Attached files
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8-K/A - VSE CORPORATION FORM 8-K/A - JUNE 6, 2011 - VSE CORP | form8-ka.htm |
EX-23.1 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF WBI - VSE CORP | exhibit23-1.htm |
EX-99.2 - VSE UNAUDITED PRO FORMA COMBINED FIANANCIAL STATEMENTS - VSE CORP | exhibit99-2fm8ka.htm |
Exhibit 99.1
WHEELER BROS., INC.
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TABLE OF CONTENTS
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August 5, 2011
Shareholder
Wheeler Bros., Inc.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheets of Wheeler Bros., Inc. (a Pennsylvania corporation) as of September 30, 2010 and 2009, and the related statements of earnings and retained earnings, comprehensive income, and cash flows for each of the years ended September 30, 2010, 2009, and 2008. These financial statements are the responsibility of the Company’s managements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wheeler Bros., Inc. as of September 30, 2010 and 2009, and the results of its operations and cash flows for each of the years ended September 30, 2010, 2009, and 2008 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note I to the financial statements, previously issued financial statements were restated due to changes in certain accounting policies. An adjustment has been made to retained earnings as of October 1, 2007 to reflect these changes.
/s/ The Binkley Kanavy Group, LLC
BALANCE SHEETS
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ASSETS
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As of September 30,
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As of
March 31,
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2010
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2009
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2011
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(unaudited)
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Current Assets
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Cash and cash equivalents (Note A)
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$ | 26,430,431 | $ | 20,795,731 | $ | 33,625,626 | ||||||
Marketable securities (Notes A and E)
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4,985,008 | 4,777,629 | 4,447,655 | |||||||||
Accounts receivable – trade (Note A)
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14,249,019 | 13,803,156 | 15,355,541 | |||||||||
Inventories (Note A)
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31,752,806 | 40,862,820 | 36,354,138 | |||||||||
Prepaid expenses and deposits
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2,924,561 | 2,761,669 | 2,872,041 | |||||||||
Total Current Assets
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80,341,825 | 83,001,005 | 92,655,001 | |||||||||
Property, Plant and Equipment (Note A)
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Building and leasehold improvements
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953,808 | 938,566 | 972,190 | |||||||||
Machinery and equipment
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7,920,519 | 7,401,253 | 8,062,377 | |||||||||
Furniture and office equipment
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3,244,730 | 3,226,844 | 3,384,462 | |||||||||
12,119,057 | 11,566,663 | 12,419,029 | ||||||||||
Less accumulated depreciation
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10,495,804 | 10,044,462 | 10,938,269 | |||||||||
Net Property, Plant and Equipment
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1,623,253 | 1,522,201 | 1,480,760 | |||||||||
Other Assets
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Cash surrender value of life insurance
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397,888 | 384,836 | 400,624 | |||||||||
Single premium annuities – at cost plus accumulated
earnings, net of outstanding loans and accrued interest
of $3,783,186, $3,577,481 and $3,888,324, respectively
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685,854 | 666,465 | 855,648 | |||||||||
Total Others Assets
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1,083,742 | 1,051,301 | 1,256,272 | |||||||||
Total Assets
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$ | 83,048,820 | $ | 85,574,507 | $ | 95,392,033 |
The accompanying notes are an integral part of these statements.
WHEELER BROS., INC.
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BALANCE SHEETS
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LIABILITIES
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As of September 30,
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As of
March 31,
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2010
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2009
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2011
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(unaudited)
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Current Liabilities
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Accounts payable – trade
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$ | 4,982,559 | $ | 3,364,217 | $ | 7,625,662 | ||||||
Accrued payroll and profit sharing (Note D)
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7,388,062 | 7,351,063 | 5,395,383 | |||||||||
Other accrued liabilities
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632,551 | 711,857 | 1,429,596 | |||||||||
Total Current Liabilities
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13,003,172 | 11,427,137 | 14,450,641 | |||||||||
SHAREHOLDERS’ EQUITY
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Common Stock (Note G)
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120,117 | 120,117 | 120,117 | |||||||||
Retained Earnings
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69,586,761 | 73,846,025 | 80,403,904 | |||||||||
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69,706,878 | 73,966,142 | 80,524,021 | |||||||||
Less Treasury Stock (Note G)
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111,000 | 111,000 | 111,000 | |||||||||
69,595,878 | 73,855,142 | 80,413,021 | ||||||||||
Accumulated Other Comprehensive Income (Note F)
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449,770 | 292,228 | 528,371 | |||||||||
Total Shareholders’ Equity
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70,045,648 | 74,147,370 | 80,941,392 | |||||||||
Total Liabilities and Shareholders’ Equity
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$ | 83,048,820 | $ | 85,574,507 | $ | 95,392,033 |
The accompanying notes are an integral part of these statements.
WHEELER BROS., INC.
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STATEMENTS OF EARNINGS AND RETAINED EARNINGS
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For the Years Ended September 30,
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For the Six Months Ended
March 31,
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2010
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2009
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2008
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2011
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2010
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(unaudited)
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(unaudited)
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Net Sales
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$ | 158,222,871 | $ | 160,209,624 | $ | 169,766,838 | $ | 77,841,001 | $ | 78,524,125 | ||||||||||
Cost of Goods Sold
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105,085,526 | 107,524,895 | 117,468,796 | 50,180,452 | 51,636,046 | |||||||||||||||
Gross Profit
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53,137,345 | 52,684,729 | 52,298,042 | 27,660,549 | 26,888,079 | |||||||||||||||
Selling, General and Administrative Expenses
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23,019,257 | 22,838,280 | 23,310,152 | 12,272,720 | 12,225,594 | |||||||||||||||
Operating Profit
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30,118,088 | 29,846,449 | 28,987,890 | 15,387,829 | 14,662,485 | |||||||||||||||
Other Income (Deductions)
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Interest expense
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(206,460 | ) | (194,937 | ) | (184,184 | ) | (110,138 | ) | (101,359 | ) | ||||||||||
Investment income
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453,429 | 527,452 | 792,546 | 119,460 | 206,734 | |||||||||||||||
Miscellaneous
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43,679 | 78,046 | 205,414 | 53,992 | 21,077 | |||||||||||||||
Earnings Before Income Taxes
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30,408,736 | 30,257,010 | 29,801,666 | 15,451,143 | 14,788,937 | |||||||||||||||
Income Taxes (Note C)
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1,038,000 | 1,000,000 | 720,000 | 504,000 | 504,000 | |||||||||||||||
Net Earnings
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29,370,736 | 29,257,010 | 29,081,666 | 14,947,143 | 14,284,937 | |||||||||||||||
Retained Earnings at Beginning of Period
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73,846,025 | 70,515,015 | 56,894,449 | 69,586,761 | 73,846,025 | |||||||||||||||
Distributions to Shareholders
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33,630,000 | 25,926,000 | 15,461,100 | 4,130,000 | 4,030,000 | |||||||||||||||
Retained Earnings at End of Period
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$ | 69,586,761 | $ | 73,846,025 | $ | 70,515,015 | $ | 80,403,904 | $ | 84,100,962 | ||||||||||
The accompanying notes are an integral part of these statements.
WHEELER BROS., INC.
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STATEMENTS OF COMPREHENSIVE INCOME
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For the Years Ended September 30,
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For the Six Months Ended
March 31,
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2010
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2009
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2008
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2011
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2010
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(unaudited)
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(unaudited)
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Net Earnings
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$ | 29,370,736 | $ | 29,257,010 | $ | 29,081,666 | $ | 14,947,143 | $ | 14,284,937 | ||||||||||
Other Comprehensive Income
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Unrealized gains on securities:
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Unrealized holding gains (losses) arising during
the period
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179,247 | (50,101 | ) | (318,054 | ) | 78,601 | 126,919 | |||||||||||||
Reclassification adjustment for (gains) losses
Included in net earnings
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(21,706 | ) | 165,868 | (2,753 | ) | - | - | |||||||||||||
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157,541 | 115,767 | (320,807 | ) | 78,601 | 126,919 | ||||||||||||||
Comprehensive Income
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$ | 29,528,277 | $ | 29,372,777 | $ | 28,760,859 | $ | 15,025,744 | $ | 14,411,856 |
The accompanying notes are an integral part of these statements.
WHEELER BROS., INC.
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STATEMENTS OF CASH FLOWS
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For the Years Ended September 30,
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For the Six Months Ended
March 31,
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2010
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2009
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2008
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2011
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2010
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(unaudited)
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(unaudited)
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Cash Flows From Operating Activities
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Net earnings
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$ | 29,370,736 | $ | 29,257,010 | $ | 29,081,666 | $ | 14,947,143 | $ | 14,284,937 | ||||||||||
Adjustments to reconcile net earnings to net cash
provided by operating activities:
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Depreciation and amortization of property, plant
and equipment
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609,493 | 640,809 | 706,811 | 442,463 | 459,620 | |||||||||||||||
Loss (gain) on disposal of property, plant and
equipment
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287 | 2,653 | (128,739 | ) | - | - | ||||||||||||||
Loss on sale of marketable securities
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8,324 | 99,740 | 62,633 | - | (43,375 | ) | ||||||||||||||
(Increase) decrease in:
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Accounts receivable
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(445,863 | ) | 1,448,151 | (1,313,936 | ) | (1,106,521 | ) | 155,843 | ||||||||||||
Inventories
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9,110,014 | (3,143,489 | ) | (3,816,240 | ) | (4,601,332 | ) | 3,253,316 | ||||||||||||
Prepaid expenses and deposits
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(162,892 | ) | (285,201 | ) | 200,011 | 52,520 | (346,298 | ) | ||||||||||||
Cash surrender value of life insurance and
single Premium annuity
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(32,441 | ) | (34,366 | ) | (32,587 | ) | (172,530 | ) | 98,623 | |||||||||||
Increase (decrease) in:
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Accounts payable
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1,618,342 | (3,028,520 | ) | 563,425 | 2,643,103 | 3,291,548 | ||||||||||||||
Accrued liabilities
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(42,307 | ) | 3,422 | 353,745 | (1,195,633 | ) | (1,148,015 | ) | ||||||||||||
Net Cash Provided by Operating Activities
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40,033,693 | 24,960,209 | 25,676,789 | 11,009,213 | 20,006,199 | |||||||||||||||
Cash Flows From Investing Activities
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Proceeds from sale of property and equipment
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- | 3,700 | 326,380 | - | - | |||||||||||||||
Proceeds from sale of marketable securities
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879,841 | 1,197,491 | 1,290,147 | 615,954 | - | |||||||||||||||
Purchase of property and equipment
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(710,833 | ) | (623,392 | ) | (626,310 | ) | (299,972 | ) | (590,982 | ) | ||||||||||
Purchase of marketable securities
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(938,001 | ) | (1,600,634 | ) | (2,615,218 | ) | - | - | ||||||||||||
Net Cash (Used) Provided by Investing
Activities
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(768,993 | ) | (1,022,835 | ) | (1,625,001 | ) | 315,982 | (590,982 | ) | |||||||||||
Cash Flows From Financing Activities
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Distributions to shareholders
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(33,630,000 | ) | (25,926,000 | ) | (15,461,100 | ) | (4,130,000 | ) | (4,030,000 | ) | ||||||||||
Net Cash Used by Financing Activities
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(33,630,000 | ) | (25,926,000 | ) | (15,461,100 | ) | (4,130,000 | ) | (4,030,000 | ) | ||||||||||
Net Increase (Decrease) in Cash and Cash
Equivalents
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5,634,700 | (1,988,626 | ) | 8,590,688 | 7,195,195 | 15,385,217 | ||||||||||||||
Cash and cash equivalents at beginning of period
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20,795,731 | 22,784,357 | 14,193,669 | 26,430,431 | 20,795,731 | |||||||||||||||
Cash and Cash Equivalents at end of period
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$ | 26,430,431 | $ | 20,795,731 | $ | 22,784,357 | $ | 33,625,626 | $ | 36,180,948 | ||||||||||
Supplemental Disclosures
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Interest paid
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$ | 206,460 | $ | 194,937 | $ | 184,184 | ||||||||||||||
Income taxes paid
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$ | 1,166,470 | $ | 901,495 | $ | 773,075 |
The accompanying notes are an integral part of these statements.
WHEELER BROS., INC.
NOTES TO FINANCIAL STATEMENTS
(All information with respect to March 31, 2011 and 2010 is unaudited)
Note A - Summary of Accounting Policies
This summary of significant accounting policies of Wheeler Bros., Inc. (the Company) is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
1. Nature of Operations
The Company is a distributor of automotive, truck and ground support vehicle parts whose primary operations and headquarters are located in Somerset, Pennsylvania, with inventories located on various government facilities. The Company’s principal markets are located worldwide.
2. Marketable Securities
Investments in marketable securities are recorded at market value. The basis used to determine investment cost for computing realized gains or losses for marketable securities is average cost.
3. Accounts Receivable
The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. During the year, the Company reviews their listing of accounts receivable and when amounts become past due, a determination is made as to the collectability of the receivable. If amounts become uncollectible, they will be charged to operations when that determination is made.
4. Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.
5. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and amortization are provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on straight-line and accelerated methods. Leasehold improvements are amortized over the service lives of the improvements.
6. Cash Equivalents
For purposes of the statements of cash flows, the Company considers all investments having original maturities of three months or less, money market, and other interest-bearing deposit accounts to be cash equivalents.
7. Use of Estimates
In preparing the Company’s financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8. Revenue Recognition
Substantially all of the Company’s revenue results from supplying vehicle parts to clients. The Company recognizes revenue from the sale of vehicle parts when the product is delivered to the customer. Revenue from sales are presented net of allowances for estimated sales returns, which are based on historical return rates.
WHEELER BROS., INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(All information with respect to March 31, 2011 and 2010 is unaudited)
Note A - Summary of Accounting Policies (Continued)
9. Shipping and Handling
For presentation purposes, shipping and handling charges have been included in the costs of good sold.
Note B - Related Party Transactions
The Company has various rental agreements with related parties. The Company rents its office and warehouse space on a month-to-month basis for $25,070 per month plus operating costs. The Company also rents three additional warehouses for $35,000, $7,203, and $4,500 per month plus operating costs. The term of the first warehouse lease is fifteen years beginning April 1, 2002. The second warehouse is leased on a month-to-month basis beginning March 1, 2005. The third warehouse is leased on a month-to-month basis beginning March 1, 2006. Rental payments made for all related party leases for the years ended September 30, 2010, 2009, and 2008 were $860,000 for each year and $430,000 for the six months ended March 31, 2011 and March 31, 2010. Future minimum lease payments under the non-cancelable lease are as follows:
September 30
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2011
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$ | 420,000 | ||
2012
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420,000 | |||
2013
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420,000 | |||
2014
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420,000 | |||
2015
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420,000 | |||
Thereafter
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630,000 | |||
$ | 2,730,000 | |||
Note C - Income Taxes
The shareholders of the Company elected under Subchapter S of the Internal Revenue Code not to have the Company's earnings taxed as a corporation. However, the Company is liable to various state and local governments for corporate income taxes. Federal, Pennsylvania and various other state income taxes will be payable by the shareholders at varied rates which may require a distribution of corporate funds.
Note D - Employee Benefit Plans
The Company has a profit sharing plan, which covers substantially all of its employees, and a deferred compensation plan in favor of some of its employees. Both plans provide for contributions from the Company as determined by the Board of Directors. The profit sharing expense for the years ended September 30, 2010, 2009, and 2008 amounted to $1,278,000 for each year and $504,000 and $486,000 for the six months ended March 31, 2011 and March 31, 2010, respectively. Deferred compensation plan contribution expense for the years ended September 30, 2010, 2009, and 2008 amounted to $300,000, $326,000, and $331,000, respectively and $156,000 and $174,000 for the six months ended March 31, 2011 and March 31, 2010, respectively. The balance in the deferred compensation accounts is included in the balance sheet under marketable securities, and a corresponding liability is included in the balance sheet under accrued payroll and profit sharing.
WHEELER BROS., INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(All information with respect to March 31, 2011 and 2010 is unaudited)
Note E - Investments in Marketable Securities
Information relating to debt and equity available-for-sale securities as of September 30 is as follows:
2010
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2009
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Fair value of debt available-for-sale securities
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$ | 3,241,437 | $ | 3,672,730 | ||||
Fair value of equity available-for-sale securities
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1,743,571 | 1,104,899 | ||||||
Total fair value of available-for-sale securities
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4,985,008 | 4,777,629 | ||||||
Cost of debt available-for-sale securities
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$ | 3,240,106 | $ | 3,703,303 | ||||
Cost of equity available-for-sale securities
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1,295,132 | 782,098 | ||||||
Total cost of available-for-sale securities
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4,535,238 | 4,485,401 | ||||||
Unrealized appreciation of available-for-sale securities
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$ | 449,770 | $ | 292,228 |
As of September 30, 2010, the fair market values of debt available-for-sale securities maturities are as follows:
Less than 1 Year
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$ | 2,463,143 | ||
1 to 5 Years
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427,898 | |||
5 to 10 Years
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329,296 | |||
Greater than 10 Years
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21,100 | |||
Total
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$ | 3,241,437 |
Note F - Accumulated Other Comprehensive Income
The balance in Accumulated Other Comprehensive Income consists of the following:
Unrealized Gains on Securities
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Accumulated Other Comprehensive Income
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Balance at October 1, 2008
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$ | 176,461 | $ | 176,461 | ||||
Change during the year ended September 30, 2009
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115,767 | 115,767 | ||||||
Balance at September 30, 2009
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292,228 | 292,228 | ||||||
Change during the year ended September 30, 2010
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157,542 | 157,542 | ||||||
Balance at September 30, 2010
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449,770 | 449,770 | ||||||
Change during the period ended March 31, 2011
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78,601 | 78,601 | ||||||
Balance at March 31, 2011
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$ | 528,371 | $ | 528,371 |
WHEELER BROS., INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(All information with respect to March 31, 2011 and 2010 is unaudited)
Note G - Capital Stock Transactions
The shareholders’ equity section contains the following classes of common stock at September 30:
2010
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2009
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Voting common stock:
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Shares authorized
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100,000 | 100,000 | ||||||
Shares issued
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94,733 | 94,733 | ||||||
Non-voting common stock:
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Shares authorized
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3,900,000 | 3,900,000 | ||||||
Shares issued
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3,031,472 | 3,031,472 |
All classes of common stock are no par and have no stated value. There was no change to the amount of common stock during the period ended March 31, 2011
Treasury stock is shown at cost. Treasury stock consisted of 3,000 shares of voting common stock and 96,000 shares of non-voting common stock at September 30, 2010 and 2009.
Note H - Concentrations
The majority of the Company's accounts receivable and sales were with agencies of the United States government for the years ended September 30, 2010, 2009, and 2008.
The majority of the Company’s purchases of inventory for the years ended September 30, 2010, 2009, and 2008 were from after market and original automotive, truck and ground support vehicle manufacturers and distributors.
The Company maintains its cash and cash equivalent holdings in amounts generally exceeding federally insured limits. The Company has not experienced any losses in such accounts. Management believes the Company is not exposed to any significant credit risk related to cash.
WHEELER BROS., INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(All information with respect to March 31, 2011 and 2010 is unaudited)
Note I – Restatement of Prior Periods
The Company has evaluated its accounting policies and is restating previously issued financial statements due to the following changes: 1) certain indirect overhead costs related to the acquisition and storage of inventory are being capitalized; 2) bonus depreciation as permitted by the Internal Revenue Code will no longer be recorded for financial statement purposes; 3) certain research & development costs will be expensed in the period incurred; and 4) accrued vacation will be recorded in the financial statements. These restatements result in an increase to retained earnings of $1,336,275 as of October 1, 2007.
The restatements had the following effects on the balance sheets as of September 30:
2010
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2009
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Inventories
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$ | 1,998,915 | $ | 2,175,391 | ||||
Prepaid expenses and deposits
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$ | (264,307 | ) | $ | - | |||
Accumulated depreciation
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$ | (214,038 | ) | $ | (257,887 | ) | ||
Accrued vacation
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$ | 525,000 | $ | 550,000 | ||||
Retained earnings
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$ | 1,423,646 | $ | 1,883,278 |
The restatements had the following effects on the statements of earnings for the years ending September 30:
2010
|
2009
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2008
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Cost of Goods Sold
|
$ | 176,476 | $ | (490,873 | ) | $ | 97,573 | |||||
Selling, General and Administrative Expenses
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283,156 | (73,957 | ) | (79,746 | ) | |||||||
Net Earnings and Comprehensive Income
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$ | (459,632 | ) | $ | 564,830 | $ | (17,827 | ) |
Note J - Subsequent Events
During June 2011, VSE Corporation acquired 100% of the outstanding stock of the Company. Subsequent to September 30, 2010 and prior to the closing, the Company distributed $31,930,000 in cash to the shareholders.
The Company has evaluated subsequent events through August 5, 2011 the date which the financial statements were available to be issued.