<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 March 31, 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 17,788,278
</TABLE>
<PAGE> 2
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 a combination
of cash and common stock of Group 1 Automotive, Inc. During 1998, Group 1
acquired four additional automobile dealerships, which have been accounted for
as purchases (the "Purchased Companies").
The accompanying historical combined statement of operations, for the
three months ended March 31, 1998, includes 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 statement of operations, for the
three months ended March 31, 1997, includes the combined operations of Group 1
and the Founding Groups, from January 1, 1997, and gives 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 the Group 1'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 purchase method was used
to establish a new basis of accounting to record the acquisitions.
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. These combined statements of operations
should be read in conjunction with the financial statements presented in the
Company's Annual Report on Form 10-K.
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 MARCH 31,
------------------------------
1998 1997
------------ ------------
HISTORICAL PRO FORMA
------------ ------------
<S> <C> <C>
REVENUES:
New vehicle sales ........................................... $ 138,022 $ 117,418
Used vehicle sales .......................................... 87,119 73,217
Parts and service sales ..................................... 21,568 19,030
Other dealership revenues, net .............................. 7,225 5,717
------------ ------------
Total revenues ............................................ 253,934 215,382
COST OF SALES:
New vehicle sales ........................................... 127,376 107,021
Used vehicle sales .......................................... 80,560 68,159
Parts and service sales ..................................... 9,978 9,158
------------ ------------
Total cost of sales ....................................... 217,914 184,338
------------ ------------
GROSS PROFIT ................................................... 36,020 31,044
GOODWILL AMORTIZATION .......................................... 243 200
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ...................................... 28,312 25,274
------------ ------------
Income from operations .............................. 7,465 5,570
OTHER INCOME AND EXPENSES:
Interest expense, net ........................................ (2,136) (1,556)
Other expense, net ........................................... (23) (21)
------------ ------------
INCOME BEFORE INCOME TAXES ..................................... 5,306 3,993
PROVISION FOR INCOME TAXES ..................................... 2,192 1,656
------------ ------------
NET INCOME ..................................................... $ 3,114 $ 2,337
============ ============
Earnings per share on net income:
Basic ........................................................ $ 0.21 $ 0.16
Diluted ...................................................... $ 0.20 $ 0.15
Weighted average shares outstanding:
Basic ........................................................ 15,197,670 14,673,051
Diluted ...................................................... 15,596,155 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 represents the
historical results of operations of Group 1 and the Founding Groups, for the
three months ended March 31, 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 (i) the
acquired dealerships were not under common control of management and had
different tax structures (S Corporations and C Corporations) during the periods
presented and (ii) the purchase method was used to establish a new basis of
accounting to record the acquisitions. 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 companies 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 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.
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 ENDED
--------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
HISTORICAL PRO FORMA
-------------- --------------
<S> <C> <C>
Common stock outstanding, beginning of period .................................... 14,673,051 450,000
Shares issued in initial public offering ......................................... -- 5,148,136
Shares issued in acquisition of Founding Companies ............................... -- 9,074,915
Weighted average common stock issued to Purchased Companies ...................... 537,952 --
Less: weighted average treasury shares repurchased ............................... (13,333) --
---------- ----------
Shares used in computing basic earnings per share ............................ 15,197,670 14,673,051
Dilutive effect of stock options, net of assumed repurchase of treasury stock .... 398,485 428,459
---------- ----------
Shares used in computing diluted earnings per share .......................... 15,596,155 15,101,510
========== ==========
</TABLE>
4
<PAGE> 5
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 41,048 $ 35,092
Accounts receivable, net .................................. 9,722 9,749
Inventories ............................................... 149,944 105,421
Deferred income taxes ..................................... 8,622 8,692
Other assets .............................................. 3,207 2,728
--------- ---------
Total current assets ................................ 212,543 161,682
--------- ---------
PROPERTY AND EQUIPMENT, net ................................. 25,004 21,586
GOODWILL, net ............................................... 56,761 27,078
OTHER ASSETS ................................................ 4,109 2,803
--------- ---------
Total assets ........................................ $ 298,417 $ 213,149
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable ................................... $ 122,560 $ 58,488
Current maturities of long-term debt ...................... 1,308 2,316
Accounts payable and accrued expenses ..................... 61,768 50,668
--------- ---------
Total current liabilities ........................... 185,636 111,472
--------- ---------
LONG-TERM DEBT, net of current maturities ................... 6,866 7,053
LONG-TERM DEFERRED INCOME TAXES ............................. 3,882 3,699
OTHER LONG-TERM LIABILITIES ................................. 1,472 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, 16,101,209 and 14,673,051
issued and outstanding ................................. 161 147
Additional paid-in capital ................................ 100,066 91,846
Retained earnings (deficit) ............................... 585 (2,529)
Treasury stock, at cost, 25,000 and 10,000 shares ......... (251) (92)
--------- ---------
Total stockholders' equity .......................... 100,561 89,372
--------- ---------
Total liabilities and stockholders' equity .......... $ 298,417 $ 213,149
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
New vehicle sales ..................... $ 138,022 $ 38,248
Used vehicle sales .................... 87,119 25,606
Parts and service sales ............... 21,568 5,413
Other dealership revenues, net ........ 7,225 1,841
------------ ------------
Total revenues .................. 253,934 71,108
COST OF SALES:
New vehicle sales ..................... 127,376 35,700
Used vehicle sales .................... 80,560 23,174
Parts and service sales ............... 9,978 2,378
------------ ------------
Total cost of sales ............. 217,914 61,252
------------ ------------
GROSS PROFIT ............................ 36,020 9,856
GOODWILL AMORTIZATION ................... 243 10
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............... 28,312 8,012
------------ ------------
Income from operations .......... 7,465 1,834
OTHER INCOME AND EXPENSES:
Interest expense, net ................. (2,136) (883)
Other income (expense), net ........... (23) 14
------------ ------------
INCOME BEFORE INCOME TAXES .............. 5,306 965
PROVISION (BENEFIT) FOR INCOME TAXES .... 2,192 (39)
------------ ------------
NET INCOME .............................. $ 3,114 $ 1,004
============ ============
S Corporation pro forma income taxes .... 425
------------
Pro forma net income .................... $ 579
============
Earnings per share on net income:
Basic ................................. $ 0.21
Diluted ............................... $ 0.20
Weighted average shares outstanding:
Basic ................................. 15,197,670
Diluted ............................... 15,596,155
</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 CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 3,114 $ 1,004
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization ...................................... 819 243
Deferred income taxes .............................................. (1,301) (1)
Provision for doubtful accounts and uncollectible notes ............ 16 25
Changes in assets and liabilities -
Accounts receivable ................................................ 1,273 322
Inventories ...................................................... (6,556) (1,963)
Other assets ..................................................... (1,167) 130
Floorplan notes payable .......................................... 9,279 510
Accounts payable and accrued expenses ............................ (1,734) (144)
-------- --------
Total adjustments ............................................ 629 (878)
-------- --------
Net cash provided by operating activities .................... 3,743 126
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable ....................................... (705) --
Collections on notes receivable .................................... 373 --
Purchases of property and equipment ................................ (1,468) (147)
Proceeds from sale of property and equipment ....................... 2 --
Cash paid in acquisitions, net of cash received .................... (14,318) --
-------- --------
Net cash used in investing activities ........................ (16,116) (147)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under floorplan facilities for acquisition financing .... 19,998 --
Principal payments of long-term debt ............................... (1,630) (124)
Borrowings of long-term debt ....................................... 120 --
Purchase of treasury stock ......................................... (159) --
Dividends paid in cash ............................................. -- (1,004)
-------- --------
Net cash provided by (used in) financing activities .......... 18,329 (1,128)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 5,956 (1,149)
CASH AND CASH EQUIVALENTS, beginning of period .......................... 35,092 11,679
-------- --------
CASH AND CASH EQUIVALENTS, end of period ................................ $ 41,048 $ 10,530
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest ......................................................... $ 1,702 $ 964
Taxes ............................................................ 1,910 --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 8
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 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 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 of a
combination of cash and 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 quarter of 1998 the Company acquired four additional
dealership franchises in exchange for a combination of cash and restricted
Common Stock.
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 acquiror. The acquisition of the remaining
Founding Groups was 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.
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
ended March 31, 1997. The following table sets forth the shares outstanding for
the earnings per share calculations:
8
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
<S> <C>
Common stock outstanding, beginning of period ..................................... 14,673,051
Weighted average common stock issued in acquisitions .............................. 537,952
Less: weighted average treasury shares repurchased ................................ (13,333)
----------
Shares used in computing basic earnings per share ............................. 15,197,670
Dilutive effect of stock options, net of assumed repurchase of treasury stock ..... 398,485
----------
Shares used in computing diluted earnings per share ........................... 15,596,155
==========
</TABLE>
4. BUSINESS COMBINATIONS
During the first quarter of 1998, the Company acquired four automobile
dealership operations. These acquisitions were accounted for as purchases. The
aggregate consideration paid in completing these acquisitions included
approximately $20.0 million in cash, approximately 1.4 million shares of
restricted Common Stock and the assumption of an estimated $34.8 million of
inventory financing. Additional consideration, to be paid based on performance
over a specified period, is limited to a maximum of $7.5 million ($2.5 million
of which is guaranteed), is payable in cash and Common Stock and will result in
an increase in goodwill on the balance sheet of the Company. 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. 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 $29.8 million of
goodwill, which is being amortized over 40 years.
The following pro forma financial information consists of income
statement data from continuing operations as presented in the consolidated
financial statements plus (1) income statement data for all acquisitions,
completed before March 31, 1998, assuming that they occurred on January 1, 1997,
(2) the completion of the IPO as of January 1, 1997 and (3) certain pro forma
adjustments discussed below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1998 1997
------------- --------------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues .............................. $293,787 $269,999
Gross profit .......................... 41,689 38,792
Income from operations ................ 8,617 7,096
Net income ............................ 3,324 2,505
Basic earnings per share .............. 0.21 0.16
Diluted earnings per share ............ $0.20 $0.15
</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 companies 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)
9
<PAGE> 10
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 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 April and May of 1998, for accounting purposes, the
Company completed acquisitions of several automobile dealerships in exchange for
consideration consisting of approximately $41.8 million in cash, approximately
1.7 million shares of restricted Common Stock and the assumption of an estimated
$47.2 million of inventory financing. Additional consideration, to be paid based
on performance over a specified period, is payable in cash and Common Stock and
will result in an increase in goodwill on the balance sheet of the Company. 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 OPERATIONS
The following should be read in conjunction with the response to Part
I, Item 1 of this Report and the Company's Annual Report on Form 10-K.
OVERVIEW
The Company owns automobile dealership franchises located in Florida,
Georgia, 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, 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 arranging financing and selling 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 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.
10
<PAGE> 11
SELECTED OPERATIONAL AND FINANCIAL DATA
NEW VEHICLE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- ------------
HISTORICAL PRO FORMA
---------- ------------
(dollars in thousands)
<S> <C> <C>
Retail unit sales ......................................................... 5,972 5,451
Retail sales revenue ...................................................... $138,022 $117,418
Gross profit .............................................................. $ 10,646 $ 10,397
Gross margin .............................................................. 7.7% 8.9%
Average gross profit per retail unit sold ................................. $ 1,783 $ 1,907
</TABLE>
USED VEHICLE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- ----------
HISTORICAL PRO FORMA
---------- ----------
(dollars in thousands)
<S> <C> <C>
Retail unit sales .................................................... 5,354 4,479
Retail sales revenue (1) ............................................. $70,976 $59,169
Gross profit ......................................................... $ 6,559 $ 5,058
Gross margin ......................................................... 9.2% 8.6%
Average gross profit per retail unit sold ............................ $ 1,225 $ 1,129
</TABLE>
- ---------------
(1) Excludes wholesale revenues.
PARTS AND SERVICE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- ---------
HISTORICAL PRO FORMA
---------- ---------
(dollars in thousands)
<S> <C> <C>
Sales revenue ............................................................. $21,568 $19,030
Gross profit .............................................................. $11,590 $ 9,872
Gross margin .............................................................. 53.7% 51.9%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH PRO FORMA THREE MONTHS ENDED
MARCH 31, 1997
REVENUES. Revenues increased $38.5 million, or 17.9%, from $215.4
million for the three months ended March 31, 1997 to $253.9 million for the
three months ended March 31, 1998. New vehicle revenues increased $20.6 million,
or 17.6% from $117.4 million for the three months ended March 31, 1997 to $138.0
million for the three months ended March 31, 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-third of the
increase and the acquisition of four additional dealership franchises during the
first quarter of 1998. The increase was partially offset by reduced sales at the
Company's Nissan franchises, which declined due to
11
<PAGE> 12
reduced manufacturer sales incentives as compared to the prior year. Used
vehicle revenues increased $13.9 million, or 19.0%, from $73.2 million for the
three months ended March 31, 1997 to $87.1 million for the three months ended
March 31, 1998. The increase was primarily attributable to the additional
franchise operations acquired, successful marketing efforts and an emphasis on
used vehicle sales in the Oklahoma market, with existing operations accounting
for over one-half of the increase. Parts and service sales increased $2.6
million, or 13.7%, from $19.0 million for the three months ended March 31, 1997
to $21.6 million for the three months ended March 31, 1998. The increase was
primarily attributable to the additional dealership operations acquired. Other
dealership revenues increased $1.5 million or 26.3% from $5.7 million for the
three months ended March 31, 1997 to $7.2 million for the three months ended
March 31, 1998. The increase was due primarily to an increase in the number of
retail new and used vehicle sales and improved profit per unit as the Company's
new service contract and insurance programs were implemented.
GROSS PROFIT. Gross profit increased $5.0 million, or 16.1%, from $31.0
million for the three months ended March 31, 1997 to $36.0 million for the three
months ended March 31, 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 8.9% for the three months ended March 31,
1997 to 7.7% for the three months ended March 31, 1998. The decline is
attributable primarily to reduced margins in the Nissan product line, due to
reduced manufacturer sales incentives in 1998, and reduced margins in the
Oklahoma market. The gross margin for used retail vehicle sales increased from
8.6% for the three months ended March 31, 1997 to 9.2% for the three months
ended March 31, 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 51.9% for the three months ended March 31, 1997 to 53.7%
for the three months ended March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.0 million, or 11.9%, from $25.3 million for
the three months ended March 31, 1997 to $28.3 million for the three months
ended March 31, 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 11.7% for the three months ended March 31, 1997 to 11.2% for
the three months ended March 31, 1998. The decline is primarily attributable to
maintaining total expenses at a constant level by offsetting increased variable
expenses with cost reductions, such as insurance savings. Additionally, by
implementing the Company's budgeting process, the dealership managers have taken
a more pro-active approach to managing their expense levels.
INTEREST EXPENSE, NET. Interest expense, net, increased $0.5 million,
or 31.3%, from $1.6 million for the three months ended March 31, 1997 to $2.1
million for the three months ended March 31, 1998. The increase was primarily
attributable to the interest expense of the additional dealership operations
acquired and reduced interest earnings due to the utilization of cash in
completing the 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 completed December 31, 1997.
HISTORICAL RESULTS OF OPERATIONS - GROUP 1 AUTOMOTIVE, INC.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
REVENUES. Revenues increased $182.8 million, or 257.1%, from $71.1
million for the three months ended March 31, 1997 to $253.9 million for the
three months ended March 31, 1998. New vehicle revenues increased $99.8 million,
or 261.3% from $38.2 million for the three months ended March 31, 1997 to $138.0
million for the three months ended March 31, 1998. Used vehicle revenues
increased $61.5 million, or 240.2%, from $25.6 million for the three months
ended March
12
<PAGE> 13
31, 1997 to $87.1 million for the three months ended March 31, 1998. Parts
and service sales increased $16.2 million, or 300.0%, from $5.4 million for the
three months ended March 31, 1997 to $21.6 million for the three months ended
March 31, 1998. Other dealership revenues increased $5.4 million or 300.0% from
$1.8 million for the three months ended March 31, 1997 to $7.2 million for the
three months ended March 31, 1998. These increases were due primarily to the
inclusion of the dealership operations acquired since October 31, 1997.
GROSS PROFIT. Gross profit increased $26.1 million, or 263.6%, from
$9.9 million for the three months ended March 31, 1997 to $36.0 million for the
three months ended March 31, 1998. The increase was attributable to the
inclusion of the dealership operations acquired since October 31, 1997 and an
increased gross margin from 13.9% for the three months ended March 31, 1997 to
14.2% for the three months ended March 31, 1998. This increase was due primarily
to increased vehicle gross margins and an increase in higher gross margin parts
and service sales and other dealership revenues as a percentage of total
revenues. The increased vehicle margin was primarily attributable to the
acquisition of dealership operations with higher new vehicle gross margins than
the operations included for the three months ended March 31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $20.3 million, or 253.8%, from $8.0 million
for the three months ended March 31, 1997 to $28.3 million for the three months
ended March 31, 1998. The increase was primarily attributable to the additional
dealership operations acquired.
INTEREST EXPENSE, NET. Interest expense, net, increased $1.2 million,
or 133.3%, from $0.9 million for the three months ended March 31, 1997 to $2.1
million for the three months ended March 31, 1998. The increase was primarily
attributable to the interest expense of the additional dealership operations
acquired and reduced interest earnings due to the utilization of cash in
completing the 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 completed December 31, 1997.
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 quarter of 1998 the Company generated cash from
operations of approximately $3.7 million. The cash flow was generated primarily
by net income.
The Company used approximately $16.1 million for investing activities,
primarily related to cash paid in completing acquisitions offset by the cash
balances obtained in the acquisitions.
The Company obtained approximately $18.3 million from financing
activities. The cash was generated primarily from drawings on the Company's
floorplan facilities and was utilized in completing acquisitions.
At March 31, 1998, the Company had working capital of $26.9 million.
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, exclusive of
acquisitions. In order to continue to implement the Company's growth through
acquisition strategy, the Company will need to raise additional funds or
primarily utilize its Common Stock to complete acquisitions.
CREDIT FACILITY
The Company has negotiated and executed an arrangement letter with
Chase Securities, Inc. and Comerica Bank to increase it existing $125 million
credit facility to a $250 million credit facility to be used for acquisitions,
floorplan financing, general corporate purposes, capital
13
<PAGE> 14
expenditures and working capital. The amended credit facility was
over-subscribed with the commitments received by the Company allowing it to
increase the facility to $345 million.
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
Annual Report on Form 10-K. 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
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 March 16, 1998 the Company issued 1,428,158 shares of its common
stock in completing the acquisition of the Carroll Group, pursuant to the
purchase agreements executed on December 17, 1997. On April 1, 1998 the Company
issued 805,929 shares of its common stock in completing the acquisition of the
Maxwell Group, pursuant to the purchase agreements executed on December 18,
1997. On May 11, 1998 the Company issued 10,000 shares of its common stock in
completing the acquisition of Flamingo Ford, pursuant to the closing memorandum
executed on May 11, 1998. The Company relied on Regulation D under the
Securities Act of 1933 as an exemption from Registration.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
1. 27. Financial Data Schedule
B. REPORTS ON FROM 8-K:
On March 31, 1998, the Company filed a Current Report on Form 8-K reporting
under Item 2 thereof and including exhibits under Item 7 thereof.
On April 15, 1998, the Company filed a Current Report on Form 8-K reporting
under Item 2 thereof and including exhibits under Item 7 thereof.
14
<PAGE> 15
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.
May 14, 1998 By: /s/ Scott L. Thompson
- ----------------- ---------------------
Date Scott L. Thompson,
Senior Vice President -
Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 41,048
<SECURITIES> 0
<RECEIVABLES> 9,722
<ALLOWANCES> 0
<INVENTORY> 149,944
<CURRENT-ASSETS> 212,543
<PP&E> 25,004
<DEPRECIATION> 0
<TOTAL-ASSETS> 298,417
<CURRENT-LIABILITIES> 185,636
<BONDS> 6,866
0
0
<COMMON> 161
<OTHER-SE> 100,400
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 246,709
<TOTAL-REVENUES> 253,934
<CGS> 217,914
<TOTAL-COSTS> 217,914
<OTHER-EXPENSES> 28,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,136
<INCOME-PRETAX> 5,306
<INCOME-TAX> 2,192
<INCOME-CONTINUING> 3,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,114
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
