Item 1. BUSINESS
(a) General Development of Business
This Annual Report on Form 10-K ("Form 10-K") contains forward looking statements. Forward-looking statements, which were based upon certain assumptions and describe future plans, strategies and expectations of the Company are generally identifiable by use of the word "believes", "expects", "intends", "anticipates", "plans to", "estimates", "projects" or similar expressions. Hahn Automotive Warehouse, Inc. desires to take advantage of the "safe harbor" which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. Such cautionary statements are set forth under the heading "Important Information Regarding Forward-Looking Statements" located in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K. All references to a "Fiscal" year refer to the twelve (12) month period ended September 30 of such year.
Hahn Automotive Warehouse, Inc. was incorporated in the State of New York in 1958. Its principal executive offices are located in Rochester, New York. Unless the context indicates otherwise, the term "Company" refers to Hahn Automotive Warehouse, Inc. and its consolidated subsidiaries.
The Company is engaged in the sale of automotive aftermarket products to commercial service establishments on a regional basis and to consumers via the internet. The Company's traditional business is conducted through ten full-service distribution centers, four specialty distribution centers, seven direct distribution centers and 77 jobbing stores that operate in the same areas as the Company's full-service distribution centers generally under the name Advantage Auto Stores, except in the Dayton, Ohio area, where the Company's jobbing stores operate under the name Genuine Auto Parts. The Company's operations are located along the Eastern Seaboard and in the Midwest.
The Company, through its wholly-owned subsidiary iAutoparts, Inc. ("iAutoparts"), operates iAutoparts.com, an online automotive parts store. iAutoparts extended the Company's reach directly to the consumer, entering new geographical and customer markets, and further expanded its distribution mix. To date, iAutoparts has had a nominal financial impact on the Company.
The Company's wholly owned subsidiary, H.F.V. Inc. owns debt and a 37.5% equity investment in Autoworks, Ltd. a distributor of automotive aftermarket products, based in Tel Aviv, Israel.
(b) Narrative Description of Business
The Company's operations are contained in two industry segments: wholesale sale of automotive aftermarket products through traditional and direct distribution methods. Below is a description of each segment.
Industry Overview
The market is composed of two basic segments: Passenger car and light truck products and heavy duty truck products. The Company operates in the passenger car and light truck market, and currently has a minor presence in the heavy duty truck market. The market for passenger car and light truck products has two basic sales channels: (i) wholesale or installed parts service, serving professional installers, vehicle dealers, retail auto parts stores and other distributors, and (ii) retail, serving doit-yourself ("DIY") retail customers.
The wholesale segment is the Company's primary area of focus. Traditionally, the wholesale segment has distributed automotive parts using a three-step or full-service distribution process. With full-service distribution, parts manufacturers deliver parts to warehouse distributors, who then deliver to local jobbers who sell individual parts to end users for installation. Fullservice distribution allows jobbers to provide rapid parts availability to local area professional installers, including service stations, garages and major accounts. The Company's fullservice distribution centers and jobbing stores operate in this market.
The two-step or direct distribution process has evolved in response to increasing capital needs and shrinking margins, and to date, has been more successful in metropolitan areas where there are higher concentrations of professional installers. Direct distributors eliminate a level of distribution from the traditional full-service distribution process. Thus, a large jobber may purchase directly from manufacturers and sell directly to professional installers, thereby eliminating the warehouse distributor level, or a warehouse distributor may skip the jobber level and sell parts directly to installers. The Company's direct distribution division targets this market.
Distribution Business
The Company purchases nearly 150,000 automotive aftermarket stock keeping units ("SKUs"), consisting predominately of nationally branded automotive hard parts, as well as maintenance items, accessories and private label products, from 240 manufacturers, and distributes these products through its distribution network to approximately 1,050 independent jobbing stores and 77 Companyowned jobbing stores, which operate principally under the Advantage Auto Stores name. These jobbers supply automotive parts to commercial establishments performing automotive services and, to a much lesser extent, the DIY market. The Company's distribution network consists of ten full-service distribution centers, four specialty distribution centers, seven direct distribution centers and 77 Advantage Auto jobbing stores located along the Eastern Seaboard and in the Midwest. The Company generally does not sell tires or perform automobile repairs or installations through either its distribution centers or jobbing operations.
Distribution Strategy
The Company's distribution strategy is based on five key elements:
Rapid Delivery From Extensive Inventory - The Company maintains a broad product inventory consisting of approximately 150,000 stock keeping units (SKU's) throughout its full-service distribution network, from which it generally delivers products to customers within 24 hours of receipt of an order. The Company believes that speed of delivery is essential for a jobber to meet the time constraints of its service establishment customers and to manage its own inventory.
Strong Customer Relationships and Trained Work Force - The Company is a customer driven company built on strong, long- term relationships. The Company provides operational support to its customers on a regular basis to assist them in many aspects of their businesses. In addition, the Company maintains trained and experienced sales and distribution center personnel to assist jobbers in selecting parts and filling their inventory needs.
Growth in Existing Markets - The Company seeks to build its revenue base in existing markets by (i) adding new jobbing store customers within territories presently served, and (ii) encouraging existing accounts to purchase additional product lines from the Company.
Leadership in Aftermarket Auto Parts Alliance Programmed Distribution Group - Aftermarket Auto Parts Alliance, Inc. ("AAPA") (formerly Auto Value Associates, Inc. ("Auto Value")) is an independent national purchasing and marketing program in the automotive aftermarket. The Company seeks to convert its independent jobbing customers to the AAPA Auto Value program, as the Company believes AAPA's Auto Value purchasing and marketing programs are beneficial to the jobbers and result in such customers purchasing the preponderance of their inventory needs from the Company.
Operating Efficiencies - The Company's operations are structured to realize operating efficiencies both for itself and for its customers, to benefit from economies of scale in product purchasing, information systems and employee training and to provide an efficient distribution system with the objectives of ease of order placement and speed of delivery.
Products
The Company's distribution centers and Company-owned jobbing stores, operating as Advantage Auto Stores (and Genuine Auto Parts in the Dayton, Ohio, area) (herein collectively referred to as "Advantage Auto Stores"), generally offer a wide selection of predominantly nationally branded automotive products for domestic and foreign cars, vans and light trucks. The Company stocks a wide range of automotive aftermarket products throughout its distribution network, consisting principally of new and remanufactured automotive hard parts, as well as maintenance items and accessory products. Hard parts include, among others, brake parts, exhaust components, engine parts, suspension parts and fuel systems.
The Company's customers purchase name-brand products and privatelabel products which carry a larger gross profit margin. These private-label products, marketed under the Parts Master label, are manufactured by a variety of vendors for members of the AAPA Auto Value programmed distribution group. Parts Master products accounted for approximately 21.1%, 19.9% and 17.8% of the Company's net sales, in Fiscal 2000, 1999 and 1998, respectively, with the remainder of net sales derived from manufacturer's branded products. Since Parts Master brand products have higher profit margins than name brand products, the Company continually seeks ways to expand sales of Parts Master products, in some instances by having national brand manufacturers supply products under this label.
Distribution Centers
Central to the Company's strategy of providing rapid distribution of a broad variety of parts is a distribution network comprised of three varieties of distribution centers: full-service, direct distribution and specialty (which consist of pick-up and accessory distribution centers).
Full-Service Distribution Centers
Full-service distribution centers distribute to jobbers within a radius of approximately 150 miles, and nine of them serve as hubs for a surrounding network of Company-owned Advantage Auto Stores. The Company extends the distribution area of three of its fullservice distribution centers with smaller pick-up distribution centers. These pick-up distribution centers carry specialized inventory categories, with lower inventory turns, for customer pickup when needed, to supplement regular deliveries from the fullservice distribution center. The Company also operates a specialty distribution center to centralize the purchasing and distribution of accessory items.
The Company, in total, operates ten full-service distribution centers, three pick-up distribution centers and one accessory distribution center. The inventory carried by full-service distribution centers generally range from approximately 33,500 to over 75,500 SKUs, while the pick- up distribution centers stock, on average, approximately 19,000 SKUs and the accessory distribution center stocks selected items.
Each full-service distribution center employs a General Manager, sales force, clerical, stock-handling and delivery employees. Customers may place their stock orders by computer, telephone, fax or in person at service counters.
Direct Distribution Centers
The Company operates seven (7) direct distribution centers, one of which does business under the Professional Auto Warehouse ("PAW") name in Albany, New York. The Company has selected direct distribution center locations that it has acquired or has opened based upon a high concentration of repair bays and competitive rent. On September 22, 2000, the Company closed its Professional Auto Warehouse location in Harrisburg, Pennsylvania. The Company has no plans to replace the PAW Harrisburg location.
The Company believes that its direct distribution centers carry a more complete inventory selection than most other national direct distributors. The average Company direct distribution center stocks approximately 23,000 SKU's, with the largest stocking approximately 51,000 SKU's. In addition to parts, the direct distribution centers also supply professional installers with equipment and tools. Each direct distribution center maintains a delivery fleet to provide professional installers with rapid delivery of parts orders.
Aftermarket Auto Parts Alliance Program
The Company is a member of AAPA (formerly Auto Value Associates, Inc.), an independent corporation which was created by a merger with All Pro/ Bumper to Bumper, another large programmed automotive parts buying group, in July 1999. This union increased the size and buying power of Auto Value, which provides to its shareholders the benefits of collective purchasing power under arrangements which it negotiates with vendors from whom its shareholders may purchase inventory. AAPA neither purchases nor sells automotive parts and is not involved in the chain of distribution.
AAPA offers its shareholders value-added marketing, merchandising, advertising and promotion and interior and exterior design layout for delivery to the participating jobber customers of its shareholders. AAPA also offers its shareholders access to privatelabel products under the Parts Master name.
AAPA requires its shareholders to participate in its purchasing programs to a specified degree and to contribute equally toward its operating expenses. Shareholders, whose jobber customers participate in the marketing service of the Auto Value program, are required to pay a basic fee plus charges for goods and services provided under the program.
Eli N. Futerman, President and Chief Executive Officer of the Company, is a past Chairman and currently a director and Treasurer of AAPA. The Company does not believe that any material conflicts of interests exist as a result of Mr. Futerman's positions in the Company and AAPA.
Jobber Services
The Company's extensive inventory line provides jobber customers with the opportunity to purchase aftermarket products from a single source, which affords its jobber customers the opportunity to reduce operating expenses and improve inventory planning and control.
The Company provides support to its customers through its account executives who visit them on a regular basis, advising such customers on products and services, assisting in solving logistical, marketing, merchandising and other problems, as well as soliciting increased purchases from the Company. These customer support services are supplemented by manufacturers' sales representatives who periodically call on the Company's customers on behalf of the Company and by annual trade shows at Company locations. In Fiscal 2000, the Company held trade shows in Dayton, Ohio and Goldsboro, North Carolina.
The Company provides value-added services to its jobber customers that participate in the AAPA programmed distribution group. Through the AAPA program, the Company assists its participating jobber customers in marketing, merchandising, inventory management and control, store appearance, advertising and product promotion.
During Fiscal 2000, 29 of the Company's independent jobber customers joined the AAPA program through the Company and 24 independent jobber customers resigned or were terminated from the program. As of October 31, 2000, 273 of the Company's independent jobber customers and all of the Company-owned jobbing stores participated in the AAPA marketing program.
Advantage Auto Stores
To support its distribution center business, the Company operates a chain of jobbing stores under the Advantage Auto Stores name, except for certain Company-owned jobbing stores which operate under "Genuine Parts Company" in Dayton, Ohio, "Finn Auto Parts" in Canandaigua, New York and "Eagle Auto Parts" in East Rochester, New York. References to Advantage Auto Stores in this report include these jobbing stores. The Advantage Auto Stores are located only in regions supplied by the Company's full-service distribution centers. As of October 31, 2000, the Company owned and operated a total of 77 Advantage Auto Stores.
As the Advantage Auto Stores are members of the AAPA program, they typically feature certain consistent appearances and merchandising programs. The stores emphasize knowledgeable sales people and rapid availability of parts with daily truck deliveries. Approximately nine years ago, the Company embarked on a jobbing store remodeling project. During Fiscal 2000, the Company remodeled nine jobbing stores, leaving seven stores to be remodeled. The Company plans to remodel or relocate six more jobbing stores in the next fiscal year.
iAutoparts
On July 6, 1999, the Company, through its wholly-owned subsidiary, iAutoparts, Inc., launched iAutoparts.com, its online automotive parts store available 24 hours a day. iAutoparts.com was the first online automotive parts store powered by the industry's leading CCI/Triad ePartExpert electronic parts catalog. The Web site guides users through a logical search to ensure accurate automotive parts selection. ePartExpert provides technical tips, parts specifications and suggestions for related parts.
iAutoparts.com is operated by iAutoparts, Inc., a wholly- owned subsidiary of the Company, with the assistance of its information technology service provider, CCI/Triad, located in Austin, Texas. iAutoparts has a direct relationship with parts manufacturers which enables it to provide rapid delivery of hard-to-find parts. All iAutoparts.com orders have been fulfilled from the Company's full service distribution center in Rochester, New York. To date, iAutoparts has had a nominal financial impact on the Company.
iAutoparts, Inc., has joined in the formation of Internet Autoparts, Inc., ("IAP") a new internet company that will provide the automotive aftermarket's first industry- sponsored, web-based parts ordering and communications platform linking automotive service providers and the wholesale distributors who supply them with automotive aftermarket products. IAP intends to focus on three major initiatives in the automotive aftermarket parts industry: business-to-business ("B2B") from the professional service dealer to local auto parts stores and warehouses, business-to-consumer ("B2C") from the "do-it-yourselfer" to local auto parts stores and other suppliers; and B2C from the "do-itfor-me" consumer to service dealers. IAP's primary objective is the creation and launch of a quality B2B service. No specific date has been announced for the launch of IAP's internet parts ordering and communications site.
H.F.V. Inc.
A subsidiary of the Company, H.F.V. Inc. owns a 37.5% interest in Autoworks, Ltd., a corporate joint venture, which distributes automotive aftermarket products in Tel-Aviv, Israel. (See Note 4, in Part III of the Financial Statements and comments in Item 7 of Results of Operations in Fiscal 2000.)
Purchasing
All product selection and purchasing functions for the distribution centers and the jobbing stores are centralized at the Company's headquarters in Rochester, New York, except for accessory products which are purchased by management of the specialty distribution center. The Company purchases its products from approximately 240 suppliers which ship directly to the Company's direct and full-service distribution centers. In most areas, the Company sources each of its product lines from one supplier, although most automotive parts categories have more than one competitive supplier. Inventory purchases are based upon quality, price, service, market conditions and, where appropriate, brand recognition. Suppliers' programs are reviewed periodically to evaluate product mix, quality, pricing and service.
The manufacturers of automotive aftermarket products typically provide replacement warranties, which the Company extends to its customers. In general, the Company has certain privileges with most of its suppliers that enable it to return slower moving or overstocked items for full credit, which minimizes inventory obsolescence. The Company extends a return policy to its stocking customers. Periodically, the Company's suppliers permit it to defer payments for certain product lines.
In Fiscal 2000, the Company's 15 largest suppliers accounted for approximately 76.2% of its total distribution center purchases, and its largest supplier accounted for approximately 16.4% of its distribution center purchases. The Company considers its relationships with its suppliers to be good and believes that alternate sources of supply exist at substantially similar costs for substantially all products which it stocks. The Company's suppliers are generally able to meet its demand for products.
Inventory Control and Management Information System
The Company's management information system is an important element in its strategy of maintaining margins while offering its customers competitive prices and rapid delivery of a wide variety of products. The fully integrated, real-time system, which was designed for general use by distributors in the automotive parts aftermarket, operates on mainframe computers located at the Company's Rochester, New York, headquarters and links all of the Company's distribution centers. The system enables the Company's Advantage Auto Stores and independent jobbing customers to telecommunicate directly with the Company. A majority of the Company's independent jobber customers have the capability to access pricing and product availability information from the Company's computer system. This automated electronic link streamlines and hastens the order process by enabling the Advantage Auto Stores, as well as the independent jobbing customers to determine product availability and electronically order products, eliminating the need to telephone or visit a distribution center directly to place an order.
Advertising
The Company's Advantage Auto Stores promote broad product availability, competitive prices and customer service through direct mail and local media, including newspapers, yellow pages and radio. Direct distribution centers are promoted through yellow-page advertising and direct mail. Full-service distribution centers provide the AAPA's Auto Value Marketing Program to affiliated jobbers and their installer customers.
Trademarks
The Company owns and has registered its Advantage Auto Stores trademark in the United States Patent and Trademark Office. In addition, the Company is a licensee of the Auto Value and Parts Master trademarks pursuant to a trademark license agreement which provides for termination upon the occurrence of certain events. Under the trademark license agreement, the Company has the right to use and permit its jobber customers to use the Auto Value and Parts Master trademarks. The Company believes that these trademarks are material to the Company's business. In addition, the Company owns and has registered the iAutoparts.com name and design with the United States Patent and Trademark Office, in connection with the sale of automotive parts via the internet.
Competition
The automotive replacement parts market is highly fragmented and extremely competitive. The Company competes most directly with national, regional and local warehouse distributors. The Company believes that two of the largest warehouse distribution networks are National Automotive Parts Association, headquartered in Atlanta, Georgia, the largest member of which is Genuine Parts Company (which is not affiliated with the Company's Dayton, Ohio, area jobbing stores of the same name), which distributes under the NAPA trademark, and General Parts, Inc. headquartered in Raleigh, North Carolina, trading under the Carquest name. The wholesale distribution market contains numerous other participants, including programmed buyer groups. The Company competes with these groups on the basis of product availability, service and price.
Through its chain of Advantage Auto Stores and its iAutoparts.com website, the Company also competes directly with other independent jobbing stores, automotive specialty retail chains and discount and general merchandise stores. The Company also competes indirectly with various original equipment manufacturers and other manufacturers, distributors and retailers who sell aftermarket products in alternative distribution channels. Some of the Company's current and potential competitors are larger and have far greater financial resources.
Employees
As of October 31, 2000, the Company had 1,142 employees (of which 856 were full-time and 286 were part-time), in full- service, direct-distribution centers and jobbing operations, of whom 60 were distribution center and jobbing store account executives, 59 were headquarters personnel, 160 were distribution center and jobbing store management personnel and the remaining 863 were distribution center workers, jobbing store employees, drivers, counter persons, data entry and other personnel. As of October 31, 2000, a total of 14 employees at two distribution centers were represented under collective bargaining agreements. The Company has never experienced any material labor disruption and is unaware of any efforts or plans to organize additional employees. Management believes that its labor relations with its employees are good.
Item 2.
Item 2. PROPERTIES
Distribution Center and Jobbing Facilities The Company's principal executive office is located in Rochester, New York, and presently occupies approximately 22,000 square feet.
As of October 31, 2000, the Company operated the following distribution center locations:
Approximate Gross Ground Level Location Square Feet TYPE
New York Rochester 40,000 Full-Service Rochester-North 37,000 Direct Rochester-South 11,400 Direct Rochester-Greece 5,000 Distribution Rochester-Gates 4,500 Direct Farmington 5,000 Distribution Bronx 35,000 Direct Syracuse 34,500 Distribution Buffalo 27,800 Direct Buffalo 8,000 Distribution Newburgh 22,000 Full-Service Batavia 5,700 Full-Service Albany 12,900 Full-Service
Ohio Dayton 59,800 Full-Service Independence 33,500 Full-Service
North Carolina Goldsboro 39,000 Full-Service
Virginia Richmond 37,300 Full-Service Norfolk 6,500 Pick-Up
Maryland Bladensburg 18,100 Full-Service Baltimore 10,700 Pick-Up
Indiana Indianapolis 13,000 Pick-Up
The Company owns the Independence, Ohio site; leases its Albany, New York and Norfolk, Virginia sites from unaffiliated parties under leases which expire on December 31, 2002 and March 31, 2005, respectively; leases its Rochester-Greece direct distribution site from an unaffiliated party which expires in December 2002; and leases its Rochester-North, Rochester-South and the Buffalo direct distribution locations from unaffiliated parties under leases which expire in September 2004. The Company leases its direct distribution center in Gates, New York and Farmington, New York from FCA Associates, a partnership comprised of Daniel J. Chessin, (Executive Vice President and Secretary of the Company) and an unaffiliated party, under leases which expire on October 31, 2001. The Company leases the remaining distribution facilities from members of the Futerman and Chessin families or their affiliates under leases which expire between 2001 and 2008. Except for the Independence, Ohio, site (which is subject to a first mortgage), none of the Company's facilities are subject to any encumbrance.
As of October 31, 2000, there were 77 Advantage Auto Stores served by the Company's distribution centers located in or near the following cities:
Distribution Advantage Distribution Advantage Center Auto Store Center Auto Store Location Serviced Location Serviced
Rochester, New York 13 Dayton, Ohio 22
Syracuse, New York 10 Goldsboro, North Carolina 7
Buffalo, New York 6 Richmond, Virginia 12
Newburgh, New York 3 Bladensburg, Maryland 2
Cleveland, Ohio 2
As of October 31, 2000, the Company leased 73 and owned four Advantage Auto Stores sites. The leases on 13 store sites were month-to-month, leases on 40 store sites had remaining terms of three years or less, and leases on 20 store sites had remaining terms of more than three years, excluding renewal options. The Company leases 33 of these sites from members of the Futerman and Chessin families or their affiliates under leases which expire between October 31, 2001 and October 31, 2004.
Item 3.
Item 3. LEGAL PROCEEDINGS
On October 31, 1995 a complaint was filed against the Company by 27 former employees of Autoworks, Inc. seeking class action status in the United States District Court, Southern District of Ohio, Western Division (Case Number C-3-95-904). The complaint requests compensatory damages, liquidated damages and attorney's fees available under the Fair Labor Standards Act based on an alleged failure to pay overtime wages to certain individuals classified as exempt employees. The Company is vigorously defending this action and maintains that the plaintiffs were employees of its wholly-owned subsidiary Autoworks, Inc. (which previously filed for reorganization under Chapter 11 of the Bankruptcy Code), and that Autoworks' conduct was appropriate and not wrongful. The Company's motion for summary judgment was denied and the trial court has found the Company liable on the plaintiffs' claim. Following the commencement of the hearing on damages, and before the hearing was completed, the parties entered into a stipulation on damages so that the Company could appeal the finding of liability. On November 23, 1999, the Company filed its Notice of Appeal and on December 1, 1999, the Company filed its Designation of Record for Appeal and Certification Regarding the Transcript with the United States Court of Appeals for the Sixth Circuit. Principal briefs and reply briefs have been filed by the parties. No date has been set for oral argument on the appeal. In the event that the Company is successful in obtaining a reversal of the trial court's determination of liability, then there will be no damages payable by the Company. In the event that the Company's appeal is unsuccessful, then the parties will resume and continue with the hearing on damages until completed. While the outcome of this appeal, and any subsequent determination of damages is inherently uncertain, the Company believes that it is unlikely that any adverse verdict would have a material adverse effect on its financial condition; however it could materially adversely affect net income or cash flow depending upon the fiscal year in which a final judgment is entered against the Company.
The Company is involved in various other claims and disputes arising in the normal course of business. The Company's management believes that it has meritorious defenses and/or insurance coverage against such matters and that the outcome of all pending proceedings, individually and in the aggregate, will not have a material adverse effect upon the Company's business, results of operations, cash flows or financial position except as stated in the above paragraph of this Item 3 - Legal Proceedings.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of Fiscal 2000 to a vote of the Company's shareholders, through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ SmallCap Market. Its trading symbol is HAHN. The table below shows the range of the high and low actual closing prices for the Company's common stock during each quarterly period of Fiscal Years 2000 and 1999:
Fiscal Year Ended Fiscal Year Ended September 30, 2000 September 30, 1999
High Low High Low
1st Quarter $2.47 $1.00 1st Quarter $5.44 $2.00
2nd Quarter $2.22 $1.06 2nd Quarter $2.81 $2.00
3rd Quarter $1.34 $0.81 3rd Quarter $1.88 $0.50
4th Quarter $1.38 $0.75 4th Quarter $6.25 $1.00
The Company did not pay any cash dividends during the last two fiscal years. The Company does not intend to pay any cash dividends for the foreseeable future and intends to retain earnings, if any, for the future operation and expansion of the Company's business. Any determination to pay dividends in the future will be at the discretion of the Company's Board of Directors and will be dependent upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors. The Company's revolving credit facility agreement prohibits the Company from paying cash dividends on its common stock, provided, however, for each fiscal year ending after September 30, 1997, the Company may distribute dividends if it is not in default and would not be put in default by virtue of such dividends and the dividend does not exceed the Company's adjusted net earnings, as defined in such agreement, for the fiscal year.
Beginning in the quarter ended September 30, 2000, the bid price for the Company's shares declined to less than the $1.00 per share minimum bid price required for continued listing on the NASDAQ SmallCap Market. The Company was notified by NASDAQ, in a letter dated November 7, 2000, that it is subject to possible delisting as a result of its common stock trading below the minimum bid price for 30 consecutive trading days. The Company has until February 5, 2001, to regain compliance with this rule by having its common stock trade over the minimum bid price for a least 10 consecutive trading days.
On December 14, 2000, the Company's Board of Directors approved, subject to shareholder approval, a one-for-two reverse stock split. The Company plans to seek shareholder approval for the reverse stock split at its annual meeting, which is scheduled to be held on March 15, 2001. If approved by shareholders, shareholders will receive one new share for every two that they own. Following the reverse split, the Company will have 2,372,507 shares of common stock issued and outstanding.
If the Company is unable to regain compliance with the NASDAQ's minimum bid requirement by February 5, 2001, its common stock will be delisted from the NASDAQ SmallCap Market unless the Company is able to demonstrate to a NASDAQ hearing panel that the Company's future plans and actions, including the reverse stock split, will likely result in an increase in the Company's stock price. If a hearing is required, there can be no assurances that the NASDAQ hearing panel will agree that the Company's plans will likely achieve the required trading price increase and allow the Company's listing to continue or that the Company will be able to satisfy all NASDAQ listing requirements on a continuing basis. If NASDAQ does delist the Company's shares, the marketability of the shares will decline, making it more difficult to achieve improvements in the price performance of the shares and for the shareholders to purchase and sell shares when they want or need to do so.
On December 1, 2000, the Company had 70 registered holders of record of its common stock.
Item 6.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial information of the Company for each of the five Fiscal Years for the period ended September 30th. This table should be read in conjunction with the audited consolidated financial statements of the Company and the related notes thereto included elsewhere herein and Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this Item 7 contains forward-looking statements. The Company desires to take advantage of the "safe harbor" which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause results to differ materially from those in the forward-looking statements. Such cautionary statements are set forth under the heading "Important Information Regarding Forward-Looking Statements" below in this Item 7.
The discussion contained in this Item 7 should be read in conjunction with the Selected Financial Data, the Consolidated Financial Statements and accompanying notes elsewhere in this Form 10-K. In all periods discussed herein, the Company's Fiscal Years ended on September 30.
Results of Operations
Fiscal Year 2000 Compared to Fiscal Year 1999
Net sales for Fiscal 2000 decreased $5.4 million, or 4.1% from the prior fiscal year, to $125.6 million. This decrease is attributable to net sales decreases of 6.9% at the direct distribution centers and 6.8% at the full-service distribution centers, partially offset by a net sales increase of .2% at the Advantage Auto Stores.
The Advantage Auto Stores net sales increase was the result of the acquisition of two former jobbing store customers and a 1.7% increase in comparable store sales which were partially offset by the closing of three Advantage Auto Stores. The net sales decreases in the direct distribution and full service distribution centers are attributable to the softness in the automotive aftermarket parts industry. This softness is the result of factors such as leasing, improved vehicle performance, warranties and increased competition in the industry. Additionally, direct distribution sales were affected by the closing of one direct distribution center while the full service distribution decrease was compounded by the purchase of two jobbing customers that are now operated as Advantage Auto Stores. Sales on a comparable location basis improved by 1.7% in the Advantage Auto Stores, 3.0% in the direct distribution division and declined by 6.8% in the full service distribution.
Gross profit declined $492,000 or 1.0% to $48.5 million in Fiscal 2000 from $49.0 million in the previous fiscal year. The gross profit decrease was due to the decline in net sales and partially offset by an increase in the gross profit margin. Gross profit margin increased to 38.6% in Fiscal 2000 from 37.4% in Fiscal 1999.
Selling, general and administrative expenses decreased $925,000 from $43.5 million in Fiscal 1999 to $42.6 million, in the current fiscal year. The expense reduction is net of an increase in fuel costs of approximately $349,000 in Fiscal 2000 when compared to Fiscal 1999. This dollar decrease is generally due to the Company's expense control programs, the closing of one direct distribution center and the closing of one Advantage Auto Store, net of openings. Due to the decrease in net sales, the selling, general and administrative expense, as a percentage of net sales, increased to 33.9% in Fiscal 2000, from 33.2% in Fiscal 1999.
Depreciation and amortization expense increased $14,000 and remained at $1.8 million for both Fiscal Years ending September 30, 2000 and 1999. As a percentage of net sales, depreciation and amortization increased to 1.42% in Fiscal 2000, compared to 1.35% for the previous fiscal year.
As a result of the factors discussed above, income from operations for Fiscal 2000, increased $419,000 from $3.7 million or 2.8% of net sales in the prior fiscal year to $4.1 million or 3.3% of net sales in the current fiscal year.
Interest expense increased $146,000 in Fiscal 2000 to $3.8 million from $3.7 million for Fiscal 1999. This increase is attributable to the increase in interest rates during the Fiscal 2000, as compared to Fiscal 1999.
In Fiscal 2000 the Company realized a one-time gain resulting from the sale of its only marketable security. It also recorded, under the equity method of accounting, income of $189,000 from the debt and equity investments of H.F.V. Inc., a wholly owned subsidiary of the Company, in Autoworks, Ltd. There are no assurances that Autoworks, Ltd. will achieve similar results in the future due to the political instabilities in Israel.
In Fiscal 2000 the provision for income taxes on income was $450,000, an effective rate of 36.7%, as compared to $151,000, an effective rate of 35.0%, in Fiscal 1999.
As a result of the factors discussed above, the Company had net income for Fiscal 2000 of $776,000, or $.16 per share, as compared to $280,000, or $.06 per share, of net income for Fiscal 1999.
Fiscal Year 1999 Compared to Fiscal Year 1998
Net Sales for Fiscal 1999 decreased $2.5 million, or 1.9% from the prior fiscal year, to $131.0 million. This decrease is attributable to net sales decreases of 3.3% at the direct distribution centers and 3.7% at the full-service distribution centers, partially offset by a net sales increase of 1.1% at the Advantage Auto Stores.
The Advantage Auto Stores net sales increase was the result of the acquisition of two former jobbing store customers and partially offset by the closing of five Advantage Auto Stores and a 1.8% decrease in comparable store sales. The Net Sales decreases in the direct distribution and full -service distribution centers are attributable to the softness in the automotive aftermarket parts industry. This softness is the result of factors such as leasing, improved vehicle performance, warranties and increased competition in the industry. Sales on a comparable location basis declined by 1.8% in the Advantage Auto Stores, 3.3% in the direct distribution division and 3.7% in the full service distribution. Full service distribution decrease was compounded by the purchase of two jobbing customers that are now operated as Advantage Auto Stores.
Gross profit declined $1.7 million or 3.4% to $49.0 million in Fiscal 1999 from $50.7 million in the previous fiscal year. Gross profit decrease was due to the decline in net sales and the gross profit margin. Gross profit margin declined to 37.4% in Fiscal 1999 from 38.0% in Fiscal 1998.
Selling, general and administrative expenses decreased $547,000 from $44.1 million in Fiscal 1998 to $43.5 million, in the current fiscal year. This dollar decrease is generally due to a net reduction of three Advantage Auto Store locations. Due to the decrease in net sales the selling, general and administrative expense as a percentage of net sales increased to 33.2% in Fiscal 1999 from 33.0% in Fiscal 1998.
Depreciation and amortization expense increased $173,000 from $1.6 million in Fiscal 1998 to $1.8 million in the Fiscal Year ending September 30, 1999. This increase is primarily attributable to negative goodwill being fully amortized in January of Fiscal 1999.
As a result of the factors discussed above, income from operations before interest and taxes for Fiscal 1999, decreased $1.4 million from $5.1 million or 3.8% of net sales in the prior fiscal year to $3.7 million or 2.8% of net sales in the current fiscal year.
Interest expense decreased $121,000 in Fiscal 1999 to $3.7 million from $3.8 million for Fiscal 1998. This decrease is attributable to slightly lower outstanding debt balances during Fiscal 1999 as compared to Fiscal 1998.
In Fiscal 1999, the provision for income taxes on income was $151,000, an effective rate of 35.0%, as compared to $665,000, an effective rate of 39.0%, in 1998.
As a result of the factors discussed above, the Company had net income for Fiscal 1999 of $280,000 or $.06 per share as compared to $1.0 million or $.22 per share of net income for Fiscal 1998.
Liquidity and Capital Resources
The Company's principal sources of liquidity for its operational and capital requirements are internally generated funds, borrowings under its revolving credit facility, leasing arrangements and extended terms from vendors.
During Fiscal 2000, 1999 and 1998, operating activities provided net cash of $1.6 million, $300,000 and $2.4 million, respectively, including non-cash items for depreciation and bad debt of $2.2 million, $1.9 million and $2.1 million, respectively. These were partially offset by increases in inventory of $1.7 million, $500,000 and $1.5 million for Fiscal Years 2000, 1999 and 1998, respectively.
During Fiscal 2000, 1999 and 1998, investing activities consisted mainly of routine capital expenditures for delivery vehicles, computer equipment, and store and warehouse fixtures. Net capital expenditures were $600,000, $800,000, and $300,000, respectively. Excluding minor strategic acquisitions, the Company expects to make capital expenditures of approximately $900,000 in Fiscal 2001.
Financing activities during Fiscal 2000 consumed cash of approximately $1.7 million, during Fiscal 1999 financing activities generated approximately $300,000, and in Fiscal 1998 financing activities consumed approximately $2.5 million. The cash used in financing activities during both Fiscal 2000 and Fiscal 1998 reflect the payment of long term debt. The funds generated by financing activities during Fiscal 1999 resulted from the increased use of the Company's line of credit, partially offset by paydowns on other long term notes payable. During Fiscal 2000, the Estate of Michael Futerman, (the former Chairman of the Board and majority shareholder of the Company), and Eli Futerman, (the President and Chief Executive Officer of the Company), deferred principal payments due them from the Company under the subordinated notes until 2003. As a result, in Fiscal 2000, the Company made interest payments only on the subordinated notes.
The Company has a Loan and Security Agreement (the "Credit Facility") with Fleet Capital Corporation ("Fleet"), which matures on October 22, 2002. The facility provides for, among other things, a revolving credit facility with $50 million in maximum availability subject, however, to borrowing base restrictions, and a $2.5 million term loan, a $3.5 million supplemental availability line and a $2.0 million letter of credit sub-facility. The obligations of the Company under the credit facility are collateralized by a first priority security interest on substantially all present and future assets of the Company and is guaranteed up to a maximum amount of $2.5 million by the Estate of Michael Futerman. Mortgages on certain real estate were pledged as collateral for the estate's guarantee. These obligations are now guaranteed by the Estate of Michael Futerman. The credit facility contains restrictive covenants, including, without limitation, restrictions on changes in thecharacter of the business, mergers, sales or transfers of assets, acquisitions, capital expenditures, liens, indebtedness, restricted payments or repurchases of other indebtedness, dividends and transactions with affiliates. (See Note 5 to Company's Consolidated Financial Statements.) The Company is required to meet a fixed charge coverage ratio of .50 for the first three quarters and .7 for the fourth quarter of Fiscal 2000, which will be measured on a rolling twelve month basis. As of December 15, 2000, the Company had an outstanding balance of $35.1 million under the credit facility, with availability of an additional $2.5 million due to borrowing base restrictions.
On July 24, 1997, the Company's wholly owned subsidiary, Autoworks, Inc., filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. On April 22, 1998, a Settlement Agreement and Release ("Settlement Agreement") was negotiated between the Company and the Official Unsecured Creditors' Committee ("Committee"). The Settlement Agreement was approved by the bankruptcy court on June 18, 1998. Under the Settlement Agreement, as amended on November 18, 1999, the Company agreed to make certain payments in exchange for the Committee's release of the Company from all claims. In Fiscal 2000, the Company paid $353,333 to the Creditor Trust and is due to make payments of the same amount in both Fiscal 2001 and 2002. Such payments are appropriately reserved for by the Company. The Company has also reserved for the present value of future minimum rental payments of Autoworks, Inc. that were guaranteed by the Company. During Fiscal 2000 the bankruptcy court approved the Autoworks, Inc. Plan of Reorganization which included establishing a Creditor Trust to make distributions to creditors under the plan.
In the future the Company may make minor strategic acquisitions and open new direct distribution centers and Advantage Auto Stores to the extent that its debt service and other funding requirements permit. The Company's ability to open new direct distribution centers depends on the Company's ability to negotiate extended payment terms with vendors, (which initially minimizes additional working capital requirements) and on consents from the Company's lender.
The Company anticipates that its sources of cash flow will provide sufficient working capital to operate its business, make expected capital expenditures and meet its other short-term and longer-term liquidity needs at least through the end of Fiscal 2001.
Inflation
The Company does not believe that its operations have been materially affected by inflation. In general, the Company has been able to pass on to its customers any increases in the cost of its inventory.
Seasonality
The Company's business is somewhat seasonal in nature, primarily as a result of the impact of weather conditions on the demand for automotive aftermarket products. Historically, the Company's net sales and gross profits have been higher in the second half of each fiscal year than in the first half.
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K which are not historical facts, including but not limited to (i) anticipated trends in the Company's business and the automotive replacement parts industry, (ii) the sufficiency of cash to fund the Company's debt service requirements and working capital needs (iii) certain statements found under the captions "Results of Operations" and "Liquidity and Capital Resources", are forwardlooking statements within the meanings of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934, as amended; such statements are typically identified by the words "believe," "expect," "anticipate," "intend," "estimate," "plan" and similar expressions. These statements involve a number of risks and uncertainties, certain of which are beyond the Company's control. The actual results of the future events described in the forward- looking statements in this Form 10-K could materially differ from those contemplated in the forwardlooking statements in this Form 10-K. In addition to the risks and uncertainties of ordinary business operations, some of the factors that could cause actual results to differ materially are the risks and uncertainties (i) discussed herein, (ii) contained in the Company's other public reports and filings and public statements from time to time and (iii) set forth below:
1. The Company is highly leveraged, with substantial existing indebtedness. The Company's ability to make scheduled payments of principal or interest on, or to refinance, its indebtedness will depend on its future operating performance and cash flow, which are subject to prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors beyond its control. The degree to which the Company is leveraged could have important consequences, including (i) the Company's future ability to obtain additional financing for working capital or other purposes may be limited because of the existence of this indebtedness and the borrowing advance terms thereof; (ii) a substantial portion of the Company's cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness until its term loan and supplemental line of credit have been paid in full, thereby reducing funds available for operation; (iii) certain of the Company's borrowings are at variable rates of interest, which could cause the Company to be vulnerable to increases in interest rates; and (iv) the Company may be more vulnerable to economic downturns and may be limited in its ability to respond to changes in the automotive parts industry and competitive pressures. Failure to comply with the Company's payment, covenant or other obligations under its credit facilities could result in a default thereunder that, if not cured or waived, could result in acceleration of the relevant indebtedness or of other indebtedness governed by agreements or instruments containing cross default provisions.
2. The Company operates in a highly competitive environment and its dollar sales and unit volume could be negatively affected by its ability to maintain or increase prices, changes in sales mix and changes in the demand for automotive products and changes in the automotive replacement parts industry generally, including pricing and other changes by the Company's competitors. The Company competes directly and indirectly with numerous distributors, retailers and manufacturers of automotive aftermarket products, some of which distribute in channels that may be expanding in terms of market share relative to the channels in which the Company distributes its products. In addition, some of the Company's current and potential competitors are larger, have greater financial resources, and are less leveraged than the Company. Furthermore, particularly in light of the trend in the automotive parts industry toward increasing consolidation at the warehouse and jobber levels, the Company's financial performance may be significantly affected by the Company's ability to compete successfully for associated jobber customers and otherwise take advantage of consolidation opportunities and other trends.
3. The Company's financial performance is subject to and could be negatively impacted by changes in economic conditions, vehicle quality, extension of new parts warranties and maintenance, vehicle scrappage rates and weather conditions, which can cause seasonal variations in the Company's results of operations. The occurrence of violent weather or mild weather may result in significant fluctuations in operating results. Temperature extremes tend to enhance sales by causing a higher incidence of parts failure and increasing sales of seasonal products, while milder weather tends to depress sales.
4. In light of the trend in the automotive parts industry toward increasing consolidation at the warehouse and jobber levels, the Company's financial performance may be significantly affected by the Company's ability to compete successfully for associated jobber customers and otherwise take advantage of consolidation opportunities and other industry trends.The Company's ability to do so depends on its ability to secure the consent of its lender to future acquisitions and its ability to finalize such transactions. If such a transaction is effected, the Company's financial performance will depend on its ability to conclude the acquisitions on favorable terms and to enhance those acquisitions and integrate them into its operations. Full realization of the potential benefits of any significant acquisition will be dependent upon a variety of factors, including (i) retention of a substantial portion of sales, (ii) achieving sales volumes sufficient to utilize reductions in cost of goods sold (as a percentage of net sales), (iii) achieving significant reduction in selling, general and administrative expenses by, among other things, consolidating redundant operating and administrative facilities and closure of non performing facilities and (iv) obtaining deferred payment terms and other changeover incentives from suppliers. There can be no assurance as to the extent to which any such benefits may be realized from any acquisitions or the timing of any such realization. Failure to achieve a substantial portion of such potential benefits within time frames anticipated by the Company could materially and adversely affect the Company's future results of operations and financial position.
5. The Company's past success has been largely dependent on certain key personnel of the Company, including Eli N. Futerman and Daniel J. Chessin. The loss of the services of these individuals could have a material adverse impact on the Company's business and results of operations. Additionally, in order to implement and manage its growth strategy, the Company will be dependent upon its ability to continue to attract and retain qualified personnel. There can be no assurance that the Company will be able to continue to secure or retain such personnel.
6. The Company is a defendant in various lawsuits. There can be no assurance that the Company will prevail in any of these lawsuits. To the extent that the Company sustains losses growing out of any pending litigation which are presently not reserved or otherwise provided for, its earnings and liquidity could be materially adversely affected.
7. Other risks and uncertainties which may affect actual results include, but are not limited to, failure of the auto parts e-commerce industry to develop at anticipated rates, failure of the Company's e-commerce products and services to gain significant market acceptance, competition, the ability of the Company to protect its proprietary rights, the continued development and viability of the Internet and e-commerce and the volatility of stock prices of Internet-focused companies, and the Company, in particular, and the traffic and usage levels of the iAutoparts.com web site.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Credit Facility and other financial obligations of the Company at September 30, 2000 are sensitive to changes in interest rates. At September 30, 2000, approximately 84.0% of the Company's debt and capital lease obligations are subject to changes in market interest rates and are sensitive to those changes. The Company currently has no derivative instruments to offset the risk of interest rate changes. The Company's weighted average of interest rates on the total debt outstanding as of September 30, 2000 was 9.3%.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial data required by this Item 8 are listed at Part IV, Item 14 and are filed herewith immediately following the signature page hereto.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in accountants or reported disagreements on accounting principles or practices or financial statement disclosures.
PART III Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item 10 shall be included in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A on or before January 29, 2001, and the appropriate information therefrom is incorporated herein by reference.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The information required under this Item 11 shall be included in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A on or before January 29, 2001, and the appropriate information therefrom is incorporated herein by reference.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item 12 shall be included in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A on or before January 29, 2001, and the appropriate information therefrom is incorporated herein by reference.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item 13 shall be included in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A on or before January 29, 2001, and the appropriate information therefrom is incorporated herein by reference.
PART IV Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed.
(1) Financial Statements:
Report of Independent Accountants
Balance Sheets at September 30, 2000, and
Statements of Operations for the Years Ended September 30, 2000, 1999 and 1998
Statements of Changes in Stockholders' Equity for the Years Ended September 30, 2000, 1999 and 1998
Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998
Notes to Financial Statements
(2) Financial Statement Schedule
Report of Independent Accountants on Financial Statement Schedule
Schedule II Valuation and Qualifying Account Reserves for the Years Ended September 30, 2000, 1999 and 1998
(3) Exhibits
None
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HAHN AUTOMOTIVE WAREHOUSE, INC.
Date: December 19, 2000 By: *S// Eli N. Futerman Eli N. Futerman, President and Chief Excutive Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Date: December 19, 2000 *S// Eli N. Futerman Eli N. Futerman, Director
Date: December 19, 2000 *S// Albert J. Van Erp Albert J. Van Erp Vice President - Controller (Principal Financial Officer)
Date: December 19, 2000 *S// Daniel J. Chessin Daniel J. Chessin, Director
Date: December 19, 2000 *S// Stephen B. Ashley Stephen B. Ashley, Director
Date: December 19, 2000 *S// William A. Buckingham William A. Buckingham,Director
Date: December 19, 2000 *S// Gordon E. Forth Gordon E. Forth, Director
Date: December 19, 2000 *S// Nathan Lewinger Nathan Lewinger, Director
Date: December 19, 2000 *S// E. Philip Saunders E. Philip Saunders, Director
* By: S// Eli N. Futerman Eli N. Futerman, Attorney-in-Fact
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FINANCIAL STATEMENTS AND SCHEDULES
September 30, 2000
FORMING A PART OF ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K OF HAHN AUTOMOTIVE WAREHOUSE, INC.
Hahn Automotive Warehouse, Inc. and Subsidiaries Index To Consolidated Financial Statements September 30, 2000
Page Report of Independent Accountants
Consolidated Balance Sheets at September 30, 2000 and 1999
Consolidated Statements of Operations for the Years Ended September 30, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended September 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Independent Accountants on Financial Statement Schedules
Schedule II - Valuation and Qualifying Account Reserves
Report of Independent Accountants
To the Board of Directors and Stockholders of Hahn Automotive Warehouse, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Hahn Automotive Warehouse, Inc. and Subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for the three fiscal years ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP Rochester, New York November 21, 2000
Hahn Automotive Warehouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in Thousands, Except Share and Per Share Data) September 30, 2000
1. Summary of Accounting Policies
The Company
The Company sells and distributes automotive aftermarket parts in the wholesale market through its network of warehouses and jobber facilities along the Eastern Seaboard and in the Midwest.
Principles of Consolidation
The consolidated financial statements include the accounts of Hahn Automotive Warehouse, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany transactions have been eliminated.
Marketable Security
In Fiscal 1999, the Company classified its marketable security as available-for-sale, as defined by the Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Prior to the sale of this security, unrealized holding gains and losses, net of deferred income taxes, were reflected as a separate component of stockholders' equity accordingly.
Inventory
Inventory consists primarily of automotive replacement parts and accessories and is stated at the lower of cost, on a last-in, first-out ("LIFO") basis, or market. The replacement cost of the inventory exceeded the LIFO value by approximately $2,879 and $2,992 at September 30, 2000 and 1999, respectively.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost and are depreciated over their estimated useful lives using the straight-line method. Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts.
Assets Under Capital Leases
Leases which meet the capital lease criteria of SFAS No. 13, "Accounting for Leases", are recorded as assets and obligations at the lesser of the present value of future rental payments or the fair market value of the leased property at the inception of the lease. Amortization of capitalized leased property has been provided using the straight-line method over the estimated useful lives of the assets.
Intangible Assets
Goodwill is amortized using the straight-line method over lives ranging from 20 to 30 years. Deferred financing costs are being amortized using the straight-line method over the term of the Credit Facility Agreement (see Note 5). The Company expenses preopening costs at new stores as they are incurred. Included in Other assets at September 30, 2000 and 1999 was approximately $1,253 and $922, respectively, of accumulated amortization on goodwill and deferred financing costs.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Advertising
Advertising expenses are charged to operations during the year in which they are incurred and were approximately $548, $702 and $786 for the years ended September 30, 2000, 1999 and 1998, respectively.
Comprehensive Income
During Fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and unrealized gains (losses) on an investment held as available-for-sale and is presented in the Consolidated Statements of Changes in Stockholders' Equity.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes". This statement requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.
Net Income Per Share
The Company calculates net income per share in accordance with SFAS No. 128, "Earnings Per Share". Basic EPS is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation including stock options.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Company continually evaluates the existence of impairment of long-lived assets based upon projected, undiscounted net cash flows of the respective operation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements, in conformity with generally accepted accounting principles, requires 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.
Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Current Assets and Liabilities - The carrying amount of cash and equivalents, other assets and accrued liabilities approximate fair value because of the short maturity of those instruments.
Long-Term Debt - The carrying value of the Company's long-term debt approximates fair value at the balance sheet date.
Concentration of Credit Risk
The Company provides credit, in the normal course of business, to jobber customers in the automotive aftermarket. The Company's customers are not concentrated in any one geographic region nor does any single customer account for a significant amount of sales or accounts receivable. The Company performs credit evaluations of its customers and maintains allowances for potential credit losses which, when realized, have been within the range of management's expectations.
Reclassifications
The Fiscal 1999 and 1998 financial statements and related footnote amounts have been made to conform to the Fiscal 2000 presentation.
2. Marketable Security
During Fiscal 2000, the Company sold its only marketable security, a zero coupon bond purchased as collateral against liability claims for which the Company is self-insured. The marketable security held at September 30, 1999 was classified as available-for-sale and is summarized as follows: Market Unrealized Cost Value Gain
September 30, 1999
Debt Security:
Zero Coupon Bond $550 $685 $135
3. Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements consist of the following:
September 30, Useful Lives 2000 1999 (Years)
Land $25 $25 - Building 887 880 10 - 30 Building under capitalized leases 4,422 4,422 10 Leasehold improvements 2,175 2,251 10 Computer equipment 2,489 2,484 6 Furniture and fixtures 3,980 4,314 8 Vehicles 2,632 2,996 4 - 5
16,610 17,372
Less - Accumulated depreciation and amortization 10,594 10,480
6,016 6,892
Depreciation and amortization expense related to property, equipment and leasehold improvements for the years ended September 30, 2000, 1999 and 1998 was approximately $1,453, $1,554 and $1,440, respectively. Included in accumulated depreciation and amortization at September 30, 2000 and 1999 was approximately $1,557 and $1,115, respectively, of accumulated amortization on capital leases.
4. Investment in Equity Affiliate
The Company owns a 37.5 percent interest in Autoworks Ltd., a corporate joint venture, which is located in Tel Aviv, Israel. The Company accounts for its investment under the equity method of accounting because the Company is not able to exercise effective control over the operations. The Company's proportionate share of shareholder's equity as of September 30, 2000 and 1999 was $469 and $6, respectively, and is included in Other assets.
In addition, the Company has issued debt to Autoworks Ltd. in the form of a note receivable. The balance outstanding was $874 and $827, including accrued interest, and is classified in Other assets as of September 30, 2000 and 1999, respectively.
Summarized financial information for Autoworks Ltd. is as follows:
September 30, 2000 1999
Current assets $4,142 $2,729 Noncurrent assets 114 113 Total assets $4,256 $2,842
Current liabilities $1,253 $1,602 Noncurrent liabilities 265 871 Shareholders loans and equity 2,738 369 Total liabilities and equity $4,256 $2,842
Fiscal Years ended September 30, 2000 1999 1998
Revenues $5,422 $3,527 $2,643 Gross profit $1,608 $978 $624 Net income (loss) $378 ($72) ($587)
For the Fiscal Years ending September 30, 2000, 1999 and 1998, respectively, Income (loss) from Equity Investment includes the Company's proportionate share of Autoworks Ltd. net income (loss) of $142, ($27) and ($220), and interest income on the outstanding note receivable of $47 in Fiscal 2000.
5. Long-Term Debt
Long-term debt includes the following:
September 30, 2000 1999
Credit Facility Agreement $36,239 $37,113 Notes payable-officers and affiliates 1,445 1,522 Other long term debt 2,240 2,585 39,924 41,220
Less - Current portion 844 1,169
Long-term portion $39,080 $40,051
The Company is subject to a Credit Facility Agreement that expires on October 22, 2002 and provides a revolving credit note, subject to a borrowing base, up to a maximum of $50,000. Borrowings under the Credit Facility Agreement bear interest at an annual rate equal to, at the Company's option, either (a) LIBOR plus 1.75% to 2.5%, dependent upon the Company's financial performance, or (b) the bank prime rate plus 0% to .75%, dependent upon the Company's financial performance. LIBOR and prime were 6.62% and 9.5%, respectively, at September 30, 2000.
The Credit Facility Agreement is collateralized by a first priority security interest on substantially all present and future assets of the Company and is guaranteed up to a maximum amount of $2.5 million by the Estate of Michael Futerman. Mortgages on certain real estate were pledged as collateral for the estate's guarantee. These obligations are now guaranteed by the Estate of Michael Futerman. The Credit Facility Agreement contains covenants and restrictions, including limitations on indebtedness, liens, leases, mergers and sales of assets, investments, dividends, stock purchases and other payments in accordance with capital stock and cash flow coverage requirements. Restrictive covenants include maintenance of a minimum tangible net worth and a minimum fixed charge coverage ratio. The Company was in compliance with all covenants or appropriate waivers were obtained.
The Company has outstanding promissory notes ("Notes") with the former Chairman of the Board of Directors and with the President and Chief Executive Officer of the Company. The Notes which are due in October, 2003, bear interest which is payable monthly, at the annual rate of 12%. The Company is also subject to a number of other debt agreements, including mortgages, which comprise the balance of long-term debt.
Annual maturities of long-term debt for subsequent fiscal years are approximately: 2001 - $844; 2002 - $1,615; 2003 - $35,749; 2004 - $1,539; 2005 - $86; and thereafter - $91.
6. Commitments and Contingencies
Leases
The Company leases facilities from unrelated and related parties. Certain of the related party leases have been accounted for as capital leases under SFAS No. 13.
Payments made for capital leases amounted to $681, $683 and $540 for the Fiscal Years ended September 30, 2000, 1999, and 1998, respectively.
The Company also leases warehouse and jobber facilities under noncancellable operating lease agreements, which expire through 2008. Most of these operating leases include provisions for rent escalations and increases in operating expenses (real estate taxes, insurance and maintenance). Rent expense related to all facility operating leases totaled approximately $2,775, $2,850 and $2,911, which included approximately $1,835, $1,873, and $1,616 of payments to related parties for the years ended September 30, 2000, 1999 and 1998, respectively.
In addition, the Company leases various equipment under noncancellable operating lease agreements expiring through 2005. Rent expense related to all equipment operating leases totaled approximately $189, $293 and $460, for the years ended September 30, 2000, 1999 and 1998, respectively.
Future minimum rental payments under noncancellable leases for fiscal years subsequent to September 30, 2000 are as follows:
Capital Operating Leases Leases Related Related Parties Parties Other
2001 $681 $1,605 $1,296 2002 575 1,414 952 2003 575 1,236 743 2004 575 874 449 2005 575 598 47 Thereafter 1,383 1,365 4
4,364 $7,092 $3,491
Less- Interest portion 1,168
3,196
Less - Current portion 409
Long-term portion $2,787
Contingencies
The Company is a defendant in certain lawsuits which have arisen in the ordinary course of business. Management is of the opinion that such lawsuits will not result in any material liability to the Company. Accordingly, no provision for loss has been made in the financial statements related to these matters.
Uncertainties Related to the Bankruptcy of Autoworks, Inc.
On July 24, 1997, the Company's wholly owned subsidiary, Autoworks, Inc., filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. On April 22, 1998, a Settlement Agreement and Release ("Settlement Agreement") was negotiated between the Company and the Official Unsecured Creditors' Committee ("Committee"). The Settlement Agreement was approved by the bankruptcy court on June 18, 1998. Under the Settlement Agreement, as amended on November 18, 1999, the Company agreed to make certain payments in exchange for the Committee's release of the Company from all claims. In Fiscal 2000, the Company paid $353 to the Creditor Trust and is due to make payments of the same amount in both fiscal 2001 and 2002. Such payments are appropriately reserved for by the Company. The Company has also reserved for the present value of future minimum rental payments of Autoworks, Inc. that were guaranteed by the Company. The current portion of such reserves is presented on the Discontinued operations line of current liabilities and the long-term portion in Other liabilities. The combined reserve was $1,077 and $1,372 as of September 30, 2000 and 1999, respectively. During Fiscal 2000 the bankruptcy court approved the Autoworks, Inc. Plan of Reorganization which included establishing a Creditor Trust to make distributions to creditors under the plan.
7. Income Taxes
Income tax expense (benefit) is comprised of the following for the years ended September 30:
2000 1999 1998
Current: Federal $ - $ - $ - State 20 20 33
Deferred: 430 131 632 Total provision for income tax $450 $151 $665
Temporary differences which give rise to deferred tax assets and liabilities at September 30 are as follows:
2000 1999
Accounts receivable $522 $470 Inventory (1,034) (993) Accrued liabilities 1,293 1,490 Deferred compensation 163 174 Other 68 98 Net operating loss carry forwards 2,402 2,679
Net deferred tax assets $3,414 $3,918
The Company believes it will have adequate future income to offset all deferred tax assets. The net operating loss carryforwards are available to use through 2019.
Actual tax expense differs from the expected tax expense computed by applying the Federal statutory rate to income from continuing operations before income taxes due principally to state income taxes.
8. Employee Retirement Plan
The Company has a 401(k) profit sharing plan for all eligible employees. Under the plan, employees are entitled to contribute up to 15% of their base salary, and the Company will match up to 15% of the employee's contributions. The Company may also make a discretionary contribution at year end. The Company's matching contribution under the plan will be approximately $96 for the Fiscal Year ended September 30, 2000, and was $105 and $99 for the years ended September 30, 1999 and 1998, respectively.
9. Net Income Per Share
Net income per share was calculated as follows for the Fiscal Years ended September 30:
2000 1999 1998 Basic and Diluted Earnings Per Share
Basic and Diluted Shares Outstanding: Weighted average number of shares outstanding 4,745,014 4,745,014 4,745,014
Net income $776 $280 $1,039
Basic and Diluted EPS $0.16 $0.06 $0.22
The potential exercise of outstanding stock options of 354,207, 419,258, and 550,450 at September 30, 2000, 1999 and 1998, respectively, has not been included in the calculation of diluted EPS since the effect would be antidilutive.
10. Stockholders' Equity and Stock Options
The Company has two stock option plans which provide for the granting of options of up to 750,000 shares of stock to officers and key employees of the Company and an aggregate of 40,000 shares to non-employee directors at the fair value of the common stock at the date of grant. The options have a maximum duration of ten years and may be exercised in cumulative annual increments of 33 1/3% commencing one year after the date of grant. During Fiscal 1998, the stockholders of the Company approved a plan to reduce the exercise price of 202,780 outstanding options from the original exercise prices ranging from $8.00 to $12.50 to a range of $6.80 to $9.38. During Fiscal 1999 the plan related to nonemployee directors expired. Company management is in the process of evaluating an amendment to the pre-existing plan or the creation of a new plan.
The following table summarizes the Company's stock option transactions:
Option Price Range Shares Per Share
Options outstanding - October 1, 1997 560,329 $7.50 to $30.69
Exercised - -
Expired (65,649) $6.00 to $15.25
Granted 55,770 $6.00 to $ 6.25
Options outstanding - September 30, 1998 550,450 $6.00 to $30.69
Exercised - -
Expired (176,192) $6.00 to $30.69
Granted 45,000 $2.25 to $ 3.50
Options outstanding - September 30, 1999 419,258 $2.25 to $13.75
Exercised - -
Expired (65,051) $2.25 to $12.75
Granted - -
Options outstanding - September 30, 2000 354,207 $3.50 to $13.75
Options exercisable - September 30, 2000 337,040 $3.50 to $13.75
SFAS No. 123, "Accounting for Stock Based Compensation", requires companies to recognize compensation expense for grants of stock options, or provide pro forma disclosures relative to what the effect of such accounting recognition would have been. The Company has elected to continue using Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Therefore, in accordance with SFAS No. 123, no compensation expense has been recorded, however pro forma disclosures of net income and earnings per share have been provided below as if SFAS No. 123 had been adopted.
Pro forma income and income per share information has been determined as if the Company had accounted for employee stock options under SFAS No. 123's fair value method. The fair value of these options was estimated at grant date using a BlackScholes option pricing model with the following weighted-average assumptions for 2000 and 1999, respectively:
2000 1999
Dividend yields 0% 0% Volatility factors of the expected market price of the Company's common stock 75.34% 75.34% Expected option life 5 years 5 years Interest rates on the dates of the grant, with the maturity equal to the expected term 4.56%-4.60% 4.56%-4.60%
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period (3 years). The weighted average exercise price of options outstanding was $8.46 and $7.44 at September 30, 2000 and 1999, respectively. There were no options granted in Fiscal 2000. The weighted average fair value of options granted in Fiscal 1999 and Fiscal 1998 was $2.94 and $5.88, respectively, for options whose stock price on the date of grant equaled the exercise price. The pro forma compensation expense the Company would have recognized before applicable tax benefits was $64, $132 and $274 in 2000, 1999 and 1998, respectively. The Company's pro forma information is as follows:
2000 1999 1998
Pro forma net income $735 $194 $872 Pro forma basic and diluted net income per share $0.15 $0.04 $0.18
This disclosure is not likely to be representative of the effects on reported income for future years, since options fully vest over three years and additional options have historically been granted each year.
11.Business Segment Information
Effective September 30, 1999, the Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoption of this statement had no impact on the Company's consolidated financial position, results of operations or cash flows. Comparative information for earlier years has been restated. Restatement of comparative information for interim periods in the initial year of adoption is to be reported for interim periods in the second year of application. The Company reports its operating results in two segments: direct distribution and full service distribution. Segment selection was based on internal organizational structure, the way in which the operations are managed and their performance evaluated by management and the Company's Board of Directors, the availability of separate financial results, and materiality considerations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating profits of the respective business units.
Information concerning the Company's Business Segments for Fiscal 2000, 1999, and 1998 is as follows: 2000 1999 1998 Net Sales to Customers Full Service Distribution $107,653 $111,744 $113,584 Direct Distribution 17,922 19,254 19,919 Total Net Sales to Customers $125,575 $130,998 $133,503
Income from Operations Full Service Distribution $4,085 $3,243 $4,388 Direct Distribution 43 466 676 Total Income from Operations $4,128 $3,709 $5,064 Interest Expense (3,796) (3,650) (3,771) Other Income 894 372 411 Consolidated Pre Tax Income $1,226 $431 $1,704
Identifiable Assets Full Service Distribution $72,434 $73,152 $72,383 Direct Distribution 6,517 6,571 5,928 Total Identifiable Assets $78,951 $79,723 $78,311
Capital Expenditures Full Service Distribution $594 $846 $406 Direct Distribution 26 20 38 Total Capital Expenditures $620 $866 $444
Depreciation and Amortization Full Service Distribution $1,632 $1,584 $1,417 Direct Distribution 157 191 185 Total Depreciation and Amortization $1,789 $1,775 $1,602
12.Quarterly Financial Data
The following tables set forth the unaudited quarterly results of continuing operations for each of the fiscal quarters in the years ended September 30, 2000 and 1999:
Dec. 31 Mar. 31 June 30 Fiscal 2000
Net Sales $29,498 $30,927 $33,464
Gross profit $11,433 $11,862 $12,580
Net Income (loss) ($194) $59 $288
Net income (loss) per share ($0.04) $0.01 $0.06
Fiscal 1999
Net Sales $29,869 $32,347 $35,044
Gross profit $11,385 $11,914 $12,871
Net income (loss) ($268) ($67) $293
Net income (loss) per share ($0.06) ($0.01) $0.06
Sept. 30 Year
Fiscal 2000
Net sales $31,686 $125,575
Gross profit $12,629 $48,504
Net income (loss) $623 $776
Net income (loss) per share $0.13 $0.16
Fiscal 1999
Net sales $33,738 $130,998
Gross profit $12,826 $48,996
Net income (loss) $322 $280
Net income (loss) per share $0.07 $0.06
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and Shareholders of Hahn Automotive Warehouse, Inc. and Subsidiaries
Our audits of the consolidated financial statements referred to in our report dated November 21, 2000, appearing in this Annual Report on Form 10-K, also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP Rochester, New York November 21, 2000
Hahn Automotive Warehouse, Inc. Schedule II - Valuation and Qualifying Account Reserves For the Years Ended September 30, 2000, 1999 and 1998 (Amounts in thousands)
Additions Balance at Charged to Beginning Costs and of Period Expenses Description
2000 Allowance for doubtful accounts and notes receivable $2,015 $447
1999 Allowance for doubtful accounts and notes receivable $2,719 $142
1998 Allowance for doubtful accounts and notes receivable $3,230 $453
Hahn Automotive Warehouse, Inc. Schedule II - Valuation and Qualifying Account Reserves For the Years Ended September 30, 2000, 1999 and 1998 (Amounts in thousands)
Deductions Balance at Description End of Period
2000 Allowance for doubtful accounts and notes receivable ($265) $2,197
1999 Allowance for doubtful accounts and notes receivable ($846) $2,015
1998 Allowance for doubtful accounts and notes receivable ($964) $2,719
EXHIBITS FILED WITH FORM 10-K OF HAHN AUTOMOTIVE WAREHOUSE, INC. FOR FISCAL YEAR ENDED
September 30, 2000
FORMING A PART OF ANNUAL REPORT PURSUANT TO SECTION 13 OF OR 15(d) THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT INDEX
Exhibit 3.1 Restated Certificate of Incorporation of Hahn (Exhibit 3.1 to The Company's registration Statement on Form S-1 (No. 33- 48694) as filed with the SEC on January 19, 1993)*
Exhibit 3.2 Amended and Restated By- Laws of Hahn (Exhibit 3 to Hahn's Quarterly Report on Form 10-Q for quarterly period ended March 31, 1994)*
Exhibit 4.1 Shareholders' Agreement, dated September 30, 1994, between Hahn and David Appelbaum (Exhibit 4.1 to Hahn's Annual Report on Form 10K for the Fiscal Year ended September 30, 1994)*
Exhibit 10.1 1992 Stock Option Plan (Exhibit 10.1 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.2 Amendment No. 1 to 1992 Stock Option Plan (Exhibit A to Hahn's 1995 Proxy Statement)* Exhibit 10.3 Amendment No. 2 to 1992 Stock Option Plan (Exhibit A to Hahn's 1996 Proxy Statement)*
Exhibit 10.3 Amendment No. 2 to 1992 Stock Option Plan (Exhibit A to Hahn's 1996 Proxy)*
Exhibit 10.4 Stock Option Agreement, dated April 29, 1994, between Hahn and Eli N. Futerman (Exhibit 10.3 to Hahn's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1994)*
Exhibit 10.5 1993 Stock Option Plan for Non-Employee Directors (Exhibit 4 to Hahn's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1994)*
Exhibit 10.6 Amended and Restated Selective Incentive Plan Agreement, dated June 9, 1992, between Hahn and Eli N. Futerman (Exhibit 10.2 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.7 Amended and Restated Selective Incentive Plan Agreement, dated June 9, 1992, between Hahn and Timothy Vergo (Exhibit 10.3 to Hahn's Registration Statement on Form S-1 (No. 3348694) as filed with the SEC on January 19, 1993)*
Exhibit 10.8 Amended and Restated Selective Incentive Plan Agreement, dated June 9, 1992, between Hahn and Albert J. Van Erp (Exhibit 10.4 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.9 Amended and Restated Selective Incentive Plan Agreement, dated June 9, 1992, between Hahn and Daniel J. Chessin (Exhibit 10.5 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.10 Deferred Compensation Agreement, dated April 1, 1990, between Naftali Futerman and Hahn (Exhibit 10.7 to Hahn's Registration Statement on Form S-1 (No. 33- 48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.11 Lease Agreement, executed June 10, 1992, between Michael Futerman as landlord and Hahn as tenant, as amended (Exhibit 10.89 to Hahn's Registration Statement on Form S-1 (No. 3348694) as filed with the SEC on January 19, 1993)*
Exhibit 10.12 Letter Agreement Lease Amendment dated September 30, 1993 between Michael Futerman and Hahn Automotive Warehouse, Inc. (Exhibit 10.13 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.13 Second Amendment to Lease Agreement, dated May 1997, between Michael Futerman and Hahn Automotive Warehouse, Inc. (Exhibit 10.14 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.14 Second Amendment to Lease Agreement, dated May, 1997 between the Michael Futerman Irrevocable Trust and Hahn Automotive Warehouse, Inc. (Exhibit 10.15 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.15 Third Amendment to Lease Agreement between Michael Futerman and Hahn Automotive Warehouse, Inc. (Exhibit 10.16 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.16 Fourth Amendment to Lease Agreement between Michael Futerman and Hahn Automotive Warehouse, Inc. (Exhibit 10.17 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.17 Amendment to Lease Agreement between Michael Futerman and Sara Futerman as Landlord and Hahn Automotive Warehouse, Inc., as tenant. (Exhibit 10.18 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.18 Lease Agreement between the Michael Futerman Living Trust as Landlord, and Hahn Automotive Warehouse, Inc., as tenant. (Exhibit 10.19 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.19 Lease Agreement, executed June 10, 1992, between Eli N. Futerman as landlord and Hahn as tenant, as amended (Exhibit 10.9 to Hahn's Registration Statement on Form S-1 (No. 3348694), as filed with the SEC on January 19, 1993)*
Exhibit 10.20 Letter Agreement Lease Amendment, dated October 4, 1993, between Eli N. Futerman and Hahn Automotive Warehouse, Inc. (Exhibit 10.21 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.21 Letter Agreement Lease Amendment, dated September 30, 1996, between Eli N. Futerman and Hahn Automotive Warehouse, Inc. (Exhibit 10.22 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.22 Third Amendment to Lease, between Eli N. Futerman, as landlord and Hahn Automotive Warehouse, Inc., as tenant (Exhibit 10.2 to Hahn's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999)*
Exhibit 10.23 Lease Agreement, executed June 11,1992, between EDR Associates as landlord and Hahn as tenant (Exhibit 10.10 to Hahn's Registration Statement on Form S-1 (No. 33- 48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.24 Letter Agreement Lease Amendment dated September 1, 1993, between EDR Associates and Hahn Automotive Warehouse, Inc. (Exhibit 10.24 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1998)*
Exhibit 10.25 Amendment to Lease Agreement between EDR Associates, as landlord, and Hahn Automotive Warehouse, Inc., dated November 17, 1998. (Exhibit 10.1 to Hahn's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998)*
Exhibit 10.26 Lease Agreement, fully executed June 11, 1992, between Eli Futerman, Daphne Futerman and Rina F. Chessin as landlord and Hahn as tenant (Exhibit 10.11 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.27 Amendment to Lease Agreement between Eli Futerman, Daphne Futerman and Rina F. Chessin, as landlord, and Hahn Automotive Warehouse, Inc., dated January, 1999. (Exhibit 10.1 to Hahn's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999)*
Exhibit 10.28 Lease Agreement, executed June 12, 1992, between Futerman Associates as landlord and Hahn as tenant (Exhibit 10.12 to Hahn's Registration Statement on Form S-1 (No. 3348694) as filed with the SEC on January 19, 1993)*
Exhibit 10.29 Sublease Agreement, executed June 10, 1992, between 415 West Main St., Inc. as landlord and Hahn as tenant (Exhibit 10.13 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.30 Amendment to Sublease Agreement, dated December 21, 1994, between 415 West Main St., Inc. and Hahn (Exhibit 10.15 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1994)*
Exhibit 10.31 Lease Agreement, dated October 1, 1989, between Eli N. Futerman as lessor and Hahn as lessee for lease of computer equipment, as amended and assigned (Exhibit 10.19 to Hahn's Registration Statement on Form S-1 (No. 3348694), as filed with the SEC on January 19, 1993)*
Exhibit 10.32 Master Equipment Lease Agreement, dated April 19, 1994, between Hahn, Autoworks Holdings, Inc., Autoworks, Inc. and Fleet Bank (Exhibit 10.22 to Hahn's Annual Report on Form 10-K for the year ended September 30, 1994)*
Exhibit 10.33 Amendment to Addendum to Master Lease Agreement dated June 26, 1996 between Fleet Bank of New York as lessor and Hahn and Autoworks as lessees dated June 26, 1996*
Exhibit 10.34 Trademark License and Marketing Agreement, effective May 1, 1988, between Auto Value Associates, Inc. and Hahn (Exhibit 10.22 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.35 Shareholders' Agreement, dated as of December 15, 1983, among Auto Value Associates, Inc. and the shareholders of Auto Value Associates, Inc., including Hahn, as amended (Exhibit 10.23 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.36 Hahn's Promissory Note, dated April 1, 1992, in the principal amount of $250,000 in favor of Eli N. Futerman (Exhibit10.27 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.37 Hahn's Promissory Note, dated April 1, 1992, in the principal amount of $250,000 in favor of Michael Futerman (Exhibit10.28 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.38 Hahn's Promissory Note, dated April 1, 1992, in the principal amount of $250,000 in favor of Naftali Futerman (Exhibit 10.29 to Hahn's Registration Statement on Form S- 1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.39 Hahn's Amended and Restated Promissory Note, dated as of February 1, 1996, in the original principal amount of $1,650,000 in favor of Michael Futerman (Exhibit 10.2 to Hahn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996)*
Exhibit 10.40 Hahn's Amended and Restated Promissory Note, dated as of February 1, 1996, in the original principal amount of $500,000 in favor of Eli Futerman (Exhibit 10-3 to Hahn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996)*
Exhibit 10.41 Deferred Compensation Agreement, dated November 30, 1992, between Hahn and Michael Futerman (Exhibit 10.37 to Hahn's Registration statement on Form S-1 (No. 33- 48694) as filed with the SEC on January 19, 1993)*
Exhibit 10.42 Hahn Automotive Warehouse, Inc. Health Benefit Retirement Plan (Exhibit 10.38 to Hahn's Registration Statement on Form S-1 (No. 33-48694) as filed with the SEC on January 19, 1993)*
Certain instruments respecting long-term debt of the Company and its subsidiaries have been omitted pursuant to Regulation Item 601. The Company hereby agrees to furnish a copy of any such instrument to the Commission upon request.
Exhibit 10.43 Settlement agreement and Release dated June 29, 1998 between Autoworks, Inc., The Committee, Fleet Bank, Manufacturers and Traders Trust, Sumitomo Bank Ltd., Chase Manhattan Bank and Massachusetts Mutual Life Insurance Company. (Exhibit 3.1 to Hahn's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1998)*
Exhibit 10.44 Buyer's Trademark License Agreement, dated November 28, 1993, between Northern Automotive Corporation and Autoworks (Exhibit 28.3 to Hahn's Current Report on Form 8-K, dated December 10, 1993 (File No. 0-20984)*
Exhibit 10.45 Credit Facility Agreement, dated October 22, 1997 between Hahn and Fleet Capital Corporation . (Exhibit 10.43 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1997.)*
Exhibit 10.46 Amendment to Loan and Security Agreement dated February 10, 1999, between Hahn and Fleet Capital Corporation (Exhibit 10.46 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1999)*
Exhibit 10.47 Second Amendment to Loan and Security Agreement dated September 30, 1999 between Hahn and Fleet Capital Corporation (Exhibit 10.47 to Hahn's Annual Report on Form 10- K for the Fiscal Year ended September 30, 1999)*
Exhibit 10.48 Letter Agreement, dated August 5, 1997 between Schottenstein Bernstein Capital Group, LLC, HLCO Trading Company, Inc. and Garcel, Inc. d/b/a Great American Asset Management, as joint ventures and Autoworks, Inc. (Exhibit 10.2 to Hahn's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997) (as modified by Gordon Brothers Partners, Inc. and Autoworks, Inc. on August 20, 1997 with respect to store disposition and liquidation pricing).*
Exhibit 10.49 Lease Agreement dated September 30, 1994, between Meisenzahl and David Appelbaum (Exhibit 10.47 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1994)*
Exhibit 10.50 Lease Agreement, dated September 30, 1994, between Meisenzahl and David Appelbaum (Exhibit 10.45 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1994)*
Exhibit 10.51 Non-Competition Agreement, dated September 30, 1994, between Hahn and David Appelbaum (Exhibit 10.49 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1994)*
Exhibit 10.52 Tax Procedures and Indemnity Agreement, dated September 30, 1994, between Hahn and David Appelbaum (Exhibit 10.50 to Hahn's Annual Report On Form 10-K for the Fiscal Year ended September 30, 1994)*
Exhibit 10.53 Indemnification Agreement, dated as of September 30, 1994, executed by David Appelbaum in favor of Hahn, Meisenzahl and Regional (Exhibit 10.51 to Hahn's Annual Report on Form 10-K for the Fiscal Year ended September 30, 1994)*
Exhibit 10.54 Letter Agreement, dated December 14, 1995, between Hahn and Michael Futerman (Exhibit 10.53 to Hahn's Annual Report on Form 10-K for Fiscal Year ended September 30, 1995)*
Exhibit 10.55 Lease Assignment for Nu-Way Properties (Exhibit 10.55 to Hahn's Annual Report on Form 10-K for Fiscal Year ended September 30, 1999)*
Exhibit 21 List of Subsidiaries (filed herewith)
Exhibit 23 Consent of PricewaterhouseCoopers LLP with respect to Financial Statements and Financial Statement Schedule (filed herewith)
Exhibit 24 Powers of Attorney for Directors (filed herewith)
*These exhibits are incorporated herein by reference to the registration statement or report referenced after each exhibit which an asterisk appears.
Indicates executive compensation plans and arrangements.
EXHIBIT 21
LIST OF SUBSIDIARIES
Autoworks, Inc. Michigan
H.F.V. Inc. Delaware
iAutoparts, Inc. New York
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Form S- 8 (File nos. 333-85533, 33-64100 and 333-81854) of Hahn Automotive Warehouse, Inc. and Subsidiaries of our report dated November 21, 2000 relating to the financial statements, as of September 30, 2000 and 1999 and for the three Fiscal years ended September 30, 2000, which is included in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated November 21, 2000 relating to the financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP Rochester, New York December 19, 2000
EXHIBIT 24
POWERS OF ATTORNEY FOR DIRECTORS
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc. (The "Corporation"), does hereby constitute and appoint Eli N. Futerman, my true and lawful attorney and agent, to execute the Corporation's Annual Report on Form 10-K for the Fiscal Year ended September 30, 2000, and any and all amendments thereto, and to do any and all acts and things in my name and on my behalf in my capacity which he may deem necessary or advisable to the Corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection therewith.
Date: November 29, 2000
By: s// Stephen B. Ashley Stephen B. Ashley, Director
POWER OF ATTORNEY The undersigned director of Hahn Automotive Warehouse, Inc. (The "Corporation"), does hereby constitute and appoint Eli N. Futerman, my true and lawful attorney and agent, to execute the Corporation's Annual Report on Form 10-K for the Fiscal Year ended September 30, 2000, and any and all amendments thereto, and to do any and all acts and things in my name and on my behalf in my capacity which he may deem necessary or advisable to the Corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection therewith. Date: November 29, 2000 By: s// William A. Buckingham William A. Buckingham, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc. (The "Corporation"), does hereby constitute and appoint Eli N. Futerman, my true and lawful attorney and agent, to execute the Corporation's Annual Report on Form 10-K for the Fiscal Year ended September 30, 2000, and any and all amendments thereto, and to do any and all acts and things in my name and on my behalf in my capacity which he may deem necessary or advisable to the Corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection therewith.
Date: November 29, 2000
By: s// Gordon E. Forth Gordon E. Forth, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc. (The "Corporation"), does hereby constitute and appoint Eli N. Futerman, my true and lawful attorney and agent, to execute the Corporation's Annual Report on Form 10-K for the Fiscal Year ended September 30, 2000, and any and all amendments thereto, and to do any and all acts and things in my name and on my behalf in my capacity which he may deem necessary or advisable to the Corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection therewith.
Date: November 29, 2000
By: s// Nathan Lewinger Nathan Lewinger, Director
POWER OF ATTORNEY The undersigned director of Hahn Automotive Warehouse, Inc. (The "Corporation"), does hereby constitute and appoint Eli N. Futerman, my true and lawful attorney and agent, to execute the Corporation's Annual Report on Form 10-K for the Fiscal Year ended September 30, 2000, and any and all amendments thereto, and to do any and all acts and things in my name and on my behalf in my capacity which he may deem necessary or advisable to the Corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection therewith. Date: November 29, 2000 By: s// E. Philip Saunders E. Philip Saunders, Director
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse, Inc. (The "Corporation"), does hereby constitute and appoint Eli N. Futerman, my true and lawful attorney and agent, to execute the Corporation's Annual Report on Form 10-K for the Fiscal Year ended September 30, 2000, and any and all amendments thereto, and to do any and all acts and things in my name and on my behalf in my capacity which he may deem necessary or advisable to the Corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection therewith.
Date: November 29, 2000
By: s// Daniel J. Chessin Daniel J. Chessin, Executive Vice President, Secretary and Director
EXHIBIT 27
Selected Financial Data