<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 March 31, 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 22,420,127
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $121,263 $118,824
Accounts and notes receivable, net............................................ 38,424 35,296
Inventories, net.............................................................. 452,863 386,255
Deferred income taxes ........................................................ 8,313 8,619
Other assets.................................................................. 4,067 4,429
-------- --------
Total current assets................................................... 624,930 553,423
-------- --------
PROPERTY AND EQUIPMENT, net..................................................... 60,106 46,711
GOODWILL, net................................................................... 262,346 235,312
OTHER ASSETS.................................................................... 7,059 7,464
-------- --------
Total assets........................................................... $954,441 $842,910
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable....................................................... $428,769 $363,489
Current maturities of long-term debt.......................................... 1,929 1,076
Accounts payable and accrued expenses......................................... 107,875 108,730
-------- --------
Total current liabilities.............................................. 538,573 473,295
-------- --------
DEBT, net of current maturities................................................. 46,087 15,285
SENIOR SUBORDINATED NOTES....................................................... 96,966 97,889
DEFERRED INCOME TAXES........................................................... 3,336 3,217
OTHER LIABILITIES............................................................... 22,137 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, 22,435,255 and 21,801,367 issued................................ 224 218
Additional paid-in capital.................................................... 187,310 181,398
Retained earnings ............................................................ 60,718 51,705
Treasury stock, at cost, 66,126 and 78,609 shares............................. (910) (1,292)
-------- --------
Total stockholders' equity............................................. 247,342 232,029
-------- --------
Total liabilities and stockholders' equity............................. $954,441 $842,910
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES:
New vehicle .................................................................. $ 511,417 $ 270,118
Used vehicle ................................................................. 249,697 159,779
Parts and service ............................................................ 72,844 43,774
Other dealership revenues, net................................................ 25,953 15,680
--------- ----------
Total revenues......................................................... 859,911 489,351
COST OF SALES:
New vehicle .................................................................. 471,807 247,373
Used vehicle ................................................................. 229,625 146,148
Parts and service ............................................................ 33,129 19,636
--------- ----------
Total cost of sales.................................................... 734,561 413,157
GROSS PROFIT.................................................................... 125,350 76,194
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......................................................... 95,820 58,278
DEPRECIATION EXPENSE............................................................ 1,750 1,033
AMORTIZATION EXPENSE............................................................ 2,011 1,058
--------- ----------
Income from operations................................................. 25,769 15,825
OTHER INCOME AND EXPENSES:
Floorplan interest expense.................................................... (8,373) (3,847)
Other interest expense, net................................................... (3,883) (1,786)
Other income, net............................................................. 1,024 36
--------- ----------
INCOME BEFORE INCOME TAXES...................................................... 14,537 10,228
PROVISION FOR INCOME TAXES...................................................... 5,524 4,071
--------- ----------
NET INCOME...................................................................... $ 9,013 $ 6,157
========= ==========
Earnings per share:
Basic......................................................................... $ 0.40 $ 0.33
Diluted....................................................................... $ 0.40 $ 0.31
Weighted average shares outstanding:
Basic......................................................................... 22,384,332 18,921,723
Diluted....................................................................... 22,781,689 19,989,005
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 9,013 $ 6,157
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization............................................... 3,761 2,091
Deferred income taxes....................................................... 311 (150)
Provision for doubtful accounts and uncollectible notes..................... 356 186
Loss on sale of assets...................................................... 17 --
Gain on sale of franchise................................................... (1,048) --
Changes in assets and liabilities -
Accounts receivable....................................................... (688) (572)
Inventories............................................................... (33,009) (31,439)
Other assets.............................................................. 355 326
Floorplan notes payable................................................... 31,271 32,882
Accounts payable and accrued expenses..................................... 4,543 4,224
--------- ----------
Total adjustments..................................................... 5,869 7,548
--------- ----------
Net cash provided by operating activities..................... 14,882 13,705
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable................................................. (914) (502)
Collections on notes receivable.............................................. 460 246
Purchases of property and equipment.......................................... (4,760) (8,914)
Proceeds from sales of property and equipment................................ 443 5,729
Proceeds from sales of franchises............................................ 9,700 --
Cash paid in acquisitions, net of cash received.............................. (37,490) (18,716)
--------- ----------
Net cash used in investing activities......................... (32,561) (22,157)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under floorplan facilities for acquisition financing............ -- (79,851)
Net (payments) borrowings on acquisition tranche of
revolving credit facility.................................................. 21,000 (42,000)
Principal payments of long-term debt......................................... (485) (2,705)
Borrowings of long-term debt................................................. 489 144
Proceeds from senior subordinated notes offering, net........................ -- 94,781
Purchase of senior subordinated notes........................................ (957) --
Proceeds from common stock offering, net..................................... -- 44,070
Proceeds from issuance of common stock to benefit plans...................... 856 242
Purchase of treasury stock................................................... (785) (643)
--------- ----------
Net cash provided by financing activities..................... 20,118 14,038
--------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS....................................... 2,439 5,586
CASH AND CASH EQUIVALENTS, beginning of period.................................. 118,824 66,443
--------- ----------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 121,263 $ 72,029
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest............................................................... $ 14,911 $ 5,425
Taxes.................................................................. $ 140 $ 1,223
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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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/Reclassifications
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.
Certain reclassifications have been made to prior year financial statements to
conform them to the current year presentation.
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.
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:
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
<S> <C> <C>
Common stock outstanding, beginning of period........................................... 21,801,367 18,267,515
Weighted average common stock issued -
Acquisitions....................................................................... 633,888 60,644
Employee Stock Purchase Plan....................................................... 72,483 20,297
Stock offering..................................................................... -- 622,222
Less: Weighted average treasury shares repurchased.................................... (123,406) (48,955)
---------- ----------
Shares used in computing basic earnings per share....................................... 22,384,332 18,921,723
Dilutive effect of stock options, net of assumed repurchase of treasury stock......... 397,357 1,067,282
---------- ----------
Shares used in computing diluted earnings per share..................................... 22,781,689 19,989,005
========== ==========
</TABLE>
4. BUSINESS COMBINATIONS:
During the first three 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 $37.5
million in cash, net of cash received, 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 $ 36.0 million
of goodwill, which is being amortized over 40 years.
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 March 31, 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>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
(in millions, except per share amounts)
<S> <C> <C>
Revenues .............................................................. $859.9 $776.6
Gross profit .......................................................... 125.4 115.5
Income from operations ................................................ 25.8 25.9
Net income ............................................................ 9.0 9.1
Basic earnings per share .............................................. 0.40 0.41
Diluted earnings per share ............................................ 0.40 0.39
</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.
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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 inconsequential 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. Separate financial statements of the Subsidiary Guarantors are
not included because (i) all Subsidiary Guarantors have jointly and severally
guaranteed the Notes on a full and unconditional basis, to the maximum extent
permitted by law, (ii) the aggregate assets, liabilities, earnings and equity of
the Subsidiary Guarantors are substantially equivalent to the assets,
liabilities, earnings and equity of the parent on a consolidated basis, and
(iii) management has determined that such information is not material to
investors.
7
<PAGE> 8
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 19 collision service centers.
We expect a significant portion of our future growth to come from acquisitions
of additional dealerships.
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 generally varies between approximately 7.0% and
85.0%, 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.
SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2000 AND MARCH 31, 1999
NEW VEHICLE DATA
<TABLE>
<CAPTION>
(dollars in thousands,
except per unit amounts)
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 20,779 11,324 9,455 83.5 %
Retail sales revenues....................... $511,417 $270,118 $241,299 89.3 %
Gross profit................................ $39,610 $22,745 $16,865 74.1 %
Average gross profit per retail unit sold... $1,906 $2,009 $(103) (5.1)%
Gross margin................................ 7.7% 8.4% (0.7)%
</TABLE>
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USED VEHICLE DATA
<TABLE>
<CAPTION>
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 14,651 10,021 4,630 46.2%
Retail sales revenues (1)................... $198,602 $131,713 $66,889 50.8%
Gross profit................................ $20,072 $13,631 $6,441 47.3%
Average gross profit per retail unit sold... $1,370 $1,360 $10 0.7%
Gross margin................................ 10.1% 10.3% (0.2)%
</TABLE>
- ------------------
(1) Excludes wholesale revenues.
PARTS AND SERVICE DATA
<TABLE>
<CAPTION>
(dollars in thousands) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Sales revenues.............................. $72,844 $43,774 $29,070 66.4%
Gross profit................................ $39,715 $24,138 $15,577 64.5%
Gross margin................................ 54.5% 55.1% (0.6)%
</TABLE>
OTHER DEALERSHIP REVENUES, NET
<TABLE>
<CAPTION>
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail new and used unit sales.............. 35,430 21,345 14,085 66.0 %
Retail sales revenues....................... $25,953 $15,680 $10,273 65.5 %
Net revenues per retail unit sold........... $733 $735 $(2) (0.3)%
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1999
REVENUES. Revenues increased $370.5 million, or 75.7%, to $859.9
million for the three months ended March 31, 2000, from $489.4 million for the
three months ended March 31, 1999. New vehicle revenues increased primarily due
to strong customer acceptance of our products, particularly Ford, Honda, Lexus,
Nissan, and Toyota, 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 Florida and Dallas. The increase in parts and service revenues was
due to the additional dealership operations acquired, coupled with strong
organic growth in the Florida market. Other dealership revenues increased
primarily due to an increase in the number of retail new and used vehicle sales.
GROSS PROFIT. Gross profit increased $49.2 million, or 64.6%, to $125.4
million for the three months ended March 31, 2000, from $76.2 million for the
three months ended March 31, 1999. The increase was attributable to increased
revenues as gross margin declined to 14.6% for the three months ended March 31,
2000, from 15.6% for the three months ended March 31, 1999. The gross margin
declined as lower margin new vehicle revenues increased as a percentage of total
revenues to 59.5% from 55.2% and two
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recent platform acquisitions with lower margins joined the group. The gross
margin on new retail vehicle sales declined to 7.7% 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 $37.5 million, or 64.3%, to $95.8 million for
the three months ended March 31, 2000, from $58.3 million for the three months
ended March 31, 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 quarter. Our medical plan was
revised as of March 1, 2000. Selling, general and administrative expenses
decreased slightly as a percentage of gross profit to 76.4% from 76.5% due
primarily to increased operating leverage. Excluding the healthcare charge,
selling, general and administrative expenses declined as a percentage of gross
profit to 75.2%.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$6.7 million, or 119.6%, to $12.3 million for the three months ended March 31,
2000, from $5.6 million for the three months March 31, 1999. The increase was
primarily attributable to the floorplan interest expense of the additional
dealership operations acquired and additional interest expense due to borrowings
to complete acquisitions. Contributing to the increase was a 90 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.
OTHER INCOME, NET. Other income, net, increased $988,000 to $1,024,000
for the three months ended March 31, 2000, from $36,000 for the three months
ended March 31, 1999. The increase is due primarily to a $1.0 million gain from
the sale of a Chrysler franchise in Austin, Texas.
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 three months of 2000 we
generated cash flow from operations of approximately $ 14.9 million, primarily
from net income plus depreciation, an increase of $ 1.2 million compared to the
same period in the prior year. Excluding working capital changes, cash flows
from operating activities increased $ 4.1 million over the prior year period.
INVESTING ACTIVITIES. During the first three months of 2000 we used
approximately $ 32.6 million for investing activities, primarily related to cash
paid in completing acquisitions, net of cash balances obtained in the
acquisitions. Additionally, we paid $ 4.8 million for purchases of property and
equipment, of which $ 2.1 million was used for the purchase of land and
construction of facilities for new or expanded operations.
FINANCING ACTIVITIES. During the first three months of 2000 we obtained
approximately $ 20.1 million from financing activities, primarily borrowings
under our credit facility. 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 was
approximately $138.8 million.
WORKING CAPITAL. At March 31, 2000, we had working capital of $86.4
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
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and circumstances, we believe we have adequate cash flows coupled with
borrowings under our credit facility to fund our current operations.
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 May 1, 2000, $
189 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.
ACQUISITION FINANCING
We anticipate that our primary use of cash will be for the completion
of acquisitions. We expect the cash needed to complete our 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.
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, beliefs or current expectations, including those plans,
beliefs and expectations of our officers and directors with respect to, among
other things:
o future acquisitions;
o expected future cost savings;
o future capital expenditures;
o trends affecting our future financial condition or results of
operations; and
o our business strategy regarding future operations.
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results for a number of reasons, including;
o industry conditions;
o future demand for new and used vehicles;
o restrictions imposed on us by automobile manufacturers;
o the ability to obtain the consents of automobile manufacturers to our
acquisitions;
o the availability of capital resources; and
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<PAGE> 12
o the willingness of acquisition candidates to accept our common stock
as currency.
This information and additional factors that could affect our operating
results and performance are described in our filings with the SEC. 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 March 31, 2000, there was $ 31 million outstanding under
the acquisition portion of the credit facility, a $ 21 million increase since
December 31, 1999. During the first quarter of 2000, we assumed $ 10.7 million
in fixed rate debt in completing acquisitions. Additionally, there have been no
changes in the interest 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
We have entered into agreements to purchase all of the outstanding
capital stock or purchase certain assets and assume certain liabilities of
various automobile dealerships for cash and shares of our common stock. The
following is a summary of the transactions in which stock was issued:
<TABLE>
<CAPTION>
DATE SECURITIES
DATE OF AGREEMENT ISSUED ACQUISITION SHARES
- ----------------------------- -------------------------- --------------------------- -----------
<S> <C> <C> <C>
July 28, 1999 January 3, 2000 Bohn Automotive Group 300,998
August 10, 1999 February 16, 2000 Ira Automotive Group 332,890
</TABLE>
We are relying on Regulation D and Section 4(2) under the Securities Act of
1933, as amended, as an exemption from registration of the Common Stock issued
in the acquisitions. We believe we are justified in relying on such exemption
since all of the stockholders of the groups who have received shares of our
common stock are "accredited investors" under Regulation D.
12
<PAGE> 13
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:
On March 10, 2000, the Company filed a Current Report of Form 8-K reporting
under Item 5 thereof and including exhibits under Item 7 thereof.
13
<PAGE> 14
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 15, 2000 By:/s/ Scott L. Thompson
- -------------- --------------------------------------------
Date Scott L. Thompson, Senior Vice President,
Chief Financial Officer and Treasurer
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
11.1 Statement re: computation of earnings per share is included under
Note 3 to the financial statements.
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 121,263
<SECURITIES> 0
<RECEIVABLES> 38,424
<ALLOWANCES> 0
<INVENTORY> 452,863
<CURRENT-ASSETS> 624,930
<PP&E> 60,106
<DEPRECIATION> 0
<TOTAL-ASSETS> 954,441
<CURRENT-LIABILITIES> 538,573
<BONDS> 143,053
0
0
<COMMON> 224
<OTHER-SE> 247,118
<TOTAL-LIABILITY-AND-EQUITY> 954,441
<SALES> 833,958
<TOTAL-REVENUES> 859,911
<CGS> 734,561
<TOTAL-COSTS> 734,561
<OTHER-EXPENSES> 99,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,256
<INCOME-PRETAX> 14,537
<INCOME-TAX> 5,524
<INCOME-CONTINUING> 9,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,013
<EPS-BASIC> .40
<EPS-DILUTED> .40
</TABLE>
