<PAGE> 1
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Title Outstanding
----- -----------
<S> <C>
Common stock, par value $.01 18,218,795
</TABLE>
<PAGE> 2
The purpose for this filing is to correct two amounts on the statements
of cash flows that were reflected in incorrect columns on the original filing.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED COMBINED STATEMENTS OF OPERATIONS
BASIS OF PRESENTATION
In October 1997, Group 1 Automotive, Inc.("Group 1") completed its
acquisition of substantially all of the net assets of four automobile dealership
groups (the "Founding Groups") simultaneous with the completion of its initial
public offering. The Founding Groups were acquired in exchange for consideration
consisting principally of common stock of Group 1. During the first six months
of 1998, Group 1 acquired thirty-one additional automobile dealership
franchises, which have been accounted for as purchases (the "Purchased
Companies").
The accompanying historical combined statements of operations, for the
three months and six months ended June 30, 1998, include the operations of Group
1 and the Founding Groups, from January 1, 1998, and the Purchased Companies,
from the effective dates of the acquisitions.
The accompanying pro forma combined statements of operations, for the
three months and six months ended June 30, 1997, include the combined operations
of Group 1 and the Founding Groups, from January 1, 1997, and give effect to the
completion of Group 1's initial public offering. The 1997 data may not be
comparable to and may not be indicative of Group 1's post-combination results of
operations because the Founding Groups were not under common control of
management.
Operating results of interim periods are not necessarily indicative of
the results for full year periods. The results of operations have historically
been subject to seasonal fluctuations, with the first and fourth quarters
generally contributing less operating profit than the second and third quarters.
These combined statements of operations should be read in conjunction with the
Company's filings with the Securities and Exchange Commission.
2
<PAGE> 3
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED COMBINED STATEMENTS OF OPERATIONS
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES:
New vehicle sales .................. $ 251,019 $ 134,411 $ 389,041 $ 251,830
Used vehicle sales ................. 133,625 75,351 220,745 148,567
Parts and service sales ............ 34,154 19,371 55,722 38,400
Other dealership revenues, net ..... 12,733 5,828 19,958 11,546
------------- ------------- ------------- -------------
Total revenues ............... 431,531 234,961 685,466 450,343
COST OF SALES:
New vehicle sales .................. 231,504 123,339 358,880 230,360
Used vehicle sales ................. 123,898 69,753 204,458 137,912
Parts and service sales ............ 15,776 9,012 25,754 18,170
------------- ------------- ------------- -------------
Total cost of sales .......... 371,178 202,104 589,092 386,442
------------- ------------- ------------- -------------
GROSS PROFIT .......................... 60,353 32,857 96,374 63,901
GOODWILL AMORTIZATION ................. 569 200 812 399
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............. 45,991 25,591 74,303 50,865
------------- ------------- ------------- -------------
Income from operations ..... 13,793 7,066 21,259 12,637
OTHER INCOME AND EXPENSES:
Floorplan interest expense .......... (3,479) (1,483) (5,304) (2,824)
Other interest expense, net ......... (627) (239) (938) (454)
Other income (expense), net ......... (24) 3 (48) (19)
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES ............ 9,663 5,347 14,969 9,340
PROVISION FOR INCOME TAXES ............ 4,042 2,191 6,234 3,847
------------- ------------- ------------- -------------
NET INCOME ............................ $ 5,621 $ 3,156 $ 8,735 $ 5,493
============= ============= ============= =============
Earnings per share on net income:
Basic ............................... $ 0.32 $ 0.22 $ 0.54 $ 0.37
Diluted ............................. $ 0.31 $ 0.21 $ 0.52 $ 0.36
Weighted average shares outstanding:
Basic ............................... 17,441,678 14,673,051 16,325,873 14,673,051
Diluted ............................. 18,128,366 15,101,510 16,869,256 15,101,510
</TABLE>
The accompanying notes are an integral part of these
combined statements of operations.
3
<PAGE> 4
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO COMBINED STATEMENTS OF OPERATIONS
1. BASIS OF PRESENTATION
The 1998 historical combined data are a presentation in accordance with
generally accepted accounting principles. The financial data represent the
combined historical results of operations of Group 1 and the Founding Groups,
for the three months and six months ended June 30, 1998, and the Purchased
Companies, from the effective dates of the acquisitions.
The 1997 pro forma combined data does not purport to be a presentation
in accordance with generally accepted accounting principles, but represents a
summation of certain data on an historical basis including the effects of the
pro forma adjustments. This data may not be comparable to and may not be
indicative of Group 1's post-combination results of operations because the
acquired dealerships were not under common control of management. The pro forma
adjustments primarily relate to: (a) increases in revenues and decreases in cost
of sales related to commission arrangements on certain third-party products sold
by the dealerships which previously benefited the stockholders and which were
terminated in conjunction with the acquisitions, allowing the dealerships to
realize the benefits thereafter; (b) pro forma goodwill amortization expense
over an estimated useful life of 40 years; (c) reductions in compensation
expense and management fees to the level that certain management employees and
owners of the acquired companies will contractually receive; (d) incremental
corporate overhead costs related to personnel costs, rents, professional service
fees and directors and officers liability insurance premiums; (e) net decreases
in interest expense resulting from the repayment of floorplan obligations with
proceeds from the initial public offering, net of cash utilized to complete
acquisitions; and (f) incremental provisions for federal and state income taxes
relating to the compensation differential, S Corporation income and other pro
forma adjustments.
4
<PAGE> 5
2. EARNINGS PER SHARE
SFAS No. 128 requires the presentation of basic earnings per share and
diluted earnings per share in financial statements of public enterprises. Under
the provisions of this statement, basic earnings per share is computed based on
weighted average shares outstanding and excludes dilutive securities. Diluted
earnings per share is computed including the impacts of all potentially dilutive
securities. The following table sets forth the shares outstanding for the
earnings per share calculations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common stock outstanding, beginning of period .. 16,045,069 450,000 14,673,051 450,000
Shares issued in initial public
offering ............................ -- 5,148,136 -- 5,148,136
Shares issued in acquisition of
Founding Companies .................. -- 9,074,915 -- 9,074,915
Weighted average common stock issued
to Purchased Companies .............. 1,349,995 -- 1,664,241 --
Weighted average common stock
issued to Employee Stock
Purchase Plan ....................... 56,140 -- 28,382 --
Weighted average common stock
issued in stock option
exercises ........................... 454 -- 228 --
Less: weighted average treasury shares
repurchased ......................... (9,980) -- (40,029) --
------------ ------------ ------------ ------------
Shares used in computing basic earnings per
share ..................................... 17,441,678 14,673,051 16,325,873 14,673,051
Dilutive effect of stock options, net
of assumed repurchase of treasury
stock ............................... 686,688 428,459 543,383 428,459
------------ ------------ ------------ ------------
Shares used in computing diluted earnings per
share ..................................... 18,128,366 15,101,510 16,869,256 15,101,510
============ ============ ============ ============
</TABLE>
5
<PAGE> 6
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 69,571 $ 35,092
Accounts receivable, net .................................... 16,938 9,749
Inventories, net ............................................ 185,877 105,421
Deferred income taxes ....................................... 10,612 8,692
Other assets ................................................ 2,853 2,728
------------ ------------
Total current assets .................................. 285,851 161,682
------------ ------------
PROPERTY AND EQUIPMENT, net .................................... 34,969 21,586
GOODWILL, net .................................................. 98,007 27,078
OTHER ASSETS ................................................... 3,588 2,803
------------ ------------
Total assets .......................................... $ 422,415 $ 213,149
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable ..................................... $ 158,576 $ 58,488
Current maturities of long-term debt ........................ 1,416 2,316
Accounts payable and accrued expenses ....................... 78,635 50,668
------------ ------------
Total current liabilities ............................. 238,627 111,472
------------ ------------
DEBT, net of current maturities ................................ 57,050 7,053
DEFERRED INCOME TAXES .......................................... 3,882 3,699
OTHER LIABILITIES .............................................. 3,230 1,553
STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized, none issued or
outstanding ................................................ -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
17,792,138 and 14,673,051 issued and outstanding ........... 178 147
Additional paid-in capital .................................. 113,783 91,846
Retained earnings (deficit) ................................. 6,206 (2,529)
Treasury stock, at cost, 32,607 and 10,000 shares ........... (541) (92)
------------ ------------
Total stockholders' equity ............................ 119,626 89,372
------------ ------------
Total liabilities and stockholders' equity ............ $ 422,415 $ 213,149
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
New vehicle sales ................... $ 251,019 $ 46,675 $ 389,041 $ 84,923
Used vehicle sales .................. 133,625 28,748 220,745 54,354
Parts and service sales ............. 34,154 5,350 55,722 10,763
Other dealership revenues, net ...... 12,733 2,165 19,958 4,006
--------------- --------------- --------------- ---------------
Total revenues ................ 431,531 82,938 685,466 154,046
COST OF SALES:
New vehicle sales ................... 231,504 43,622 358,880 79,322
Used vehicle sales .................. 123,898 26,012 204,458 49,186
Parts and service sales ............. 15,776 2,163 25,754 4,541
--------------- --------------- --------------- ---------------
Total cost of sales ........... 371,178 71,797 589,092 133,049
--------------- --------------- --------------- ---------------
GROSS PROFIT ........................... 60,353 11,141 96,374 20,997
GOODWILL AMORTIZATION .................. 569 10 812 20
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .............. 45,991 8,421 74,303 16,433
--------------- --------------- --------------- ---------------
Income from operations ...... 13,793 2,710 21,259 4,544
OTHER INCOME AND EXPENSES:
Floorplan interest expense ........... (3,479) (995) (5,304) (1,878)
Other interest expense, net .......... (627) (12) (938) (12)
Other income (expense), net .......... (24) 20 (48) 34
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES ............. 9,663 1,723 14,969 2,688
PROVISION FOR INCOME TAXES ............. 4,042 205 6,234 166
--------------- --------------- --------------- ---------------
NET INCOME ............................. $ 5,621 $ 1,518 $ 8,735 $ 2,522
=============== =============== =============== ===============
S Corporation pro forma income taxes ... 474 899
--------------- ---------------
Pro forma net income ................... $ 1,044 $ 1,623
=============== ===============
Earnings per share on net income:
Basic ................................ $ 0.32 $ 0.54
Diluted .............................. $ 0.31 $ 0.52
Weighted average shares outstanding:
Basic ................................ 17,441,678 16,325,873
Diluted .............................. 18,128,366 16,869,256
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 8
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 8,735 $ 2,522
Adjustments to reconcile net income to net cash provided by ...........
operating activities -
Depreciation and amortization ...................................... 2,335 340
Deferred income taxes .............................................. (2,356) 45
Provision for doubtful accounts and uncollectible notes ............ 110 42
Gain on sale of assets ............................................. (3) (18)
Changes in assets and liabilities -
Accounts receivable .............................................. (1,763) (344)
Inventories ...................................................... 9,586 2,472
Other assets ..................................................... 46 (2)
Floorplan notes payable .......................................... (17,268) (4,728)
Accounts payable and accrued expenses ............................ 9,922 2,077
---------- ----------
Total adjustments ............................................. 609 (116)
---------- ----------
Net cash provided by operating activities ................... 9,344 2,406
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable ....................................... (1,180) (96)
Collections on notes receivable .................................... 699 --
Purchases of property and equipment ................................ (5,351) (272)
Proceeds from sale of property and equipment ....................... 15 279
Cash paid in acquisitions, net of cash received .................... (50,057) --
---------- ----------
Net cash used in investing activities ............................ (55,874) (89)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under floorplan facilities for acquisition financing .... 33,523 --
Principal payments of long-term debt ............................... (2,020) (168)
Borrowings of long-term debt ....................................... 50,192 --
Issuance of common stock to benefit plans .......................... 459 --
Purchase of treasury stock ......................................... (1,145) --
Dividends paid in cash ............................................. -- (3,891)
---------- ----------
Net cash provided by (used in) financing activities .......... 81,009 (4,059)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 34,479 (1,742)
CASH AND CASH EQUIVALENTS, beginning of period .......................... 35,092 11,679
---------- ----------
CASH AND CASH EQUIVALENTS, end of period ................................ $ 69,571 $ 9,937
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest ......................................................... $ 5,428 $ 2,066
Taxes ............................................................ 6,801 11
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE> 9
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Group 1 Automotive, Inc. and subsidiaries ("Group 1" or the "Company")
was founded in December 1995 to become a leading operator and consolidator in
the highly fragmented automobile retailing industry. The Company is primarily
engaged in the retail sale of new and used vehicles and the arranging of
finance, insurance and vehicle service contracts thereon. In addition, the
Company sells automotive parts and provides vehicle servicing. In October 1997,
Group 1 acquired four separate dealership groups (the "Founding Groups"),
consisting of 30 dealership franchises and related businesses, in exchange for
consideration consisting principally of restricted Common Stock. Concurrent with
the acquisition of the Founding Groups, Group 1 completed an initial public
offering of 5,520,000 shares of Common Stock.
During the first six months of 1998 the Company acquired thirty-one
additional dealership franchises in exchange for a combination of restricted
Common Stock and cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
For financial statement presentation purposes, as required by the
Securities and Exchange Commission, Howard Group, one of the Founding Groups,
has been identified as the accounting acquirer. The acquisitions of the
remaining Founding Groups and the subsequent acquisitions were accounted for
using the purchase method of accounting. The operations of Group 1 Automotive,
Inc., the parent company, and the Founding Groups, excluding the Howard Group,
are included in the results of operations beginning October 31, 1997, the
effective closing date of the acquisitions for accounting purposes. The results
of operations of the Howard Group are included for all periods presented. The
operations of all acquisitions subsequent to October 31, 1997, are included from
the effective dates of the closings of the acquisitions. The allocation of
purchase price to the assets acquired and liabilities assumed has been initially
assigned and recorded based on preliminary estimates of fair value and may be
revised as additional information concerning the valuation of such assets and
liabilities becomes available. All significant intercompany balances and
transactions have been eliminated in consolidation.
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability, measured at its fair value. Additionally,
any changes in the derivative's fair value are to be recognized currently in
earnings, unless specific hedge accounting criteria are met. This statement is
effective for fiscal years beginning after June 15, 1999. The Company does not
believe that adoption of this statement will have a material impact on its
financial statements.
9
<PAGE> 10
3. EARNINGS PER SHARE:
SFAS No. 128 requires the presentation of basic earnings per share and
diluted earnings per share in financial statements of public enterprises. Under
the provisions of this statement, basic earnings per share is computed based on
weighted average shares outstanding and excludes dilutive securities. Diluted
earnings per share is computed including the impacts of all potentially dilutive
securities. As the Company was not a public enterprise until October 1997, and
the companies included in the statements of operations were under different tax
structures (S Corporations and C Corporations), no earnings per share data has
been presented for the historical results of operations for the three months and
six months ended June 30, 1997. The following table sets forth the shares
outstanding for the earnings per share calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Common stock outstanding, beginning of period ............. 16,045,069 14,673,051
Weighted average common stock issued in acquisitions . 1,349,995 1,664,241
Weighted average common stock issued to
Employee Stock Purchase Plan ..................... 56,140 28,382
Weighted average common stock issued in
stock option exercises ........................... 454 228
Less: weighted average treasury shares repurchased ... (9,980) (40,029)
------------- -------------
Shares used in computing basic earnings per share ......... 17,441,678 16,325,873
Dilutive effect of stock options, net of assumed
repurchase of treasury stock ..................... 686,688 543,383
------------- -------------
Shares used in computing diluted earnings per share ....... 18,128,366 16,869,256
============= =============
</TABLE>
4. BUSINESS COMBINATIONS
During the first six months of 1998, the Company acquired thirty-one
automobile dealership franchises. These acquisitions were accounted for as
purchases. The consideration paid in completing these acquisitions, including
real estate acquired, included approximately $62.4 million in cash,
approximately 3.1 million shares of restricted Common Stock and the assumption
of an estimated $83.8 million of inventory financing. Additional consideration
may be paid based on the financial performance of certain dealerships, over
specified periods. Additional consideration, if any, will be payable in cash and
Common Stock and will result in an increase in goodwill on the balance sheet of
the Company. The accompanying consolidated balance sheet includes preliminary
allocations of the purchase price of the acquisitions, which are subject to
final adjustment. The preliminary allocations resulted in recording
approximately $71.6 million of goodwill, which is being amortized over 40 years.
10
<PAGE> 11
The following unaudited pro forma financial information consists of
income statement data from continuing operations as presented in the
consolidated financial statements plus (1) unaudited income statement data for
all acquisitions, completed before June 30, 1998, assuming that they occurred on
January 1, 1997, (2) the completion of the initial public offering as of January
1, 1997 and (3) certain pro forma adjustments discussed below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------
1998 1997
------------------------ ----------------------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues .......................... $ 813,302 $ 709,394
Gross profit ...................... 117,105 103,838
Income from operations ............ 26,547 22,563
Net income ........................ 10,118 8,272
Basic earnings per share .......... 0.57 0.47
Diluted earnings per share ........ 0.55 0.45
</TABLE>
Pro forma adjustments included in the amounts above primarily relate to: (a)
increases in revenues and decreases in cost of sales related to commission
arrangements on certain third-party products sold by the dealerships which
previously benefited the stockholders and which were terminated in conjunction
with the acquisitions, allowing the dealerships to realize the benefits
thereafter; (b) pro forma goodwill amortization expense over an estimated useful
life of 40 years; (c) reductions in compensation expense and management fees to
the level that certain management employees and owners of the acquired companies
will contractually receive; (d) incremental corporate overhead costs related to
personnel costs, rents, professional service fees and directors and officers
liability insurance premiums; (e) net decreases in interest expense resulting
from the repayment of floorplan obligations with proceeds from the initial
public offering, net of cash utilized to complete acquisitions; and (f)
incremental provisions for federal and state income taxes relating to the
compensation differential, S Corporation income and other pro forma adjustments.
5. SUBSEQUENT EVENTS
Effective during July of 1998, for accounting purposes, the Company
completed acquisitions of several automobile franchises, including certain real
estate, in exchange for consideration consisting of approximately $11.0 million
in cash, approximately 0.4 million shares of restricted Common Stock, the
assumption of approximately $2.9 million of mortgage debt, and the assumption of
an estimated $10.6 million of inventory financing. As part of certain of the
acquisitions, the Company has committed, for a limited period of time, to
certain sellers that they will realize an agreed upon minimum price upon the
sale of the Common Stock received in the acquisitions. If the Company is called
upon to perform under this arrangement, the cash payment will result in
additional goodwill on the balance sheet of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following should be read in conjunction with the response to Part
I, Item 1 of this Report and the Company's filings with the Securities and
Exchange Commission.
11
<PAGE> 12
OVERVIEW
The Company was founded to become a leading operator and consolidator
in the highly fragmented automobile retailing industry. The Company owns
automobile dealership franchises located in Colorado, Florida, Georgia, New
Mexico, Oklahoma and Texas. Additionally, the Company provides maintenance and
repair services at its dealerships and collision service centers. The Company
expects that a significant portion of its future growth will be derived from
acquisitions of additional dealerships.
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, vehicle service contract sales, documentary fees
and after-market product sales. Sales revenues from new and used vehicle sales
and parts and service sales include sales to retail customers, other dealers and
wholesalers. Other dealership revenue includes revenue from arranging financing
and selling insurance and vehicle 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 7.5% and 60.0%, with new vehicle sales
generally resulting in the lowest gross margin 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 income earned.
SELECTED OPERATIONAL AND FINANCIAL DATA
NEW VEHICLE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ----------------------------
(dollars in thousands,
except per unit amounts) 1998 1997 1998 1997
------------ ------------ ------------ -------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Retail unit sales ........ 10,767 6,174 16,739 11,625
Retail sales revenue ..... $ 251,019 $ 134,411 $ 389,041 $ 251,830
Gross profit ............. $ 19,515 $ 11,072 $ 30,161 $ 21,470
Gross margin ............. 7.8% 8.2% 7.8% 8.5%
Average gross profit per
retail unit sold ....... $ 1,812 $ 1,793 $ 1,802 $ 1,847
</TABLE>
12
<PAGE> 13
USED VEHICLE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
(dollars in thousands,
except per unit amounts) 1998 1997 1998 1997
---------- ---------- ---------- ----------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Retail unit sales ............ 7,991 4,724 13,345 9,203
Retail sales revenue (1) ..... $ 106,578 $ 61,685 $ 177,554 $ 120,854
Gross profit ................. $ 9,727 $ 5,598 $ 16,287 $ 10,655
Gross margin ................. 9.1% 9.1% 9.2% 8.8%
Average gross profit per
retail unit sold ........... $ 1,217 $ 1,185 $ 1,220 $ 1,158
</TABLE>
- -------------------
(1) Excludes wholesale revenues.
PARTS AND SERVICE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
(dollars in thousands) 1998 1997 1998 1997
---------- ---------- ---------- ----------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Sales revenue ................ $ 34,154 $ 19,371 $ 55,722 $ 38,400
Gross profit ................. $ 18,378 $ 10,359 $ 29,968 $ 20,230
Gross margin ................. 53.8% 53.5% 53.8% 52.7%
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH PRO FORMA THREE MONTHS ENDED JUNE
30, 1997
REVENUES. Revenues increased $196.5 million, or 83.6%, from $235.0
million for the three months ended June 30, 1997 to $431.5 million for the three
months ended June 30, 1998. New vehicle revenues increased $116.6 million, or
86.8% from $134.4 million for the three months ended June 30, 1997 to $251.0
million for the three months ended June 30, 1998. The increase in revenue was
primarily attributable to strong customer acceptance of the Company's products,
particularly Toyota and Lexus, accounting for approximately one-fifth of the
increase and the acquisitions of the additional dealership operations during
1998. The increase was partially offset by reduced sales at the Company's Nissan
franchises, which declined due to reduced manufacturer sales incentives as
compared to the prior year. Used vehicle revenues increased $58.2 million, or
77.2%, from $75.4 million for the three months ended June 30, 1997 to $133.6
million for the three months ended June 30, 1998. The increase was primarily
attributable to successful marketing efforts, an emphasis on used vehicle sales
in the Oklahoma market and the additional franchise operations acquired, with
existing operations accounting for approximately one-fourth of the increase.
Parts and service sales increased $14.8 million, or 76.3%, from $19.4 million
for the three months ended June 30, 1997 to $34.2 million for the three months
ended June 30, 1998. The increase was primarily attributable to the additional
dealership operations acquired. Other dealership revenues increased $6.9 million
or 119.0% from $5.8 million for the three months ended June 30, 1997 to $12.7
million for the three months ended June 30, 1998.
13
<PAGE> 14
The increase was due primarily to an increase in the number of retail new and
used vehicle sales and improved revenue per unit. The improved revenue per unit
was driven primarily by the implementation of the Company's vehicle service
contract and insurance programs.
GROSS PROFIT. Gross profit increased $27.5 million, or 83.6%, from
$32.9 million for the three months ended June 30, 1997 to $60.4 million for the
three months ended June 30, 1998. The increase was attributable to increased
revenues, as the overall gross margin remained stable. The gross margin on new
retail vehicle sales declined from 8.2% for the three months ended June 30, 1997
to 7.8% for the three months ended June 30, 1998. The decline is attributable
primarily to reduced margins in the Nissan product line, due to reduced
manufacturer sales incentives in 1998. The gross margin for used retail vehicle
sales remained stable at 9.1% for the three months ended June 30, 1997 and for
the three months ended June 30, 1998. Parts and service gross margin increased
from 53.5% for the three months ended June 30, 1997 to 53.8% for the three
months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $20.4 million, or 79.7%, from $25.6 million
for the three months ended June 30, 1997 to $46.0 million for the three months
ended June 30, 1998. The increase was primarily attributable to the additional
dealership operations acquired and increased variable expenses, particularly
incentive pay to employees, which increase as revenues and gross profit
increase. Selling, general and administrative expenses declined as a percentage
of revenues from 10.9% for the three months ended June 30, 1997 to 10.7% for the
three months ended June 30, 1998. The decline is primarily attributable to
maintaining total expenses at a constant level by offsetting increased variable
expenses with cost reductions, such as the Company's risk management program.
Additionally, by implementing the Company's budgeting process, the dealerships
have improved their operating expense leverage.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$2.4 million, or 141.2%, from $1.7 million for the three months ended June 30,
1997 to $4.1 million for the three months ended June 30, 1998. The increase was
primarily attributable to the interest expense of the additional dealership
operations acquired, reduced interest earnings due to the utilization of cash in
completing the acquisitions and additional interest expense due to borrowings on
the Company's credit facility to complete acquisitions. Partially offsetting the
increases were cost reductions realized due to the lower interest rates on
floorplan notes payable obtained though the Company's credit facility.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH PRO FORMA SIX MONTHS ENDED JUNE 30,
1997
REVENUES. Revenues increased $235.2 million, or 52.2%, from $450.3
million for the six months ended June 30, 1997 to $685.5 million for the six
months ended June 30, 1998. New vehicle revenues increased $137.2 million, or
54.5% from $251.8 million for the six months ended June 30, 1997 to $389.0
million for the six months ended June 30, 1998. The increase in revenue was
primarily attributable to strong customer acceptance of the Company's products,
particularly Toyota and Lexus, accounting for approximately one-fifth of the
increase and the acquisitions of the additional dealership operations during
1998. The increase was partially offset by reduced sales at the Company's Nissan
franchises, which declined due to reduced manufacturer sales
14
<PAGE> 15
incentives as compared to the prior year. Used vehicle revenues increased $72.1
million, or 48.5%, from $148.6 million for the six months ended June 30, 1997 to
$220.7 million for the six months ended June 30, 1998. The increase was
primarily attributable to successful marketing efforts, an emphasis on used
vehicle sales in the Oklahoma market and the additional franchise operations
acquired, with existing operations accounting for approximately one-third of the
increase. Parts and service sales increased $17.3 million, or 45.1%, from $38.4
million for the six months ended June 30, 1997 to $55.7 million for the six
months ended June 30, 1998. The increase was primarily attributable to the
additional dealership operations acquired. Other dealership revenues increased
$8.5 million or 73.9% from $11.5 million for the six months ended June 30, 1997
to $20.0 million for the six months ended June 30, 1998. The increase was due
primarily to an increase in the number of retail new and used vehicle sales and
improved revenue per unit. The improved revenue per unit was driven primarily by
the implementation of the Company's vehicle service contract and insurance
programs.
GROSS PROFIT. Gross profit increased $32.5 million, or 50.9%, from
$63.9 million for the six months ended June 30, 1997 to $96.4 million for the
six months ended June 30, 1998. The increase was attributable to increased
revenues, partially offset by a reduced gross margin. The gross margin on new
retail vehicle sales declined from 8.5% for the six months ended June 30, 1997
to 7.8% for the six months ended June 30, 1998. The decline is attributable
primarily to reduced margins in the Nissan product line, due to reduced
manufacturer sales incentives in 1998. The gross margin for used retail vehicle
sales increased from 8.8% for the six months ended June 30, 1997 to 9.2% for the
six months ended June 30, 1998. The increase was primarily attributable to an
emphasis on the used vehicle operations in the Oklahoma platform. Parts and
service gross margin increased from 52.7% for the six months ended June 30, 1997
to 53.8% for the three months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $23.4 million, or 46.0%, from $50.9 million
for the six months ended June 30, 1997 to $74.3 million for the six months ended
June 30, 1998. The increase was primarily attributable to the additional
dealership operations acquired and increased variable expenses, particularly
incentive pay to employees, which increase as revenues and gross profit
increase. Selling, general and administrative expenses declined as a percentage
of revenues from 11.3% for the six months ended June 30, 1997 to 10.8% for the
six months ended June 30, 1998. The decline is primarily attributable to
maintaining total expenses at a constant level by offsetting increased variable
expenses with cost reductions, such as the Company's risk management program.
Additionally, by implementing the Company's budgeting process, the dealerships
have improved their operating expense leverage.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$2.9 million, or 87.9%, from $3.3 million for the six months ended June 30, 1997
to $6.2 million for the six months ended June 30, 1998. The increase was
primarily attributable to the interest expense of the additional dealership
operations acquired, reduced interest earnings due to the utilization of cash in
completing the acquisitions and additional interest expense due to borrowings on
the Company's credit facility to complete acquisitions. Partially offsetting the
increases were cost reductions realized due to the lower interest rates on
floorplan notes payable obtained though the Company's credit facility.
15
<PAGE> 16
HISTORICAL RESULTS OF OPERATIONS - GROUP 1 AUTOMOTIVE, INC.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
REVENUES. Revenues increased $348.6 million, or 420.5%, from $82.9
million for the three months ended June 30, 1997 to $431.5 million for the three
months ended June 30, 1998. New vehicle revenues increased $204.3 million, or
437.5% from $46.7 million for the three months ended June 30, 1997 to $251.0
million for the three months ended June 30, 1998. Used vehicle revenues
increased $104.9 million, or 365.5%, from $28.7 million for the three months
ended June 30, 1997 to $133.6 million for the three months ended June 30, 1998.
Parts and service sales increased $28.8 million, or 533.3%, from $5.4 million
for the three months ended June 30, 1997 to $34.2 million for the three months
ended June 30, 1998. Other dealership revenues increased $10.5 million or 477.3%
from $2.2 million for the three months ended June 30, 1997 to $12.7 million for
the three months ended June 30, 1998. These increases were due primarily to the
inclusion of the dealership operations acquired since October 31, 1997.
GROSS PROFIT. Gross profit increased $49.3 million, or 444.1%, from
$11.1 million for the three months ended June 30, 1997 to $60.4 million for the
three months ended June 30, 1998. The increase was attributable to the inclusion
of the dealership operations acquired since October 31, 1997 and an increased
gross margin from 13.4% for the three months ended June 30, 1997 to 14.0% for
the three months ended June 30, 1998. This increase was due primarily to an
increase in higher gross margin parts and service sales and other dealership
revenues as a percentage of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $37.6 million, or 447.6%, from $8.4 million
for the three months ended June 30, 1997 to $46.0 million for the three months
ended June 30, 1998. The increase was primarily attributable to the additional
dealership operations acquired.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$3.1 million, or 310.0%, from $1.0 million for the three months ended June 30,
1997 to $4.1 million for the three months ended June 30, 1998. The increase was
primarily attributable to the interest expense of the additional dealership
operations acquired, reduced interest earnings due to the utilization of cash in
completing the acquisitions and additional interest expense due to borrowings on
the Company's credit facility to complete acquisitions. Partially offsetting the
increases were cost reductions realized due to the lower interest rates on
floorplan notes payable obtained though the Company's credit facility.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
REVENUES. Total revenues increased $531.5 million, or 345.1%, from
$154.0 million for the six months ended June 30, 1997 to $685.5 million for the
six months ended June 30, 1998. Revenues from new vehicle sales increased $304.1
million, or 358.2%, from $84.9 million for the six months ended June 30, 1997 to
$389.0 million for the six months ended June 30, 1998. Revenues from used
vehicle sales increased $166.3 million, or 305.7%, from $54.4 million for the
six months ended June 30, 1997 to $220.7 million for the six months ended June
30, 1998. Parts and service sales increased $44.9 million, or 415.7%, from $10.8
million for the six months ended June 30, 1997 to $55.7 million for the six
months ended June 30, 1998. Other dealership revenues increased $16.0 million,
or 400.0%, from $4.0 million for the six months ended
16
<PAGE> 17
June 30, 1997 to $20.0 million for the six months ended June 30, 1998. These
increases were due primarily to the inclusion of the dealership operations
acquired since October 31, 1997.
GROSS PROFIT. Gross profit increased $75.4 million, or 359.0%, from
$21.0 million for the six months ended June 30, 1997 to $96.4 million for the
six months ended June 30, 1998. The increase was attributable to the inclusion
of the dealership operations acquired since October 31, 1997 and an increased
gross margin from 13.6% for the six months ended June 30, 1997 to 14.1% for the
six months ended June 30, 1998. This increase was due primarily to an increase
in higher gross margin parts and service sales and other dealership revenues as
a percentage of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $57.9 million, or 353.0%, from $16.4 million
for the six months ended June 30, 1997 to $74.3 million for the six months ended
June 30, 1998. The increase was primarily attributable to the additional
dealership operations acquired.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$4.3 million, or 226.3%, from $1.9 million for the six months ended June 30,
1997 to $6.2 million for the six months ended June 30, 1998. The increase was
primarily attributable to the interest expense of the additional dealership
operations acquired, reduced interest earnings due to the utilization of cash in
completing the acquisitions and additional interest expense due to borrowings on
the Company's credit facility to complete acquisitions. Partially offsetting the
increases were cost reductions realized due to the lower interest rates on
floorplan notes payable obtained though the Company's credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash
from operations, floorplan financing and its credit facility.
During the first six months of 1998 the Company generated cash from
operations of approximately $9.3 million. The cash flow was generated primarily
by net income.
During the first six months of 1998 the Company used approximately
$55.9 million for investing activities, primarily related to cash paid in
completing acquisitions offset by the cash balances obtained in the
acquisitions.
During the first six months of 1998 the Company obtained approximately
$81.0 million from financing activities. The cash was generated primarily from
drawings on the Company's credit facility and was utilized in completing
acquisitions.
At June 30, 1998, the Company had working capital of $47.2 million and
$40 million of unused capacity under the acquisition portion of the credit
facility. Historically, the Company has funded its operations with internally
generated cash flow and borrowings from lenders. While there can be no
assurance, based on current facts and circumstances, management believes it has
adequate cash flows and financing alternatives to fund its current operations
for the next twelve months.
17
<PAGE> 18
CREDIT FACILITY
The Company closed its syndicated credit facility on June 19, 1998,
increasing its existing $125 million credit facility to a $345 million credit
facility to be used for acquisitions, floorplan financing, general corporate
purposes, capital expenditures and working capital.
FORWARD LOOKING INFORMATION
This Quarterly Report and Management's Discussion and Analysis of
Results of Operations and Financial Condition include certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements other than
statements of historical facts included in this document, including statements
regarding potential acquisitions, expected cost savings, planned capital
expenditures, the Company's future financial position, business strategy and
other plans and objectives for future operations are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, such statements are based upon
assumptions and anticipated results that are subject to numerous uncertainties.
Actual results may vary significantly from those anticipated due to many
factors, including industry conditions, future demand for new and used vehicles,
the ability to obtain manufacturer consents to acquisitions, the availability of
capital resources and the willingness of acquisition candidates to accept the
Company's capital stock as currency. These important factors, risks and
uncertainties include, but are not limited to, those described in the Company`s
filings with the Securities and Exchange Commission. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by such factors.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company's dealerships are named in claims
involving the manufacture of automobiles, contractual disputes and other matters
arising in the ordinary course of business. Currently, no legal proceedings are
pending against or involve the Company that, in the opinion of management, could
reasonably 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
On May 6, 1998 the Company issued 875,000 shares of its common stock in
completing the acquisition of the Johns Group, pursuant to the purchase
agreements executed on February 25, 1998. On July 7, 1998 the Company issued
341,100 shares of its common stock in completing the acquisition of Luby
Chevrolet, pursuant to the purchase agreement executed on March 11, 1998. On
July 20, 1998 the Company issued 56,618 shares of its common stock in completing
the acquisition of McKinney Dodge, pursuant to the purchase agreement executed
on May 16, 1998. The Company relied on Regulation D under the Securities Act of
1933 as an exemption from Registration as all shareholders of the acquired
dealerships are accredited investors.
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<PAGE> 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the May 28, 1998 Annual Meeting of Stockholders, the Company's
stockholders voted on two matters.
(1) Election of two Directors:
The stockholders elected the two nominees as directors for
three-year terms based on the following voting results:
<TABLE>
<CAPTION>
VOTES CAST:
------------------------------------
AGAINST OR
NOMINEE ELECTED FOR WITHHELD
---------------------------- -------------- -------------
<S> <C> <C>
Bennett E. Bidwell 11,241,977 8,800
Sterling B. McCall, Jr. 11,241,977 8,800
</TABLE>
(2) Appointment of Independent Public Accountants:
The stockholders ratified the appointment of Arthur Andersen
LLP as the Company's independent public accountants for 1998.
The results of the voting were as follows:
<TABLE>
<S> <C>
For 10,936,488
Against 280,255
Abstain 34,034
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
*1. 10.1 Revolving Credit Agreement dated June 19, 1998.
2. 11.1 Statement re: computation of earnings per share is included
under Note 3 to the financial statements.
*3. 27.1 Financial Data Schedule.
- -------------
* Previously filed.
B. REPORTS ON FORM 8-K:
On May 28, 1998, the Company filed a Current Report on Form 8-K/A including
exhibits under Item 7 thereof.
On June 11, 1998, the Company filed a Current Report on Form 8-K/A
reporting under Item 7 thereof.
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<PAGE> 20
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.
September 22, 1998 By: /s/ Scott L. Thompson
- ------------------- --------------------------------------
Date Scott L. Thompson, Senior Vice
President, Chief Financial
Officer and Treasurer
20
