<PAGE>
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): April 10, 1997
CROSS-CONTINENT AUTO RETAILERS, INC.
--------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation)
333-06585 75-2653095
-------------------------- -------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
1201 South Taylor Street, Amarillo, TX 79101
-------------------------------------------- --------------
(Address of Principal Executive Offices) (Zip Code)
(806) 374-8653
------------------------------------------------------
Registrant's telephone number, including area code
Not applicable
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(Former name or address, if changed since last report)
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<PAGE>
On March 10, 1997, Cross-Continent Auto Retailers, Inc. ("C-CAR"),
acquired 100% of the common stock of Douglas Toyota, Inc. and Toyota West
Sales and Service, Inc. On April 25, 1997, C-CAR filed a current report on
Form 8-K (the "Original 8-K") disclosing such acquisition.
This Amendment No. 1 to the Original 8-K is being filed for the purpose
of filing the financial statements and pro forma financial information
required to be disclosed under Item 7.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired:
Combined Balance Sheet as of March 31, 1997 and December 31,
1996 and 1995 and Combined Statements of Income, of Changes in
Stockholders' Equity and of Cash Flow for the three years ended
December 31, 1996 and three months ended March 31, 1997 and
1996, with footnotes thereto.
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1997 and Pro Forma Condensed Consolidated Statements of
Operations for (i) the twelve months ended December 31, 1996,
and (ii) the three months ended March 31, 1997, with footnotes
thereto.
(c) Exhibits: Filed with Original 8-K on April 25, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROSS-CONTINENT AUTO RETAILERS, INC.
DATE: June 24, 1997
By: /s/ James F. Purser
--------------------------------
James F. Purser
Chief Financial Officer
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cross-Continent Auto Retailers, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Douglas Toyota, Inc. and Toyota West Sales and Service, Inc. (collectively,
"Spedding Toyota") at December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Fort Worth, Texas
April 30, 1997
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<PAGE>
SPEDDING TOYOTA
COMBINED BALANCE SHEETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
------------ ------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,455 $ 8,496 $ 10,984
Accounts receivable 7,582 6,549 4,883
Inventories 18,373 15,610 15,640
Prepaid assets 156 119 75
------------ ------------ ------------
Total current assets 33,566 30,774 31,582
Property and equipment, net 486 554 739
Other assets 627 639 736
------------ ------------ ------------
$ 34,679 $ 31,967 $ 33,057
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Floor plan notes payable $ 14,463 $ 12,254 $ 12,143
Accounts payable and Accrued Expenses 5,958 5,626 5,270
Payable to affiliates 6,905 6,531 8,831
------------ ------------ ------------
Total current liabilities 27,326 24,411 26,244
------------ ------------ ------------
Deferred warranty revenue 3,761 3,497 2,829
------------ ------------ ------------
Stockholders' equity:
Paid-in capital 1,916 1,916 1,916
Retained earnings 1,676 2,143 2,068
------------ ------------ ------------
3,592 4,059 3,984
Commitments and contingencies ------------ ------------ ------------
(Notes 2, 9, 10 and 12) $ 34,679 $ 31,967 $ 33,057
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral
part of these combined financial statements.
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<PAGE>
SPEDDING TOYOTA
COMBINED BALANCE SHEETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales $ 44,738 $ 46,136 $ 183,638 $ 157,151 $ 153,889
Other operating revenue 5,285 5,027 21,345 17,017 16,462
---------- ---------- ---------- ---------- ----------
Total revenues 50,023 51,163 204,983 174,168 170,351
Cost of sales 41,139 42,564 169,137 145,823 142,775
---------- ---------- ---------- ---------- ----------
Gross profit 8,884 8,599 35,846 28,345 27,576
---------- ---------- ---------- ---------- ----------
Expenses:
Selling, general and administrative
expenses 6,991 6,491 26,344 21,727 20,601
Depreciation and amortization 102 88 393 260 203
---------- ---------- ---------- ---------- ----------
7,093 6,579 26,737 21,987 20,804
---------- ---------- ---------- ---------- ----------
Income before interest 1,791 2,020 9,109 6,358 6,772
Other income (expense):
Interest income 181 183 679 404 143
Interest expense (436) (557) (1,849) (1,851) (1,038)
---------- ---------- ---------- ---------- ----------
Net income $ 1,536 $ 1,646 $ 7,939 $ 4,911 $ 5,877
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
-6-
<PAGE>
SPEDDING TOYOTA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,536 $ 1,646 $ 7,939 $ 4,911 $ 5,877
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 102 88 393 260 203
(Increase) decrease in:
Accounts receivable (1,033) 291 (1,666) 582 (400)
Inventory (2,763) (6,781) 30 2,127 (5,856)
Other assets (25) 41 (6) 85 (84)
Increase in:
Accounts payable and accrued
expenses 332 503 356 535 682
Other noncurrent liabilities 264 412 668 628 505
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities (1,587) (3,800) 7,714 9,128 927
-------- -------- -------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment (34) (61) (149) (311) (41)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Change in floor plan notes payable 2,209 4,266 111 (1,122) 5,409
Change in payable to affiliates 374 55 (2,300) 5,927 1,508
Distributions to stockholders (2,003) (1,307) (7,864) (6,017) (6,058)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 580 3,014 (10,053) (1,212) 859
-------- -------- -------- -------- --------
Increase (decrease) in cash (1,041) (847) (2,488) 7,605 1,745
Cash at beginning of period 8,496 10,984 10,984 3,379 1,634
-------- -------- -------- -------- --------
Cash at end of period $ 7,455 $ 10,137 $ 8,496 $ 10,984 $ 3,379
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Supplemental cash flow information:
Cash paid for interest $ 433 $ 523 $ 1,823 $ 1,875 $ 997
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
-7-
<PAGE>
SPEDDING TOYOTA
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 AND
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
- -------------------------------------------------------------------------------
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
-------- -------- --------
Balance at December 31, 1993 $ 1,916 $ 3,355 $ 5,271
Net income - 5,877 5,877
Distributions to stockholders - (6,058) (6,058)
-------- -------- --------
Balance at December 31, 1994 1,916 3,174 5,090
Net income - 4,911 4,911
Distributions to stockholders - (6,017) (6,017)
-------- -------- --------
Balance at December 31, 1995 1,916 2,068 3,984
Net income - 7,939 7,939
Distributions to stockholders - (7,864) (7,864)
-------- -------- --------
Balance at December 31, 1996 1,916 2,143 4,059
Net income (unaudited) - 1,536 1,536
Distributions to stockholders (unaudited) - (2,003) (2,003)
-------- -------- --------
Balance at March 31, 1997 (unaudited) $ 1,916 $ 1,676 $ 3,592
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral
part of these combined financial statements.
-8-
<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS - The accompanying combined financial statements represent
the combined accounts of Douglas Toyota, Inc. and Toyota West Sales and
Service, Inc. All material intercompany transactions have been eliminated.
Douglas Toyota, Inc. and Toyota West Sales and Service, Inc. (collectively,
"Spedding Toyota" or the "Company") sell new and used automobiles through
dealer agreements with Toyota Motor Sales, USA ("Toyota"). In addition, the
Company retails and wholesales replacement parts and provides vehicle
servicing. Spedding Toyota operates in the Denver, Colorado and Las Vegas,
Nevada areas.
MAJOR SUPPLIER - Spedding Toyota purchases substantially all of its new
vehicles and parts inventory from Toyota at the prevailing prices charged by
the automobile manufacturer/distributor.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand and
all highly liquid investments with maturities of three months or less when
purchased.
REVENUES - Revenues from vehicle and parts sales and from service operations
are recognized at the time the vehicle is delivered to the customer or service
is completed.
FINANCE FEES AND INSURANCE COMMISSIONS - Finance fees represent revenue earned
on notes placed with financial institutions in connection with customer vehicle
financing. Finance fees are recognized in income upon acceptance of credit by
the financial institution. Insurance income represents commissions earned on
credit life, accident and disability insurance sold in connection with vehicles
on behalf of third-party insurance companies. Insurance commissions are
recognized in income upon customer acceptance of the insurance terms as
evidenced by contract execution.
Spedding Toyota is charged back for a portion of the finance fees and insurance
commissions when the customer terminates the finance contract prior to its
scheduled maturity. The estimated allowance for these chargebacks ("chargeback
allowance") is based upon the historical experience for prepayments or defaults
on the finance contracts. Finance fees and insurance commissions, net of
chargebacks, are classified as other operating revenue in the accompanying
combined statement of operations. See Note 8 for an analysis of the allowance
for estimated chargebacks.
EXTENDED WARRANTY CONTRACTS - Spedding Toyota sells extended service contracts
on new and used vehicles; these contracts generally provide extended warranty
coverage for periods of one year or 12,000 miles, up to six years or 72,000
miles, whichever comes first. For financial accounting purposes, the Company
accounts for the sale of such extended warranty contracts in accordance with
FASB Technical Bulletin No. 90-1, "Accounting for Separately Priced Extended
Warranty and Product Maintenance Contracts," which requires that revenues from
the sales of such extended warranty contracts be recognized ratably over the
lives of the contracts. Costs directly related to the sale of these contracts
are deferred and charged to expense proportionately as the revenues are
recognized. Repair costs associated with the warranty obligation are charged
to expense as incurred.
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<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVENTORIES - For financial accounting purposes, vehicles are stated at the
lower of cost or market, cost being determined on the specific identification
basis. Parts are stated at the lower of cost or market, cost being determined
on the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the respective
lives of the assets. The ranges of estimated useful lives are as follows:
Furniture and fixtures 5 to 7 years
Machinery and equipment 5 to 10 years
Leasehold improvements Lesser of the life of the lease or asset
When depreciable assets are sold or retired, the related cost and accumulated
depreciation are removed from the accounts. Any gains or losses are included
in selling, general and administrative expenses. Major additions and
betterments are capitalized. Maintenance and repairs which do not materially
improve or extend the lives of the respective assets are charged to operating
expenses as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets (i.e., property, equipment
and goodwill) held and used by an entity are reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of the
asset may not be recoverable. An impairment loss will be recognized if the sum
of the expected future cash flows (undiscounted and before interest) from the
use of the asset is less than the net book value of the asset. Generally, the
amount of the impairment loss is measured as the difference between the net
book value of the assets and the estimated fair value of the related assets.
No impairment losses have been incurred or recognized during the periods
presented.
ADVERTISING AND PROMOTIONAL COSTS - Advertising and promotional costs are
expensed as incurred and are included in selling, general and administrative
expense in the accompanying combined statement of operations. Total
advertising and promotional expenses approximated $3,781,000, $3,122,000 and
$2,899,000 in 1996, 1995 and 1994, respectively.
OTHER OPERATING REVENUE - Other operating revenue primarily consists of finance
fees, insurance commissions, sales of parts and service and revenue recognized
from extended warranty contracts.
FEDERAL INCOME TAXES - Douglas Toyota, Inc. and Toyota West Sales and Service,
Inc. are organized as subchapter S corporations under the Internal Revenue
Code; therefore, the income earned by each is reported on the personal tax
returns of the stockholders. Consequently, no provision for income taxes has
been recorded in the accompanying combined financial statements.
MANAGEMENT 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,
liabilities, revenues and expenses. The actual outcome of the estimates could
differ from the estimates made in the preparation of the financial statements.
-10-
<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - MAJOR SUPPLIERS AND FRANCHISE AGREEMENTS
Spedding Toyota enters into agreements ("Dealer Agreements") with Toyota Motor
Company for the supply of new vehicles and parts to its dealerships. Spedding
Toyota's overall sales could be adversely impacted by Toyota's inability or
unwillingness to supply the dealerships with an adequate supply of popular
models. The current Dealer Agreements, which were renewed in April 1997,
expire April 17, 1999. Management believes that it will be able to renew both
Dealer Agreements upon expiration; however, there can be no assurance that such
agreements will be renewed.
The Dealer Agreements impose certain restrictions on the Company, including a
minimum size requirement for the facilities of the dealerships. Douglas
Toyota, Inc. was not in compliance with this requirement as of December 31,
1996. Douglas Toyota, Inc. has notified Toyota of current plans to move the
dealership to a new site which will meet Toyota's requirements (see Note 12).
Based upon discussions with Toyota, management does not expect this matter to
have an adverse impact on the status of the Dealer Agreement or the
dealership's operations. Toyota West Sales and Service, Inc. has also been
notified of a facility size violation and has until November 22, 1997 to adhere
to Toyota's policy. It is unlikely that this requirement will be met prior to
the said date; however, Toyota West Sales and Service, Inc. has notified Toyota
of current plans to move the dealership to a new site which will meet Toyota's
requirements. Management does not expect this matter to have an adverse impact
on the status of the Dealer Agreement or the dealership's operations. However,
no assurance can be given that the Dealerships will meet Toyota's requirements.
NOTE 3 - ACCOUNTS RECEIVABLE
The accounts receivable balances at December 31, 1996 and 1995 are comprised of
the following (in thousands):
1996 1995
------ ------
Contracts in transit and vehicle receivables $4,807 $3,760
Trade 594 363
Due from automaker 499 377
Other 793 588
------ ------
6,693 5,088
Less: allowance for doubtful accounts (144) (205)
------ ------
Total accounts receivable $6,549 $4,883
------ ------
------ ------
Contracts in transit and vehicle receivables primarily represent receivables
from financial institutions such as Toyota Motor Credit Corporation ("TMCC")
and regional banks which provide funding for customer vehicle financing. These
receivables are normally collected in less than 30 days of the sale of the
vehicle. Trade receivables primarily relate to the sale of parts to commercial
customers and finance fees representing amounts due from financial institutions
earned from arranging financing with Spedding Toyota's customers. Amounts due
from automaker primarily represent receivables for parts and service work
performed on vehicles
-11-
<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
pursuant to Toyota's warranty coverage. Receivables from automaker also
include amounts due from automakers in connection with the purchase of
vehicles ("holdback") pursuant to the dealership agreement; such amounts are
generally remitted to Spedding Toyota on a monthly basis.
NOTE 4 - INVENTORIES
The December 31 inventory balance is comprised of the following (in thousands):
DECEMBER 31,
MARCH 31, -------------------
1997 1996 1995
-------- ------- -------
New vehicles and demonstrators $13,920 $11,163 $11,850
Used vehicles 3,912 3,903 3,052
Parts and accessories 541 544 738
------- ------- -------
$18,373 $15,610 $15,640
------- ------- -------
------- ------- -------
NOTE 5 - PROPERTY AND EQUIPMENT (IN THOUSANDS)
1996 1995
------- -------
Furniture and fixtures $ 667 $ 656
Machinery and equipment 637 599
Leasehold improvements 1,712 1,698
------- -------
3,016 2,953
Less: accumulated depreciation (2,462) (2,214)
------- -------
Total property and equipment $ 554 $ 739
------- -------
------- -------
Depreciation expense for fiscal 1996, 1995 and 1994 was $334,000, $201,000 and
$188,000 respectively.
NOTE 6 - FLOOR PLAN NOTES PAYABLE
TMCC finances new and used vehicle purchases by Spedding Toyota. Floor plan
notes payable bear interest at the finance company's prime rate (approximately
8.75% at December 31, 1996). The notes are collateralized by all of Spedding
Toyota's tangible and intangible personal property, including, but not limited
to, substantially all new, used and demonstrator vehicles, parts and
accessories inventory, accounts receivable, and machinery and equipment. The
notes are generally due within ten days of the sale of the vehicles or within
three days after receiving the sales proceeds, whichever is sooner. Floor plan
notes payable have been classified as current in the accompanying combined
balance sheets.
-12-
<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES (IN THOUSANDS)
1996 1995
-------- --------
Accounts payable $ 1,384 $ 824
Payroll and bonuses 846 712
Chargeback allowance 1,651 1,662
Sales taxes 425 439
Vehicle lien payoff 592 400
Other 728 1,233
-------- --------
$ 5,626 $ 5,270
-------- --------
-------- --------
NOTE 8 - PROVISION FOR FINANCE AND INSURANCE COMMISSION CHARGEBACKS
Presented below is the change in the allowance for estimated finance and
insurance chargebacks for the fiscal years 1996, 1995 and 1994 (in thousands):
1996 1995 1994
--------- --------- --------
Chargeback allowance at January 1 $ 1,662 $ 1,500 $ 1,197
Provision 1,402 1,423 1,643
Actual chargebacks (1,413) (1,261) (1,340)
--------- --------- --------
Chargeback allowance at December 31 $ 1,651 $ 1,662 $ 1,500
--------- --------- --------
--------- --------- --------
NOTE 9 - CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject Spedding Toyota to
concentration of credit risk, consist principally of cash, cash equivalents
and accounts receivable. Spedding Toyota invests a substantial portion of
its excess cash with TMCC, which can be withdrawn at any time. At December
31, 1996, amounts invested with TMCC approximated $7,531,000 with the
interest rate approximating 8.75%. At times, amounts invested with financial
institutions may be in excess of FDIC insurance limits. At December 31,
1996, cash in demand deposit accounts in excess of the FDIC-insured limit
approximated $693,000. Spedding Toyota had no credit losses on its cash or
cash equivalents during the periods presented.
Concentrations of credit risk with respect to customer receivables are
limited primarily to automakers and financial institutions such as TMCC and
regional banks. Credit risk arising from receivables from commercial
customers is minimal due to the large number of customers comprising Spedding
Toyota's customer base. However, they are concentrated in Spedding Toyota's
two market areas in Denver and Las Vegas.
-13-
<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases, under operating leases, the land and buildings for both of
its dealership facilities, computer equipment and storage facilities. The
Toyota West Sales and Service, Inc., land and building lease expires on
March 31, 1998.
The Company subleased its Douglas Toyota facility from RDS, Inc., which is
wholly owned by the Company's principal stockholder. The Company had subleased
the facility on a month-to-month basis since 1993 when its long-term lease
expired. The Company also leases its satellite truck facility from RDS, Inc.
for $120,000 annual rent; this lease expires September 30, 1998. During 1996,
1995 and 1994, Douglas Toyota, Inc. paid total annual rent of $540,000 on the
dealership facilities. Effective April 1, 1997, Douglas Toyota, Inc. entered
into a five-year lease of the primary facility for annual rent of $300,000
direct from the unrelated owner of the property. The new lease contains two
five-year options with rent of $300,000, plus an inflation factor not to exceed
5%.
The future minimum rental commitments for all noncancellable operating leases
are as follows (in thousands):
Fiscal year:
-------------
1997 $ 806
1998 414
1999 311
2000 311
2001 303
Thereafter 75
-------
$ 2,220
-------
-------
Rent expense on all operating leases approximated $1,025,262, $1,056,352 and
$1,135,384 for the years ended December 31, 1996, 1995 and 1994,
respectively. Additionally, Spedding Toyota is liable for property taxes and
insurance.
From time to time, Spedding Toyota is named in claims involving the
manufacture and selling of automobiles, contractual disputes and other
matters arising in the ordinary course of business. Currently, no legal
proceedings are pending against or involve Spedding Toyota that, in the
opinion of management, could be expected to have a material adverse effect on
the financial condition or results of operations of Spedding Toyota in the
year of ultimate resolution.
Spedding Toyota is also subject to federal and state environmental
regulations, including rules relating to air and water pollution and the
storage and disposal of gasoline, oil and other chemicals and waste. A Phase
I Environmental Site Assessment (the "Assessment") of the Douglas Toyota,
Inc. dealership facility was performed in January 1997. The Assessment
identified low concentrations of various contaminants on the property of
Douglas Toyota, Inc., the source of which has been attributed to a service
station adjacent to the dealership. It is management's understanding that
the service station has an approved Corrective Action Plan on file,
corrective action has been initiated, and the service station is under the
review of the Colorado State Inspector of Oils for compliance with state
clean-up requirements. Douglas
- 14-
<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Toyota has not been named as a potentially responsible party and has not been
contacted by any state or federal regulators regarding this matter.
Management does not believe that Douglas Toyota, Inc. will be subject to
liability for the contamination and does not believe this matter will have
any impact on the Company's financial condition or results of operation.
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1996, 1995 and 1994, Douglas Toyota, Inc. leased the property from the
owner of the Spedding Toyota dealerships. See Note 10.
In general, the Company is required to pay for all vehicles purchased from
Toyota upon delivery of the vehicles to the Company. TMCC provides financing
for all new and certain used vehicles. This type of financing is known as
"floor plan financing" or "flooring." Under its arrangement with TMCC, the
Company may deposit funds with TMCC in an amount up to a certain percentage
of the outstanding floor plan balance. Such funds earn interest at
approximately the same rate charged by TMCC on outstanding floor plan
balances. From time to time, certain affiliates will advance funds to the
Company primarily for the purpose of investing excess cash with TMCC. At
December 31, 1996 and 1995, funds advanced and outstanding from affiliates
approximated $6,531,000 and $8,831,000, respectively. Aggregate amounts
outstanding pursuant to these arrangements at December 31, 1996 and 1995 are
included in Due to Affiliates in the accompanying combined balance sheet.
Interest expense accrued to the affiliates under these arrangements totaled
$675,000, $402,000 and $143,000 during 1996, 1995 and 1994, respectively.
The Company sells extended service contracts on new and used vehicles.
Automotive Assistance Corporation ("AAC"), which is wholly owned by the
principal stockholder of the Spedding Toyota dealerships, receives as a fee a
portion of the sale price of each contract and, in return, reimburses the
Company for 50% of the warranty claims. Total payments from the dealership
to AAC were $1,837,000, $1,816,000 and $1,566,000 during fiscal 1996, 1995
and 1994, respectively. These payments are recorded as direct costs of the
related warranty contracts and are deferred and recognized ratably over the
contractual period as discussed under "Extended Warranty Contracts" in Note
1. The terms of the contract between AAC and the Company also require that
AAC reimburse the Company for one-half of all claims. Related payments
received from AAC were $218,000, $112,000 and $175,000 during fiscal 1996,
1995 and 1994, respectively. The reimbursements are recorded as a reduction
of warranty repair costs at the time the related warranty repair is performed.
The Company uses the services of AAC and a member of the Company owner's
family for the purchase of used vehicles from various auctions throughout the
country. AAC pays the auction house for such purchases and the Company
reimburses AAC for the cost of the vehicle plus, when the affiliated
individual is the purchase agent, a buy fee of approximately $160 per
vehicle. Total payments to AAC for used vehicle purchases aggregated
$6,522,000, $8,106,000 and $5,286,000 and the related buy fees approximated
$91,000, $113,000 and $75,000 during fiscal 1996, 1995 and 1994,
respectively. The buy fee is recorded as a cost of the related vehicle.
-15-
<PAGE>
SPEDDING TOYOTA
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENTS
The principal stockholder of Spedding Toyota dealerships executed a purchase
and sale agreement dated April 10, 1997, whereby the stockholder agreed to
sell all of the stock in both dealerships to Cross-Continent Auto Retailers,
Inc. ("C-CAR"). The purchase price consists of cash consideration of
$28.1 million, 279,720 shares of C-CAR common stock and a five-year,
$7 million note bearing interest at prime payable monthly with the principal
payable in full on April 10, 2002.
C-CAR plans to relocate each of the dealerships to larger facilities and has
purchased land near each of the existing sites in exchange for a total of
$7,500,000 in promissory notes bearing interest at the prime rate, maturing
in October 1997. C-CAR anticipates refinancing these notes upon maturity.
In connection with the relocation plans, Douglas Toyota, Inc. entered into
facility construction contracts with commitments totaling approximately
$6,300,000. The Company also anticipates entering into a construction
contract for a new facility for Toyota West Sales and Service, Inc. with
commitments totaling approximately $6,600,000.
-16-
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statements of operations for the
year ended December 31, 1996 and for the three months ended March 31, 1997
reflect the historical accounts of the Company for those periods, adjusted to
give pro forma effect to: (a) the Company's 1996 reorganization in June 1996
and initial public offering in September 1996 when the Company sold 3,675,000
shares of its common stock to the public (the "Offering"); (b) the October 1996
acquisition of Hickey Dodge; and (c) the April 1997 acquisition of Toyota West
Sales and Service, Inc. and Douglas Toyota, Inc. (collectively, "Spedding
Toyota") as if such events had occurred at the beginning of each period
presented.
The following unaudited pro forma consolidated balance sheet as of March 31,
1997 reflects the historical accounts of the Company as of that date adjusted
to give pro forma effect to the pending acquisition of Spedding Toyota as if it
had occurred as of March 31, 1997.
The pro forma consolidated financial data and accompanying notes should be read
in conjunction with the Company's Consolidated Financial Statements and the
related notes as filed with its 1996 Annual Report on Form 10-K and March 31,
1997 Quarterly Report on Form 10-Q, and the financial statements and related
notes of Spedding Toyota, which are included elsewhere in this Form 8-K. The
Company believes that the assumptions used in the following statements provide
a reasonable basis on which to present the pro forma financial data. The pro
forma consolidated financial data is provided for information purposes only an
should not be construed to be indicative of the Company's financial condition
or results of operations had the transactions and events described above been
consummated on the dates assumed and are not intended to project the Company's
financial condition on any future date or results of operations for any future
period.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
Actual Pro Forma Actual
Actual Hickey Pro Forma for 1996 Spedding Pro Forma
Company 1 Dodge 1 Adjustments Transactions Toyota 1 Adjustments Pro Forma
-------- -------- ----------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Vehicle sales $283,977 $ 89,550 $ - $373,527 $183,638 $ - $557,165
Other operating revenue 37,606 10,697 - 48,303 21,345 981 5 70,629
-------- -------- ------- -------- -------- ------- --------
Total revenues 321,583 100,247 - 421,830 204,983 981 627,794
Cost of sales
Gross profit 271,650 84,978 - 356,628 169,137 - 525,765
-------- -------- ------- -------- -------- ------- --------
49,933 15,269 - 65,202 35,846 981 102,029
-------- -------- ------- -------- -------- ------- --------
Expenses:
SG&A 36,490 10,285 847 2 47,622 26,344 (120)6 73,846
Depreciation and amortization 1,207 182 240 3 1,629 393 1,080 7 3,102
Employee stock compensation 1,099 - - 1,099 - - 1,099
-------- -------- ------- -------- -------- ------- --------
38,796 10,467 1,087 50,350 26,737 960 78,047
-------- -------- ------- -------- -------- ------- --------
Income before interest and taxes 11,137 4,802 (1,087) 14,852 9,109 21 23,982
Other income (expense)
Interest income 1,585 543 - 2,128 679 (1,449)8 1,358
Interest expense (4,778) (1,390) 1,500 2 (4,668) (1,849) (1,691)8 (8,208)
-------- -------- ------- -------- -------- ------- --------
Income before taxes 7,944 3,955 413 12,312 7,939 (3,119) 17,132
Income tax provision 3,362 - 1,630 4 4,992 - 1,803 9 6,795
-------- -------- ------- -------- -------- ------- --------
Net income $ 4,582 $ 3,955 $(1,217) $ 7,320 $ 7,939 $(4,922) $ 10,337
======== ======== ======= ======== ======== ======= ========
Net income per share $ 0.73 10
Weighted average shares outstanding 14,080 10
</TABLE>
=17=
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL
ACTUAL SPEDDING PRO FORMA PRO
COMPANY 1 TOYOTA 1 ADJUSTMENTS FORMA
--------- ---------- ------------- --------
<S> <C> <C> <C> <C>
Revenues
Vehicle sales $ 77,554 $ 44,738 $ - $ 122,292
Other operating 11,468 5,285 177 5 16,930
-------- --------- --------- ---------
Total revenues 89,022 50,023 177 139,222
Cost of sales 73,839 41,139 - 114,978
-------- --------- --------- ---------
Gross profit 15,183 8,884 177 24,244
-------- --------- --------- ---------
Expenses:
SG&A 10,901 6,991 (30) 6 17,862
Depreciation and amortization 381 102 270 7 753
-------- --------- --------- ---------
11,282 7,093 240 18,615
-------- --------- --------- ---------
Income before interest and taxes 3,901 1,791 (63) 5,629
Other income (expense)
Interest income 736 181 (362) 8 555
Interest expense (1,211) (436) (423) 8 (2,070)
-------- --------- --------- ---------
Income before taxes 3,426 1,536 (848) 4,114
Income tax provision 1,280 - 257 9 1,537
-------- --------- --------- ---------
Net income $ 2,146 $ 1,536 $ (1,105) $ 2,577
-------- --------- --------- ---------
-------- --------- --------- ---------
Net income per share $ 0.16 $ 0.18 10
Weighted average shares outstanding 13,800 14,080 10
</TABLE>
FOOTNOTES
- --------------
(1) Actual results of operations reflect the results of operations of the
Company for the year ended December 31, 1996 and the three months
ended March 31, 1997, of Hickey Dodge for the nine months ended
September 30, 1996 and of Spedding Toyota for the year ended
December 31, 1996 and the three months ended March 31, 1997, as
applicable.
-18-
<PAGE>
(2) Reflects the Company's estimate of the net additions to selling,
general and administrative expenses and reductions in interest expense
which would have occurred if the Offering had been effected as of the
beginning of 1996 and consists of (a) a net increase in management
compensation pursuant to new compensation arrangements to be in place
subsequent to the Offering, (b) an increase in administrative expenses
associated with public ownership of the Company's Common Stock, and
(c) a net reduction in interest expense reflecting estimated initial
public offering proceeds used to pay down floor plan debt. The
additional expenses include:
Year Ended
December 31, 1996
-----------------
Management compensation............. $ 322
Legal and professional.............. 225
Shareholder relations............... 188
Other............................... 112
---------
$ 847
---------
---------
(3) Reflects additional amortization associated with intangible assets of
approximately $14.9 million (principally goodwill) resulting from the
acquisition of Hickey Dodge, offset by a reduction in depreciation
expense associated with certain assets excluded from the Hickey Dodge
purchase.
(4) Reflects the estimated income tax effect of adjustments (2) and (3)
described above and the results of operations of Hickey Dodge as if it
were a taxable entity for the nine months ended September 30, 1996.
(5) Reflects the fact that as a result of the purchase transaction, the
Spedding dealerships will no longer utilize Automotive Assistance Corp.
("AAC"), a related party with respect to Spedding Toyota, as an
intermediary in connection with the sale of warranty transactions (see
Note 11 to the combined financial statements of Spedding Toyota, which
are included elsewhere in this document).
(6) Reflects the fact that as a result of the purchase transaction,
Douglas Toyota, Inc. obtained a direct, five-year lease from the
facility owner instead of subleasing the property from RDS, Inc., a
related party with respect to Spedding Toyota (see Note 10 to the
combined financial statements of Spedding Toyota).
(7) Reflects additional amortization associated with intangible assets of
approximately $35.4 million resulting from the purchase of the
Spedding Toyota dealerships. The intangible assets, primarily
goodwill, have lives ranging from 10 to 40 years.
(8) Reflects the estimated reduction in interest income and increase in
interest expense, using 8.25% for both, based on the net cash payment
of $17.6 million and total borrowings of $20.5 million associated with
the purchase of Spedding Toyota ($7 million seller financed debt and
$6 million in bank borrowings, both associated with the purchase of
the dealerships, and $7.5 million seller financed debt related to the
land purchase).
(9) Reflects the estimated income tax effect of the adjustments described
in footnotes (5) to (8) above and for Spedding Toyota as if it were a
taxable entity, using an incremental tax rate of 37.4%.
(10) Net income per share data was not presented in the actual statement of
operations for the year ended December 31, 1996 as the historical capital
structure prior to the Company's reorganization and initial public
offering is not comparable with the capital structure subsequent to these
events. The pro forma net income per share was calculated assuming that
14,079,720 shares were outstanding from the beginning of each period
presented, representing the 13,800,000 actual shares outstanding plus the
279,720 shares issued in connection with the acquisition of Spedding
Toyota.
-19-
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
ACTUAL PRO FORMA PRO
C-CAR ADJUSTMENTS FORMA
---------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 33,431 $ (17,564) 1,2 $ 15,867
Accounts receivable 15,122 8,382 2,3 23,504
Inventories 45,800 18,373 2 64,173
---------- ---------- ----------
Total current assets 94,353 9,191 103,544
---------- ---------- ----------
Property and equipment, net 13,854 7,986 2,4 21,840
Goodwill and other intangibles, net 22,002 35,366 2 57,368
Other assets 4,144 483 2 4,627
---------- ---------- ----------
Total assets $ 134,353 $ 53,026 $ 187,379
---------- ---------- ----------
---------- ---------- ----------
Liabilities:
Floorplan notes payable $ 38,065 $ 14,463 2 $ 52,528
Current maturities of long-term debt 1,345 7,500 4 8,845
Accounts payable 6,620 2,268 2 8,888
Due to affiliates 5,405 6,905 2 12,310
Accrued expenses and other liabilities 8,446 4,490 2,3 12,936
Deferred income taxes 1,927 (600) 5 1,327
---------- ---------- ----------
Total current liabilities 61,808 35,026 96,834
---------- ---------- ----------
Long-term debt 10,551 13,000 1 23,551
Deferred warranty revenue - long-term portion 1,615 - 1,615
---------- ---------- ----------
Total long-term liabilities 12,166 13,000 25,166
---------- ---------- ----------
Stockholders' equity:
Preferred stock - -
Common stock 138 3 1 141
Paid-in capital 47,476 4,997 1 52,473
Retained earnings 12,765 - 12,765
---------- ---------- ----------
Total stockholders' equity 60,379 5,000 65,379
---------- ---------- ----------
Total liabilities and stockholders' equity $ 134,353 $ 53,026 $ 187,379
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
FOOTNOTES:
- ----------
(1) Reflects the purchase price of the Spedding Toyota dealerships consisting
of the following: $28.1 million cash, $6 million of which was financed with
bank debt maturing in 2000; 279,720 shares valued at $17.875 per share;
and a prime rate based promissory note in the amount of $7 million which
matures in 2002.
(2) Reflects the estimated allocation of the Spedding Toyota purchase price
based on the estimated fair value of the assets and liabilities acquired.
The purchase price allocation consists of the following (in thousands):
Working capital $ 3,730
Fixed and other assets 969
Intangible assets, including goodwill 35,366
-------
$40,065
-------
-------
(3) Reflects management's estimate of the future cost of approximately $800,000
expected to be incurred in connection with in-house warranty contracts
outstanding at the time of acquisition with a corresponding receivable
reflecting the reimbursement agreement with the seller.
(4) Reflects the purchase of land in anticipation of relocating both of the
Spedding Toyota dealerships. The purchase price of such land was $7.5
million, which was financed with a prime rate based note which matures
in October 1997.
(5) Reflects reduction in deferred tax liabilities associated with the
differences between the book and tax bases of assets acquired and
liabilities assumed.
-20-
