UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 19, 1998
------------------
FIRSTAMERICA AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2-297254-NY 88-0206732
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
601 BRANNAN STREET
SAN FRANCISCO, CA 94107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 284-0444
(Former name, former address and former fiscal year, if changed
since last report)
FIRSTAMERICA AUTOMOTIVE, INC.
FORM 8-K/A
INDEX
Item Description Page
- ---- ----------- ----
Item 2. Acquisition or Disposition of Assets 2
Item 7. Financial Statements and Exhibits 2
Signatures 3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) As previously reported by FirstAmerica Automotive, Inc. (the "Company") in
a Current Report on Form 8-K filed July 6, 1998, on June 19, 1998 the
Company completed the acquisition of substantially all of the assets of
Burgess Honda, an automobile dealership located in Daly City, California.
Pursuant to the Asset Purchase Agreement dated January 29, 1998 (the
"Purchase Agreement") by and between the Company, Burgess British Cars,
Inc., a California corporation ("BBC"), Tudor Enterprises, Inc., a
California corporation ("Tudor"), and Keith Burgess as sole stockholder of
BBC, the Company acquired certain assets (the "Purchased Assets"),
consisting primarily of new motor vehicle inventory, parts, accessories,
furniture and equipment, and certain related tangible and intangible
assets, including goodwill, used primarily in connection with the operation
by BBC of Burgess Honda. The purchase price of the Purchased Assets was
$3.7 million plus the value of new vehicle inventory at the date of
closing totaling $1.9 million.
The Purchase Price was paid in cash, partially from the proceeds of a $4.0
million loan from Donald V. Strough, the Chairman of the Company's Board of
Directors, to the Company, pursuant to the terms of a Letter Agreement
between the Company and Mr. Strough dated July 11, 1998 (the "Letter
Agreement"). Mr. Strough obtained the $4.0 million from a commercial bank
in the form of a loan to Mr. Strough in his personal capacity. Pursuant to
the terms of the Letter Agreement, Mr. Strough will be paid a 3%
origination fee on the loan. The principal amount due on the loan will be
repaid pursuant to the terms of the Letter Agreement and not later than
June 1, 1999. The terms of the loan were based on arm's length
negotiation between the Company and Mr. Strough. The $1.9 million new
motor vehicle inventory portion of the Purchase Price was paid from the
Company's existing credit facility.
(b) BBC is a privately held company specializing in the sale of new and used
automobiles and replacement parts and used that part of the Purchased
Assets which consisted of equipment and other physical property in such
capacity. The Company intends to use these assets in the same capacity.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
This amendment to the Company's Form 8-K that was filed on July 6, 1998
contains the financial statements of Burgess Honda at page F-1.
(b) PRO FORMA FINANCIAL INFORMATION.
This amendment to the Company's Form 8-K that was filed on July 6, 1998
contains the unaudited pro forma financial statements required pursuant to
Article 11 of Regulation S-X at page PF-1.
(c) EXHIBITS
Exhibit Number Description
- -------------- -----------
2.1(1)* Asset Purchase Agreement by and among the Company, BBC, Tudor and Keith
Burgess dated January 29, 1998, previously filed as Exhibit 2.1(1) to the
Company's 8-K as filed with the Securities and Exchange Commission on July
6, 1998, and is incorporated herein by reference.
2.2* Letter Agreement by and between the Company and Donald V. Strough, dated
June 11, 1998, previously filed with the Securities and Exchange Commission
on July 6, 1998, and is incorporated herein by reference.
*Filed Previously
(1) Exhibits to the Asset Purchase Agreement not filed herewith are identified
in the Asset Purchase Agreement. The Company will furnish supplementally
any omitted Exhibit to the Commission upon request.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: September 4, 1998 FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Debra Smithart
------------------
Debra Smithart
Chief Financial Officer
3
BURGESS HONDA
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS
Balance sheets F-3
Statements of operations and retained earnings F-5
Statements of cash flows F-6
Notes to financial statements F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FirstAmerica Automotive, Inc.:
We have audited the accompanying balance sheets of Burgess Honda (as defined
in note 1) as of September 30, 1997 and 1996 and the related statements of
operations and retained earnings and cash flows for the three years ended
September 30, 1997. These financial statements are the responsibility of
FirstAmerica Automotive Inc.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides 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 Burgess Honda (as defined in
note 1) as of September 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the three year period ended
September 30, 1997, in conformity with generally accepted accounting
principles.
September 3, 1998
F-2
BURGESS HONDA
BALANCE SHEETS
(IN THOUSANDS)
MARCH 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1997 1996
Assets ----------- --------- ---------
Cash $ 1,072 $ 1,463 $ 1,041
Accounts receivable (note 2) 744 351 340
Inventories (note 3) 1,518 1,451 1,462
Deposits and prepaid expenses 70 79 102
Prepaid costs- extended warranty service contracts 22 24 23
------- ------- -------
Total current assets 3,426 3,368 2,968
Property and equipment, net (note 4) 172 175 215
Other assets:
Prepaid costs-extended warranty service contracts 29 37 57
Note receivable, related party (note 6) 323 329 341
------- ------- -------
Total assets $ 3,950 $ 3,909 $ 3,581
======= ======= =======
See accompanying notes to financial statements.
F-3
BURGESS HONDA
BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
MARCH 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1997 1996
Liabilities and Stockholder's Equity ---------- --------- ---------
Current liabilities:
Accounts payable $ 28 $ 32 $ 22
Accrued liabilities 372 324 328
Floor plan notes payable (note 3) 1,426 1,489 1,295
Deferred revenue-extended warranty service contracts 44 48 47
------ ------ ------
Total current liabilities 1,870 1,893 1,692
Deferred revenue- extended warranty service contracts 59 75 113
------ ------ ------
Total liabilities 1,929 1,968 1,805
Commitments (note 5)
Stockholder's equity:
Common stock 45 45 45
Retained earnings 1,976 1,896 1,731
------ ------ ------
Total stockholder's equity 2,021 1,941 1,776
------ ------ ------
$3,950 $3,909 $3,581
====== ====== ======
See accompanying notes to financial statements.
F-4
BURGESS HONDA
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)
SIX MONTHS ENDED MARCH 31,
1998 1997 TWELVE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED) (UNAUDITED) 1997 1996 1995
----------- ----------- ------------ ----------- -----------
Sales:
Vehicle $ 11,047 $ 8,685 $ 20,718 $ 16,203 $ 15,086
Service, parts, and other 2,183 1,949 3,205 3,727 3,722
--------- ---------- ----------- ---------- ----------
Total sales 13,230 10,634 23,923 19,930 18,808
Cost of sales 11,296 8,995 20,233 16,764 15,659
--------- ---------- ----------- ---------- ----------
Gross profit 1,934 1,639 3,690 3,166 3,149
Operating expenses:
Selling, general and administrative 1,501 1,456 3,185 2,759 2,551
Depreciation and amortization 28 29 59 57 57
--------- ---------- ----------- ---------- ----------
Operating income 405 154 446 350 541
Other income (expense):
Interest income 31 41 90 69 72
Interest expense, floor plan (59) (60) (119) (140) (193)
Other, net 37 39 18 52 56
--------- ---------- ----------- ---------- ----------
Income before income taxes 414 174 435 331 476
Income tax expense 6 3 7 5 7
--------- ---------- ----------- ---------- ----------
Net income 408 171 428 326 469
Retained earnings, beginning of period 1,896 1,731 1,731 1,622 1,563
Distributions (328) (158) (263) (217) (410)
--------- ---------- ----------- ---------- ----------
Retained earnings, end of period $ 1,976 $ 1,744 $ 1,896 $ 1,731 $ 1,622
========= ========== =========== ========== ==========
See accompanying notes to financial statements.
F-5
BURGESS HONDA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended March 31,
1998 1997 Year Ended September 30,
(UNAUDITED) (UNAUDITED) 1997 1996 1995
--------- --------- --------- --------- ---------
Cash flows from operating activities:
Net income $ 408 $ 171 $ 428 $ 326 $ 469
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 28 29 59 57 57
Amortization of deferred warranty revenue (10) (12) (16) (16) (12)
Changes in operating assets and liabilities:
Receivables and contracts in transit (393) 117 (11) (38) 63
Inventories (67) 266 53 758 (606)
Other assets 6 (34) 12 99 277
Flooring notes payable (63) (197) 194 (974) 441
Accounts payable and accrued liabilities 44 213 5 32 (148)
Deposits and prepaid expenses 9 15 23 3 (46)
------ ------ ------ ------ ------
Net cash (used in) provided by operating activities (38) 568 747 247 495
------ ------ ------ ------ ------
Cash flows from investing activities:
Capital expenditures, net (25) (58) (62) (84) (70)
------ ------ ------ ------ ------
Net cash used in investing activities (25) (58) (62) (84) (70)
------ ------ ------ ------ ------
Cash flows from financing activities:
Distributions to stockholder (328) (158) (263) (217) (410)
------ ------ ------ ------ ------
Net cash (used in) provided by financing activities (328) (158) (263) (217) (410)
------ ------ ------ ------ ------
Net increase (decrease) in cash (391) 352 422 (54) 15
Cash at beginning of the period 1,463 1,041 1,041 1,095 1,080
------ ------ ------ ------ ------
Cash at end of the period $1,072 $1,393 $1,463 $1,041 $1,095
====== ====== ====== ====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 58 $ 58 $ 119 $ 148 $ 186
====== ====== ====== ====== ======
Cash paid during the year for taxes $ 7 $ 7 $ 12 $ 14 $ 16
====== ====== ====== ====== ======
See accompanying notes to financial statements.
F-6
BURGESS HONDA
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BUSINESS
Burgess Honda (the Company) constitutes the portion of the assets,
liabilities and operations of Burgess British Cars, Inc. that were
subsequently sold to FirstAmerica Automotive, Inc. (note 8). The
Company offers a broad range of products and services including new
Honda vehicles as well as used vehicles, vehicle financing and
insurance and replacement parts and service.
(b) BASIS OF PREPARATION
The accompanying financial statements reflect the historical financial
position, results of operations and cash flows for Burgess Honda,
certain of which were subsequently sold to FirstAmerica Automotive, Inc.
(note 8). The operations of Burgess Honda represent the revenue and
direct expenses of the Company, do not include any allocation of costs
from Burgess British Cars, Inc. and may not be indicative of operations
that would be incurred on a stand-alone basis.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less from the purchase date to be cash equivalents.
(d) INVENTORIES
Inventories are stated at the lower of cost or market, new vehicle cost
is determined by using the last-in, first-out (LIFO) basis. Used
vehicle cost is determined using the specific identification basis.
Parts and accessories cost is determined using the first-in, first-out
(FIFO) basis.
(e) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Property and equipment are
being depreciated on a straight-line basis over the estimated useful
life of the assets. Leasehold improvements are amortized straight-line
over the shorter of the lease term or estimated useful life of the
asset. The range of estimated useful lives are as follows:
Leasehold improvements 15 years
Equipment 5 to 7 years
Furniture and fixtures 5 to 7 years
Company vehicles 5 years
The cost of maintenance and repairs is expensed as incurred, while
significant renewals and betterments are capitalized. When an asset is
retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the account, and any gain or loss is
credited or charged to income.
(f) INCOME TAXES
The Company elected S Corporation status for federal and state income
tax reporting purposes. Federal income taxes on S Corporation income
were payable by the individual stockholders rather than the corporation.
California state income taxes for S Corporations are 1.5% of pretax
income.
F-7
(g) FINANCIAL INSTRUMENTS
The carrying amount of trade receivables, trade payables, accrued
liabilities and short-term borrowings approximate fair value because of
the short-term nature of these instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
(h) ADVERTISING
The Company expenses production and other costs of advertising as
incurred. Advertising expenses were $102,000 and $217,000 for the
unaudited six month periods ended March 31, 1998 and 1997, respectively,
and $372,000, $261,000 and $159,000 for the years ended September 30,
1997, 1996 and 1995, respectively.
(i) CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base.
(j) USE OF ESTIMATES
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
This requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(k) REVENUE RECOGNITION
Vehicle sales revenue is recognized upon delivery, when the sales
contract is signed and down payment has been received. Notes received
from buyers are generally sold to finance companies. Finance fees are
received for notes sold to finance companies and are recognized, net of
anticipated charge backs, upon acceptance of the credit by the finance
companies. These fees are included in service, parts, and other revenues
in the statements of operations. Parts and service revenues are
recognized at the time of sale or service.
The Company recognizes fees from the sale of third party extended
warranty service contracts at the time of sale. For extended warranty
service contracts where the Company is the primary obligor of the
contract, the costs directly related to sales of the contracts are
deferred and charged to expense proportionately as the revenues are
recognized. Warranty service contract revenues are included in service,
parts, and other revenues in the statements of operations.
(l) MAJOR SUPPLIER AND DEALER AGREEMENT
The Company purchases substantially all of its new vehicles and
inventory from one manufacturer at the prevailing prices charged by the
manufacturer. The Company's overall sales could be impacted by the
manufacturer's inability or unwillingness to supply the dealership with
an adequate supply of popular models.
The Company enters into dealer sales and service agreements (Dealer
Agreements) with the manufacturer. The Dealer Agreements generally limit
the location of the dealership and mandates the manufacturer's approval
rights over changes in dealership management and
F-8
ownership. The manufacturer is also entitled to terminate the agreement
if the dealership is in material breach of the terms.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
MARCH 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1997 1996
----------- ------ ------
Contracts in transit and vehicle receivables $559 $165 $191
Trade 80 62 95
Manufacturer and other 112 128 58
---- ---- ----
Total accounts receivable 751 355 344
Less allowance for doubtful accounts 7 4 4
---- ---- ----
Accounts receivable, net $744 $351 $340
==== ==== ====
Contracts in transit receivables are due from financial institutions and
regional banks for funding of customer vehicle purchases and are normally
collected within 30 days. Trade receivables primarily consist of commercial
receivables for parts sales and finance receivables from financial
institutions for financing commissions. Manufacturer and other receivables
consist of amounts due from manufacturers for rebates on vehicle purchases
(holdbacks), manufacturer incentives and reimbursable warranty coverage
expenses.
(3) INVENTORIES AND FLOOR PLAN NOTES PAYABLE
Inventories and floor plan notes payable were as follows (in thousands):
INVENTORY COST FLOOR PLAN NOTES PAYABLE
------------------------------------ ----------------------------------
MARCH 31, 1998 SEPTEMBER 30, MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997 1996 (UNAUDITED) 1997 1996
------------------------------------ ----------------------------------
New vehicles $1,127 $1,076 $1,094 $1,426 $1,489 $1,295
Used vehicles 426 421 427 -- -- --
Parts and accessories 246 235 203 -- -- --
LIFO Reserve (281) (281) (262) -- -- --
------------------------------------ ----------------------------------
Inventories, net $1,518 $1,451 $1,462 $1,426 $1,489 $1,295
==================================== ==================================
Inventory floor plan notes payable consist of notes from a financing
institution that bear interest at prime plus 2.0% and are secured by new
vehicles and vehicle receivables. The floor plan agreement permits the
Company to borrow up to $3.5 million; borrowings are limited by new vehicle
inventory levels.
LIFO provisions were $19,000 and $49,000 for the years ended September 30,
1997 and 1996, respectively, and are included in cost of sales in the
statement of operations.
F-9
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
MARCH 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1997 1996
----------------------------------------------------
Leasehold improvements $ 563 $ 562 $ 544
Equipment 182 185 183
Company vehicles 109 105 110
Furniture and fixtures 163 161 161
----------------------------------------------------
1,017 1,013 998
Less accumulated depreciation 845 838 783
----------------------------------------------------
Property and equipment, net $ 172 $ 175 $ 215
====================================================
(5) COMMITMENTS
The minimum rental commitments under operating leases which have terms
greater than one year after September 30, 1997 are as follows (in
thousands):
Year ending September 30:
-------------------------
1998 $ 31
1999 25
2000 22
2001 14
Thereafter ----
$ 92
====
Amounts paid under operating leases were $15,000 and $7,500 for the
unaudited six months ended March 31, 1998 and 1997, respectively, and
$30,000, $15,000 and $15,000 for the years ended September 30, 1997, 1996
and 1995, respectively.
(6) RELATED PARTY TRANSACTIONS
LEASE
The Company rents its facilities from the sole stockholder for $35,000 per
month. Rental expense under a month to month agreement between the Company
and the sole stockholder totaled $210,000 for each of the unaudited six
month periods ended March 31, 1998 and 1997, and $420,000 per year for the
years ended September 30, 1997, 1996, and 1995, respectively.
F-10
NOTES RECEIVABLE FROM RELATED PARTIES
Notes receivable from related parties consisted of the following (in
thousands):
MARCH 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1997 1996
----------------------------------------
Notes receivable from Menlo Honda $250,000 $250,000 $250,000
Notes receivable from stockholder 73,000 79,000 91,000
-------- -------- --------
$323,000 $329,000 $341,000
======== ======== ========
(7) EMPLOYEE BENEFITS
The Company provides a 401(k) Plan and Trust Agreement (the Plan). The Plan
covers substantially all employees of the Company. The annual contribution
to the Plan is at the discretion of the Board of Directors. Contributions to
the Plan were $21,000 and $16,000 for the unaudited six month periods ended
March 31, 1998 and 1997, respectively, and $61,000, $40,000 and $52,000 for
the years ended September 30, 1997, 1996 and 1995, respectively.
(8) SUBSEQUENT EVENTS
In June 1998, substantially all of the operating assets of the Company were
acquired by FirstAmerica Automotive, Inc.
F-11
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The accompanying unaudited pro forma consolidated financial data of
FirstAmerica Automotive, Inc. (the Company) and Burgess Honda have been
prepared to present the effect of the acquisition of Burgess Honda by the
Company as if such acquisition had occurred at the beginning of the respective
periods presented.
The unaudited pro forma consolidated balance sheet as of March 31, 1998 was
prepared by combining only those assets of Burgess Honda that were purchased by
the Company. Unaudited pro forma adjustments to the historical balance sheets of
the Company and Burgess Honda at March 31, 1998 primarily consist of adjustments
required to eliminate those assets and liabilities in the historical Burgess
Honda financial statements which were not acquired by the Company, as well as
increases in debt and goodwill resulting from the transaction. The unaudited pro
forma consolidated statement of operations for the year ended December 31, 1997
consists of the Company's audited consolidated statement of operations for the
year ended December 31, 1997 plus the Burgess Honda audited statement of
operations for the year ended September 30, 1997, together with unaudited pro
forma adjustments that are necessary to present fairly the unaudited pro forma
consolidated results of operations of both entities. Such unaudited pro forma
adjustments are based on the terms and structure of the transaction, and include
operating adjustments such as incremental floor plan notes payable and other
notes payable interest expense, goodwill amortization and the related net income
tax effect. The unaudited pro forma consolidated statement of operations for the
three months ended March 31, 1998 consists of the Company's unaudited
consolidated statement of operations and the Burgess Honda unaudited statement
of operations, each for the three months ended March 31, 1998, together with
unaudited pro forma adjustments that are necessary to present fairly the
unaudited pro forma results of operations of both entities.
The following unaudited pro forma financial data may not be indicative of the
results of operations that would have actually occurred had the transaction been
in effect as of the beginning of the respective periods, nor do they purport to
indicate the Company's future results of operation. This information and
accompanying notes should be read in conjunction with the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission on May
14, 1998, its Quarterly Report on Form 10-Q filed on May 15, 1998 and the
Burgess Honda financial statements included elsewhere in this report on Form 8-
K/A.
PF-1
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
FIRSTAMERICA BURGESS PRO FORMA
Assets AUTOMOTIVE, INC. HONDA ADJUSTMENTS PRO FORMA
------ ---------------- ------- ----------- ---------
Cash $ 2,001 $1,072 $ (954) (a) $ 2,119
Accounts receivable, net 24,740 744 (744) (b) 24,740
Inventories, net 73,565 1,518 281 (c) 75,364
Prepaid costs-extended warranty service contracts 803 22 (22) (b) 803
Deferred income taxes 613 - - 613
Deposits, prepaid expenses and other 2,733 70 (70) (b) 2,733
-------- ------ ------- --------
Total current assets 104,455 3,426 (1,509) 106,372
Property and equipment, net 7,366 172 (42) (c) 7,496
Other assets:
Prepaid costs-extended warranty service contract 1,292 29 (29) (b) 1,292
Loan origination and other costs, net 3,295 - 120 (a) 3,415
Other noncurrent assets 1,456 323 (323) (b) 1,456
Goodwill, net 6,291 - 3,417 (c) 9,708
-------- ------ ------- --------
Total assets $124,155 $3,950 $ 1,634 $129,739
======== ====== ======= ========
See accompanying notes to unaudited pro forma consolidated financial data.
PF-2
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CON'T)
AS OF MARCH 31, 1998
(IN THOUSANDS EXCEPT SHARE DATA)
FIRSTAMERICA BURGESS PRO FORMA
Liabilities and Stockholders' Equity AUTOMOTIVE, INC. HONDA ADJUSTMENTS PRO FORMA
------------------------------------ ---------------- ------- ----------- ---------
Current liabilities:
Accounts payable $ 7,926 $ 28 $ (28) (b) $ 7,926
Accrued liabilities 9,846 372 (214) (c) 10,004
Floor plan notes payable 62,142 1,426 - 63,568
Secured lines of credit 4,600 - - 4,600
Other notes payable 1,613 - 4,000 (d) 5,613
Deferred revenue-extended warranty service contracts 1,920 44 (44) (b) 1,920
-------- ------ ------- --------
Total current liabilities 88,047 1,870 3,714 93,631
Long-term liabilities:
Senior notes, net 21,987 - - 21,987
Deferred income taxes 264 - - 264
Deferred revenue- extended warranty service contracts 3,191 59 (59) (b) 3,191
-------- ------ ------- --------
Total liabilities 113,489 1,929 3,655 119,073
Commitments and contingencies
8% cumulative redeemable preferred stock, $0.00001
par value; 3,500 shares issued and outstanding 2,991 - - 2,991
Redeemable preferred stock, $0.00001 par value; 500
shares issued and outstanding 487 - - 487
Stockholders' Equity
Common stock - 45 (45) (b) -
Common stock, $0.00001 par value:
Class A, 30,000,000 shares authorized, 11,179,029
shares issued and outstanding - - - -
Class B, 5,000,000 shares authorized, 3,032,000
shares issued and outstanding - - - -
Class C, 30,000,000 shares authorized, 0 issued and outstanding - - - -
Additional paid-in capital 6,544 - - 6,544
Retained earnings 644 1,976 (1,976) (b) 644
-------- ------ ------- --------
Total stockholders' equity 7,188 2,021 (2,021) 7,188
-------- ------ ------- --------
$124,155 $3,950 $ 1,634 $129,739
======== ====== ======= ========
See accompanying notes to unaudited pro forma consolidated financial data.
PF-3
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
FIRSTAMERICA BURGESS PRO FORMA
AUTOMOTIVE, INC. HONDA ADJUSTMENTS PRO FORMA
---------------- ------- ----------- ---------
Sales:
Vehicle $136,740 $5,818 $ - $142,558
Service, parts and other 23,877 1,057 - 24,934
-------- ------ ----- --------
Total sales 160,617 6,875 - 167,492
Cost of sales 136,199 5,900 - 142,099
-------- ------ ----- --------
Gross profit 24,418 975 - 25,393
Operating expenses:
Selling, general and administrative 20,676 742 21,418
Depreciation and amortization 381 14 21 (e) 416
-------- ------ ----- --------
Operating income (loss) 3,361 219 (21) 3,559
Other income (expense):
Interest expense, floor plan (1,180) (29) 4 (f) (1,205)
Interest (expense) income, other (891) - (118) (g) (1,009)
Other income, net 27 27
-------- ------ ----- --------
Income (loss) before income taxes 1,290 217 (135) 1,372
Income tax expense (benefit) 555 - 35 (i) 590
-------- ------ ----- --------
Net income $ 735 $ 217 $(170) $ 782
======== ====== ===== ========
Basic net income per share $ 0.04 $ 0.05
Weighted average shares outstanding 14,225 14,225
Diluted net income per share $ 0.04 $ 0.05
Weighted average shares outstanding 14,635 14,635
See accompanying notes to unaudited pro forma consolidated financial data.
PF-4
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
TWELVE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1997
FIRSTAMERICA BURGESS PRO FORMA
AUTOMOTIVE, INC. HONDA ADJUSTMENTS PRO FORMA
----------------- ------------------ ----------- -------------
Sales:
Vehicle $401,896 $20,718 $ - $422,614
Service, parts and other 72,152 3,205 - 75,357
-------- ------- ----- --------
Total sales 474,048 23,923 - 497,971
Cost of sales 407,074 20,233 (19)(h) 427,288
-------- ------- ----- --------
Gross profit 66,974 3,690 19 70,683
Operating expenses:
Selling, general and administrative 58,761 3,185 - 61,946
Combination and related expenses 2,268 - - 2,268
Depreciation and amortization 873 59 85(e) 1,017
-------- ------- ----- --------
Operating income (loss) 5,072 446 (66) 5,452
Other income (expense):
Interest expense, floor plan (3,669) (119) 17 (f) (3,771)
Interest (expense) income, other (1,671) 90 (470)(g) (2,051)
Other income, net 778 18 - 796
-------- ------- ----- --------
Income (loss) before income taxes 510 435 (519) 426
Income tax expense (benefit) 446 7 (74)(i) 379
-------- ------- ----- --------
Net income $ 64 $ 428 $(445) $ 47
======== ======= ===== ========
Basic and diluted net loss
per share $ (0.01) $ -
Weighted average shares outstanding 10,915 10,915
See accompanying notes to unaudited pro forma consolidated financial data.
PF-5
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) This adjustment records a reduction for cash not acquired net of amounts
received on amounts borrowed.
(b) Net assets not acquired by the Company are eliminated from the unaudited
pro forma consolidated financial statements.
(c) The purchase price of $3,762,000 was allocated to the assets acquired net
of liabilities assumed based on the relative fair value which resulted in
an allocation to goodwill of $3.4 million.
(d) The Company borrowed $4 million from the Chairman of the Company's Board of
Directors for the acquisition of Burgess Honda. The loan is due June 1,
1999 and has an 8.75% interest rate.
(e) Amortization expense on $3,417,000 in goodwill using a 40-year estimated
useful life is $85,000 for the year ended December 31, 1997 and $21,000 for
the three month period ended March 31, 1998.
(f) Represents the incremental decrease in floor plan interest expense due to
the Company's replacing the Burgess Honda floor plan arrangement with the
Company's corporate contractual master floor plan agreement with General
Electric California Corporation. The average interest rate under the
Company's master agreement is the prime interest rate plus .75%, compared
to the prime interest rate plus 2.0% for Burgess Honda.
(g) Reflects the incremental interest expense incurred on borrowings used to
acquire Burgess Honda. The Company borrowed $4 million from the Company's
Chairman of the Board pursuant to the terms of a Letter Agreement between
the Company and the Chairman. Amortization expense on $120,000 in loan
origination fees using a one year life is $120,000 for the year ended
December 31, 1997 and $30,000 for the three month period ended March 31,
1998.
(h) Reflects the change in accounting for inventories from Burgess Honda's
last-in, first-out method to the Company's first-in, first-out method. The
increase in the reserve for the year ended September 30, 1997 totaled
$19,000.
(i) The increase in income tax results from the application of FirstAmerica
Automotive, Inc.'s historical effective rate for the periods presented to
the pretax income in the accompanying consolidated statements of income.
Income taxes increased on a pro forma basis for both periods presented due
to an increase in federal and state income taxes applicable to Burgess
Honda income, net of pro forma adjustments. The increase is attributable
to Burgess Honda's S Corporation tax status for the periods presented which
had resulted in no federal income taxes and a state income tax rate of
1.5%.
PF-6