10-Q 1 e10q2q01.txt 10-Q P/E 03/31/01 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 2001 Commission File Number 0-20984 HAHN AUTOMOTIVE WAREHOUSE, INC. (Exact name of Registrant as specified in its charter) NEW YORK 16-0467030 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 415 West Main Street Rochester, New York 14608 (Address of principal executive offices) (Zip Code) (716) 235-1595 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Number of shares outstanding of the registrant's common stock, par value $.01 per share, on May 11, 2001; 1,581,671. HAHN AUTOMOTIVE WAREHOUSE, INC. Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 2001 and September 30, 2000 Condensed Consolidated Statements of Operations - for the six months and three months ended March 31, 2001 and March 31, 2000 Condensed Consolidated Statements of Cash Flows - for the six months ended March 31, 2001 and March 31, 2000 Condensed Consolidated Statements of Comprehensive Income - for the six months and three months ended March 31, 2001 and March 31, 2000 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other information Item 6. Exhibits and Reports on Form 8-K SIGNATURES HAHN AUTOMOTIVE WAREHOUSE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, except share data)

The accompanying notes are an integral part of the financial statements. HAHN AUTOMOTIVE WAREHOUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, except for share and per share data) (Unaudited)

HAHN AUTOMOTIVE WAREHOUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, except for share and per share data) (Unaudited)

HAHN AUTOMOTIVE WAREHOUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)

HAHN AUTOMOTIVE WAREHOUSE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited) For the Six Months For the Three Months ended March 31 ended March 31 2001 2000 2001 2000 Net Income (Loss) $68 ($134) $19 $59 Unrealized Gain on Marketable Securities, Net of Tax 0 26 0 46 Comprehensive Net Income (Loss) $68 ($108) $19 $105 HAHN AUTOMOTIVE WAREHOUSE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Basis of Presentation The condensed interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The interim financial statements reflect all adjustments which are, in the opinion of management, necessary to fairly present such information. Although the Company believes that the disclosures included on the face of the interim consolidated financial statements and in the footnotes herein are adequate to make the information presented not misleading, certain information and footnote disclosures, including significant accounting policies, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. It is suggested that all condensed consolidated financial statements contained herein be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report for the Fiscal Year ended September 30, 2000, on Form 10-K, filed with the Securities and Exchange Commission, Washington, D.C. 20549. This information may be obtained through the web site of the Securities and Exchange Commission, EDGAR Filing section, at http://www.sec.gov. Operating results for the six month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the entire fiscal year. 2. Earnings Per Share The Company presents earnings per share ("EPS") in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on the face of the Statements of Operations. Basic EPS is computed using net income (loss) 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. The Basic and Diluted EPS, have been restated to reflect the 1-for-3 reverse common stock split which was approved by the shareholders at the Company's Annual Meeting on May 9, 2001. The effective date of the 1-for-3 reverse common stock split was the close of business on May 10, 2001. BASIC AND DILUTED EARNINGS PER SHARE Six Months Three Months Ended March 31 Ended March 31 2001 2000 2001 2000 Basic and Diluted Shares Outstanding: Weighted average number of shares outstanding 1,581,671 1,581,671 1,581,671 1,581,671 Net income (loss) $68 ($134) $19 $59 Basic and Diluted EPS $.04 ($.08) $.01 $.04

The exercise of outstanding stock options has not been included in the calculation of diluted EPS since the effect would be antidilutive because all outstanding options were out of the money as of March 31, 2001. 3. Debt (in thousands) Long-term debt consists of the following:

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 $50.0 million. 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 5.1% and 8.00%, respectively, at March 31, 2001. The unused portion of the Credit Facility bears interest at an annual rate of .25% to .375%. As of May 11, 2001, the Company had an outstanding balance of $36.4 million under the Credit Facility. The Credit Facility is collateralized by substantially all of the Company's assets and 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 as of March 31, 2001. The Company has outstanding promissory notes ("Notes") with the Estate of Michael Futerman, 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 a mortgage, which comprise the balance of the long-term debt. 4. Equity Investment The Company owns 100% of H.F.V., Inc. which in turn owns 37.5% of Autoworks Ltd., an Israeli Corporation. The Company accounts for this investment under the equity method. The Company's share of Autoworks Ltd.'s income for the six month and three month periods ended March 31, 2001 and 2000 is presented separately in the Condensed Consolidated Statements of Income. 5. Business Segment Information The Company reports segment information in accordance with 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. 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 the six months of Fiscal Years 2001 and 2000, is as follows (dollars in thousands):

6. Reverse Common Stock Split As of the close of business on May 10, 2001, the Company effected a 1-for-3 reverse common stock split that had been approved by the shareholders at the Company's 2001 annual shareholders' meeting on May 9, 2001. The data shown relating to common shares has been retroactively adjusted to reflect the reverse stock split. Also, the Company's shareholders' equity accounts have been retroactively adjusted. There was no effect on total shareholders' equity as a result of the reverse stock split. HAHN AUTOMOTIVE WAREHOUSE, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The discussions set forth in this form 10-Q may contain forward- looking comments. Such comments are based upon the information currently available to the management of the Company and management's perception thereof as of the date of this report. Actual results of the Company's operations could materially differ from those indicated in the forward-looking comments. The difference could be caused by a number of factors including, but not limited to, those discussed under the heading "Important Information Regarding Forward-Looking Statements" in the Company's Annual Report on Form 10-K, for the fiscal year ended September 30, 2000, which has been filed with the United States Securities and Exchange Commission (the "Commission"). That Annual Report may be obtained by contacting the Commission's public reference operations or through the worldwide web site at http://www.sec.gov, EDGAR Filing section. Readers are strongly encouraged to obtain and consider the factors listed in the 2000 Annual Report and any amendments or modifications thereof when evaluating any forward- looking comments concerning the Company. As of the close of business on May 10, 2001, the Company effected a 1-for-3 reverse common stock split that had been approved by the shareholders at the Company's 2001 annual shareholders' meeting on May 9, 2001. The data shown relating to common shares has been retroactively adjusted to reflect the reverse stock split. Results of Operations - Three months ended March 31, 2001 compared to three months ended March 31, 2000. The Company's net sales declined $1.8 million, or 5.9%, to $29.1 million for the fiscal quarter ended March 31, 2001, from $30.9 million, for the same fiscal quarter last year. A major factor causing the net sales decline was the general softness in the auto parts aftermarket caused by various factors, which include improved vehicle manufacturing and performance, longer vehicle warranties, leased vehicles and increased competition in all segments of distribution. Another factor causing the decline in net sales was the closing of an underperforming Direct Distribution Center. For the quarter, on a comparable location basis, and in comparison to the same quarter last year, net sales decreased by 7.0% at the full service Distribution Centers, 3.6% at the Advantage Auto Stores and 9.5% at the Direct Distribution Centers. Gross profit for the current quarter decreased $218,000 as compared to the second quarter of Fiscal 2000. This decline resulted from a decrease in net sales which was partially offset by an increase in gross profit margin. Gross profit expressed as a percentage of net sales increased to 40.0% from 38.4%. This is primarily due to the increase in the net sales at the Advantage Auto Stores as a percentage of total Company net sales and a focused effort to sell slow moving product at a higher margin. Selling, general and administrative expense decreased $200,000 from $10.5 million in the second quarter of Fiscal 2000, to $10.3 million, for the comparable quarter of Fiscal 2001. The decline is primarily due to the closing of a Direct Distribution Center and the Company's efforts to control and reduce expenses. As a percentage of net sales, selling, general and administrative expense increased to 35.4% from 33.9%. The percentage increase is a result of the net sales decline. As a result of the factors discussed above, operating income decreased to $911,000 for the second quarter of Fiscal 2001, from $946,000, for the second quarter of Fiscal 2000. As a percentage of net sales, operating income remained even at 3.1% for the second quarter of both fiscal years. Depreciation and amortization increased $17,000 from $430,000 during the second fiscal quarter last year, to $447,000 for the second quarter of the current fiscal year. This increase is attributable to the purchase of equipment at lease expiration and was partially offset by certain assets becoming fully depreciated. Interest expense increased $24,000 to $1.0 million from $979,000 for the same quarter of the previous fiscal year. This increase is primarily the result of interest charges on overadvances which were not charged in the previous fiscal year. As a result of the factors discussed above, the Company had a net profit of $19,000 or $.01 per share, in the current fiscal year's second quarter, compared to a net profit of $59,000, or $.04 per share, for the same quarter of the previous fiscal year. Results of Operations - Six months ended March 31, 2001 compared to six months ended March 31, 2000. The Company's net sales declined $2.5 million or 4.2%, to $57.9 million for the fiscal six months ended March 31, 2001, from $60.4 million for the same six month period of Fiscal 2001. A major factor causing the net sales decline was the general softness in the auto parts aftermarket caused by various factors, which include improved vehicle manufacturing and performance, longer vehicle warranties, leased vehicles and increased competition in all segments of distribution. During this six month period of the current year the Company had one less Direct Distribution Center operating, compared to the same period one year ago. On a comparable location basis, for the same period during the previous fiscal year, net sales declined by 3.5% at the full service Distribution Centers, 2.1% at the Advantage Auto Stores and 7.8% at the Direct Distribution Centers. Gross profit for the first six months of the current fiscal year decreased $171,000, from $23.3 million, in Fiscal 2000, to $23.1 million, in Fiscal 2001. This was due to the decline in net sales, partially offset by an increase in profit margin. As a percentage of net sales, gross profit increased to 39.9% from 38.6% for the previous year. This percentage increase is primarily due to the increase in Advantage Stores net sales as a percentage of total Company net sales and a focused effort to sell slow moving product at a higher margin. Selling, general and administrative expense decreased $576,000, from $20.9 million for the first six months of Fiscal 2000, to $20.4 million, for the same period of Fiscal 2001. This decline is primarily due to the closing of a Direct Distribution Center and the Company's efforts to control and reduce expenses. As a percentage of net sales, selling, general and administrative expense increased to 35.1% from 34.6% in the previous fiscal year. This percentage increase was due to a decline in net sales as discussed above. Depreciation and amortization decreased $8,000 from $895,000 for the first six months of Fiscal 2000 to $887,000 for the same period of Fiscal 2001. This decrease is primarily the result of certain assets becoming fully depreciated, partially offset by the purchase of equipment at lease expiration. As a result of the factors discussed above, operating income increased to $1.9 million for the first six months of Fiscal 2001 from $1.5 million for the first six months of Fiscal 2000. As a percentage of net sales, operating income increased to 3.3%, from 2.4%, in the same six month period of Fiscal 2000. Interest expense increased $117,000 in the first six months of Fiscal 2001 to $2.0 million. This increase is primarily attributable to higher interest rates in the first quarter of Fiscal 2001, as compared to the rates for the same period of Fiscal 2000. As a result of these factors, the Company reported a net profit of $68,000, or $.04 per share for the six month period ended March 31, 2001, compared to a net loss of $134,000 or $.08 per share for the first six months of Fiscal 2000. LIQUIDITY AND CAPITAL RESOURCES During the first six months of Fiscal 2001, operations provided net cash of $575,000. This is largely due to a decrease in inventory of $2,669,000 and non-cash items of depreciation and amortization of $887,000. These were partially offset by a decrease in accounts payables and other accrued expenses of $2,396,000 and an increase in accounts receivable of $728,000. Investing activities consist mainly of routine replacement of computer equipment and leasehold improvements. Capital expenditures were $393,000 during the first six months of Fiscal 2001 compared to $162,000 during the same period of the previous fiscal year. The Company anticipates making capital expenditures of approximately $250,000 during the remainder of the current fiscal year. Financing activities during the six months of Fiscal 2001 consumed $185,000 of cash. This is primarily due to payments on long-term debt. As of May 11, 2001 the Company had $1.7 million available under its revolving credit facility. In the future, the Company expects to make minor strategic acquisitions of jobbing stores to the extent that its debt service and other funding requirements permit. The Company's ability to open new distribution centers will depend on its ability to negotiate extended payment terms with vendors, which initially minimizes additional working capital requirements. The Company believes that it will be able to continue to obtain such financing. The Company's principal sources of liquidity for its operational requirements are internally generated funds, borrowings under its revolving credit facility, leasing arrangements and extended payment terms from vendors. In the absence of unforeseen circumstances, the Company anticipates that these sources will provide sufficient working capital to operate its business, make expected capital expenditures and to meet its liquidity needs for the next twelve months. 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. PART II. OTHER INFORMATION Item 1. Litigation On April 13,2001, the United States Court of Appeals for the Sixth Circuit affirmed the United States District Court's decision in Takacs, et al vs. Hahn Automotive holding that certain former managers and assistant managers of Autoworks Inc. were non-exempt employees entitled to overtime compensation and that the Company was not entitled to assert the "window of correction" defense to "preserve" exempt status for such managers, under the Fair Labor Standards Act. See Company's Form 10K, Item 3, Legal Proceedings, filed December 19, 2000, for a more complete description of the action. The Company is evaluating its options, including filing a petition for certiorari for review by the U.S. Supreme Court or defending individual claims for damages at a continuation of the hearing on damages. Any action taken by the Company, including an adverse outcome of the appeal, or any determination of damages is inherently uncertain. The Company believes that it is unlikely that any adverse verdict would have a material adverse affect on its financial condition; however it could materially adversely effect net income or cash flow depending upon the fiscal year in which a final judgment is entered against the Company. Item 4. Submission of Matters to a Vote of Security Holders (a) The company held its Annual Meeting of Shareholders on May 9, 2001. (b) At said Annual Meeting of Shareholders the following nominees were elected to the Board of Directors for a term of two years ending in 2003: Daniel J. Chessin Stephen B. Ashley E. Philip Saunders The number of votes cast for the election of directors were as follows: Votes Votes For Withheld Daniel J. Chessin 3,295,150 175,647 Stephen B. Ashley 3,295,150 175,647 E. Philip Saunders 3,295,150 175,647 There were no broker non-votes. The terms of the following directors, expiring in 2002, continued after the meeting: Eli N. Futerman William A. Buckingham Nathan Lewinger Gordon E. Forth (c) At said Annual Meeting of Shareholders a majority of the Company's shareholders approved a proposal to amend (the "Amendment") the Company's Restated Certificate of Incorporation to effect a 1-for-3 reverse stock split of the Company's shares of common stock. The Amendment became effective at the close of business on May 10, 2001. The following table sets forth certain information regarding the votes cast by the holders of the Company's common stock with respect to the amendment: For 3,286,990 Abstain 156 Against 183,651 Broker non-votes 0 (d) At said Annual Meeting of Shareholders, a majority of the Company's shareholders voting approved a proposal to grant to each of the non-employee directors options to purchase 1,667 shares of common stock at an exercise price of $3.84 per share for a period of 10 years. The following table sets forth certain information regarding the votes cast by the holders of the Company's common stock with respect to the option grants: For 3,431,987 Abstain 166 Against 38,644 Broker non-votes 0 Item 5. Other Information NASDAQ LISTING On May 9, 2001, at Hahn's annual meeting of shareholders by a majority vote, Hahn's shareholders approved a 1-for-3 reverse stock split of its issued and outstanding shares of common stock. The reverse stock split was completed the following day. The reverse stock split had the effect of reducing Hahn's outstanding common stock from 4,745,014 shares to approximately 1,581,671 shares. The reverse stock split was proposed to help Hahn satisfy the maintenance requirements established by the NASDAQ SmallCap Market necessary for continued listing, which, among other things, requires that Hahn's common stock maintain a bid price of at least $1.00 per share. NASDAQ has required that Hahn achieve a $1.00 minimum bid price no later than May 14, 2001 and maintain it for 10 consecutive trading days, thereafter. On May 10, 2001, Hahn's common stock closed at $2.85 per share. If Hahn's stock price does not meet the required minimum bid price, NASDAQ will delist the stock and the stock will be moved to the OTC bulletin board. This could adversely affect the liquidity of the stock and further depress its price. Glick, LLC Amended and Restated Merger Agreement On April 6, 2001, the Company entered into an Agreement and Plan of Merger with Glick LLC, HAW Acquisition, Eli N. Futerman and Daniel J. Chessin. Under the terms of the merger agreement, HAW Acquisition will merge with and into the Company, with the Company being the surviving corporation. All of the Company's shareholders will receive $3.00 per share for the Common Stock they hold on the effective date of the merger. The completion of the transaction is subject to the Futerman/Chessin buy-out group obtaining and closing the necessary financing to pay the aggregate merger consideration and related transaction expenses, shareholder approval by the holders of 66 2/3% of the Company's outstanding common stock and by a majority vote of the minority shareholders present and voting at the special meeting, either in person or by proxy (excluding abstentions and broker non-votes), the consent of the Company's bank, and other customary closing conditions. The Company has currently scheduled a special shareholders meeting on July 24, 2001 to consider the proposal. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None Reports on Form 8-K The Company filed a Form 8-K with the Commission on January 19, 2001 in which it reported under Item 5 that on January 16, 2001, Eli N. Futerman and Daniel J. Chessin, the Company's President and Chief Executive Officer and Executive Vice President, respectively, submitted a proposal to the Board of Directors to acquire the shares of the Company's common stock which they and certain affiliated parties do not own through a merger transaction at a price of $3.00 per share subject to various conditions. The current report also reported that a special committee had been formed to evaluate the proposal and authorized it to engage independent legal and financial advisors to assist the committee in its work. The Company filed a Form 8-K with the Commission on March 12, 2001 in which it reported under Item 5 that the Company's 2001 annual meeting had been rescheduled for May 9, 2001. The Company filed a Form 8-K with the Commission on March 27, 2001 in which it reported under Item 5 that on March 26, 2001, that the board of directors, based on the special committee's recommendation, had approved the transaction and the Company had entered into a non-binding letter of intent for the merger and that the merger would be subject to a number of conditions, including certain shareholder approvals. On April 3, 2001, the Company filed a Form 8-K with the Commission which presented a press release stating that NASDAQ had issued an exception for the minimum bid requirement which would expire on May 14, 2001, but would permit the Company to be listed until that time, so that the Company would have adequate time to seek shareholder approval for the proposed 1-for-3 reverse stock split. The Company filed a Form 8-K with the Commission on April 9, 2001, in which a press release was presented, announcing that a definitive agreement had been reached with the buyout group. The Company filed a Form 8-K with the Commission on May 10, 2001 in which it presented a press release in regard to an announcement that the shareholders of the Company had approved the 1-for-3 reverse stock split which, based upon NASDAQ requirements, established the trading price of the common stock which exceeded the minimum bid requirement as established by NASDAQ. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HAHN AUTOMOTIVE WAREHOUSE, INC. (Registrant) By: s//Eli N. Futerman Eli N. Futerman President and Chief Executive Officer By: s//Albert J. Van Erp Albert J. Van Erp Vice President - Finance Dated: May 15, 2001

HAHN AUTOMOTIVE WAREHOUSE INC 10-Q