________________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number 1-12297
UNITED AUTO GROUP, INC.
(Exact name of registrant as specified in its
charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
375 Park Avenue
New York, New York
(Address of principal executive offices)
22-3086739
(IRS Employer
Identification Number)
10152
(Zip Code)
Registrant’s telephone number, including area code: (212)
223-3300
Securities registered pursuant to Section 12(b) of the Act:
| |
|
|
|
|
Name of each Exchange |
| Title of each class |
|
on which registered |
|
|
|
|
Voting Common Stock, par value $0.0001 per share |
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
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. [X] Yes [ ] No.
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the
voting common stock held by non-affiliates as of March 22,
2000 was $120,978,314.
As of March 22, 2000, there were 20,685,859 shares of voting
common stock outstanding.
Portions of the registrant’s proxy statement to be filed in
connection with the annual meeting of shareholders, presently
scheduled to be held on May 9, 2000, are incorporated by
reference in Part III of this Form 10-K.
TABLE OF CONTENTS
TABLE OF CONTENTS
| |
|
|
|
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
PART I |
|
|
|
|
|
|
|
|
|
|
Item 1. |
|
Business |
|
|
1 |
|
|
|
|
|
|
|
Item 2. |
|
Properties |
|
|
4 |
|
|
|
|
|
|
|
Item 3. |
|
Legal Proceedings |
|
|
4 |
|
|
|
|
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Securityholders |
|
|
4 |
|
|
|
PART II |
|
|
|
|
|
|
|
|
|
|
Item 5. |
|
Market for Registrant’s Common Equity and Related
Stockholder Matters |
|
|
5 |
|
|
|
|
|
|
|
Item 6. |
|
Selected Consolidated Financial Data |
|
|
6 |
|
|
|
|
|
|
|
Item 7. |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
|
|
7 |
|
|
|
|
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures about Market Risk |
|
|
14 |
|
|
|
|
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
|
|
14 |
|
|
|
|
|
|
|
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure |
|
|
14 |
|
|
|
PART III |
|
|
|
|
|
|
|
|
|
|
Item 10. |
|
Directors and Executive Officers of the Registrant |
|
|
15 |
|
|
|
|
|
|
|
Item 11. |
|
Executive Compensation |
|
|
15 |
|
|
|
|
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management |
|
|
15 |
|
|
|
|
|
|
|
Item 13. |
|
Related Party Transactions and Section 16(a) Beneficial
Ownership Reporting Compliance |
|
|
15 |
|
|
|
PART IV |
|
|
|
|
|
|
|
|
|
|
Item 14. |
|
Exhibits, Financial Statement Schedules and Reports on Form
8-K |
|
|
17 |
|
i
PART I
ITEM 1. BUSINESS
Overview
United Auto Group, Inc. (“UAG” or the
“Company”) is a leading acquirer, consolidator and
operator of franchised automobile and light truck dealerships and
related businesses. At the end of 1999, the Company operated
franchises located in 16 states and Puerto Rico. In addition, the
Company made an investment in two retail automotive dealerships
in Brazil in November 1999. As an integral part of its
dealership operations, UAG also sells used vehicles. All of
UAG’s franchised dealerships include integrated service and
parts operations, which are an important source of recurring
revenues. In addition, UAG dealerships market a complete line of
aftermarket automotive products and services through its wholly
owned subsidiaries United Auto Care, Inc. (“UAC”) and
United Auto Care Products, Inc. (“UAC Products”).
UAG was incorporated in the State of Delaware in
December 1990 and commenced dealership operations in
October 1992. Unless the context otherwise requires,
references herein to “Common Stock” are to the
Company’s Voting Common Stock, par value $0.0001 per share.
The Company was formed to capitalize on consolidation
opportunities within the highly fragmented automotive retailing
industry by acquiring, consolidating and operating large
automobile retailers and related businesses. As capital
requirements to operate dealerships continue to increase and many
owners who were granted franchises in the 1950s and 1960s
approach retirement age, many individual dealers are seeking exit
opportunities. These conditions present attractive consolidation
opportunities for larger automobile retailers such as UAG.
UAG purchases substantially all of its new car inventories
directly from manufacturers. Each of the Company’s
dealerships operates pursuant to a franchise agreement between
the applicable manufacturer and the subsidiary of the Company
that operates such dealership. In accordance with the individual
franchise agreements, each dealership is subject to certain
rights and restrictions typical of the industry. The ability of
manufacturers to influence the operations of a dealership, or the
loss of a franchise agreement, could have a negative impact on
the Company’s operating results. Manufacturers allocate
inventory based on the size and location of dealerships, but
actual shipments result from negotiations with individual
dealers. The Company believes that larger dealers, such as UAG,
are better positioned to secure favorable inventory shipments and
optimize manufacturers’ allocations. UAG finances its
inventory purchases through revolving credit arrangements known
in the industry as floor plan facilities.
Business Strategy
UAG seeks to be a leader in the consolidation of the automotive
retailing industry and to increase stockholder value through a
business strategy that includes the following principal elements:
Acquire and Integrate Profitable Dealership Operations
UAG seeks to capitalize on the continuing consolidation in the
U.S. automotive retailing industry by selectively acquiring
dealerships with significant earnings growth potential. The
Company principally targets dealerships or dealership groups with
established records of profitability as well as with experienced
management willing to remain in place. The Company focuses on
opportunities in geographic markets with above-average projected
population and job growth and attempts to create regional hubs of
dealerships that will be able to share administrative and other
operations to reduce costs.
The Company’s acquisition program has been specifically
tailored to address dealers’ desire to retain a management
role in their businesses while achieving personal liquidity.
Owners of acquired dealerships typically continue as dealership
managers. The Company believes it provides dealership managers
additional management tools, and that its economies of scale,
marketing expertise and corporate resources act as catalysts for
continual dealership growth. In addition, the dealer may retain
an equity interest in the business through the ownership of
capital stock and/or stock options of UAG.
1
Grow Higher-Margin Operating Businesses
UAG is focused on increasing higher-margin businesses including
the retail sale of used vehicles, aftermarket products, service,
parts and collision repair services.
Used Vehicles. Used vehicle sales by franchised dealers,
with average prices approximating 60% of new vehicle prices,
typically generate higher gross margins as a percentage of sales
value than new car sales because of limited comparability among
used vehicles and the somewhat subjective nature of their
valuation. Consumer acceptance of used vehicle purchasing has
grown, due principally to (i) an increase in the
availability of late-model, low-mileage used vehicles due in part
to the large supply of vehicles coming off short-term leases,
(ii) improvements in the quality of motor vehicles and
(iii) increases in the prices of new vehicles.
UAG believes that through its new vehicle franchises, it enjoys
significant advantages in sourcing used vehicles over both
independent and chain used-vehicle companies. Specifically, the
Company has access to (i) a steady supply of used vehicles
accepted as trade-ins for new vehicle purchases, (ii) off-lease
vehicles that were originally leased through the new vehicle
franchise and (iii) used vehicle auctions open only to new
vehicle dealers. In addition, only new vehicle franchises are
able to sell used vehicles certified by the manufacturer under
programs through which the manufacturer supports specific
high-quality used cars with extended warranties and attractive
financing options.
Aftermarket Products. Each sale of a new or used vehicle
provides the opportunity for the Company to sell aftermarket
products. Aftermarket products include finance, warranty,
extended service and maintenance contracts, as well as
accessories such as radios, cellular phones, alarms, custom
wheels, paint sealants and fabric protectors. In addition, the
Company receives fees for placing financing and lease contracts.
Service and Parts. Each of UAG’s new vehicle
dealerships offers a fully integrated service and parts
department. The service and parts business provides an important
recurring revenue stream to the Company’s dealerships, which
may help to mitigate the effects of downturns in the automobile
sales cycle. Unlike independent service shops or used car
dealerships with service operations, UAG is qualified to perform
work covered by manufacturer warranties. Since warranty service
work is paid for by the manufacturer, consumers are motivated to
service their vehicles at a dealership for the warranty period.
In recent years, manufacturers have generally lengthened standard
warranty coverage on new cars and introduced warranty coverage
on used cars, further enhancing customer retention opportunities
in the service area. To increase the service and parts
businesses, UAG dealerships have implemented programs to track
maintenance records of customers and contact them regarding
dealership promotions and maintenance schedules. In addition, the
Company actively markets warranty-covered services to potential
customers such as municipalities and corporations with large
fleets of automobiles located near certain of its dealerships.
The Company is able to offer repair services to such customers on
a more efficient and less costly basis than such customers
generally can perform themselves. The Company also believes that
its market share will grow at the expense of independent
mechanics shops, which may be unable to address the increased
mechanical and electronic sophistication of today’s motor
vehicles and the increased expenses of compliance with more
stringent environmental regulations.
Collision Repair Centers. The Company currently owns 17
collision repair centers, each of which is operated as an
integral part of a new vehicle franchise. In light of the
recurring stream of referral work from the Company’s new
vehicle franchises and the higher margins associated with repair
center revenues, the Company has embarked on an effort to
increase such revenues. As such, the Company is currently
exploring the possibility of constructing several new regional
repair centers to act as central collision repair centers in
geographic hubs. If constructed, the Company believes that these
centers will increase the recurring stream of non-vehicle sales
revenues, which may help to mitigate the effects on the Company
of downturns in the automobile sales cycle. There can be no
assurances that if the Company does construct the collision
repair centers and there is a downturn in the automobile sales
cycle that such collision repair centers will help mitigate the
effects of such downturn on the Company.
2
Implement “Best Practices”. The Company’s
senior executives and dealership managers meet periodically to
review the operating performance of individual dealerships, as
well as to examine important industry trends and, where
appropriate, recommend specific operating improvements. This
facilitates implementation of successful strategies throughout
the organization so that each dealership can benefit from the
successes of the others, as well as from the knowledge and
experience of UAG’s senior management. Dealership management
also attends various industry sponsored leadership and
management seminars and receives continuing education in
products, marketing strategies and management information
systems. The Company shares training techniques across its
dealership base and has made increasing revenues from the sale of
used cars, aftermarket products, service, parts and collision
repair centers a Company-wide focus.
Emphasize Customer Service. Central to UAG’s overall
philosophy is customer-oriented service designed to meet the
needs of an increasingly sophisticated and demanding automotive
consumer through “one-stop” shopping convenience,
competitive pricing and a sales staff that is knowledgeable about
product offerings and responsive to a customer’s particular
needs. The Company’s goal is to establish lasting
relationships with its customers, which enhance its reputation in
the community and create the opportunity for significant repeat
and referral business.
The quality of customer service provided by dealerships sales and
service departments is measured by customer satisfaction index
(“CSI”) scores, which are derived from data accumulated
by manufacturers through individual customer surveys. UAG relies
on this data to track the performance of dealership operations
and uses it as a factor in determining the compensation of
general managers and sales and service personnel in its
dealerships. The Company’s most recent CSI scores indicate
that a majority of its dealerships’ CSI scores were at or
above the average CSI scores for the applicable regions.
Competition
The automotive retailing industry is extremely competitive. In
large metropolitan areas, consumers have a number of choices in
deciding where to purchase a new or used vehicle and where to
have such a vehicle serviced.
For new vehicle sales, the Company competes with other franchised
dealers in each of its marketing areas. The Company does not
have any cost advantage in purchasing new vehicles from the
manufacturer, and typically relies on advertising and
merchandising, sales expertise, service reputation and location
of its dealerships to sell new vehicles. In recent years,
automobile dealers have also faced increased competition in the
sale of new vehicles from independent leasing companies and
on-line purchasing services and warehouse clubs. Due to lower
overhead and sales costs, these companies may be capable of
operating on smaller gross margins and offering lower sales
prices than franchised dealers. In addition, the Company may face
competition in the future from partnerships between
manufacturers and dealers.
For used vehicle sales, the Company competes with other
franchised dealers, independent used vehicle dealers, automobile
rental agencies, private parties and used vehicle
“superstores” for supply and resale of used vehicles.
The Company believes that the principal competitive factors in
vehicle sales are the marketing campaigns conducted by
manufacturers, the ability of dealerships to offer a wide
selection of the most popular vehicles, the location of
dealerships and the quality of customer service. Other
competitive factors include customer preference for particular
brands of automobiles, pricing (including manufacturer rebates
and other special offers) and warranties. The Company believes
that its dealerships are competitive in all of these areas.
The Company competes against other franchised dealers to perform
warranty repairs and against other automobile dealers, service
center chains, and independent garages for non-warranty repair
and routine maintenance business. The Company competes with other
automobile dealers, service stores and auto parts retailers in
its parts operations. The Company believes that the principal
competitive factors in parts and service sales are price, the use
of factory-approved replacement parts, the familiarity with a
manufacturer’s brands and models and the quality of customer
service.
3
A number of regional or national chains offer selected parts and
services at prices that may be lower than the Company’s
prices.
Employees and Labor Relations
As of December 31, 1999, UAG employed approximately 5,800
people, approximately 270 of whom are covered by collective
bargaining agreements with labor unions. Relations with employees
are considered by the Company to be satisfactory. The
Company’s policy is to motivate its key managers through,
among other things, variable compensation programs tied
principally to dealership profitability and grants of stock
options.
Environmental Matters
As with automobile dealerships generally, and service, parts and
body shop operations in particular, the Company’s business
involves the use, handling and contracting for recycling or
disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials such as motor oil, waste
motor oil and filters, transmission fluid, antifreeze,
refrigerant, waste paint and lacquer thinner, batteries,
solvents, lubricants, degreasing agents, gasoline and diesel
fuels. The Company’s business also involves the past and
current operation and/or removal of aboveground and underground
storage tanks containing such substances or wastes. Accordingly,
the Company is subject to regulation by federal, state and local
authorities that establish health and environmental quality
standards and impose penalties for violations of those standards.
The Company is also subject to laws, ordinances and regulations
governing remediation of contamination at facilities it operates
or to which it sends hazardous or toxic substances or wastes for
treatment, recycling or disposal.
The Company believes that it does not have any material
environmental liabilities and that compliance with environmental
laws, ordinances and regulations will not, individually or in the
aggregate, have a material adverse effect on the Company’s
results of operations or financial condition. However, soil and
groundwater contamination has been known to exist at certain
properties leased by the Company. Furthermore, environmental laws
and regulations are complex and subject to frequent change.
There can be no assurance that compliance with amended, new or
more stringent laws or regulations, stricter interpretations of
existing laws or the future discovery of environmental conditions
will not require additional expenditures by the Company, or that
such expenditures would not be material.
ITEM 2. PROPERTIES
The Company seeks to structure its operations so as to avoid the
ownership of real property. As a result, the Company leases
substantially all of its facilities, including dealerships and
office space used for corporate activities. As of
December 31, 1999, the Company has leases at the majority of
its dealerships, which can include facilities for (i) new
and used vehicle sales, (ii) vehicle service operations,
(iii) retail and wholesale parts operations,
(iv) collision repair centers, (v) storage and
(vi) general office use. Such leases are generally for a
period of between five and twenty years and typically include
renewal options for an additional five to ten years in favor of
the Company. In addition, the Company leases office space in New
York, NY, Rochester, NY, Jersey City, NJ and Secaucus, NJ for its
administrative headquarters and other corporate related
activities. The Company is currently renovating the Secaucus, NJ
offices and intends to consolidate the administrative functions
currently housed in New York, NY, Rochester, NY and Jersey City,
NJ in Secaucus, NJ. The renovation of the Secaucus office space
is expected to be complete by May 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in litigation that
has arisen in the ordinary course of business. None of these
matters, either individually or in the aggregate, are expected to
have a material adverse effect on the Company’s results of
operations or financial condition.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
There were no matters submitted to a vote of security holders
during the fourth quarter of 1999.
4
PART II
|
|
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS |
The Company’s Common Stock is listed on the New York Stock
Exchange (“NYSE”) under the symbol “UAG.”
There were 112 holders of record of the Common Stock as of
March 22, 2000.
The following table sets forth the high and low sales prices of
the Common Stock as reported on the NYSE during each fiscal
quarter during 1999 and 1998.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
| Quarter Ended |
|
High |
|
Low |
|
High |
|
Low |
|
|
|
|
|
|
|
|
|
|
March 31 |
|
|
11 |
1/2 |
|
|
5 |
13/16 |
|
|
24 |
1/8 |
|
|
10 |
1/4 |
|
|
|
|
|
|
June 30 |
|
|
10 |
3/4 |
|
|
8 |
1/2 |
|
|
21 |
7/8 |
|
|
13 |
5/8 |
|
|
|
|
|
|
September 30 |
|
|
13 |
3/16 |
|
|
10 |
1/8 |
|
|
26 |
5/16 |
|
|
11 |
5/16 |
|
|
|
|
|
|
December 31 |
|
|
13 |
|
|
|
8 |
1/16 |
|
|
15 |
|
|
|
8 |
7/8 |
The Company has never declared or paid dividends on its Common
Stock. The Company intends to retain future earnings, if any, to
finance the development and expansion of its business and,
therefore, does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. The decision whether to
pay dividends will be made by the Board of Directors of the
Company in light of conditions then existing, including the
Company’s results of operations, financial condition and
requirements, business conditions and other factors.
The indentures governing the Notes (as hereinafter defined) limit
the Company’s ability to pay dividends based on a formula,
which takes into account, among other things, the Company’s
consolidated net income.
The Company is a holding company whose assets consist primarily
of the capital stock of its operating subsidiaries. Consequently,
the Company’s ability to pay dividends is dependent upon
the earnings of its subsidiaries and their ability to distribute
earnings and make other advances and payments to the Company.
Pursuant to the automobile franchise agreements to which the
Company’s dealerships are subject, all dealerships are
required to maintain a certain minimum working capital, and some
dealerships are also required to maintain a certain minimum net
worth. These requirements may restrict the ability of the
Company’s operating subsidiaries to make dividend payments,
which in turn may restrict the Company’s ability to make
dividend payments.
5
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated
financial and other data of the Company as of and for the five
years in the period ended December 31, 1999. Such financial
information has been derived from the Company’s consolidated
financial statements. During the five year period, the Company
made a number of acquisitions, each of which has been accounted
for using the purchase method of accounting. Accordingly, the
Company’s financial statements include the results of
operations of the acquired dealerships only from the date of
acquisition. As a result, the Company’s period to period
results of operations vary depending on the dates of such
acquisitions. The selected consolidated financial data should be
read in conjunction with the Company’s consolidated
financial statements and related footnotes included elsewhere
herein.
SELECTED CONSOLIDATED FINANCIAL DATA(1)(2)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
1999 |
|
1998(3)(4) |
|
1997(5)(6) |
|
1996(7) |
|
1995(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
4,022,517 |
|
|
$ |
3,343,147 |
|
|
$ |
2,092,593 |
|
|
$ |
1,302,031 |
|
|
$ |
805,621 |
|
|
|
|
|
|
|
Gross profit |
|
|
549,437 |
|
|
|
455,617 |
|
|
|
276,359 |
|
|
|
158,150 |
|
|
|
94,348 |
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
26,710 |
|
|
|
13,378 |
|
|
|
(7,936 |
) |
|
|
8,976 |
|
|
|
(2,760 |
) |
|
|
|
|
|
|
Net income (loss) |
|
|
27,488 |
|
|
|
(797 |
) |
|
|
(10,140 |
) |
|
|
3,047 |
|
|
|
(3,654 |
) |
|
|
|
|
|
|
Income (loss) from continuing operations per diluted common
share |
|
|
1.01 |
|
|
|
0.64 |
|
|
|
(0.44 |
) |
|
|
0.82 |
|
|
|
(0.52 |
) |
|
|
|
|
|
|
Net income (loss) per diluted common share |
|
|
1.04 |
|
|
|
(0.04 |
) |
|
|
(0.56 |
) |
|
|
0.28 |
|
|
|
(0.67 |
) |
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
|
13.7% |
|
|
|
13.6% |
|
|
|
13.2% |
|
|
|
12.1% |
|
|
|
11.7% |
|
|
|
|
|
|
|
New cars sold at retail |
|
|
93,259 |
|
|
|
77,403 |
|
|
|
50,985 |
|
|
|
36,802 |
|
|
|
25,138 |
|
|
|
|
|
|
|
Used cars sold at retail |
|
|
52,027 |
|
|
|
46,724 |
|
|
|
31,253 |
|
|
|
18,344 |
|
|
|
8,953 |
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
494,957 |
|
|
$ |
482,049 |
|
|
$ |
326,774 |
|
|
$ |
177,194 |
|
|
$ |
48,774 |
|
|
|
|
|
|
|
Total assets |
|
|
1,279,337 |
|
|
|
1,184,194 |
|
|
|
971,064 |
|
|
|
525,373 |
|
|
|
235,146 |
|
|
|
|
|
|
|
Long-term debt, including current portion |
|
|
228,924 |
|
|
|
313,021 |
|
|
|
248,531 |
|
|
|
16,565 |
|
|
|
27,242 |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
430,865 |
|
|
|
341,650 |
|
|
|
300,557 |
|
|
|
284,501 |
|
|
|
51,699 |
|
|
|
| (1) |
During 1998, the Company discontinued the auto finance business
of its wholly owned subsidiary, United Auto Finance, Inc.
(“UAF”). As a result, UAF no longer engages in the
purchase or sale of automotive loans. Consequently, UAF has been
reported as a discontinued operation for all periods presented.
See footnotes to consolidated financial statements. |
| |
| (2) |
During 1997, the Company changed its method of accounting for new
vehicle inventories from LIFO to the specific identification
method. The effect of the change in accounting for new vehicle
inventories was to increase net income and income before
extraordinary item by $573 ($0.05 per diluted share) in 1996 and
decrease net income and income before extraordinary item by $188
($0.03 per diluted share) in 1995. |
| |
| (3) |
Includes a $12,550 pre-tax charge for estimated future repair
costs under the terms of approximately 51,000 warranty and
extended service contracts sold from January 1, 1997 to
October 31, 1998. See footnotes to consolidated financial
statements. |
| |
| (4) |
Includes the results of the Skelton Group, the Young Group, the
Classic Group, Graceland Dodge, Pioneer Ford, the San Diego
dealerships and Citrus Dodge from their respective dates of
acquisition. |
| |
| (5) |
Includes a $31,660 charge recorded during 1997 to realign certain
elements of the Company’s business. See footnotes to
consolidated financial statements. |
6
|
|
| (6) |
Includes the results of Crown Automotive, Hanna Nissan, the
Staluppi Automotive Group, the Gene Reed Automotive Group, the
Lance Landers dealerships, Stone Mountain Jeep Eagle, Shreveport
Dodge, Central Ford, Covington Pike Dodge and the Triangle Group
from their respective dates of acquisition |
| |
| (7) |
Includes the results of Atlanta Toyota, United Nissan (GA),
Peachtree Nissan, the Sun Automotive Group, the Evans Group and
United Nissan (TN) from their respective dates of
acquisition. |
| |
| (8) |
Includes the results of Landers Auto from its date of
acquisition. |
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
General
As an integral part of its dealership operations, the Company
retails new and used automobiles and light trucks, operates
service and parts departments, operates collision repair centers
and sells various aftermarket products, including finance,
warranty, extended service and insurance contracts.
New vehicle revenues include sales to retail and fleet customers
and to leasing companies providing consumer automobile leasing.
Used vehicle revenues include amounts received for used vehicles
sold to retail customers, leasing companies providing consumer
leasing, other dealers and wholesalers. Finance and insurance
revenues are generated from sales of accessories, finance
contracts, warranty policies, extended service contracts and
credit insurance policies, as well as fees for placing finance
and lease contracts. Service, parts and collision repair revenues
include fees paid for repair and maintenance service, the sale
of replacement parts and body shop repairs.
The Company’s selling expenses consist of advertising and
compensation for sales department personnel, including
commissions and related bonuses. General and administrative
expenses include compensation for administration, finance, legal
and general management personnel, depreciation, amortization,
rent, insurance, utilities and other outside services. Other
interest expense consists of interest charges on all of the
Company’s interest-bearing debt, other than interest
relating to floor plan inventory financing.
Between January 1, 1997 and October 31, 1998, the
Company sold approximately 51,000 warranty and extended service
contracts. The repair obligations for these contracts had been
contractually assumed by Trace International Holdings, Inc.
(“Trace”) and its subsidiary Alpha Automotive, Inc.
(“Alpha”). As a result of uncertainty about Trace and
Alpha’s ability to perform their contractual obligations,
the Company entered into an insurance agreement under which the
repair obligations relating to the 51,000 warranty and extended
service contracts were assumed by the insurance company in
exchange for a fixed premium payable over time. As a result, the
Company has no further financial obligations related to these
contracts other than to make specified premium payments. During
1998, the Company recorded a $12.6 million pre-tax charge
(the “Alpha Charge”), which represents the estimated
present value of those payments. Trace and Alpha remain liable
with respect to the warranty and extended service contracts sold
prior to November 1, 1998. Future recoveries from Trace and
Alpha will reduce the cost of the insurance agreement. On
July 21, 1999, Trace and its subsidiaries filed for
protection in the bankruptcy court for the Southern District of
New York. The case was converted from a Chapter 11 to a
Chapter 7 bankruptcy proceeding on January 24, 2000. As
a result, further recoveries from Trace are unlikely.
During 1998, the Company discontinued its auto finance business.
As a result, UAF will no longer engage in the purchase or sale of
automotive loans. Consequently, UAF has been reported as a
discontinued operation for all periods presented in the
accompanying consolidated statements of operations.
During 1997, the Company recorded a pre-tax charge of
$31.7 million (the “1997 Charge”). The charge
included costs associated with (i) the divestiture of
automotive franchises, (ii) the closure of three stand-alone
used vehicle satellite locations in Arkansas and the disposal of
related inventory, (iii) the implementation of a new policy
to more efficiently manage the Company’s working capital
invested in retail inventory, (iv) excess real estate,
(v) the write-off of non-performing assets and
(vi) certain corporate consulting agreements. Costs
associated with the 1997 Charge amounting to $9.8 million
and $20.9 million have been
7
reflected in cost of goods sold and selling, general and
administrative expenses, respectively, in the accompanying
financial statements. In addition, $1.0 million was
reflected in discontinued operations.
Also, the Company made a number of dealership acquisitions in
1999, 1998 and 1997. Each of these acquisitions has been
accounted for using the purchase method of accounting and as a
result, the Company’s financial statements include the
results of operations of the acquired dealerships only from the
date of acquisition.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998
Revenues. Revenues increased by $679.4 million, or
20.3%, from $3.3 billion to $4.0 billion. The overall
increase in revenues is due primarily to (i) an aggregate
12.9% increase in retail revenues at dealerships owned prior to
January 1, 1998 and (ii) dealership acquisitions made
subsequent to January 1, 1998, partially offset by a
decrease in revenues resulting from the divestiture of certain
dealerships. The overall increase in retail revenues at
dealerships owned prior to January 1, 1998 reflects 13.2%,
11.7%, 25.0% and 9.6% increases in new retail vehicle sales, used
retail vehicle sales, finance and insurance and service and
parts revenues, respectively.
Sales of new vehicles increased by $459.0 million, or 23.4%,
from $2.0 billion to $2.4 billion. The increase is due
primarily to (i) the net increase at dealerships owned
prior to January 1, 1998 and (ii) acquisitions made
subsequent to January 1, 1998, offset by a decrease
resulting from the divestiture of certain dealerships. The
increase at dealerships owned prior to January 1, 1998 is
due primarily to an 11.0% increase in retail unit sales and an
increase in the comparative average selling price per vehicle.
Aggregate retail unit sales of new vehicles increased by 20.5%,
due principally to the net increase at dealerships owned prior to
January 1, 1998 and acquisitions, offset by the decrease
due to divested dealerships. The Company retailed 93,259 new
vehicles (64.2% of total retail vehicle sales) during the year
ended December 31, 1999, compared with 77,403 new vehicles
(62.4% of total retail vehicle sales) during the year ended
December 31, 1998.
Sales of used vehicles increased by $117.2 million, or
12.7%, from $922.8 million to $1.0 billion. The increase is
due primarily to (i) the net increase at dealerships owned
prior to January 1, 1998 and (ii) acquisitions made
subsequent to January 1, 1998, offset by a decrease
resulting from the divestiture of certain dealerships. The
increase at dealerships owned prior to January 1, 1998 is
due primarily to a 6.0% increase in retail unit sales and an
increase in the comparative average selling price per vehicle.
Aggregate retail unit sales of used vehicles increased by 11.3%,
due principally to the net increase at dealerships owned prior to
January 1, 1998 and acquisitions, offset by the decrease
due to divested dealerships. The Company retailed 52,027 used
vehicles (35.8% of total retail vehicle sales) during the year
ended December 31, 1999, compared with 46,724 used vehicles
(37.6% of total retail vehicle sales) during the year ended
December 31, 1998.
Finance and insurance revenues increased by $38.3 million,
or 30.1%, from $127.4 million to $165.8 million. The
increase is due primarily to (i) the net increase at
dealerships owned prior to January 1, 1998, (ii) a
27.4% increase in revenues at UAC and (iii) acquisitions
made subsequent to January 1, 1998, offset by a decrease
resulting from the divestiture of certain dealerships.
Service and parts revenues increased by $64.8 million, or
19.4%, from $334.1 million to $398.8 million. The increase
is due primarily to (i) the net increase at dealerships
owned prior to January 1, 1998 and (ii) acquisitions
made subsequent to January 1, 1998, offset by a decrease
resulting from the divestiture of certain dealerships.
Gross Profit. Gross profit increased by
$93.8 million, or 20.6%, from $455.6 million to
$549.4 million. The increase in gross profit is due to
(i) an aggregate 11.1% increase in retail gross profit at
stores owned prior to January 1, 1998 and
(ii) acquisitions made subsequent to January 1, 1998,
offset by a decrease resulting from the divestiture of certain
dealerships. Gross profit as a percentage of revenues increased
from 13.6% to 13.7%. The increase in gross profit as a percentage
of revenues is primarily attributable to (i) an increase in
higher margin finance and insurance and service and parts
revenues as a percentage of total revenues during 1999,
(ii) the impact of the Alpha Charge on gross profit in 1998
and (iii) improved gross profit margins on
8
service and parts revenues, partially offset by (i) a
decrease in gross profit margins on new and used retail vehicle
sales revenues and (ii) a decrease in gross profit margins
on finance and insurance revenues.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased by
$70.1 million, or 18.7%, from $375.0 million to
$445.1 million. Such expenses as a percentage of revenue
decreased from 11.2% to 11.1%, and such expenses as a percentage
of gross profit decreased from 82.3% to 81.0%. The aggregate
increase in selling, general and administrative expenses is due
principally to (i) a 12.9% increase at stores owned prior to
January 1, 1998 (ii) acquisitions made subsequent to
January 1, 1998, and (iii) $2.5 million of compensation
expense arising from contractual commitments associated with the
issuance by the Company of equity securities in the second and
third quarters of 1999, offset by a decrease resulting from the
divestiture of certain dealerships. The increase in selling,
general and administrative expenses at stores owned prior to
January 1, 1998 is due in large part to increased selling
expenses, including increased variable compensation, as a result
of the increase in gross profit compared with the prior year.
Floor Plan Interest Expense. Floor plan interest expense
of $28.7 million was consistent with the prior year. Factors
influencing floor plan interest expense include higher average
outstanding borrowings during 1999, offset by lower average
borrowing rates.
Other Interest Expense. Other interest expense decreased
by $2.1 million, from $31.5 million to
$29.3 million. The decrease is due primarily to the paydown
of indebtedness with proceeds from equity offerings and the
effect of refinancing a portion of the Notes with lower interest
borrowings under the Credit Agreement (as hereinafter defined),
offset in part by an increase in the Company’s average
borrowing rate during 1999.
Other Income (Expense), Net. Other income (expense), net
decreased by $2.2 million, or 46.4%, from $4.8 million to
$2.6 million. Other income relates to management agreements
entered into by the Company with certain dealerships where the
acquisition of such dealerships by the Company waited final
manufacturer approval. Pursuant to the agreements, the Company
manages all aspects of such dealership’s operation. The
decrease in other income (expense), net is due primarily to the
completion of the acquisition in 1999 of certain of the
dealerships being operated pursuant to management agreements.
Income Tax Provision. The 1999 income tax provision
increased by $9.9 million from $11.6 million to
$21.4 million. The increase is due to an increase in pre-tax
income in 1999 compared with 1998, partially offset by a
decrease in the Company’s annual effective income tax rate.
The decrease in the Company’s annual effective income tax
rate is due primarily to a decrease in the Company’s
effective state tax rate.
Extraordinary Item. The $0.7 million extraordinary
item in 1999 represents a net after tax gain on the retirement of
$49.0 million of the Notes, offset in part by a net after
tax loss resulting from the write-off of the unamortized deferred
financing costs related to the Company’s previous credit
facility. The $1.2 million extraordinary item in 1998
represents the net after tax loss resulting from the write-off of
unamortized deferred financing costs relating to a previous
credit facility.
Year Ended December 31, 1998 Compared to Year Ended
December 31, 1997
Revenues. Revenues increased by $1.3 billion, or
59.8%, from $2.1 billion to $3.3 billion. The overall
increase in revenues is due primarily to (i) dealership
acquisitions made subsequent to January 1, 1997 and
(ii) an overall 5.2% increase in retail revenues at
dealerships owned prior to January 1, 1997, partially offset
by (i) a decrease in retail vehicle sales revenues and
finance and insurance revenues at dealerships in the Atlanta
marketplace and (ii) a decrease in revenues resulting from
the divestiture of certain dealerships. The overall increase in
retail revenues at dealerships owned prior to January 1,
1997 reflects 4.9%, 2.9%, 19.5% and 7.7% increases in new retail
vehicle sales, used retail vehicle sales, finance and insurance
and service and parts revenues, respectively.
Sales of new vehicles increased by $720.4 million, or 58.2%,
from $1.2 billion to $2.0 billion. The increase is due
primarily to (i) acquisitions made subsequent to
January 1, 1997 and (ii) the net increase at
dealerships owned prior to January 1, 1997, offset by
(i) the decrease in the Atlanta marketplace and (ii) a
decrease resulting from the divestiture of certain dealerships.
The increase at dealerships owned prior to January 1,
9
1997 is due to an increase in the comparative average selling
price per vehicle, partially offset by a 1.2% decrease in retail
unit sales. Aggregate unit retail sales of new vehicles increased
by 51.8%, due principally to acquisitions, offset by
(i) the net decrease at dealerships owned prior to
January 1, 1997 and (ii) the decrease due to divested
dealerships. The Company sold 77,403 new vehicles (62.4% of total
retail vehicle sales) during the year ended December 31,
1998, compared with 50,985 new vehicles (62.0% of total retail
vehicle sales) during the year ended December 31, 1997.
Sales of used vehicles increased by $333.7 million, or
56.7%, from $598.1 million to $922.8 million. The
increase is due primarily to (i) acquisitions made
subsequent to January 1, 1997 and (ii) the net increase
at dealerships owned prior to January 1, 1997, offset by
(i) the decrease in the Atlanta marketplace and (ii) a
decrease resulting from the divestiture of certain dealerships.
The increase at dealerships owned prior to January 1, 1997
is due to an increase in the comparative average selling price
per vehicle, partially offset by a 5.2% decrease in retail unit
sales. Aggregate unit retail sales of used vehicles increased by
49.5%, due principally to acquisitions, offset by (i) the
net decrease at dealerships owned prior to January 1, 1997
and (ii) the decrease due to divested dealerships. The
Company sold 46,724 used vehicles (37.6% of total retail vehicle
sales) during the year ended December 31, 1998, compared
with 31,253 used vehicles (38.0% of total retail vehicle sales)
during the year ended December 31, 1997.
Finance and insurance revenues increased by $53.2 million,
or 71.7%, from $74.2 million to $127.4 million. The increase
is due primarily to (i) acquisitions made subsequent to
January 1, 1997, (ii) the net increase at dealerships
owned prior to January 1, 1997 and (iii) an increase in
revenues at UAC, offset by (i) the decrease in the Atlanta
marketplace and (ii) a decrease resulting from the
divestiture of certain dealerships.
Service and parts revenues increased by $143.3 million, or
75.1%, from $190.8 million to $334.1 million. The
increase is due primarily to (i) acquisitions made
subsequent to January 1, 1997 and (ii) the net increase
at dealerships owned prior to January 1, 1997, offset by a
decrease resulting from the divestiture of certain dealerships.
Gross Profit. Gross profit increased by
$179.3 million, or 64.9%, from $276.4 million to
$455.6 million. The increase in gross profit is due to
(i) acquisitions made subsequent to January 1, 1997,
(ii) an aggregate increase in total gross profit generated
at stores owned prior to January 1, 1997 (iii) the
increase in revenues at UAC and (iv) the impact of the 1997
Charge on gross profit in 1997, offset by (i) the impact of
the Alpha Charge on gross profit in 1998 and (ii) a decrease
resulting from the divestiture of certain dealerships. Gross
profit as a percentage of revenues increased from 13.2% to 13.6%.
The increase in gross profit as a percentage of revenues is
primarily attributable to (i) the increase in higher margin
finance and insurance and service and parts revenues as a
percentage of total revenues, (ii) improved gross profit
margins on new and used retail vehicle sales revenues,
(iii) improved gross profit margins on finance and insurance
revenues and (iv) improved gross profit margins on service
and parts revenues.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased by
$120.0 million, or 47.0%, from $255.1 million to
$375.0 million. The increase in selling, general and
administrative expenses is due principally to
(i) acquisitions made subsequent to January 1, 1997,
(ii) an increase at stores owned prior to January 1,
1997, offset in part by the impact of the 1997 Charge on
selling general and administrative expenses in 1997. Such
expenses as a percentage of revenue decreased from 12.2% to
11.2%.
Floor Plan Interest Expense. Floor plan interest
expense increased by $9.4 million, or 48.8%, from
$19.3 million to $28.7 million. The increase in floor
plan interest expense is due principally to acquisitions made
subsequent to January 1, 1997.
Other Interest Expense. Other interest expense
increased by $17.4 million, from $14.1 million to
$31.5 million. The increase is due to (i) the issuance
of the Notes and (ii) the incurrence of acquisition related
debt.
Other Income (Expense), Net. Other income (expense),
net increased by $4.5 million, due primarily to
$4.8 million of income earned pursuant to dealership
management agreements during 1998.
10
Income Tax Provision. The 1998 income tax provision
increased $15.5 million from a benefit of $4.0 million
to a provision of $11.6 million. The increase is due to an
increase in pre-tax income in 1998 compared with 1997, coupled
with an increase in the Company’s annual effective income
tax rate during 1998.
Loss from Discontinued Operations. Loss from
discontinued operations increased by $10.7 million from
$2.2 million to $12.9 million. The increase in loss
from discontinued operations is due primarily to (i) an
increase in UAF’s 1998 operating loss and (ii) the
recording of a $14.4 million loss on disposal, offset by the
impact of the 1997 Charge on loss from discontinued
operations in 1997. The increase in UAF’s 1998 operating
loss was due primarily to (i) losses incurred on the sale of
loans in private non-securitized transactions, (ii) losses
in connection with exiting interest rate management transactions
and (iii) asset impairment relating to finance assets. The
loss on disposal consists of (i) $5.9 million relating
to contractual commitments, the write-off of certain fixed
assets, severance and other administrative expenses, (ii)
$3.8 million of asset impairment and losses incurred on the
sale of loans in private non-securitized transactions,
(iii) $3.9 million of estimated future costs associated
with servicing its securitized portfolio of retail automotive
loans and (iv) $0.8 million relating to the write-off
of deferred financing fees in connection with the closure of
UAF’s warehouse lines.
Extraordinary Item. The $1.2 million
extraordinary item in 1998, represents the net after tax loss
resulting from the write-off of unamortized deferred financing
costs relating to a previous credit facility.
Liquidity and Capital Resources
The cash requirements of the Company are primarily for the
acquisition of new dealerships, working capital and the expansion
of existing facilities. Historically, these cash requirements
have been met through issuances of equity and debt instruments
and cash flow from operations. At December 31, 1999, the
Company had working capital of $97.0 million.
On April 12, 1999, the Company and International Motor Cars
Group I, L.L.C. and International Motor Cars Group II,
L.L.C. (“IMCG II”), Delaware limited liability
companies controlled by Penske Capital Partners, L.L.C.
(together, the “Purchaser”), entered into a Securities
Purchase Agreement (the “Securities Purchase
Agreement”) pursuant to which the Purchaser agreed to
purchase (i) an aggregate of 7,903.124 shares of the
Company’s Series A Convertible Preferred Stock, par
value $0.0001 per share (the “Series A Preferred
Stock”), (ii) an aggregate of 396.876 shares of the
Company’s Series B Convertible Preferred Stock, par
value $0.0001 per share (the “Series B Preferred
Stock”), and (iii) warrants (the “Warrants”)
to purchase (a) 3,898,665 shares of the Company’s
Common Stock, and (b) 1,101,335 shares of the Company’s
non-voting common stock, par value $0.0001 per share (the
“Non-Voting Common Stock”) for $83.0 million. The
Series A Preferred Stock is convertible into an aggregate of
7,903,124 shares of Common Stock and the Series B Preferred
Stock is convertible into an aggregate of 396,876 shares of
Non-Voting Common Stock. The Warrants are exercisable at a price
of $12.50 per share for the thirty months following the date
of issuance, and $15.50 per share thereafter until May 2,
2004.
The transaction was consummated in two steps: first, the
acquisition of approximately $33.5 million of Series A
Preferred Stock and, second, the acquisition of approximately
$49.5 million of Series A Preferred Stock,
Series B Preferred Stock and Warrants. The first step of the
transaction closed on May 3, 1999. The Series A
Preferred Stock issued on May 3, 1999 was subject to
mandatory redemption by the Company at the Purchaser’s
option prior to the second closing. On August 3, 1999, the
transaction was approved by the Company’s stockholders,
after which the second step of the transaction closed. Proceeds
from the issuance of the securities pursuant to the Securities
Purchase Agreement were used to prepay the remaining
$44.4 million of term loans and $18.4 million of
revolving loan commitments outstanding under the Company’s
credit agreement, to pay approximately $6.8 million of fees
incurred in connection with the execution of the Securities
Purchase Agreement and fund certain acquisition related costs.
The balance of the proceeds were deposited in interest bearing
accounts.
The shares of Series A Preferred Stock and Series B
Preferred Stock entitle the Purchaser to dividends at a rate of
6.5% per year. Dividends are payable in kind for the first two
years. In February 2000, in accordance with the Certificate
of Designation governing the preferred stock, the Board of
Directors declared and paid to
11
the Purchasers a pay-in-kind dividend consisting of 220.622
shares of Series A Preferred Stock and 62.324 shares of
Series B Preferred Stock representing accrued and unpaid
dividends through December 31, 1999 in respect of the
outstanding shares of Series A Preferred Stock and
Series B Preferred Stock. Such shares are convertible into
220,622 shares of Common Stock and 62,324 shares of Non-Voting
Common Stock, respectively.
The Company finances all of its new and a portion of its used
vehicle inventory under revolving floor plan financing
arrangements with various lenders. The Company makes monthly
interest payments on the amount financed, but is not required to
make loan principal repayments prior to the sale of new and used
vehicles. Substantially all of the assets of the Company’s
dealerships, including vehicles and related sales proceeds, are
subject to security interests granted to their floor plan lending
sources. As of December 31, 1999 approximately
$478 million of floor plan borrowing was outstanding.
Interest rates on the floor plan agreements are variable and
increase or decrease based on movements in prime or LIBOR
borrowing rates.
On October 8, 1999, the Company entered into a new credit
agreement, dated as of August 3, 1999, as amended (the
“Credit Agreement”), which provides for up to
$360.0 million in revolving loans to be used for
acquisitions, working capital, the repurchase of Notes, the
repurchase of Common Stock, letters of credit and general
corporate purposes. Borrowings under the Credit Agreement bear
interest at LIBOR plus 2.00%, other then borrowings to repurchase
the Notes which bear interest at LIBOR plus 3.00%. The Credit
Agreement is fully and unconditionally guaranteed on a joint and
several basis by the Company’s auto dealership subsidiaries.
The Credit Agreement contains a number of significant covenants
that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, repay other
indebtedness, repurchase capital stock, pay dividends, create
liens on assets, make investments or acquisitions and engage in
mergers or consolidations. In addition, the Company is required
to comply with specified ratios and tests, including debt to
equity, debt service coverage and minimum working capital
covenants. The Credit Agreement also contains typical events of
default including change of control, material adverse change and
non-payment of obligations. In addition, substantially all of the
assets of the Company’s dealerships not subject to security
interests granted to floor plan lending sources are subject to
security interests granted to lenders under the Credit Agreement.
The Company was in compliance with all of its debt covenants at
December 31, 1999.
During 1997 the Company issued $200.0 million aggregate
principal amount of 11% Senior Subordinated Notes due 2007 (the
“Notes”). The indentures governing the Notes require
the Company to comply with specified debt service coverage ratio
levels in order to incur incremental debt. The indentures
governing the Notes also limit the Company’s ability to pay
dividends based on a formula which take into account, among other
things, the Company’s consolidated net income. The
indentures also contain other covenants which restrict the
Company’s ability to purchase capital stock, incur liens,
sell assets and enter into other transactions. The Notes are
fully and unconditionally guaranteed on a joint and several basis
by the Company’s auto dealership subsidiaries. During 1999
the Company repurchased and retired $49.0 million of the
Notes. As of March 22, 2000, there was $151.0 million
principal amount of Notes outstanding.
The indentures governing the Notes contain a provision which
requires the Company to offer to purchase all of the then
outstanding Notes at a purchase price in cash equal to 101% of
their principal amount in the event of a change in control. A
change in control will be deemed to have occurred if a purchaser,
as defined, beneficially obtains 40% of the voting power, as
defined, of the voting stock of the Company. In
December 1999, the Company announced its plan to repurchase
up to 10% of the total outstanding Common Stock of the Company.
The shares of Common Stock may be acquired from time to time over
a two-year period either through open market purchases,
negotiated transactions, or other means based upon market
conditions. The repurchase of shares of Common Stock by the
Company has increased the beneficial ownership interest of the
Purchaser above 40% of the total ownership of the Company. As a
result, the Company plans to make an offer to purchase the
outstanding Notes at a change of control redemption price of 101%
of par. The Company has sufficient availability under the Credit
Agreement to finance the repurchase of the Notes.
During 1999, cash flow from operations amounted to
$40.8 million. Net cash used in investing activities during
the year ended December 31, 1999 totaled $50.4 million,
relating to dealership acquisitions and capital
12
expenditures. Net cash used in financing activities during the
year ended December 31, 1999, relating primarily to the net
proceeds from the placement of preferred stock, offset by a net
retirement of long-term debt, totaled $18.7 million. In
addition, the Company received distributions amounting to
$9.7 million from its wholly-owned subsidiary, United Auto
Finance, Inc.
At December 31, 1999, the Company had approximately
$19.8 million of cash available to fund operations and
future acquisitions. In addition, $226.9 million,
$110.0 million of which is restricted to the repurchase of
Notes, is available for borrowing under the Credit Agreement as
of March 22, 2000. The Company is a holding company whose
assets consist primarily of the capital stock of its operating
subsidiaries. Consequently, the Company’s ability to pay
dividends is dependent upon the earnings of its subsidiaries and
their ability to distribute earnings to the Company and to make
other advances and payments by such subsidiaries to the Company.
The Company’s principal source of growth has come from
acquisitions of automobile dealerships. The Company believes that
its existing capital resources will be sufficient to fund its
current operations and commitments. To the extent the Company
pursues additional significant acquisitions, it may need to raise
additional capital either through the public or private issuance
of equity or debt securities or through additional bank
borrowings. A public equity offering would require the prior
approval of certain automobile manufacturers.
Cyclicality
Unit sales of motor vehicles, particularly new vehicles,
historically have been cyclical, fluctuating with general
economic cycles. During economic downturns, the automotive
retailing industry tends to experience similar periods of decline
and recession as the general economy. The Company believes that
the industry is influenced by general economic conditions and
particularly by consumer confidence, the level of personal
discretionary spending, interest rates and credit availability.
Seasonality
The Company’s combined business is modestly seasonal
overall. The greatest seasonalities exist with the dealerships in
the northeast United States, for which the second and third
quarters are the strongest with respect to vehicle related sales.
The service and parts business at all dealerships experience
relatively modest seasonal fluctuations.
Effects of Inflation
The Company believes that the relatively moderate rates of
inflation over the last few years have not had a significant
impact on revenue or profitability. The Company does not expect
inflation to have any near-term material effects on the sale of
its products and services. However, there can be no assurance
that there will be no such effect in the future.
The Company finances substantially all of its inventory through
various revolving floor plan arrangements with interest rates
that vary based on the prime rate or LIBOR. Such rates have
historically increased during periods of increasing inflation.
The Company does not believe that it would be placed at a
competitive disadvantage should interest rates increase due to
increased inflation since most other automobile dealers have
similar floating rate borrowing arrangements.
Forward Looking Statements
Certain portions of this Annual Report on Form 10-K contain
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical
facts, included in this Annual Report or incorporated herein by
reference regarding the Company’s financial position and
business strategy may constitute forward-looking statements.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no
assurance that such expectations
13
will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company’s
expectations, some of which are described in greater detail
elsewhere in this Annual Report, include the following:
(i) the Company is subject to the influence of various
manufacturers whose franchises it holds; (ii) the Company is
leveraged and subject to restrictions imposed by the terms of
its indebtedness; (iii) the Company’s growth depends in
large part on the Company’s ability to manage expansion,
control costs in its operations and consummate and consolidate
dealership acquisitions; (iv) many of the Company’s
franchise agreements impose restrictions on the transferability
of the Company’s Common Stock; (v) the Company will
require substantial additional capital to acquire automobile
dealerships and purchase inventory; (vi) unit sales of motor
vehicles historically have been cyclical; (vii) the
automotive retailing industry is highly competitive;
(viii) the automotive retailing industry is a mature
industry; (ix) the Company’s success depends to a
significant extent on key members of its management; and
(x) the Company’s business is seasonal. In light of the
foregoing, readers of this Annual Report are cautioned not to
place undue reliance on the forward-looking statements contained
herein.
|
|
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign Currency Exchange Rates. Substantially all of the
Company’s business is conducted in the United States where
its revenues and expenses are transacted in U.S. dollars. As a
result, the majority of the Company’s results of operations
are not subject to foreign exchange rate fluctuations. The
Company does not hedge against foreign exchange rate fluctuations
due to the limited financial exposure it faces with respect to
such risk. In common with other automobile retailers, the Company
purchases certain of its new car inventories from foreign
manufacturers. The Company’s business in this regard is
subject to certain risks, including, but not limited to,
differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions and
foreign exchange rate volatility. The Company’s future
results could be materially and adversely impacted by changes in
these or other factors.
Interest Rates. The Company is exposed to market risk from
changes in the interest rates on a significant portion of its
outstanding indebtedness. Outstanding balances under the Credit
Agreement bear interest at a variable rate based on a margin over
LIBOR. Based on the amount outstanding as of March 22, 2000, a
100 basis point change in interest rates would result in an
approximate $1.3 million change to the Company’s annual
interest expense. Similarly, amounts outstanding under floor
plan financing arrangements bear interest at a variable rate
based on a margin over LIBOR. Based on the average aggregate
outstanding amounts under floor plan financing arrangements
during the year ended December 31, 1999, a 100 basis point
change in interest rates would result in an approximate
$4.3 million change to the Company’s annual floor plan
interest expense. During January 2000, the Company entered
into swap agreements pursuant to which a notional
$200.0 million of the Company’s floating rate debt has
been exchanged for fixed rate debt. The fixed rate interest to be
paid by the Company is based on LIBOR, as adjusted, and amounts
to approximately 7.1%. For fixed rate debt including the Notes,
certain seller financed promissory notes and obligations under
certain capital leases, interest rate changes affect the fair
market value of such debt, but do not impact the Company’s
earnings or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements listed in the
accompanying Index to Consolidated Financial Statements for the
information required by this item.
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
On May 19, 1999, the Company dismissed
PricewaterhouseCoopers LLP, which served as the Company’s
independent public accountants since 1992. The reports issued by
PricewaterhouseCoopers LLP on the financial statements of the
Company for the past two fiscal years did not contain an adverse
opinion nor a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
Based on the recommendation of the Audit Committee, the
Company’s Board of Directors approved the decision to change
independent public accountants. In connection with its audits
for the two
14
most recent fiscal years and through May 19, 1999, there
were no disagreements with PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused PricewaterhouseCoopers LLP to make
reference thereto in their report on the financial statements for
such years or such interim periods.
The Company engaged Deloitte & Touche LLP as its new
independent public accountants as of May 19, 1999. The
Company’s Board of Directors approved this on May 19,
1999. During the two most recent fiscal years and through
May 19, 1999, the Company has not consulted with Deloitte
& Touche LLP regarding either:
|
|
| |
(i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company’s financial
statements; or |
| |
| |
(ii) any matter that was either the subject of a
disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions to this Item) or
a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-K and related instructions to this Item). |
PART III
The information required by Items 10 through 13 is included in
the Company’s definitive proxy statement under the captions
“Compensation of Directors” “Election of
Directors,” “Executive Officers,” “Executive
Compensation”, “Security Ownership of Certain
Beneficial Owners and Management”, “Related Party
Transactions,” and “Section 16(a) Beneficial
Ownership Reporting Compliance”. Such information is
incorporated herein by reference, pursuant to General
Instruction G(3).
15
The following is a list of the officers and directors of the
Company, including their principal occupation:
| |
|
|
|
|
| Name |
|
Office |
|
Occupation |
|
|
|
|
|
|
Roger S. Penske |
|
Director, Chairman and Chief Executive Officer of the Company |
|
Chairman of the Board and Chief Executive Officer of Penske
Corporation |
|
|
|
|
|
|
Samuel X. DiFeo |
|
Director, President and Chief Operating Officer of the Company |
|
President and Chief Operating Officer of the Company |
|
|
|
|
|
|
James A. Hislop |
|
Director |
|
President and Chief Executive Officer of Penske Capital Partners,
LLC |
|
|
|
|
|
|
Richard J. Peters |
|
Director |
|
President of Penske Corporation |
|
|
|
|
|
|
Eustace W. Mita |
|
Director |
|
President and Chief Executive Officer of HAC Group, LLC |
|
|
|
|
|
|
Donald J. Hofmann, Jr. |
|
Director |
|
General Partner of Chase Capital Partners |
|
|
|
|
|
|
Marshall S. Cogan |
|
Director |
|
Consultant |
|
|
|
|
|
|
Michael R. Eisenson |
|
Director |
|
Managing Director and Chief Executive Officer of Charlesbank |
|
|
|
|
|
|
John J. Hannan |
|
Director |
|
Principal of Apollo Advisors, L.P. and Apollo Real Estate
Advisors, L.P. |
|
|
|
|
|
|
James R. Davidson |
|
Executive Vice President – Finance of the Company |
|
— |
|
|
|
|
|
|
Robert H. Kurnick, Jr. |
|
Executive Vice President – General Counsel and Secretary of
the Company |
|
Executive Vice President of Penske Corporation |
|
|
|
|
|
|
Paul H. Walters |
|
Executive Vice President – Administration of the Company |
|
Executive Vice President — Administration of Penske
Corporation |
16
PART IV
|
|
| ITEM 14. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K |
(a) Financial Statements
|
|
| |
The consolidated financial statements listed in the accompanying
Index to Consolidated Financial Statements are filed as part of
this Annual Report on Form 10-K. |
(b) Reports on Form 8-K.
|
|
| |
The Company did not file any Current Reports on Form 8-K
during the three month period ended December 31, 1999. |
(c) Exhibits
| |
|
|
|
3.1(l) |
|
Certificate of Amendment of Certificate of Incorporation of the
Company dated August 3, 1999 |
|
3.2(b) |
|
Restated Bylaws |
|
4.1(b) |
|
Specimen Common Stock Certificate |
|
4.2(f) |
|
Indenture, dated as of July 23, 1997, among the Company, the
Guarantors party thereto and The Bank of New York, as Trustee,
including form of Note and Guarantee |
|
4.4(f) |
|
Indenture, dated as of September 16, 1997, among the
Company, the Guarantors party thereto and The Bank of New York,
as Trustee, including from of Series B Note and Guarantee |
|
4.5(k) |
|
Certificate of Designation of Series A Convertible Preferred
Stock of the Company, filed with the Secretary of State of the
State of Delaware on April 30, 1999 |
|
10.1(k) |
|
Stockholders Agreement, dated as of May 3, 1999, by and
among AIF II, L.P., Aeneas Venture Corporation, International
Motor Cars Group I, L.L.C., International Motor Cars Group II,
L.L.C., Trace International Holdings, Inc., and the Company |
|
10.1.1(b) |
|
Registration Rights Agreement, dated as of October 15, 1993,
among the Company and the investors listed therein, as amended
July 31, 1996 |
|
10.1.4(b) |
|
Form of Warrant |
|
10.1.8(b) |
|
Stock Option Plan of the Company |
|
10.1.8.1(i) |
|
Amendment to Stock Option Plan of the Company |
|
10.1.11(b) |
|
Letter, dated July 24, 1996, between the Company and Toyota
Motor Sales U.S.A., Inc. |
|
10.1.13(b) |
|
Non-employee Director Compensation Plan of the Company |
|
10.1.14(b) |
|
Form of Agreement among the Company, certain of its affiliates
and American Honda Motor Co., Inc. |
|
10.1.15(b) |
|
Form of Option Certificate of the Company in favor of Samuel X.
DiFeo and Joseph C. DiFeo |
|
10.1.18(d) |
|
Consulting Agreement, dated March 3, 1997, between the
Company and Carl Spielvogel |
|
10.1.19.1(a) |
|
Credit Agreement dated as of August 3, 1999 among the
Company, various financial institutions and Chrysler Financial
Company, L.L.C., as Agent |
17
| |
|
|
|
10.1.19.2(a) |
|
First Amendment to Credit Agreement dated as of August 3,
1999 among the Company, various financial institutions and
Chrysler Financial Company, L.L.C., as Agent |
|
10.1.19.3(a) |
|
Second Amendment to Credit Agreement dated as of August 3,
1999 among the Company, various financial institutions and
Chrysler Financial Company, L.L.C., as Agent |
|
10.2(k) |
|
Non-Competition and Standstill Agreement, dated as of April
12, 1999 by and between Marshall S. Cogan and the Company |
|
10.2.1(b) |
|
Honda Automobile Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.2.2(b) |
|
Lexus Dealer Agreement, including Standard Provisions |
|
10.2.3(b) |
|
Mitsubishi Dealer Sales and Services Agreement, including
Standard Provisions |
|
10.2.4(b) |
|
BMW of North America, Inc., Dealer Agreement, including Standard
Provisions |
|
10.2.5(b) |
|
Suzuki Term Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.2.6(b) |
|
Toyota Dealer Agreement, including Standard Provisions |
|
10.2.7(b) |
|
General Motors Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.2.9(b) |
|
Nissan Dealer Sales and Service Agreement, including Standard
Provisions |
|
10.2.10(b) |
|
Chrysler Corporation Term Sales and Service Agreement, including
Standard Provisions |
|
10.2.15(b) |
|
Hyundai Motor America Dealer Sales and Service Agreement,
including Standard Provisions |
|
10.2.21 and 22(b) |
|
Isuzu Dealer Sales and Service Agreement, including Standard
Provisions |
|
10.2.26(b) |
|
Settlement Agreement, dated as of October 3, 1996, among the
Company and certain of its affiliates, on the one hand, and
Samuel X. DiFeo, Joseph C. DiFeo and certain of their affiliates,
on the other hand |
|
10.3(l) |
|
Stock Option Agreement, dated as of August 3, 1999, between
the Company and Roger S. Penske |
|
10.3.1(g) |
|
Ford Sales and Service Agreement, including Standard Provisions |
|
10.4(l) |
|
Stock Option Agreement, dated as of August 3, 1999 between
the Company and Marshall S. Cogan |
|
10.4.5(b) |
|
Employment Agreement, dated as of August 1, 1995, between
Landers Auto Sales, Inc., and Steve Landers |
|
10.5.13(b) |
|
Employment Agreement, dated as of January 16, 1996, among
the Company, UAG Atlanta, Inc. and John Smith |
|
10.8.1(b) |
|
Stock Purchase Agreement, dated as of June 6, 1996, among
the Company, UAG West, Inc., Scottsdale Jaguar, LTD., SA
Automotive, LTD., SL Automotive, LTD., SPA Automotive, LTD., LRP,
LTD., Sun BMW, LTD., Scottsdale Management Group, LTD., 6725
Dealership LTD., and certain parties named therein, as amended on
October 21, 1996 by Amendment No. 1, Amendment
No. 2 and Amendment No. 3 |
|
10.8.3(b) |
|
Form of Employment Agreement between the Company, UAG West, Inc.,
and Steven Knappenberger |
|
10.8.5(b) |
|
Audi Dealer Agreement, including Standard Provisions |
|
10.8.6(b) |
|
Acura Automobile Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.8.8(b) |
|
Porsche Sales and Service Agreement, including Standard
Provisions |
|
10.8.9(b) |
|
Land Rover North America, Inc. Dealer Agreement, including
Standard Provisions |
|
10.8.21(e) |
|
Rolls-Royce Dealer Agreement |
|
10.11.1(c) |
|
Agreement and Plan of Merger, dated December 16, 1996, among
Crown Jeep Eagle, Inc., Berylson, Inc., Shannon Automotive,
Ltd., Kevin J. Coffey, Paul J. Rhodes, the Company, UAG Texas,
Inc., and UAG Texas II, Inc. |
18
| |
|
|
|
10.13.1(d) |
|
Stock Purchase Agreement, dated February 19, 1997, among the
Company, UAG East, Inc., Amity Auto Plaza, Ltd., Massapequa
Imports Ltd., Westbury Nissan Ltd., Westbury Superstore Ltd.,
J&S Auto Refinishing Ltd., Florida Chrysler Plymouth Jeep
Eagle Inc., Palm Auto Plaza, Inc., West Palm Infiniti Inc., West
Palm Nissan Inc., Northlake Auto Finish Inc., John A. Staluppi
and John A. Staluppi, Jr., as amended April 7, 1997 and
April 30, 1997 |
|
10.15.1(e) |
|
Stock Purchase Agreement, dated April 12, 1997, among the
Company, Gene Reed Chevrolet, Inc., Michael
Chevrolet–Oldsmobile, Inc., Reed-Lallier Chevrolet, Inc.,
Gene Reed, Jr., Michael L. Reed, Michael G. Lallier, Deborah B.
Lallier, John P. Jones, Charles J. Bradshaw, Charles J. Bradshaw,
Jr., Julia D. Bradshaw and William B. Bradshaw, as amended
May 31, 1997 |
|
10.18.1(f) |
|
Stock Purchase Agreement, dated July 25, 1997 among the
Company, UAG Classic, Inc., Classic Auto Group, Inc., Cherry Hill
Classic Cars, Inc., Classic Enterprises, Inc., Classic Buick,
Inc., Classic Chevrolet, Inc., Classic Management, Inc., Classic
Turnersville, Inc., Classic Imports, Inc., and Thomas J. Hessert,
Jr. (as amended) |
|
10.19.1.1(f) |
|
Stock Purchase Agreement, dated as of September 25, 1997
among the Company, UAG Young, Inc., Dan Young Chevrolet, Inc.,
Dan Young, Inc., Parkway Chevrolet, Inc., Young Management Group,
Inc., and certain parties named therein |
|
10.19.1.2(f) |
|
Agreement and Plan of Merger, dated as of September 25, 1997
among the Company, UAG Kissimmee Motors, Inc., UAG Paramount
Motors, Inc., UAG Century Motors, Inc., Paramount Chevrolet-Geo,
Inc., Century Chevrolet-Geo, Inc., and certain parties named
therein |
|
10.19.1.3(h) |
|
Amendment to Stock Purchase Agreement, dated January 31,
1998, between and among United Auto Group, Inc., UAG Young, Inc.,
Dan Young Chevrolet, Inc., Dan Young, Inc., Parkway Chevrolet,
Inc., Young Management Group, Inc., and certain parties named
therein |
|
10.19.1.4(h) |
|
Amendment to Agreement and Plan of Merger, dated January 31,
1998, between and among United Auto Group, Inc., UAG Kissimmee
Motors, Inc., UAG Paramount Motors, Inc., UAG Century Motors,
Inc., Kissimmee Motors, Inc., Paramount Chevrolet-Geo, Inc.,
Century Chevrolet-Geo, Inc., and certain parties named therein |
|
10.20.1(j) |
|
Securities Purchase Agreement, dated as of April 12, 1999,
among the Company and International Motorcars Group I, L.L.C.,
and International Motor Cars Group II, L.L.C. |
|
10.20.2(j) |
|
Stockholder Voting Agreement, dated April 12, 1999, between
Trace International Holdings, Inc., International Motorcars Group
I, L.L.C., and International Motorcars Group II, L.L.C. |
|
10.20.3(j) |
|
Stockholder Voting Agreement, dated April 12, 1999, between
Aeneas Venture Corporation, International Motorcars Group I,
L.L.C. and International Motorcars Group II, L.L.C. |
|
10.20.4(j) |
|
Stockholder Voting Agreement, dated April 12, 1999, between
AIF II, L.P., International Motorcars Group I, L.L.C., and
International Motorcars Group II, L.L.C. |
|
10.20.7(k) |
|
Registration Rights Agreement, dated as of May 3, 1999, by
and among the Company, International Motorcars Group I, L.L.C.,
and International Motorcars Group II, L.L.C. |
|
10.21(a) |
|
Severance Agreement, dated May 3, 1999 between the Company
and Robert Nelson. |
|
10.22(a) |
|
Severance Agreement, dated August 2, 1999 between the
Company and James Davidson. |
|
10.23(a) |
|
Letter Agreement dated August 3, 1999 between the Company
and Samuel X. DiFeo. |
|
21.1(a) |
|
Subsidiaries of the Company |
|
23.1(a) |
|
Consent of PricewaterhouseCoopers, LLP |
|
23.2(a) |
|
Consent of Deloitte & Touche, LLP |
19
| |
|
|
|
27.1(a) |
|
December 31, 1999 Financial Data Schedule |
|
27.2(a) |
|
September 30, 1999 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
27.3(a) |
|
June 30, 1999 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.4(a) |
|
March 31, 1999 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.5(a) |
|
December 31, 1998 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
27.6(a) |
|
September 30, 1998 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
27.7(a) |
|
June 30, 1998 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.8(a) |
|
March 31,1998 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.9(a) |
|
December 31, 1997 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
|
| (a) |
Filed herewith |
| |
| (b) |
Incorporated herein by reference to the Company’s
Registration Statement on Form S-1, Registration
No. 333-09429 |
| |
| (c) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Current Report on Form 8-K
filed on December 24, 1996, File No. 001-12297 |
| |
| (d) |
Incorporated herein by reference to the identically number
exhibit to the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, File
No. 001-12297 |
| |
| (e) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, File No. 001-12297 |
| |
| (f) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, File
No. 001-12297 |
| |
| (g) |
Incorporated herein by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31,
1997, File No. 001-12297 |
| |
| (h) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Current Report on Form 8-K
filed on February 20, 1998, File No. 001-12297 |
| |
| (i) |
Incorporated herein by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31,
1998, File No. 001-12297 |
| |
| (j) |
Incorporated herein by reference to the Company’s Current
Report on Form 8-K filed on April 15, 1999, File
No. 001-12297 |
| |
| (k) |
Incorporated herein by reference to the Company’s Current
Report on Form 8-K filed on May 10, 1999, File
No. 001-12297 |
| |
| (l) |
Incorporated herein by reference to the Company’s Current
Report on Form 8-K filed on August 13, 1999, File
No. 001-12297 |
|
|
|
| |
(d) |
Schedules — No Financial Statement Schedules are
required to be filed as part of this Annual Report on
Form 10-K. |
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in New York, New York on
March 27, 2000.
|
|
| |
|
| |
Roger S. Penske |
| |
Chairman of the Board and |
| |
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on its behalf by the registrant and in the capacities and on the
dates indicated:
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ ROGER S. PENSKE
Roger S. Penske |
|
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer) |
|
March 27, 2000 |
/s/ SAMUEL X. DIFEO
Samuel X. DiFeo |
|
President, Chief Operating Officer and Director |
|
March 27, 2000 |
/s/ JAMES R. DAVIDSON
James R. Davidson |
|
Executive Vice President — Finance (Principal Financial
and Accounting Officer) |
|
March 27, 2000 |
/s/ DONALD J. HOFMANN, JR.
Donald J. Hofmann, Jr. |
|
Director |
|
March 27, 2000 |
/s/ EUSTACE W. MITA
Eustace W. Mita |
|
Director |
|
March 27, 2000 |
/s/ RICHARD J. PETERS
Richard J. Peters |
|
Director |
|
March 27, 2000 |
/s/ JAMES A. HISLOP
James A. Hislop |
|
Director |
|
March 27, 2000 |
/s/ MICHAEL R. EISENSON
Michael R. Eisenson |
|
Director |
|
March 27, 2000 |
/s/ JOHN J. HANNAN
John J. Hannan |
|
Director |
|
March 27, 2000 |
/s/ MARSHALL S. COGAN
Marshall S. Cogan |
|
Director |
|
March 27, 2000 |
21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
|
|
|
|
|
United Auto Group, Inc. |
|
|
|
|
|
|
|
|
Reports of Independent Accountants |
|
F-2 |
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 1999 and 1998 |
|
F-4 |
|
|
|
|
|
|
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 |
|
F-5 |
|
|
|
|
|
|
Consolidated Statements of Stockholders’ Equity for the
years ended December 31, 1999, 1998, 1997 and 1996 |
|
F-6 |
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 |
|
F-7 |
|
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
F-8 |
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of United Auto Group,
Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of
United Auto Group, Inc. (the “Company”) and
subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders’ equity,
and cash flows for the year ended December 31, 1999. These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company and subsidiaries at December 31, 1999, and the
results of their operations and their cash flows for the year
ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 1, 2000
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of United Auto Group, Inc.:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of United Auto Group, Inc. (the
“Company”) at December 31, 1998, and the
consolidated results of its operations and its cash flows for
each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company’s management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements
of the Company for any period subsequent to December 31,
1998.
/s/ PRICEWATERHOUSECOOPERS LLP
Princeton, New Jersey
March 29, 1999
F-3
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
19,847 |
|
|
$ |
38,538 |
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
140,473 |
|
|
|
125,460 |
|
|
|
|
|
|
|
Inventories |
|
|
508,289 |
|
|
|
410,295 |
|
|
|
|
|
|
|
Other current assets |
|
|
10,723 |
|
|
|
16,420 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
679,332 |
|
|
|
590,713 |
|
|
|
|
|
|
|
Property and equipment, net |
|
|
68,232 |
|
|
|
51,483 |
|
|
|
|
|
|
|
Intangible assets, net |
|
|
494,957 |
|
|
|
482,049 |
|
|
|
|
|
|
|
Net assets of discontinued operations |
|
|
13,747 |
|
|
|
23,323 |
|
|
|
|
|
|
|
Other assets |
|
|
23,069 |
|
|
|
36,626 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
1,279,337 |
|
|
$ |
1,184,194 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan notes payable |
|
$ |
478,460 |
|
|
$ |
397,234 |
|
|
|
|
|
|
|
Accounts payable |
|
|
47,113 |
|
|
|
38,435 |
|
|
|
|
|
|
|
Accrued expenses |
|
|
46,328 |
|
|
|
45,104 |
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
10,389 |
|
|
|
24,756 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
582,290 |
|
|
|
505,529 |
|
|
|
|
|
|
|
Long-term debt |
|
|
218,535 |
|
|
|
288,265 |
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
47,647 |
|
|
|
48,750 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
848,472 |
|
|
|
842,544 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
414,318 |
|
|
|
352,591 |
|
|
|
|
|
|
|
Retained earnings (accumulated deficit) |
|
|
16,545 |
|
|
|
(10,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity |
|
|
430,865 |
|
|
|
341,650 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
1,279,337 |
|
|
$ |
1,184,194 |
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
New vehicle sales |
|
$ |
2,417,906 |
|
|
$ |
1,958,885 |
|
|
$ |
1,238,530 |
|
|
|
|
|
|
|
Used vehicle sales |
|
|
1,040,026 |
|
|
|
922,793 |
|
|
|
589,079 |
|
|
|
|
|
|
|
Finance and insurance |
|
|
165,751 |
|
|
|
127,405 |
|
|
|
74,199 |
|
|
|
|
|
|
|
Service and parts |
|
|
398,834 |
|
|
|
334,064 |
|
|
|
190,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
4,022,517 |
|
|
|
3,343,147 |
|
|
|
2,092,593 |
|
|
|
|
|
|
|
Cost of sales |
|
|
3,473,080 |
|
|
|
2,887,530 |
|
|
|
1,816,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
549,437 |
|
|
|
455,617 |
|
|
|
276,359 |
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
445,142 |
|
|
|
375,043 |
|
|
|
255,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
104,295 |
|
|
|
80,574 |
|
|
|
21,293 |
|
|
|
|
|
|
|
Floor plan interest expense |
|
|
(28,676 |
) |
|
|
(28,718 |
) |
|
|
(19,297 |
) |
|
|
|
|
|
|
Other interest expense |
|
|
(29,344 |
) |
|
|
(31,462 |
) |
|
|
(14,071 |
) |
|
|
|
|
|
|
Other income (expense), net |
|
|
2,571 |
|
|
|
4,800 |
|
|
|
297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before minority
interests, income tax (provision) benefit and extraordinary item |
|
|
48,846 |
|
|
|
25,194 |
|
|
|
(11,778 |
) |
|
|
|
|
|
|
Minority interests |
|
|
(722 |
) |
|
|
(262 |
) |
|
|
(138 |
) |
|
|
|
|
|
|
Income tax (provision) benefit |
|
|
(21,414 |
) |
|
|
(11,554 |
) |
|
|
3,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
26,710 |
|
|
|
13,378 |
|
|
|
(7,936 |
) |
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income taxes |
|
|
46 |
|
|
|
(12,940 |
) |
|
|
(2,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary item |
|
|
26,756 |
|
|
|
438 |
|
|
|
(10,140 |
) |
|
|
|
|
|
|
Extraordinary item (net of income tax provision of $605 in 1999
and income tax benefit of $859 in 1998) |
|
|
732 |
|
|
|
(1,235 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
27,488 |
|
|
$ |
(797 |
) |
|
$ |
(10,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) from continuing operations per common share |
|
$ |
1.10 |
|
|
$ |
0.66 |
|
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share |
|
$ |
1.14 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per diluted common share |
|
$ |
1.01 |
|
|
$ |
0.64 |
|
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted common share |
|
$ |
1.04 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic per share data |
|
|
21,950 |
|
|
|
20,377 |
|
|
|
18,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted per share data |
|
|
26,526 |
|
|
|
20,932 |
|
|
|
18,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-5
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
Class B |
|
Voting and |
|
|
|
|
|
|
|
|
Convertible |
|
Convertible |
|
Non-voting |
|
|
|
|
|
|
|
|
Preferred Stock |
|
Preferred Stock |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Retained |
|
|
|
|
Issued |
|
|
|
Issued |
|
|
|
Issued |
|
|
|
Paid-in |
|
Earnings |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
(Deficit) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
Balances, December 31, 1996 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
17,294,928 |
|
|
$ |
2 |
|
|
$ |
284,502 |
|
|
$ |
(3 |
) |
|
$ |
284,501 |
|
|
|
|
|
|
Issuance of stock for
acquisitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,497,218 |
|
|
|
— |
|
|
|
27,986 |
|
|
|
— |
|
|
|
27,986 |
|
|
|
|
|
|
|
Issuance of stock — exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
503,000 |
|
|
|
— |
|
|
|
6,706 |
|
|
|
|
|
|
|
6,706 |
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(397,000 |
) |
|
|
— |
|
|
|
(8,821 |
) |
|
|
— |
|
|
|
(8,821 |
) |
|
|
|
|
|
|
Unrealized gain on marketable securities — UAF |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
325 |
|
|
|
325 |
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,140 |
) |
|
|
(10,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 1997 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,898,146 |
|
|
|
2 |
|
|
|
310,373 |
|
|
|
(9,818 |
) |
|
|
300,557 |
|
|
|
|
|
|
Issuance of stock for
acquisitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,683,638 |
|
|
|
— |
|
|
|
39,632 |
|
|
|
— |
|
|
|
39,632 |
|
|
|
|
|
|
|
Issuance of stock — exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
156,600 |
|
|
|
— |
|
|
|
2,586 |
|
|
|
— |
|
|
|
2,586 |
|
|
|
|
|
|
|
Unrealized loss on marketable securities — UAF |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(328 |
) |
|
|
(328 |
) |
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(797 |
) |
|
|
(797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 1998 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,738,384 |
|
|
|
2 |
|
|
|
352,591 |
|
|
|
(10,943 |
) |
|
|
341,650 |
|
|
|
|
|
|
Issuance of stock for
acquisitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,261,327 |
|
|
|
— |
|
|
|
(16,210 |
) |
|
|
— |
|
|
|
(16,210 |
) |
|
|
|
|
|
|
Issuance of options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,250 |
|
|
|
— |
|
|
|
2,250 |
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(118,000 |
) |
|
|
— |
|
|
|
(992 |
) |
|
|
— |
|
|
|
(992 |
) |
|
|
|
|
|
|
Issuance of preferred stock and warrants |
|
|
7,904 |
|
|
|
— |
|
|
|
397 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
76,679 |
|
|
|
— |
|
|
|
76,679 |
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,488 |
|
|
|
27,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 1999 |
|
|
7,904 |
|
|
$ |
— |
|
|
|
397 |
|
|
$ |
— |
|
|
|
21,881,711 |
|
|
$ |
2 |
|
|
$ |
414,318 |
|
|
$ |
16,545 |
|
|
$ |
430,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-6
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
27,488 |
|
|
$ |
(797 |
) |
|
$ |
(10,140 |
) |
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
19,131 |
|
|
|
16,464 |
|
|
|
9,100 |
|
|
|
|
|
|
|
|
Unusual items |
|
|
— |
|
|
|
12,550 |
|
|
|
30,660 |
|
|
|
|
|
|
|
|
Non-cash compensation expense |
|
|
2,250 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
(Income) loss from discontinued operations |
|
|
(46 |
) |
|
|
12,940 |
|
|
|
2,204 |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
10,007 |
|
|
|
8,561 |
|
|
|
(9,193 |
) |
|
|
|
|
|
|
|
Minority interests |
|
|
722 |
|
|
|
262 |
|
|
|
138 |
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(11,090 |
) |
|
|
(4,709 |
) |
|
|
(8,317 |
) |
|
|
|
|
|
|
|
Inventories |
|
|
(73,687 |
) |
|
|
39,648 |
|
|
|
(39,280 |
) |
|
|
|
|
|
|
|
Floor plan notes payable |
|
|
59,371 |
|
|
|
(29,587 |
) |
|
|
37,210 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
2,690 |
|
|
|
9,138 |
|
|
|
2,433 |
|
|
|
|
|
|
|
|
Other |
|
|
3,922 |
|
|
|
(9,422 |
) |
|
|
3,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing
operations |
|
|
40,758 |
|
|
|
55,048 |
|
|
|
18,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment and improvements |
|
|
(22,161 |
) |
|
|
(12,085 |
) |
|
|
(11,915 |
) |
|
|
|
|
|
|
Dealership acquisitions |
|
|
(28,251 |
) |
|
|
(138,139 |
) |
|
|
(139,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations |
|
|
(50,412 |
) |
|
|
(150,224 |
) |
|
|
(151,554 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings of long-term debt |
|
|
65,000 |
|
|
|
68,400 |
|
|
|
252,999 |
|
|
|
|
|
|
|
Payments of long-term debt and capital leases |
|
|
(159,147 |
) |
|
|
(17,956 |
) |
|
|
(54,850 |
) |
|
|
|
|
|
|
Net proceeds from issuance of common stock, preferred stock and
warrants |
|
|
76,679 |
|
|
|
2,020 |
|
|
|
4,772 |
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(992 |
) |
|
|
— |
|
|
|
(8,821 |
) |
|
|
|
|
|
|
Deferred financing costs |
|
|
(227 |
) |
|
|
(1,842 |
) |
|
|
(10,689 |
) |
|
|
|
|
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
(1,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities of continuing
operations |
|
|
(18,687 |
) |
|
|
50,622 |
|
|
|
182,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash distributed by (invested in) discontinued operations |
|
|
9,650 |
|
|
|
(11,343 |
) |
|
|
(21,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(18,691 |
) |
|
|
(55,897 |
) |
|
|
27,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
38,538 |
|
|
|
94,435 |
|
|
|
66,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
19,847 |
|
|
$ |
38,538 |
|
|
$ |
94,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-7
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
1. Organization and Summary of Significant Accounting
Policies
United Auto Group, Inc. (“UAG” or the
“Company”) is engaged in the sale of new and used motor
vehicles and related products and services, including vehicle
service, parts and collision repair, finance and insurance
products and other aftermarket products. The Company operates
dealerships under franchise agreements with a number of
automotive manufacturers. In accordance with the individual
franchise agreements, each dealership is subject to certain
rights and restrictions typical of the industry. The ability of
the manufacturers to influence the operations of the dealerships,
or the loss of a franchise agreement, could have a negative
impact on the Company’s operating results.
As discussed in Note 12, the Company entered into a
Securities Purchase Agreement during 1999, pursuant to which it
received $83,000 in cash in exchange for the issuance of
convertible preferred stock and warrants. Also, as discussed in
Note 3, the Company discontinued its auto finance business
during 1998. As a result, the Company’s wholly owned
subsidiary, United Auto Finance, Inc. (“UAF”), is
presented as a discontinued operation in the accompanying
financial statements.
As discussed in Note 4, the Company completed a number of
acquisitions during the three years in the period ended
December 31, 1999. Each of these acquisitions has been
accounted for using the purchase method of accounting. As a
result, the Company’s financial statements include the
results of operations of the acquired dealerships only from the
date of acquisition.
Principles of Consolidation
The consolidated financial statements include all significant
majority-owned subsidiaries. All material intercompany accounts
and transactions among the consolidated subsidiaries have been
eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments
that have an original maturity of three months or less at the
date of purchase.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and debt, including floor
plan notes payable. Other than the 11% Senior Subordinated Notes
due 2007 (the “Notes”), the carrying amount of
financial instruments approximates fair value due either to
length of maturity or the existence of variable interest rates
that approximate prevailing market rates. The fair value of
long-term debt is estimated using discounted cash flows based on
the Company’s incremental borrowing rates for similar types
of borrowings. As of December 31, 1999, the estimated fair
value of the outstanding Notes was $143,667.
Revenue Recognition
Revenue is generally recognized when vehicles are delivered to
consumers, when motor vehicle service work is performed, or when
parts are delivered. Finance and insurance revenues are
recognized upon the sale of the finance or insurance contract or
other aftermarket products. An allowance for chargebacks against
revenue relating to the sale of customer finance contracts or
other aftermarket products is established when the related
revenue is recognized.
F-8
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost for
new and used vehicle inventories is determined using the specific
identification method. Cost for parts, accessories and other
inventories is based on factory list prices.
Property and Equipment
Property and equipment are recorded at cost and depreciated over
estimated useful lives, primarily using the straight-line method.
Useful lives for purposes of computing depreciation for assets
other than leasehold improvements and equipment under capital
lease are between 5 and 10 years. Leasehold improvements and
equipment under capital lease are depreciated over the term of
the lease or the estimated useful life of the asset, whichever is
shorter.
Expenditures relating to recurring repair and maintenance are
expensed as incurred. Expenditures that increase the useful life
or substantially increase the serviceability of an existing asset
are capitalized. When equipment is sold or otherwise disposed
of, the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is reflected in
income.
Income Taxes
Deferred tax assets or liabilities are computed based upon the
difference between financial reporting and tax bases of assets
and liabilities using enacted tax rates. A valuation allowance is
provided when it is more likely than not that taxable income
will not be sufficient to fully realize deferred tax assets.
Intangible Assets
Intangible assets of $494,957, consisting primarily of the excess
of cost over the fair value of net assets acquired in purchase
business combinations, are being amortized on a straight-line
basis over periods not exceeding 40 years. Accumulated
amortization at December 31, 1999 amounted to $34,412.
Amortization expense for the years ended December 31, 1999,
1998 and 1997 was $12,996, $11,560 and $6,300, respectively.
Impairment of Long-Lived Assets
The carrying value of long-lived assets, including intangibles,
is reviewed if the facts and circumstances, such as significant
declines in revenues, earnings or cash flows or material adverse
changes in the business climate, indicate that it may be
impaired. The Company performs its review by comparing the
carrying amounts of long-lived assets to the estimated
undiscounted cash flows relating to such assets. If any
impairment in the value of the long-lived assets is indicated,
the carrying value of the long-lived assets is adjusted to
reflect such impairment calculated based on the discounted cash
flows or the fair value of the impaired assets.
Defined Contribution Plans
The Company sponsors a number of defined contribution plans
covering a significant majority of the Company’s employees.
Contributions under these plans are discretionary and typically
based on the level of compensation and contributions of plan
participants. The Company incurred expenses of $1,315, $600 and
$402 relating to such plans during the years ended
December 31, 1999, 1998 and 1997, respectively.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and
F-9
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The accounts which
require the use of significant estimates are accounts receivable,
inventories, income taxes, intangible assets, and certain
accrued expenses.
Advertising
Advertising costs are expensed as incurred. The Company incurred
advertising costs of $43,165, $37,318 and $25,075 during the
years ended December 31, 1999, 1998 and 1997, respectively.
Net Income (Loss) Per Common Share
Income available to common shareholders used in the computation
of basic earnings per share data was computed based on income
from continuing operations and net income, each as adjusted to
reflect accrued dividends relating to outstanding preferred
stock. Basic earnings per share data was computed based on the
weighted average number of common shares outstanding. Diluted
earnings per share data was computed based on the weighted
average number of shares of the Company’s common stock
(“Common Stock”) outstanding, adjusted for the dilutive
effect of stock options, convertible preferred stock and
warrants. The 1998 computation of diluted earnings per share also
included the dilutive effect of the minimum share price
guarantee on 1,040,039 shares of common stock issued in
connection with the acquisition of the Young Automotive Group in
1998.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
21,950 |
|
|
|
20,377 |
|
|
|
18,277 |
|
|
|
|
|
|
|
Effect of stock options, preferred stock and warrants |
|
|
4,576 |
|
|
|
77 |
|
|
|
330 |
|
|
|
|
|
|
|
Effect of minimum share price guarantee |
|
|
— |
|
|
|
478 |
|
|
|
— |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, including
effect of dilutive securities |
|
|
26,526 |
|
|
|
20,932 |
|
|
|
18,607 |
|
Reclassifications
In order to maintain consistency and comparability of financial
information between periods presented, certain reclassifications
have been made to the Company’s December 31, 1998
financial statements to conform to the current year presentation.
2. Unusual Items
Between January 1, 1997 and October 31, 1998, the
Company sold approximately 51,000 warranty and extended service
contracts. The repair obligations for these contracts had been
contractually assumed by Trace International Holdings, Inc.
(“Trace”) and its subsidiary Alpha Automotive, Inc.
(“Alpha”). As a result of uncertainty about Trace and
Alpha’s ability to perform their contractual obligations,
the Company entered into an insurance agreement under which the
repair obligations relating to the 51,000 warranty and extended
service contracts were assumed by the insurance company in
exchange for a fixed premium payable over time. As a result, the
Company has no further financial obligations related to these
contracts other than to make specified premium payments. During
1998, the Company recorded a $12,550 pre-tax charge which
represents the estimated present value of those payments. Trace
and Alpha remain liable with respect to the warranty and extended
service contracts sold prior to November 1, 1998. Future
recoveries from Trace and Alpha will reduce the cost of the
insurance agreement. On July 21, 1999, Trace and its
subsidiaries filed for protection in the bankruptcy court for the
Southern District of New York. The case was converted from a
Chapter 11 to a Chapter 7 bankruptcy proceeding on
January 24, 2000. As a result, further recoveries from Trace
are unlikely.
F-10
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
During the fourth quarter of 1997, the Company recorded a $31,660
pre-tax charge. The charge included costs associated with
(i) the divestiture of automotive franchises, (ii) the
closure of three stand-alone used vehicle satellite locations in
Arkansas and the disposal of related inventory, (iii) the
implementation of a new policy to more efficiently manage the
Company’s working capital invested in retail inventory,
(iv) excess real estate, (v) the write-off of
non-performing assets and (vi) certain corporate consulting
agreements. Costs associated with the pre-tax charge amounting to
$9,757 and $20,903 have been reflected in cost of goods sold and
selling, general and administrative expenses, respectively, in
the consolidated statements of operations. In addition, $1,000
has been reflected in discontinued operations.
3. Discontinued Operations
During 1998, the Company discontinued its auto finance business.
As a result, UAF no longer engages in the purchase or sale of
automotive loans. Consequently, UAF has been reported as a
discontinued operation in the accompanying consolidated
statements of operations. In addition, the remaining net assets
of UAF have been presented as a non-current asset on the
consolidated balance sheets.
Summarized financial information of UAF follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
3,482 |
|
|
$ |
5,108 |
|
|
$ |
2,615 |
|
|
|
|
|
|
|
Income (loss) from operations, net of taxes of $26, $2,089 and
$1,531 in 1999, 1998 and 1997, respectively |
|
|
46 |
|
|
|
(3,714 |
) |
|
|
(2,204 |
) |
|
|
|
|
|
|
Loss on disposal, net of taxes of $5,189 |
|
|
— |
|
|
|
(9,226 |
) |
|
|
— |
|
|
|
|
|
|
|
Net income (loss) |
|
|
46 |
|
|
|
(12,940 |
) |
|
|
(2,204 |
) |
|
|
|
|
|
|
Net (income) loss per diluted common share |
|
|
— |
|
|
|
(0.62 |
) |
|
|
(0.12 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,852 |
|
|
$ |
3,615 |
|
|
|
|
|
|
|
Restricted cash |
|
|
4 |
|
|
|
1,009 |
|
|
|
|
|
|
|
Finance assets, net |
|
|
12,883 |
|
|
|
26,947 |
|
|
|
|
|
|
|
Other assets |
|
|
429 |
|
|
|
967 |
|
|
|
|
|
|
|
Short-term debt, accrued liabilities and other liabilities |
|
|
2,421 |
|
|
|
9,215 |
|
The loss on disposal in 1998 consisted of (i) $5,888 relating to
contractual commitments, the write-off of certain fixed assets,
severance and other administrative expenses, (ii) $3,803 of asset
impairment and losses incurred on the sale of loans in private
non-securitized transactions, (iii) $3,912 of estimated future
costs associated with servicing its securitized portfolio of
retail automotive loans and (iv) $812 relating to the write-off
of deferred financing fees in connection with the closure of
UAF’s warehouse lines.
4. Business Combinations
During 1999 and 1998, the Company completed a number of
acquisitions. Each of these acquisitions has been accounted for
using the purchase method of accounting. As a result, the
Company’s financial statements include the results of
operations of the acquired dealerships only from the date of
acquisition. Acquisitions during 1999 were not material.
In January 1998, the Company acquired the Skelton Automotive
Group, located in Memphis Tennessee. Consideration for the
purchase amounted to $16,500, including $14,700 in cash and
$1,800 of seller financed promissory notes.
F-11
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
In February 1998, the Company acquired the Young Automotive
Group, with operations in Indiana, Illinois, North Carolina,
South Carolina and Florida. The aggregate consideration for the
acquisition amounted to $84,000, consisting of $50,000 in cash,
1,040,039 shares of UAG Common Stock and $7,000 of seller
financed promissory notes. The Company agreed to make a
contingent payment in cash or Common Stock to the extent the
Common Stock issued in connection with this transaction had an
aggregate market value of less than $27,000 on the dates it
became freely tradable. In February 1999, the Company
settled a portion of this obligation with respect to 444,987
shares by issuing 1,156,689 additional shares of Common Stock.
The remaining 595,052 shares became freely tradable in June 1999
and the Company settled its obligation with a cash payment of
$8,582.
In February 1998, the Company acquired the Classic
Automotive Group in New Jersey. The aggregate consideration for
the acquisition was $28,700, consisting of $28,000 in cash and
$700 of Common Stock. The Company agreed to make a contingent
payment in cash or Common Stock to the extent the Common Stock
issued in connection with this transaction had an aggregate
market value of less than $759 on the date it became freely
tradable. In March 1999, the Company settled its obligation
with respect to the share price guarantee by paying $306 in cash.
During the year ended December 31, 1998, the Company also
acquired (i) Graceland Dodge, located in Memphis Tennessee,
(ii) Pioneer Ford, located in Phoenix Arizona, (iii) a
group of dealerships which operated Toyota, Lexus, Dodge and
Mazda franchises in San Diego California and (iv) a 70%
interest in Citrus Dodge, located in Dade City Florida. The
aggregate consideration for such acquisitions amounted to
$50,859, consisting of $39,059 in cash, $8,400 of Common Stock
and $3,400 of seller financed promissory notes. The Company
agreed to make contingent payments in cash to the extent the
Common Stock issued in connection with these transactions had an
aggregate market value of less than $8,400 in July 1999. The
Company settled its obligations with respect to these
transactions with cash payments amounting to $4,371.
In addition, the Company has agreed to make a contingent payment
in cash to the extent that 375,404 shares of Common Stock issued
in connection with an acquisition that took place prior to 1998
have an aggregate market value of less than $9,400.
Pro Forma Results of Operations
The following unaudited consolidated pro forma results of
operations of the Company for the year ended December 31,
1998 give effect to (i) acquisitions consummated during
1998, (ii) the divestiture of certain dealerships during
1998, (iii) the discontinuation of the Company’s auto
finance operations and (iv) the offering of the Notes as if
they had occurred on January 1, 1998.
| |
|
|
|
|
|
|
Year Ended |
|
|
1998 |
|
|
|
|
Revenues |
|
$ |
3,520,594 |
|
|
|
|
|
|
|
Income from continuing operations before minority interests and
income tax provision |
|
|
27,371 |
|
|
|
|
|
|
|
Net income |
|
|
14,792 |
|
|
|
|
|
|
|
Net income per diluted common share |
|
|
0.71 |
|
F-12
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
5. Inventories
Inventories consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
New vehicles |
|
$ |
378,311 |
|
|
$ |
284,343 |
|
|
|
|
|
|
|
Used vehicles |
|
|
102,332 |
|
|
|
99,411 |
|
|
|
|
|
|
|
Parts, accessories and other |
|
|
27,646 |
|
|
|
26,541 |
|
|
|
|
|
|
|
|
|
|
|
Total Inventories |
|
$ |
508,289 |
|
|
$ |
410,295 |
|
|
|
|
|
|
|
|
|
|
6. Property and Equipment
Property and equipment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
Furniture, fixtures and equipment |
|
$ |
30,615 |
|
|
$ |
30,658 |
|
|
|
|
|
|
|
Equipment under capital lease |
|
|
11,328 |
|
|
|
7,191 |
|
|
|
|
|
|
|
Leasehold improvements |
|
|
42,531 |
|
|
|
28,048 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
84,474 |
|
|
|
65,897 |
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization |
|
|
16,242 |
|
|
|
14,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
68,232 |
|
|
$ |
51,483 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended
December 31, 1999, 1998 and 1997 was $6,135, $4,904 and
$2,800, respectively. Accumulated amortization at
December 31, 1999 and 1998 on equipment under capital lease,
included in accumulated depreciation and amortization above,
amounted to $1,806 and $1,614, respectively.
7. Floor Plan Notes Payable
The Company finances its purchases of automobile inventory
through floor plan financing arrangements with a variety of
lenders. Outstanding borrowings under floor plan financing
arrangements amounted to $478,460 and $397,234 as of
December 31, 1999 and 1998, respectively. The floor plan
agreements grant a security interest in the financed vehicles, as
well as the related sales proceeds, and require repayment after
a vehicle’s sale. Interest rates on the floor plan
agreements are variable and increase or decrease based on
movements in prime or LIBOR borrowing rates. Floor plan interest
expense for the years ended December 31, 1999, 1998 and 1997
was $28,676, $28,718 and $19,297, respectively. The weighted
average interest rate on floor plan borrowings was 7.33%, 7.60%
and 8.20% for the years ended December 31, 1999, 1998 and
1997, respectively.
F-13
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
8. Long-Term Debt
Long-term debt consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
Series A and B Senior Subordinated Notes due 2007, less net
unamortized discount of $1,044 and $1,572 at December 31,
1999 and 1998, respectively |
|
$ |
149,956 |
|
|
$ |
198,428 |
|
|
|
|
|
|
|
Credit Agreement, weighted average interest — 8.97% and
9.24% at December 31, 1999 and 1998, respectively |
|
|
54,580 |
|
|
|
68,400 |
|
|
|
|
|
|
|
Seller financed promissory notes payable through 2002, weighted
average interest — 7.23% and 7.53% at December
31, 1999 and 1998, respectively |
|
|
12,681 |
|
|
|
28,510 |
|
|
|
|
|
|
|
Term loans, weighted average interest — 7.72% and 8.24%
at December 31, 1999 and 1998, respectively |
|
|
4,014 |
|
|
|
5,776 |
|
|
|
|
|
|
|
Capitalized lease obligations |
|
|
7,211 |
|
|
|
7,908 |
|
|
|
|
|
|
|
Other |
|
|
482 |
|
|
|
3,999 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
228,924 |
|
|
|
313,021 |
|
|
|
|
|
|
|
|
Less: Current portion |
|
|
10,389 |
|
|
|
24,756 |
|
|
|
|
|
|
|
|
|
|
|
Net long-term debt |
|
$ |
218,535 |
|
|
$ |
288,265 |
|
|
|
|
|
|
|
|
|
|
Scheduled maturities of long-term debt for each of the next five
years and thereafter are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
$ |
10,389 |
|
|
|
|
|
|
|
2001 |
|
|
6,848 |
|
|
|
|
|
|
|
2002 |
|
|
2,973 |
|
|
|
|
|
|
|
2003 |
|
|
1,268 |
|
|
|
|
|
|
|
2004 |
|
|
802 |
|
|
|
|
|
|
|
2005 and thereafter |
|
|
206,644 |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
228,924 |
|
|
|
|
|
|
On October 8, 1999, the Company entered into a new credit
agreement, dated as of August 3, 1999 as amended (the
“Credit Agreement”), which provides for up to $360,000
in revolving loans to be used for acquisitions, working capital,
the repurchase of Notes, the repurchase of Common Stock, letters
of credit and general corporate purposes. Borrowings under the
Credit Agreement bear interest at LIBOR plus 2.00%, other than
borrowings to repurchase Notes which bear interest at LIBOR plus
3.00%. Outstanding letters of credit under the Credit Agreement
as of December 31, 1999 amounted to $1,600. The Credit
Agreement replaced the Company’s previous bank borrowing
facility, which was terminated upon the effective date of the
Credit Agreement. The Company recorded an extraordinary charge
during 1999 of $494 ($0.02 per diluted share), net of income
taxes of $396, resulting from the write-off of unamortized
deferred financing costs relating to the Company’s previous
bank borrowing facility. The Company recorded an extraordinary
charge during 1998 of $1,235 ($0.06 per diluted share), net of
income taxes of $859, relating to the write-off of unamortized
deferred financing costs relating to a previous borrowing
facility.
The Credit Agreement contains a number of significant covenants
that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, repay other
indebtedness, repurchase capital stock, pay dividends, create
liens on assets, make investments or acquisitions and engage in
mergers or consolidations. In addition, the Company is required
to comply with specified ratios and tests, including debt to
equity, debt service coverage and minimum working capital
covenants. The Credit
F-14
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
Agreement also contains typical events of default including
change of control, material adverse change and non-payment of
obligations. Substantially all of the assets of the
Company’s dealerships not subject to security interests
granted to floor plan lending sources are subject to security
interests granted to lenders under the Credit Agreement.
During 1997, the Company issued $200,000 aggregate principal
amount of the Notes. The indentures governing the Notes require
the Company to comply with specified debt service coverage ratio
levels in order to incur incremental debt. The indentures also
contain a provision which requires the Company to offer to
purchase all of the then outstanding Notes at a purchase price in
cash equal to 101% of their principal amount in the event of a
change in control. A change in control will be deemed to have
occurred if a purchaser, as defined, beneficially obtains 40% of
the voting power, as defined, of the voting stock of the Company.
The indentures also limit the Company’s ability to pay
dividends based on a formula which takes into account, among
other things, the Company’s consolidated net income. The
indentures also contain other covenants which restrict the
Company’s ability to purchase capital stock, incur liens,
sell assets and enter into other transactions.
As of March 22, 2000, the Purchaser (as hereinafter defined)
has beneficial ownership in excess of 40.0% of the voting stock
of the Company. As a result, the Company plans to make an offer
to purchase the outstanding Notes at a change of control
redemption price of 101% of par.
During 1999, the Company repurchased and retired $49,000 of the
Notes. As a result, the Company recorded an extraordinary gain of
$1,226 ($0.04 per diluted share), net of $1,001 of tax.
The Credit Agreement and the Notes are fully and unconditionally
guaranteed on a joint and several basis by the Company’s
auto dealership subsidiaries (the “Note Guarantors”).
Separate financial information of the Note Guarantors has been
omitted because the Company is a holding company with no
independent operations.
9. Operating Lease Obligations
The Company leases its dealership facilities and administrative
offices under non-cancelable operating lease agreements with
expiration dates through 2018, including all option periods
available to the Company. Minimum future rental payments required
under non-cancelable operating leases in effect as of
December 31, 1999 follows:
| |
|
|
|
|
|
|
|
|
|
|
2000 |
|
$ |
33,013 |
|
|
|
|
|
|
|
2001 |
|
|
32,163 |
|
|
|
|
|
|
|
2002 |
|
|
30,592 |
|
|
|
|
|
|
|
2003 |
|
|
28,819 |
|
|
|
|
|
|
|
2004 |
|
|
27,564 |
|
|
|
|
|
|
|
2005 and thereafter |
|
|
276,966 |
|
|
|
|
|
|
|
|
$ |
429,117 |
|
|
|
|
|
|
Rent expense for the years ended December 31, 1999, 1998,
and 1997 amounted to $29,493, $26,917 and $17,674, respectively.
A number of the dealership leases are with former owners who
continue to operate the dealerships as employees of the Company.
Of the total rental payments, $8,466, $11,140 and $10,911,
respectively, were made to related parties during 1999, 1998, and
1997, respectively.
10. Related Party Transactions
As noted above, the Company is the tenant under a number of
non-cancelable lease agreements with employees of the Company,
all of whom are former owners of dealerships purchased by the
Company. The
F-15
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
terms of these leases were negotiated prior to acquisition and
the Company believes all such leases are on terms no less
favorable to the Company than would be obtained through
arm’s-length negotiations with unaffiliated third parties.
The Company entered into management agreements at certain
dealerships for which the closing of the acquisition of such
dealerships awaited final manufacturer approval. Pursuant to such
management agreements, the Company was paid a monthly fee for
managing all aspects of the dealerships’ operations.
Aggregate income relating to such management fees of $2,571 and
$4,800 for the years ending December 31, 1999 and 1998,
respectively, has been included in other income (expense), net in
the accompanying consolidated statements of operations.
As discussed in Note 2, the Company was party to an agreement
whereby the Company’s exposures with respect to the majority
of the extended service contracts sold by UAC during the period
from January 1, 1997 through October 31, 1998 were assumed
by Trace and Alpha in exchange for certain fees. During the
period covered by the agreement, the Company remitted
approximately $7,729 to Alpha. Such remittances reflect
approximately $10,111 in fees for the assumption of obligations
with respect to the 51,000 warranty and extended service
contracts, offset by approximately $2,383 of claims payments
relating to such contracts.
From time to time, the Company pays and/or receives fees from the
Purchaser and its affiliates for services rendered in the normal
course of business. These transactions reflect the
provider’s cost or an amount mutually agreed upon by both
parties. It is the Company’s belief that the payments
relating to these transactions are on terms at least as favorable
as those which could be obtained from an unrelated third party.
Aggregate expense relating to such transactions of $311 for the
year ended December 31, 1999 has been reflected in selling,
general and administrative expenses in the accompanying financial
statements.
From time to time, the Company paid and/or received fees from
Trace and its affiliates for services rendered in the normal
course of business. The Company no longer engages in such
transactions. These transactions reflected the provider’s
cost or an amount mutually agreed upon by both parties. It is the
Company’s belief that the payments relating to these
transactions were on terms at least as favorable as those which
would have been obtained from an unrelated third party. Aggregate
(income) expense relating to such transactions of $131, $260 and
$(2,118) for the years ending December 31, 1999, 1998 and
1997, respectively, has been reflected in selling, general and
administrative expenses in the accompanying financial statements.
As of December 31, 1999 and 1998, the Company owes $256 and
$200, respectively, for such services.
11. Stock Compensation Plans
During 1996, the Company’s Board of Directors and
stockholders adopted a Stock Option Plan. Under the Stock Option
Plan, all full-time employees of the Company and its subsidiaries
and affiliates are eligible to participate. During 1999, the
Company granted options to purchase 332,790 shares at the fair
market value of the Common Stock on the date of the grant.
Options granted under the Stock Option Plan have a ten year life
and typically vest on a pro-rata basis over periods not in excess
of five years. As of December 31, 1999, the aggregate
number of shares of Common Stock for which stock options may be
granted under the Stock Option Plan may not exceed 2,000,838. As
of December 31, 1999, 233,618 shares of Common Stock were
available
F-16
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
for the grant of options under the Stock Option Plan. Presented
below is a summary of the status of stock options held by
eligible employees during 1999 and 1998 under the Stock Option
Plan:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
Average |
|
|
|
Average |
|
|
|
Average |
|
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Exercise |
| Stock Options |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of year |
|
|
1,227,390 |
|
|
$ |
18.06 |
|
|
|
1,078,975 |
|
|
$ |
18.45 |
|
|
|
1,026,500 |
|
|
$ |
13.90 |
|
|
|
|
|
|
|
Granted |
|
|
332,790 |
|
|
|
7.23 |
|
|
|
492,390 |
|
|
|
17.67 |
|
|
|
594,800 |
|
|
|
18.98 |
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
186,600 |
|
|
|
11.50 |
|
|
|
503,000 |
|
|
|
10.34 |
|
|
|
|
|
|
|
Forfeited |
|
|
78,386 |
|
|
|
20.25 |
|
|
|
157,375 |
|
|
|
25.82 |
|
|
|
39,325 |
|
|
|
11.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year |
|
|
1,431,794 |
|
|
$ |
15.16 |
|
|
|
1,227,390 |
|
|
$ |
18.06 |
|
|
|
1,078,975 |
|
|
$ |
18.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the status of UAG’s employee
stock options outstanding and exercisable at January 1,
2000:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
| Range of |
|
Stock |
|
Remaining |
|
Average |
|
Stock |
|
Average |
| Exercise |
|
Options |
|
Contractual |
|
Exercise |
|
Options |
|
Exercise |
| Prices |
|
Outstanding |
|
Life |
|
Price |
|
Exercisable |
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
$7 to $10 |
|
|
|
490,800 |
|
|
|
8.07 |
|
|
$ |
8.07 |
|
|
|
135,440 |
|
|
$ |
10.00 |
|
|
$10 to $22 |
|
|
|
840,994 |
|
|
|
7.92 |
|
|
|
17.54 |
|
|
|
233,449 |
|
|
|
17.58 |
|
|
$30 |
|
|
|
100,000 |
|
|
|
6.75 |
|
|
|
30 |
|
|
|
60,000 |
|
|
|
30.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,431,794 |
|
|
|
|
|
|
|
|
|
|
|
428,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has adopted the disclosure only provisions of
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123, Accounting for Stock Based
Compensation (“SFAS 123”). Had the Company elected
to recognize compensation expense for stock options based on the
fair value at the grant dates of awards, net income and earnings
per share would have been as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
24,516 |
|
|
$ |
12,253 |
|
|
$ |
(8,556 |
) |
|
|
|
|
|
|
Income (loss) from continuing operations per diluted share |
|
|
0.92 |
|
|
|
0.59 |
|
|
|
(0.47 |
) |
|
|
|
|
|
|
Net income (loss) |
|
|
25,294 |
|
|
|
(1,922 |
) |
|
|
(10,760 |
) |
|
|
|
|
|
|
Net income (loss) per diluted share |
|
|
0.95 |
|
|
|
(0.09 |
) |
|
|
(0.59 |
) |
The weighted average fair value of the Company’s stock
options was calculated using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for
grants: no dividend yield; expected volatility of 49.7% in 1999
and 30.0% in 1998 and 1997; risk-free interest rate of 8.0% in
1999 and 7.0% in 1998 and 1997; and expected lives of five years.
The weighted average fair value of options granted during the
years ended December 31, 1999, 1998 and 1997 is $3.85, $6.99
and $4.74 per share, respectively.
In connection with the Securities Purchase Agreement, the Company
issued 800,000 options during 1999 to purchase Common Stock with
an exercise price of $10.00 per share. The Company recorded
$2,250 in compensation expense during 1999 relating to the
issuance of such options.
F-17
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
12. Stockholders’ Equity
At December 31, 1999 and 1998, the following classes of
stock are authorized, issued or outstanding (share amounts in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock, $0.0001 par value; 10 shares
authorized, 8 issued and outstanding |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
Series B Preferred Stock, $0.0001 par value; 10 shares
authorized, 1 issued and outstanding |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock, $0.0001 par value, 40,000 shares authorized; 21,882
shares issued, including 561 treasury shares, at
December 31, 1999; 20,133 shares issued, including 443
treasury shares, at December 31, 1998 |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
Non-voting Common Stock, $0.0001 par value; 7,125 shares
authorized, none issued and outstanding, at December 31,
1999; 1,125 shares authorized, 605 issued and outstanding, at
December 31, 1998 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Class C Common Stock, $0.0001 par value, 20,000 shares
authorized; none issued and outstanding |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
414,318 |
|
|
|
352,591 |
|
|
|
|
|
|
|
Retained earnings (accumulated deficit) |
|
|
16,545 |
|
|
|
(10,943 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
$ |
430,865 |
|
|
$ |
341,650 |
|
|
|
|
|
|
|
|
|
|
On April 12, 1999, the Company and International Motor Cars
Group I, L.L.C. and International Motor Cars Group II,
L.L.C. (“IMCG II”), Delaware limited liability
companies controlled by Penske Capital Partners, L.L.C.
(together, the “Purchaser”), entered into a Securities
Purchase Agreement (the “Securities Purchase
Agreement”) pursuant to which the Purchaser agreed to
purchase (i) an aggregate of 7,903.124 shares of the
Company’s Series A Convertible Preferred Stock, par
value $0.0001 per share (the “Series A Preferred
Stock”), (ii) an aggregate of 396.876 shares of the
Company’s Series B Convertible Preferred Stock, par
value $0.0001 per share (the “Series B Preferred
Stock”), and (iii) warrants (the “Warrants”)
to purchase (a) 3,898,665 shares of the Company’s
voting Common Stock, par value $0.0001 per share (the
“Common Stock”), and (b) 1,101,335 shares of the
Company’s non-voting Common Stock, par value $0.0001 per
share (the “Non-Voting Common Stock”) for $83,000. The
shares of Series A Preferred Stock and Series B
Preferred Stock entitle the Purchaser to dividends at a rate of
6.5% per year, payable in kind for the first two years,
except that IMCG II’s dividends will be paid in shares
of Series B Preferred Stock. The Series A Preferred
Stock is convertible into an aggregate of 7,903,124 shares of
Common Stock and the Series B Preferred Stock is convertible
into an aggregate of 396,876 shares of Non-Voting Common Stock.
The Warrants are exercisable at a price of $12.50 per share for
the thirty months following the date of issuance, and $15.50 per
share thereafter until May 2, 2004.
The transaction was consummated in two steps: first, the
acquisition of approximately $33,550 of Series A Preferred
Stock and, second, the acquisition of approximately $49,450 of
Series A Preferred Stock, Series B Preferred Stock and
Warrants. The first step of the transaction closed on May 3,
1999. The Series A Preferred Stock issued on May 3,
1999 was subject to mandatory redemption by the Company at the
Purchaser’s option under certain circumstances prior to the
second closing. On August 3, 1999, the transaction was
approved by the Company’s stockholders, after which the
second step of the transaction closed. Proceeds from the issuance
of the securities pursuant to the Securities Purchase Agreement
were used to prepay the remaining $44,400 of term loans and
$18,400 of revolving loan commitments outstanding under the
Company’s credit agreement, to pay approximately $6,800 of
fees incurred in connection with the execution of the Securities
Purchase Agreement and fund certain acquisition related costs.
F-18
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
13. Income Taxes
The income tax (provision) benefit relating to income
(loss) from continuing operations consisted of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(7,091 |
) |
|
$ |
(278 |
) |
|
$ |
— |
|
|
|
|
|
|
|
State and local |
|
|
(3,352 |
) |
|
|
(3,687 |
) |
|
|
(1,879 |
) |
|
|
|
|
|
|
Foreign |
|
|
(964 |
) |
|
|
(228 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
(11,407 |
) |
|
|
(4,193 |
) |
|
|
(1,932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(9,085 |
) |
|
|
(4,733 |
) |
|
|
3,149 |
|
|
|
|
|
|
|
State and local |
|
|
(517 |
) |
|
|
(1,937 |
) |
|
|
2,763 |
|
|
|
|
|
|
|
Foreign |
|
|
(405 |
) |
|
|
(691 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
(10,007 |
) |
|
|
(7,361 |
) |
|
|
5,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit relating to continuing
operations |
|
$ |
(21,414 |
) |
|
$ |
(11,554 |
) |
|
$ |
3,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax (provision) benefit relating to income (loss) from
continuing operations varied from the U.S. federal statutory
income tax rate due to the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
Income tax (provision) benefit relating to continuing operations
at Federal statutory rate of 35% |
|
$ |
(17,096 |
) |
|
$ |
(8,818 |
) |
|
$ |
4,122 |
|
|
|
|
|
|
|
State and local income taxes, net of federal benefit |
|
|
(2,516 |
) |
|
|
(1,994 |
) |
|
|
496 |
|
|
|
|
|
|
|
Impact of change in effective state rate on temporary
differences, net of federal benefit |
|
|
— |
|
|
|
(1,641 |
) |
|
|
— |
|
|
|
|
|
|
|
Valuation allowance |
|
|
— |
|
|
|
1,700 |
|
|
|
— |
|
|
|
|
|
|
|
Non-deductible amortization of goodwill |
|
|
(1,330 |
) |
|
|
(1,412 |
) |
|
|
(750 |
) |
|
|
|
|
|
|
Revision to estimated liabilities |
|
|
— |
|
|
|
903 |
|
|
|
— |
|
|
|
|
|
|
|
Other |
|
|
(472 |
) |
|
|
(292 |
) |
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit relating to continuing
operations |
|
$ |
(21,414 |
) |
|
$ |
(11,554 |
) |
|
$ |
3,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (“SFAS 109”).
Under SFAS 109, deferred income taxes reflect the estimated
tax effect of temporary differences between assets and
liabilities reported for financial accounting purposes and those
amounts as measured by tax laws and regulations. The components
of deferred tax assets and liabilities at December 31, 1999
and 1998 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
Deferred Tax Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
2,105 |
|
|
$ |
4,387 |
|
|
|
|
|
|
|
Accrued liabilities |
|
|
2,534 |
|
|
|
5,940 |
|
|
|
|
|
|
|
Partnership investments |
|
|
346 |
|
|
|
866 |
|
|
|
|
|
|
|
Capital loss carryforwards |
|
|
3,007 |
|
|
|
3,990 |
|
|
|
|
|
|
|
Sale of finance receivables and other items |
|
|
1,913 |
|
|
|
4,527 |
|
|
|
|
|
|
|
Issuance of compensatory stock options |
|
|
810 |
|
|
|
— |
|
|
|
|
|
|
|
Other |
|
|
1,013 |
|
|
|
2,423 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
11,728 |
|
|
|
22,133 |
|
|
|
|
|
|
|
Valuation allowance |
|
|
(1,490 |
) |
|
|
(1,490 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
10,238 |
|
|
$ |
20,643 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
(15,679 |
) |
|
$ |
(10,236 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(15,679 |
) |
|
|
(10,236 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities) |
|
$ |
(5,441 |
) |
|
$ |
10,407 |
|
|
|
|
|
|
|
|
|
|
At December 31, 1999, the Company has $41,776 of state net
operating loss carryforwards that expire at various dates through
2019.
14. Supplemental Cash Flow Information
The following table presents supplementary cash flow information:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
Cash paid interest |
|
$ |
28,397 |
|
|
$ |
26,683 |
|
|
$ |
8,016 |
|
|
|
|
|
|
|
Cash paid income taxes |
|
|
9,587 |
|
|
|
3,234 |
|
|
|
3,321 |
|
|
|
|
|
|
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealership acquisition costs financed by issuance of stock |
|
|
— |
|
|
|
36,100 |
|
|
|
28,150 |
|
|
|
|
|
|
|
Dealership acquisition cost financed by long-term debt |
|
|
1,500 |
|
|
|
12,200 |
|
|
|
27,104 |
|
15. Summary of Quarterly Financial Data (Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| Statements of Operations Data(1)(2): |
|
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
904,732 |
|
|
$ |
1,043,598 |
|
|
$ |
1,085,366 |
|
|
$ |
988,821 |
|
|
|
|
|
|
|
Gross profit |
|
|
124,758 |
|
|
|
141,832 |
|
|
|
146,484 |
|
|
|
136,363 |
|
|
|
|
|
|
|
Income from continuing operations |
|
|
3,698 |
|
|
|
8,620 |
|
|
|
8,969 |
|
|
|
5,423 |
|
|
|
|
|
|
|
Net income |
|
|
3,698 |
|
|
|
8,620 |
|
|
|
9,317 |
|
|
|
5,853 |
|
|
|
|
|
|
|
Income from continuing operations per diluted common share |
|
|
0.16 |
|
|
|
0.35 |
|
|
|
0.31 |
|
|
|
0.18 |
|
|
|
|
|
|
|
Net income per diluted common share |
|
|
0.16 |
|
|
|
0.35 |
|
|
|
0.32 |
|
|
|
0.19 |
|
F-20
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| Statements of Operations Data(1)(2): |
|
|
|
|
|
|
|
|
|
1998(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
711,709 |
|
|
$ |
896,419 |
|
|
$ |
897,006 |
|
|
$ |
838,013 |
|
|
|
|
|
|
|
Gross profit |
|
|
96,515 |
|
|
|
121,092 |
|
|
|
128,591 |
|
|
|
109,419 |
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
2,291 |
|
|
|
8,027 |
|
|
|
8,060 |
|
|
|
(5,000 |
) |
|
|
|
|
|
|
Net income (loss) |
|
|
1,064 |
|
|
|
8,193 |
|
|
|
8,227 |
|
|
|
(18,281 |
) |
|
|
|
|
|
|
Income (loss) from continuing operations per diluted common
share |
|
|
0.12 |
|
|
|
0.39 |
|
|
|
0.39 |
|
|
|
(0.22 |
) |
|
|
|
|
|
|
Net income (loss) per diluted common share |
|
|
0.05 |
|
|
|
0.40 |
|
|
|
0.40 |
|
|
|
(0.81 |
) |
|
|
| (1) |
As discussed in Note 3, the results of UAF have been recorded as
discontinued operations. |
| |
| (2) |
As discussed in Note 8, the Company recorded an extraordinary
gain of $320 in the third quarter of 1999, an extraordinary gain
of $412 in the fourth quarter of 1999 and an extraordinary loss
of $1,235 in the first quarter of 1998. |
| |
| (3) |
As discussed in Note 2, the Company recorded a $12,550 charge
during the fourth quarter of 1998. |
| |
| (4) |
Includes the results of the Skelton Group, the Young Group, the
Classic Group, Graceland Dodge, Pioneer Ford, the San Diego
dealerships and Citrus Dodge from their respective dates of
acquisition. |
The net income (loss) per common share amounts are
calculated independently for each of the quarters presented. The
sum of the quarters may not equal the full year net income
(loss) per common share amounts.
F-21
Exhibit Index
| |
|
|
| Exhibit |
|
|
| Number |
|
Description |
|
|
|
|
3.1(l) |
|
Certificate of Amendment of Certificate of Incorporation of the
Company dated August 3, 1999 |
|
3.2(b) |
|
Restated Bylaws |
|
4.1(b) |
|
Specimen Common Stock Certificate |
|
4.2(f) |
|
Indenture, dated as of July 23, 1997, among the Company, the
Guarantors party thereto and The Bank of New York, as Trustee,
including form of Note and Guarantee |
|
4.4(f) |
|
Indenture, dated as of September 16, 1997, among the
Company, the Guarantors party thereto and The Bank of New York,
as Trustee, including from of Series B Note and Guarantee |
|
4.5(k) |
|
Certificate of Designation of Series A Convertible Preferred
Stock of the Company, filed with the Secretary of State of the
State of Delaware on April 30, 1999 |
|
10.1(k) |
|
Stockholders Agreement, dated as of May 3, 1999, by and
among AIF II, L.P., Aeneas Venture Corporation, International
Motor Cars Group I, L.L.C., International Motor Cars
Group II, L.L.C., Trace International Holdings, Inc., and
the Company |
|
10.1.1(b) |
|
Registration Rights Agreement, dated as of October 15, 1993,
among the Company and the investors listed therein, as amended
July 31, 1996 |
|
10.1.4(b) |
|
Form of Warrant |
|
10.1.8(b) |
|
Stock Option Plan of the Company |
|
10.1.8.1(i) |
|
Amendment to Stock Option Plan of the Company |
|
10.1.11(b) |
|
Letter, dated July 24, 1996, between the Company and Toyota
Motor Sales U.S.A., Inc. |
|
10.1.13(b) |
|
Non-employee Director Compensation Plan of the Company |
|
10.1.14(b) |
|
Form of Agreement among the Company, certain of its affiliates
and American Honda Motor Co., Inc. |
|
10.1.15(b) |
|
Form of Option Certificate of the Company in favor of
Samuel X. DiFeo and Joseph C. DiFeo |
|
10.1.18(d) |
|
Consulting Agreement, dated March 3, 1997, between the
Company and Carl Spielvogel |
|
10.1.19.1(a) |
|
Credit Agreement dated as of August 3, 1999 among the
Company, various financial institutions and Chrysler Financial
Company, L.L.C., as Agent |
|
10.1.19.2(a) |
|
First Amendment to Credit Agreement dated as of August 3,
1999 among the Company, various financial institutions and
Chrysler Financial Company, L.L.C., as Agent |
|
10.1.19.3(a) |
|
Second Amendment to Credit Agreement dated as of August 3,
1999 among the Company, various financial institutions and
Chrysler Financial Company, L.L.C., as Agent |
|
10.2(k) |
|
Non-Competition and Standstill Agreement, dated as of April
12, 1999 by and between Marshall S. Cogan and the Company |
|
10.2.1(b) |
|
Honda Automobile Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.2.2(b) |
|
Lexus Dealer Agreement, including Standard Provisions |
| |
|
|
| Exhibit |
|
|
| Number |
|
Description |
|
|
|
|
10.2.3(b) |
|
Mitsubishi Dealer Sales and Services Agreement, including
Standard Provisions |
|
10.2.4(b) |
|
BMW of North America, Inc., Dealer Agreement, including Standard
Provisions |
|
10.2.5(b) |
|
Suzuki Term Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.2.6(b) |
|
Toyota Dealer Agreement, including Standard Provisions |
|
10.2.7(b) |
|
General Motors Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.2.9(b) |
|
Nissan Dealer Sales and Service Agreement, including Standard
Provisions |
|
10.2.10(b) |
|
Chrysler Corporation Term Sales and Service Agreement, including
Standard Provisions |
|
10.2.15(b) |
|
Hyundai Motor America Dealer Sales and Service Agreement,
including Standard Provisions |
|
10.2.21 and 22(b) |
|
Isuzu Dealer Sales and Service Agreement, including Standard
Provisions |
|
10.2.26(b) |
|
Settlement Agreement, dated as of October 3, 1996, among the
Company and certain of its affiliates, on the one hand, and
Samuel X. DiFeo, Joseph C. DiFeo and certain of their
affiliates, on the other hand |
|
10.3(l) |
|
Stock Option Agreement, dated as of August 3, 1999, between
the Company and Roger S. Penske |
|
10.3.1(g) |
|
Ford Sales and Service Agreement, including Standard Provisions |
|
10.4(l) |
|
Stock Option Agreement, dated as of August 3, 1999 between
the Company and Marshall S. Cogan |
|
10.4.5(b) |
|
Employment Agreement, dated as of August 1, 1995, between
Landers Auto Sales, Inc., and Steve Landers |
|
10.5.13(b) |
|
Employment Agreement, dated as of January 16, 1996, among
the Company, UAG Atlanta, Inc. and John Smith |
|
10.8.1(b) |
|
Stock Purchase Agreement, dated as of June 6, 1996, among
the Company, UAG West, Inc., Scottsdale Jaguar, LTD., SA
Automotive, LTD., SL Automotive, LTD., SPA Automotive, LTD., LRP,
LTD., Sun BMW, LTD., Scottsdale Management Group, LTD., 6725
Dealership LTD., and certain parties named therein, as amended on
October 21, 1996 by Amendment No. 1, Amendment
No. 2 and Amendment No. 3 |
|
10.8.3(b) |
|
Form of Employment Agreement between the Company, UAG West, Inc.,
and Steven Knappenberger |
|
10.8.5(b) |
|
Audi Dealer Agreement, including Standard Provisions |
|
10.8.6(b) |
|
Acura Automobile Dealer Sales and Service Agreement, including
Standard Provisions |
|
10.8.8(b) |
|
Porsche Sales and Service Agreement, including Standard
Provisions |
|
10.8.9(b) |
|
Land Rover North America, Inc. Dealer Agreement, including
Standard Provisions |
|
10.8.21(e) |
|
Rolls-Royce Dealer Agreement |
|
10.11.1(c) |
|
Agreement and Plan of Merger, dated December 16, 1996, among
Crown Jeep Eagle, Inc., Berylson, Inc., Shannon Automotive,
Ltd., Kevin J. Coffey, Paul J. Rhodes, the Company, UAG
Texas, Inc., and UAG Texas II, Inc. |
|
10.13.1(d) |
|
Stock Purchase Agreement, dated February 19, 1997, among the
Company, UAG East, Inc., Amity Auto Plaza, Ltd., Massapequa
Imports Ltd., Westbury Nissan Ltd., Westbury Superstore Ltd.,
J&S Auto Refinishing Ltd., Florida Chrysler Plymouth Jeep
Eagle Inc., Palm Auto Plaza, Inc., West Palm Infiniti Inc., West
Palm Nissan Inc., Northlake Auto Finish Inc., John A. Staluppi
and John A. Staluppi, Jr., as amended April 7, 1997 and
April 30, 1997 |
| |
|
|
| Exhibit |
|
|
| Number |
|
Description |
|
|
|
|
10.15.1(e) |
|
Stock Purchase Agreement, dated April 12, 1997, among the
Company, Gene Reed Chevrolet, Inc., Michael
Chevrolet–Oldsmobile, Inc., Reed-Lallier Chevrolet, Inc.,
Gene Reed, Jr., Michael L. Reed, Michael G. Lallier,
Deborah B. Lallier, John P. Jones, Charles J.
Bradshaw, Charles J. Bradshaw, Jr., Julia D. Bradshaw
and William B. Bradshaw, as amended May 31, 1997 |
|
10.18.1(f) |
|
Stock Purchase Agreement, dated July 25, 1997 among the
Company, UAG Classic, Inc., Classic Auto Group, Inc., Cherry Hill
Classic Cars, Inc., Classic Enterprises, Inc., Classic Buick,
Inc., Classic Chevrolet, Inc., Classic Management, Inc., Classic
Turnersville, Inc., Classic Imports, Inc., and Thomas J.
Hessert, Jr. (as amended) |
|
10.19.1.1(f) |
|
Stock Purchase Agreement, dated as of September 25, 1997
among the Company, UAG Young, Inc., Dan Young Chevrolet, Inc.,
Dan Young, Inc., Parkway Chevrolet, Inc., Young Management Group,
Inc., and certain parties named therein |
|
10.19.1.2(f) |
|
Agreement and Plan of Merger, dated as of September 25, 1997
among the Company, UAG Kissimmee Motors, Inc., UAG Paramount
Motors, Inc., UAG Century Motors, Inc., Paramount Chevrolet-Geo,
Inc., Century Chevrolet-Geo, Inc., and certain parties named
therein |
|
10.19.1.3(h) |
|
Amendment to Stock Purchase Agreement, dated January 31,
1998, between and among United Auto Group, Inc., UAG Young, Inc.,
Dan Young Chevrolet, Inc., Dan Young, Inc., Parkway Chevrolet,
Inc., Young Management Group, Inc., and certain parties named
therein |
|
10.19.1.4(h) |
|
Amendment to Agreement and Plan of Merger, dated January
31, 1998, between and among United Auto Group, Inc., UAG
Kissimmee Motors, Inc., UAG Paramount Motors, Inc., UAG Century
Motors, Inc., Kissimmee Motors, Inc., Paramount Chevrolet-Geo,
Inc., Century Chevrolet-Geo, Inc., and certain parties named
therein |
|
10.20.1(j) |
|
Securities Purchase Agreement, dated as of April 12, 1999,
among the Company and International Motorcars Group I, L.L.C.,
and International Motor Cars Group II, L.L.C. |
|
10.20.2(j) |
|
Stockholder Voting Agreement, dated April 12, 1999, between
Trace International Holdings, Inc., International Motorcars
Group I, L.L.C., and International Motorcars Group II,
L.L.C. |
|
10.20.3(j) |
|
Stockholder Voting Agreement, dated April 12, 1999, between
Aeneas Venture Corporation, International Motorcars Group I,
L.L.C. and International Motorcars Group II, L.L.C. |
|
10.20.4(j) |
|
Stockholder Voting Agreement, dated April 12, 1999, between
AIF II, L.P., International Motorcars Group I, L.L.C.,
and International Motorcars Group II, L.L.C. |
|
10.20.7(k) |
|
Registration Rights Agreement, dated as of May 3, 1999, by
and among the Company, International Motorcars Group I,
L.L.C., and International Motorcars Group II, L.L.C. |
|
10.21(a) |
|
Severance Agreement, dated May 3, 1999 between the Company
and Robert Nelson. |
|
10.22(a) |
|
Severance Agreement, dated August 2, 1999 between the
Company and James Davidson. |
|
10.23(a) |
|
Letter Agreement dated August 3, 1999 between the Company
and Samuel X. DiFeo. |
|
21.1(a) |
|
Subsidiaries of the Company |
|
23.1(a) |
|
Consent of PricewaterhouseCoopers, LLP |
|
23.2(a) |
|
Consent of Deloitte & Touche, LLP |
| |
|
|
| Exhibit |
|
|
| Number |
|
Description |
|
|
|
|
27.1(a) |
|
December 31, 1999 Financial Data Schedule |
|
27.2(a) |
|
September 30, 1999 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
27.3(a) |
|
June 30, 1999 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.4(a) |
|
March 31, 1999 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.5(a) |
|
December 31, 1998 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
27.6(a) |
|
September 30, 1998 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
27.7(a) |
|
June 30, 1998 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.8(a) |
|
March 31,1998 Financial Data Schedule, restated to reflect
the reclassification of floor plan interest expense out of cost
of sales. |
|
27.9(a) |
|
December 31, 1997 Financial Data Schedule, restated to
reflect the reclassification of floor plan interest expense out
of cost of sales. |
|
|
| (a) |
Filed herewith |
| |
| (b) |
Incorporated herein by reference to the Company’s
Registration Statement on Form S-1, Registration
No. 333-09429 |
| |
| (c) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Current Report on Form 8-K
filed on December 24, 1996, File No. 001-12297 |
| |
| (d) |
Incorporated herein by reference to the identically number
exhibit to the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, File
No. 001-12297 |
| |
| (e) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, File No. 001-12297 |
| |
| (f) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, File
No. 001-12297 |
| |
| (g) |
Incorporated herein by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31,
1997, File No. 001-12297 |
| |
| (h) |
Incorporated herein by reference to the identically numbered
exhibit to the Company’s Current Report on Form 8-K
filed on February 20, 1998, File No. 001-12297 |
| |
| (i) |
Incorporated herein by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31,
1998, File No. 001-12297 |
| |
| (j) |
Incorporated herein by reference to the Company’s Current
Report on Form 8-K filed on April 15, 1999, File
No. 001-12297 |
| |
| (k) |
Incorporated herein by reference to the Company’s Current
Report on Form 8-K filed on May 10, 1999, File
No. 001-12297 |
| |
| (l) |
Incorporated herein by reference to the Company’s Current
Report on Form 8-K filed on August 13, 1999, File
No. 001-12297 |
|
|
|
| |
(d) |
Schedules — No Financial Statement Schedules are
required to be filed as part of this Annual Report on
Form 10-K. |
