The Company receives non-refundable credits from certain of its vehicle manufacturers that reduce cost of sales when the vehicles are sold. Such credits amounted to $32,095, $28,649 and $26,083 during the years ended December 31, 2005, 2004 and 2003, respectively.
As of December 31, 2005 and 2004, approximately $859 and $708, respectively, of capitalized interest is included in buildings and leasehold improvements and is being amortized over the useful life of the related assets.
The Company finances substantially all of its new and a portion of its used vehicle inventories under revolving floor plan notes payable with various lenders. In the U.S., the floor plan arrangements are due on demand; however, the Company is generally not required to repay floor plan advances prior to the sale of the vehicles financed. The Company typically makes monthly interest payments on the amount financed. In the U.K., substantially all of the floor plan arrangements are payable on demand or have an original maturity of 90 days or less and the Company is generally required to repay floor plan advances at the earlier of the sale of the vehicles financed or the stated maturity.
The floor plan agreements grant a security interest in substantially all of the assets of the Company’s dealership subsidiaries. Interest rates under the floor plan arrangements are variable and increase or decrease based on changes in the prime rate or LIBOR, as defined. The weighted average interest rate on floor plan borrowings was 5.4%, 5.1% and 4.5% for the years ended December 31, 2005, 2004 and 2003, respectively. The Company classifies floor plan notes payable to a party other than the manufacturer of a particular new vehicle and all floor plan notes payable relating to pre-owned vehicles as floor plan notes payable — non-trade on its consolidated balance sheets and classifies related cash flows as a financing activity on its consolidated statements of cash flows.
Scheduled maturities of long-term debt for each of the next five years and thereafter are as follows:
| 2006 | $ | 3,551 |
| 2007 | | 3,775 |
| 2008 | | 272,196 |
| 2009 | | 200 |
| 2010 | | 519 |
| 2011 and thereafter | | 300,000 |
| |
| Total long-term debt | $ | 580,241 |
U.S. Credit Agreement
The Company is party to a credit agreement with DaimlerChrysler Services Americas LLC and Toyota Motor Credit Corporation, as amended effective October 1, 2004 (the “U.S. Credit Agreement”), which provides for up to $600,000 in revolving loans for working capital, acquisitions, capital expenditures, investments and for other general corporate purposes, and for an additional $50,000 of availability for letters of credit, through September 30, 2008. The revolving loans bear interest between defined LIBOR plus 2.60% and defined LIBOR plus 3.75% .
The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the Company’s domestic subsidiaries and contains a number of significant covenants that, among other things, restrict the Company’s ability to dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. The Company is also required to comply with specified financial and other tests and ratios, each as defined in the U.S. Credit Agreement, including: a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity, a ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), a ratio of domestic debt to domestic EBITDA, and a measurement of stockholders’ equity. A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of December 31, 2005, the Company was in compliance with all covenants under the U.S. Credit Agreement, and the Company believes it will remain in compliance with such covenants for the foreseeable future. In making such determination, the Company has considered the current margin of compliance with the covenants and the expected future results of operations, working capital requirements, acquisitions, capital expenditures and investments in the U.S.
The U.S. Credit Agreement also contains typical events of default, including change of control, non-payment of obligations and cross-defaults to the Company’s other material indebtedness. Substantially all of the Company’s domestic assets not pledged as security under floor plan arrangements are subject to security interests granted to lenders under the U.S. Credit Agreement. As of December 31, 2005, outstanding borrowings and letters of credit under the U.S. Credit Agreement amounted to $272,000 and $13,500, respectively.
U.K. Credit Agreement
The Company’s subsidiaries in the U.K. (the “U.K. Subsidiaries”) are party to a credit agreement with the Royal Bank of Scotland dated February 28, 2003, as amended (the “U.K. Credit Agreement”), which provides for up to £65,000 in revolving and term loans to be used for acquisitions, working capital, and general corporate purposes. Revolving loans under the U.K. Credit Agreement have an original maturity of 90 days or less and bear interest between defined LIBOR plus 0.85% and defined LIBOR plus 1.25% . The U.K. Credit Agreement also provides for an additional seasonally adjusted overdraft line of credit up to a maximum of £15,000. Term loan capacity under the U.K. Credit Agreement was originally £10,000, which is reduced by £2,000 every six months. As of December 31, 2005, term loan capacity under the U.K. Credit Agreement amounted to £2,000. The remaining £55,000 of revolving loan capacity matures on March 31, 2007.
The U.K. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the U.K. Subsidiaries, and contains a number of significant covenants that, among other things, restrict the ability of the U.K. Subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. In addition, the U.K. Subsidiaries are required to comply with specified ratios and tests, each as defined in the U.K. Credit Agreement, including: a measurement of net worth, a debt to capital ratio, an EBITDA to interest expense ratio, a measurement of maximum capital expenditures, a debt to EBITDA ratio, and a fixed charge coverage ratio. A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of December 31, 2005, the Company was in compliance with all covenants under the U.K. Credit Agreement, and the Company believes that it will remain in compliance with such covenants for the foreseeable future. In making such determination, the Company has considered the current margin of compliance with the covenants and the expected future results of operations, working capital requirements, acquisitions, capital expenditures and investments in the U.K.
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The U.K. Credit Agreement also contains typical events of default, including change of control and non-payment of obligations. Substantially all of the U.K. Subsidiaries’ assets not pledged as security under floor plan arrangements are subject to security interests granted to lenders under the U.K. Credit Agreement. The U.K. Credit Agreement also has cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of the U.K. Subsidiaries. As of December 31, 2005, there were no outstanding borrowings under the U.K. Credit Agreement.
Senior Subordinated Notes
The Company has outstanding $300,000 aggregate principal amount of 9.625% Senior Subordinated Notes due 2012 (the “9.625% Notes”). The 9.625% Notes are unsecured senior subordinated notes and subordinate to all existing and future senior debt, including debt under the Company’s credit agreements and floor plan indebtedness. The 9.625% Notes are guaranteed by substantially all domestic subsidiaries on a senior subordinated basis. The Company can redeem all or some of the 9.625% Notes at its option beginning in 2007 at specified redemption prices. Upon a change of control, each holder of 9.625% Notes will be able to require the Company to repurchase all or some of the Notes at a redemption price of 101% of their principal amount. The 9.625% Notes also contain customary negative covenants and events of default. As of December 31, 2005, the Company was in compliance with all negative covenants and there were no events of default.
8. Interest Rate Swaps
The Company is party to an interest rate swap agreement through January 2008 pursuant to which a notional $200,000 of its U.S. floating rate debt was exchanged for fixed rate debt. The swap was designated as a cash flow hedge of future interest payments of the LIBOR based U.S. floor plan borrowings. As of December 31, 2005, the Company expects approximately $310 associated with the swap to be recognized as a reduction of interest expense over the next twelve months.
9. Commitments and Contingent Liabilities
From time to time, the Company is involved in litigation relating to claims arising in the normal course of business. Such issues may relate to litigation with customers, employment related lawsuits, class action lawsuits, purported class action lawsuits, and actions brought by governmental authorities. As of December 31, 2005, the Company is not party to any legal proceedings, including class action lawsuits to which it is a party, that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
The Company has entered into an agreement with a third-party to jointly acquire and manage dealerships in Indiana, Illinois, Ohio, North Carolina and South Carolina. With respect to any joint venture relationship established pursuant to this agreement, the Company is required to repurchase its partner’s interest at the end of the five-year period following the date of formation of the joint venture relationship. Pursuant to this arrangement, the Company has entered into a joint venture agreement with respect to the Honda of Mentor dealership. The Company is required to repurchase its partners’ interest in this joint venture relationship in July 2008. The Company expects this payment to be approximately $2,700.
The Company typically leases its dealership facilities and corporate offices under non-cancelable operating lease agreements with expiration dates through 2060, including all option periods available to the Company. The Company’s lease arrangements typically allow for a base term with options for extension in the Company’s favor and include escalation clauses tied to the Consumer Price Index.
Minimum future rental payments required under non-cancelable operating leases in effect as of December 31, 2005 are as follows:
| 2006 | $ | 123,088 |
| 2007 | | 118,887 |
| 2008 | | 115,924 |
| 2009 | | 112,724 |
| 2010 | | 107,929 |
| 2011 and thereafter | | 1,031,254 |
| |
| | $ | 1,609,806 |
Rent expense for the years ended December 31, 2005, 2004 and 2003 amounted to $114,552, $90,121 and $71,934, respectively. A number of the dealership leases are with former owners who continue to operate the dealerships as employees of the Company or with other affiliated entities. Of the total rental payments, $10,206, $10,739 and $11,384, respectively, were made to related parties during 2005, 2004, and 2003, respectively (See Note 10).
As of December 31, 2005, the Company has available unused letter of credit capacity of approximately $36,480 under its U.S. Credit Agreement.
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10. Related Party Transactions
The Company currently is a tenant under a number of non-cancelable lease agreements with Automotive Group Realty, LLC and its subsidiaries (together “AGR”), which are subsidiaries of Penske Corporation. During the years ended December 31, 2005, 2004 and 2003, the Company paid $4,700, $5,590 and $5,884, respectively, to AGR under these lease agreements. In addition, during the years ended December 31, 2005, 2004 and 2003, the Company sold AGR real property and improvements for $43,874, $30,800 and $19,300, respectively, which were subsequently leased by AGR to the Company. There were no gains or losses associated with such sales. The sale of each parcel of property was valued at a price which was either independently confirmed by a third party appraiser or at the price for which the Company purchased the property from an independent third party. In addition, the Company sometimes pays and/or receives fees from Penske Corporation and its affiliates for services rendered in the normal course of business, including the transactions with AGR and reimbursements for payments made to third parties by Penske Corporation on the Company’s behalf. Payments made relating to services rendered reflect the provider’s cost or an amount mutually agreed upon by both parties, which the Company believes represent terms at least as favorable as those that could be obtained from an unaffiliated third party negotiated on an arm’s length basis.
The Company is also currently a tenant under a number of non-cancelable lease agreements with former owners who continue to operate the dealerships as employees of the Company or with other affiliated entities. A number of the lease agreements are with Samuel X. DiFeo and members of his family. Mr. DiFeo served as the Company’s President and Chief Operating Officer until March 8, 2006. In each of the years ended December 31, 2005, 2004 and 2003, the Company paid approximately $5,500 to Mr. DiFeo and his family under these lease agreements. The Company believes that when it entered into these transactions, their terms were at least as favorable as those that could be obtained from an unaffiliated third party negotiated on an arm’s length basis.
From time to time the Company enters into joint venture relationships in the ordinary course of business, pursuant to which it acquires dealerships together with other investors. The Company may also provide these ventures with working capital and other debt financing at costs that are based on the Company’s incremental borrowing rate. As of December 31, 2005, the Company’s joint venture relationships are as follows:
| | | Ownership |
| Location | Dealerships | Interest |
| |
| Fairfield, Connecticut | Mercedes-Benz, Audi, Porsche | 92.90%(A)(C) |
| Edison, New Jersey | Ferrari | 70.00%(C) |
| Tysons Corner, Virginia | Mercedes-Benz, Maybach, | |
| | Audi, Porsche, Aston Martin | 90.00%(B)(C) |
| Las Vegas, Nevada | Ferrari, Maserati | 50.00%(D) |
| Mentor, Ohio | Honda | 75.00%(C) |
| Munich, Germany | BMW, MINI | 50.00%(D) |
| Frankfurt, Germany | Lexus, Toyota | 50.00%(D) |
| Achen, Germany | Audi, Volkswagen, Lexus, Toyota | 50.00%(D) |
| Mexico | Toyota | 48.70%(D) |
| Mexico | Toyota | 45.00%(D) |
| __________________________ |
| | |
| (A) | An entity controlled by one of the Company’s directors (the “Investor”), owns a 7.8% interest in this joint venture which entitles the Investor to 20% of the operating profits of the joint venture. In addition, the Investor has an option to purchase up to a 20% interest in the joint venture for specified amounts. |
| |
| (B) | Roger S. Penske, Jr. owns a 10% interest in this joint venture. |
| |
| (C) | Entity is consolidated in the Company’s financial statements |
| |
| (D) | Entity is accounted for under the equity method of accounting |
| |
11. Stock-Based Compensation
During 2005, 2004 and 2003 the Company granted 362, 306 and 648 shares, respectively, of restricted common stock at no cost to participants under the Plan. The restricted stock entitles the participants to vote their respective shares and receive dividends. However, the shares are subject to forfeiture and are non-transferable, which restrictions lapse over a three to four year period from the grant date. The grant date fair value of the restricted stock is amortized to expense over the restriction period. During 2005 and 2004, the Company recorded $5,483 and $5,092 of deferred compensation expense related to the restricted stock, of which $6,551 remained unamortized at December 31, 2005.
During 2005, 2004 and 2003 the Company granted 30, 10 and 58 options to purchase shares of common stock, respectively. Presented below is a summary of the status of stock options held by eligible employees during 2005, 2004 and 2003:
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| | | 2005 | | 2004 | | 2003 |
| | | | | | | | | | | | | |
| Stock Options | | Shares | | Weighted
Average
Exercise
Price | | Shares | | Weighted
Average
Exercise
Price | | Shares | | Weighted
Average
Exercise
Price |
| Options outstanding at beginning of year | | 1,884 | $ | 8.17 | | 3,012 | $ | 7.15 | | 3,724 | $ | 7.11 |
| Granted | | 30 | | 14.86 | | 10 | | 12.35 | | 58 | | 8.39 |
| Exercised | | 428 | | 8.56 | | 1,030 | | 5.40 | | 710 | | 6.78 |
| Forfeited | | 80 | | 8.14 | | 108 | | 7.09 | | 60 | | 6.06 |
| Options outstanding at end of year | | 1,406 | $ | 8.20 | | 1,884 | $ | 8.17 | | 3,012 | $ | 7.15 |
The following table summarizes the status of stock options outstanding and exercisable at January 1, 2005:
| | | Weighted | Weighted | | Weighted |
| | Stock | Average | Average | Stock | Average |
| | Options | Remaining | Exercise | Options | Exercise |
| Range of Exercise Prices | Outstanding | Contractual Life | Price | Exercisable | Price |
| |
| $3 to $6 | 490 | 4.4 | $ 4.90 | 490 | $ 4.90 |
| 6 to 16 | 916 | 3.98 | 9.96 | 916 | 9.96 |
| |
| | 1,406 | | | 1,406 | |
During 1999, the Company issued options to purchase 1,600 shares of common stock with an exercise price of $5.00 per share, the then fair value. As of December 31, 2005, 800 of such options remained outstanding.
12. Stockholders’ EquityAccumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows
| | | | | | | Unrealized | | |
| | | | | | | Gain (Loss) | Accumulated |
| | | | | | Unrealized | on Derivative | Other |
| | | Currency | | Appreciation | Financial | Comprehensive |
| | | Translation | | of Investment | Instruments | Income (Loss) |
| |
| Balance at December 31, 2002 | $ | 17,055 | $ | — | $ | (11,020) | $ | 6,035 |
| | Change | | 21,010 | | 5,718 | | 3,552 | | 30,280 |
| |
| Balance at December 31, 2003 | | 38,065 | | 5,718 | | (7,468) | | 36,315 |
| | Change | | 26,284 | | (5,718) | | 582 | | 21,148 |
| |
| Balance at December 31, 2004 | | 64,349 | | — | | (6,886) | | 57,463 |
| | Change | | (39,473) | | — | | 3,840 | | (35,633) |
| |
| Balance at December 31, 2005 | $ | 24,876 | $ | — | $ | (3,046) | $ | 21,830 |
Other Transactions
On March 26, 2004, the Company sold an aggregate of 8,100 shares of common stock to Mitsui & Co., Ltd. and Mitsui & Co. (U.S.A.), Inc. for $119,435, or $14.75 per share. The proceeds of the sale were used for general corporate purposes, which included reducing outstanding indebtedness under the Company’s credit agreements.
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13. Income Taxes
The income tax provision relating to income from continuing operations consisted of the following:
| | | | | | | |
| | Year Ended December 31, |
| | | 2005 | | 2004 | | 2003 |
| Current: | | | | | | |
| Federal | $ | 23,866 | $ | 18,935 | $ | 10,864 |
| State and local | | 4,591 | | 4,739 | | 4,942 |
| Foreign | | 24,184 | | 16,697 | | 10,025 |
| Total current | | 52,641 | | 40,371 | | 25,831 |
| |
| Deferred: | | | | | | |
| Federal | | 17,017 | | 19,988 | | 20,203 |
| State and local | | 3,587 | | 4,049 | | 3,930 |
| Foreign | | (3,223) | | 3,331 | | 2,481 |
| |
| Total deferred | | 17,381 | | 27,368 | | 26,614 |
| |
| Income tax provision relating to continuing operations | $ | 70,022 | $ | 67,739 | $ | $ 52,445 |
The income tax provision relating to income from continuing operations varied from the U.S. federal statutory income tax rate due to the following:
| | | Year Ended December 31, |
| | | 2005 | | 2004 | | 2003 |
| | | | | | | |
| Income tax provision relating to continuing operations at federal statutory rate of 35% | $ | 67,534 | $ | 63,736 | $ | $ 46,467 |
| State and local income taxes, net of federal benefit | | 5,319 | | 5,708 | | 5,643 |
| Other | | (2,831) | | (1,705 ) | | 335 |
| |
| Income tax provision relating to continuing operations before extraordinary item | $ | 70,022 | $ | 67,739 | $ | $ 52,445 |
| |
| |
| The components of deferred tax assets and liabilities at December 31, 2005 and 2004 were as follows: | | | |
| | | 2005 | | | | 2004 |
| |
| Deferred Tax Assets | | | | | | |
| Accrued liabilities | $ | 27,952 | | | $ | 25,760 |
| Net operating loss carryforwards | | 5,508 | | | | 3,524 |
| Interest rate swap | | 3,673 | | | | 8,560 |
| Other | | 220 | | | | 218 |
| |
| Total deferred tax assets | | 37,353 | | | | 38,062 |
| Valuation allowance | | (4,119) | | | | (1,080) |
| |
| Net deferred tax assets | | 33,234 | | | | 36,982 |
| |
| Deferred Tax Liabilities | | | | | | |
| Depreciation and amortization | | (120,507) | | | | (105,062) |
| Partnership investments | | (16,644) | | | | (16,416) |
| Other | | (4,079) | | | | (29) |
| |
| Total deferred tax liabilities | | (141,230) | | | | (121,507) |
| |
| Net deferred tax liabilities | $ | (107,996) | | | $ | (84,525) |
The Company does not provide for federal income taxes or tax benefits relating to the undistributed earnings or losses of its foreign subsidiaries. It is the Company’s belief that such earnings will be indefinitely reinvested in the companies that produced them. At December 31, 2005, the Company had not provided federal income taxes on a total of $185,595 of earnings of individual foreign subsidiaries. If these earnings were remitted as dividends, the Company would be subject to U.S. income taxes and certain foreign withholding taxes.
At December 31, 2005, the Company has $97,851 of state net operating loss carryforwards that expire at various dates through 2025 and German net operating carryforwards of $1,865 that will not expire.
A valuation allowance of $3,427 has been recorded against the state net operating loss carryforwards and a valuation allowance of $692 has been recorded against the German net operating loss carryforwards.
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14. Segment Information
The Company operates in one reportable segment. The Company’s operations (i) have similar economic characteristics (all are automobile dealerships), (ii) offer similar products and services (all sell new and used vehicles, service, parts and third-party finance and insurance products), (iii) have similar target markets and customers (generally individuals) and (iv) have similar distribution and marketing practices (all distribute products and services through dealership facilities that market to customers in similar fashions). The following table presents certain data by geographic area:
| | | Year Ended December 31, | |
| | | | |
| | | | 2005 | | | | 2004 | | | | 2003 | |
| Sales to external customers: | | | | | | | | | | | | |
| United States | | | 7,174,948 | | | | 6,348,587 | | | | 5,752,851 | |
| Foreign | | | 2,922,592 | | | | 2,500,674 | | | | 1,614,037 | |
| | | | | | | | | | |
| Total sales to external customers | | | 10,097,540 | | | | 8,849,261 | | | | 7,366,888 | |
| | | | | | | | | | |
| Long-lived assets, net: | | | | | | | | | | | | |
| United States | | | 361,825 | | | | 319,415 | | | | | |
| Foreign | | | 145,312 | | | | 140,556 | | | | | |
| | | | | | | | | | |
| Total long-lived assets | | | 507,137 | | | | 459,971 | | | | | |
| | | | | |
| The Company’s foreign operations are predominantly based in the United Kingdom. | | | | |
| |
| 15. Summary of Quarterly Financial Data (Unaudited) | | | | | | |
| | | First | | Second | | Third | | Fourth |
| | | Quarter | | Quarter | | Quarter | | Quarter |
| | | | | | | | | |
2005(1)(2) | | | | | | | | | | | | |
| Total revenues | | $ | 2,373,613 | | $ | 2,613,933 | | $ | 2,675,289 | | $ | 2,434,705 |
| Gross profit | | | 362,490 | | | 390,558 | | | 396,893 | | | 381,595 |
| Net income | | | 22,892 | | | 33,196 | | | 32,764 | | | 30,121 |
| Diluted earnings per share | | $ | 0.25 | | $ | 0.36 | | $ | 0.35 | | $ | 0.32 |
| | | | | | | | | | | | | |
| | | | First | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
2004(1)(2) | | | | | | | | | | | | |
| Total revenues | | $ | 2,059,334 | | $ | 2,150,347 | | $ | 2,377,074 | | $ | 2,262,506 |
| Gross profit | | | 307,621 | | | 315,439 | | | 341,478 | | | 350,686 |
| Net income | | | 20,204 | | | 33,003 | | | 32,365 | | | 26,115 |
| Diluted earnings per share | | $ | 0.24 | | $ | 0.36 | | $ | 0.35 | | $ | 0.28 |
| _______________________ |
| | |
| (1) | As discussed in Note 3, the Company has treated the operations of certain entities as discontinued operations. The results for all periods have been restated to reflect such treatment. |
| |
| (2) | Per share amounts are calculated independently for each of the quarters presented. The sum of the quarters may not equal the full year per share amounts due to rounding. |
| |
16. Subsequent Event — Convertible Note Offering and Share Repurchase
On January 31, 2006, the Company issued $375,000 of 3.50% senior subordinated convertible notes due 2026 (the “Convertible Notes”) and related guarantees (the “Guarantees” and, together with the Convertible Notes, the “Securities”) in a private offering (the “Offering”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The Securities bear interest at an annual rate of 3.50% . Interest is payable semiannually on April 1 and October 1 of each year, beginning on October 1, 2006. The Securities mature on April 1, 2026, unless earlier converted, redeemed or purchased by the Company. The Securities are unsecured senior subordinated obligations and are guaranteed on an unsecured senior subordinated basis by the Company’s existing wholly owned domestic subsidiaries.
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Holders may convert the Securities based on a conversion rate of 42.2052 shares of common stock per $1,000 principal amount of the Securities (which is equal to an initial conversion price of approximately $23.69 per share), subject to adjustment, only under the following circumstances: (1) if the closing price of the common stock reaches, or the trading price of the Securities falls below, specific thresholds, (2) if the Securities are called for redemption, (3) if specified distributions to holders of common stock are made or specified corporate transactions occur, (4) if a fundamental change occurs, or (5) during the ten trading days prior to, but excluding, the maturity date. Upon conversion of the Securities, in lieu of shares of common stock, for each $1,000 principal amount of the Securities, a holder will receive an amount in cash equal to the lesserof (i) $1,000 or (ii) the conversion value, determined in the manner set forth in the related indenture (the “Indenture”), of the number of shares of common stock equal to the conversion rate. If the conversion value exceeds $1,000, the Company will also deliver, at its election, cash or common stock or a combination of cash and common stock with respect to the remaining value deliverable upon conversion. If a Holder elects to convert its Securities in connection with certain events that constitute a change of control on or before April 6, 2011, the Company will pay, to the extent described in the Indenture, a make-whole premium by increasing the conversion rate applicable to such Securities.
In addition, the Company will pay contingent interest in cash with respect to any six-month period from April 1 to September 30 and from October 1 to March 31, commencing with the six-month period beginning on April 1, 2011 and ending on September 30, 2011, if the average trading price of a Security for the five trading days ending on the third trading day immediately preceding the first day of the relevant six-month period equals 120% or more of the principal amount of the Security. On or after April 6, 2011, the Company may redeem the Securities, in whole at any time or in part from time to time, for cash at a redemption price of 100% of the principal amount of the Securities to be redeemed, plus any accrued and unpaid interest to the applicable redemption date. Holders of the Securities may require the Company to purchase all or a portion of their Securities for cash on each of April 1, 2011, April 1, 2016 and April 1, 2021 at a purchase price equal to 100% of the principal amount of the Securities to be purchased, plus accrued and unpaid interest, if any, to, the applicable purchase date. In addition, if the Company experiences certain fundamental change events specified in the Indenture, holders of the Securities will have the option to require the Company to purchase for cash all or a portion of their Securities, subject to specified exceptions, at a price equal to 100% of the principal amount of the Securities, plus accrued and unpaid interest, if any, to the fundamental change purchase date.
In connection with the Offering, the Company agreed to file with the Securities and Exchange Commission within 120 days after the date of original issuance of the Securities a shelf registration statement (the “Shelf Registration Statement”) to register resales of the Securities and the shares of common stock issuable upon conversion of the Securities. The Company will use its commercially reasonable efforts to (i) cause such Shelf Registration Statement to become effective within 210 days after the original issuance of the Securities and (ii) to keep the Shelf Registration Statement effective until the earlier of (1) two years from the date the Shelf Registration Statement is declared effective by the SEC, (2) the sale pursuant to the Shelf Registration Statement of the Securities and all of the shares of common stock issuable upon conversion of the Securities, and (3) the date when the holders, other than the holders that are “affiliates,” of the Securities and the common stock issuable upon conversion of the Securities are able to sell or transfer all such securities immediately without restriction pursuant to Rule 144 (or any similar provision then in force) under the Securities Act. If the Company fails to comply with its obligations to register the Securities and the common stock issuable upon conversion of the Securities, the registration statement does not become effective within the specified time period, or the shelf registration statement ceases to be effective or fails to be usable for certain periods of time, in each case subject to certain exceptions provided in the registration rights agreement, the Company will be required to pay additional interest, subject to some limitations, to the holders of the Securities.
In connection with the Offering, the Company repurchased 1,000,000 shares of its outstanding common stock on January 26, 2006 for $18,960, or $18.955 per share.
17. Condensed Consolidating Financial Information
The following tables include condensed consolidating financial information as of December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004, and 2003 for United Auto Group, Inc.'s (as the issuer of the 9.625% Notes), wholly-owned subsidiary guarantors, non-wholly owned subsidiaries, and non-guarantor subsidiaries (primarily representing foreign entities). The condensed consolidating financial information includes certain allocations of balance sheet, income statement and cash flow items which are not necessarily indicative of the financial position, results of operations or cash flows of these entities on a stand-alone basis.
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