisable under the terms of the respective option agreements at fair market value of the Common Stock at the date of grant. Payment of the exercise price must be made in cash, or, in whole or in part, by delivery of shares of the Company's Common Stock. Incentive stock options for 709,175 shares and nonqualified stock options for 176,491 shares of the Company's Common Stock were outstanding at December 31, 1996. Additional information with respect to the Plan is as follows: OPTIONS OUTSTANDING --------------------------------------------- NUMBER OPTIONS OF SHARES PRICE PER SHARE EXERCISABLE ------------ --------------------- --------- Balance, December 31, 1993.. 739,263 $ 6.00 -- 19.88 363,011 Granted................ 331,400 10.25 -- 12.94 -- Became exercisable..... -- 6.00 -- 19.88 207,352 Exercised.............. (1,000) 9.63 (1,000) Canceled............... (161,097) 10.25 -- 19.31 (76,357) ----------- --------------------- --------- Balance, December 31, 1994.. 908,566 $ 6.00 -- 19.88 493,006 Granted................ 488,000 4.94 -- 10.63 -- Became exercisable..... -- 6.00 -- 19.88 178,200 Exercised.............. (1,920) 10.25 (1,920) Canceled............... (132,480) 8.06 -- 19.88 (73,860) ----------- ------- ----- --------- Balance, December 31, 1995.. 1,262,166 $ 4.94 -- 19.31 595,426 Granted................ 75,800 3.31 -- 5.44 -- Became exercisable..... -- 4.94 -- 19.31 255,760 Exercised.............. -- -- Canceled............... (452,300) 3.31 -- 19.31 (351,800) ----------- ------- ----- --------- Balance, December 31, 1996.. 885,666 3.31 -- 19.31 499,386 =========== ========= 27 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1996, the Company has two stock-based compensation plans, its 1990 Stock Option Plan, which is described above, and its 1991 Associate Stock Purchase Plan, which is described in Note L below. The Company applies APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its 1990 Stock Option Plan and its stock purchase plan. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts): 1996 1995 -------- ------ Net income (loss) As reported....... $(53,723) $1,688 Pro forma......... (54,178) 1,391 Net income (loss) per share As reported....... (4.99) .16 Pro forma......... (5.04) .13 A summary of the status of the Company's 1990 Stock Option Plan as of December 31, 1996, 1995 and 1994, and changes during the years ending on those dates is presented below:
1996 1995 ------------------------------ ----------------------------- SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE FIXED OPTIONS (000) EXERCISE PRICE (000) EXERCISE PRICE - ------------- ------ ----------------- ------ --------------- Outstanding at beginning of year............. 1,262 $10.54 909 $12.13 Granted...................................... 76 4.50 488 7.99 Exercised.................................... -- -- (2) 10.25 Canceled..................................... (452) 11.72 (133) 12.12 ----- ---- Outstanding at end of year................... 886 9.41 1,262 10.54 ====== ===== Options exercisable at year-end.............. 499 595 Weighted-average fair value of options granted during the year............ $10.26 $7.99
The following table summarizes information about fixed stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ -------------------------------- NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE - --------------- -------------- ----------------- ---------------- ------------ ---------------- 1) $3.31-5.94 101,900 4.72 years $5.08 20,820 $5.78 2) 6.00 60,666 4.0 6.00 60,666 6.00 3) 8.06-12.95 584,500 3.41 9.10 299,940 9.54 4) 13.13-19.88 138,600 1.65 15.42 117,960 16.41 3.31-19.88 885,666 3.33 9.41 499,386 10.57 ============== =============
28 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The fair value of each grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996, 1995 and 1994, respectively: dividend yield of nil for all years; expected volatility of 46, 49 and 32 percent; risk free interest rates of 6.5% for all years; and expected lives of 5.5, 5.5 and 5.5 years. PREFERRED SHARE PURCHASE RIGHTS On August 23, 1996, the Company's Board of Directors adopted a Stockholder Rights Plan to help assure that all of the Company's stockholders receive fair and equal treatment in the event of certain changes of control of the Company. The Rights Plan was effected by issuing one preferred share purchase right for each outstanding share of Common Stock. These rights are not currently exercisable and will become exercisable only upon the occurrence of specified events related to a change in control of the Company. When exercisable, each right will entitle the holder to purchase 1/1000 of a share of the Company's Series A Junior Participating Preferred Stock at an initial exercise price of $14.00 per right. The rights expire on September 2, 2006, unless extended or redeemed. L. ASSOCIATE STOCK PURCHASE PLAN The Company's 1991 Associate Stock Purchase Plan (the "Purchase Plan") assists associates in acquiring stock ownership in the Company. Under the Purchase Plan, an eligible associate authorizes payroll deductions to be made during a 12-month period (the "Option Period"), which amounts are used at the end of the Option Period to acquire shares of Common Stock at 85% of the fair market value of the Common Stock on the first or the last day of the Option Period, whichever is lower. Associates who have completed one year of service as of the commencement date of an applicable Option Period may participate in the Purchase Plan. Associates have discretion to determine the amount of their payroll deduction under the Purchase Plan, subject to certain limitations. The Purchase Plan terminates on April 4, 2001, and the maximum number of shares of Common Stock that may be issued under the Purchase Plan is 175,000. At the close of the 1993 Option Period, an aggregate of 15,920 shares of Common Stock were acquired by 123 participants at a price of $8.40 per share. At the close of the 1994 Option Period, an aggregate of 29,090 shares of Common Stock were acquired by 137 participants at a price of $8.29 per share. At the close of the 1995 Option Period, an aggregate of 22,169 shares of Common Stock were acquired by 71 participants at a price of $4.36 per share. At the close of the 1996 option period, an aggregate of 18,759 shares of common stock were acquired by 31 associates at a price of $2.13 per share, and 42,730 shares remained available for issuance under the Plan. M. COMMITMENTS AND CONTINGENCIES INSURANCE The Company maintains insurance for on the job injuries to its associates and other coverages for normal business risks. A substantial portion of the Company's current and prior year insurance coverages are "high deductible" policies in which the Company, in many cases, is responsible for the payment of incurred claims up to specified individual and aggregate limits, over which a third party insurer is contractually liable for any additional payment of such claims. Accordingly, the Company bears certain economic risks related to these coverages. On a continual basis, and as of each balance sheet date, the Company records an accrual equal to the estimated costs expected to result from incurred claims plus an estimate of claims incurred but not reported as of such date based on the best available information at such date. However, the nature of these claims is such that actual development of the claims may vary from the estimated accruals. All changes in the 29 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) accrual estimates are accounted for on a prospective basis and could have a significant impact on the Company's financial position or results of operations. LITIGATION The Company is a party to various legal proceedings, which involve routine claims and lawsuits arising in the normal course of the Company's business. The Company does not believe that such claims and lawsuits, individually or in the aggregate, will have a material adverse effect on the Company's results of operations and financial position. PROFIT-SHARING AND SALARY DEFERRAL PLAN The Company has a combination profit-sharing and salary deferral plan (401(k) plan) for the benefit of its associates. The 401(k) plan covers substantially all associates who have completed one year of service and are at least 19 years old. Under the salary deferral portion of the 401(k) plan, participants may defer up to 15% of their eligible compensation, and the Company may, at the discretion of the Board of Directors, elect to match a portion of the deferred compensation. During the years ended December 31, 1996, 1995 and 1994, associates deferred $632,000, $630,000 and $750,000 and the Company made matching contributions totaling $127,000, $130,000, and $140,000. Under the profit-sharing portion of the 401(k) plan, the Company may, at the discretion of the Board of Directors, contribute to the 401(k) plan from its profits. The Company recorded as an expense, profit-sharing contributions of $0, $0 and $316,000 for the years ended December 31, 1996, 1995 and 1994. INCENTIVE COMPENSATION PLANS The Company has various incentive compensation plans covering officers and other key associates which are based upon the achievement of specified earnings goals. All awards are payable in cash. Charges to expense for current and future distributions under the plans amounted to, $254,000, $168,000, and $1,030,000 for the years ended December 31, 1996, 1995 and 1994. 30 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) N. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for the Company for the years ended December 31, 1996 and 1995 is as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ---------- -------- ------- ------- (IN THOUSANDS, EXCEPT SHARE DATA) 1996 Sales.................................................... $ 60,835 $ 67,092 $ 64,396 $ 56,276 Gross profit............................................. 23,762 26,008 19,731 21,637 Net income (loss) ..................................... $ (431) $ 185 $ (51,659) $ (1,818) =========== =========== =========== ============ Net income (loss) per weighted average common and common equivalent share........................... $ (.04) $ 02 $ (4.80) $ (.17) =========== =========== =========== ============ Weighted average common and common equivalent shares outstanding.................................... 10,756,000 10,756,000 10,756,000 10,756,000 1995 Sales.................................................... $ 60,236 $ 70,996 $ 72,198 $ 59,056 Gross profit............................................. 24,709 28,224 27,641 22,810 Net income (loss) ..................................... $ 678 $ 1,560 $ 636 $ (1,186) =========== =========== =========== =========== Net income (loss) per weighted average common and common equivalent share........................... $ .06 $ .15 $ .06 $ (.11) =========== =========== =========== =========== Weighted average common and common equivalent shares outstanding.................................... 10,757,000 10,754,000 10,753,000 10,734,000
The Company's business is seasonal in nature, primarily as a result of the impact of weather conditions. Sales and gross profits have historically been higher in the second and third quarters (April through September) of each year than in the first and fourth quarters. Weather extremes tend to enhance sales by causing a higher incidence of parts failures and increasing sales of seasonal products. Rainy weather, however, tends to reduce sales by causing deferral of elective maintenance. O. BUSINESS COMBINATIONS On November 1, 1994, the Company purchased inventory and operating assets and assumed certain lease liabilities, of Wesco, a Division of Reddi Brake Supply Company, Inc. ("Reddi Brake"). Leases and inventory for eight auto parts stores were acquired. These stores serve the retail and commercial automotive aftermarket in the greater Los Angeles, California area. The Company paid approximately $9.8 million in cash and notes and assumed certain lease obligations of the Wesco Division. Approximately $6.6 million of the purchase price was paid in cash, which was financed under the Company's Credit Agreement with commercial banks. The balance of the purchase price is payable over up to five years. From November 1, 1996, through October 31, 1999, Reddi Brake will have the right to convert $1,263,347 of the deferred portion of the purchase price into 93,859 shares of the Company's Common Stock. The following unaudited pro forma summary presents information as if the acquisition had occurred at January 1, 1994. The pro forma information is provided for information purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined enterprise (in thousands except per share amounts): YEAR ENDED DECEMBER 31 (UNAUDITED) ------------------------ Pro forma sales................................... $ 255,932 Pro forma net income.............................. 8,738 Pro forma net income per common and common equivalent share............... .81 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT. The information required by this item is incorporated by reference to the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Act of 1934 in connection with the Company's 1997 annual meeting of stockholders. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference to the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Act of 1934 in connection with the Company's 1997 annual meeting of stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference to the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Act of 1934 in connection with the Company's 1997 annual meeting of stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference to the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Act of 1934 in connection with the Company's 1997 annual meeting of stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements The following financial statements included on pages 17 through 31 in this Annual Report are for the year ended December 31, 1996. Report of Independent Public Accountants. Consolidated Balance Sheets as of December 31, 1996 and 1995. Consolidated Statements of Income (Loss) for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. 32 (a) 2. Financial Statement Schedules The following financial statement schedule is included: Schedule II Valuation and Qualifying Accounts. All other schedules are omitted because the information is not required or because the information required is in the financial statements or notes thereto. (a) 3. Exhibits The following exhibits are filed as part of this annual report: EXHIBIT NUMBER ------- 3.1 Amended and Restated Certificate of Incorporation of Registrant, filed with the Secretary of State of the State of Delaware on May 13, 1991 (incorporated by reference to Exhibit 3.1 to the Form 10-Q Quarterly Report, File No. 0-19142, filed by Registrant for the period ended June 30, 1991). 3.2 Bylaws of Registrant, as amended (incorporated by reference to Exhibit 3.4 to the Form S-1 Registration Statement filed by the Registrant under the Securities Act (No. 33-39778) (the "Form S-1")). 4.1 Form of Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Form 10-K Annual Report filed by Registrant for the year ended December 31, 1991). 4.2 Rights Agreement, dated as of August 28, 1996, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, specifying the terms of the Rights, which includes the form of Certificate of Designation of Series A Junior Participating Preferred Stock as Exhibit A, the form of Right Certificate as Exhibit B and the form of the Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 1 to the Form 8-K Current Report dated August 30, 1996, filed by Registrant). 4.4 Purchase and Sale Agreement between Hi-Lo Automotive, Inc. and Reddi Brake Supply Company, Inc. dated October 31, 1994 (incorporated by reference to Exhibit 2.1 to the Form 10-Q Quarterly Report for the period ended September 30, 1994, filed by Registrant). 10.1 Financing Agreement among Registrant's operating subsidiary, Hi-Lo Auto Supply, L.P., and the lender named therein, dated as of October 23, 1996, and Registrant's Guaranty relating thereto dated as of October 23, 1996 (the "Financing Agreement") (incorporated by reference to Exhibit 10.1 to the Form 10-Q Quarterly Report for the period ended September 30, 1996, filed by Registrant). #10.2 Letter dated December 20, 1996, amending the Financing Agreement. *10.3 Hi-Lo 1990 Stock Option Plan, as amended and restated through December 8, 1992, and Amendment to Hi-Lo 1990 Stock Option Plan dated January 25, 1993 (incorporated by reference to Exhibit 10.2 to the Form 8-K Current Report dated January 25, 1993, filed by Registrant.) Amendment to Hi-Lo Stock Option Plan dated February 10, 1995 (incorporated by reference to Exhibit 10.2 to the Form 10-K Annual Report filed by Registrant for the year ended December 31, 1994). *10.4 Hi-Lo Automotive, Inc. 1991 Associate Stock Purchase Plan (incorporated by reference to Exhibit 10.8 to the Form S-1 (No. 33-39778)). *10.5 Hi-Lo Automotive, Inc. Incentive Cash Bonus Plan (incorporated by reference to Exhibit 10.10 to the Form S-1 (No. 33-39778)). 33 *10.6 Change of Control Employment Agreement dated May 9, 1995, with T. Michael Young (incorporated by reference to Exhibit 10.2 to the Form 8-K Current Report dated June 5, 1995, filed by Registrant). *10.7 Change of Control Employment Agreement dated May 9, 1995, with Gary D. Walther (incorporated by reference to Exhibit 10.3 to the Form 8-K Current Report dated June 5, 1995, filed by Registrant). *10.8 Change of Control Employment Agreement dated May 9, 1995, with K. Grant Hutchins (incorporated by reference to Exhibit 10.4 to the Form 8-K Current Report dated June 5, 1995, filed by Registrant). *10.9 Change of Control Employment Agreement dated May 9, 1995, with Edward P. Fabritiis (incorporated by reference to Exhibit 10.6 to the Form 8-K Current Report dated June 5, 1995, filed by Registrant). *10.10 Change of Control Employment Agreement dated August 16, 1995, with Conley P. Kyle (incorporated by reference to Exhibit 10.9 to the Form 10-K Annual Report filed by Registrant for the year ended December 31, 1995). #*10.11 Change of Control Employment Agreement dated May 14, 1996, with Daniel T. Bucaro. # 11.1 Schedule of Computation of Earnings Per Share. # 21.1 Subsidiaries of Registrant. # 23.1 Consent of Arthur Andersen LLP. * Management compensatory plan or arrangement # Filed herewith (b) Reports on Form 8-K. No reports on Form 8-K have been filed by Registrant during the last quarter of the period covered by this Report. 34 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. HI-LO AUTOMOTIVE, INC. By /S/ T. MICHAEL YOUNG T. Michael Young CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR March 28, 1997 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /S/ T. MICHAEL YOUNG Chairman, President, Chief March 28, 1997 T. Michael Young Executive Officer and Director (Principal Executive Officer) /S/ GARY D. WALTHER Vice President Finance, Treasurer March 28, 1997 Gary D. Walther and Chief Financial Officer (Principal Financial Officer) /S/ DALE F. BRIDGES Controller and Chief Accounting March 28, 1997 Dale F. Bridges Officer /S/ RICHARD C. ADKERSON Director March 28, 1997 Richard C. Adkerson /S/ RICHARD Q. ARMSTRONG Director March 28, 1997 Richard Q. Armstrong /S/ CHARLES P. DURKIN, JR. Director March 28, 1997 Charles P. Durkin, Jr. /S/ E. JAMES LOWREY Director March 28, 1997 E. James Lowrey /S/ EDWARD T. STORY, JR. Director March 28, 1997 Edward T. Story, Jr.
35 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------------------------------------------------------------------------------- ADDITIONS --------------------- CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER END OF CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ----------------------------------------------------------------------------------------------------------------- Year ended December 31, 1996 Allowance for doubtful accounts receivable........... $ 1,459 632 -- 1,162(1) $ 929 Allowance for uncollectible vendor credits........... $ 319 87 -- -- $ 406 Year ended December 31, 1995 Allowance for doubtful accounts receivable........... $ 918 1,172 -- 631(1) $ 1,459 Allowance for uncollectible vendor credits........... $ 208 111 -- -- $ 319 Year ended December 31, 1994 Allowance for doubtful accounts receivable........... $ 688 674 -- 444(1) $ 918 Allowance for uncollectible vendor credits........... $ 170 120 -- 82(1) $ 208
(1) Charge off of uncollectible accounts. 36 EX-10.2 2 LETTER AMENDING FINANCING AGREEMENT EXHIBIT 10.2 [on The CIT Group letterhead] December 20, 1996 Hi-Lo Auto Supply, L.P. 2575 W. Bellfort Houston, TX 77054 Gentlemen: Reference is made to the Financing Agreement between us dated October 23, 1996, as amended (herein the "Financing Agreement"). Capitalized terms not otherwise specifically defined herein shall have the meanings so assigned in the Financing Agreement. Pursuant to mutual understanding the Financing Agreement is hereby amended as follows: 1. The definition of "Availability Reserve" appearing in Section 1 of the Financing Agreement is hereby amended by deleting the words "the Agent deems necessary in its sole discretion" in clause (c), line 11 of such definition, and substituting the words "the Lenders deem necessary in their sole discretion" in lieu thereof. 2. The definition of "Eligible Accounts Receivable" appearing in Section 1 of the Financing Agreement is hereby amended by deleting the words "the Agent in its sole discretion" appearing in the final clause (c), the fourth line from the bottom of such definition, and substituting the words "the Lenders in their sole discretion." in lieu thereof. 3. The definition of "Eligible Inventory" appearing in Section 1 of the Financing Agreement is hereby amended by deleting the words "the Agent in its sole discretion" in clause viii), the fourth line from the bottom of such definition, and substituting the words "the Lenders in their sole discretion" in lieu thereof. 4. Paragraph 2 of Section 7 of the Financing Agreement is hereby amended by adding the following sentence and inserting it after the second sentence in such paragraph: "The Lenders may, at their option and expense, accompany the Agent at any of such times described in the foregoing sentence, and Agent shall provide Lenders with advance notice of such inspections." 5. Paragraph 3 of Section 7 of the Financing Agreement is hereby amended by adding the following sentence and inserting it after the first sentence in such paragraph: "In addition to the foregoing, the Company agrees to execute and deliver to the Agent on a weekly basis, written statements and schedules produced in the ordinary course of business describing the Inventory pledged hereunder." 6. Paragraph 9, subparagraphs D and E of Section 7 are hereby amended by adding the following language immediately preceding the first word "Sell" in subparagraph D and immediately preceding the first word "Merge" in subparagraph E: "Without the prior written consent of the Required Lenders," 7. Paragraph 11 of Section 7 of the Financing Agreement is hereby amended to correct the heading entitled "Working Capital Amount" to read "Capital Expenditures Amount." 8. The first two paragraphs following the Tangible Net Worth covenant set forth in Section 7, paragraph 10, subparagraph (B) are hereby amended by deleting them in their entirety and substituting the following in lieu thereof: "Within 30 days after the Agent's receipt of the Company's Consolidated Financial Statements for the Fiscal Year ending December 31,1996, which shall be in form satisfactory to the Agent (herein "Year End Statements"), the Lenders shall review such Year End Statements to determine whether it is necessary to revise the financial covenants set forth in paragraph 10A and B of Section 7 of this Financing Agreement (herein the "Financial Covenants"). In the event the Required Lenders determine it is necessary to revise the Financial Covenants, the Company, the Agent and the Lenders hereby agree to reasonably, diligently and in good faith negotiate the revision of such Financial Covenants. Any determination made by the Required Lenders pursuant to the terms of this Paragraph 10 shall be in writing. The Agent and the Lenders agree that the Special Reserve Component shall be deleted from each applicable definition and replaced by the Standard Reserve Component upon the earlier to occur of: a) the revision of the Financial Covenants and b) the determination by the Required Lenders that the Financial Covenants need not be revised; provided, however, that in the event the Company, the Agent and the Lenders cannot mutually agree upon revised Financial Covenants, if such revisions are determined necessary by the Required Lenders, then, the Financial Covenants in effect as of the date hereof and the Special Reserve Component shall continue to have full force and effect in the Financing Agreement. 9. Paragraph 3 of Section 13 of the Financing Agreement is hereby amended by adding the following sentence to the end of such paragraph: "The Agent will promptly provide each Lender with collateral pledge information from time to time." 10. Paragraph 5 of Section 13 of the Financing Agreement is hereby amended by deleting the period at the end of the last sentence in subparagraph (a) thereof and adding the following language thereto: "and no prior notice is required if any such sale is to a Lender hereunder." 11. Paragraph 8 of Section 13 of the Financing Agreement is hereby amended by adding the following language to the end of such paragraph: "Each Lender agrees promptly to notify the Agent and the Company after any such set-off and application made by such Lender, but the failure to give such notice shall not affect the validity of such set-off and application." 12. Paragraph 9 of Section 13 of the Financing Agreement is hereby amended as follows: (a) The period at the end of the second sentence is hereby deleted, and the following language is added thereto: "and no prior notice is required if any such assignment is to a Lender hereunder." (b) The following is added to the end of such paragraph: "In the event of x) a merger of a Lender and/or an affiliate thereof or y) substantially all of the loan portfolio of a Lender is acquired by a third party, then the requirements set forth in the immediately foregoing clauses i) and ii) shall not apply to any such assignee or successor in interest." 13. Paragraph 8 of Section 14 of the Financing Agreement is hereby amended by adding the following to the end of such paragraph: "Notwithstanding anything to the contrary contained herein, the Agent and the Lenders agree that proceeds of all Collateral, security and guarantees will first be applied in repayment of the Obligations arising under the Financing Agreement and after complete repayment of such Obligations, any excess held by any Lender may be applied in reduction of any remaining indebtedness due to any Lender independently of this Financing Agreement." 14. Paragraph 10 of Section 14 of the Financing Agreement is hereby amended by deleting subparagraph c) in its entirety and substituting the following in lieu thereof: "c) intentionally make any Revolving Loan or assist in opening any Letter of Credit hereunder if after giving effect thereto the total of Revolving Loans and Letters of Credit hereunder for the Company would result in an overadvance being created in an amount greater than $3,000,000.00 or permit to continue in existence an intentional overadvance of less than $3,000,000.00 if such overadvance has been in existence for at least sixty (60) consecutive Business Days." 15. Paragraph 11 of Section 14 of the Financing Agreement is hereby amended by deleting it in its entirely and substituting the following in lieu thereof: "11. In the event any Lender's consent is required pursuant to the provisions of this Financing Agreement and such Lender does not respond to any written request by the Agent for such consent in writing within 10 days after such request is made to such Lender, such failure to respond shall be deemed a consent. In addition, in the event that any Lender declines to give its written consent to any such request, it is hereby mutually agreed that the Agent and/or any other Lender shall have the right (but not the obligation) to purchase such Lender's share of the Loans for the full amount thereof together with accrued interest thereon to the date of such purchase." 16. Pursuant to the Special Reserve Component included in clause (c) at the end of the definition of "Availability Reserve" in the Financing Agreement, the Agent and the Company hereby agree that, notwithstanding anything to the contrary contained in the Financing Agreement, the Special Reserve Component shall be taken as follows: "$1,250,000.00 on December 19, 1996; $1,250,000.00 on January 15, 1997; and $2,500,000.00 on February 15, 1997; PROVIDED, however, that nothing contained herein shall be construed as requiring the Lenders to take all or any part of the Special Reserve Component, or as limiting the right of the Lenders to reduce or eliminate the amount of the Special Reserve Component that the Lenders may previously have taken, and PROVIDED FURTHER, that nothing contained herein shall be construed as modifying or amending the provisions of Section 7, paragraph 10, subparagraph (B) of the Financing Agreement, as amended by paragraph 8 hereof. 17. Paragraph 2 of Section 8 of the Financing Agreement is hereby amended by adding the following sentence after the first sentence of such paragraph: "The Agent shall then advise the Lenders of such notice of the Company's election to use Libor not less than two (2) Business Days preceding the first day of any such Libor Period." No other change in the terms or conditions of the Financing Agreement are intended or implied. If the foregoing is in accordance with your understanding of our agreement, please so indicate by signing and returning to us the enclosed copy of this letter. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC., AS AGENT By:/S/ T. A. LYNUM Title: Assistant Vice President Read and Agreed to: HI-LO AUTO SUPPLY, L.P. By: Hi-Lo Management Company, its sole General Partner By:/S/ GARY D. WALTHER Title: Vice President EX-10.11 3 CHANGE OF CONTROL EMPLOYMENT AGREEMENT EXHIBIT 10.11 CHANGE OF CONTROL EMPLOYMENT AGREEMENT AGREEMENT between Hi-Lo Automotive, Inc., a Delaware corporation (the "Company"), and Daniel T. Bucaro, residing at 6603 Carrington Court, Sugarland, Texas 77479 (the "Executive"), dated as of the 14th day of May, 1996. WITNESSETH: WHEREAS, the Executive is a principal officer of the Company and an integral part of its management; and WHEREAS, the Company recognizes that even the possibility of a change of control and the uncertainty and questions which it may raise may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders during a critical time; and WHEREAS, the Company considers it in the best interest of the Company and its shareholders that the Executive be encouraged to remain with the Company in the event of any actual or threatened change of control of the Company; and WHEREAS, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken now to reinforce and encourage members of the Company's management; NOW, THEREFORE, in consideration of the above premises and mutual agreements herein set forth and the services performed and to be performed by the Executive for the Company, the parties agree as follows: 1. OPERATION OF AGREEMENT. This Agreement shall be effective without any action by any party upon the first date on which a Change of Control ( as defined in Article 2) has occurred; PROVIDED, HOWEVER, that at the option of the Company this Agreement may be terminated on the first anniversary of written notice of termination given to the Executive by the Board prior to the Agreement's Effective Date. 2. DEFINITIONS. CAUSE. For purposes of this Agreement "Cause" shall mean termination resulting from (i) acts of dishonesty by the Executive constituting a felony and resulting or intended to result directly or indirectly in gain or personal enrichment to the Executive at the expense of the Company or (ii) willful and continued failure by Executive to substantially perform his duties with the Company (other than any such failure resulting from Disability (as defined herein)) after a demand in writing for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties, and such failure to perform the Executive's duties results in demonstrably material injury to the Company. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall occur if (i) the Company shall not be the surviving entity in any merger or consolidation (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company), (ii) the Company sells, leases -1- or exchanges or agrees to sell, lease or exchange all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved and liquidated, (iv) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the 1934 Act, (other than Saratoga Partners, L.P., Lexington Partners II, L.P., Dillon, Read & Co. Inc., or any of their respective affiliates) acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of capital stock of the Company, or (v) as a result of or in connection with any cash tender or exchange offer, merger or other business combination, sales of assets or a contested election for the board of directors, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Company before such Transaction shall cease to constitute a majority of the Board. EFFECTIVE DATE. For purposes of this Agreement " Effective Date" shall mean the first date on which a Change of Control has occurred. DISABILITY. For purposes of this Agreement, "Disability" shall mean that the Executive is unable to perform the essential functions of the job for which the Executive is being employed hereunder, with or without reasonable accommodation, by reason of his illness, accident or other cause, including mental disability, for a period of six consecutive calendar months, or an aggregate of nine months during any continuous twelve-month period. GOOD REASON. For purposes of this Agreement, "Good Reason" shall mean: (i) A determination by the Executive made in good faith that his primary management functions, duties or responsibilities have been diminished in any material respect and the situation is not remedied within 30 days after receipt by the Company of written notice from the Executive of such determination; (ii) Any requirement that the Executive relocate his principal office outside of Harris County, Texas; (iii) Any modification to the rights to indemnification or director and officer liability insurance under which the Executive is covered immediately prior to the Effective Date which reduces the benefits available to the Executive under such indemnification or insurance; or (iv) A breach by the Company of any provision of this Agreement not embraced within the foregoing clause (i), (ii) or (iii) which is not remedied within 30 days after receipt by the Company of written notice from the Executive. 3. EMPLOYMENT PERIOD. Unless terminated pursuant to Section 6, the Company hereby agrees to continue the Executive in its employ for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). Unless terminated pursuant to Section 6, the Executive agrees to remain in the employ of the Company until such time as the Executive gives the Company at least 30 days written notice of the Executive's intent to voluntarily terminate employment. -2- 4. POSITION AND DUTIES. (a) During the Employment Period, the Executive shall continue to serve as a principal officer of the Company with office, title and primary management functions, duties, and responsibilities, substantially similar to those held and performed during the 90-day period immediately preceding the Effective Date provided that any change in such functions, duties and responsibilities which results solely from the Company no longer being a reporting company under the Federal securities laws or the Company being a subsidiary of another company shall not be considered a change in functions, duties or responsibilities for any purpose under this Agreement. (b) During the Employment Period, the Executive shall devote the Executive's full time and efforts during normal business hours to the business and affairs of the Company except for reasonable vacations and except for illness or incapacity, but nothing in this Agreement shall preclude the Executive from (i) devoting reasonable periods required for serving as a director or member of a committee of any organization involving no conflict of interest with the interests of the Company, and (ii) engaging in charitable and community activities and professional organizations, provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement. (c) Executive shall have as his principal office and shall perform his duties hereunder primarily at the Company's headquarters at 2575 West Bellfort Street, Houston, Texas 77054 or at such other location as the Board shall direct within Harris County, Texas. 5. COMPENSATION. (a) BASE SALARY. During the Employment Period, the Executive shall receive a base salary ("Base Salary") equal to the average of the Executive's monthly salary during the three full months immediately preceding the Effective Date multiplied by twelve. The Base Salary shall not be reduced after the Effective Date. The Base Salary will be paid in equal semi-monthly installments. (b) OTHER NON-SALARY BENEFITS. During the Employment Period, the Executive shall be entitled to participate in all bonus, incentive, savings and retirement plans, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, policies and programs provide the Executive with incentive opportunities, savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than those provided by the Company and its affiliated companies for the Executive under such plans, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Executive Date to other peer executives of the Company and its affiliated companies. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, policies and programs provided by the Company and its affiliated companies (including to the extent they exist and without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided -3- generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. During the Employment Period, the Executive shall be entitled to perquisites, including, without limitation, an office, secretarial and clerical staff, and to fringe benefits, including, without limitation, the payment of allowances for, and reimbursement of, automobile expenses, and cellular telephone charges, in each case at least equal to those attached to his office immediately prior to the Effective Date. (c) VACATION. The Executive shall be entitled to receive such paid vacation time each year during the term of this Agreement as is consistent with the vacation policy of the Company for Executive's position. Such vacation shall be taken at a time convenient to the Company. Any vacation time to which the Executive is entitled in accordance with the foregoing that is not taken by the Executive in any year during the Employment Period shall not be cumulative, and the Executive shall not receive any cash or noncash benefit in lieu of vacation time not taken by the Executive except that Executive shall be entitled to receive cash in lieu of any unused vacation time applicable for the year in which any termination of employment occurs. (d) EXPENSES. Upon submission of proper vouchers, the Company will pay or reimburse the Executive for reasonable transportation, hotel, travel and related expenses incurred by the Executive on business trips away from the Executive's principal office, and for other business and entertainment expenses reasonably incurred by the Executive in connection with the business of the Company and its subsidiaries during the Employment Period, all subject to such limitations as may from time to time be prescribed by the Board. (e) INDEMNITY. The Executive shall be entitled to and shall be provided the benefits of indemnification and director and officer liability insurance on the same basis as in effect immediately preceding the Effective Date, or if more favorable to the Executive, as in effect at anytime thereafter with respect to other officers of similar position and responsibility. 6. TERMINATION. (a) DEATH OR DISABILITY. Executive's employment shall terminate automatically upon the Executive's death. The Company may terminate Executive's employment upon Executive's Disability, by giving to the Executive written notice of its intention to terminate the Executive's employment. The Company shall have the right to terminate the Executive's employment effective as of the applicable date of his Disability. (b) CAUSE. The Company may terminate the Executive's employment for "Cause" upon written notice as required herein. Executive's employment shall in no event be considered to have been terminated by the Company for Cause if such termination took place as the result of (i) bad judgment or negligence, or (ii) any act or omission without intent of gaining therefrom directly or indirectly a profit to which the Executive was not legally entitled, or (iii) any act or omission believed by the Executive in good faith to have been in or not opposed to the interest of the Company, or (iv) any act or omission in respect of which a determination is made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the by-laws of the Company or the laws of the State of Delaware or the directors and officers liability insurance of the Company, in each case as in effect at the time of such act or omission. The Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative -4- vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive was guilty of conduct contained in the definition of Cause and specifying the particulars thereof in detail. (c) GOOD REASON. The Executive's employment may be terminated by the Executive at any time for Good Reason. Executive's employment shall in no event be considered to have been terminated by Executive for Good Reason if such termination by the Executive took place as a result of changes in the Executive's functions, duties and responsibilities resulting solely from the Company no longer being a reporting company under the Federal securities laws or the Company being a subsidiary of another company. (d) VOLUNTARY TERMINATION AFTER ONE YEAR. The Executive's employment may be terminated by the Executive at any time after the first anniversary of the Effective Date. (e) NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company for Cause or due to Disability or by the Executive for Good Reason or otherwise shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, if applicable, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). (f) DATE OF TERMINATION. If the Executive's employment is terminated for any reason, whether pursuant to the terms of this Agreement or otherwise, the date set forth in the notice of termination as the termination date of the Executive's employment shall be deemed the "Date of Termination." 7. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (a) DURING DISABILITY. During any period that Executive is unable to perform his duties hereunder during the Employment Period as a result of incapacity due to physical or mental illness or injury, the Company shall continue to pay to the Executive his full Base Salary and other benefits as in effect immediately prior to such physical or mental illness or injury until Executive's employment is terminated. (b) DEATH; DISABILITY. If during the Employment Period the Executive's employment is terminated by reason of death or Disability, the Company shall (x) pay to the Executive or his estate a lump sum payment (made within 10 days after the Date of Termination) equal to the Executive's Base Salary divided by twelve multiplied by the number of full or partial months remaining in the Employment Period, (y) provide the medical insurance benefits contemplated by Section 5(b) for one year from the Date of Termination or through the end of the Employment Period whichever is longer and (z) make available medical benefits equivalent to those required to be provided under "COBRA" for a period of eighteen months after the expiration of the Company's obligations under clause (y) above. (c) CAUSE; VOLUNTARY TERMINATION PRIOR TO ONE YEAR. If the Executive's employment shall be terminated either (i) for Cause by the Company or (ii) by the Executive voluntarily prior to the first -5- anniversary of the Effective Date other than for Good Reason, the Company shall pay the Executive's full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and shall have no further obligations to the Executive under this Agreement. (d) GOOD REASON; VOLUNTARY TERMINATION AFTER ONE YEAR; OTHER THAN FOR CAUSE. If, during the Employment Period, (i) the Company shall terminate the Executive's employment other than for Cause, death or Disability, (ii) the employment of the Executive shall be terminated by the Executive for Good Reason or (iii) the Executive shall terminate his employment after the first anniversary date of the Effective Date for any reason or no reason, the Company shall (x) pay to the Executive as severance pay hereunder and in lieu of any other amounts due hereunder a lump sum payment (made within 10 days after the Date of Termination) equal to two times the Executive's then current Base Salary, (y) provide the medical insurance benefits contemplated by Section 5(b) for one year from the Date of Termination or through the end of the Employment Period whichever is longer and (z) make available to the Executive medical benefits equivalent to those required to be provided under "COBRA" for a period of eighteen months after the expiration of the Company's obligations under clause (y) above. (e) PAYMENT LIMITATION. Notwithstanding anything to the contrary in this Agreement, the payments and benefits otherwise provided by this Agreement shall be reduced if and to the extent that such payments and benefits, when added to any payments and benefits provided by the Company other than under this Agreement, would result in any such payments being nondeductible to the Company or would subject Executive to an excise tax pursuant to the golden parachute payment provisions of Section 280G or Section 4999 of the Internal Revenue Code of 1986, as amended. Any reduction of payments and benefits under this Agreement resulting from the foregoing limitations shall be applied to the payments and benefits due to be otherwise provided to Executive latest in time. 8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. EXECUTIVE OBLIGATIONS. (a) For the Employment Period the Executive will not do or say anything that reasonably may be expected to have the effect of diminishing or impairing the goodwill and good reputation of the Company and its officers, directors and products nor will the Executive intentionally disparage or injure the reputation of the Company by making any material negative statements about the Company's methods of doing business, the effectiveness of its business policies and the quality of its products or personnel. (b) The Executive agrees to keep the terms of this Agreement in strict confidence, except that the Executive may disclose the terms of this Agreement to family members and professional advisors who understand the confidentiality of such terms. -6- (c) The Executive hereby agrees that during the Executive's employment by the Company and for a period of twenty-four months following termination of the Executive's employment during the Employment Period either (i) by the Company other than for Cause, death or Disability or (ii) by the Executive for Good Reason or after the first anniversary date of the Effective Date for any reason or no reason, the Executive shall not act in any manner or capacity, directly or indirectly, in any individual or representative capacity, whether as principal, agent, partner, officer, director, employee, joint venturer, member of any business entity, consultant, advisor or investor (except that the Executive shall have the right hereunder to own up to 2% of one or more public companies having a class of equity securities registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) or otherwise, in or for any business entity or enterprise which competes with the Company in any geographic area served by the Company at the time of the Executive's termination and engages as its primary line of business in the sale of automotive parts or accessories to retail customers or to commercial auto repair outlets (the "Business"); (d) The Executive hereby agrees that during the Executive's employment by the Company and for a period of twenty-four months following the termination of the Executive's employment, the Executive shall not: (i) without the prior written consent of the Company, divulge, disclose or make accessible to any other person, firm, partnership or company or other entity any Confidential Information which shall not include information known generally or available to the public or of information not considered confidential by persons engaged in the business conducted by the Company or from disclosure required by law or court order pertaining to the Business except (x) while employed by the Company in the Business and for the benefit of the Company or (y) when required to do so by a court of competent jurisdiction, by any governmental agency, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order the Executive to divulge, disclose or make accessible such information. (ii) without the prior written consent of the Company solicit or hire away any person who is then an employee of the Company and was an employee of the Company at any time after the Effective Date and prior to termination of the Executive's employment. (e) The Executive also agrees that upon leaving the Company's employ he will not take with him, without the prior written consent of an officer authorized to act in the matter by the Board, any drawing, blueprint, business strategies, budgets, projections, nonpublic financial information, manuals, policies or other document of the Company, its subsidiaries, affiliates and divisions. (f) If the scope of any restriction contained in Section 9(c) or (d) hereof is too broad to permit enforcement of such restriction to its full extent, then such restriction shall be enforced to the maximum extent permitted by law, and the Executive hereby consents and agrees that such scope may be judicially modified accordingly in any proceedings brought to enforce such restrictions. (g) The Executive acknowledges and agrees that the Company's remedy at law for any breach of the Executive's obligations under this Section 9 (other than Section 9(c)) may be inadequate, and agrees and consents that temporary and/or permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision hereof (other than Section 9(c)), without the necessity of proof of actual -7- damage. In the event of any breach of the provisions of Section 9(c) hereof, as liquidated damages and in lieu of any other damages, payments to or actions by the Company, the Executive shall pay to the Company an amount equal to the product of (i) any lump sum payment made to Executive under this Agreement divided by twenty-four multiplied by (ii) twenty-four minus the number of months (including as a whole month any portion thereof) since the Executive's Date of Termination. 10. REVIEW BY COUNSEL. The Executive has had sufficient time and the opportunity, whether or not exercised, to have this Agreement reviewed by counsel of the Executive's choosing and to be advised as to the Executive's rights and obligations hereunder. 11. SUCCESSORS. (a) This Agreement shall not be assignable by either party without the consent of the other party. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. (c) In the event of a Change of Control of the Company, any successor shall, by an agreement in form and substance satisfactory to the Executive, expressly assume and agree to perform this Agreement. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) Executive shall not be required to mitigate the amount of any payment or benefit provided for herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by you as a result of employment by another employer after the Date of Termination, or otherwise. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by overnight courier or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: Daniel T. Bucaro 6603 Carrington Court Sugarland, Texas 77479 IF TO THE COMPANY: Hi-Lo Automotive, Inc. 2575 West Bellfort Street Houston, Texas 77054 Attention: President -8- or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. (g) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Houston, Texas in accordance with the rules of the American Arbitration Association then in effect; provided that all arbitration expenses shall be borne by the Company. Notwithstanding the pendency of any dispute or controversy concerning termination or the effects thereof, the Company will continue to pay Executive semi-monthly the full compensation in effect immediately before any Notice of Termination giving rise to the dispute was given (including, but not limited to, Base Salary and bonus or incentive pay) and continue Executive as a participant in all compensation, benefit and insurance plans in which the Executive was then participating, until the dispute is finally resolved. Amounts paid under this paragraph are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement except as otherwise determined by the arbitrator based upon the facts and circumstances giving rise to the arbitration. Judgment may be entered on the arbitrators' award in any court having jurisdiction; PROVIDED, HOWEVER, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. (h) The Executive and the Company acknowledge that this Agreement shall have no force and effect, and is no intended to alter in any way the current relationship of the Executive and the Company, prior to the Effective Date. This Agreement shall terminate and there shall be no further rights or liabilities hereunder upon a termination of the Executive's employment prior to the Effective Date. -9- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. Hi-Lo Automotive, Inc. By: /S/ K. GRANT HUTCHINS Name: K. Grant Hutchins Title: Vice President and General Counsel /S/ DANIEL T. BUCARO Daniel T. Bucaro -10- EX-11.1 4 COMPUTATION OF RATIOS EXHIBIT 11.1 HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)
COLUMN A COLUMN B DECEMBER 31, 1996 1995 1994 ----------- ----------- ------- Weighted average common shares outstanding................................. 10,756,000 10,733,000 10,703,000 Common equivalent shares resulting from stock options issued.................................................................. -- -- 33,000 ----------- ----------- ----------- Total weighted average common and common equivalent shares outstanding............................................................. 10,756,000 10,733,000 10,736,000 =========== =========== =========== Net income (loss).......................................................... $ (53,723) $ 1,688 $ 9,133 =========== =========== =========== Earnings (loss) per common and common equivalent share..................... $ (4.99) $ .16 $ .85 =========== =========== ===========
Earnings (loss) per common and common equivalent share have been computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding. Common equivalent shares outstanding were computed using the treasury stock method. The difference between shares for primary and fully diluted earnings per share was not significant in any year. On November 1, 1994, a note was issued that is convertible, effective November 1, 1996, into 93,859 shares of the companies Common Stock. As of December 31, 1996, this note had no significant effect on earnings per share. EX-21.1 5 SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF HI-LO AUTOMOTIVE, INC. Set forth below is a list of subsidiaries of Hi-Lo Automotive, Inc., a Delaware corporation: Hi-Lo Management Company, a Delaware corporation. Hi-Lo Investment Company, a Delaware corporation. Hi-Lo Auto Supply, L.P., a Texas limited partnership composed of Hi-Lo Management Company (1% general partner) and Hi-Lo Investment Company (99% limited partner). First Call Management Company, a Delaware corporation. First Call Auto Supply, L.P. a Texas Limited partnership composed of First Call Management Company (1% general partner) and Hi-Lo Auto Supply, L.P. (99% limited partner). EX-23.1 6 CONSENT INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K 33-71830, 33-85838, and 333-5323. ARTHUR ANDERSEN LLP Houston, Texas March 25, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HI LO AUTOMOTIVE, INC YEAR 1996 INCOME STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 1,180 0 13,458 929 91,401 106,738 76,648 44,668 142,338 33,350 0 0 0 108 59,186 142,338 248,599 248,599 157,461 307,323 471 592 4268 (64,055) (10,332) (53,723) 0 0 0 (53,723) (4.99) (4.99)
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