<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 June 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 21,419,191
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -----------
2000 1999
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 114,419 $ 118,824
Accounts and notes receivable, net............................ 45,306 35,296
Inventories, net.............................................. 464,589 386,255
Deferred income taxes ........................................ 8,083 8,619
Other assets.................................................. 4,647 4,429
----------- -----------
Total current assets................................... 637,044 553,423
----------- -----------
PROPERTY AND EQUIPMENT, net..................................... 62,439 46,711
GOODWILL, net................................................... 260,641 235,312
OTHER ASSETS.................................................... 7,002 7,464
----------- -----------
Total assets........................................... $ 967,126 $ 842,910
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable....................................... $ 424,731 $ 363,489
Current maturities of long-term debt.......................... 1,770 1,076
Accounts payable and accrued expenses......................... 115,677 108,730
----------- -----------
Total current liabilities.............................. 542,178 473,295
----------- -----------
DEBT, net of current maturities................................. 57,178 15,285
SENIOR SUBORDINATED NOTES....................................... 97,001 97,889
DEFERRED INCOME TAXES........................................... 2,835 3,217
OTHER LIABILITIES............................................... 21,529 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.................................... 187,024 181,398
Retained earnings ............................................ 72,646 51,705
Treasury stock, at cost, 1,003,865 and 78,609 shares.......... (13,489) (1,292)
----------- -----------
Total stockholders' equity............................. 246,405 232,029
----------- -----------
Total liabilities and stockholders' equity............. $ 967,126 $ 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
New vehicle ............................... $ 559,819 $ 362,409 $ 1,071,236 $ 632,527
Used vehicle .............................. 266,381 191,560 516,078 351,339
Parts and service ......................... 75,223 51,498 148,067 95,272
Other dealership revenues, net............. 28,714 19,932 54,667 35,612
------------ ------------ ------------ ------------
Total revenues...................... 930,137 625,399 1,790,048 1,114,750
COST OF SALES:
New vehicle ............................... 516,101 332,915 987,908 580,288
Used vehicle .............................. 244,691 175,636 474,316 321,785
Parts and service ......................... 33,648 23,191 66,777 42,827
------------ ------------ ------------ ------------
Total cost of sales................. 794,440 531,742 1,529,001 944,900
GROSS PROFIT................................. 135,697 93,657 261,047 169,850
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES...................... 99,028 68,621 194,848 126,899
DEPRECIATION EXPENSE......................... 1,920 1,144 3,670 2,177
AMORTIZATION EXPENSE......................... 2,127 1,365 4,138 2,423
------------ ------------ ------------ ------------
Income from operations.............. 32,622 22,527 58,391 38,351
OTHER INCOME AND EXPENSES:
Floorplan interest expense................. (9,582) (4,338) (17,955) (8,185)
Other interest expense, net................ (3,799) (3,015) (7,682) (4,801)
Other income (expense), net................ (1) 69 1,023 105
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES................... 19,240 15,243 33,777 25,470
PROVISION FOR INCOME TAXES................... 7,311 6,066 12,835 10,137
------------ ------------ ------------ ------------
NET INCOME................................... $ 11,929 $ 9,177 $ 20,942 $ 15,333
============ ============ ============ ============
Earnings per share:
Basic...................................... $ 0.55 $ 0.44 $ 0.95 $ 0.77
Diluted.................................... $ 0.54 $ 0.42 $ 0.93 $ 0.73
Weighted average shares outstanding:
Basic...................................... 21,846,856 20,947,850 22,115,594 19,940,384
Diluted.................................... 22,230,813 21,960,640 22,506,251 20,980,269
</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>
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 20,942 $ 15,333
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization....................................... 7,808 4,600
Deferred income taxes............................................... 536 (279)
Provision for doubtful accounts and uncollectible notes............. 596 447
Loss (gain) on sale of assets....................................... 15 (38)
Gain on sale of franchise........................................... (1,048) --
Changes in assets and liabilities -
Accounts receivable............................................... (7,906) (5,907)
Inventories....................................................... (44,606) (42,098)
Other assets...................................................... (470) 843
Floorplan notes payable........................................... 27,233 48,554
Accounts payable and accrued expenses............................. 11,286 15,319
---------- ----------
Total adjustments............................................. (6,556) 21,441
---------- ----------
Net cash provided by operating activities............. 14,386 36,774
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable......................................... (1,452) (1,080)
Collections on notes receivable...................................... 834 444
Purchases of property and equipment.................................. (9,103) (12,798)
Proceeds from sales of property and equipment........................ 535 5,743
Proceeds from sales of franchises.................................... 9,700 --
Cash paid in acquisitions, net of cash received...................... (37,490) (76,541)
---------- ----------
Net cash used in investing activities................. (36,976) (84,232)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under floorplan facilities for acquisition financing.... -- (20,388)
Net borrowings (payments) on acquisition tranche of
revolving credit facility.......................................... 32,000 (42,000)
Principal payments of long-term debt................................. (742) (2,863)
Borrowings of long-term debt......................................... 678 192
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.............. 1,817 1,872
Purchase of treasury stock........................................... (14,611) (2,145)
---------- ----------
Net cash provided by financing activities............. 18,185 73,519
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................... (4,405) 26,061
CASH AND CASH EQUIVALENTS, beginning of period.......................... 118,824 66,443
---------- ----------
CASH AND CASH EQUIVALENTS, end of period................................ $ 114,419 $ 92,504
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest....................................................... $ 25,603 $ 9,647
Taxes.......................................................... $ 9,644 $ 10,614
</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/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.
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:
5
<PAGE> 6
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock outstanding, beginning of period............. 22,435,255 20,457,582 21,801,367 18,267,515
Weighted average common stock issued -
Acquisitions......................................... -- 476,193 633,888 366,820
Employee Stock Purchase Plan......................... 93,862 52,006 119,414 46,589
Stock offering....................................... -- -- -- 1,318,765
Stock options exercised.............................. 1,723 16,791 862 8,489
Less: Weighted average treasury shares repurchased...... (683,984) (54,722) (439,937) (67,794)
--------------- ------------ ------------- -------------
Shares used in computing basic earnings per share......... 21,846,856 20,947,850 22,115,594 19,940,384
Dilutive effect of stock options, net of assumed
repurchase of treasury stock......................... 383,957 1,012,790 390,657 1,039,885
-------------- ------------ ------------ ------------
Shares used in computing diluted earnings per share....... 22,230,813 21,960,640 22,506,251 20,980,269
============== ============ ============ ============
</TABLE>
4. BUSINESS COMBINATIONS:
During the first six 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 June 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>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---- ----
(in millions, except per share amounts)
<S> <C> <C>
Revenues ............................... $1,790.0 $1,621.3
Gross profit ........................... 261.0 239.0
Income from operations ................. 58.4 57.0
Net income ............................. 20.9 21.6
Basic earnings per share ............... 0.95 0.97
Diluted earnings per share ............. 0.93 0.93
</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
6
<PAGE> 7
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 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
JUNE 30, 2000 AND JUNE 30, 1999
NEW VEHICLE DATA
(dollars in thousands,
except per unit amounts)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 22,687 15,046 7,641 50.8%
Retail sales revenues....................... $559,819 $362,409 $197,410 54.5%
Gross profit................................ $43,718 $29,494 $14,224 48.2%
Average gross profit per retail unit sold... $1,927 $1,960 $(33) (1.7)%
Gross margin................................ 7.8% 8.1% (0.3)%
</TABLE>
8
<PAGE> 9
USED VEHICLE DATA
(dollars in thousands,
except per unit amounts)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 15,630 11,651 3,979 34.2%
Retail sales revenues (1)................... $214,293 $156,634 $57,659 36.8%
Gross profit................................ $21,690 $15,924 $5,766 36.2%
Average gross profit per retail unit sold... $1,388 $1,367 $21 1.5%
Gross margin................................ 10.1% 10.2% (0.1)%
</TABLE>
------------------
(1) Excludes wholesale revenues.
PARTS AND SERVICE DATA
(dollars in thousands)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Sales revenues.............................. $75,223 $51,498 $23,725 46.1%
Gross profit................................ $41,575 $28,307 $13,268 46.9%
Gross margin................................ 55.3% 55.0% 0.3%
</TABLE>
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands,
except per unit amounts)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail new and used unit sales.............. 38,317 26,697 11,620 43.5%
Retail sales revenues....................... $28,714 $19,932 $8,782 44.1%
Net revenues per retail unit sold........... $749 $747 $2 0.3%
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased $304.7 million, or 48.7%, to $930.1
million for the three months ended June 30, 2000, from $625.4 million for the
three months ended June 30, 1999. Revenue trends were strong in West Texas,
Denver and Houston, offset by declines in New Mexico. Subsequent to June 30,
2000, a new president was appointed for the New Mexico operations. New vehicle
revenues increased primarily due to strong customer acceptance of our products,
particularly Ford, Honda, Lexus, Nissan, and Toyota, partially offset by some
weakness in the Acura 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
expanded operations in Oklahoma, Florida and Dallas, 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 and Austin markets. Other dealership revenues increased
primarily due to an increase in the number of retail new and used vehicle sales.
GROSS PROFIT. Gross profit increased $42.0 million, or 44.8%, to
$135.7 million for the three months ended June 30, 2000, from $93.7 million for
the three months ended June 30, 1999. The increase was attributable to
increased revenues as gross margin declined to 14.6% for the three months ended
June 30,
9
<PAGE> 10
2000, from 15.0% for the three months ended June 30, 1999. The gross margin
declined as lower margin new vehicle revenues increased as a percentage of
total revenues to 60.2% from 57.9% and two recent platform acquisitions with
lower margins joined the group. The gross margin on new retail vehicle sales
declined to 7.8% from 8.1%, 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 $30.4 million, or 44.3%, to $99.0 million for
the three months ended June 30, 2000, from $68.6 million for the three months
ended June 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 decreased slightly as a percentage of gross
profit to 73.0% from 73.3% due primarily to increased operating leverage.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$6.0 million, or 81.1%, to $13.4 million for the three months ended June 30,
2000 from $7.4 million for the three months June 30, 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 150
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.
SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND JUNE 30, 1999
NEW VEHICLE DATA
(dollars in thousands,
except per unit amounts)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 43,466 26,370 17,096 64.8%
Retail sales revenues....................... $1,071,236 $632,527 $438,709 69.4%
Gross profit................................ $83,328 $52,239 $31,089 59.5%
Average gross profit per retail unit sold... $1,917 $1,981 $(64) (3.2)%
Gross margin................................ 7.8% 8.3% (0.5)%
</TABLE>
USED VEHICLE DATA
(dollars in thousands,
except per unit amounts)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail unit sales........................... 30,281 21,672 8,609 39.7%
Retail sales revenues (1)................... $412,895 $288,347 $124,548 43.2%
Gross profit................................ $41,762 $29,554 $12,208 41.3%
Average gross profit per retail unit sold... $1,379 $1,364 $15 1.1%
Gross margin................................ 10.1% 10.2% (0.1)%
</TABLE>
------------------
(1) Excludes wholesale revenues.
10
<PAGE> 11
PARTS AND SERVICE DATA
(dollars in thousands)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Sales revenues.............................. $148,067 $95,272 $52,795 55.4%
Gross profit................................ $81,290 $52,445 $28,845 55.0%
Gross margin................................ 54.9% 55.0% (0.1)%
</TABLE>
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands,
except per unit amounts)
<TABLE>
<CAPTION>
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Retail new and used unit sales.............. 73,747 48,042 25,705 53.5%
Retail sales revenues....................... $54,667 $35,612 $19,055 53.5%
Net revenues per retail unit sold........... $741 $741 $0 0%
</TABLE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased $675.2 million, or 60.6%, to $1,790.0
million for the six months ended June 30, 2000, from $1,114.8 million for the
six months ended June 30, 1999. New vehicle revenues increased primarily due to
strong customer acceptance of our products, particularly Ford, Honda, Lexus,
Nissan and Toyota, partially offset by some weakness in the Acura 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.
GROSS PROFIT. Gross profit increased $91.1 million, or 53.6%, to
$261.0 million for the six months ended June 30, 2000, from $169.9 million for
the six months ended June 30, 1999. The increase was attributable to increased
revenues as gross margin declined to 14.6% for the six months ended June 30,
2000, from 15.2% for the six months ended June 30, 1999. The gross margin
declined as lower margin new vehicle revenues increased as a percentage of
total revenues to 59.8% from 56.7% 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 $67.9 million, or 53.5%, to $194.8 million
for the six months ended June 30, 2000, from $126.9 million for the six months
ended June 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. Our medical
plan was revised as of March 1, 2000. Selling, general and administrative
expenses decreased slightly as a percentage of gross profit to 74.6% from 74.7%
due primarily to increased operating leverage. Excluding the healthcare charge,
selling, general and administrative expenses declined as a percentage of gross
profit to 74.1%.
11
<PAGE> 12
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$12.6 million, or 96.9%, to $25.6 million for the six months ended June 30,
2000, from $13.0 million for the six months ended June 30, 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 120
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 $918,000 to $1,023,000
for the six months ended June 30, 2000, from $105,000 for the six months ended
June 30, 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 six months of 2000 we generated
cash flow from operations of approximately $14.4 million, primarily from net
income plus depreciation, a decrease of $22.4 million compared to the same
period in the prior year. The decline was caused primarily by the purchase of
additional inventory. Excluding working capital changes, cash flows from
operating activities increased $8.8 million over the prior year period.
INVESTING ACTIVITIES. During the first six months of 2000 we used
approximately $37.0 million for investing activities, primarily related to cash
paid in completing acquisitions, net of cash balances obtained in the
acquisitions. Additionally, we paid $9.1 million for purchases of property and
equipment, of which $4.1 million was used for the purchase of land and
construction of facilities for new or expanded operations.
FINANCING ACTIVITIES. During the first six months of 2000 we obtained
approximately $18.2 million from financing activities, primarily from
borrowings under our credit facility. Approximately $14.6 million was used to
purchase shares to be held in treasury, including approximately 950,000
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 June 30, 2000, we had working capital of $94.9
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, they have not met our
expectations. The operation is generating positive cash flow, but may require
additional capital and or operational changes to meet our expectations.
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 August 1,
2000, $189 million was available, subject to a cash flow calculation and the
maintenance of certain financial ratios and various covenants.
12
<PAGE> 13
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
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.
13
<PAGE> 14
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 June 30, 2000, there was $42 million outstanding
under the acquisition portion of the credit facility, a $32 million increase
since December 31, 1999. During the first six 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
At the May 24, 2000 Annual Meeting of Stockholders, our stockholders
voted on four matters.
(1) Election of two Directors:
The stockholders elected the two nominees as directors for
three-year terms based on the following voting results:
VOTES CAST:
-------------------------------
AGAINST OR
NOMINEE ELECTED FOR WITHHELD
------------------------------- --------------- -----------
B.B. Hollingsworth, Jr. 20,398,361 238,231
Robert E. Howard, II 20,397,961 238,631
14
<PAGE> 15
(2) Approval of amendment to 1996 Stock Incentive Plan:
The stockholders approved the amendment to the 1996 Stock
Incentive Plan. The results of the voting were as follows:
For 16,985,512
Against 1,055,323
Abstain 27,182
(3) Approval of amendment to 1998 Employee Stock Purchase Plan:
The stockholders approved the amendment to the 1998 Employee
Stock Purchase Plan. The results of the voting were as
follows:
For 17,768,768
Against 268,196
Abstain 31,053
(4) Appointment of Independent Public Accountants:
The stockholders ratified the appointment of Arthur Andersen
LLP as the Company's independent public accountants for 2000.
The results of the voting were as follows:
For 20,608,506
Against 1,809
Abstain 26,277
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.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Group 1 Automotive, Inc.
August 14, 2000 By:/s/ Scott L. Thompson
---------------- ---------------------
Date Scott L. Thompson, Senior Vice President,
Chief Financial Officer and Treasurer
16
<PAGE> 17
EXHIBIT INDEX
11.1 Statement re: computation of earnings per share is included under
Note 3 to the financial statements.
27.1 Financial Data Schedule.
