Asset Purchase Agreement and Financial Statements for Value Independent Parts (Division of Rainbo Oil Company)

Summary

This document presents the audited financial statements of Value Independent Parts, a division of Rainbo Oil Company, as of November 30, 1999 and 1998. It details the assets acquired and the revenues and direct operating expenses for those years. The statements were prepared in connection with the acquisition of the division by Rainbo Company LLC, a joint venture between Universal Mfg. Co. and Rainbo Oil Company's majority stockholder. The financials reflect only the assets and expenses included in the acquisition, excluding certain liabilities and corporate overhead.

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EX-2.1 2 a2033122zex-2_1.txt ASSET PURCHASE AGREEMENT EXHIBIT 2.1 Value Independent Parts (An Operating Division of Rainbo Oil Company) Financial Statements November 30, 1999 and 1998
TABLE OF CONTENTS PAGE(S) - ----------------------------------------------------------------------------- Independent Auditor's Report 1 Financial Statements Statements of Net Assets Acquired 2 Statements Revenue and Direct Operating Expenses 3 Notes to Financial Statements 4 - 7
Independent Auditor's Report To the Board of Directors Value Independent Parts (A Division of Rainbo Oil Company) Dubuque, Iowa We have audited the accompanying statements of net assets acquired of Value Independent Parts (A Division of Rainbo Oil Company) as of November 30, 1999 and 1998, and the related statements of revenues and direct operating expenses for the years then ended. These statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the statements of net assets acquired and the statements of revenue and direct operating expenses are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audits provide a reasonable basis for our opinion. As outlined in Note 1 to the statements, subsequent to year-end, Value Independent Parts (a division of Rainbo Oil Company) was acquired by Rainbo Company LLC. In our opinion, the statements referred to above present fairly, in all material respects, the statements of net assets acquired of Value Independent Parts (A Division of Rainbo Oil Company) as of November 30, 1999 and 1998, and the statements of revenues and direct operating expenses for the years then ended, in conformity with generally accepted accounting principles. Dubuque, Iowa November 21, 2000 1 Value Independent Parts (A Division of Rainbo Oil Company) Statements of Net Assets Acquired November 30, 1999 and 1998
ASSETS 1999 1998 ---------- ---------- Current Assets Cash $ 1,435 $ 800 Trade Receivables, Net of Allowance for Doubtful Accounts - 1999: $25,000 and 1998: $20,000 1,128,065 942,002 Inventory 4,256,264 3,481,314 ---------- ---------- Total Current Assets 5,385,764 4,424,116 ---------- ---------- Property, Plant and Equipment Vehicles 414,206 388,246 Warehouse Equipment 123,799 114,609 Office Equipment 161,700 112,198 ---------- ---------- Total Property and Equipment 699,705 615,053 Less: Accumulated Depreciation 384,261 286,760 ---------- ---------- Property and Equipment, Net 315,444 328,293 ---------- ---------- Net Assets Acquired $5,701,208 $4,752,409 ========== ==========
See Accompanying Notes and Auditor's Report 2 Value Independent Parts (A Division of Rainbo Oil Company) Revenue and Net Operating Expenses Years Ended November 30, 1999 and 1998
1999 1998 ----------- ----------- Merchandise Sales $ 8,795,498 $ 7,179,628 Cost of Sales 6,529,688 5,276,134 ----------- ----------- Gross Profit 2,265,810 1,903,494 ----------- ----------- Direct Operating Expenses Salaries and Wages 1,606,995 1,257,276 Other Operating Expenses 994,784 674,265 Bad Debts 9,380 10,855 Depreciation and Amortization 100,231 79,391 ----------- ----------- Total Direct Operating Expenses 2,711,390 2,021,787 ----------- ----------- Operating (Loss) $ (445,580) $ (118,293) =========== ===========
See Accompanying Notes and Auditor's Report 3 Value Independent Parts (A Division of Rainbo Oil Company) Notes to Financial Statements NOTE 1. Nature of Business and Significant Accounting Policies Value Independent Parts (VIP Division) is a division of Rainbo Oil Company principally involved in the retail sale of automotive parts. Rainbo Oil Company is principally involved in the retail sale of gasoline, convenience store items, oil and lube products and the wholesale sale of automobile parts. This distribution is made from warehouse facilities and convenience stores, the majority of which are located in Northeast Iowa, Northwest Illinois and Southwest Wisconsin. The Company's main office is located in Dubuque, Iowa. BASIS OF PRESENTATION On September 29, 2000, the Value Independent Parts division (VIP Division) of Rainbo Oil Company was acquired by Rainbo Company LLC, an LLC of which Universal Mfg. Co. (Universal) and Rainbo Oil Company's majority stockholder are each 50% members. The accompanying Statements of Net Assets Acquired include only those assets which were acquired by Rainbo Company LLC and the accompanying Statements of Revenues and Direct Operating Expenses include only the revenues and direct operating expenses of VIP Division. Complete financial statements of VIP Division have not historically been prepared and preparation of such statements is not practicable given the occurrence of certain transactions at the Rainbo Oil Company level which cannot be reasonably allocated to VIP Division in order to present complete financial statements. Accordingly, the accompanying Statement of Net Assets acquired excludes certain liabilities (primarily accounts payable and accrued expenses) which were not assumed in the acquisition as well as certain Rainbo Oil Company balances (primarily cash and long-term debt) which were not allocated to VIP Division. Similarly, the accompanying Statement of Revenues and Direct Expenses excludes certain Rainbo Oil Company expenses which were not allocated to VIP Division (primarily interest expense, income taxes and certain other corporate overhead expenses). The significant accounting policies of the VIP Division are as follows: USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. 4 Value Independent Parts (A Division of Rainbo Oil Company) Notes to Financial Statements NOTE 1. Nature of Business and Significant Accounting Policies (continued) CASH EQUIVALENTS For purposes of the statement of cash flows, the VIP Division considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE The accounts receivable arise in the normal course of business. An allowance for bad debts of $25,000 and $20,000 has been established for the years ending November 30, 1999 and 1998, respectively. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged directly to income, and expenditures for major replacements and betterments are capitalized. The accumulated depreciation on property and equipment retired or sold are eliminated from the property accounts at the time of retirement or sale and the resulting gain or loss is reflected in income. Depreciation is being computed using the declining balance and straight-line methods over the estimated useful lives of the assets as follows:
Building 15 - 40 years Station and Equipment 5 - 15 years Autos and Trucks 3 - 10 years Plant and Equipment 5 - 10 years Office Machines and Equipment 5 - 12 years
ADVERTISING Advertising costs are expensed as incurred. Advertising expense was $1,115 and $748 and $48,049 for the years ended November 30, 1999 and 1998, respectively. 5 Value Independent Parts (A Division of Rainbo Oil Company) Notes to Financial Statements NOTE 2. Inventories Inventories at November 30, 1999 and 1998, consisted primarily of auto parts. NOTE 3. Operating Leases, Rent Expense and Related Party Transactions Value Independent Parts has the following operating leases in effect at November 30, 1999. The lease amounts presented below represent annual lease amounts. * VIP Dubuque $ 12,000 VIP, Rockford 13,200 VIP, Rockford North 19,200 VIP, Cedar Rapids (lease terminated in 1999) 34,300 Freeport, IL 25,920 Peoria, IL 31,292 ---------------- $ 135,912 ================
* Lease transaction with Transport Sales Company, an entity related to the Company through common ownership. The aforementioned leases are month-to-month oral lease agreements. VIP Division also has various equipment leases. The lease terms are generally brief and the leases are cancelable. Total rent expense paid by the VIP Division under all lease agreements was $198,636 and $117,606 for the years ended November 30, 1999 and 1998, respectively. 6 Value Independent Parts (A Division of Rainbo Oil Company) Notes to Financial Statements NOTE 4. Retirement Plan During 1998, the Rainbo Oil Company implemented 401(k) provisions into the existing profit-sharing plan under which employees of the VIP Division are covered. The plan covers employees who reach age, hours, and years of service requirements. Under terms of the plan, the Rainbo Oil Company makes matching contributions equal to 25% of the employee's contribution, not to exceed 4% of eligible compensation. The Rainbo Oil Company can also make discretionary contributions. The VIP Division's portion of the matching contributions to the profit-sharing plan totaled $1,455 and $1,525 for the years ended November 30, 1999 and 1998, respectively. NOTE 5. Operating, Investing and Financing Cash Flows As indicated in Note 1 to the financial statements, Rainbo Oil Company has not historically prepared complete financial statements by division. The following represents VIP Division's cash flows resulting from Net Assets Acquired for the years ended November 30:
1999 1998 --------------- --------------- Cash Flows from Operating Expenses: Depreciation and Amortization $ 100,231 $ 79,391 Loss on Sale of Property & Equipment ----- 9,119 (Increase) in Receivables (186,063) (429,876) (Increase) in Inventory (774,950) (903,601) Cash Flows from Investing Activities: Purchase of Property & Equipment $ (87,382) $ (188,548) Proceeds from Sale of Assets ----- 2,300
7 VALUE INDEPENDENT PARTS (A DIVISION OF RAINBO OIL COMPANY) STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES EIGHT-MONTH PERIODS ENDED JULY 31, 2000 AND 1999
2000 1999 ----------- ----------- Merchandise Sales $ 5,490,504 $ 5,893,871 Cost of Sales 3,839,799 4,133,320 ----------- ----------- Gross Profit 1,650,705 1,760,551 ----------- ----------- Operating Expenses Salaries and Wages 1,034,533 1,226,802 Other Operating Expenses 481,089 559,202 Bad Debts 1,820 (150) Depreciation and Amortization 66,160 67,063 ----------- ----------- Total Operating Expenses 1,583,602 1,852,917 ----------- ----------- Operating Income (Loss) $ 67,103 $ (92,366) =========== ===========
8 VALUE INDEPENDENT PARTS (A DIVISION OF RAINBO OIL COMPANY) STATEMENT OF NET ASSETS ACQUIRED (UNAUDITED) JULY 31, 2000 Current Assets Cash $ 2,336 Accounts Receivable 772,237 Inventory 3,830,849 ----------- Total current assets 4,605,422 ----------- Property, Plant and Equipment: Vehicles 414,206 Warehouse Equipment 122,181 Office Equipment 164,714 ----------- 701,101 Accumulated Depreciation (445,489) ----------- 255,612 ----------- Net Assets Acquired $ 4,861,034 ===========
9 UNIVERSAL MFG. CO. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS On August 31, 2000, Universal Mfg. Co. (Company) signed an agreement with Rainbo Oil Company and its president and majority shareholder (Shareholder) to form Rainbo Company LLC d/b/a Value Independent Parts (Rainbo LLC). Rainbo LLC, of which the Company and Shareholder are each 50% members, was formed for purposes of acquiring and operating the automobile parts distribution division (VIP Division) of Rainbo Oil Company. On September 29, 2000, the Company, through Rainbo LLC, executed an asset purchase agreement to acquire substantially all assets of VIP. The accompanying unaudited pro forma condensed financial statements as of and for the year ended July 31, 2000 were prepared using the purchase method of accounting, assuming the acquisition occurred on the date of the balance sheet or as of August 1, 1999, the beginning of the most recent fiscal year, for purposes of the statements of income. The pro forma adjustments are based upon currently available information and certain related assumptions. The unaudited pro forma condensed financial statements are provided for informational purposes only and are not necessarily indicative of the results of future operations or the future financial condition of Universal or the actual results of operations that would have been achieved had the acquisition of VIP Division been consummated as of the beginning of the period presented. 10 UNIVERSAL MFG. CO. CONDENSED PRO FORMA BALANCE SHEET (UNAUDITED) JULY 31, 2000
Pro Forma Universal VIP Division Total Adjustments Total ------------ ------------ ------------ ------------ ------------ ASSETS Cash and cash equivalents $ 336,756 $ 2,336 $ 339,092 $ 339,092 Accounts receivable 3,442,410 772,237 4,214,647 4,214,647 Inventories 4,310,809 3,830,849 8,141,658 8,141,658 Deferred income taxes and other 321,533 -- 321,533 321,533 ------------ ------------ ------------ ------------ ------------ Total current assets 8,411,508 4,605,422 13,016,930 -- 13,016,930 Property, net 1,539,092 255,612 1,794,704 $ 500,780(a) 2,295,484 ------------ ------------ ------------ ------------ ------------ Total assets $ 9,950,600 $ 4,861,034 $ 14,811,634 $ 500,780 $ 15,312,414 ============ ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable $ 4,661,174 $ -- $ 4,661,174 $ 4,661,174 Accrued expenses 220,860 -- 220,860 220,860 Dividends payable 122,400 -- 122,400 122,400 ------------ ------------ ------------ ------------ ------------ Total current liabilities 5,004,434 -- 5,004,434 -- 5,004,434 Long-term debt -- -- -- 5,261,814(a) 5,261,814 ------------ ------------ ------------ ------------ ------------ Total liabilities 5,004,434 -- 5,004,434 5,261,814 10,266,248 ------------ ------------ ------------ ------------ ------------ Minority interest 7,591 -- 7,591 100,000(a) 107,591 ------------ ------------ ------------ ------------ ------------ STOCKHOLDERS' EQUITY Common stock 816,000 -- 816,000 -- 816,000 Additional paid-in capital 17,862 -- 17,862 -- 17,862 Retained earnings 4,104,713 4,861,034 8,965,747 (4,861,034)(a) 4,104,713 ------------ ------------ ------------ ------------ ------------ Total stockholders' equity 4,938,575 4,861,034 9,799,609 (4,861,034) 4,938,575 ------------ ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity $ 9,950,600 $ 4,861,034 $ 14,811,634 $ 500,780 $ 15,312,414 ============ ============ ============ ============ ============
11 UNIVERSAL MFG. CO. CONDENSED PRO FORMA INCOME STATEMENT (UNAUDITED) YEAR ENDED JULY 31, 2000
(d) Pro Forma Universal VIP Division Total Adjustments Total ------------ ------------ ------------ ------------ ------------ Net sales $ 21,631,919 $ 8,392,131 $ 30,024,050 $ 30,024,050 Cost of goods sold 17,879,543 6,236,167 24,115,710 24,115,710 ------------ ------------ ------------ ------------ ------------ Gross profit 3,752,376 2,155,964 5,908,340 -- 5,908,340 Selling,general and administrative expenses 3,100,893 2,442,075 (c) 5,542,968 $ 100,156 (b) 5,643,124 ------------ ------------ ------------ ------------ ------------ Income from operations 651,483 (286,111) 365,372 (100,156) 265,216 Interest expense -- -- -- 447,254 (b) 447,254 Interest and other income 34,856 -- 34,856 34,856 ------------ ------------ ------------ ------------ ------------ Income before minority interest and income taxes 686,339 (286,111) 400,228 (547,410) (147,182) Minority interest 5,606 -- 5,606 5,606 ------------ ------------ ------------ ------------ ------------ Income before income taxes 680,733 (286,111) 394,622 (547,410) (152,788) Income taxes 230,104 -- 230,104 (291,732)(b) (61,628) ------------ ------------ ------------ ------------ ------------ Net income $ 450,629 $ (286,111) $ 164,518 $ (255,678) $ (91,160) ============ ============ ============ ============ ============ Earnings per share $ 0.55 $ (0.11) ============ ============
12 UNIVERSAL MFG. CO. NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) (a) To record the assumed purchase price allocation. The pro forma financial statements assume a purchase price of $5,361,814 had the acquisition occurred on July 31, 2000. The actual purchase price on the date of the transaction, September 29, 2000, based on the values of the assets acquired, was approximately $5,160,000. For pro forma financial statement purposes, the July 31, 2000 assumed purchase price was allocated among VIP's acquired assets in the following amounts: Cash and cash equivalents $ 2,336 Accounts receivable 772,237 Inventories 3,830,849 Property, net 756,392 ---------- $5,361,814 ==========
The excess of the purchase price over the net assets acquired has been preliminarily allocated to property and equipment with an estimated useful life of 5 years. The ultimate purchase price allocation will be finalized upon completion of all related asset valuations. The acquisition was financed through long-term debt borrowings and settlement of amounts due from Shareholder related to its initial Rainbo LLC membership contributions. The Rainbo LLC formation agreement required that both the Company and Shareholder each contribute $100,000 in initial membership contributions to capitalize Rainbo LLC as well as each loan $400,000 to Rainbo LLC. As of the acquisition date, Shareholder had not yet made its required contribution or loan and, accordingly, the cash paid to Shareholder, based on the assumed purchase price, was as follows: Total purchase price $5,361,814 Less amounts due from shareholder (500,000) ---------- Cash paid to Shareholder $4,861,814 ==========
The pro forma condensed balance sheet reflects long-term borrowings incurred to finance the $4,861,814 paid to Shareholder, the $400,000 note payable to Shareholder issued in conjunction with his initial membership contribution and the $100,000 of minority interest representing Shareholder's initial $100,000 cash membership contribution. (b) To record the following pro forma income statement items: (1) additional depreciation expense on property and equipment acquired based on an assumed average remaining life of 5 years, (2) additional interest expense on long-term debt incurred based on an assumed average interest rate of 8.5%, (3) income tax benefit from the VIP net loss calculated at the Company's assumed effective tax rate of 35% and (4) income tax benefit resulting from additional depreciation and interest expense calculated at the Company's assumed tax rate of 35%. (c) Rainbo Oil Company provided VIP Division with certain general management and administrative services. These costs were allocated to VIP Division using allocation methodologies which Rainbo Oil Company management believes represent VIP Division's proportionate share of these costs. The Company's management believes they would have incurred similar costs at substantially the same amounts and accordingly, no pro forma adjustment has been made. (d) VIP Division's fiscal year-end is November 30. For purposes of the pro forma condensed financial statements, their income statement information has been recast to reflect the 12-month period ended July 31, 2000. 13