Exhibit 99.1

 
WHEELER BROS., INC.
TABLE OF CONTENTS
     
     
     
     
   
     
   
     
     Balance Sheets
    
     
   
     
   
     
   
     
   
     
     
     


 

 
 


 
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
  
                   
                   
ASSETS
  
                   
   
As of September 30,
    
As of
March 31,
  
   
2010
    
2009
    
2011
  
               
(unaudited)
  
Current Assets
                  
  Cash and cash equivalents (Note A)
   $ 26,430,431     $ 20,795,731     $ 33,625,626  
  Marketable securities (Notes A and E)
     4,985,008       4,777,629       4,447,655  
  Accounts receivable – trade (Note A)
     14,249,019       13,803,156       15,355,541  
  Inventories (Note A)
     31,752,806       40,862,820       36,354,138  
  Prepaid expenses and deposits
     2,924,561       2,761,669       2,872,041  
                         
      Total Current Assets
     80,341,825       83,001,005       92,655,001  
                         
Property, Plant and Equipment (Note A)
                        
  Building and leasehold improvements
     953,808       938,566       972,190  
  Machinery and equipment
     7,920,519       7,401,253       8,062,377  
  Furniture and office equipment
     3,244,730       3,226,844       3,384,462  
      12,119,057       11,566,663       12,419,029  
  Less accumulated depreciation
     10,495,804       10,044,462       10,938,269  
                         
      Net Property, Plant and Equipment
     1,623,253       1,522,201       1,480,760  
                         
Other Assets
                        
  Cash surrender value of life insurance
     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
       685,854         666,465         855,648  
                         
      Total Others Assets
     1,083,742       1,051,301       1,256,272  
                         
          Total Assets
   $ 83,048,820     $ 85,574,507     $ 95,392,033  

 

 

 

 

 

 

 

 

 
The accompanying notes are an integral part of these statements.
 
 
 
 
WHEELER BROS., INC.
  
                   
BALANCE SHEETS
  
                   
                   
LIABILITIES
  
                   
   
As of September 30,
    
As of
March 31,
  
   
2010
    
2009
    
2011
  
               
(unaudited)
  
Current Liabilities
                  
  Accounts payable – trade
   $ 4,982,559     $ 3,364,217     $ 7,625,662  
  Accrued payroll and profit sharing (Note D)
     7,388,062       7,351,063       5,395,383  
  Other accrued liabilities
     632,551       711,857       1,429,596  
                         
      Total Current Liabilities
     13,003,172       11,427,137       14,450,641  
                         
                         
                         
SHAREHOLDERS’ EQUITY
  
                         
                         
Common Stock (Note G)
     120,117       120,117       120,117  
Retained Earnings
     69,586,761       73,846,025       80,403,904  
                         
 
     69,706,878       73,966,142       80,524,021  
Less Treasury Stock (Note G)
     111,000       111,000       111,000  
                         
      69,595,878       73,855,142       80,413,021  
                         
Accumulated Other Comprehensive Income (Note F)
     449,770       292,228       528,371  
                         
    Total Shareholders’ Equity
     70,045,648       74,147,370       80,941,392  
                         
          Total Liabilities and Shareholders’ Equity
   $ 83,048,820     $ 85,574,507     $ 95,392,033  

 

 

 

 

 

 

 

 

 

 
The accompanying notes are an integral part of these statements.
 
 
 
 
 
                               
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
  
                               
   
For the Years Ended September 30,
    
For the Six Months Ended
March 31,
  
   
2010
    
2009
    
2008
    
2011
    
2010
  
                     
(unaudited)
    
(unaudited)
  
                               
Net Sales
   $ 158,222,871     $ 160,209,624     $ 169,766,838     $ 77,841,001     $ 78,524,125  
Cost of Goods Sold
     105,085,526       107,524,895       117,468,796       50,180,452       51,636,046  
                                         
      Gross Profit
     53,137,345       52,684,729       52,298,042       27,660,549       26,888,079  
                                         
Selling, General and Administrative Expenses
     23,019,257       22,838,280       23,310,152       12,272,720       12,225,594  
                                         
      Operating Profit
     30,118,088       29,846,449       28,987,890       15,387,829       14,662,485  
                                         
                                         
Other Income (Deductions)
                                        
  Interest expense
     (206,460 )     (194,937 )     (184,184 )     (110,138 )     (101,359 )
  Investment income
     453,429       527,452       792,546       119,460       206,734  
  Miscellaneous
     43,679       78,046       205,414       53,992       21,077  
                                         
      Earnings Before Income Taxes
     30,408,736       30,257,010       29,801,666       15,451,143       14,788,937  
                                         
Income Taxes (Note C)
     1,038,000       1,000,000       720,000       504,000       504,000  
                                         
      Net Earnings
     29,370,736       29,257,010       29,081,666       14,947,143       14,284,937  
                                         
Retained Earnings at Beginning of Period
     73,846,025       70,515,015       56,894,449       69,586,761       73,846,025  
Distributions to Shareholders
     33,630,000       25,926,000       15,461,100       4,130,000       4,030,000  
                                         
      Retained Earnings at End of Period
   $ 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.
  
                               
STATEMENTS OF COMPREHENSIVE INCOME
  
                               
   
For the Years Ended September 30,
    
For the Six Months Ended
March 31,
  
   
2010
    
2009
    
2008
    
2011
    
2010
  
                     
(unaudited)
    
(unaudited)
  
                               
Net Earnings
   $ 29,370,736     $ 29,257,010     $ 29,081,666     $ 14,947,143     $ 14,284,937  
                                         
Other Comprehensive Income
                                        
    Unrealized gains on securities:
                                        
     Unrealized holding gains (losses) arising during
       the period
     179,247       (50,101 )     (318,054 )     78,601       126,919  
     Reclassification adjustment for (gains) losses
        Included in net earnings
     (21,706 )     165,868       (2,753 )     -       -  
 
     157,541       115,767       (320,807 )     78,601       126,919  
                                         
Comprehensive Income
   $ 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.
 
 
 
 
 
                               
STATEMENTS OF CASH FLOWS
  
                               
   
For the Years Ended September 30,
    
For the Six Months Ended
March 31,
  
   
2010
    
2009
    
2008
    
2011
    
2010
  
                     
(unaudited)
    
(unaudited)
  
                               
Cash Flows From Operating Activities
                              
  Net earnings
   $ 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:
                                        
      Depreciation and amortization of property, plant
      and equipment
     609,493       640,809       706,811       442,463       459,620  
      Loss (gain) on disposal of property, plant and
        equipment
     287       2,653       (128,739 )     -       -  
      Loss on sale of marketable securities
     8,324       99,740       62,633       -       (43,375 )
      (Increase) decrease in:
                                        
        Accounts receivable
     (445,863 )     1,448,151       (1,313,936 )     (1,106,521 )     155,843  
        Inventories
     9,110,014       (3,143,489 )     (3,816,240 )     (4,601,332 )     3,253,316  
        Prepaid expenses and deposits
     (162,892 )     (285,201 )     200,011       52,520       (346,298 )
        Cash surrender value of life insurance and
        single Premium annuity
     (32,441 )     (34,366 )     (32,587 )     (172,530 )     98,623  
      Increase (decrease) in:
                                        
        Accounts payable
     1,618,342       (3,028,520 )     563,425       2,643,103       3,291,548  
        Accrued liabilities
     (42,307 )     3,422       353,745       (1,195,633 )     (1,148,015 )
                                         
        Net Cash Provided by Operating Activities
     40,033,693       24,960,209       25,676,789       11,009,213       20,006,199  
                                         
Cash Flows From Investing Activities
                                        
  Proceeds from sale of property and equipment
     -       3,700       326,380       -       -  
  Proceeds from sale of marketable securities
     879,841       1,197,491       1,290,147       615,954       -  
  Purchase of property and equipment
     (710,833 )     (623,392 )     (626,310 )     (299,972 )     (590,982 )
  Purchase of marketable securities
     (938,001 )     (1,600,634 )     (2,615,218 )     -       -  
                                         
        Net Cash (Used) Provided by Investing
          Activities
     (768,993 )     (1,022,835 )     (1,625,001 )     315,982       (590,982 )
                                         
Cash Flows From Financing Activities
                                        
  Distributions to shareholders
     (33,630,000 )     (25,926,000 )     (15,461,100 )     (4,130,000 )     (4,030,000 )
                                         
        Net Cash Used by Financing Activities
     (33,630,000 )     (25,926,000 )     (15,461,100 )     (4,130,000 )     (4,030,000 )
                                         
        Net Increase (Decrease) in Cash and Cash
          Equivalents
     5,634,700       (1,988,626 )     8,590,688       7,195,195       15,385,217  
                                         
Cash and cash equivalents at beginning of period
     20,795,731       22,784,357       14,193,669       26,430,431       20,795,731  
                                         
        Cash and Cash Equivalents at end of period
   $ 26,430,431     $ 20,795,731     $ 22,784,357     $ 33,625,626     $ 36,180,948  
                                         
                                         
Supplemental Disclosures
                                        
                                         
Interest paid
   $ 206,460     $ 194,937     $ 184,184                  
                                         
Income taxes paid
   $ 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
      
       
2011
   $ 420,000  
2012
     420,000  
2013
     420,000  
2014
     420,000  
2015
     420,000  
Thereafter
     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
    
2009
  
             
Fair value of debt available-for-sale securities
   $ 3,241,437     $ 3,672,730  
Fair value of equity available-for-sale securities
     1,743,571       1,104,899  
Total fair value of available-for-sale securities
     4,985,008       4,777,629  
                 
Cost of debt available-for-sale securities
   $ 3,240,106     $ 3,703,303  
Cost of equity available-for-sale securities
     1,295,132       782,098  
Total cost of available-for-sale securities
     4,535,238       4,485,401  
                 
Unrealized appreciation of available-for-sale securities
   $ 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
   $ 2,463,143  
1 to 5 Years
     427,898  
5 to 10 Years
     329,296  
Greater than 10 Years
     21,100  
Total
   $ 3,241,437  


Note F - Accumulated Other Comprehensive Income

The balance in Accumulated Other Comprehensive Income consists of the following:

   
Unrealized Gains on Securities
    
Accumulated Other Comprehensive Income
  
             
Balance at October 1, 2008
   $ 176,461     $ 176,461  
Change during the year ended September 30, 2009
     115,767       115,767  
                 
Balance at September 30, 2009
     292,228       292,228  
Change during the year ended September 30, 2010
     157,542       157,542  
                 
Balance at September 30, 2010
     449,770       449,770  
Change during the period ended March 31, 2011
     78,601       78,601  
                 
Balance at March 31, 2011
   $ 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
    
2009
  
             
     Voting common stock:
            
    Shares authorized
     100,000       100,000  
    Shares issued
     94,733       94,733  
                 
     Non-voting common stock:
                
    Shares authorized
     3,900,000       3,900,000  
    Shares issued
     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
    
2009
  
             
Inventories
   $ 1,998,915     $ 2,175,391  
Prepaid expenses and deposits
   $ (264,307 )   $ -  
Accumulated depreciation
   $ (214,038 )   $ (257,887 )
Accrued vacation
   $ 525,000     $ 550,000  
Retained earnings
   $ 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
    
2008
  
                   
Cost of Goods Sold
   $ 176,476     $ (490,873 )   $ 97,573  
Selling, General and Administrative Expenses
     283,156       (73,957 )     (79,746 )
                         
Net Earnings and Comprehensive Income
   $ (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.