<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
o 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: 1-13461
GROUP 1 AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0506313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 Echo Lane, Suite 350, Houston, Texas 77024
(Address of principal executive offices) (Zip code)
(713)467-6268
(Registrant's telephone number including area code)
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 No X
----
Number of shares outstanding of the registrant's common stock, as of
December 10, 1997:
<TABLE>
<CAPTION>
Title Outstanding
- ----- -----------
<S> <C>
Common Stock, par value $.01 per share 14,673,051
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30,
1997
-------------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 26,576
Accounts receivable, net ................................ 12,659
Inventories ............................................. 97,409
Notes receivable, net ................................... 917
Prepaid expenses ........................................ 2,344
Deferred income tax benefit ............................. 238
---------
Total current assets ........................ 140,143
PROPERTY AND EQUIPMENT, net ...................................... 20,357
NOTES RECEIVABLE, net ............................................ 1,454
GOODWILL, net .................................................... 31,886
OTHER ASSETS ..................................................... 444
---------
Total assets ................................ $ 194,284
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable ................................. $ 38,022
Current maturities of long-term debt .................... 1,214
Accounts payable and accrued expenses ................... 46,098
---------
Total current liabilities ................... 85,334
LONG-TERM DEBT, net of current maturities ........................ 8,409
LONG-TERM DEFERRED TAXES ......................................... 504
OTHER LONG-TERM LIABILITIES ...................................... 1,289
STOCKHOLDERS' EQUITY:
Common stock ............................................ 147
Additional paid-in capital .............................. 104,325
Retained deficit ........................................ (5,724)
---------
Total stockholders' equity .................. 98,748
---------
Total liabilities and stockholders' equity .. $ 194,284
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
GROUP 1 AUTOMOTIVE, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
New vehicle sales ...................... $ 127,767 $ 140,098 $ 354,938 $ 391,928
Used vehicle sales ..................... 68,246 72,168 197,848 220,735
Parts and service sales ................ 20,041 19,988 56,707 58,389
Other dealership revenue, net .......... 5,478 6,453 16,436 17,998
------------ ------------ ------------ ------------
Total revenues ............ 221,532 238,707 625,929 689,050
COST OF SALES .......................... 191,792 206,287 540,302 595,380
------------ ------------ ------------ ------------
Gross Profit .............. 29,740 32,420 85,627 93,670
GOODWILL AMORTIZATION .................. 200 200 599 599
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............ 23,441 26,072 68,947 76,938
------------ ------------ ------------ ------------
Income from operations..... 6,099 6,148 16,081 16,133
OTHER INCOME (EXPENSE):
Interest expense, net .................. (481) (54) (1,896) (681)
Other income (expense), net ............ 55 1 47 (17)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ............. 5,673 6,095 14,232 15,435
PROVISION FOR INCOME TAXES ............. 2,320 2,486 5,858 6,333
------------ ------------ ------------ ------------
NET INCOME ............................. $ 3,353 $ 3,609 $ 8,374 $ 9,102
============ ============ ============ ============
Earnings per share ..................... $ 0.23 $ 0.25 $ 0.57 $ 0.62
Weighted average shares outstanding..... 14,673,051 14,673,051 14,673,051 14,673,051
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
GROUP 1 AUTOMOTIVE, INC.
BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 8 $ 240
------- -------
Total current assets ....................................... 8 240
PROPERTY AND EQUIPMENT, net .................................................... 2 61
OTHER ASSETS ................................................................... 774 3,913
------- -------
Total assets ............................................... $ 784 $ 4,214
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Advances from Founding Groups ........................................... $ 151 $ 1,612
Accounts payable and accrued expenses ................................... 723 5,373
------- -------
Total current liabilities .................................. 874 6,985
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value, 2,000,000 shares
authorized in 1996, 50,000,000 shares authorized
in 1997, 450,000 and 450,000 shares issued
and outstanding, respectively ......................................... 5 5
Additional paid-in capital .............................................. 5 5
Retained deficit ........................................................ (100) (2,781)
------- -------
Total stockholders' deficit ................................ (90) (2,771)
------- -------
Total liabilities and stockholders' deficit ................ $ 784 $ 4,214
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
GROUP 1 AUTOMOTIVE, INC.
STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ----------------
1996 1997 1996 1997
------- -------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Sales ............................... $ -- $ -- $ -- $ --
Other dealership revenues, net....... -- -- -- --
Total revenues ......... -- -- -- --
------ -------- ------ -------
COST OF SALES .............................. -- -- -- --
------ -------- ------ -------
Gross profit ........... -- -- -- --
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............. -- 1,058 -- 2,630
------ -------- ------ -------
Operating loss ......... -- (1,058) -- (2,630)
OTHER INCOME (EXPENSE):
Interest expense, net ............... -- (26) -- (51)
------ -------- ------ -------
LOSS BEFORE INCOME TAXES ................... -- (1,084) -- (2,681)
PROVISION FOR INCOME TAXES ................. -- -- -- --
------ -------- ------ -------
NET LOSS ................................... $ -- $ (1,084) $ -- $(2,681)
====== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
GROUP 1 AUTOMOTIVE, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $ -- $(2,681)
Adjustments to reconcile net loss to net
cash used in operating activities --
Depreciation and Amortization ................. -- 8
Changes in operating assets and
liabilities --
Increase in --
Other noncurrent assets .................... (54) (3,139)
Accounts payable and accrued
expenses ................................ 18 4,650
------- -------
Net cash used in operating activities ......... (36) (1,162)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment ................ -- (67)
------- -------
Net cash used in investing activities ......... -- (67)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Founding Groups ...................... 43 1,461
Purchase of common stock ........................... (1) --
Proceeds from issuance of common stock ............. 5 --
------- -------
Net cash provided by financing activities...... 47 1,461
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 11 232
CASH AND CASH EQUIVALENTS, beginning of period ............ 1 8
------- -------
CASH AND CASH EQUIVALENTS, end of period .................. $ 12 $ 240
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
GROUP 1 AUTOMOTIVE, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Group 1 Automotive, Inc. ("Group 1" or the "Company") was founded on
December 21, 1995 to become a leading operator and consolidator in the
automotive retailing industry. On November 3, 1997 Group 1 acquired 30
automobile dealerships and related business in Texas and Oklahoma. As
contemplated at the date of acquisition, the Company has ceased operating the
Kia franchise that was part of Mike Smith Autoplaza in Beaumont, Texas. The
Company acquired the Howard Group, the McCall Group, the Smith Group and the
Kingwood Group (the "Founding Groups") in exchange for 9,074,915 shares of Group
1 common stock and $5.4 million in cash. The Company intends to continue to
acquire, through merger or purchase, similar companies to expand its national
and regional operations.
On November 4, 1997 the Company completed its initial public offering (the
"Offering"). In the Offering the Company and a selling stockholder sold
5,148,136 and 371,864 shares of common stock, respectively, at $12 per share.
Included in the 5,148,136 shares sold by the Company were 720,000 shares sold
pursuant to the underwriter's over-allotment option. Net proceeds to the
Company, after giving effect to the underwriter's discount, was $57.5 million
before payment of the cash portion of the purchase price and expenses of the
Offering.
The information contained in the following notes to the accompanying
financial statements is condensed from that which would appear in the annual
audited financial statements. As such, the financial statements included herein
should be reviewed in conjunction with the financial statements and related
notes thereto contained in the Prospectus dated October 29, 1997 filed by Group
1 with the Securities and Exchange Commission on October 30, 1997 and the
Registration Statement on Form S-1 (Registration No. 333-29893), as amended,
initially filed with the Securities and Exchange Commission on June 24, 1997.
2. BASIS OF PRESENTATION:
The unaudited pro forma combined financial statements give effect to Group
1's acquisition of the Founding Groups using the purchase method of accounting.
The Howard Group has been identified as the acquiror for financial statement
presentation purposes, in accordance with SAB No. 97.
The pro forma combined balance sheet gives effect to the acquisitions and
the Offering as if they had occurred on September 30, 1997. The pro forma
combined statements of operations give effect to the acquisitions and the
Offering as if they had occurred at the beginning of the nine month periods
presented (January 1, 1996 and 1997).
The pro forma combined financial statements give effect to certain
adjustments based on changes that will result from the completion of the
acquisitions and the Offering. Increased revenues and reduced cost of sales will
be recognized prospectively due to the elimination of certain agreements which,
prior to the acquisition of the Founding Groups, decreased the fees and
commissions paid to the dealerships for sales
7
<PAGE> 8
of certain finance and insurance products and increased the cost of certain
aftermarket products. Additionally, reductions in compensation expense will be
recognized at the dealerships pursuant to contractually agreed upon changes in
salaries and management fees. Offsetting the reduced compensation expense is a
provision for incremental corporate overhead cost. Interest expense is reduced
on a pro forma basis resulting from the repayment of floorplan obligations with
a portion of the Offering proceeds.
The objective of the pro forma financial information presented is to show
what the significant effects on the historical information might have been had
the transaction occurred at an earlier date. However, the pro forma combined
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
3. EARNINGS PER SHARE INFORMATION:
In computing earnings per share, the weighted average common stock
equivalent shares assumed to be issued from the exercise of stock options are
included under certain circumstances. As the stock options outstanding for the
Company did not meet the requirements for inclusion, the number of shares
outstanding after the completion of the acquisitions and the Offering,
14,673,051 shares, is used in calculating pro forma earnings per share for all
periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
THIS REPORT ON FORM 10-Q CONTAINS STATEMENTS, WHICH CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "ESTIMATES",
"WILL", "SHOULD", "PLANS" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY.
READERS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE SIGNIFICANT RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF FACTORS, MOST OF WHICH
ARE BEYOND THE CONTROL OF MANAGEMENT. THESE FACTORS INCLUDE GENERAL ECONOMIC
AND BUSINESS CONDITIONS, NEW OR MODIFIED STATUTORY OR REGULATORY REQUIREMENTS,
CHANGING PRICES AND MARKET CONDITIONS, AND THE EFFECTIVENESS OF MANAGEMENT'S
STRATEGIES AND DECISIONS. NO ASSURANCE CAN BE GIVEN THAT THESE ARE ALL OF THE
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE FORWARD-
LOOKING STATEMENTS.
8
<PAGE> 9
The following should be read in conjunction with the response to Part I,
Item 1 of this Report and the Prospectus.
OVERVIEW
The Company owns 29 automobile dealerships located in Texas and Oklahoma
representing 19 American and Asian brands including Acura, Chevrolet, Chrysler,
Dodge, Eagle, GMC, Honda, Isuzu, Jeep, Lexus, Lincoln, Mercury, Mitsubishi,
Nissan, Oldsmobile, Plymouth, Pontiac, Suzuki and Toyota. Additionally, the
Company provides maintenance and repair services at its 29 dealerships and five
collision service centers. The Company utilizes approximately 500 service bays
in providing these services. The Company expects that a significant portion of
its future growth will be derived from acquisitions of additional dealerships.
The Company plans to achieve its goal of becoming a leading consolidator,
while maintaining its high operating standards in the automotive retailing
industry, by (i) emphasizing growth through acquisitions and (ii) implementing
an operating strategy that focuses on decentralized dealership operations,
nationally centralized administrative functions, the expansion of higher margin
businesses, a commitment to customer service and the implementation of new
technology initiatives. By complementing the Founding Groups' industry leaders,
management talent and proven operating capabilities with the Company's corporate
management team which is experienced in achieving and managing long-term growth
in a consolidation environment, the Company believes that it is in a strong
position to execute this strategy.
The Company has diverse sources of revenues, including: new car sales, new
truck sales, used car sales, used truck sales, manufacturer remarketed vehicle
sales, parts sales, service sales, collision repair services, finance fees,
insurance commissions, extended service contract sales, documentary fees and
after-market product sales. Sales revenues include sales to retail customers,
other dealers and wholesalers. Other dealership revenue includes revenue from
the sale of financing, insurance and extended service contracts, net of a
provision for anticipated chargebacks, and documentary fees charged to
customers.
The Company's gross profit will vary as the Company's merchandise mix (the
mix between new vehicle sales, used vehicle sales, parts and service sales,
collision repair services and other dealership revenues) changes. The gross
margin realized by the Company on the sale of its products and services
generally varies between approximately 6.5% and 60.0%, with new vehicle sales
generally resulting in the lowest gross margin and other dealership revenues and
parts and service sales generally resulting in the highest gross margin. When
the Company's new vehicle sales increase or decrease at a rate greater than the
Company's other revenue sources, the Company's gross margin will respond
inversely. Factors such as seasonality, weather, cyclicality and manufacturers'
advertising and incentives may impact the Company's merchandise mix and,
therefore influence the Company's gross margin.
Selling, general and administrative expenses consist primarily of
compensation for sales, administrative, finance and general management
personnel, rent, marketing, insurance and utilities. Interest expense consists
of interest charges on interest-bearing debt, including floorplan inventory
financing, net of interest credits received from certain manufacturers and
interest income earned.
9
<PAGE> 10
PRO FORMA COMBINED FOUNDING GROUPS' DATA
The following pro forma combined Founding Groups' data for the three months
ended September 30, 1996 and September 30, 1997, and the nine months ended
September 30, 1996 and September 30, 1997 do not purport to present the combined
Founding Groups in accordance with generally accepted accounting principles, but
represent a summation of certain data of the individual Founding Groups on an
historical basis including the effects of the pro forma adjustments. This data
will not be comparable to and may not be indicative of the Company's
post-combination results of operations because (i) the Founding Groups were not
under common control of management and had different tax structures (S
Corporations and C Corporations) during the periods presented and (ii) the
Company will use the purchase method to establish a new basis of accounting to
record the acquisitions.
The following tables sets forth certain unaudited pro forma combined data
of the Founding Groups for the periods indicated:
<TABLE>
<CAPTION>
OPERATIONS DATA
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ------------------------------------------
1996 1997 1996 1997
------------------------------------------- ------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales................. $ 127,767 57.7% $ 140,098 58.7% $ 354,938 56.7% $ 391,928 56.9%
Used vehicle sales................ 68,246 30.8% 72,168 30.2% 197,848 31.6% 220,735 32.0%
Parts and service sales........... 20,041 9.0% 19,988 8.4% 56,707 9.1% 58,389 8.5%
Other dealership revenues, net.... 5,478 2.5% 6,453 2.7% 16,436 2.6% 17,998 2.6%
--------- ----- --------- ----- --------- ----- --------- -----
Total revenues..... 221,532 100.0% 238,707 100.0% 625,929 100.0% 689,050 100.0%
Cost of sales....................... 191,792 86.6% 206,287 86.4% 540,302 86.3% 595,380 86.4%
--------- ----- --------- ----- --------- ----- --------- -----
Gross profit........................ $ 29,740 13.4% $ 32,420 13.6% $ 85,627 13.7% $ 93,670 13.6%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
NEW VEHICLE DATA
PRO FORMA COMBINED COMPANY'S NEW VEHICLE DATA
-------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Retail unit sales............................. 5,838 6,298 16,229 17,923
Retail sales revenue.......................... $ 127,767 $ 140,098 $ 354,938 $ 391,928
Gross profit.................................. $ 9,374 $ 10,015 $ 25,952 $ 28,835
Gross margin.................................. 7.3% 7.1% 7.3% 7.4%
Average gross profit per retail unit sold..... $ 1,606 $ 1,590 $ 1,599 $ 1,609
</TABLE>
<TABLE>
<CAPTION>
USED VEHICLE DATA
PRO FORMA COMBINED COMPANY'S USED VEHICLE DATA
-------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Retail unit sales............................. 4,509 4,720 13,214 13,923
Retail sales revenue (1)...................... $ 57,972 $ 59,496 $ 168,063 $ 180,350
Gross profit.................................. $ 5,574 $ 5,526 $ 16,588 $ 16,161
Gross margin.................................. 9.6% 9.3% 9.9% 9.0%
Average gross profit per retail unit sold..... $ 1,236 $ 1,171 $ 1,255 $ 1,162
</TABLE>
- -------------
(1) Excludes wholesale revenues.
<TABLE>
<CAPTION>
PARTS AND SERVICE DATA
PRO FORMA COMBINED COMPANY'S PARTS AND SERVICE DATA
-------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Retail sales revenue.......................... $ 20,041 $ 19,988 $ 56,707 $ 58,389
Gross profit.................................. $ 9,314 $ 10,426 $ 26,651 $ 30,656
Gross margin.................................. 46.5% 52.2% 47.0% 52.5%
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER, 30, 1996
REVENUES. Revenues increased $17.2 million, or 7.8% from $221.5 million for
the three months ended September 30, 1996 to $238.7 million for the three months
ended September 30, 1997. New vehicle sales increased $12.3 million, or 9.6%
from $127.8 million for the three months ended September 30, 1996 to $140.1
million for the three months ended September 30, 1997. The increase is primarily
attributable to strong customer acceptance of the Founding Group's products,
particularly Lexus, new franchise operations and successful marketing efforts.
The new franchise operations
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consist of a new Nissan franchise and a new Isuzu franchise awarded to the
Company during 1996. Used vehicle sales increased $4.0 million, or 5.9% from
$68.2 million for the three months ended September 30, 1996 to $72.2 million for
the three months ended September 30, 1997. This increase is primarily
attributable to the new franchise operations and successful marketing efforts.
Parts and service sales remained constant at $20.0 million for the three months
ended September 30, 1996 and for the three months ended September 30, 1997.
Other dealership revenues increased $1.0 million or $18.2% from $5.5 million for
the three months ended September 30, 1996 to $6.5 million for the three months
ended September 30, 1997. The increase is due primarily to an increase in the
number of retail new and used vehicle sales and an increase in the percentage of
new vehicles financed.
GROSS PROFIT. Gross profit increased $2.7 million, or 9.1% from $29.7
million for the three months ended September 30, 1996 to $32.4 million for the
three months ended September 30, 1997. The increase is attributable to increased
sales and an increased gross margin. The gross margin increased from 13.4% for
the three months ended September 30, 1996 to 13.6% for the three months ended
September 30, 1997. The increased gross margin resulted primarily from an
increase in the parts and service gross margin and an increase in other
dealership revenues as a percentage of total revenues.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996.
REVENUES. Revenues increased $63.2 million, or 10.1% from $625.9 million
for the nine months ended September 30, 1996 to $689.1 million for the nine
months ended September 30, 1997. New vehicle revenues increased $37.0 million,
or 10.4% from $354.9 million for the nine months ended September 30, 1996 to
$391.9 million for the nine months ended September 30, 1997. This increase is
attributable to new franchise operations, consisting of a new Dodge franchise, a
new Nissan franchise and a new Isuzu franchise, in addition to successful
marketing efforts and strong customer acceptance of the Founding Group's
products, particularly Lexus and Nissan. Used vehicle revenues increased $22.9
million or 11.6% from $197.8 million for the nine months ended September 30,
1996 to $220.7 million for the nine months ended September 30, 1997. The overall
increase is attributable primarily to new franchise operations and successful
marketing efforts. Parts and service sales increased $1.7 million, or 3.0% ,
from $56.7 million for the nine months ended September 30, 1996 to $58.4 million
for the nine months ended September 30, 1997. The increase is primarily
attributable to new and expanded operations. Other dealership revenues increased
$1.6 million or 9.8% from $16.4 million for the nine months ended September 30,
1996 to $18.0 million for the nine months ended September 30, 1997. The increase
is due primarily to an increase in the number of retail new and used vehicle
sales.
GROSS PROFIT. Gross profit increased $8.1 million, or 9.5%, from $85.6
million for the nine months ended September 30, 1996 to $93.7 million for the
nine months ended September 30, 1997. The increase is attributable to increased
revenues offset by a slight decline in gross margin from 13.7% for the nine
months ended September 30, 1996 to 13.6% for the nine months ended September 30,
1997. The decrease in gross margin is primarily due to a change in the
merchandise mix as vehicle sales became a greater percentage of total revenues.
The gross margin on new retail vehicle sales increased from 7.3% for the nine
months ended September 30, 1996 to 7.4% for the nine months ended September 30,
1997. The gross margin on used retail vehicle sales
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<PAGE> 13
decreased from 9.9% for the nine months ended September 30, 1996, to 9.0% for
the nine months ended September 30, 1997. The decline is due primarily to
increased competitive pressures in the marketplace and a focus on reducing
inventory levels at certain of the franchises. The gross margin on parts and
service sales increased from 47.0% for the nine months ended September 30, 1996
to 52.5% for the nine months ended September 30, 1997. The increase is primarily
attributable to focusing on more profitable components of the parts and service
business.
COMBINED FOUNDING GROUPS' COMMITMENTS AND FINANCING ACTIVITIES
CREDIT FACILITY
The Company has negotiated and executed an arrangement letter with Chase
Securities, Inc. and Comerica Bank for a $125 million Credit Facility (the
"Credit Facility") which may be used by the Company for acquisitions, floorplan
financing, general corporate purposes, capital expenditures and working capital.
The arrangement letter provides for Chase Securities, Inc. to use commercially
reasonable efforts to assemble a syndicate of financial institutions.
ACQUISITION OF FOUNDING GROUPS AND INITIAL PUBLIC OFFERING
On November 3, 1997 the Company acquired the Founding Groups for $5.4
million in cash and 9,074,915 shares of common stock. On November 4, 1997 the
Company completed its initial public offering of 5,520,000 shares of common
stock which included 720,000 shares issued pursuant to the exercise of the
underwriters over-allotment option and 371,864 shares sold by the selling
stockholder. The Company received net proceeds, after giving effect to the
underwriter's discount, of approximately $57.5 million, before payment of
estimated offering costs of $5.0 million. The Company, to date, has utilized the
proceeds from the Offering to pay the cash portion of the purchase price, reduce
floorplan debt and for working capital.
The Company intends to actively pursue acquisition opportunities. The
Company expects to fund future acquisitions through the issuance of additional
common stock, borrowings, including use of amounts available under its Credit
Facility, and cash flow from operations. Capital expenditures for equipment and
expansion of facilities are expected to be funded from cash flow from operations
and supplemented as necessary by borrowings from the Credit Facility or other
sources of financing. To the extent the Company funds a significant portion of
the consideration for future acquisitions with cash, it may have to increase the
amount of the Credit Facility or obtain other sources of financing.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is named in claims involving the manufacture
of automobiles, contractual disputes and other matters arising in the ordinary
course of the Company's business. Currently, no legal proceedings are pending
against or involve the Company that, in the opinion of management, could be
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 3, 1997 the Company issued 9,074,915 shares of it common stock
in completing the acquisitions of the Howard Group, McCall Group, Smith Group
and Kingwood Group, pursuant to the stock purchase agreements executed on June
14, 1997. The Company relied on Regulation D under the Securities Act of 1933 as
an exemption from Registration.
The Company's Registration Statement on Form S-1 (Registration No.
333-29893), as amended, initially filed with the Securities and Exchange
Commission on June 24, 1997, became effective concurrent with the commencement
of the Offering on October 29, 1997. The Company closed the Offering on November
4, 1997. In the Offering, the Company registered for sale 5,148,136 shares of
common stock at an aggregate offering price of approximately $61.8 million, for
the account of the Company, and 371,864 shares of common stock at an aggregate
offering price of approximately $4.5 million, for the account of the selling
stockholder. Included in the 5,148,136 shares sold by the Company were 720,000
shares sold pursuant to the underwriter's over-allotment option. All of the
shares registered for the account of the Company and for the account of the
selling stockholder were sold in the Offering for approximately $61.8 million
and approximately $4.5 million, respectively. The managing underwriters were
Goldman, Sachs & Co., Merrill Lynch & Co. and NationsBanc Montgomery Securities,
Inc. The underwriter's discount paid by the Company in connection with the
Offering totaled $4.3 million and estimated Offering expenses paid by the
Company were approximately $5.0 million. The net proceeds to the Company after
giving effect to the underwriter's discount and Offering expenses were
approximately $52.5 million. Of the net proceeds to the Company, $5.4 million
was used to pay the cash portion of the purchase price of the acquisitions,
which included $2.3 million paid to Robert E. Howard, II, an officer, director
and significant stockholder of the Company. Approximately $31.7 million of the
net proceeds have been utilized to repay indebtedness, approximately $5.2
million of the net proceeds have been deposited in temporary investments with
the remaining proceeds being used for working capital purposes.
ITEM 5. OTHER INFORMATION
None.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
1. 27. Financial Data Schedule
B. REPORTS ON FORM 8-K:
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Group 1 Automotive, Inc.
December 10, 1997 By: /s/ SCOTT L. THOMPSON
- ---------------------- -----------------------------------------
Date Scott L. Thompson, Senior Vice-President,
Chief Financial Officer and Treasurer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 240
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 240
<PP&E> 68
<DEPRECIATION> 7
<TOTAL-ASSETS> 4,214
<CURRENT-LIABILITIES> 6,985
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> (2,776)
<TOTAL-LIABILITY-AND-EQUITY> 4,214
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,630
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> (2,681)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,681)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
