<PAGE> 1
FORM 10-Q
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 September 30, 2000
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 100
Houston, Texas 77024
(Address of principal executive offices) (Zip code)
(713) 647-5700
(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.
Title Outstanding
----- -----------
Common stock, par value $.01 19,937,701
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 119,556 $ 118,824
Accounts and notes receivable, net ............... 47,615 35,296
Inventories, net ................................. 417,787 386,255
Deferred income taxes ............................ 7,431 8,619
Other assets ..................................... 4,384 4,429
--------- ---------
Total current assets ...................... 596,773 553,423
--------- ---------
PROPERTY AND EQUIPMENT, net ........................ 63,664 46,711
GOODWILL, net ...................................... 259,570 235,312
OTHER ASSETS ....................................... 7,048 7,464
--------- ---------
Total assets .............................. $ 927,055 $ 842,910
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable .......................... $ 390,934 $ 363,489
Current maturities of long-term debt ............. 1,377 1,076
Accounts payable and accrued expenses ............ 112,775 108,730
--------- ---------
Total current liabilities ................. 505,086 473,295
--------- ---------
DEBT, net of current maturities .................... 43,945 15,285
SENIOR SUBORDINATED NOTES .......................... 97,046 97,889
DEFERRED INCOME TAXES .............................. 3,154 3,217
OTHER LIABILITIES .................................. 22,112 21,195
STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized, none
issued or outstanding .......................... -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 21,314,189 and 21,801,367 issued ... 213 218
Additional paid-in capital ....................... 171,733 181,398
Retained earnings ................................ 84,261 51,705
Treasury stock, at cost, 51,961 and 78,609 shares (495) (1,292)
--------- ---------
Total stockholders' equity ................ 255,712 232,029
--------- ---------
Total liabilities and stockholders' equity $ 927,055 $ 842,910
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 3
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
New vehicle ...................... $ 588,328 $ 418,244 $ 1,659,564 $ 1,050,771
Used vehicle ..................... 258,861 203,059 774,939 554,398
Parts and service ................ 78,714 58,188 226,781 153,460
Other dealership revenues, net ... 29,054 22,299 83,721 57,911
------------ ------------ ------------ ------------
Total revenues ............ 954,957 701,790 2,745,005 1,816,540
COST OF SALES:
New vehicle ...................... 542,491 382,941 1,530,399 963,229
Used vehicle ..................... 237,416 187,070 711,732 508,855
Parts and service ................ 36,065 26,684 102,842 69,511
------------ ------------ ------------ ------------
Total cost of sales ....... 815,972 596,695 2,344,973 1,541,595
GROSS PROFIT ....................... 138,985 105,095 400,032 274,945
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............ 102,960 76,558 297,808 203,457
DEPRECIATION EXPENSE ............... 2,001 1,220 5,671 3,397
AMORTIZATION EXPENSE ............... 2,084 1,605 6,222 4,028
------------ ------------ ------------ ------------
Income from operations .... 31,940 25,712 90,331 64,063
OTHER INCOME AND EXPENSES:
Floorplan interest expense ....... (9,302) (5,438) (27,257) (13,623)
Other interest expense, net ...... (3,909) (2,904) (11,591) (7,705)
Other income, net ................ 4 104 1,027 209
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ......... 18,733 17,474 52,510 42,944
PROVISION FOR INCOME TAXES ......... 7,119 6,955 19,954 17,092
------------ ------------ ------------ ------------
NET INCOME ......................... $ 11,614 $ 10,519 $ 32,556 $ 25,852
============ ============ ============ ============
Earnings per share:
Basic ............................ $ 0.54 $ 0.49 $ 1.49 $ 1.27
Diluted .......................... $ 0.54 $ 0.48 $ 1.47 $ 1.21
Weighted average shares outstanding:
Basic ............................ 21,369,802 21,253,799 21,865,182 20,383,000
Diluted .......................... 21,662,055 22,106,027 22,222,798 21,359,645
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 32,556 $ 25,852
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization ................................................. 11,893 7,425
Deferred income taxes ......................................................... 861 (800)
Provision for doubtful accounts and uncollectible notes ....................... 838 862
Loss (gain) on sale of assets ................................................. 15 (67)
Gain on sale of franchise ..................................................... (1,048) --
Changes in assets and liabilities -
Accounts receivable ......................................................... (11,125) (10,241)
Inventories ................................................................. 2,342 120
Other assets ................................................................ 275 (1,360)
Floorplan notes payable ..................................................... (6,564) 5,254
Accounts payable and accrued expenses ....................................... 11,463 21,048
-------- --------
Total adjustments ....................................................... 8,950 22,241
-------- --------
Net cash provided by operating activities ....................... 41,506 48,093
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable ................................................... (2,166) (1,900)
Collections on notes receivable ................................................ 1,144 772
Purchases of property and equipment ............................................ (12,482) (21,060)
Proceeds from sales of property and equipment .................................. 688 11,457
Proceeds from sales of franchises .............................................. 9,700 --
Cash paid in acquisitions, net of cash received ................................ (39,917) (82,775)
-------- --------
Net cash used in investing activities ........................... (43,033) (93,506)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under floorplan facilities for acquisition financing .............. -- (14,154)
Net borrowings (payments) on acquisition tranche of
revolving credit facility .................................................... 23,000 (42,000)
Principal payments of long-term debt ........................................... (5,457) (3,029)
Borrowings of long-term debt ................................................... 766 3,764
Proceeds from senior subordinated notes offering, net .......................... -- 94,781
Purchase of senior subordinated notes .......................................... (948) --
Proceeds from common stock offering, net ....................................... -- 44,070
Proceeds from issuance of common stock to benefit plans ........................ 2,822 3,075
Purchase of treasury stock ..................................................... (17,924) (3,590)
-------- --------
Net cash provided by financing activities ....................... 2,259 82,917
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ......................................... 732 37,504
CASH AND CASH EQUIVALENTS, beginning of period .................................... 118,824 66,443
-------- --------
CASH AND CASH EQUIVALENTS, end of period .......................................... $119,556 $103,947
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest ................................................................. $ 42,138 $ 20,886
Taxes .................................................................... $ 14,147 $ 14,923
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Group 1 Automotive, Inc. is a leading operator in the automotive
retailing industry. Group 1 Automotive, Inc. is a holding company with its
primary operations and assets being its investments in its subsidiaries. These
subsidiaries sell new and used cars and light trucks through their dealerships
and Internet sites, provide maintenance and repair services and arrange finance,
vehicle service and insurance contracts. Group 1 Automotive, Inc. and its
subsidiaries are herein collectively referred to as the "Company" or "Group 1".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
All acquisitions completed during the periods presented have been
accounted for using the purchase method of accounting and their results of
operations are included from the effective dates of the closings of the
acquisitions. The allocations of purchase price to the assets acquired and
liabilities assumed are 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.
Interim Financial Information
These interim financial statements are unaudited, and certain
information normally included in financial statements prepared in accordance
with generally accepted accounting principles has not been included herein. In
the opinion of management, all adjustments necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements, have been properly included. Due to seasonality
and other factors, the results of operations for the interim periods are not
necessarily indicative of the results that will be realized for the entire
fiscal year.
Recent Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction or (c) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative (that
is, gains or losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 137 amended the effective date to be for all
fiscal quarters of fiscal years beginning after June 15, 2000. Management does
not believe that the adoption of this statement will have a material impact on
the financial position or results of operations of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 is
effective beginning in the fourth quarter of the first fiscal year beginning
after December 15, 1999, and provides guidance related to recognizing revenue
5
<PAGE> 6
in circumstances where no specific accounting standards exist. Management does
not believe that SAB No. 101 will have a material impact on its revenue
recognition policies.
3. EARNINGS PER SHARE:
Statement of Financial Accounting Standards ("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>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock outstanding, beginning of period ........ 22,435,255 21,221,366 21,801,367 18,267,515
Weighted average common stock issued -
Acquisitions .................................... -- -- 633,888 556,560
Employee Stock Purchase Plan .................... 87,502 59,982 164,552 89,839
Stock offering .................................. -- -- -- 1,550,834
Stock options exercised ......................... 1,695 23,261 2,082 21,555
Less: Weighted average treasury shares purchased and
weighted average shares repurchased and cancelled (1,154,650) (50,810) (736,707) (103,303)
---------- ---------- ---------- ----------
Shares used in computing basic earnings per share .... 21,369,802 21,253,799 21,865,182 20,383,000
Dilutive effect of stock options, net of assumed
repurchase of treasury stock .................... 292,253 852,228 357,616 976,645
---------- ---------- ---------- ----------
Shares used in computing diluted earnings per share .. 21,662,055 22,106,027 22,222,798 21,359,645
========== ========== ========== ==========
</TABLE>
4. BUSINESS COMBINATIONS:
During the first nine months of 2000, the Company acquired 11
automobile dealership franchises. These acquisitions were accounted for as
purchases. The aggregate consideration paid in completing these acquisitions,
including real estate acquired, and satisfying certain contingent acquisition
payment arrangements from previous transactions included approximately $39.9
million in cash, net of cash received, the issuance of approximately 630,000
shares of restricted/unregistered common stock, the assumption of an estimated
$34.0 million of inventory financing and the assumption of approximately $10.7
of notes payable. The consolidated balance sheet includes preliminary
allocations of the purchase price of the acquisitions, which are subject to
final adjustment. These allocations resulted in recording approximately $36.6
million of goodwill, which is being amortized over 40 years.
6
<PAGE> 7
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 September 30, 2000, assuming that they
occurred on January 1, 1999, (2) the completion of our March 1999 offerings of
two million shares of common stock and $100 million of senior subordinated notes
assuming they occurred on January 1, 1999, and (3) certain pro forma adjustments
discussed below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
---- ----
(in millions, except per share amounts)
<S> <C> <C>
Revenues ................................... $2,745.0 $2,543.0
Gross profit ............................... 400.0 371.5
Income from operations ..................... 90.3 89.5
Net income ................................. 32.6 34.7
Basic earnings per share ................... 1.49 1.55
Diluted earnings per share ................. 1.47 1.48
</TABLE>
Pro forma adjustments included in the amounts above primarily relate
to: (a) increases in revenues related to changes in the contractual commission
arrangements on certain third-party products sold by the dealerships; (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) increases in interest expense resulting from
borrowings 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. SENIOR SUBORDINATED NOTES:
The Company completed the offering of $100 million of its 10 7/8%
Senior Subordinated Notes due 2009 (the "Notes") on March 5, 1999. The Notes pay
interest semi-annually on March 1, and September 1, each year beginning
September 1, 1999. Before March 1, 2002, the Company may redeem up to $35
million of the Notes with the proceeds of certain public offerings of common
stock at a redemption price of 110.875% of the principal amount plus accrued
interest to the redemption date. Additionally, the Company may redeem all or
part of the Notes at redemption prices of 105.438%, 103.625%, 101.813% and
100.000% of the principal amount plus accrued interest during the twelve month
periods beginning March 1, of 2004, 2005, 2006, and 2007 and thereafter,
respectively. The Notes are jointly and severally guaranteed, on an unsecured
senior subordinated basis, by all subsidiaries of the Company (the "Subsidiary
Guarantors"), other than certain minor subsidiaries. All of the Subsidiary
Guarantors are wholly owned subsidiaries of the Company. Certain manufacturers
have minimum working capital guidelines, which, under certain circumstances, may
impair a subsidiary's ability to make distributions to the parent company.
7
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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 our other filings with the Securities and Exchange
Commission ("SEC").
OVERVIEW
We are a leading operator in the automotive retailing industry. We own
automobile dealership franchises located in Texas, Oklahoma, Florida, New
Mexico, Georgia, Colorado, Massachusetts and Louisiana. Through our dealerships
and Internet sites, we sell new and used cars and light trucks, and provide
maintenance and repair services. We also operate 21 collision service centers.
During 2001, we expect to acquire a few strategic tuck-in acquisitions,
primarily in markets where we have established operations. All acquisitions are
subject to manufacturer approval. Each manufacturer has various criteria,
including customer satisfaction index ("CSI") scores, that must be met in order
to receive manufacturer approval of the acquisition. From time to time we may
not meet some of these criteria, such as CSI scores, and, as a result, we may
have difficulty receiving manufacturer approval of our acquisitions. During the
last three years we have received 102 franchise approvals from the manufacturers
of the 30 brands we represent. See Item 1. Business - Agreements with
Manufacturers in our Form 10-K for the year ended December 31, 1999.
We have 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 service sales, finance fees,
insurance commissions, vehicle service contract commissions, 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 dealerships
and wholesalers. Other dealership revenues includes revenues from arranging
financing, insurance and vehicle service contracts, net of a provision for
anticipated chargebacks, and documentary fees.
Our gross margin varies as our merchandise mix (the mix between new
vehicle sales, used vehicle sales, parts and service sales, collision repair
service sales and other dealership revenues) changes. Our gross margin on the
sale of products and services varies significantly, with new vehicle sales
generally resulting in the lowest gross margin and other dealership revenues
generally resulting in the highest gross margin. When our new vehicle sales
increase or decrease at a rate greater than our other revenue sources, our gross
margin responds inversely. Factors such as seasonality, weather, cyclicality and
manufacturers' advertising and incentives may impact our merchandise mix and,
therefore, influence our 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.
8
<PAGE> 9
SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NEW VEHICLE DATA
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 23,728 17,259 6,469 37.5%
Retail sales revenues....................... $588,328 $418,244 $170,084 40.7%
Gross profit................................ $45,837 $35,303 $10,534 29.8%
Average gross profit per retail unit sold... $1,932 $2,045 $(113) (5.5)%
Gross margin................................ 7.8% 8.4% (0.6)%
<CAPTION>
USED VEHICLE DATA
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 15,536 12,454 3,082 24.7%
Retail sales revenues (1)................... $207,263 $163,956 $43,307 26.4%
Gross profit................................ $21,445 $15,989 $5,456 34.1%
Average gross profit per retail unit sold... $1,380 $1,284 $96 7.5%
Gross margin................................ 10.3% 9.8% 0.5%
</TABLE>
------------------
(1) Excludes wholesale revenues.
<TABLE>
<CAPTION>
PARTS AND SERVICE DATA
(dollars in thousands) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Sales revenues.............................. $78,714 $58,188 $20,526 35.3%
Gross profit................................ $42,649 $31,504 $11,145 35.4%
Gross margin................................ 54.2% 54.1% 0.1%
<CAPTION>
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail new and used unit sales.............. 39,264 29,713 9,551 32.1%
Retail sales revenues....................... $29,054 $22,299 $6,755 30.3%
Net revenues per retail unit sold........... $740 $750 $(10) (1.3)%
</TABLE>
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THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES. Revenues increased $253.2 million, or 36.1%, to $955.0
million for the three months ended September 30, 2000, from $701.8 million for
the three months ended September 30, 1999. Revenue trends were strong in Texas,
Denver and Florida, offset by declines in New Mexico. New vehicle revenues
increased primarily due to strong customer acceptance of our products,
particularly Ford, Dodge and Toyota, partially offset by some weakness in the
Pontiac and GMC brands, and the acquisitions of additional dealership operations
during 1999 and 2000. The growth in used vehicle revenues was primarily
attributable to the additional dealership operations acquired and expanded
operations in Oklahoma, Florida, Dallas and West Texas, partially offset by
declines in New Mexico. The increase in parts and service revenues was due to
the additional dealership operations acquired, coupled with strong organic
growth in the Florida, Dallas, Houston and Austin markets. Other dealership
revenues increased primarily due to an increase in the number of retail new and
used vehicle sales, as revenues per unit declined slightly.
GROSS PROFIT. Gross profit increased $33.9 million, or 32.3%, to $139.0
million for the three months ended September 30, 2000, from $105.1 million for
the three months ended September 30, 1999. The increase was attributable to
increased revenues as gross margin declined to 14.6% for the three months ended
September 30, 2000, from 15.0% for the three months ended September 30, 1999.
The gross margin declined as lower margin new vehicle revenues increased as a
percentage of total revenues to 61.6% from 59.6% and two recent platform
acquisitions with lower margins joined the group. The gross margin on new retail
vehicle sales declined to 7.8% from 8.4%, due to lower margins at the two recent
platform acquisitions and two other dealerships focusing on expanding market
share, which resulted in lower margins and significant organic revenue growth at
those two stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $26.4 million, or 34.5%, to $103.0 million for
the three months ended September 30, 2000, from $76.6 million for the three
months ended September 30, 1999. The increase was primarily attributable to the
additional dealership operations acquired and increased variable expenses,
particularly incentive pay to employees, which increased as gross profit
increased. Selling, general and administrative expenses increased as a
percentage of gross profit to 74.1% from 72.8% due to under-performance in the
Albuquerque and south Florida operations.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$4.9 million, or 59.0%, to $13.2 million for the three months ended September
30, 2000 from $8.3 million for the three months September 30, 1999. The increase
was due to increases in total debt outstanding and interest rates. The increase
in debt outstanding was primarily attributable to the floorplan borrowings of
the additional dealership operations acquired and additional borrowings to
complete acquisitions. Further, contributing to the increase was a 140 basis
point increase in the weighted average LIBOR.
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<PAGE> 11
SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NEW VEHICLE DATA
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 67,194 43,629 23,565 54.0%
Retail sales revenues....................... $1,659,564 $1,050,771 $608,793 57.9%
Gross profit................................ $129,165 $87,542 $41,623 47.5%
Average gross profit per retail unit sold... $1,922 $2,007 $(85) (4.2)%
Gross margin................................ 7.8% 8.3% (0.5)%
<CAPTION>
USED VEHICLE DATA
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 45,817 34,126 11,691 34.3%
Retail sales revenues (1)................... $620,158 $452,303 $167,855 37.1%
Gross profit................................ $63,207 $45,543 $17,664 38.8%
Average gross profit per retail unit sold... $1,380 $1,335 $45 3.4%
Gross margin................................ 10.2% 10.1% 0.1%
</TABLE>
------------------
(1) Excludes wholesale revenues.
<TABLE>
<CAPTION>
PARTS AND SERVICE DATA
(dollars in thousands) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Sales revenues.............................. $226,781 $153,460 $73,321 47.8%
Gross profit................................ $123,939 $83,949 $39,990 47.6%
Gross margin................................ 54.7% 54.7% 0.0%
<CAPTION>
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail new and used unit sales.............. 113,011 77,755 35,256 45.3%
Retail sales revenues....................... $83,721 $57,911 $25,810 44.6%
Net revenues per retail unit sold........... $741 $745 $(4) (0.5)%
</TABLE>
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NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES. Revenues increased $928.5 million, or 51.1%, to $2,745.0
million for the nine months ended September 30, 2000, from $1,816.5 million for
the nine months ended September 30, 1999. New vehicle revenues increased
primarily due to strong customer acceptance of our products, particularly Ford,
Honda, Lexus, Nissan, Dodge and Toyota, partially offset by some weakness in the
Acura, Pontiac, GMC and Chrysler brands, and the acquisitions of additional
dealership operations during 1999 and 2000. The growth in used vehicle revenues
was primarily attributable to the additional dealership operations acquired and
an emphasis on used vehicle sales in the Oklahoma, Florida, and Dallas markets,
partially offset by declines in New Mexico. The increase in parts and service
revenues was due to the additional dealership operations acquired, coupled with
strong organic growth in the Austin and Florida markets. Other dealership
revenues increased primarily due to an increase in the number of retail new and
used vehicle sales, as revenues per unit declined slightly.
GROSS PROFIT. Gross profit increased $125.1 million, or 45.5%, to
$400.0 million for the nine months ended September 30, 2000, from $274.9 million
for the nine months ended September 30, 1999. The increase was attributable to
increased revenues as gross margin declined to 14.6% for the nine months ended
September 30, 2000, from 15.1% for the nine months ended September 30, 1999. The
gross margin declined as lower margin new vehicle revenues increased as a
percentage of total revenues to 60.5% from 57.8% and two recent platform
acquisitions with lower margins joined the group. The gross margin on new retail
vehicle sales declined to 7.8% from 8.3%, due to lower margins at the two recent
platform acquisitions and two other dealerships focusing on expanding market
share, which resulted in lower margins and significant organic revenue growth at
those two stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $94.3 million, or 46.3%, to $297.8 million for
the nine months ended September 30, 2000, from $203.5 million for the nine
months ended September 30, 1999. The increase was primarily attributable to the
additional dealership operations acquired and increased variable expenses,
particularly incentive pay to employees, which increased as gross profit
increased. Additionally, we recorded a non-recurring, $1.5 million charge
related to unfavorable medical claims experience during the first quarter of
2000. Our medical plan was revised as of March 1, 2000. Selling, general and
administrative expenses increased as a percentage of gross profit to 74.4% from
74.0% due to under-performance in the Albuquerque and south Florida operations.
Excluding the healthcare charge, selling, general and administrative expenses
were 74.1% as a percentage of gross profit.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$17.5 million, or 82.2%, to $38.8 million for the nine months ended September
30, 2000, from $21.3 million for the nine months ended September 30, 1999. The
increase was due to increases in total debt outstanding and interest rates. The
increase in debt outstanding was primarily attributable to the floorplan
borrowings of the additional dealership operations acquired and additional
borrowings to complete acquisitions. Further, contributing to the increase was a
130 basis point increase in the weighted average LIBOR. Partially mitigating the
LIBOR increase was a 25 basis point rate reduction in the interest rate spread
charged on our floorplan notes payable, which was effective in May 1999.
OTHER INCOME, NET. Other income, net, increased $818,000 to $1,027,000
for the nine months ended September 30, 2000, from $209,000 for the nine months
ended September 30, 1999. The increase is due primarily to a $1.0 million gain
from the sale of a Chrysler franchise in Austin, Texas.
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LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, cash from
operations, our credit facility, which includes the floorplan tranche and the
acquisition tranche, and equity and debt offerings.
CASH FLOWS
OPERATING ACTIVITIES. During the first nine months of 2000 we generated
cash flow from operations of approximately $41.5 million, primarily from net
income plus depreciation. Excluding working capital changes, cash flows from
operating activities increased $11.8 million over the prior year period.
INVESTING ACTIVITIES. During the first nine months of 2000 we used
approximately $43.0 million for investing activities, primarily related to cash
paid in completing acquisitions, net of cash balances obtained in the
acquisitions. Additionally, we paid $12.5 million for purchases of property and
equipment, of which $6.2 million was used for the purchase of land and
construction of facilities for new or expanded operations.
FINANCING ACTIVITIES. During the first nine months of 2000 we obtained
approximately $2.3 million from net financing activities, primarily from
borrowings under our credit facility. Approximately $17.9 million was used to
repurchase shares, including approximately 1.2 million unregistered shares. In
March 1999, we completed offerings of 2 million shares of common stock and $100
million of senior subordinated notes with an interest rate of 10 7/8%. The net
proceeds from these offerings were approximately $138.8 million.
WORKING CAPITAL. At September 30, 2000, we had working capital of $91.7
million. Historically, we have funded our operations with internally generated
cash flow and borrowings. Certain manufacturers have minimum working capital
guidelines, which, under certain circumstances, may impair a subsidiary's
ability to make distributions to the parent company. While we cannot guarantee
it, based on current facts and circumstances, we believe we have adequate cash
flows coupled with borrowings under our credit facility to fund our current
operations.
NEW OPERATIONS. During 1999 we opened a new facility in south Florida.
Although revenues have experienced a positive trend and the operation is
generating positive cash flow, the new facility has not met our expectations.
Subsequent to September 30, 2000, a new operator was appointed for the south
Florida operations. As part of the management change, we repurchased 1.3 million
shares of our stock from the former operator and others for $14.4 million and
settled various contingent acquisition payments for $6.8 million.
CREDIT FACILITY
We have a $1 billion credit facility, which matures in December 2003.
The credit facility consists of two tranches: the floorplan and acquisition
tranches. The acquisition tranche totals $220 million and, as of October 31,
2000, $183 million was available, subject to a cash flow calculation and the
maintenance of certain financial ratios and various covenants.
CAPITAL EXPENDITURES
Our capital expenditures include expenditures to extend the useful life
of current facilities and expenditures to start or expand operations.
Historically, our annual capital expenditures exclusive of new or expanded
operations have approximately equaled our annual depreciation charge.
Expenditures relating to the construction or expansion of dealership facilities,
generally, are driven by new franchises being awarded to us by a manufacturer or
significant growth in sales at an existing facility. Although we believe that we
will be able to obtain sufficient capital to fund capital expenditures, we
cannot guarantee that such capital will be available to us at the time it is
required or on terms acceptable to us.
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ACQUISITION FINANCING
We anticipate that we will primarily use cash in completing our
acquisitions. We expect the cash needed to complete selective tuck-in
acquisitions will come from the operating cash flows of our existing
dealerships, borrowings under our credit facility, other borrowings, or equity
or debt offerings. Although we believe that we will be able to obtain sufficient
capital to fund acquisitions, we cannot guarantee that such capital will be
available to us at the time it is required or on terms acceptable to us.
STOCK REPURCHASE
The board of directors has authorized us to repurchase a portion of our
stock, subject to the restrictions of our various debt agreements. The most
restrictive of such agreements allows us to spend approximately 33 percent of
our cumulative net income to repurchase stock. In the first nine months of 2000
we repurchased 1.2 million shares for $15.1 million, excluding shares
repurchased to fulfill obligations under our employee stock purchase plan.
Subsequent to September 30, 2000, we repurchased 1.3 million shares for $14.4
million. As of October 7, 2000, we had the ability to repurchase, approximately,
an additional $4 million of our stock. Our ability to repurchase stock will
increase based on future net income, as discussed above.
CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS
This quarterly report includes certain "forward-looking statements"
within the meeting of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements include statements
regarding our plans, goals, beliefs or current expectations, including those
plans, goals, beliefs and expectations of our officers and directors with
respect to, among other things:
o the completion of pending and future acquisitions
o operating cash flows and availability of capital
o future stock repurchases
o capital expenditures
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results in the forward-looking statements for a
number of reasons, including;
o the future economic environment, including consumer
confidence, may affect the demand for new and used vehicles
and parts and service sales
o regulatory environment, adverse legislation, or unexpected
litigation
o our principal automobile manufacturers, especially Ford and
Toyota, may not continue to enjoy high customer satisfaction
with their products and they may not continue to support and
make high-demand vehicles available to us
o requirements imposed on us by automobile manufacturers may
affect our acquisitions and capital expenditures related to
our dealership facilities
o our dealership operations may not perform at expected levels
or achieve expected improvements
o we may not achieve expected future cost savings and our
future costs could be higher than we expected
o available capital resources and various debt agreements may
limit our ability to repurchase shares. Any repurchases of our
stock may be made, from time to time, in accordance with
applicable securities laws, in the open market or in privately
negotiated transactions at such time and in such amounts, as
we consider appropriate
This information and additional factors that could affect our operating
results and performance are described in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Cautionary Statement
About Forward-Looking Statements; - Dependence on Acquisitions for
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Growth; - Contingent Acquisition Payments; - Dependence on the Success of Our
Manufacturers; - Cyclicality; - Seasonality and - Additional Factors to
Consider, in our Form 10-K for the year ended December 31, 1999. We urge you to
carefully consider those factors.
All forward-looking statements attributable to us are qualified in
their entirety by this cautionary statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following information about our market sensitive financial
instruments updates the information provided as of December 31, 1999, in our
Annual Report on Form 10-K and constitutes a "forward-looking statement". Our
major market risk exposure is changing interest rates. Our policy is to manage
interest rates through use of a combination of fixed and floating rate debt.
Interest rate swaps may be used to adjust interest rate exposures when
appropriate, based upon market conditions. These swaps are entered into with
financial institutions with investment grade credit ratings, thereby minimizing
the risk of credit loss. All items described are non-trading.
Since December 31, 1999, our floorplan notes payable have increased due
primarily to acquisitions of additional dealership operations and increases in
inventory levels. As of September 30, 2000, there was $33 million outstanding
under the acquisition portion of the credit facility, a $23 million increase
since December 31, 1999. During the first nine months of 2000, we assumed $10.7
million in fixed rate debt in completing acquisitions. Additionally, there have
been no changes in the interest rate swap positions held by us, since December
31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, our 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 us that, in our opinion, based on current known facts and
circumstances, could reasonably be expected to have a material adverse effect on
our financial position.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
11.1 Statement re: computation of earnings per share is included
under Note 3 to the financial statements.
27.1 Financial Data Schedule.
B. REPORTS ON FORM 8-K:
None.
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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.
November 14, 2000 By: /s/ Scott L. Thompson
------------------ -------------------------------------
Date Scott L. Thompson,
Senior Vice President,
Chief Financial Officer and Treasurer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27.1 Financial Data Schedule
