EXHIBIT 99.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
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
of 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)
BEVERLY HILLS BMW
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 Beverly Hills BM, LTD. (DBA
Beverly Hills BMW) as of December 31, 1997 and 1996 and the related statements
of operations and retained earnings and cash flows for the three years ended
December 31, 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 Beverly Hills BMW (as defined
in note 1) as of December 31, 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
December 31, 1997, in conformity with generally accepted accounting principles.
March 5, 1999
F-2
BEVERLY HILLS BMW
BALANCE SHEETS
(IN THOUSANDS)
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997 1996
----------- -------- ---------
Assets
Cash $ 856 $ - $ -
Accounts receivable (note 2) 2,186 2,662 1,446
Inventories (note 3) 6,840 6,192 7,696
Deposits and prepaid expenses 36 76 86
----------- -------- ---------
Total current assets 9,918 8,930 9,228
Property and equipment, net (note 4) 563 602 690
Goodwill 1,467 1,500 1,633
----------- -------- ---------
Total assets $11,948 $11,032 $11,551
=========== ======== =========
See accompanying notes to financial statements.
F-3
BEVERLY HILLS BMW
BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997 1996
----------- -------- ---------
Liabilities and Partners' Capital
Current liabilities:
Cash overdraft $ - $ 236 $ 499
Due to affiliate 195 195 195
Accounts payable 174 184 114
Accrued liabilities 1,265 1,270 1,007
Floor plan notes payable (note 3) 5,608 4,652 6,002
Current portion of long-term debt (note 5) 373 373 377
----------- -------- ---------
Total current liabilities 7,615 6,910 8,194
Long-term debt, net of current portion (note 5) 2,431 2,525 2,898
----------- -------- ---------
Total liabilities 10,046 9,435 11,092
Commitments (note 6)
Partners' capital:
Paid in capital 404 404 404
Retained earnings 1,498 1,193 55
----------- -------- ---------
Total partners' capital 1,902 1,597 459
----------- -------- ---------
$11,948 $11,032 $11,551
=========== ======== =========
See accompanying notes to financial statements.
F-4
BEVERLY HILLS BMW
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1998 1997 TWELVE MONTHS ENDED DECEMBER 31,
(UNAUDITED) (UNAUDITED) 1997 1996 1995
------------ ------------- -------- --------- -----------
Sales:
Vehicle $15,446 $10,777 $45,021 $39,491 $33,591
Service, parts, and other 2,182 2,261 8,709 8,368 8,260
------------ ------------- -------- --------- -----------
Total sales 17,628 13,038 53,730 47,859 41,851
Cost of sales 14,802 10,774 44,443 39,282 35,043
------------ ------------- -------- --------- -----------
Gross profit 2,826 2,264 9,287 8,577 6,808
Operating expenses:
Selling, general and administrative 2,134 1,563 6,842 6,466 6,042
Depreciation and amortization 72 61 249 243 240
------------ ------------- -------- --------- -----------
Operating income 620 640 2,196 1,868 526
Other income (expense):
Interest income 4 2 45 18 26
Interest expense (198) (226) (861) (871) (968)
Other, net (1) 1 (2) (18) (35)
------------ ------------- -------- --------- -----------
Net Income (loss) 425 417 1,378 997 (451)
Retained earnings (deficit), beginning of period 1,193 55 55 (717) (119)
Distributions (120) (60) (240) (225) (147)
------------ ------------- -------- --------- -----------
Retained earnings (deficit), end of period $ 1,498 $ 412 $ 1,193 $ 55 $ (717)
============ ============= ======== ========= ===========
See accompanying notes to financial statements.
F-5
BEVERLY HILLS BMW
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1998 1997 YEAR ENDED ENDED DECEMBER 31,
(UNAUDITED) (UNAUDITED) 1997 1996 1995
------------ ------------- -------- --------- -----------
Cash flows from operating activities:
Net income (loss) $ 425 $ 417 $ 1,378 $ 997 $(451)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 72 61 249 243 240
Changes in operating assets and liabilities:
Receivables and contracts in transit 476 (152) (1,216) 326 (689)
Inventories (648) 1,220 1,504 (2,042) 34
Deposits and prepaid expenses 40 (20) 10 (5) 41
Cash overdraft (236) (499) (263) 27 184
Flooring notes payable 956 (760) (1,350) 394 711
Accounts payable and accrued liabilities (15) (33) 333 19 505
------------ ------------- -------- --------- -----------
Net cash (used in) provided by operating activities 1,070 234 645 (41) 575
------------ ------------- -------- --------- -----------
Cash flows from investing activities:
Capital expenditures, net - (7) (28) (22) (49)
------------ ------------- -------- --------- -----------
Net cash used in investing activities - (7) (28) (22) (49)
------------ ------------- -------- --------- -----------
Cash flows from financing activities:
Proceeds from long-term debt - - - 666 -
Payments on long-term debt (94) (95) (377) (378) (379)
Distributions to stockholder (120) (60) (240) (225) (147)
------------ ------------- -------- --------- -----------
Net cash (used in) provided by financing activities (214) (155) (617) 63 (526)
------------ ------------- -------- --------- -----------
Net increase in cash 856 72 - - -
Cash at beginning of the period - - - -
------------ ------------- -------- --------- -----------
Cash at end of the period $ 856 $ 72 $ - $ - $
============ ============= ======== ========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 161 $ 163 $ 642 $ 653 $ 648
============ ============= ======== ========= ===========
Cash paid during the year for taxes $ - $ - $ - $ - $ -
============ ============= ======== ========= ===========
See accompanying notes to financial statements.
F-6
BEVERLY HILLS BMW
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BUSINESS
Beverly Hills BMW (the Partnership) was formed as a general partnership
on January 15, 1994 in order to acquire certain assets to operate as an
authorized dealer in BMW automobiles, and other BMW products. In
addition, the Partnership retails and wholesales replacement parts and
used automobiles and provides vehicle servicing. The Partnership
commenced operations in April of 1994.
(b) BASIS OF PREPARATION
The accompanying financial statements reflect the historical financial
position, results of operations and cash flows for Beverly Hills BMW,
all of which were subsequently sold to FirstAmerica Automotive, Inc.
(note 8).
(c) CASH AND CASH EQUIVALENTS
The Partnership 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, vehicle cost is
determined using the specific identification basis. Parts and
accessories cost is determined using the first-in, first-out (FIFO)
basis which approximates the lower of cost or market.
(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 5 to 10 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) GOODWILL
Goodwill is being amortized using the straight-line method over 15
years.
(g) INCOME TAXES
The Partnership files its income tax return on the accrual basis and
does not pay income taxes, as any income or loss is included in the tax
returns of the individual partners. Accordingly, no provision for taxes
is made in the financial statement.
F-7
(h) FINANCIAL INSTRUMENTS
The carrying amounts 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.
(i) ADVERTISING
The Partnership expenses production and other costs of advertising as
incurred. Advertising expenses were $38,000 and $90,000 for the
unaudited three month periods ended March 31, 1998 and 1997,
respectively, and $311,000, $364,000 and $278,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(j) CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the
Partnership's customer base.
(k) 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.
(l) 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 Partnership recognizes fees from the sale of third party extended
warranty service contracts at the time of sale. Warranty service
contract revenues are included in service, parts, and other revenues in
the statements of operations.
(m) MAJOR SUPPLIER AND DEALER AGREEMENT
The Partnership purchases substantially all of its new vehicles and
inventory from one manufacturer at the prevailing prices charged by the
manufacturer. The Partnership's overall sales could be impacted by the
manufacturer's inability or unwillingness to supply the dealership with
an adequate supply of popular models.
F-8
(2) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997 1996
------------- ------- -------
Contracts in transit and vehicle receivables $1,780 $2,139 $1,014
Trade 62 109 167
Manufacturer and other 344 414 265
------ ------ ------
Total accounts receivable $2,186 $2,662 $1,446
====== ====== ======
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 DECEMBER 31, MARCH 31, 1998 DECEMBER 31,
(UNAUDITED) 1997 1996 (UNAUDITED) 1997 1996
------------------------------------- -------------------------------------------
New vehicles $ 4,825 $ 3,145 $ 5,671 $ 4,750 $ 3,106 $ 5,320
Used vehicles 943 1,808 927 198 689 60
Rental vehicles,net 617 769 611 660 857 622
Parts and accessories 455 470 487 -- -- --
------------------------------------- -------------------------------------------
Inventories $ 6,840 $ 6,192 $ 7,696 $ 5,608 $ 4,652 $ 6,002
===================================== ===========================================
Inventory floor plan notes payable consist of notes from a financing
institution that bear interest at prime plus .5% (9% at December 31,
1997, 8.75% at December 31, 1996) and are secured by vehicles and
vehicle receivables. The floor plan agreement permits the Partnership
to borrow up to $7 million; borrowings are limited by vehicle inventory
levels.
F-9
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997 1996
----------- ------- --------
Leasehold improvements $ 546 $ 546 $ 536
Equipment 234 234 227
Company vehicles - 50 53
Furniture and fixtures 140 140 126
----------- ------- --------
920 970 942
Less accumulated depreciation (357) (368) (252)
----------- ------- --------
Property and equipment, net $ 563 $ 602 $ 690
=========== ======= ========
(5) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997 1996
----------- ------- --------
BMW Financial Services Term Loan #1 $1,361 $1,445 $1,778
BMW Financial Services Term Loan #2 43 53 93
RGBMW, Inc. 1,400 1,400 1,400
City National Bank - - 4
----------- ------- --------
2,804 2,898 3,275
Less current portion (373) (373) (377)
----------- ------- --------
Long-term debt, net $2,431 $2,525 $2,898
=========== ======= ========
BMW Financial Services term loans #1 and #2, each secured by
substantially all the assets of Beverly Hills BMW, are payable in
monthly principal installments of $27,778 and $3,333 respectively, plus
interest charged at a rate of interest equal to BMW Financial Services
prime interest rate plus 0.5%. Term loan #1 has a maturity date of
April 2000. Term loan #2 has a maturity date of April 1999
In April 1994, RGBMW, Inc., an affiliate, provided Beverly Hills BMW a
working capital loan of $1,400,000 secured by all the assets of the
partnership and payable in 72 monthly installments bearing interest at
the prime interest rate plus 1.5%. This loan is subordinate to all and
any indebtedness or obligations owed by the partnership to BMW of North
America, Inc. and/or BMW Financial Services, Inc. and shall be secured
by all the junior security interest in all of the assets of the
partnership. All monthly principal and interest payments since
inception have been deferred by affiliate. Per Partnership Agreement,
interest is being accrued monthly. Accrued interest at December 31,
1997 and 1999 was $614,000 and $431,000, respectively.
City National Bank debt is unsecured, payable in monthly installments
of $500 and was paid off in September 1997.
The following is a schedule of the future maturities of long-term debt (in
thousands):
Year ending December 31:
------------------------
1998 $ 373
1999 1,746
2000 779
Thereafter -
-------
$ 2,898
=======
F-10
(6) COMMITMENTS
The minimum rental commitments under operating leases which have terms
greater than one year after December 31, 1997 are as follows (in
thousands):
Year ending December 31:
------------------------
1998 $ 1,176
1999 1,176
2000 1,176
2001 1,176
2002 1,176
Thereafter 5,880
-------
$11,760
=======
Amounts paid under operating leases totaled $337,000 and $335,000 for
the unaudited three months ended March 31, 1998 and 1997,respectively
and $1,344,000, $1,334,000 and $1,311,00for the years ended December
31, 1997, 1996 and 1995, respectively.
(7) RELATED PARTY TRANSACTIONS
LEASE
The Partnership leases a portion of its facilities from RGBM
Corporation, an affiliate,for $60,000 per month. Rental expense under
the terms of the agreement between the Partnership and the affiliate
totaled $180,000 for each of the unaudited three month periods ended
March 31, 1998 and 1997, and $720,000 per year for each of the years
ended December 31, 1997, 1996, and 1995, respectively.
DUE TO AFFILIATE
Due to affiliate of $195,000 relates to leasehold improvements funded
by an affiliated company.
(8) SUBSEQUENT EVENTS
In April 1998, substantially all of the operating assets of the Partnership
were acquired by FirstAmerica Automotive, Inc. No adjustments related to
the acquisition are reflected in the accompanying historical financial
statements.
F-11