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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER ______
UNITED AUTO GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3086739
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
375 PARK AVENUE, NEW YORK, NEW YORK 10152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 223-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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Title of each class Name of each exchange on which registered
VOTING COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE
$0.0001 PER SHARE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
AT MARCH 7, 1997, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES WAS $196,548,360.
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THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON
STOCK AS OF MARCH 7, 1997:
VOTING COMMON STOCK, $0.0001 PAR VALUE 16,639,946
NON-VOTING COMMON STOCK, $0.0001 PAR VALUE 605,454
DOCUMENTS INCORPORATED BY REFERENCE
(1) PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 18,
1997, ISSUED IN CONNECTION WITH THE ANNUAL MEETING OF SHAREHOLDERS
PRESENTLY SCHEDULED TO BE HELD ON APRIL 17, 1997 ARE INCORPORATED BY
REFERENCE IN PART III OF THIS FORM 10-K.
2
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TABLE OF CONTENTS
PART I
PAGE
1. Business............................................................... 4
2. Properties............................................................. 11
3. Legal Proceedings...................................................... 13
4. Submission of Matters to a Vote of Securityholders..................... 13
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.. 13
6. Selected Consolidated Financial Data................................... 14
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 18
8. Financial Statements and Supplementary Data............................ 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 24
PART III
10. Directors and Executive Officers of the Registrant..................... 24
11. Executive Compensation................................................. 24
12. Security Ownership of Certain Beneficial Owners and Management......... 24
13. Certain Relationships and Related Transactions......................... 24
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 25
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PART I
ITEM 1. BUSINESS
OVERVIEW
United Auto Group, Inc. was incorporated in the State of Delaware in December
1990 and commenced dealership operations in October 1992. Unless the context
otherwise requires, references herein to "UAG" or the "Company" refer to United
Auto Group, Inc. and its subsidiaries, and references herein to the "Common
Stock" refers to the Company's Voting Common Stock, par value $0.0001 per
share.
UAG is a leading acquirer, consolidator and operator of franchised automobile
and light truck dealerships and related businesses. The Company believes that
it is the second largest publicly-traded retailer of new motor vehicles in the
United States. At the end of 1996, the Company operated 37 franchises located
in Arizona, Arkansas, Connecticut, Georgia, New Jersey, New York, and
Tennessee. These franchises represent 22 American, Asian and European brands.
As an integral part of its dealership operations, UAG sells used vehicles. In
addition, the Company operates eight stand-alone used car retail centers. All
of UAG's dealerships include integrated service and parts operations, which are
an important source of recurring revenues. The Company also owns Atlantic Auto
Finance Corporation ("Atlantic Finance"), an automobile finance company engaged
in the purchase, sale and servicing of prime credit quality automobile loans
originated by both UAG and third-party dealerships. In addition, UAG
dealerships market a complete line of aftermarket automotive products and
services through United AutoCare, an aftermarket products and services
subsidiary. In 1996, on a pro forma basis, UAG had revenues of approximately
$1.6 billion and retailed 41,916 new and 22,946 used vehicles.
The Company was formed to capitalize on consolidation opportunities within the
highly fragmented $660 billion automotive retailing industry by acquiring,
consolidating, and operating large automobile retailers and related businesses.
As capital requirements to operate dealerships continue to increase and many
owners who were granted franchises in the 1950s and 1960s approach retirement
age, many individual dealers are seeking exit opportunities. These conditions
present attractive consolidation opportunities for larger automobile retailers
such as UAG.
The following table sets forth information with respect to each dealership
owned by the Company at December 31, 1996:
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DATE
ACQUIREE ACQUIRED LOCATIONS FRANCHISES PRESENTLY HELD
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DiFeo Automotive Group 10/92 Danbury, CT Chevrolet-Geo, Hyundai, Isuzu, Suzuki
Bound Brook, NJ Lexus
Jersey City, NJ Hyundai, Jeep-Eagle, Oldsmobile, Toyota
Tenafly, NJ BMW
Nyack, NY Mitsubishi, Toyota
DiFeo Nissan 11/92 Jersey City, NJ Nissan
DiFeo Chrysler-Plymouth 12/92 Jersey City, NJ Chrysler-Plymouth
</TABLE>
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continued
DATE
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ACQUIREE ACQUIRED LOCATIONS FRANCHISES PRESENTLY HELD
-------- -------- --------- -------------------------
<S> <C> <C> <C>
DiFeo Chevrolet-Geo 12/92 Jersey City, NJ Chevrolet-Geo
Fair Honda 1/93 Danbury, CT Honda
Fair Dodge 2/93 Danbury, CT Dodge
Gateway 8/93 Toms River, NJ Mitsubishi, Toyota
Landers Auto 8/95 Benton, AK Chrysler-Plymouth, Dodge, GMC Truck, Jeep-Eagle,
Oldsmobile
Atlanta Toyota 1/96 Duluth, GA Toyota
United Nissan (GA) 5/96 Morrow, GA Nissan
Peachtree Nissan 7/96 Chamblee, GA Nissan
Sun Group 10/96 Phoenix, AZ BMW, Land Rover
Scottsdale, AZ Acura, Audi, Land Rover, Lexus, Porsche
United BMW 10/96 Duluth, GA BMW
Conyers Nissan 10/96 Conyers, GA Nissan
United Nissan (TN) 10/96 Chattanooga, TN Nissan
</TABLE>
Management believes that UAG is well-positioned to continue capitalizing on the
consolidation trend in the automotive retailing industry due to its proven
acquisition history, diverse geographic presence, substantial size and
financial resources. Since December 31, 1996, the Company has reached
agreements to purchase Hanna Nissan in Las Vegas, a group of three dealerships
in Atlanta and Chattanooga and a group of nine dealerships located in the New
York metropolitan area and Florida. The Company also completed its previously
announced acquisition of the Crown dealerships in Houston during the first
quarter of 1997.
The following table sets forth, on a pro forma basis for 1996, certain
information relating to new vehicles sold at retail by the Company:
----------------------------------------------------
NUMBER OF NEW % OF NEW VEHICLES
MANUFACTURER VEHICLES SOLD AT RETAIL SOLD AT RETAIL
- ------------ ----------------------- --------------
Toyota 15,204 36.4%
Nissan 8,308 19.8
Chrysler 7,774 18.5
General Motors 3,489 8.3
BMW 2,316 5.5
Honda 1,793 4.3
Mitsubishi 1,234 2.9
Hyundai 811 1.9
Land Rover 407 1.0
Isuzu 216 0.5
Audi 140 0.3
Porsche 119 0.3
Suzuki 105 0.3
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Total 41,916 100.0%
====== =====
On a pro forma basis, the retail sale of these new vehicles generated $933.3
million in revenues or 58.4% of total automobile dealership revenues.
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UAG purchases substantially all of its new car inventory directly from
manufacturers. Each of the Company's dealerships operates pursuant to a
franchise agreement between the applicable manufacturer and the subsidiary of
the Company that operates such dealership. In accordance with the individual
franchise agreements, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of manufacturers to influence
the operations of a dealership, or the loss of a franchise agreement, could
have a negative impact on the Company's operating results.
Manufacturers allocate inventory based on the size and location of dealerships,
but actual shipments result from negotiations with individual dealers. The
Company believes that larger dealers, such as UAG, are better positioned to
secure favorable inventory shipments and optimize manufacturers' allocations.
UAG finances its inventory purchases through revolving credit arrangements
known in the industry as floor plan facilities.
New vehicle retail sales are made to individual customers and to leasing
companies providing consumer leasing. Industry wide, the percentage of new
vehicle retail sales that are leasing transactions has increased from 13.5% in
1990 to 33.0% in 1996. Manufacturers have encouraged this trend through their
captive finance companies by supporting residual values in such a way so as to
reduce consumers' monthly lease payments, particularly for shorter-term leases.
This method has attracted consumers to shorter-term leases, which has the
effect of bringing the consumer back to the market sooner than if the purchase
were debt financed and providing new car dealerships with a steady source of
late-model, off-lease vehicles for their used car inventory. In addition,
because the vehicle usually remains under factory warranty for the term of the
lease, the dealership has the opportunity to provide repair service to the
lessee.
GROWTH STRATEGY
UAG seeks to be a leader in the consolidation of the automotive retailing
industry and to increase stockholder value through a growth strategy focused on
(i) acquiring profitable dealership operations, (ii) leveraging its new car
franchises to grow higher-margin businesses and (iii) generating incremental
revenue from its automobile finance business.
Acquire Profitable Dealership Operations
UAG seeks to capitalize on continuing consolidation in the U.S. automotive
retailing industry by selectively acquiring profitable dealerships. The Company
targets dealerships or dealership groups with established records of
profitability and customer satisfaction as well as experienced management
willing to remain in place. The Company focuses on opportunities in geographic
markets with above-average projected population and job growth. Of the
approximately 22,000 dealerships in the United States, the Company believes
that at least 2,000 dealerships, some of which are members of dealership
groups, meet its acquisition criteria.
Grow Higher-Margin Businesses
UAG is leveraging its new car franchises and applying its financial resources
to grow higher-margin businesses such as the retail sale of used vehicles,
aftermarket products and service
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and parts.
Used Vehicles. On a pro forma basis, in 1996, UAG sold at retail 22,946 used
vehicles and used vehicle operations generated $322.6 million in revenues, or
20.2% of total auto dealership revenues. Used vehicle sales by franchised
dealers, with average prices approximating 60% of new vehicle prices, typically
generate higher gross margins than new car sales because of limited
comparability among used vehicles and the somewhat subjective nature of their
valuation. Consumer acceptance of used vehicle purchasing has grown due
principally to the following factors: (i) the availability of late-model,
low-mileage used automobiles has increased due to the large supply of cars
coming off short-term leases and from rental company fleets; (ii) the quality
of motor vehicles has generally improved; and (iii) the prices of new cars have
risen. The Company has taken advantage of this trend by recently opening
additional stand-alone used vehicle operations.
Profits from used car sales are dependent primarily on the ability to source a
low-cost, high-quality supply and effectively manage inventory. UAG's
dealerships acquire their used cars through trade-ins, lease expirations and
auctions. Off-lease vehicles are regarded as the highest quality in their age
class due to their low mileage and good condition relative to fleet and rental
vehicles. When a leasing customer declines to purchase the vehicle upon
expiration of the lease, industry practice is to offer it to the dealer that
originated the transaction before it is offered to other dealers or sold at
auction. In addition, UAG purchases a significant portion of its used car
inventory at "closed" auctions, which offer off-lease, rental and fleet
vehicles. Such auctions can be attended only by new car dealers. The balance of
its used car inventory is purchased at "open" auctions, which offer repossessed
cars and cars offered by other dealers.
The Company has taken several initiatives to enhance customer confidence in
used cars, including offering extended warranties, stocking higher-quality,
late-model used cars and participating in manufacturer certification programs.
Under such certification programs, which are available exclusively to new car
dealers, manufacturers support used vehicles with extended factory warranties
and attractive financing options. The Company performs the rigorous inspections
and reconditioning required for certification. Management believes that its
size is an advantage over smaller new car dealers, who may not receive a
sufficient supply to justify dedicating resources to the certification process.
Aftermarket Products. On a pro forma basis, in 1996, UAG's sales of aftermarket
products generated $51.7 million in revenues, or 3.2% of total auto dealership
revenues. Each sale of a new or used vehicle provides the opportunity for the
Company to sell aftermarket products. Aftermarket products include accessories
such as radios, cellular phones, alarms, custom wheels, paint sealants and
fabric protectors, as well as extended service contracts and credit insurance
policies. In addition, the Company receives fees for placing financing and
lease contracts. In order to meet customers' needs and help create a
"one-stop" shopping experience, management continues to expand aftermarket
product offerings.
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Service and Parts. On a pro forma basis, in 1996, UAG's service and parts
operations generated $126.1 million in revenues, or 7.9% of total auto
dealership revenues. Each of UAG's new vehicle dealerships offers a fully
integrated service and parts department. The service and parts business
provides an important recurring revenue stream to the Company's dealerships,
which may help to mitigate the effects of downturns in the automobile sales
cycle. Unlike independent service shops or used car dealerships with service
operations, UAG is qualified to perform work covered by manufacturer
warranties. Since warranty service work is paid for by the manufacturer,
consumers are motivated to service their vehicles at a dealership for the
warranty period. In recent years, manufacturers have generally lengthened
standard warranty coverage on new cars to three years or 36,000 miles and
introduced warranty coverage on used cars, further enhancing customer retention
opportunities in the service area. To grow their service and parts businesses,
UAG dealerships track maintenance records of customers and contact them
regarding dealership promotions and maintenance schedules. In addition, the
Company actively markets warranty-covered services to potential customers such
as municipalities and corporations with large fleets of automobiles located
near certain of its dealerships. The Company is able to offer repair services
to such customers on a more efficient and less costly basis than such customers
generally can perform themselves. The Company believes that its market share
will grow at the expense of independent mechanics' shops, which may be unable
to address the increased mechanical and electronic sophistication of today's
motor vehicles and the increased expenses of compliance with more stringent
environmental regulations.
Generate Incremental Revenue from Automobile Finance Business
In 1996, industry wide, approximately 73% of new and used automobile retail
purchases (exclusive of private sales) were financed. To capitalize on this
market, the Company established Atlantic Finance, its own automobile finance
subsidiary. Atlantic Finance purchases, sells and services motor vehicle
installment contracts originated by both UAG and third-party dealerships.
Atlantic Finance commenced loan operations in January 1995 and currently serves
approximately 150 dealerships in Arkansas, Connecticut, Georgia, New Jersey and
New York. Atlantic Finance derives its revenues from three primary areas (i)
finance charges on its automobile contracts, (ii) gains in connection with the
sale or securitization of pools of automobile contract receivables and (iii)
service fees, late charges and other related income.
OPERATING STRATEGY
Emphasize Customer Service
Central to UAG's overall philosophy is customer-oriented service designed to
meet the needs of an increasingly sophisticated and demanding automotive
consumer through "one-stop" shopping convenience, competitive pricing and a
sales staff that is knowledgeable about product offerings and responsive to a
customer's particular needs. The Company's goal is to establish lasting
relationships with its customers, which it believes enhances its reputation in
the community and creates the opportunity for significant repeat and referral
business.
The quality of customer service provided by dealerships' sales and service
departments is measured
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by customer satisfaction index ("CSI") scores, which are derived from data
accumulated by manufacturers through individual customer surveys. UAG relies on
this data to improve dealership operations and uses it as a factor in
determining the compensation of general managers and sales and service
personnel in all its dealerships. The Company's most recent CSI scores indicate
that a majority of its dealerships' CSI scores were at or above the average CSI
scores for the applicable regions.
COMPETITION
Automobile Dealerships
The automotive retailing industry is extremely competitive. In large
metropolitan areas, consumers have a number of choices in deciding where to
purchase a new or used vehicle and where to have their vehicles serviced.
For new vehicle sales, the Company competes with other franchised dealers in
each of its marketing areas. The Company does not have any cost advantage in
purchasing new vehicles and typically relies on advertising and merchandising,
sales expertise, service reputation and the location of its dealerships to sell
new vehicles. In recent years, automobile dealers have also faced increased
competition in the sale of new vehicles from independent leasing companies and
on-line purchasing services and warehouse clubs. Due to lower overhead and
sales costs, these companies may be capable of operating on smaller gross
margins and offering lower sales prices than franchised dealers.
For used cars, the Company competes with other franchised dealers, independent
used car dealers, automobile rental agencies, private parties and used car
"superstores" for the supply and resale of used vehicles. UAG believes that by
virtue of its new vehicle franchises it enjoys significant advantages over both
independent and chain used-car companies in its sources of used vehicles.
Specifically, the Company has access to (i) a steady supply of quality
off-lease vehicles that were originally leased through the new vehicle
franchise, (ii) used car auctions open only to new car dealers and (iii) a
supply of used cars accepted as trade-ins for new vehicle purchases. In
addition, only new car franchises are able to sell used cars certified by the
automobile manufacturer under newly introduced programs in which the
manufacturer supports specific high-quality used cars with extended warranties
and attractive financing options.
The Company believes that the principal competitive factors in vehicle sales
are the marketing campaigns conducted by manufacturers, the ability of
dealerships to offer a wide selection of the most popular vehicles, the
location of dealerships and the quality of customer service. Other competitive
factors include customer preference for particular brands of automobiles,
pricing (including manufacturer rebates and other special offers) and
warranties. The Company believes that its dealerships are competitive in all of
these areas.
The Company competes against other franchised dealers to perform warranty
repairs and against other automobile dealers, franchised and unfranchised
service center chains, and independent garages for non-warranty repair and
routine maintenance business. The Company competes with
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other automobile dealers, service stores and auto parts retailers in its parts
operations. The Company believes that the principal competitive factors in
parts and service sales are price, the use of factory-approved replacement
parts, familiarity with a manufacturer's brands and models, and the quality of
customer service. A number of regional or national chains offer selected parts
and services at prices that may be lower than the Company's prices.
Atlantic Finance
Atlantic Finance faces competition from a variety of lenders in the fragmented
auto finance market, including captive finance companies, banking institutions
and independent finance companies. Captive finance companies such as General
Motors Acceptance Corporation, Ford Motor Credit Company and Chrysler Financial
Corporation primarily focus on increasing dealer sales volume by offering
low-yield rates when promoting certain products. In general, captive finance
companies provide standardized products and fixed market rates and are not as
flexible in the marketplace. Captive finance companies also provide automobile
dealers with floor plan financing. Independent auto finance companies focus on
unconventional segments of the market with some lending to lower credit
borrowers in exchange for higher yields. The Company believes that the
principal competitive factors in offering financing are convenience, interest
rates and contract term-lengths.
CYCLICALITY
Unit sales of motor vehicles, particularly new vehicles, historically have been
cyclical, fluctuating with general economic cycles. During economic downturns,
the automotive retailing industry tends to experience similar periods of
decline and recession as the general economy. The Company believes that the
industry is influenced by general economic conditions and particularly by
consumer confidence, the level of personal discretionary spending, interest
rates and credit availability.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1996, UAG employed approximately 2,100 people, approximately
100 of whom are covered by collective bargaining agreements with labor unions.
Relations with employees are considered by the Company to be satisfactory.
ENVIRONMENTAL MATTERS
As with automobile dealerships generally, and service parts and body shop
operations in particular, the Company's business involves the use, handling and
contracting for recycling or disposal of hazardous or toxic substances or
wastes, including environmentally sensitive materials such as motor oil, waste
motor oil and filters, transmission fluid, antifreeze, refrigerant, waste paint
and lacquer thinner, batteries, solvents, lubricants, degreasing agents,
gasoline and diesel fuels. The Company's business also involves the past and
current operation and/or removal of aboveground and underground storage tanks
containing such substances or wastes. Accordingly, the Company is subject to
regulation by federal, state and local authorities establishing health and
environmental quality standards, and liability related thereto, and providing
penalties for violations of those
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standards. The Company is also subject to laws, ordinances and regulations
governing remediation of contamination at facilities it operates or to which it
sends hazardous or toxic substances or wastes for treatment, recycling or
disposal.
The Company believes that it does not have any material environmental
liabilities and that compliance with environmental laws, ordinances and
regulations will not, individually or in the aggregate, have a material adverse
effect on the Company's results of operations or financial condition. However,
soil and groundwater contamination has been known to exist at certain
properties leased by the Company. Furthermore, environmental laws and
regulations are complex and subject to frequent change. There can be no
assurance that compliance with amended, new or more stringent laws or
regulations, stricter interpretations of existing laws or the future discovery
of environmental conditions will not require additional expenditures by the
Company, or that such expenditures would not be material.
ITEM 2. PROPERTIES
The Company leases or subleases its facilities and seeks to structure its
acquisitions in a way to avoid the ownership of real property. Set forth in the
table below is certain information relating to the Company's leases and
subleases.
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OCCUPANT LOCATION USE EXPIRATION
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DIFEO GROUP
Fair Chevrolet-Geo 102 Federal Road New and used car sales; general September 30, 2010
Danbury, CT office; service
Fair Hyundai/ 100 Federal Road New and used car sales; service Month-to-month
Isuzu/Suzuki Danbury, CT
DiFeo Lexus 1550 Route 22 East New and used car sales; service September 30, 2010
Bound Brook, NJ
DiFeo Chevrolet-Geo 599 Route 440W New and used car sales; service September 30, 2010
and J&F Oldsmobile Jersey City, NJ
DiFeo Chrysler- Hudson Mall on Route 440 New and used car sales; service September 30, 2010
Plymouth/Jeep- Jersey City, NJ
Eagle/Hyundai
Hudson Toyota 585 Route 440W New and used car sales; service; September 30, 2010
Jersey City, NJ general office
DiFeo BMW (a) 301 County Road New and used car sales January 5, 2002, renewable to
Tenafly, NJ 2012
(b) 64 North Summit Street Service July 1, 2016, renewable to
Tenafly, NJ 2036
Rockland Mitsubishi 75 N. Highland Avenue New and used car sales; service September 30, 2010
Nyack, NY
Rockland Toyota 115 Route 59 New and used car sales; service September 30, 2002,
Nyack, NY renewable to 2012
DiFeo Nissan (a) 977 Communipaw Avenue New and used car sales September 30, 2010
Jersey City, NJ
(b) 909-921 Communipaw Ave. Service September 30, 2010
Jersey City, NJ
</TABLE>
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<CAPTION>
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- ----------
<S> <C> <C> <C>
DIFEO GROUP
Fair Honda 102 Federal Road New and used car sales; service September 30, 2010
Danbury, CT
Fair Dodge 100B Federal Road New and used car sales; service March 27, 2000, renewable to
Danbury, CT 2008
Gateway Mitsubishi Route 37 & Batchelor St. New car sales; service September 30, 2010
Toms River, NJ
Gateway Toyota Route 37 & Batchelor St. New and used car sales; service September 30, 2010
Toms River, NJ
LANDERS AUTO
Landers (a) 7800 Alcoa Road New car sales; service July 31, 2015, renewable to
Jeep-Eagle/Chrysler Benton,AR 2025
-Plymouth/Dodge
(b) 7800 Alcoa Road Used car sales
Benton, AR
Landers Oldsmobile-GMC 17821 I-30 New and used car sales; service July 31, 2015, renewable to
Truck Benton, AR 2025
Landers United AutoMart 20570 I-30 Used car sales April 30, 2002, renewable to
Benton, AR 2012
Landers West 1719 Merrell Drive Used car sales December 31, 1998, renewable
Little Rock, AR to 2001
Landers North 6055 Landers Road Used car sales May 31, 1999
North Little Rock, AR
Landers United Auto- 4445 Central Avenue Used car sales March 31, 2003
Mart - Hot Springs Hot Springs, AR
ATLANTA TOYOTA 2345 Pleasant Hill Road New and used car sales; service January 31, 2016
Duluth, GA
UNITED NISSAN (GA) 6889 Jonesboro Road New and used car sales; service April 30, 2016, renewable to
Morrow, GA 2026
PEACHTREE NISSAN (a) 5211 and 5214 New and used car sales; service June 30, 2016, renewable to
Peachtree Industrial 2026
Boulevard
Chamblee, GA
(b) 3393 Malone Drive Storage facility June 30, 2016, renewable to
Chamblee, GA 2026
SUN GROUP
Scottsdale Lexus 6905 E. McDowell New and used car sales; service December 31, 2005, renewable
Scottsdale, AZ to 2010(1)
Land Rover Scottsdale 6925 E. McDowell New and used car sales; service August 10, 2005, renewable to
Scottsdale, AZ 2025
Scottsdale Paint & Body 1111 N. Miller Auto painting; auto repairs December 15, 1998, renewable
Shop Scottdale, AZ to 2013
Camelback BMW 1144 E. Camelback New and used car sales; service February 26, 2005
Scottsdale, AZ
Land Rover Phoenix 1127 E. Camelback New and used car sales; service June 30, 2005, renewable to
Phoenix, AZ 2010
UNITED BMW 3264 Commerce Ave. New and used car sales; service April 28, 1998(2)
Duluth, GA
CONYERS NISSAN 1420 Iris Drive New and used car sales; service April 28, 1998(3)
Conyers, GA
</TABLE>
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<CAPTION>
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- ----------
<S> <C> <C> <C>
UNITED NISSAN (TN) 2121 Chapman Road New and used car sales; service October 31, 2016, renewable to
Chattanooga, TN 2026
UAG 375 Park Avenue Headquarters June 29, 2000
New York, NY
ATLANTIC FINANCE 800 Perinton Hills Office Offices August 31, 1999
Park
Fairport, NY
</TABLE>
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(1) The owner of the property has the right to require the tenant to purchase
the property at any time after December 31, 1997 at a purchase price equal to
one hundred times the monthly rental payment at the time of such purchase.
(2) The Company has entered into a purchase agreement to acquire the property
at any time prior to the expiration date for $7.5 million (with a discount if
purchased earlier). The Company expects to designate an unaffiliated third
party to purchase the property prior to such date and simultaneously enter into
a 20-year lease with the Company.
(3) The Company has entered into a purchase agreement to acquire the property
prior to the expiration date for $2.9 million. The Company expects to designate
an unaffiliated third party to purchase the property prior to such date and
simultaneously enter into a 20-year lease with the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in litigation that has arisen in
the ordinary course of business. None of these matters, either individually or
in the aggregate, are expected to have a material adverse effect on the
Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On October 10, 1996, the Company requested the written consent of the
stockholders holding 93.2% of its voting capital stock to amend its Certificate
of Incorporation in connection with its initial public offering of common stock
on October 28, 1996. On that date, the Company also requested the written
consent of the stockholders holding 89.7% of its then outstanding Class A
Preferred Stock to approve the Company's Non-employees Director Compensation
Plan and to take certain actions in connection with its initial public
offering. All such stockholders granted their consent.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "UAG." There were 80 holders of record of theVoting Common Stock and 1
holder of record of the Non-voting Common Stock as of March 7, 1997. There is
no established market for the Company's Non-voting Common Stock, but such stock
is convertible into an equal number of
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shares of Voting Common Stock at any time, subject to certain conditions, for
no cost at the option of the holder thereof.
Since the Company's Common Stock began trading on the NYSE after its initial
public offering in October 1996, the high, low and end of year closing sales
prices per share have been $34 7/8, $21 1/2, and $25 3/4, respectively through
December 31, 1996.
The Company has never declared or paid dividends on its Common Stock. The
Company intends to retain future earnings, if any, to finance the development
and expansion of its business and, therefore, does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. The decision
whether to pay dividends will be made by the Board of Directors of the Company
in light of conditions then existing, including the Company's results of
operations, financial condition and requirements, business conditions and other
factors.
Pursuant to support agreements by the Company in favor of subsidiaries of
Atlantic Finance that were entered into in connection with securitization
transactions or sales of automobile loan receivables, the Company is prohibited
from paying dividends in excess of 50% of its cumulative net income measured
over specified periods.
Pursuant to financing agreements with floor plan lenders, many of the Company's
dealerships are required to maintain a certain minimum working capital and a
certain aggregate net worth and/or are prohibited from making substantial
disbursements outside the ordinary course of business. In addition, pursuant to
the automobile franchise agreements to which the Company's dealerships are
subject, all dealerships are required to maintain a certain minimum working
capital, and some dealerships are also required to maintain a certain minimum
net worth. These requirements may restrict the ability of the Company's
operating subsidiaries to make dividend payments, which in turn may restrict
the Company's ability to make dividend payments.
On October 28, 1996, the Company issued an aggregate 1,113,841 shares of Common
Stock in exchange for the outstanding minority interests in certain of its
subsidiaries. On such date, the Company also issued an aggregate 1,109,491
shares of Common Stock to institutional investors upon the cashless exercise of
outstanding warrants to purchase 1,109,846 shares. Such issuances were effected
in reliance on Section 4(2) of the Securities Act of 1933, as amended, as
transactions not involving any public offering. No additional sales fees were
paid in connection therewith.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial and
other data of the Company as of and for the three months ended December 31,
1992, and as of and for each of the four years in the period ended December 31,
1996 and of the Predecessor Company for the nine months ended September 30,
1992. The historical balance sheet data as of December 31, 1993, 1994, 1995,
and 1996 and the historical statements of operations data for the years then
ended have been derived from the financial statements of the Company which have
been audited by Coopers &
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Lybrand L.L.P., the Company's independent accountants. The selected historical
consolidated financial data set forth below for the Predecessor Company and for
the Company for the three months ended December 31, 1992 have been derived from
unaudited financial statements but have been prepared on the same basis as the
audited consolidated financial statements and contain all adjustments,
consisting of only normal recurring accruals, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements and
related notes of the Company.
The Company made a number of acquisitions in 1995 and 1996. Each of these
acquisitions has been accounted for using the purchase method of accounting and
as a result, the Company's financial statements include the results of
operations of the acquired dealerships only from the date of acquisition.
Therefore, the Company's period to period results of operations vary depending
on the dates of such acquisitions.
In addition to the selected historical consolidated financial and other data,
the following table presents selected pro forma consolidated statements of
operations and other auto dealership data for the year ended December 31, 1996.
This unaudited selected pro forma consolidated statements operations and other
auto dealership data gives effect to the following: (i) the acquisitions of
Steve Rayman Nissan (May 1, 1996), Hickman Nissan (July 1, 1996), and the Sun
Automotive Group, the Evans Group and Standefer Motor Sales (October 28,1996);
(ii) the acquisition of outstanding minority interests in certain subsidiaries
in exchange for Common Stock plus certain other consideration; (iii) the
Company's initial public sale of Common Stock; (iv) the repayment of $35.0
million aggregate principal amount of Senior Notes and $5.0 million of loans
outstanding under a credit agreement; and (v) the Preferred Stock Conversion.
The unaudited selected pro forma consolidated operations and auto dealership
data assumes these events occurred on January 1, 1996. This unaudited selected
pro forma consolidated operations and auto dealership data should be read in
conjunction with the historical financial statements and related notes thereto.
The historical and pro forma financial information included herein may not
necessarily reflect the results of operations, financial position and cash
flows of Company in the future or what the results of operations, financial
position and cash flows would have been had the acquisitions actually occurred
during the period presented in the financial statements.
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<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
---------------------------------------------------------------------------------------------------------------------------------
THE COMPANY
-----------
(Dollars in thousands, PREDECESSOR COMPANY(1)
except per share data) ---------------------- THREE MONTHS YEARS ENDED DECEMBER 31,
- ---------------------- NINE MONTHS ENDED ENDED ------------------------
SEPTEMBER 30, DECEMBER 31, HISTORICAL PRO FORMA
----------
1992 1992 1993 1994 1995(2) 1996(3) 1996(4)
---- ---- ---- ---- ----- ----- -----
STATEMENTS OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Auto Dealerships
Total revenues $297,010 $ 98,040 $606,091 $731,629 $805,621 $1,302,031 $1,599,226
Cost of sales, including
floor plan interest 257,845 85,712 537,688 647,643 720,344 1,157,368 1,415,731
Gross profit 39,165 12,328 68,403 83,986 85,277 144,663 183,495
Selling, general and
administrative expenses 40,873 12,929 66,910 80,415 90,586 124,244 149,633
Operating income (loss) (1,708) (601) 1,493 3,571 (5,309) 20,419 33,862
Other income (expense) -- -- 1,233 860 1,438 (4,398) (969)
Auto Finance
Loss before income taxes -- -- -- (616) (1,382) (1,490) (1,490)
Total Company
Minority interests -- 152 (117) (887) 366 (3,306) (37)
Provision (benefit) for
income taxes 197 -- 47 -- (2,089) 6,270 12,524
Income (loss) before
extraordinary item $ (1,905) $ (449) $ 96 $ (1,691) $ (3,466) $ 7,461 $ 18,842
Income (loss) before
extraordinary item per
common share $ -- $ -- $ 0.05 $ (0.44) $ (0.63) $ 0.69 $ 1.05
OTHER AUTO DEALERSHIP DATA
Gross profit margin 13.2% 12.6% 11.3% 11.5% 10.6% 11.1% 11.5%
Operating margin (0.6)% (0.6)% 0.2% 0.5% (0.7)% 1.6% 2.1%
New cars sold at retail 11,677 4,150 18,608 22,464 25,138 36,802 41,916
Used cars sold at retail 3,335 1,535 7,891 8,340 8,953 18,344 22,946
</TABLE>
1 Predecessor Company represents the combined historical results of the
DiFeo Group acquired by the Company on October 1, 1992.
2 Includes the results of Landers Auto from August 1, 1995.
3 Includes the results of Atlanta Toyota from January 1, 1996 and of Steve
Rayman Nissan from May 1, 1996, Hickman Nissan from July 1, 1996, and of
The Sun Group, The Evans Group, and Standefer Motor Sales from October
29, 1996.
4 The 1996 pro forma operations data does not reflect a reduction of cost
of sales related to reduced interest on floor plan notes payable
resulting from the application of as yet unused proceeds from the
Company's initial public sale of Common Stock. If the reduction of the
floor plan interest expense were reflected, then pro forma income (and
income per share) before extraordinary item would have been $21,168
($1.18 per share) for the year ended December 31, 1996.
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<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
-------------------------------------------------------------------------
(Dollars in THE COMPANY
thousands) -----------
AS OF DECEMBER 31,
------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Auto Dealerships
Current assets $70,045 $120,061 $118,534 $141,649 299,571
Current liabilities 75,127 117,494 125,825 139,447 221,455
Property and equipment, net 5,598 8,845 12,072 12,146 22,341
Intangible assets, net 20,665 22,832 23,018 48,774 177,194
Long-term debt 3,092 4,122 6,735 24,073 11,121
Auto Finance
Net assets - - 291 3,501 14,552
Total Company
Total assets 100,794 154,218 170,342 236,027 522,950
Minority interests subject
to repurchase 7,024 7,338 7,962 13,608 -
Stock purchase warrants - - - 1,020 -
Total stockholders' equity 15,551 25,264 28,785 49,240 281,468
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company retails new and used automobiles and light trucks, operates
service and parts departments and sells various aftermarket products,
including finance and insurance contracts. In 1996 UAG had revenues of
approximately $1.3 billion and retailed 36,802 new and 18,344 used vehicles.
Vehicle sales represented 89.4% of the Company's revenues in 1996; service and
parts accounted for 7.2% of revenues, with finance and insurance representing
the remaining 3.3%.
New vehicle revenues include sales to retail customers and to leasing
companies providing consumer automobile leasing. Used vehicle revenues include
amounts received for used vehicles sold to retail customers, leasing companies
providing consumer leasing, other dealers and wholesalers. Finance and
insurance revenues are generated from sales of accessories such as radios,
cellular phones, alarms, custom wheels, paint sealants and fabric protectors,
as well as amounts received as fees for placing extended service contracts,
credit insurance policies, and financing and lease contracts. Service and
parts revenues include fees paid by consumers for repair and maintenance
service and the sale of replacement parts.
Through its automobile finance subsidiary, Atlantic Finance, the Company
derives revenues from the purchase, sale and servicing of motor vehicle
installment contracts originated by both UAG and third-party dealerships.
The Company's selling expenses consist of advertising and compensation for
sales department personnel, including commissions and related bonuses. General
and administrative expenses include compensation for administration, finance
and general management personnel, rent, insurance and utilities. Interest
expense consists of interest charges on all of the Company's interest-bearing
debt other than floor plan inventory financing. Interest expense on floor plan
debt is included in cost of sales.
The Company made a number of acquisitions in 1995 and 1996. Each of these
acquisitions has been accounted for using the purchase method of accounting
and as a result, the Company's financial statements include the results of
operations of the acquired dealerships only from the date of acquisition.
Therefore, the Company's period to period results of operations vary depending
on the dates of such acquisitions. The financial information included herein
may not necessarily reflect the results of operations, financial position and
cash flows of Company in the future or what the results of operations,
financial position and cash flows would have been had the acquisitions
occurred during the period presented in the financial statements.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's consolidated
historical results of operations for 1994, 1995, and 1996.
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1996 COMPARED TO 1995
Auto Dealerships
DiFeo Restructuring. The Company undertook a broad restructuring of its DiFeo
Group in 1995 (the "DiFeo Restructuring"). The restructuring included (i) the
elimination of 17 unprofitable franchises, (ii) a significant reduction in
personnel and (iii) the liquidation of outdated inventory. Costs associated
with the DiFeo Restructuring were approximately $0.7 million and $0.5 million
for the years ended December 31, 1995 and 1996, respectively, primarily
related to severance.
Revenues. Revenues increased by $496.4 million, or 61.6%, from $805.6 million
to $1,302.0 million due to the full year contribution of Landers Auto, which
was acquired in August 1995, and the acquisitions made in 1996. Revenues at
Landers Auto were $323.2 million in 1996. Revenues at the continuing
franchises of the DiFeo Group increased by $82.9 million, or 13.8%, from
$598.7 million to $681.6 million. That increase was more than offset by a
decrease of $90.6 million in revenues due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring.
Sales of new and used vehicles increased by $448.2 million, or 62.6%, from
$716.4 million to $1,164.6 million. Dealerships acquired in 1996 contributed
$266.5 million to that increase. New and used vehicle sales at the continuing
franchises of the DiFeo Group increased by $66.2 million, or 12.5%, from
$529.0 million to $595.2 million. That increase was more than offset by a
decrease of $78.2 million in sales due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring. Unit retail sales of new and
used vehicles increased by 46.4% and 104.9%, respectively, due principally to
the 1996 acquisitions and the full year contribution of Landers Auto. During
1996, the Company sold 36,802 new vehicles (66.7% of total vehicle sales) and
18,344 used vehicles (33.3% of total vehicle sales). During 1995, the Company
sold 25,138 new vehicles (73.7% of total vehicle sales) and 8,953 used
vehicles (26.3% of total vehicle sales). The increase in the relative
proportion of used vehicle sales to new vehicle sales was due principally to
the expansion of existing used car facilities and the establishment of
stand-alone retail used car centers in response to the increased popularity of
used cars. New vehicle selling prices increased by an average of 5.4% due
primarily to changes in the mix of models sold and changes in manufacturer
pricing. Used vehicle selling prices increased by an average of 13.7% due to
changes in market conditions which resulted in a change in the mix of used
vehicles sold.
Finance and insurance revenues (aftermarket product sales) increased by $13.8
million, or 46.3%, from $29.8 million to $43.6 million due to the full year
contribution of Landers Auto and the acquisitions made in 1996. Sales of such
products increased by $6.3 million, or 24.5%, from $25.7 million to $32.0
million at the continuing franchises of the DiFeo Group, offsetting the $2.0
million decrease in sales due to the elimination of unprofitable franchises as
part of the DiFeo Restructuring.
Service and parts revenues increased by $34.5 million, or 58.1%, from $59.4
million to $93.9 million due to the full year contribution of Landers Auto and
the acquisitions made in 1996.
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Gross Profit. Gross profit increased by $59.4 million, or 69.6%, from $85.3
million to $144.7 million. The full year contribution of Landers Auto accounts
for $16.2 million of the increase and the remaining $37.5 million increase is
due to the 1996 acquisitions. Gross profit at the continuing franchises of the
DiFeo Group increased by $13.4 million, or 20.0%, from $66.9 million to $80.3
million. Gross profit as a percentage of revenues increased 4.7% from 10.6% to
11.1%. Included in the above gross profit figures is gross profit from finance
and insurance activities, which increased by $8.9 million, or 38.2%, from
$23.4 million to $32.3 million due principally to the full year contribution
of Landers Auto and the 1996 acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $33.6 million, or 37.1%, from $90.6
million to $124.2 million due principally to the full year ownership of
Landers Auto and the 1996 acquisitions. Such expenses as a percentage of
revenues decreased from 11.2% to 9.5%.
Other Interest Expense. Interest expense other than floor plan increased by
$3.0 million, or 214.3%, from $1.4 million to $4.4 million as a result of
increased borrowings to finance the acquisitions made in 1995 and 1996
Auto Finance
Loss before Income Taxes. The pretax loss from operations at Atlantic Finance
increased by $0.1 million from a loss of $1.4 million to $1.5 million.
Total Company
Provision for Income Taxes. The 1996 provision for income taxes is $6.3
million, compared to an income tax credit of $2.1 million recorded in 1995.
The credit for 1995 was taken as the Company determined in the fourth quarter
that it was more likely than not that future taxable income from operations
would be sufficient to fully realize the tax benefits of net operating losses
incurred in prior years.
Extraordinary Item, Net of Income Tax Benefits. The extraordinary item, net of
income tax benefits, of $5.0 million represents a loss on the retirement of
long-term debt resulting from a prepayment premium and a write-off of
associated debt issuance costs.
1995 COMPARED TO 1994
Auto Dealerships
Revenues. Revenues increased by $74.0 million, or 10.1%, from $731.6 million
to $805.6 million due to the acquisition of Landers Auto in August 1995.
Revenues at Landers Auto contributed $116.3 million. Revenues at the
continuing franchises of the DiFeo Group increased by $6.2 million, or 1.0%,
from $592.5 million to $598.7 million. That increase was more than offset by a
decrease of $48.5 million in revenues due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring.
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<PAGE>
Sales of new and used vehicles increased by $72.0 million, or 11.2%, from
$644.4 million to $716.4 million. The acquisition of Landers Auto contributed
$109.2 million to that increase. While revenues at the continuing franchises
of the DiFeo Group increased by $5.0 million, or 0.9%, from $524.0 million to
$529.0 million, that increase was more than offset by a decrease of $42.3
million in sales due to the elimination of unprofitable franchises as part of
the DiFeo Restructuring. Unit sales of new and used vehicles increased by
11.9% and 7.4%, respectively, due principally to the acquisition of Landers
Auto. Sales of new vehicles increased by 5.6% and sales of used vehicles
decreased by 10.3% at the continuing franchises of the DiFeo Group, offset by
the elimination of unprofitable franchises as part of the DiFeo Restructuring.
During 1995, the Company sold 25,138 new vehicles (73.7% of total vehicle
sales) and 8,953 used vehicles (26.3% of total vehicle sales). During 1994,
the Company sold 22,464 new vehicles (72.9% of total vehicle sales) and 8,340
used vehicles (27.1% of total vehicle sales). The decrease in the relative
proportion of used vehicle sales to new vehicle sales was due principally to
stronger demand for new vehicles as opposed to used vehicles at the DiFeo
Group operations offset by the acquisition of Landers Auto, which sells a
higher proportion of used vehicles to new vehicles than the DiFeo Group. New
vehicle selling prices increased by 4.4% due primarily to changes in
manufacturer pricing. Used vehicle selling prices increased by 17.2% due to
changes in market conditions which resulted in a change in the mix of used
vehicles sold.
Sales of finance and insurance products increased by $2.3 million, or 8.3%,
from $27.5 million to $29.8 million due to the acquisition of Landers Auto.
Sales of such products increased by $2.5 million, or 10.8%, from $23.2 million
to $25.7 million at the continuing franchises of the DiFeo Group, offsetting
in part the $2.3 million decrease in sales due to the elimination of
unprofitable franchises as part of the DiFeo Restructuring.
Service and parts revenues decreased by $0.3 million, or 0.5%, from $59.7
million to $59.4 million due to the DiFeo Restructuring, offset by increased
service and parts revenues attributable to Landers Auto.
Gross Profit. Gross profit increased by $1.3 million, or 1.5% , from $84.0
million to $85.3 million. The acquisition of Landers Auto added $10.6 million
during the five months the Company owned it. Gross profit at the continuing
franchises of the DiFeo Group decreased by $3.3 million, or 4.7%, from $70.2
million to $66.9 million. Gross profit as a percentage of revenues decreased
7.8% from 11.5% to 10.6% as the Company implemented the DiFeo Restructuring.
Included in the above gross profit figures is gross profit from finance and
insurance activities, which decreased by $1.1 million, or 4.5%, from $24.5
million to $23.4 million due principally to the DiFeo Restructuring offset by
the acquisition of Landers Auto. Gross profit from finance and insurance
activities at the continuing franchises of the DiFeo Group decreased by $0.9
million, or 4.2%, from $21.4 million to $20.5 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $10.2 million, or 12.7%, from $80.4
million to $90.6 million due principally to the acquisition of Landers Auto.
Such expenses as a percentage of revenues increased from 11.0% to 11.2% of
revenues. Selling, general and administrative expenses at the continuing
franchises of the
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DiFeo Group increased by $3.9 million from $66.1 million to $70.0 million.
Related Party Interest Income. Related party interest income was $3.0 million
in 1995. There was no such income in 1994.
Other Interest Expense. Interest expense other than floor plan increased by
$0.5 million, or 55.6%, from $0.9 million to $1.4 million as a result of
increased borrowings to finance the acquisitions of Landers Auto and Atlanta
Toyota and the issuance of certain promissory notes as part of the
consideration paid for Landers Auto, offset in part by a reduction in other
interest-bearing debt.
Equity in Loss of Uncombined Investees. Equity in loss of uncombined investees
decreased by $2.1 million, or 72.4%, from $2.9 million to $0.8 million due to
improved performance of certain dealerships in which the Company retained a
minority interest.
Loss before Income Taxes. The pretax loss from dealership operations increased
from $0.2 million to $4.5 million, including the costs incurred in connection
with the DiFeo Restructuring. The deterioration in the performance of the
DiFeo Group during the first quarter of 1995 led management to undertake the
DiFeo Restructuring.
Auto Finance
Loss before Income Taxes. The pretax loss from operations at Atlantic Finance
increased by $0.8 million from $0.6 million to $1.4 million, reflecting the
early stage of its operations. Atlantic Finance was formed in the first
quarter of 1994.
Total Company
Minority Interests. Minority interests changed by $1.3 million from a charge
of $0.9 million to a credit of $0.4 million as a result of the factors
described above.
Provision for Income Taxes. An income tax credit of $2.1 million was recorded
in 1995. The credit was taken as the Company determined in the fourth quarter
that it was more likely than not that, due to the DiFeo Restructuring, future
taxable income from operations would be sufficient to fully recognize a net
deferred tax asset at December 31, 1995. This net deferred tax asset stems
from tax basis operating losses sustained in 1994 and 1995.
Net Income (Loss). Net income decreased by $1.8 million from a loss of $1.7
million to a loss of $3.5 million due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND LIQUIDITY REQUIREMENTS
The cash requirements of the Company are primarily for acquisition of new
dealerships, working capital and expansion of existing facilities.
Historically, these cash requirements have been met
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through issuances of equity and borrowings under various credit agreements. At
December 31, 1996, the Company had working capital of $78.1 million.
During 1996, operating activities resulted in net cash provided by dealership
operations of $23.2 million.
Net cash provided by dealership financing activities during 1996 totaled
$160.5 million, including net cash proceeds of $24.6 from private placements
of capital stock and net proceeds of $170.8 million from the initial public
sale of Common Stock. In 1996, the Company sought and obtained waivers of
non-compliance with, and amendments to, certain covenants under its Securities
Purchase Agreements with certain institutional investors and Credit Agreement
with Morgan Guaranty Trust Company, including covenants regarding fixed charge
coverage ratios and delivery of certain collateral to secure the indebtedness
thereunder.
The Company finances substantially all of its new and used vehicle inventory
under revolving floor plan financing arrangements with various lenders. The
floor plan lenders pay the manufacturer directly with respect to new vehicles.
The Company makes monthly interest payments on the amount financed but is not
required to make loan principal repayments prior to the sale of new and used
vehicles. Substantially all of the assets of the Company's dealerships are
subject to security interests granted to their floor plan lending sources.
At December 31, 1996, the Company had approximately $69.0 million of cash
available to fund operations and future acquisitions. In addition, the Company
has received commitments from Morgan Guaranty Trust Company and The Bank of
Nova Scotia for an acquisition loan facility in the amount of $50 million. The
Company's principal source of growth has come, and is expected to continue to
come, from acquisitions of automobile dealerships. The Company believes that
its existing capital resources will be sufficient to fund operations and to
meet anticipated cash requirements for acquisition agreements reached in the
first quarter of 1997. To the extent the Company pursues other significant
acquisitions, it will need to raise additional capital either through the
public or private issuance of equity or debt securities or through bank
borrowings. A public offering would require the prior approval of certain
automobile manufacturers.
CYCLICALITY
Unit sales of motor vehicles, particularly new vehicles, historically have
been cyclical, fluctuating with general economic cycles. During economic
downturns, the automotive retailing industry tends to experience similar
periods of decline and recession as the general economy. The Company believes
that the industry is influenced by general economic conditions and
particularly by consumer confidence, the level of personal discretionary
spending, interest rates and credit availability.
SEASONALITY
The Company's combined business is modestly seasonal overall. The greatest
seasonalities exist with the dealerships in the New York metropolitan area,
for which the second and third quarters are the strongest with respect to
vehicle related sales. The service and parts business at all dealerships
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experiences relatively modest seasonal fluctuations.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rates of inflation over the
last few years have not had a significant impact on revenue or profitability.
The Company does not expect inflation to have any near-term material effects
on the sale of its products and services. However, there can be no assurance
that there will be no such effect in the future.
The Company finances substantially all of its inventory through various
revolving floor plan arrangements with interest rates that vary based on the
prime rate or LIBOR. Such rates have historically increased during periods of
increasing inflation. The Company does not believe that it would be placed at
a competitive disadvantage should interest rates increase due to increased
inflation since most other automobile dealers have similar floating rate
borrowing arrangements.
NEW ACCOUNTING PRONOUNCEMENT
In June 1996, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
SFAS 125 establishes financial and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
Statement is effective for transactions occurring after December 31, 1996. The
Company does not believe that adoption of this standard will have a material
impact on its financial position and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements for the information required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by Items 10 through 13 is included in the Company's
definitive proxy statement dated March 18, 1997, under the captions "The Board
of Directors and its Committees," "Election of Directors," "Executive
Officers," "Security Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions." Such information is
incorporated herein by reference, pursuant to General Instruction G(3).
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on Form
10-K.
(b) Reports on Form 8-K.
On December 24, 1996, the Company filed a Current Report on Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
(c) Exhibits
3.1 Third Restated Certificate of Incorporation.
*3.2 Restated Bylaws.
*4.1 Specimen Common Stock certificate.
*10.1.1.1 Registration Rights Agreement, dated as of October 15, 1993,
among the Company and the investors listed therein.
*10.1.1.2 Amendment to Registration Rights Agreement, dated as of July
31, 1996, among the Company and the investors listed therein.
*10.1.2 Waiver, Consent and Modification Agreement, dated as of
September 22, 1995, among the Company and its stockholders.
*10.1.3 Letter Agreement, dated September 22, 1996, between the Company
and J.P. Morgan Capital Corporation.
*10.1.4 Form of Warrant.
*10.1.5 Form of Additional Warrant.
*10.1.6 Employment Agreement, dated as of June 21, 1996, between the
Company and Carl Spielvogel.
*10.1.7 Severance Agreement, dated April 5, 1996, among the Company,
Trace and Ezra P. Mager.
*10.1.8 Stock Option Plan of the Company.
*10.1.9 Registration Rights Agreement, dated as of August 1, 1995,
among the company and the parties listed on Schedule I
thereto.
*10.1.10 Sublease, dated August 1994, between Overseas Partners, Inc.
and the Company.
*10.1.11 Letter, dated July 24, 1996, from Chrysler Corporation to the
Company.
*10.1.12 Agreement, dated July 24, 1996, between the Company and Toyota
Motor Sales U.S.A., Inc.
*10.1.13 Non-employee Director Compensation Plan of the Company.
*10.1.14 Form of Agreement among the Company, certain of its affiliates
and American Honda Motor Co., Inc.
*10.1.15 Form of Option Certificate of the Company in favor of Samuel X.
DiFeo and
25
<PAGE>
Joseph C. DiFeo.
*10.1.16 Form of Registration Rights Agreement among the Company and the
parties listed on Schedule U thereto.
*10.2.1.1 Honda Automobile Dealer Sales and Service Agreement, dated
October 5, 1995, between American Honda Motor Co. Inc. and
Danbury Auto Partnership.
*10.2.1.2 American Honda Motor Co. Standard Provisions.
*10.2.2.1 Lexus Dealer Agreement, dated October 5, 1992, between Lexus,
a division of Toyota Motor Sales, U.S.A., Inc, and Somerset
Motors Partnership.
*10.2.2.2 Lexus Dealer Agreement Standard Provisions.
*10.2.3.1 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service
Agreement, dated August 29, 1994, between Mitsubishi Motor Sales
of America, Inc. and Rockland Motors Partnership, as amended
August 20, 1996.
*10.2.3.2 Mitsubishi Motor Sales of America, Inc. Dealer Sales and
Service Agreement Standard Provisions.
*10.2.4.1 BMW of North America, Inc. Dealer Agreement, dated
January 1, 1994, between BMW of North America, Inc. and DiFeo
BMW Partnership, as amended October 21, 1996.
*10.2.4.2 BMW of North America, Inc. Dealer Standard Provisions Applicable
to Dealer Agreement.
*10.2.5.1 Term Dealer Sales and Service Agreement, dated July 3, 1996,
between American Suzuki Motor Corporation and Fair Hyundai
Partnership, as amended September 6, 1996.
*10.2.5.2 Suzuki Dealer Sales and Service Agreement Standard Provisions.
*10.2.6.1 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor
Distributors, Inc. and Hudson Motors Partnership.
*10.2.6.2 Toyota Dealer Agreement Standard Provisions.
*10.2.7.1 Oldsmobile Division Dealer Sales and Service Agreement, dated
October 2, 1992, between General Motors Corporation, Oldsmobile
Division and J&F Oldsmobile-Isuzu Partnership, as amended
December 20, 1993 and July 23, 1996.
*10.2.7.2 General Motors Dealer Sales and Service Agreement Standard
Provisions.
*10.2.8.1 Chevrolet-Geo Dealer Sales and Service Agreement, dated
November 1, 1995, between General Motors Corporation,
Chevrolet Motor Division and Fair Chevrolet-Geo Partnership.
*10.2.9.1 Nissan Dealer Term Sales and Service Agreement, between the
Nissan Division of Nissan Motor Corporation in U.S.A. and DiFeo
Nissan Partnership.
*10.2.9.2 Nissan Dealer Sales and Service Agreement Standard Provisions.
*10.2.10.1 Chrysler Corporation Term Sales and Service Agreement, dated
August 16, 1995, between Fair Chrysler Plymouth Partnership and
Chrysler Corporation.
*10.2.10.2 Chrysler Corporation Sales and Service agreement Additional
Terms and Provisions.
*10.2.11 Chrysler Corporation Eagle Sales and Service Agreement, dated
October 8, 1992, between DiFeo Jeep-Eagle Partnership and
Chrysler Corporation.
*10.2.12 Chrysler Corporation Chrysler Sales and Service Agreement,
dated August 16, 1995, between DiFeo Chrysler Plymouth Jeep
Eagle Partnership and Chrysler.
*10.2.13 Chrysler Corporation Plymouth Sales and Service Agreement,
dated November 13,
26
<PAGE>
1992, between DiFeo Chrysler Plymouth Jeep Eagle Partnership
and Chrysler Corporation.
*10.2.14 Toyota Dealer Agreement, dated May 5, 1995, between Toyota
Motor Distributors, Inc. and County
Auto Group Partnership.
*10.2.15.1 Hyundai Motor America Dealer Sales and Service Agreement,
dated October 12, 1992, between Hyundai Motor America and Fair
Hyundai Partnership as amended November 22, 1993, October 12,
1995, March 14, 1996 and September 18, 1996.
*10.2.15.2 Hyundai Motor America Dealer Sales and Service Agreement
Standard Provisions.
*10.2.16 Hyundai Motor America Dealer Sales and Service Agreement,
dated November 22, 1993, as amended April 1, 1994, and
November 3, 1995, between Hyundai Motor America and DiFeo
Hyundai Partnership.
*10.2.17 Toyota Dealer Agreement, dated August 23, 1995, between Toyota
Motor Distributors, Inc. and OCT Partnership.
*10.2.18 Mitsubishi Motor Sales of America, Inc. Sales and Service
Agreement, dated June 30, 1994, between Mitsubishi Motor Sales
of America, Inc. and OCM Partnership.
*10.2.19 Chrysler Corporation Jeep Sales and Service Agreement, dated
October 8, 1992, between DiFeo Jeep-Eagle Partnership and
Chrysler Corporation.
*10.2.20 Chevrolet-Geo Dealer Sales and Service Agreement, dated
November 1, 1995 between General Motors Corporation, Chevrolet
Motor Division and DiFeo Chevrolet-Geo Partnership.
*10.2.21 Isuzu Dealer Sales and Service Agreement, dated as of September
16, 1996 between American Isuzu Motors, Inc. and Fair
Cadillac-Oldsmobile-Isuzu Partnership.
*10.2.22 Isuzu Dealer Sales and Service Agreement Additional Provisions.
*10.2.23 Loan and Security Agreement, dated as of October 1, 1992,
between General Motors Acceptance Corporation and Hudson
Motors Partnership, as amended April 7, 1993.
*10.2.24 Unconditional, Continuing Guaranty of Payment of the Company
and its affilates named therein, dated as of October 1, 1992,
in favor of General Motors Acceptance Corporation, as amended
April 7, 1993.
*10.2.25 Term Loan and Borrowing Base Credit Line Loan Agreement, dated
as of April 7, 1993, between General Motors Acceptance
Corporation and DiFeo-EMCO Management Partnership.
*10.2.26 Settlement Agreement, dated as of October 3, 1996, among the
Company and certain of tis affiliates, on the one hand, and
Samuel X. DiFeo, Joseph C. DiFeo and certain of their
affiliates, on the other hand.
*10.2.27 Form of Agreement and Plan of Merger used in the Minority
Exchange of the DiFeo Group.
*10.2.28 Form of Lease of certain facilities in the DiFeo Group.
*10.2.29 Lease Agreement, dated September 27, 1990, between J&F Associates
and TJGHCC Associates.
*10.2.30 Lease Agreement, dated October 1, 1992, between Manly Chevrolet,
Inc. and County Toyota, Inc.
*10.2.31 Sublease, dated October 1, 1992, between DiFeo BMW, Inc. and
DiFeo BMW Partnership.
*10.3.1 Receivables Purchase Agreement, dated as of June 28, 1995,
between Atlantic Auto
27
<PAGE>
Funding Corporation and Atlantic Auto Finance Corporation.
*10.3.2 Loan and Security Agreement, dated as of June 28, 1995, among
Atlantic Auto Funding Corporation, Atlantic Auto Finance
Corporation and Citibank, N.A.
*10.3.3 Support Agreement of the Company, dated as of June 28, 1995,
in favor of Atlantic Auto Funding Corporation.
*10.3.4 Purchase Agreement, dated as of June 14, 1996, between Atlantic
Auto Finance Corporation and Atlantic Auto Second Funding
Corporation.
*10.3.5 Transfer and Administration Agreement, dated as of June 14, 1996,
among Atlantic Auto Second Funding Corporation, Atlantic Auto
Finance Corporation and Morgan Guaranty Trust Company of New York.
*10.3.6 Support Agreement of the Company, dated as of June 18, 1996,
in favor of Atlantic Auto Second Funding Corporation.
*10.3.7 Pooling and Servicing Agreement relating to Atlantic Auto
Grantor Trust 1996-A, dated as of June 20, 1996, among
Atlantic Auto Third Funding Corporation, Atlantic Auto Finance
Corporation and The Chase Manhattan Bank.
*10.3.8 Insurance and Indemnity Agreement, dated as of June 20, 1996,
among Financial Security Assurance Inc., Atlantic Auto Third
Funding Corporation and Atlantic Auto Finance Corporation.
*10.3.9 Master Spread Account Agreement, dated as of June 20, 1996,
among Atlantic Auto Third Funding Corporation, Financial
Security Assurance Inc. and The Chase Manhattan Bank.
*10.3.10 Lease Agreement, dated as of March 18, 1994, between Perinton
Hills and the Company, including guaranty of lease of Atlantic
Auto Finance Corporation.
*10.4.1 Amended and Restated Stock Purchase Agreement, dated as of
July 1, 1995, among the Company, Landers Auto Sales, Inc.,
Steve Landers, John Landers and Bob Landers.
*10.4.2 Promissory Note of the Company, dated August 1, 1995, in favor
of Steve Landers and John Landers.
*10.4.3 Promissory Note of the Company, dated August 1, 1995, in favor
of Steve Landers and John Landers.
*10.4.4 Guarantee of the Company, dated as of August 1, 1995, in favor
of Steve Landers and John Landers.
*10.4.5 Employment Agreement, dated as of August 1, 1995, between
Landers Auto Sales, Inc. and Steve Landers.
*10.4.6 Lease, dated as of August 1, 1995, among Steve Landers, John
Landers, Bob Landers and Landers Auto Sales, Inc., regarding
Jeep-Eagle premises.
*10.4.7 Lease, dated as of August 1, 1995, among Steve Landers, John
Landers, Bob Landers and Landers Auto Sales, Inc., regarding
Oldsmobile-GMC premises.
*10.4.8 Shareholders' Agreement, dated as of August 1, 1995, among the
Company, United Landers, Inc., Landers Auto Sales, Inc., Steve
Landers and John Landers.
*10.4.9 Chrysler Corporation Eagle Sales and Service Agreement, dated
August 16, 1995, between United Landers Auto Sales, Inc. and
Chrysler Corporation.
*10.4.10 Chrysler Corporation Jeep Sales and Service Agreement,
dated August 16, 1995, between United Landers Auto Sales, Inc.
and Chrysler Corporation.
*10.4.11 Chrysler Corporation Dodge Sales and Service Agreement,
dated August 16, 1995,
28
<PAGE>
between United Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.12 Chrysler Corporation Plymouth Sales and Service Agreement,
dated August 16, 1995, between United
Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.13 Chrysler Corporation Chrysler Sales and Service Agreement,
dated August 16, 1995, between United Landers Auto Sales, Inc.
and Chrysler Corporation.
*10.4.14 Oldsmobile Division Dealer Sales and Service Agreement, dated
November 1, 1995, between General Motors Corporation,
Oldsmobile Division and United Landers Auto Sales, Inc..
*10.4.15 GMC Truck Division Dealer Sales and Service Agreement, dated
November 1, 1995, between General Motors Corporation, GMC
Truck Division and United Landers Auto Sales, Inc..
*10.4.16 Security Agreement and Master Credit Agreement, dated October
25, 1993, between Landers Oldsmobile-GMC Inc. and Chrysler
Credit Corporation.
*10.4.17 Security Agreement and Master Credit Agreement, dated May 17,
1989, between Landers Jeep-Eagle, Inc. and Chrysler Credit
Corporation.
*10.4.18 Continuing Guaranty of United Landers, Inc., dated August 15,
1994, in favor of Chrysler Credit Corporation.
*10.4.19 Commercial Loan Agreement, dated December 5, 1994, between
Landers Oldsmobile-GMC, Inc. and The Benton State Bank.
*10.4.20 Commercial Security Agreement, dated December 5, 1994, between
Landers Oldsmobile-GMC, Inc. and The Benton State Bank.
*10.4.21 Agreement, dated July 31, 1995, between the Company and
General Motors Corporation, Oldsmobile Division.
*10.5.1 Stock Purchase Agreement, dated as of November 17, 1995, among
the Company, UAG Atlanta, Inc., Atlanta Toyota, Inc, and
Carl H. Westcott.
*10.5.2 Promissory Note of UAG Atlanta, Inc., dated January 16, 1996,
in favor of Carl H. Westcott.
*10.5.3 Guaranty of the Company, dated as of January 16, 1996, in favor
of Carl H. Westcott.
*10.5.4 Promissory Note of Atlanta Toyota, Inc., dated January 16, 1996,
in favor of First Extended Service Corporation.
*10.5.5 Guaranty of the Company, dated as of January 16, 1996, in favor
of Carl H. Westcott.
*10.5.61 Lease Agreement, dated as of January 3, 1996, between Carl
Westcott and Atlanta Toyota, Inc.
*10.5.7 Lease Guaranty of the Company, dated as of January 16, 1995,
in favor of Carl Westcott.
*10.5.8 Toyota Dealer Agreement, dated January 16, 1996, between
Southeast Toyota Motor Distributors, Inc. and Atlanta Toyota, Inc.
*10.5.9 Wholesale Floor Plan Se;curity Agreement, dated May 24, 1996,
between World Omni Financial Corp. and Atlanta Toyota, Inc.
*10.5.10 Continuing Guaranty of the Company in favor of World Omni
Financial Corp. and certain affiliates.
*10.5.11 Inventory Financing Payment Agreement, dated May 24, 1996,
among Atlanta Toyota, Inc., Fidelity Warranty Services, Inc. and
World Omni Financial Corp.
29
<PAGE>
*10.5.12 Shareholders' Agreement, dated as of July 31, 1996, among the
Company, UAG Atlanta, Inc., Atlanta Toyota and John Smith.
*10.5.13 Employment Agreement, dated a of January 16, 1996, among the
Company, UAG Atlanta, Inc. and John Smith.
*10.6.1 Stock Purchase Agreement, dated as of March 1, 1996, among the
Company, UAG Atlanta II, Inc., Steve Raymen Nissan, Inc.,
Steven L. Rayman and Richard W. Keffer, Jr.
*10.6.2 Employment Agreement, dated as of May 1, 1996, among the Company,
UAG Atlanta II, In., Steve Rayman Nissan, Inc. and Bruce G. Dunker.
*10.6.3 Lease Agreement, dated as of May 1, 1996, among Steven L. Rayman,
Richard W. Keffer, Jr. and Steve Rayman Nissan, Inc.
*10.6.4 Nissan Dealer Term Sales and Service Agreement, between the
Nissan Division of Nissan Motor Corporation in U.S.A. and United
Nissan, Inc.
*10.6.5 Wholesale Floor Plan Security Agreement, dated April 29, 1996,
between World Omni Financial Corp. and United Nissan, Inc.
*10.6.6 Continuing Guaranty of the Company, dated April 29, 1996, in
favor of World Omni Financial Corp. and certain affiliates.
*10.7.1 Stock Purchase Agreement, dated as of June 7, 1996, among the
Company, UAG Atlanta III, Inc. Hickman Nissan, Inc., Lynda
Jane Hickman and Lynda Jane Hickman as Executrix under the
will of James Franklin Hickman, Jr., deceased.
*10.7.2 Nissan Dealer Term Sales and Service Agreement, between the
Nissan Division of Nissan Motor Corporation in U.S.A. and
Peachtree Nissan, Inc.
*10.7.3 Automotive Wholesale Financing and Security Agreement, dated
July 12, 1996, between Nissan Motor Acceptance Corporation and
Peachtree Nissan, Inc.
*10.7.4 Guaranty of the Company and UAG Atlanta III, Inc., dated July
12, 1996, in favor of Nissan Motor Acceptance Corporation.
*10.7.5 Promissory Note of UAG Atlanta III, Inc., dated July 12, 996,
in favor of Lynda Jane Hickman, as Executrix under the will of
James Franklin Hickman, Jr.
*10.7.6 Guaranty of Note of Hickman Nissan, Inc., dated July 12, 1996,
in favor of Lynda Jane Hickman, as Executrix under the will of
James Franklin Hickman, Jr.
*10.7.7 Guaranty of Note of the Company, dated July 12, 1996, in favor
of Lynda Jane Hickman, as Executrix under the will of James
Franklin Hickman, Jr.
*10.7.8 Lease Agreement, dated July 12, 1996, between Lynda Jane
Hickman, as Executrix under the will of James Franklin
Hickman, Jr., and Hickman Nissan, Inc.
*10.7.9 Lease Agreement, dated July 12, 1996, between Argonne
Enterprises, Inc. and Hickman Nissan, Inc.
*10.7.10 Guaranty of Lease of the Company, dated July 12, 1996, in favor
of Lynda Jane Hickman, Jr.
*10.7.11 Guaranty of Lease of the Company, dated July 12, 1996, in favor
of Argonne Enterprises, Inc.
*10.8.1 Stock Purchase Agreement, dated as of June 6, 1996, among the
Company, UAG West, Inc., Scottsdale Jaguar, LTD., SA Automotive,
LTD., SL Automotive, LTD., SPA Automotive, LTD., LRP, LTD.,
Sun BMW, LTD., Scottsdale Management Group, LTD., 6725 Dealership
LTD., Steven Knappenberger Revocable Trust Dated April 15, 1983,
as amended, Brochick 6725 Trust dated December 29, 1992,
30
<PAGE>
Beskind 6725 Trust dated December 29, 1992, Steven Knappenberger,
Jay P. Beskind December 29, 1992, Knappenberger 6725 Trust dated
and George W. Brochick, as amended on October 21, 1996 by
Amendment No. 1, Amendment No. 2 and Amendment No. 3.
*10.8.2 Purchase and Sale Agreement, 6905 E. McDowell Road, dated
June 6, 1996, among Steven Knappenberger, as Trustee of the
Steven Knappenberger Revocable Trust II, Bruce Knappenberger, as
Trustee of the Bruce Knappenberger Trust and UAG West, Inc.
and Steven Knappenberger.
*10.8.3 Form of Employment Agreement between the Company, UAG West,
Inc., and Steven Knappenberger.
*10.8.4 Form of Broker's Agreement between UAG West, Inc. and KBB, Inc.
*10.8.5.1 Form of Audi Dealer Agreement.
*10.8.5.2 Audi Standard Provisions.
*10.8.6.1 Form of Acura Automobile Dealer Sales and Service Agreement.
*10.8.6.2 Acura Standard Provisions.
*10.8.7.1 Form of BMW of North America Dealer Agreement.
*10.8.8.1 Form of Porsche Sales and Service Agreement.
*10.8.8.2 Form of Addendum to Porsche Sales and Service Agreement.
*10.8.9.1 Form of Land Rover North America, Inc. Dealer Agreement.
*10.8.9.2 Land Rover Standard Provisions.
*10.8.10 Sublease, dated June 7, 1988, between Max of Switzerland and
Scottsdale Porsche & Audi, Ltd.
*10.8.11 Lease, dated October 1990, between Lisa B. Zelinsky and R.J.
Morgan Corporation of America and Scottsdale Hyundai, Ltd.
*10.8.12 Sublease, dated July 1, 1995, between Camelback Automotive, Inc.
and LRP Ltd.
*10.8.13 Lease, dated February 27, 1995, between Lee S. Maas and Sun BMW Ltd.
*10.8.14 Form of Shareholders' Agreement among UAG West, Inc., SK Motors,
Ltd., and the Knappenberger Revocable Trust.
*10.8.15 Form of Management Agreement among the Company, UAG West, Inc.
and Scottsdale Jaguar, Ltd.
*10.8.16 Form of Lease Agreement between 6725 Agent and Scottsdale Jaguar,
Ltd.
*10.8.17 Form of Indemnification Agreement among the Company, UAG West,
Inc., Scottsdale Jaguar, Ltd., Steven Knappenberger, and certain
other individuals and trusts.
*10.8.18 Form of Real Estate Loan and Security Agreement, made by SA
Automotive, Ltd. for the benefit of Chrysler Financial Corporation.
*10.8.19 Form of Security Agreement and Master Credit Agreement of Chrysler
Credit Corporation.
*10.8.20 Form of Continuing Guaranty of each of the Company and UAG West,
Inc. in favor of Chrysler Credit Corporation.
*10.9.1 Stock Purchase Agreement, dated August 5, 1996, among the
Company, UAG Atlanta IV, Inc., Charles Evans BMW, Inc. and Charles
F. Evans.
*10.9.2 Stock Purchase Agreement, dated August 5, 1996, among the Company,
UAG Atlanta IV, Inc., Charles Evans Nissan, Inc. and Charles F.
Evans.
*10.9.3 Form of Dealer Agreement between BMW North America, Inc. and Charles
Evans
31
<PAGE>
BMW Inc.
*10.9.4 Form of Nissan Dealer Term Sales and Service Agreement between
Nissan Motor Corporation in U.S.A. and Charles Evans Nissan, Inc.
*10.9.5 Form of Lease Agreement between Charles F. Evans and Charles Evans
BMW, Inc.
*10.9.6 Form of Lease Guaranty of the Company in favor of Charles F. Evans.
*10.9.7 Form of Lease Agreement between Charles F. Evans and Charles Evans
Nissan, Inc.
*10.9.8 Form of Lease Guaranty of the Company in favor of Charles F. Evans.
*10.9.9 Form of Purchase and Sale Agreement for Charles Evans BMW Property
between Charles F. Evans and the Company.
*10.9.10 Form of Purchase and Sale Agreement for Charles Evans Nissan
Property between Charles F. Evans and the Company.
*10.9.11 Form of Inventory Financing and Security Agreement between BMW
Financial Services NA, Inc. and UAG Atlanta IV Motors Inc.
*10.9.12 Form of Guaranty of the Company in favor of BMW Financial Services
NA, Inc.
*10.9.13 Form of Inventory Financing and Security Agreement between BMW
Financial Services NA, Inc. and Conyers Nissan, Inc.
*10.9.14 Form of Guaranty of the Company in favor of BMW Financial Services
NA, Inc.
*10.10.1 Stock Purchase Agreement, dated September 5, 1996, among the
Company, UAC Tennessee, Inc., Standefer MotorSales, Inc.,
Charles A. Standefer and Charles A. Standefer and Karen S. Nicely,
trustees uner the Irrevocable Trust Agreement of Charles B.
Standefer for the primary benefit of children, dated
December 21, 1992.
*10.10.2 Form of Nissan Dealer Term Sales and Service Agreement between
Nissan Motor Corporation in U.S.A. and Conyers Nissan, Inc.
*10.10.3 Form of Lease Agreement between Standefer Investment Company and
Standefer Motor Sales, Inc.
*10.10.4 Form of Lease Guaranty of the Company in favor of Standefer
Investment Company.
*10.10.5 Form of Security Agreement and Master Credit Agreement between
Chrysler Credit Corporation and Standefer Motor Sales, Inc.
*10.10.6 Form of Continuing Guaranty of each of the Company and UAG
Tennessee, Inc. in favor of Chrysler Credit Corporation.
**10.11.1 Agreement and Plan of Merger, dated December 16, 1996, among
Crown Jeep Eagle, Inc., Berylson, Inc., Shannon Automotive, Ltd.,
Kevin J. Coffey, Paul J. Rhodes, the Company, UAG Texas, Inc. and
UAG Texas II, Inc.
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
- ------------------------
* Incorporated herein by reference to the identically numbered exhibit to
the Company's Registration Statement on Form S-1, Registration No.
333-09429.
** Incorporated herein by reference to the identically numbered exhibit to
the Company's Current Report on Form 8-K filed on December 24, 1996 (File
No. 1-2297).
32
<PAGE>
(d) Schedules - No Financial Statement Schedules are required to be filed as
part of this Annual Report on Form 10-K.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
UNITED AUTO GROUP, INC.
By: /s/ Carl Spielvogel
-------------------
Carl Spielvogel
Chairman of the Board and
Chief Executive Officer
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on its behalf by
the registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Carl Spielvogel Chairman of the Board, March 14, 1997
- ----------------------- Chief Executive Officer
Carl Spielvogel and Director
(Principal Executive Officer)
/s/ Robert H. Nelson Executive Vice President, March 14, 1997
- ----------------------- Chief Financial Officer
Robert H. Nelson and Director
(Principal Financial Officer)
/s/ Robert W. Thompson Vice President - Finance March 14, 1997
- ----------------------- (Principal Accounting Officer)
Robert W. Thompson
/s/ Marshal S. Cogan Vice Chairman of the March 14, 1997
- ----------------------- Board and Chairman of
Marshall S. Cogan the Executive and
Compensation Committee
/s/ Michael R. Eisenson Director March 14, 1997
- -----------------------
Michael R. Eisenson
/s/ John J. Hannan Director March 14, 1997
- ------------------------
John J. Hannan
/s/ Jules B. Kroll Director March 14, 1997
- ------------------------
Jules B. Kroll
/s/ John M. Salley Director March 14, 1997
- ------------------------
John M. Salley
/s/ Richard Sinkfield Director March 14, 1997
- ------------------------
Richard Sinkfield
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNITED AUTO GROUP, INC.
Report of Independent Accountants..................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994................................... F-5
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1995 and 1996............................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994................................................ F-7
Notes to Consolidated Financial Statements............................ F-9
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of United Auto Group, Inc.:
We have audited the consolidated financial statements of United Auto Group,
Inc. (the "Company") listed in Item 14 of this Form 10-K. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
February 25, 1997
F-2
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS DECEMBER 31,
------------
1996 1995
---- ----
AUTO DEALERSHIPS
Cash and cash equivalents $66,875 $4,697
Accounts receivable 52,018 27,349
Inventories 168,855 101,556
Other current assets 11,823 8,047
----------------------------
Total current assets 299,571 141,649
Property and equipment, net 22,341 12,146
Intangible assets, net 177,194 48,774
Due from related parties - 14,578
Other assets 6,587 10,128
----------------------------
TOTAL AUTO DEALERSHIP ASSETS 505,693 227,275
----------------------------
AUTO FINANCE
Cash and cash equivalents 2,688 531
Finance assets, net 9,723 7,555
Other assets 4,846 666
----------------------------
TOTAL AUTO FINANCE ASSETS 17,257 8,752
----------------------------
TOTAL ASSETS $522,950 $236,027
============================
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31,
1996 1995
---- ----
AUTO DEALERSHIPS
Floor plan notes payable $170,170 $97,823
Short-term debt 6,069 16,187
Accounts payable 22,187 12,393
Accrued expenses 17,585 9,875
Current portion of long-term debt 5,444 3,169
-----------------------
Total current liabilities 221,455 139,447
Long-term debt 11,121 24,073
Due to related party 1,334 1,109
Deferred income taxes 4,867 2,279
-----------------------
TOTAL AUTO DEALERSHIP LIABILITIES 238,777 166,908
-----------------------
AUTO FINANCE
Short-term debt 1,001 4,661
Accounts payable and other liabilities 1,704 590
-----------------------
TOTAL AUTO FINANCE LIABILITIES 2,705 5,251
-----------------------
Minority interests - 13,608
-----------------------
Stock purchase warrants - 1,020
-----------------------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Class A Convertible Preferred Stock - 1
Voting Common Stock 2 1
Additional paid-in-capital 284,502 54,748
Retained earnings (accumulated deficit) (3,036) (5,510)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 281,468 49,240
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $522,950 $236,027
=======================
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
AUTO DEALERSHIPS
<S> <C> <C> <C>
Vehicle sales $1,164,569 $716,394 $644,380
Finance and insurance 43,574 29,806 27,518
Service and parts 93,888 59,421 59,731
--------------------------------------
Total revenues 1,302,031 805,621 731,629
Cost of sales, including floor plan interest 1,157,368 720,344 647,643
--------------------------------------
Gross profit 144,663 85,277 83,986
Selling, general and administrative expenses 124,244 90,586 80,415
--------------------------------------
Operating income (loss) 20,419 (5,309) 3,571
Related party interest income 2,580 3,039 -
Other income (expense) (4,398) (1,438) (860)
Equity in loss of uncombined investees (74) (831) (2,899)
--------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES - AUTO DEALERSHIPS 18,527 (4,539) (188)
--------------------------------------
AUTO FINANCE
Revenues 1,798 530 2
Interest expense (421) (174) -
Operating and other expenses (2,867) (1,738) (618)
--------------------------------------
LOSS BEFORE INCOME TAXES - AUTO FINANCE (1,490) (1,382) (616)
--------------------------------------
TOTAL COMPANY
Income (loss) before minority interests, provision
for income taxes and extraordinary item 17,037 (5,921) (804)
Minority interests (3,306) 366 (887)
Benefit (provision) for income taxes (6,270) 2,089 -
--------------------------------------
Income (loss) before extraordinary item 7,461 (3,466) (1,691)
Extraordinary item (net of income tax benefits of $2,685) (4,987) - -
--------------------------------------
Net income (loss) $2,474 $(3,466) $(1,691)
======================================
Income (loss) before extraordinary item per common share $0.69 $(0.63) $(0.44)
======================================
Net income (loss) per common share $0.23 $(0.63) $(0.44)
======================================
Shares used in computing net income (loss) per common share 10,851 5,482 3,873
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
CLASS A
CONVERTIBLE PREFERRED VOTING AND
--------------------- NON-VOTING
STOCK COMMON STOCK
----- ------------
RETAINED
ADDITIONAL EARNINGS TOTAL
ISSUED ISSUED PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------ ------ ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 1,570,000 $1 1,343,750 $1 $25,615 $(353) $25,264
Issuance of stock for cash 401,611 - 185,486 - 5,212 - 5,212
Net loss for 1994 - - - - - (1,691) (1,691)
---------------------------------------------------------------------------------------
Balances, December 31, 1994 1,971,611 1 1,529,236 1 30,827 (2,044) 28,785
Issuance of stock for cash 1,679,118 - 1,053,549 - 23,921 - 23,921
Net loss for 1995 - - - - - (3,466) (3,466)
---------------------------------------------------------------------------------------
Balances, December 31, 1995 3,650,729 1 2,582,785 1 54,748 (5,510) 49,240
Issuance of stock, primarily for
acquisitions 1,576,617 - 1,010,965 - 22,854 - 22,854
Preferred stock conversion (5,227,346) (1) 5,227,346 - 1 - -
Issuance of common stock in minority
exchanges - - 1,113,841 - 34,015 - 34,015
Issuance of stock in initial public
offering - - 6,250,000 1 170,410 - 170,411
Issuance of stock on exercise of warrants - - 1,109,491 - 2,769 - 2,769
Issuance of stock on exercise of stock
options - - 46,500 - 884 - 884
Repurchase of common stock - - (46,000) - (1,179) - (1,179)
Net income for 1996 - - - - - 2,474 2,474
---------------------------------------------------------------------------------------
Balances, December 31, 1996 - $- 17,294,928 $2 $284,502 $(3,036) $281,468
=======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- ------- ----------- ------- ----------- -------
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $3,964 $(1,490) $(2,084) $(1,382) $(1,075) $(616)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 5,325 2,472 2,536 284 2,225 20
Deferred income tax benefit 2,401 - (2,374) - - -
Related party interest income (2,580) - (3,039) - - -
Loss on sale of minority interest 165 - - - - -
Loss on sale of interest in uncombined investee - - 348 - 117 -
Equity in loss of uncombined investee 74 - 483 - 2,782 -
Gain on sales of loans - (800) - (129) - -
Loans originated - (75,440) - (18,769) - -
Loans repaid or sold - 72,659 - 11,236 - -
Minority interests portion of income (loss) 3,306 - (366) - 887 -
Changes in operating assets and liabilities:
Finance assets - (1,796) - - - -
Accounts receivable (6,480) - (1,524) - (7,042) -
Inventories (10,581) - 16,319 - (12,417) -
Floor plan notes payable 24,548 - (14,753) - 14,874 -
Accounts payable and accrued expenses (60) 385 5,240 302 (1,239) 288
Other 3,160 (1,018) (90) 411 (879) (5)
-----------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 23,242 (5,028) 696 (8,047) (1,767) (313)
-----------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- ------- ----------- ------- ----------- -------
INVESTING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Purchase of equipment and improvements (6,457) (314) (1,496) (243) (4,675) (562)
Dealership acquisitions (98,812) - (19,921) - (755) -
Investment in auto finance subsidiary (12,582) 12,582 (4,592) 4,592 (907) 907
Funding for subsequent acquisition 364 - (1,840) - - -
Advances to related parties (1,149) - (1,496) - (5,923) -
Investment in and advances to uncombined investee (1,724) - (799) - (4,087) -
Other Investments (1,217) (1,417) - - - -
------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (121,577) 10,851 (30,144) 4,349 (16,347) 345
------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of stock 195,818 - 25,220 - 5,450 -
Repurchase of common stock (1,179) - - - - -
Proceeds from borrowings of long-term debt 20,092 - 16,300 - 4,299 -
Deferred financing costs (1,011) - (2,549) - - -
Net borrowings (repayments) of short-term debt (10,118) - (3,863) - 9,027 -
Payments of long-term debt and capitalized lease
obligations (43,314) - (2,073) - (1,139) -
Distribution to stockholders and minority interest - - - - (42) -
Advances from (to) affiliates 225 - 359 - (7,389) -
Borrowings of warehouse credit line - 56,762 - 14,202 - -
Payments of warehouse credit line - (60,428) - (10,005) - -
------------------------------------------------------------------------------
Net cash provided by financing activities 160,513 (3,666) 33,394 4,197 10,206 0
------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 62,178 2,157 3,946 499 (7,908) 32
Cash and cash equivalents, beginning of year 4,697 531 751 32 8,659 0
==============================================================================
Cash and cash equivalents, end of year $66,875 $2,688 $4,697 $531 $751 $32
==============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, Except Per Share Amounts)
1. ORGANIZATION
United Auto Group, Inc. ("UAG" or the "Company") is engaged in the sale of new
and used motor vehicles and related products and services, including vehicle
service and parts, finance and insurance products and other aftermarket
products. Through its wholly-owned consumer finance subsidiary, Atlantic Auto
Finance Corporation ("Atlantic Finance"), UAG also purchases, sells and
services financing contracts on new and used vehicles originated by both UAG
and third party dealerships.
In 1994, 1995 and through October 28, 1996, the Company had a 70% interest in
the United DiFeo Automotive Group (the "DiFeo Group"). The DiFeo Group
comprises sixteen automobile dealerships which operate in Connecticut, New
Jersey, and New York. In 1995, the Company purchased an 80% interest in
Landers Auto Sales, Inc. ("Landers"). Landers is composed of three automobile
dealerships operating in Arkansas.
Concurrent with the initial public sale of the Company's Common Stock on
October 28, 1996, the Company acquired the remaining 30% interests in the
DiFeo Group and the remaining 20% interests in Landers.
In 1996, the Company acquired 100% interests in four dealerships and two
dealership groups (as discussed in Note 3) operating in Arizona, Georgia and
Tennessee.
The Company operates dealerships which hold franchise agreements with a number
of automotive manufacturers. In accordance with the individual franchise
agreements, each dealership is subject to certain rights and restrictions
typical of the industry. The ability of the manufacturers to influence the
operations of the dealerships, or the loss of a franchise agreement, could
have a negative impact on the Company's operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The accounts which require
the use of significant estimates are accounts receivable, inventories, income
taxes, intangible assets and accrued expenses.
F-9
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Principles of Consolidation
The consolidated financial statements include all significant majority-owned
subsidiaries and reflect operating results, assets, liabilities and cash flows
for the major aspects of the business: auto dealerships and auto finance.
Assets and liabilities of the auto dealerships are classified as current or
noncurrent and those relating to financial services are unclassified. All
material accounts and transactions among the consolidated subsidiaries have
been eliminated. Affiliated companies that are 20% to 50% owned are accounted
for using the equity method of accounting.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments that have an
original maturity of three months or less at the date of purchase.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts
receivable and payable, finance assets, interest rate hedge agreements, and
debt, including floor plan notes payable. The carrying amount of financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate prevailing market rates.
Revenue Recognition - Auto Dealerships
Revenue is recognized when vehicles are delivered to consumers or motor
vehicle service work is performed and parts are delivered. Finance and
insurance revenues are recognized upon the sale of the finance or insurance
contract or other aftermarket products. An allowance for chargebacks against
revenue recognized from customer finance contracts is established during the
period in which the related revenue is recognized.
Revenue Recognition - Auto Finance
Revenue from finance receivables is recognized over the term of the contract
using the interest method. Certain loan origination costs are deferred and
amortized over the term of the related receivable as a reduction in financing
revenue. Generally, finance receivables are accumulated by the Company until
they attain a value in excess of $5,000, at which time they are sold into a
commercial paper conduit (i.e., a loan warehouse facility). Interest income is
recognized based on the daily principal balance of the receivables
outstanding. An allowance for financing losses on receivables may be provided
for the period from the date of origination to the date of sale. Revenue is
recognized upon sale to the conduit. Contractual servicing fees on loans sold
are recognized as earned and ancillary loan fees are recognized as collected.
F-10
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Inventory Valuation
Inventories are stated at the lower of cost or market with cost determined by
the following methods:
INVENTORY COMPONENT VALUATION METHOD
- ------------------- ----------------
New vehicles Last in, first out (LIFO)
Used vehicles Specific identification
Parts, accessories and other Factory list price
New vehicle and parts inventories are purchased primarily from the related
vehicle manufacturer.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives, primarily using the straight-line method. Useful lives
for purposes of computing depreciation are:
Leasehold improvements and - Economic life or life of the lease,
equipment under capital lease whichever is shorter.
Equipment, furniture and fixtures - 5 to 7 years
Expenditures for betterments that increase the useful life or substantially
increase the serviceability of an existing asset are capitalized. When
equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in the statement of operations.
Income Taxes
Income taxes are provided in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109") which requires an
asset and liability approach to accounting for income taxes. Deferred tax
assets or liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities using
enacted tax rates. A valuation allowance is provided when it is more likely
than not that taxable income will not be sufficient to fully realize deferred
tax assets.
Intangible Assets
Intangible assets, primarily consisting of the excess of cost over the fair
value of net assets acquired in purchased business combinations, are being
amortized on a straight-line basis over their estimated period of benefit, not
exceeding 40 years. The Company periodically reviews the continuing benefits
projected from these costs to assess their recoverability. Losses in value, if
any, are charged to operations in the period such losses are determined to be
permanent. Amortization expense was $1,712, $904, and $570 for the years ended
December 31, 1996, 1995 and 1994.
F-11
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
The Company's policy with respect to assessing whether there has been a
permanent impairment is to compare the carrying value of a business' excess
cost over net assets acquired with the anticipated undiscounted future cash
flows from operating activities of the business. Factors considered in
performing this assessment include current operating income, trends and other
economic factors.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of ("SFAS
121") requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amounts may
not be recoverable. SFAS 121 was adopted in 1996 and did not have a material
effect on the Company's results of operations, cash flows or financial
position.
Auto Finance - Finance Assets
All finance receivables are accumulated in pools and sold into commercial
paper conduits primarily through the issuance of a certificate indicating
ownership of the contracts by CXC Incorporated, a Citibank, N. A. related
entity. Prior to their sale, these contracts are carried at the lower of their
principal balance outstanding or their market value. Market values are
estimated based on the characteristics of the finance receivables held for
sale and the terms of recent sales of similar finance receivables. While
finance receivables are being accumulated for sale into a conduit, they are
pledged against a liquidity credit line with Citibank, N.A. As of December 31,
1996, none of the finance receivables being accumulated for sale qualified as
impaired under the provisions of Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan.
The Company is required to hedge each pool of finance receivables sold into a
commercial paper conduit to provide protection for the net yield in each pool.
The differential to be paid or received as interest rates change is included
in the calculation of excess servicing and amortized over the life of the
pool. The notional amounts of outstanding hedges were $37,612 and $10,987 at
December 31, 1996 and 1995, respectively. The fair value of interest rate
hedge agreements represented unrecorded liabilities of $288 and $170 as of
December 31, 1996 and 1995, respectively.
The Company has credit and interest rate risk exposure on finance receivables
held for sale. The Company has a program of credit review prior to final
approval of specific loans and maintains reserves as appropriate. Interest
rate risk is mitigated by the short period of time that receivables are held.
F-12
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Net Income (loss) per Common Share
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4-D, all stock options and warrants granted during the twelve months preceding
the Company's initial public offering have been included in the calculation of
net income (loss) per common share outstanding as if they were outstanding for
all periods presented, using the treasury stock method at the public offering
price realized of $30.00 per share.
Income (loss) per common share data is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
-------------
ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Income (loss) per common share before extraordinary item.............. $0.69 $(0.71) $(0.51)
Net income (loss) per common share.................................... $0.23 $(0.71) $(0.51)
Weighted average shares outstanding (In thousands).................... 10,851 4,905 3,296
</TABLE>
The computations of income (loss) per share are based on the weighted average
number of common shares, the weighted average number of preferred shares, and
stock options and warrants outstanding to the extent dilutive. In 1995 and
1994, the outstanding stock options were antidilutive.
3. BUSINESS COMBINATIONS
During the years ended December 31, 1996 and 1995, the Company acquired the
businesses described below. All the acquisitions have been accounted for under
the purchase method and the accompanying financial statements reflect the
results of operations from the date of acquisition.
Acquisition of Landers Auto Sales, Inc.
Effective August 1, 1995, the Company acquired an 80% interest in Landers for
$20,000 in cash and $4,014 in notes payable through August 2000. The excess of
purchase price over the underlying estimated fair value of the net assets
acquired was $25,777. In addition, if Landers achieves certain levels of
annual pre-tax earnings, the Company will be obligated to make additional
payments during each of the next three years. Any additional purchase price
incurred under the terms of this agreement will be recorded as additional cost
in excess of the fair value of net assets acquired. In 1996, Landers achieved
a pre-tax earnings level that results in an additional purchase price of $538.
Acquisition of Atlanta Toyota, Inc.
Effective January 1, 1996, the Company acquired a 100% interest in Atlanta
Toyota for $9,100 in cash and notes payable of $2,400. The excess of purchase
price over the underlying estimated fair value of the net assets acquired was
$7,937.
F-13
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Acquisition of United Nissan in Morrow, Georgia
Effective May 1, 1996, the Company acquired a 100% interest in Steve Rayman
Nissan, Inc. for $11,500 in cash. The name of the dealership was then changed
to United Nissan. The excess of purchase price over the underlying estimated
fair value of the net assets acquired was $10,652.
Acquisition of Peachtree Nissan
Effective July 1, 1996, the Company acquired a 100% interest in Hickman
Nissan, Inc. for $11,000 in cash and a $2,000 note payable maturing on July 1,
1998. The name of the dealership was then changed to Peachtree Nissan. The
excess of purchase price over the underlying estimated fair value of the net
assets acquired was $10,805.
Acquisition of the Sun Group
Effective October 28, 1996, the Company acquired substantially all of the Sun
Group, consisting of six automobile dealerships located in the Phoenix area,
for a total of $24,666 payable in cash plus the assumption of $4,929 of
indebtedness. The excess of purchase price over the underlying estimated fair
value of the net assets acquired was $28,265. In addition, if the Sun Group
achieves certain levels of pre-tax earnings for the two-year period from
November 1, 1996 through October 31, 1998, the Company will be obligated for
an additional purchase price. Any additional purchase price incurred under the
terms of this agreement will be recorded as additional cost in excess of the
fair value of net assets acquired.
Acquisition of United BMW and Conyers Nissan
Effective October 28, 1996, the Company acquired a 100% interest in the two
automobile dealerships of the Evans Group located in the Atlanta area for a
total of $12,000 in cash. The names of the dealerships were then changed to
United BMW and Conyers Nissan. The excess of purchase price over the
underlying estimated fair value of the net assets acquired was $9,808.
Acquisition of United Nissan in Chattanooga, Tennessee
Effective October 28, 1996, the Company acquired a 100% interest in Standefer
Motor Sales, Inc. for $18,200 in cash. The name of the dealership was then
changed to United Nissan. The excess of purchase price over the underlying
estimated fair value of the net assets acquired was $15,168.
F-14
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Pro Forma Results of Operations
The following unaudited pro forma summary presents the consolidated results of
operations of the Company for 1995 and 1996 after reflecting the pro forma
adjustments that would be necessary to present those results as if the
acquisitions had been consummated as of January 1, 1995.
PRO FORMA RESULTS
FOR THE YEARS ENDED
DECEMBER 31,
1996 1995
---- ----
Revenues $1,599,226 $1,352,770
========== ==========
Income before minority interests and provision
for income taxes $31,403 $16,232
======= =======
Net income $18,842 $9,132
======= ======
Net income (loss) per common share $1.05 $0.51
===== =====
The foregoing pro forma results are not necessarily indicative of results of
operations that would have been reported had the acquisitions been completed
as of January 1, 1995. The 1996 pro forma results does not reflect a reduction
of cost of sales related to reduced interest on floor plan notes payable
resulting from the application of as yet unused proceeds from the Company's
initial public sale of Common Stock. If the reduction of the floor plan
interest expense were reflected, then pro forma net income (and net income
per common share) would have been $21,168 (and $1.18 per share) for the year
ended December 31, 1996.
4. INVENTORIES
Inventories consisted of the following at the balance sheet dates:
DECEMBER 31,
------------
1996 1995
---- ----
New vehicles $114,542 $74,789
Used vehicles 50,060 24,917
Parts, accessories and other 9,381 6,220
-----------------------
173,983 105,926
Cumulative LIFO reserve (5,128) (4,370)
-----------------------
Total Inventories $168,855 $101,556
=======================
F-15
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
For the years ended December 31, 1994, 1995, and 1996, the effect of using the
LIFO method as compared to the First In, First Out (FIFO) method was to
increase net loss by $1,446 in 1994, decrease net loss before income taxes
by $290 in 1995, and decrease net income before income taxes by $909 in 1996.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at the balance sheet dates:
DECEMBER 31,
------------
1996 1995
---- ----
Land $- $-
Furniture, fixtures and equipment 9,742 5,839
Equipment under capital lease 2,201 2,380
Leasehold improvements 14,024 7,705
-----------------------
Total 25,967 15,924
Less: Accumulated depreciation and amortization 3,626 3,778
-----------------------
Property and equipment, net $22,341 $12,146
=======================
Depreciation and amortization expense for the years ended December 31, 1996,
1995 and 1994 was $1,888, $1,632, and $1,497, respectively. Accumulated
amortization on equipment under capital lease, included in accumulated
depreciation and amortization above, was approximately $289 and $1,072 at
December 31, 1996 and 1995, respectively.
6. OTHER ASSETS
Auto dealerships other assets consisted of the following at the balance sheet
dates:
DECEMBER 31,
------------
1996 1995
---- ----
Restricted cash $- $1,840
Investment in and advances to uncombined subsidiaries - 3,228
Security deposits 1,242 956
Deferred financing costs 500 2,934
Customer notes receivable 2,063 -
Other 2,782 1,170
----------------------
Total Other Assets $6,587 $10,128
======================
Restricted cash at December 31, 1995 represented the proceeds from capital
stock issued for the purpose of financing an acquisition that was completed in
January 1996.
The investment in and advances to uncombined subsidiaries at December 31,1995
represented the Company's net equity investment in, its cash advances to, and
its net receivables for services provided and used vehicle transactions with
dealerships in which the Company did not own a majority interest. These
investments were disposed of in the minority exchange transactions
F-16
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
discussed in Note 11.
7. FLOOR PLAN NOTES PAYABLE
The Company's automobile dealerships have "floor plan" agreements with several
finance companies to finance the purchase of their automobile inventory.
Floor plan notes payable consisted of the following at the balance sheet
dates:
DECEMBER 31,
------------
1996 1995
---- ----
Chrysler Financial, interest - 8.16% and 8.75% at
December 31, 1996 and 1995, respectively. $114,533 $31,354
World Omni Corp., interest - 7.94%. 18,512 -
Nissan Motor Acceptance, interest - 7.75%. 7,273 -
BMW Financial Services, interest - 8.75%. 10,014 -
GMAC, interest - 9.25% and 9.75% at December 31, 1996
and 1995, respectively. 17,064 63,728
Benton State Bank, interest - 8.25% and 8.75% at
December 31, 1996 and 1995, respectively. 2,774 2,741
----------------------
Total floor plan notes payable $170,170 $97,823
======================
Interest rates on the floor plan agreements are variable and increase or
decrease based on movements in prime or LIBOR borrowing rates.
The floor plan agreements grant a collateral interest in substantially all of
the dealerships assets and require the repayment of debt after a vehicle's
sale.
Included in the Chrysler vehicle floor plan at December 31, 1995 was $6,928
payable to a related party participating in the floor plan agreements. This
was repaid in May 1996.
The weighted average interest rate on floor plan borrowings was 8.3%, 8.9%,
and 7.1% for the years ended December 31, 1996, 1995, and 1994, respectively.
8. SHORT-TERM DEBT
The Company and GMAC have entered into additional short-term and long-term
debt agreements which share in the collateral interest granted under the floor
plan arrangement. One such agreement permitted maximum borrowings of $10,000
at December 31, 1996 and 1995, subject to a formula based on parts and used
vehicle collateral limitations, and includes covenants that require the
maintenance of tangible net worth and other financial ratios. At December 31,
1996 and 1995, $6,069 and $8,187, respectively, were outstanding under this
agreement. These borrowings are made at the prime rate plus 1.25%. The
borrowing rates at December 31, 1996 and 1995 were 9.50% and 10%, respectively.
F-17
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Through October 1996 the Company had a revolving line of credit with Morgan
Guaranty Trust Company of New York. At December 31, 1995, $8,000 was
outstanding under this agreement. The line of credit bore interest at, the
prime rate plus two percent or the Federal Funds rate plus two and one half
percent, whichever was greater. The borrowing rate at December 31, 1995 was
10.5%. This line of credit was retired and all outstanding amounts due under
it were paid with a portion of the proceeds from the Company's initial public
offering.
The weighted average interest rate on the above short term borrowings was
9.89%, 10.25%, and 7.1% for the years ended December 31, 1996, 1995, and 1994,
respectively.
In addition, AAFC maintains a $5,000 loan arrangement with Citibank, N.A. for
the purpose of purchasing finance receivables. The amount borrowed by Atlantic
Finance may not exceed 93% of the outstanding principal balance of eligible
receivables pledged to secure the loan. The total amount outstanding under
this arrangement at December 31, 1996 and 1995 was $748 and $4,197,
respectively.
9. LONG-TERM DEBT
Long-term debt consisted of the following at the balances sheet dates:
DECEMBER 31,
------------
1996 1995
---- ----
Series A and B Senior Notes due 2003, net of unamortized
discount of $1,007 at December 31,1995 $ - $15,293
8.0% Term notes, payable monthly through 2000 2,890 3,697
8 1/2% Term note, payable July 1998 2,100 -
9.0% Term note, payable July 1998 2,000 -
GMAC Term loans, weighted average interest - 9.25% and
9.5% at December 31, 1996 and 1995, respectively 3,458 4,000
Capitalized lease obligations 4,832 1,686
Other installment loans 1,285 2,566
--------------------
Total long-term debt 16,565 27,242
Less: Current portion 5,444 3,169
--------------------
Net long-term debt $11,121 $24,073
====================
The term loans with GMAC bear interest at the prime rate plus 1.0% and are
payable in monthly installments of $42 through March 1998 and $25 from April
1998 through June 1999. A $1,000 payment is required in April 1998 and a final
payment of $1,500 is required in July 1999. The GMAC term loans share in the
security interests in vehicle inventories granted to the lender under the
floor plan arrangement.
Maturities of long-term debt for each of the next five years and thereafter
are as follows:
F-18
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
AMOUNT
------
1997 $5,444
1998 6,421
1999 1,863
2000 1,241
2001 634
2002 and thereafter 962
------------
Total long-term debt $16,565
============
On September 22, 1995, the Company finalized a placement on $35,000 of Series
A and B Senior Notes (collectively referred to as the "Notes") that were due
in 2003 and under which Notes were available to be issued through March 1997.
The Company initially issued $16,300 of the Notes at 12.0% with an original
issue discount of $1,020. From January to mid-July 1996, the Company issued
another $18,700 of the Notes at rates ranging from 11.65% to 12.17%. In
October 1996, the Notes were redeemed with a portion of the proceeds from the
initial public offering. The redemption of the Senior Notes resulted in an
extraordinary loss of $7,672, before income tax benefits, due to the 10% call
premium and the write-off of original issue discount and related deferred
financing costs.
The Notes contained detachable warrants that granted the holders the option to
purchase UAG Common Stock at $0.01 per share. At December 31, 1995, there were
526,039 warrants outstanding. In 1996, an additional 490,060 warrants were
issued to purchase UAG common stock and 93,747 warrants were issued to
purchase UAG Class A Preferred Stock. Upon consummation of the initial public
offering, 1,109,491 shares of UAG Common Stock were issued in a cashless
exchange for all of the 1,109,846 warrants then outstanding and, as a result,
the warrants' redemption feature lapsed and stockholders' equity increased by
$2,769.
10. OPERATING LEASE OBLIGATIONS
The Company leases its dealership facilities and corporate office under
operating lease agreements. A number of the dealership leases are with former
owners who continue to operate the dealerships as employees of the Company.
These leases are noncancelable and expire on various dates through 2016.
The following is a schedule by year of future minimum rental payments required
under the operating leases as of December 31, 1996.
AMOUNT
------
1997 $11,831
1998 10,462
1999 10,172
2000 9,502
2001 9,458
2002 and thereafter 90,440
------------
$141,865
============
F-19
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Total rent expense for the years ended December 31, 1996, 1995, and 1994 was
approximately $8,729, $7,113, and $6,302, respectively.
Rental payments to related parties were $5,240, $4,502, and $4,272 for the
years ended December 31, 1996, 1995, and 1994, respectively.
11. MINORITY INTERESTS EXCHANGED
Prior to October 28, 1996, there were minority ownership interests in certain
of the Company's dealerships. The minority interests were recorded at fair
value at the dates of acquisition and such amounts subsequently were adjusted
for the minority share of the applicable earnings and losses. Concurrent with
the initial public sale of the Company's common stock, the Company exchanged
1,113,841 shares of its Common Stock plus options to purchase 50,000 shares at
an exercise price of thirty dollars per share for the outstanding minority
interests. At the time of the minority exchange, the recorded amounts of
assets and liabilities, including the cost in excess of net assets acquired,
were adjusted for the difference between their recorded amounts and their fair
values at the time of the exchanges. The excess of purchase price over the
underlying estimated fair value of the net assets acquired in the minority
exchange was $39,792.
12. OTHER RELATED PARTY TRANSACTIONS
At December 31, 1995, the Company was owed $14,578 by minority or former
minority shareholders and certain of their related entities. This indebtedness
to the Company arose from advances to these shareholders for certain business
acquisitions and from working capital advances to dealerships owned by those
shareholders in which the Company has no ownership. Related party interest
income represents interest on the above mentioned advances and advances to the
uncombined investee. Separately, at December 31, 1996 and 1995, the Company
owes a stockholder $1,334 and $1,109, respectively, for services provided.
13. STOCK COMPENSATION PLANS
During 1996, the Company's Board of Directors and stockholders adopted a Stock
Option Plan and granted options to certain employees. A portion of the options
granted in 1996 retroactively vested to dates prior to the date of grant.
Prior to the adoption of the Stock Option Plan, options had been granted to
purchase 127,200 shares of the Company's Common Stock under an employment
agreement at an exercise price of twelve dollars and fifty cents per share.
These options were replaced with options that vest and become exercisable over
four years on a schedule similar to the previously granted options and
additional options to purchase 272,800 shares of Common Stock were granted at
an exercise price of ten dollars per share. At December 31, 1996, 48,672 of
these options were exercisable.
Under the Stock Option Plan, all full-time employees of the Company and its
subsidiaries and affiliates are eligible to participate. The term of each
option and the exercise price is fixed by the
F-20
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Stock Option Committee of the Board of Directors. As of December 31, 1996, the
aggregate number of shares of Common Stock for which stock options may be
granted under the Stock Option Plan may not exceed 1,500,838. At December 31,
1996, 827,838 shares of Common Stock were available for grant of options under
the Stock Option Plan. Presented below is a summary of the status of stock
options held by eligible employees, and the related transactions for the years
ended December 31, 1996 and 1995:
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
STOCK OPTIONS SHARES PRICE SHARES PRICE
- ------------------------ ------------- ------------- ------------ -------------
Options outstanding at
beginning of year 127,200 $12.50 70,017 $12.50
Granted 945,800 14.22 57,183 12.50
Exercised (46,500) 10.00 - -
Forfeited/Expired (127,200) 12.50 - -
Replaced 127,200 10.00 - -
============= ============= ============ =============
Options outstanding at
end of year 1,026,500 $13.90 127,200 12.50
============= ============= ============ =============
The following table summarizes the status of UAG's employee stock options
outstanding and exercisable at January 1, 1997:
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
SHARES LIFE PRICE SHARES PRICE
- -------------- ------------------ --------------- ------------- ---------------
826,500 8.7 years $10.00 230,272 $10.00
200,000 9.8 years $30.00 - $30.00
- -------------- ------------------ --------------- ------------- ---------------
1,026,500 230,272
============== =============
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("SFAS 123"). SFAS 123 establishes financial and reporting
standards for stock based compensation plans. The Company has adopted the
disclosure only provisions of this standard. Had UAG elected to recognize
compensation expense for stock options based on the fair value at the grant
dates of awards, net income (loss) and earnings (loss) per share would have
been as follows:
F-21
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
Income (loss) before extraordinary item As reported $7,461 $(3,466)
Pro forma $6,521 $(3,579)
- ----------------------------------------- ------------- ------------ ----------
Income (loss) before extraordinary item As reported $0.69 $(0.63)
per share Pro forma $0.60 $(0.65)
- ----------------------------------------- ------------- ------------ ----------
Net income (loss) As reported $2,474 $(3,466)
Pro forma $1,534 $(3,579)
- ----------------------------------------- ------------- ------------ ----------
Net income (loss) As reported $0.23 $(0.63)
per share Pro forma $0.14 $(0.65)
- ----------------------------------------- ------------- ------------ ----------
The weighted average fair value of UAG stock options was calculated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: no dividend yield; expected volatility of
30%; a risk-free interest rate of 7% and expected lives of 4.5 years. The
weighted average fair value of options granted during the years ended December
31, 1996 and 1995 is $4.23 and $4.56 per share, respectively.
14. STOCKHOLDERS' EQUITY
At December 31, 1996 and 1995, the following classes of stock are authorized,
issued or outstanding:
<TABLE>
<CAPTION>
DECEMBER 31,
STOCKHOLDERS' EQUITY (Share Amounts in Thousands) 1996 1995
---- ----
<S> <C> <C>
Class A Convertible Preferred Stock, $0.0001 par value; shares issued and outstanding 0
and 3,651 at December 31, 1996 and 1995, respectively. Class retired in 1996. $- $1
Preferred Stock, $0.0001 par value; 100 shares authorized, none issued and outstanding - -
Voting Common Stock, $0.0001 par value, 40 million shares authorized; 16,736 shares
issued, including 46 treasury shares, at December 31, 1996 and 2,583 shares issued
and outstanding at December 31, 1995 2 1
Non-voting Common Stock, $0.0001 par value, 1,125 shares authorized; 605 and 0 issued and
outstanding at December 31, 1996 and 1995 - -
Class C Common Stock, $0.0001 par value, 20 million shares authorized; none issued and
outstanding - -
Additional paid-in-capital 284,502 54,748
Retained earnings (accumulated deficit) (3,036) (5,510)
----------------------------
TOTAL STOCKHOLDERS' EQUITY $281,468 $49,240
============================
</TABLE>
On October 28, 1996, UAG completed the initial public sale of 6,250,000 shares
of its Common Stock. Concurrently, all 5,227,346 outstanding shares of Class A
Convertible Preferred Stock converted into an equal number of shares of Common
Stock and 1,113,841 shares of Common Stock were issued in an exchange for the
minority interests then outstanding (see Note 11).
With the consummation of the initial public offering of Common Stock, the
Company became authorized to issue up to 100,000 shares of new series of
Preferred Stock, with rights, preferences, privileges thereon to be determined
by the Board of Directors and up to 20 million shares of Class
F-22
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
C Common. No such Preferred or Class C Common Stock was issued as of December
31, 1996.
In December 1996, the Board of Directors authorized a program to repurchase
the Company's common stock, spending up to a maximum of $10,000. At December
31, 1996, a total of 46,000 shares having an aggregate cost of $1,179 had been
repurchased under this program.
15. INCOME TAXES
The benefit (provision) for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $(187) $- $-
State and local (997) (285) -
-------------------------------------
Total current (1,184) (285) -
-------------------------------------
Deferred:
Federal (5,086) 2,374 -
State and local - - -
-------------------------------------
Total deferred (5,086) 2,374 -
-------------------------------------
Total benefit (provision) before extraordinary item (6,270) 2,089 -
Income tax benefits from extraordinary item 2,685 - -
-------------------------------------
Total benefit (provision) $(3,585) $2,089 $-
=====================================
</TABLE>
The reasons for the differences between the provision for income taxes
computed using the Federal statutory income tax rate and the tax provisions
reported are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Tax provisions (benefits) computed at the Federal
statutory income tax rate of 35%. $4,806 $(1,944) $(592)
State and local income taxes, net of Federal benefit 892 186 -
Valuation allowance - (745) 745
Taxes on income of minority interests 570 - -
Other 2 414 (153)
--------------------------------
Provision (benefit) for income taxes before
extraordinary item $6,270 $(2,089) $0
================================
</TABLE>
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). Under SFAS 109, deferred income taxes reflect the estimated tax effect
of temporary differences between assets and liabilities for financial
accounting purposes and those amounts as measured by tax laws and regulations.
The components of deferred income tax assets and liabilities at December 31,
1996 and 1995 were as follows:
F-23
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
1996 1995
---- ----
DEFERRED TAX ASSETS
Net operating loss carryforward $6,065 $4,467
Capital loss carryforwards 201 201
Organization costs 182 241
All other 556 244
----------------------
Total deferred tax assets 7,004 5,153
Valuation allowances - -
----------------------
Net deferred tax assets $7,004 $5,153
======================
DEFERRED TAX LIABILITIES
Partnership investments $(3,277) $(2,179)
Sale of finance receivables and other items (1,590) (100)
----------------------
Total deferred tax liabilities (4,867) (2,279)
======================
Net deferred tax assets (liabilities) $2,137 $2,874
======================
Based on evaluations made as of December 31, 1996 and 1995, the Company
determined that it is and was more likely than not that future taxable income
would be sufficient to recognize the above deferred tax assets at December 31,
1996 and 1995.
At December 31, 1996, the Company has $11,683 of regular tax, net operating
loss carryforwards for Federal income tax purposes that expire in 2010. In
addition, at December 31, 1996, the Company also has state net operating loss
carryforwards that total $31,060 and expire at various dates through 2011.
16. TERMINATED FRANCHISES
In 1995, the Company undertook a restructuring of its then unprofitable DiFeo
Group. Such restructuring included the termination of certain unprofitable
franchises, a reduction in personnel and the liquidation of outdated
inventory. Costs associated with this restructuring were approximately $500
and $680 for the years ended December 31, 1996 and 1995, respectively, and
were primarily related to severance.
F-24
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
17. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents certain supplementary information to the
Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Supplemental information:
Cash paid for interest $9,912 $420 $8,437 $109 $6,385 -
Cash paid for income taxes
420 37 - 3 - -
Non-cash financing and investing
activities:
Stock issuance costs
amortized against
proceeds from issuance
of stock 775 - 910 - 543 -
Minority interests
acquired by issuance
of stock 34,015 - - - - -
Dealership acquisition
cost financed by
long-term debt 4,100 - 4,014 - - -
Capitalized lease
obligations 1,570 - - - 433 -
Warrants issued 812 - 1,020 - - -
</TABLE>
<TABLE>
<CAPTION>
18. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
STATEMENTS OF OPERATIONS DATA: QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
Auto Dealerships
Total revenues $261,719 $336,220 $356,845 $347,248
Gross profit 29,217 37,162 39,926 38,358
Operating income (loss) 1,599 7,760 6,906 4,154
Auto Finance
Loss before income taxes (264) (85) (377) (764)
Total Company
Income before minority interests and
provision for income taxes 1,207 7,422 5,587 2,822
Income before extraordinary item 171 3,727 2,221 1,343
Extraordinary item - - - (4,987)
Net income (loss) 171 3,727 2,221 (3,644)
Income before extraordinary item per
common share
$0.03 $0.42 $0.22 $0.08
</TABLE>
F-25
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
STATEMENTS OF OPERATIONS DATA: QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1995
Auto Dealerships
Total revenues $162,598 $190,142 $239,601 $213,280
Gross profit 16,544 19,671 26,228 22,834
Operating income (loss) (4,285) (1,442) 2,271 (1,853)
Auto Finance
Loss before income taxes (354) (347) (356) (325)
Total Company
Income (loss) before minority interests and
provision for income taxes (4,104) (1,715) 2,074 (2,176)
Net income (loss) (3,231) (1,671) 1,082 354
Net income (loss) per common share $(.72) $(.34) $.17 $.05
</TABLE>
In the fourth quarter of 1995 the Company determined that it was more likely
than not that future taxable income would be sufficient to fully recognize a
net deferred tax asset of $2,874 (Note 15).
The net income (loss) per common share amounts are calculated independently
for each of the quarters presented and are not presented in thousands. The sum
of the quarters may not equal the full year net income (loss) per common share
amount.
19. SUBSEQUENT EVENTS (UNAUDITED)
On March 6, 1997, the Company completed its acquisition of a 100% interest in
the Crown Group, consisting of Crown Jeep-Eagle/Chrysler-Plymouth and Crown
Dodge, located in Houston, Texas. The total purchase price is $14 million, and
will be paid with approximately $7 million in cash and approximately $7.0
million in United Auto Group, Inc. common stock.
On February 12, 1997, the Company announced that it has entered into an
agreement to acquire 100% of the capital stock of Las Vegas based Gary Hanna
Nissan, Inc. The total purchase price is approximately $12.5 million,
including approximately $7.0 million in cash and approximately $5.5 million in
United Auto Group, Inc. common stock. Gary Hanna Nissan, Inc. had estimated
1996 revenues of $68.0 million.
On February 25, 1997, the Company announced that it has entered into an
agreement to acquire 100% of the capital stock of nine automotive dealerships
located in the New York metropolitan area and in Florida. The total purchase
price is approximately $53.0 million, including $25.0 million in cash,
promissory notes totaling $25.0 million and approximately $3.0 million in
United Auto Group, Inc. common stock. The dealerships had estimated 1996
revenues of approximately $430.0 million.
F-26
<PAGE>
THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
UNITED AUTO GROUP, INC.
* * * * * *
ARTICLE I
NAME
The name of the corporation is: United Auto Group, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
the Corporation's registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
PURPOSE
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware
(the "DGCL").
<PAGE>
ARTICLE IV
CAPITAL
1. Designation.
The total number of shares of capital stock which the
Corporation shall have the authority to issue is 61,225,000, consisting of:
(i) 40,000,000 shares of Voting Common Stock, par value $0.0001 per share (the
"VOTING COMMON STOCK"); (ii) 1,125,000 shares of Non-voting Common Stock, par
value $0.0001 per share (the "NON-VOTING COMMON STOCK"); (iii) 20,000,000
shares of Class C Common Stock, par value $0.0001 per share (the "CLASS C
COMMON STOCK" and, collectively with the Voting Common Stock, and the
Non-voting Common Stock, the "COMMON STOCK"); and (iv) 100,000 shares of
Preferred Stock, par value $0.0001 per share.
All shares of Common Stock issued and outstanding shall be
identical and shall entitle the holders thereof to the same rights and
privileges, except as otherwise provided in this Article IV. Holders of shares
of Common Stock shall not have preemptive or other rights to subscribe for
additional shares of Common Stock or for any other securities of the
Corporation.
The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of the Corporation (the "Board") is
expressly authorized at any time, and from time to time, to provide for the
issuance of shares of Preferred Stock in one or more series, for such
consideration (not less than its par value) and with such designations,
powers, preferences and relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions, as shall be
determined by the Board and fixed by resolution or resolutions adopted by the
Board providing for the number of shares in each such series.
2. Voting Power of Common Stock.
(a) Except as otherwise required by law, each holder of Voting Common
Stock shall be entitled to vote on all matters and shall be entitled to one
vote for each share of Voting Common Stock standing in such holder's name on
the books of the Corporation determined as of the record date for the
-2-
<PAGE>
determination of stockholders entitled to vote on such matters or, if no such
record date is established, at the date such vote is taken.
(b) Except as provided in this Section 2 or as otherwise required by
law, no holder of Non-voting Common Stock shall be entitled to vote such stock
on any matter on which the stockholders of the Corporation shall be entitled
to vote, and shares of Non-voting Common Stock shall not be included in
determining the number of shares voting or entitled to vote on any such
matters.
(c) Except as provided in this Section 2 or as otherwise required by
law, each holder of Class C Common Stock shall be entitled to one-tenth of one
vote for each share of Class C Common Stock standing in such holder's name on
the books of the Corporation determined as of the record date for the
determination of stockholders entitled to vote on such matters or, if no such
record date is established, at the date such vote is taken, and each share of
Class C Common Stock shall be counted as one-tenth of one share in determining
the number of shares voting or entitled to vote on any such matters.
(d) Except as otherwise provided in this Section 2 or as otherwise
required by law, the holders of shares of Voting Common Stock and Class C
Common Stock and, on any matter on which the holders of shares of Non-voting
Common Stock are entitled to vote, the holders of shares of Non-voting Common
Stock, shall vote together as a single class; provided, however, that the
holders of shares of Non-voting Common Stock or Class C Common Stock shall be
entitled to vote as a separate class on any amendment, repeal or modification
of any provision of this Certificate of Incorporation that adversely affects
the powers, preferences or special rights of the holders of the Non-voting
Common Stock or Class C Common Stock, respectively.
3. Certain Provisions relating to Common Stock.
(a) Subject to and upon compliance with the provisions of this
Section 3, any Regulated Stockholder (as hereinafter defined) shall be
entitled to convert, at any time and from time to time, any or all of the
shares of Voting Common Stock held by such stockholder into an equal number of
shares of Non-voting Common Stock.
-3-
<PAGE>
(b) Subject to and upon compliance with the provisions of this
Section 3, each holder of Non-voting Common Stock shall be entitled to
convert, at any time and from time to time, any or all of the shares of
Non-voting Common Stock held by such stockholder into an equal number of
shares of Voting Common Stock; provided, however, that no holder of shares of
Non-Voting Common Stock shall be entitled to convert any such shares to the
extent that, as a result of such conversion, such holder and its Affiliates
(as hereinafter defined), directly or indirectly, would own, control or have
the power to vote (i) a greater number of shares of Voting Common Stock or
other securities of any kind issued by the Corporation than such holder and
its Affiliates shall be permitted to own, control or have power to vote under
any law, regulation, rule or other requirement of any governmental authority
at the time applicable to such holder or its Affiliates or (ii) with respect
to a holder or Affiliate that is subject to regulation under the insurance
laws of any jurisdiction, 5% or more of the outstanding voting capital stock
of the Corporation.
(c) To exercise its conversion privilege pursuant to this Section 3,
a holder of Common Stock shall surrender the certificate or certificates
representing the shares of Common Stock being converted (the "CONVERTING
SHARES") to the Corporation's transfer agent and shall give written notice to
the Corporation and its transfer agent that such holder elects to convert the
Converting Shares into an equal number of shares of the class into which such
shares may be converted (the "CONVERTED SHARES"). Such notice shall also state
the name or names (with address or addresses) and denominations in which the
certificate or certificates for Converted Shares are to be issued. The
Corporation shall promptly notify each Regulated Stockholder (that has
previously informed the Corporation in writing of its status as a Regulated
Stockholder) of its receipt of such notice. The certificate or certificates
for Converting Shares shall be accompanied by proper assignment thereof to the
Corporation or in blank. The date when such written notice is received by the
Corporation's transfer agent, together with the certificate or certificates
representing the Converting Shares, shall be the "CONVERSION DATE." As
promptly as possible after the Conversion Date, the Corporation shall issue
and deliver to the holder of the Converting Shares, or on its written order,
such certificate or certificates as it may request for the Converted Shares
issuable upon such conversion, and the Corporation shall deliver to the
converting holder a certificate (which shall contain such
-4-
<PAGE>
legends as were set forth on the surrendered certificate or certificates)
representing any shares which were represented by the certificate or
certificates that were delivered to the Corporation in connection with such
conversion but which were not converted, provided, however, that if such
conversion is subject to part (d) of this Section 3, the Corporation shall not
issue such certificate or certificates until the expiration of the Deferral
Period (as hereinafter defined) referred to therein. Such conversion, to the
extent permitted by the close of business on the Conversion Date, and at such
time the rights of the holder of the Converting Shares as such holder shall
cease (except that, in the case of a conversion subject to part (d) of this
Section 3, the conversion shall be deemed effective upon the expiration of the
Deferral Period referred to therein), and the person or persons in whose name
or names the certificate or certificates for the Converted Shares shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the Converted Shares. Upon the issuance of shares in
accordance with this Section 3, such Converted Shares shall be deemed to be
duly authorized, validly issued, fully paid and non-assessable.
(d) The Corporation shall not convert or directly or indirectly
redeem, purchase or otherwise acquire any shares of Voting Common Stock or any
other class of capital stock of the Corporation or take any other action
affecting the voting rights of such shares if such action will increase the
percentage of any class of outstanding voting securities owned or controlled
by any Regulated Stockholder (other than any such stockholder which requested
that the Corporation take such action or which otherwise waives in writing its
rights under part (d) of this Section 3) unless the Corporation gives written
notice (the "DEFERRAL NOTICE") of such action to each Regulated Stockholder
(that has previously informed the Corporation in writing of its status as a
Regulated Stockholder). The Corporation shall defer making any such
conversion, redemption, purchase or other acquisition, or taking any such
other action, for a period of 30 days (the "DEFERRAL PERIOD") after giving the
Deferral Notice in order to allow each Regulated Stockholder to determine
whether it wishes to convert or take any other action with respect to the
Common Stock it owns, controls or has the power to vote, and if any such
Regulated Stockholder then elects to convert any shares of Voting Common Stock
it shall notify the Corporation in writing within 20 days of the issuance of
the Deferral Notice, in which case the Corporation shall (i) defer taking the
pending action until the end of the Deferral Period, (ii) promptly notify from
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time to time each other Regulated Stockholder of each proposed conversion and
the proposed transactions and (iii) effect the conversions requested by all
Regulated Stockholders in response to the notices issued pursuant to part (d)
of this Section 3 at the end of the Deferral Period.
(e) If the Corporation shall in any manner subdivide (by stock split,
stock dividend or otherwise) or combine (by reverse stock split or otherwise)
the outstanding shares of the Voting Common Stock, the Non-voting Common Stock
or the Class C Common Stock, the outstanding shares of each other class of
Common Stock shall be subdivided or combined, as the case may be, to the same
extent, share and share alike, and effective provision shall be made for the
protection of the conversion rights hereunder.
If, at any time and from time to time, there shall be a capital
reorganization of the Voting Common Stock (other than a change in par value or
from par value to no par value or from no par value to par value as a result
of any stock dividend or subdivision, split-up or combination of shares) or a
merger or consolidation of the Corporation with or into another corporation,
or sale of all or substantially all of the Corporation's properties and
assets, then, as part of such reorganization, merger, consolidation or sale,
provision shall be made so that each holder of any shares of Non-voting Common
Stock shall thereafter be entitled to receive upon conversion of any such
shares, so long as the conversion right hereunder with respect to such shares
would exist had such event not occurred, the number of shares of stock or
other securities or property of the Corporation, or of the successor
corporation resulting from such merger, consolidation or sale, to which such
holder would have been entitled if such holder had converted such shares
immediately prior to such capital reorganization, merger, consolidation or
sale. In the event of such a merger, consolidation or sale, effective
provision shall be made in the certificate of incorporation of the successor
corporation or otherwise for the protection of the conversion rights of the
shares of Non-voting Common Stock that shall be applicable, as nearly as
reasonably may be, to any such other shares of stock and other securities and
property deliverable upon conversion of shares of Voting Common Stock into
which such Non-voting Common Stock could have been converted immediately prior
to such event. The Corporation shall not be a party to any reorganization,
merger or consolidation pursuant to which any Regulated Stockholder would be
required to take (i) any voting securities
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which would cause such holder to violate any law, regulation or other
requirement of any governmental body applicable to such holder or (ii) any
securities convertible into voting securities which if such conversion took
place would cause such holder to violate any law, regulation or other
requirement of any governmental body applicable to such holder, other than
securities which are specifically provided to be convertible only in the event
that such conversion may occur without any such violation.
(f) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Voting Common Stock, Non-voting
Common Stock or its treasury shares, solely for the purpose of effecting the
conversion of shares of Voting Common Stock and Non-voting Common Stock, such
number of shares of such class as shall from time to time be sufficient to
effect the conversion of all then outstanding shares of Voting Common Stock
that are entitled to so convert and all then outstanding shares of Non-voting
Common Stock.
(g) The issuance of certificates for shares of any class of Common
Stock upon conversion of shares of any other class of Common Stock pursuant to
this Section 3 shall be made without charge to the holders of such shares for
any issuance tax in respect thereof or other cost incurred by the Corporation
in connection with such conversion and the related issuance of shares of
Common Stock; provided, however, that the Corporation shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the
holder of the Common Stock converted.
(h) "AFFILIATE" shall mean with respect to any person, any
other person, directly or indirectly controlling, controlled by
or under common control with such person. For the purpose of the
above definition, the term "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"REGULATED STOCKHOLDER" shall mean (i) any stockholder that is
subject to the provisions of Regulation Y of the Board of
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Governors of the Federal Reserve System (12 C.F.R. Part 225) or any successor
to such regulation ("REGULATION Y") and to which shares of Common Stock of the
Corporation were issued pursuant to the warrants issued to J.P. Morgan Capital
Corporation, so long as such stockholder shall hold such shares of Common
Stock or shares issued upon conversion(s) of such shares, (ii) any stockholder
that is subject to regulation under the New York Insurance Law and to which
shares of Common Stock of the Corporation were issued pursuant to the warrants
issued to The Equitable Life Assurance Society of the United States, so long
as such stockholder shall hold such shares of Common Stock or shares issued
upon conversion(s) of such shares, (iii) any Affiliate of any such Regulated
Stockholder that is a transferee of any such shares of Common Stock of the
Corporation, so long as such Affiliate shall hold, and only with respect to,
such shares of Common Stock or shares issued upon conversion of such shares
and (iv) any person to which such Regulated Stockholder or any of its
Affiliates has transferred such shares, so long as such transferee shall hold,
and only with respect to, any shares transferred by such stockholder or
Affiliates or any shares issued upon conversion of such shares but only if
such person (or any Affiliate of such person) is (A) subject to the provisions
of Regulation Y or (B) subject to regulation under the insurance laws of any
jurisdiction.
ARTICLE V
BOARD OF DIRECTORS
Except as otherwise provided by law, the number of directors which
shall constitute the Board shall be as set forth in the Bylaws of the
Corporation. Elections of directors need not be by written ballot. The
directors of the Corporation shall be divided into three classes: Class I,
Class II and Class III. The number of directors in each class shall be divided
equally so far as possible among the three Classes. The initial Class I, Class
II and Class III directors shall be designated and the terms of the Board
shall be as follows:
(i) Class I directors shall be elected to serve until
the 1997 Annual Meeting of Stockholders,
(ii) Class II directors shall be elected to serve until
the 1998 Annual Meeting of Stockholders, and
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(iii) Class III directors shall be elected to serve
until the 1999 Annual Meeting of Stockholders,
and until their successors shall be duly elected and qualified. At each annual
election of directors, beginning with the 1997 annual election, the successors
to the directors of each class whose term shall expire at such meeting shall
be elected to hold office for a term of three years from the date of their
election and until their successors shall be duly elected and qualified. In
case of any increase or decrease in the number of directors,
the increase or decrease shall be apportioned by the directors among the
several classes as nearly equally as possible; provided, however, that any
decrease in the number of directors which shall cause a director to be removed
prior to the expiration of his term shall be subject to the provisions of the
next succeeding paragraph of this Article V.
Anything herein to the contrary notwithstanding, the provisions of
this Article V shall apply only to directors elected by holders of Voting
Common Stock together with holders of all other classes of the Corporation's
capital stock voting as a single class therewith on the election of directors.
If holders of any class of the Corporation's capital stock have the right to
elect directors voting as a separate class and such right be then in effect,
the maximum number of directors of the Corporation shall be increased by the
number of directors which such holders may so elect and upon termination of
such right the number shall be reduced to the extent it was previously so
increased.
Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws (and notwithstanding the fact that some lesser
percentage may be specified by law), the affirmative vote of the holders of
2/3 or more of the outstanding shares of capital stock of the Corporation
entitled to vote on such amendment, alteration, change or repeal (considered
for this purpose as one class) shall be required to amend, alter, change or
repeal this Article V.
ARTICLE VI
BYLAWS
In furtherance and not in limitation of the powers conferred
by statute, the Board is expressly authorized to make,
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alter or repeal Bylaws of the Corporation (except insofar as Bylaws adopted by
the stockholders shall otherwise provide).
ARTICLE VII
AGREEMENT WITH CREDITORS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the DGCL or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the DGCL, order
a meeting of the creditors or class of creditors, and/or of the stockholders
or class of stockholders of the Corporation, as the case may be, to be
summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
of the Corporation as a consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all stockholders
or class of stockholders of the Corporation, as the case may be, and also on
the Corporation.
ARTICLE VIII
NO STOCKHOLDER ACTION WITHOUT MEETING
Any action required or permitted to be taken at an annual or special
meeting of the Corporation's stockholders may be taken only at such duly
called annual or special meeting.
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ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify to the fullest extent permitted under
and in accordance with the laws of the State of Delaware any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative by reason of the fact that he is or was a director, officer,
trustee, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, trustee, employee or agent
of or in any other capacity with another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Expenses incurred in defending a civil or criminal action,
suit or proceeding shall (in the case of any action, suit or proceeding
against a director of the Corporation) or may (in the case of any action, suit
or proceeding against an officer, trustee, employee or agent) be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board upon receipt of an undertaking by or on
behalf of the indemnified person to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article IX.
The indemnification and other rights set forth in this
Article IX shall not be exclusive of any provisions with respect thereto in
the Bylaws or any other contract or agreement between the Corporation and any
director, officer, trustee, employee or agent of the Corporation.
Neither the amendment nor repeal of this Article IX, nor the
adoption of any provision of this Certificate of Incorporation inconsistent
with this Article IX, shall eliminate or reduce the effect of this Article IX
in respect of any matter occurring before such amendment, repeal or adoption
of an
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<PAGE>
inconsistent provision or in respect of any cause of action, suit or claim
relating to any such matter which would have given rise to a right of
indemnification or right to receive expenses pursuant to this Article IX, if
such provision had not been so amended or repealed or if a provision
inconsistent therewith had not been so adopted.
ARTICLE X
ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS
To the fullest extent permitted by the DGCL, as the same
presently exists or may hereafter be amended, no director shall be personally
liable to the Corporation or to any stockholder for monetary damages for
breach of fiduciary duty as a director, except for any matter in respect of
which such director (a) shall be liable under Section 174 of the DGCL or any
amendment thereto or successor provision thereto, or (b) shall be liable by
reason that, in addition to any and all other requirements for liability, he
(A) shall have breached his duty of loyalty to the Corporation or its
stockholders, (B) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith, (C) shall have acted in a manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or (d) shall have derived an improper personal benefit.
Any repeal or modification of this Article X shall no
adversely affect any right or protection of a director with respect to any act
or omission occurring prior to such repeal or modification. If the DGCL is
amended after the date of incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
ARTICLE XI
SEVERABILITY
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If any provisions contained in this Certificate of
Incorporation shall for any reason be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
invalidate this entire Certificate of Incorporation or any other provisions
hereof. Such provision shall be deemed to be modified to the extent necessary
to render it valid and enforceable and if no such modification shall render it
valid and enforceable, then this Certificate of Incorporation shall be
construed as if not containing such provision.
* * * * *
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<PAGE>
UNITED AUTO GROUP, INC.
(FORMERLY NAMED EMCO MOTOR HOLDINGS, INC.)
LIST OF SUBSIDIARIES
STATE OF INCORPORATION OR
ORGANIZATION
-------------------------
United AutoCare, Inc. Delaware
DIFEO DIVISION
DiFeo Partnership, Inc. Delaware
DiFeo Partnership RCT, Inc. Delaware
DiFeo Partnership RCM, Inc. Delaware
DiFeo Partnership HCT, Inc. Delaware
DiFeo Partnership SCT, Inc. Delaware
DiFeo Partnership VIII, Inc. Delaware
DiFeo Partnership IX, Inc. Delaware
DiFeo Partnership X, Inc. Delaware
Hudson Toyota, Inc. New Jersey
Somerset Motors, Inc. New Jersey
UAG Northeast, Inc. Delaware
UAG Northeast (NY), Inc. New York
Fair Hyundai Partnership New Jersey
Fair Chevrolet-Geo Partnership New Jersey
Danbury Auto Partnership New Jersey
Danbury Chrysler Plymouth Partnership New Jersey
Hudson Motors Partnership New Jersey
DiFeo Hyundai Partnership New Jersey
J&F Oldsmobile Partnership New Jersey
DiFeo Nissan Partnership New Jersey
DiFeo Chevrolet-Geo Partnership New Jersey
DiFeo Chrysler Plymouth Jeep Eagle Partnership New Jersey
OCT Partnership New Jersey
OCM Partnership New Jersey
Somerset Motors Partnership New Jersey
DiFeo BMW Partnership New Jersey
County Auto Group Partnership New Jersey
Rockland Motors Partnership New Jersey
ARIZONA
UAG West, Inc. Delaware
SA Automotive, Ltd. Arizona
SL Automotive, Ltd. Arizona
SPA Automotive, Ltd. Arizona
LRP, Ltd. Arizona
Sun BMW, Ltd. Arizona
6725 Dealership, Ltd. Arizona
Scottsdale Management Group, Ltd. Arizona
SK Motors, Ltd. Arizona
Scottsdale Audi, Ltd. Arizona
<PAGE>
ARKANSAS
United Landers, Inc. Delaware
Landers Auto Sales, In c. Arkansas
Landers United Auto Group, Inc. Arkansas
Landers United Auto Group No. 2, Inc. Arkansas
Landers United Auto Group No. 3, Inc. Arkansas
GEORGIA
UAG Atlanta, Inc. Delaware
Atlanta Toyota, Inc. Texas
UAG Atlanta II, Inc. Delaware
United Nissan, Inc. Georgia
(formerly named Steve Rayman Nissan, Inc.)
UAG Atlanta III, Inc. Delaware
Peachtree Nissan, Inc. Georgia
(formerly named Hickman Nissan, Inc.)
UAG Atlanta IV, Inc. Delaware
UAG Atlanta IV Motors, Inc. Georgia
(formerly named Charles Evans BMW, Inc.)
UAG Atlanta V, Inc. Delaware
Conyers Nissan, Inc. Georgia
(formerly named Charles Evans Nissan, Inc.)
TENNESSEE
UAG Tennessee, Inc. Delaware
United Nissan, Inc. Tennessee
(formerly named Standefer Nissan, Inc.)
TEXAS
UAG Texas, Inc. Delaware
UAG Texas II, Inc. Delaware
FINANCE DIVISION
Atlantic Auto Finance Corporation Delaware
Atlantic Auto Funding Corporation Delaware
Atlantic Auto Second Funding Corporation Delaware
Atlantic Auto Third Funding Corporation Delaware
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<PAGE>
Exhibit 11.1
UNITED AUTO GROUP, INC.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Years Ended December 31,
...................................................
1994 1995 1996
...................................................
<S> <C> <C> <C>
Net income (loss) ($1,691,000.00) ($3,466,000.00) $2,474,000.00
============== ============= =============
Weighted average shares outstanding 3,296,000 4,905,000 10,284,000
Effect of options issued within one year
of the IPO date not included in the
above share amount based on the treasury
stock method at the assumed IPO price 567,000 567,000 567,000
-------------- ------------- -------------
Shares used in computing pro forma net
income (loss) per common share 3,863,000 5,472,000 10,851,000
-------------- ------------- -------------
Net income (loss) per common share ($ 0.44) ($ 0.63) $ 0.23
============== ============= =============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 66,875
<SECURITIES> 0
<RECEIVABLES> 53,241
<ALLOWANCES> (1,223)
<INVENTORY> 168,855
<CURRENT-ASSETS> 299,571
<PP&E> 25,967
<DEPRECIATION> 3,626
<TOTAL-ASSETS> 522,950
<CURRENT-LIABILITIES> 221,455
<BONDS> 11,121
0
0
<COMMON> 2
<OTHER-SE> 281,204
<TOTAL-LIABILITY-AND-EQUITY> 522,950
<SALES> 1,302,031
<TOTAL-REVENUES> 1,303,829
<CGS> 1,157,368
<TOTAL-COSTS> 1,157,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,792
<INCOME-PRETAX> 17,037
<INCOME-TAX> (6,270)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (4,987)
<CHANGES> 0
<NET-INCOME> 2,474
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
United Auto Group, Inc. on Form S-8 of our report dated February 25, 1997, on
our audits of the consolidated financial statements as of December 31, 1996
and 1995, and for the years ended December 31, 1996, 1995, and 1994, which
report is in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
March 17, 1997
