INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS OF
HATFIELD AUTOMOTIVE GROUP
Columbus, Ohio
We have audited the accompanying combined balance sheets of Hatfield
Automotive Group (the "Company"), which are under common ownership and
management, as of December 31, 1996 and 1997, and the related combined
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company'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 audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Company as of December 31,
1996 and 1997, and the combined results of its operations and its combined cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
May 22, 1998
1
HATFIELD AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
December 31, 1996 and 1997 and March 31, 1998
December 31,
--------------------------------- March 31,
1996 1997 1998
--------------- --------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 11,630,711 $ 12,238,729 $14,990,300
Accounts receivable (no allowance necessary) ......... 3,014,936 3,391,406 3,360,011
Inventories (Note 3) ................................. 30,855,389 34,563,796 34,394,629
Other current assets (Note 6) ........................ 5,526,214 6,592,010 6,609,433
------------ ------------ -----------
Total current assets ............................... 51,027,250 56,785,941 59,354,373
PROPERTY AND EQUIPMENT, NET (Note 4) .................. 817,960 1,064,104 1,003,451
GOODWILL, NET (Notes 1 and 2) ......................... -- 983,333 977,083
------------ ------------ -----------
TOTAL ASSETS .......................................... $ 51,845,210 $ 58,833,378 $61,334,907
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3) ................. $ 28,941,767 $ 33,705,904 $33,456,104
Trade accounts payable ............................... 3,182,685 2,035,848 2,659,920
Other accrued liabilities ............................ 1,543,879 1,461,131 1,130,944
Payable to stockholder's -- current (Note 6) ......... 5,986,706 7,162,864 7,196,334
------------ ------------ -----------
Total current liabilities .......................... 39,655,037 44,365,747 44,443,302
------------ ------------ -----------
PAYABLE TO STOCKHOLDERS -- NON-CURRENT
(Note 6) ............................................. 6,815,121 8,176,482 10,569,130
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY (Note 5):
Common stock of combined companies ................... 2,825,000 2,825,000 2,825,000
Paid-in capital ...................................... 804,000 1,744,000 1,744,000
Retained earnings .................................... 1,746,052 1,722,149 1,753,475
------------ ------------ -----------
Total stockholders' equity ......................... 5,375,052 6,291,149 6,322,475
------------ ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 51,845,210 $ 58,833,378 $61,334,907
============ ============ ===========
See notes to combined financial statements.
2
HATFIELD AUTOMOTIVE GROUP
COMBINED STATEMENTS OF INCOME
For the years ended December 31, 1995, 1996 and 1997
and the three months ended March 31, 1997 and 1998
Three months ended
Year ended December 31, March 31,
----------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- -------------- --------------
(Unaudited)
REVENUES:
Vehicle sales ............................. $164,216,610 $213,251,842 $251,980,884 $58,562,407 $57,661,397
Parts, service and collision repair ....... 11,905,030 13,971,959 16,399,819 3,607,781 4,254,886
Finance and insurance (Note 6) ............ 4,748,018 6,113,302 6,898,899 1,255,145 1,746,647
------------ ------------ ------------ ----------- -----------
Total revenues .......................... 180,869,658 233,337,103 275,279,602 63,425,333 63,662,930
COST OF SALES .............................. 159,715,893 205,482,172 243,369,818 56,245,650 56,297,257
------------ ------------ ------------ ----------- -----------
GROSS PROFIT ............................... 21,153,765 27,854,931 31,909,784 7,179,683 7,365,673
SELLING, GENERAL AND ADMINIS-
TRATIVE (Note 6) .......................... 14,375,010 16,969,903 21,152,701 4,692,826 5,052,721
MANAGEMENT BONUS (Note 6) .................. 3,809,573 6,339,005 7,120,875 2,009,396 1,700,000
DEPRECIATION AND AMORTIZATION 38,836 107,461 221,463 51,199 66,903
------------ ------------ ------------ ----------- -----------
OPERATING INCOME ........................... 2,930,346 4,438,562 3,414,745 426,262 546,049
OTHER INCOME AND EXPENSE:
Interest expense -- floor plan ............ 2,926,256 3,036,515 3,662,711 513,819 555,530
Interest income ........................... (102,265) (155,804) (225,802) (23,435) (47,335)
Other (income) expense .................... 37,313 196,030 1,739 (58,122) 6,528
------------ ------------ ------------ ----------- -----------
Total other expense ..................... 2,861,304 3,076,741 3,438,648 432,262 514,723
------------ ------------ ------------ ----------- -----------
NET INCOME (LOSS) .......................... $ 69,042 $ 1,361,821 $ (23,903) $ (6,000) $ 31,326
============ ============ ============ =========== ===========
Pro Forma Provision (Benefit) for Income
Taxes (Note 1) (unaudited) ................ $ 27,000 $ 531,000 $ (9,000) $ (2,000) $ 12,000
============ ============ ============ =========== ===========
Pro Forma Net Income (Loss) (Note 1)
(unaudited) ............................... $ 42,042 $ 830,821 $ (14,903) $ (4,000) $ 19,326
============ ============ ============ =========== ===========
See notes to combined financial statements.
3
HATFIELD AUTOMOTIVE GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 5)
For the years ended December 31, 1995, 1996 and 1997
and the three months ended March 31, 1998
Common Total
Stock of Combined Retained Stockholders'
Companies Paid-in Capital Earnings Equity
------------------- ----------------- -------------- --------------
BALANCE AT DECEMBER 31, 1994 ......... $1,525,000 $ 354,000 $ 1,402,130 $ 3,281,130
Issuance of common stock ............ 700,000 -- -- 700,000
Dividends declared .................. -- -- (1,086,941) (1,086,941)
Net income .......................... -- -- 69,042 69,042
---------- ----------- ------------ ------------
BALANCE DECEMBER 31, 1995 ............ 2,225,000 354,000 384,231 2,963,231
Issuance of common stock ............ 600,000 -- -- 600,000
Capital contribution ................ -- 450,000 -- 450,000
Net income .......................... -- -- 1,361,821 1,361,821
---------- ----------- ------------ ------------
BALANCE DECEMBER 31, 1996 ............ 2,825,000 804,000 1,746,052 5,375,052
Capital contribution ................ -- 940,000 -- 940,000
Net loss ............................ -- -- (23,903) (23,903)
---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 ......... 2,825,000 1,744,000 1,722,149 6,291,149
Net income (unaudited) .............. -- -- 31,326 31,326
---------- ----------- ------------ ------------
BALANCE AT MARCH 31, 1998
(unaudited) ......................... $2,825,000 $ 1,744,000 $ 1,753,475 $ 6,322,475
========== =========== ============ ============
See notes to combined financial statements.
4
HATFIELD AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1996 and 1997
and the three months ended March 31, 1997 and 1998
Year ended December 31, Three months ended March 31,
----------------------------------------------- ------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............................. $ 69,042 $ 1,361,821 $ (23,903) $ (6,000) $ 31,326
------------ ------------ ------------ ------------ -----------
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization ............... 38,836 107,461 221,463 51,199 66,903
Changes in assets and liabilities that
related to operations:
(Increase) decrease in receivables ......... (135,483) (1,503,996) (376,470) 247,890 31,395
Decrease (increase) in inventories ......... 130,645 (8,769,439) (3,624,241) (1,071,569) 169,167
Increase in other current assets ........... (3,000,000) (2,525,214) (1,065,796) (1,039,097) (17,423)
Increase (decrease) in notes
payable -- floor plan ..................... 264,242 7,356,921 4,764,137 3,877,117 (249,800)
Increase (decrease) in accounts payable
and other accrued liabilities ............. 1,041,176 1,106,795 (1,229,584) (684,535) 293,885
------------ ------------ ------------ ------------ -----------
Total adjustments ......................... (1,660,584) (4,227,472) (1,310,491) 1,381,005 294,127
------------ ------------ ------------ ------------ -----------
Net cash (used in) provided by
operating activities .................... (1,591,542) (2,865,651) (1,334,394) 1,375,005 325,453
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment ........... (138,936) (702,124) (423,048) -- --
Purchase of business .......................... -- -- (1,112,058) -- --
------------ ------------ ------------ ------------ -----------
Net cash used in investing activities (138,936) (702,124) (1,535,106) -- --
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in amounts payable to
stockholders ................................ 2,306,507 5,144,349 3,037,518 1,636,941 2,426,118
------------ ------------ ------------ ------------ -----------
Capital contribution .......................... -- -- 440,000 -- --
Net cash provided by financing
activities .............................. 2,306,507 5,144,349 3,477,518 1,636,941 2,426,118
------------ ------------ ------------ ------------ -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ................................... 576,029 1,576,574 608,018 3,011,946 2,751,571
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ........................... 9,478,108 10,054,137 11,630,711 11,630,711 12,238,729
------------ ------------ ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD ..................................... $ 10,054,137 $ 11,630,711 $ 12,238,729 $ 14,642,657 $14,990,300
============ ============ ============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for interest ...... $ 1,746,200 $ 1,053,437 $ 1,263,618 $ 295,000 $ 215,579
============ ============ ============ ============ ===========
NON-CASH FINANCING ACTIVITIES:
Dividends declared but not paid ............... $ 1,086,941 -- -- -- --
Issuance of common stock in exchange for
amounts payable to stockholders ............. $ 700,000 $ 600,000 -- -- --
Contribution to paid-in capital in exchange
for amounts payable to stockholders ......... -- $ 450,000 $ 500,000 -- --
See notes to combined financial statements.
5
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Hatfield Automotive Group (the "Company")
operates six automobile dealerships and a body shop in Columbus, Ohio. The
Company sells new and used cars and light trucks, sells replacement parts,
provides maintenance, warranty, paint and repair services and arranges related
financing and insurance. The Company's six dealerships sell new vehicles
manufactured by Toyota, Lincoln, Mercury, Jeep, Eagle, Volkswagen, Hyundai,
Subaru, Isuzu, Chrysler, Plymouth, KIA and Dodge.
The accompanying combined financial statements include the accounts of the
following entities:
Hatfield Jeep Eagle, Inc., d/b/a Volkswagen West, Jeep Eagle West, Hatfield
KIA and Trader Bud's Westside Chrysler Plymouth
Hatfield Lincoln Mercury, Inc., d/b/a Hatfield Lincoln Mercury
Westside Dodge, Inc., d/b/a Westside Dodge
Toyota West, Inc., d/b/a Toyota West
Hatfield Hyundai, Inc., d/b/a Hatfield Hyundai, Hatfield Isuzu and
Hatfield Subaru
The accompanying combined financial statements reflect the financial
position, results of operations, and cash flows of each of the above listed
companies. The combination of these entities has been accounted for at
historical cost in a manner similar to a pooling-of-interest because the
entities are under common management and control. All material intercompany
transactions have been eliminated.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed. Finance and
insurance commission revenue is recognized principally at the time the contract
is placed with the financial institution.
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new vehicle inventory.
Each dealership operates under a dealer agreement with the manufacturer.
The Company's dealer agreement does not give it the exclusive right to sell the
manufacturer's product within a given geographic area. The Company could be
materially adversely affected if the manufacturer awards franchises to others
in the same market where the Company is operating. A similar adverse affect
could occur if existing competing franchised dealers increase their market
share in the Company's market. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, ownership of the Company's
stock by third parties may be limited by the terms of the franchise agreements.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to a vehicle purchase and were
$8,171,520 and $6,270,709 at December 1996 and 1997, respectively.
Inventories -- Vehicle inventories are valued at the lower of specific
cost or market. Parts and accessories are valued at the lower of first-in,
first-out ("FIFO") cost or market.
Goodwill -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired and is being amortized over a
40 year period. The cumulative amount of goodwill amortized at December 31,
1997 was $16,667. The Company periodically reviews goodwill to assess
recoverability. The Company's policy is to compare the carrying value of
goodwill with the expected undiscounted cash flows from operations.
6
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line methods over the estimated useful
lives of the assets. The range of estimated useful lives is as follows:
Useful Lives
-------------
Office equipment and fixtures .......... 5
Parts and service equipment ............ 5
Leasehold improvements ................. 10
Computer equipment ..................... 5
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Income taxes -- All of the Company's dealerships are organized as S
Corporations for federal and state income tax purposes. As such, the Company's
taxable income is included in the stockholders' annual income tax return.
Accordingly, no provision for federal or state income taxes has been included
in the Company's statements of income.
The pro forma provision for income taxes and the pro forma net income for
the years ended December 31, 1995, 1996 and 1997, and for the three months
ended March 31, 1997 and 1998, reflect amounts that would have been recorded
had the Company's income been taxed for federal and state purposes as if it was
a C Corporation.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balance. Trade
receivables are concentrated in the Company's principal market area of
Columbus, Ohio.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expenses for 1995, 1996 and 1997 amount to $2,619,348,
$3,941,810 and $4,475,943, respectively.
Interim Financial Information -- The accompanying unaudited interim
financial information for the three months ended March 31, 1997 and 1998 has
been prepared on substantially the same basis as the audited financial
statements, and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information set
forth therein. The results for interim periods are not necessarily indicative
of the results to be expected for the entire year.
2. BUSINESS ACQUISITION
On May 1, 1997, the Company acquired Trader Bud's Westside Chrysler
Plymouth for a total purchase price of $1,112,058. The acquisition has been
accounted for using purchase accounting and the results of operations of this
dealership have been included in the accompanying combined financial statements
from the date of acquisition. The total purchase price has been allocated to
the assets and liabilities acquired at their estimated fair market value at
acquisition date as follows:
Inventory ...................... $ 84,166
Property and equipment ......... 27,892
Goodwill ....................... 1,000,000
----------
$1,112,058
==========
7
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
2. BUSINESS ACQUISITION -- Continued
The following unaudited pro forma financial information is presented as if
Trader Bud's Westside Chrysler Plymouth were acquired on January 1, 1996 and
January 1, 1997, respectively.
Year ended December 31,
-------------------------------
1996 1997
--------------- ---------------
Revenues .................. $259,336,000 $281,718,000
Gross profit .............. 30,612,000 32,684,000
Net income (loss) ......... 1,257,000 (67,000)
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the operating results that would have
occurred had Trader Bud's Westside Chrysler Plymouth been acquired on January
1, 1996 and 1997, respectively. These results are also not necessarily
indicative of the results of future operations.
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
December 31, March 31,
----------------------------- 1998
1996 1997 (Unaudited)
-------------- -------------- --------------
New vehicles .................. $24,597,294 $ 29,227,278 $29,499,807
Used vehicles ................. 5,263,444 4,181,804 3,705,042
Parts and accessories ......... 966,895 1,125,050 1,158,590
Other ......................... 27,756 29,664 31,190
----------- ------------ -----------
Total ......................... $30,855,389 $ 34,563,796 $34,394,629
=========== ============ ===========
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $28,941,767 and
$33,705,904 at December 31, 1996 and 1997, respectively. The floor plan notes
bear interest that fluctuates with prime. Interest is payable monthly on the
outstanding balance, ranging from 7.94% to 9.25% and 8.00% to 9.50% at December
31, 1996 and 1997, respectively. The notes payable are due when the related
vehicles are sold. As such, these floor plan notes payable are shown as a
current liability in the accompanying combined balance sheets.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
December 31, March 31,
------------------------------- 1998
1996 1997 (Unaudited)
--------------- --------------- ---------------
Parts and service equipment ........... $ 1,173,892 $ 1,404,291 $ 1,404,291
Office equipment and fixtures ......... 424,894 504,973 504,973
Leasehold improvements ................ 303,407 422,616 422,616
Computer equipment .................... 35,999 57,252 57,252
------------ ------------ ------------
1,938,192 2,389,132 2,389,132
Less accumulated depreciation ......... (1,120,232) (1,325,028) (1,385,681)
------------ ------------ ------------
Property and equipment, net ........... $ 817,960 $ 1,064,104 $ 1,003,451
============ ============ ============
8
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
5. COMBINED EQUITY
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1996 is as follows:
Common Stock
------------------------------------------------------------
Shares
Par Shares Issued and Paid-In
Value Authorized Outstanding Amount Capital
------------- ------------ ------------- ------------- -----------
Hatfield Jeep Eagle, Inc. .............. No Par 5,000 100 $ 225,000 $354,000
Hatfield Lincoln Mercury, Inc. ......... $ 100 10,000 6,000 600,000 450,000
Westside Dodge, Inc. Voting ............ No par 5,000 4,000 800,000 --
Non-voting ............................. No par 5,000 1,000 200,000 --
Toyota West, Inc. Voting .............. No par 250 250 250,000 --
Non-voting ............................. No par 250 250 250,000 --
Hatfield Hyundai, Inc. ................. No par 750 750 500,000 --
---------- --------
Total .................................. $2,825,000 $804,000
========== ========
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1997 is as follows:
Common Stock
------------------------------------------------------------
Shares
Par Shares Issued and Paid-In
Value Authorized Outstanding Amount Capital
------------- ------------ ------------- ------------- -------------
Hatfield Jeep Eagle, Inc. .............. No Par 5,000 100 $ 225,000 $1,294,000
Hatfield Lincoln Mercury, Inc. ......... $ 100 10,000 6,000 600,000 450,000
Westside Dodge, Inc. Voting ............ No par 5,000 4,000 800,000 --
Non-voting ............................. No par 5,000 1,000 200,000 --
Toyota West, Inc. Voting ............... No par 250 250 250,000 --
Non-voting ............................. No par 250 250 250,000 --
Hatfield Hyundai, Inc. ................. No par 750 750 500,000 --
---------- ----------
Total .................................. $2,825,000 $1,744,000
========== ==========
6. RELATED PARTIES
The management bonuses were paid to Company stockholders and certain
management companies owned by a Company stockholder. Unpaid bonuses and
dividends are included in the amounts payable to stockholders -- non-current.
Included in finance and insurance revenues are $433,599, $489,005 and
$480,875 for 1995, 1996 and 1997, respectively, in commissions generated from
selling credit life policies to customers which have been distributed to a
company owned by a stockholder.
Other current assets at December 31, 1996 and 1997 include $5,525,214 and
$6,653,925, respectively, of cash owned by stockholders on deposit in the
Company's cash management account. A liability for this amount is included in
amounts payable to stockholders -- current.
The Company leases all of its operating facilities directly from a Company
stockholder or from a corporation which is owned by that stockholder. Rent
expense under these leases was $1,680,000 in 1995 and 1996 and $2,360,000 in
1997. The Company also paid $166,756, $190,500 and $216,332 to these related
parties for property taxes for the years ended December 31, 1995, 1996 and
1997, respectively. Total rent expense was $1,746,050 in 1995, $1,724,660 in
1996, and $2,469,859 in 1997.
9
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
6. RELATED PARTIES -- Continued
Other leases consist primarily of leases for office and computer
equipment. Future minimum rental payments required under noncancelable
operating leases at December 31, 1997 are as follows:
Related Party Other Total
--------------- ----------- -------------
Year ending December 31:
1998 ................... $2,460,000 $189,835 $2,649,835
1999 ................... 2,460,000 128,435 2,588,435
2000 ................... 2,335,000 109,618 2,444,618
2001 ................... 300,000 29,080 329,080
2002 ................... -- 15,798 15,798
---------- -------- ----------
Total .................. $7,555,000 $472,766 $8,027,766
========== ======== ==========
7. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) plan covering substantially all
employees. Company contributions to the plan are equal to 25% of the first 6%
of participant contributions. Company contributions amounted to $47,528,
$63,015 and $76,922 in 1995, 1996, and 1997, respectively.
8. CONTINGENCIES
The Company is involved in various legal proceedings incurred in the
normal course of business. Management believes that the outcome of such
proceedings will not have a materially adverse effect on the Company's
financial position or future results of operations and cash flows.
9. SUBSEQUENT EVENT
In February 1998, the Company signed an asset purchase agreement with
Sonic Automotive, Inc. ("Sonic") whereby Sonic will purchase the Company's
assets for a total price of approximately $48.6 million plus the assumption of
certain liabilities of the Company. The total purchase price is subject to
adjustment based on a final determination of the value of the net current
assets of the Company. Preferred stock with a liquidation preference of
approximately $14.0 million as of the closing date of the acquisition will be
issued to the sellers for a portion of the purchase price.
10