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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission file number: 1-13461
GROUP 1 AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0506313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 Echo Lane, Suite 100
Houston, Texas 77024
(Address of principal executive offices) (Zip code)
(713) 647-5700
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<Table>
<Caption>
Title Outstanding
----- -----------
Common stock, par value $.01 19,516,854
</Table>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 150,576 $ 140,878
Accounts and notes receivable, net ...................... 42,729 39,709
Inventories, net ........................................ 491,742 527,101
Deferred income taxes ................................... 9,188 7,661
Other assets ............................................ 4,184 5,190
------------ ------------
Total current assets ........................... 698,419 720,539
------------ ------------
PROPERTY AND EQUIPMENT, net ................................ 72,675 70,901
GOODWILL, net .............................................. 280,383 285,892
OTHER ASSETS ............................................... 24,429 22,221
------------ ------------
Total assets ................................... $ 1,075,906 $ 1,099,553
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable ................................. $ 501,216 $ 536,707
Current maturities of long-term debt .................... 1,552 1,506
Accounts payable ........................................ 65,683 57,872
Accrued expenses ........................................ 71,133 69,685
------------ ------------
Total current liabilities ...................... 639,584 665,770
------------ ------------
DEBT, net of current maturities ............................ 30,624 45,949
SENIOR SUBORDINATED NOTES .................................. 89,520 94,444
DEFERRED INCOME TAXES ...................................... 9,853 8,668
OTHER LIABILITIES .......................................... 41,259 37,306
STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized, none
issued or outstanding ................................. -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 19,698,782 and 21,260,227 issued .......... 197 213
Additional paid-in capital .............................. 151,995 170,683
Retained earnings ....................................... 115,908 92,517
Treasury stock, at cost, 256,586 and 1,494,488 shares ... (3,034) (15,997)
------------ ------------
Total stockholders' equity ..................... 265,066 247,416
------------ ------------
Total liabilities and stockholders' equity ..... $ 1,075,906 $ 1,099,553
============ ============
</Table>
The accompanying notes are an integral part of these consolidated
financial statements.
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GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUES:
New vehicle ..................................... $ 592,897 $ 559,819 $ 1,130,339 $ 1,071,236
Used vehicle .................................... 289,702 266,381 564,360 516,078
Parts and service ............................... 88,910 75,223 173,681 148,067
Other dealership revenues, net .................. 35,062 28,714 67,055 54,667
------------ ------------ ------------ ------------
Total revenues ......................... 1,006,571 930,137 1,935,435 1,790,048
COST OF SALES:
New vehicle ..................................... 547,091 516,101 1,045,163 987,908
Used vehicle .................................... 266,345 244,691 517,180 474,316
Parts and service ............................... 39,314 33,648 77,343 66,777
------------ ------------ ------------ ------------
Total cost of sales .................... 852,750 794,440 1,639,686 1,529,001
GROSS PROFIT ....................................... 153,821 135,697 295,749 261,047
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ........................ 115,303 99,028 224,498 194,848
------------ ------------ ------------ ------------
Income from operations before non-cash
charges .............................. 38,518 36,669 71,251 66,199
DEPRECIATION EXPENSE ............................... 1,972 1,920 3,933 3,670
AMORTIZATION EXPENSE ............................... 2,281 2,127 4,551 4,138
------------ ------------ ------------ ------------
Income from operations ................. 34,265 32,622 62,767 58,391
OTHER INCOME AND EXPENSES:
Floorplan interest expense ...................... (7,830) (9,582) (17,137) (17,955)
Other interest expense, net ..................... (3,722) (3,799) (7,922) (7,682)
Other income (expense), net ..................... (18) (1) 20 1,023
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ......................... 22,695 19,240 37,728 33,777
PROVISION FOR INCOME TAXES ......................... 8,625 7,311 14,337 12,835
------------ ------------ ------------ ------------
NET INCOME ......................................... $ 14,070 $ 11,929 $ 23,391 $ 20,942
============ ============ ============ ============
Earnings per share:
Basic ........................................... $ 0.72 $ 0.55 $ 1.19 $ 0.95
Diluted ......................................... $ 0.68 $ 0.54 $ 1.15 $ 0.93
Weighted average shares outstanding:
Basic ........................................... 19,479,775 21,846,856 19,585,027 22,115,594
Diluted ......................................... 20,719,924 22,230,813 20,365,291 22,506,251
</Table>
The accompanying notes are an integral part of these consolidated
financial statements.
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GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
----------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 23,391 $ 20,942
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................................... 8,484 7,808
Deferred income taxes ............................................... (342) 536
Provision for doubtful accounts and uncollectible notes ............. 603 596
Loss (Gain) on sale of assets ....................................... (28) 15
Gain on sale of franchise ........................................... -- (1,048)
Changes in assets and liabilities:
Accounts receivable .............................................. (3,080) (7,906)
Inventories ...................................................... 22,688 (44,606)
Other assets ..................................................... (2,062) (470)
Floorplan notes payable .......................................... (22,802) 27,233
Accounts payable and accrued expenses ............................ 27,249 11,286
------------ ------------
Total adjustments ........................................... 30,710 (6,556)
------------ ------------
Net cash provided by operating activities ......... 54,101 14,386
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable .......................................... (1,496) (1,452)
Collections on notes receivable ....................................... 568 834
Purchases of property and equipment ................................... (6,741) (9,103)
Proceeds from sales of property and equipment ......................... 357 535
Proceeds from sales of franchises ..................................... 3,973 9,700
Cash paid in acquisitions, net of cash received ....................... (600) (37,490)
------------ ------------
Net cash used by investing activities ............. (3,939) (36,976)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) borrowings on acquisition tranche of
revolving credit facility ......................................... (14,750) 32,000
Principal payments of long-term debt .................................. (683) (742)
Borrowings of long-term debt .......................................... 154 678
Purchase of senior subordinated notes ................................. (5,000) (957)
Proceeds from issuance of common stock to benefit plans ............... 1,247 1,817
Purchase of treasury stock ............................................ (21,432) (14,611)
------------ ------------
Net cash provided (used) by financing activities... (40,464) 18,185
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 9,698 (4,405)
CASH AND CASH EQUIVALENTS, beginning of period ........................... 140,878 118,824
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ................................. $ 150,576 $ 114,419
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest ..................................................... $ 26,932 $ 25,603
Taxes ........................................................ $ 1,954 $ 9,644
</Table>
The accompanying notes are an integral part of these consolidated
financial statements.
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GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Group 1 Automotive, Inc. is a leading operator in the automotive
retailing industry. Group 1 Automotive, Inc. is a holding company with its
primary operations and assets being its investments in its subsidiaries. These
subsidiaries sell new and used cars and light trucks through their dealerships
and Internet sites, provide maintenance and repair services and arrange vehicle
finance, service and insurance contracts. Group 1 Automotive, Inc. and its
subsidiaries are herein collectively referred to as the "Company" or "Group 1".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation/Reclassifications
All acquisitions completed during the periods presented have been
accounted for using the purchase method of accounting and their results of
operations are included from the effective dates of the closings of the
acquisitions. The allocations of purchase price to the assets acquired and
liabilities assumed are initially assigned and recorded based on preliminary
estimates of fair value and may be revised as additional information concerning
the valuation of such assets and liabilities becomes available. All significant
intercompany balances and transactions have been eliminated in consolidation.
Interim Financial Information
These interim financial statements are unaudited, and certain
information normally included in financial statements prepared in accordance
with generally accepted accounting principles has not been included herein. In
the opinion of management, all adjustments necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements, have been properly included. Due to seasonality
and other factors, the results of operations for the interim periods are not
necessarily indicative of the results that will be realized for the entire
fiscal year.
Recent Accounting Pronouncements
In June 2001, Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations" was issued. SFAS No. 141 eliminates the use of the
pooling-of-interests method of accounting for business combinations and
establishes the purchase method as the only acceptable method. The statement is
effective beginning June 30, 2001. Management has reviewed the requirements of
the statement and does not believe it will have a material impact on the
financial position or results of operations of the Company.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued. SFAS No. 142 changes the treatment of goodwill by no longer amortizing
goodwill, and instead requiring, at least annually, an assessment for impairment
by applying a fair-value based test. However, other identifiable intangible
assets are to be separately recognized and amortized. The statement is effective
for fiscal years beginning after December 15, 2001. The adoption of the
statement will result in the elimination of approximately $7.4 million of
goodwill amortization, annually, subsequent to December 31, 2001. Additionally,
adoption could result in an impairment of goodwill, based on the new fair-value
based test, which would be reflected as a cumulative effect of change in
accounting principle on January 1, 2002.
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3. EARNINGS PER SHARE:
SFAS No. 128 requires the presentation of basic earnings per share and
diluted earnings per share in financial statements of public enterprises. Under
the provisions of this statement, basic earnings per share is computed based on
weighted average shares outstanding and excludes dilutive securities. Diluted
earnings per share is computed including the impacts of all potentially dilutive
securities. The following table sets forth the shares outstanding for the
earnings per share calculations:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Common stock outstanding, beginning of period ............ 19,716,069 22,435,255 21,260,227 21,801,367
Weighted average common stock issued -
Acquisitions ....................................... -- -- -- 633,888
Employee Stock Purchase Plan ....................... 81,218 93,862 116,937 119,414
Stock options exercised ............................ 23,260 1,723 20,821 862
Less: Weighted average treasury shares purchased and
weighted average shares repurchased and cancelled ... (340,772) (683,984) (1,812,958) (439,937)
------------ ------------ ------------ ------------
Shares used in computing basic earnings per share ........ 19,479,775 21,846,856 19,585,027 22,115,594
Dilutive effect of stock options, net of assumed
repurchase of treasury stock ....................... 1,240,149 383,957 780,264 390,657
------------ ------------ ------------ ------------
Shares used in computing diluted earnings per share ...... 20,719,924 22,230,813 20,365,291 22,506,251
============ ============ ============ ============
</Table>
4. SENIOR SUBORDINATED NOTES:
The Company completed the offering of $100 million of its 10 7/8%
Senior Subordinated Notes due 2009 (the "Notes") on March 5, 1999. The Notes pay
interest semi-annually on March 1 and September 1, each year. Before March 1,
2002, the Company may redeem up to $35 million of the Notes with the proceeds of
certain public offerings of common stock at a redemption price of 110.875% of
the principal amount plus accrued interest to the redemption date. Additionally,
the Company may redeem all or part of the Notes at redemption prices of
105.438%, 103.625%, 101.813% and 100.000% of the principal amount plus accrued
interest during the twelve-month periods beginning March 1, of 2004, 2005, 2006,
and 2007 and thereafter, respectively. The Notes are jointly and severally
guaranteed, on an unsecured senior subordinated basis, by all subsidiaries of
the Company (the "Subsidiary Guarantors"), other than certain minor
subsidiaries. All of the Subsidiary Guarantors are wholly-owned subsidiaries of
the Company. Certain manufacturers have minimum working capital guidelines,
which may limit a subsidiary's ability to make distributions to the parent
company.
5. SUBSEQUENT EVENT:
During July 2001, the Company entered into an interest rate swap to
hedge its variable rate debt. The Company swapped $100 million of floating rate
for a fixed rate of interest, for a period of two years.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the response to Part
I, Item 1 of this Report and our other filings with the Securities and Exchange
Commission ("SEC").
OVERVIEW
We are a leading operator in the $1 trillion automotive retailing
industry. We operate automobile dealership franchises located in Texas,
Oklahoma, Florida, New Mexico, Colorado, Georgia, Louisiana and Massachusetts.
We sell new and used cars and light trucks, provide maintenance and repair
services, sell replacement parts and arrange vehicle finance, service and
insurance contracts. We also operate 22 collision service centers.
We have diverse sources of revenues, including: new car sales, new
truck sales, used car sales, used truck sales, manufacturer remarketed vehicle
sales, parts sales, service sales, collision repair service sales, finance fees,
vehicle service contract commissions, insurance commissions, documentary fees
and after-market product sales. Sales revenues from new and used vehicle sales
and parts and service sales include sales to retail customers, other dealerships
and wholesalers. Other dealership revenues includes revenues from arranging
financing, insurance and vehicle service contracts and documentary fees, net of
a provision for anticipated chargebacks.
Our total gross margin varies as our merchandise mix (the mix between
new vehicle sales, used vehicle sales, parts and service sales, collision repair
service sales and other dealership revenues) changes. Our gross margin on the
sale of products and services generally varies significantly, with new vehicle
sales generally resulting in the lowest gross margin and other dealership
revenues generally resulting in the highest gross margin. When our new vehicle
sales increase or decrease at a rate greater than our other revenue sources, our
gross margin responds inversely. Factors such as seasonality, weather,
cyclicality and manufacturers' advertising and incentives may impact our
merchandise mix and, therefore, influence our gross margin.
Selling, general and administrative expenses consist primarily of
incentive-based compensation for sales, administrative, finance and general
management personnel, rent, marketing, insurance and utilities. We believe that
approximately 65% of our selling, general and administrative expenses are
variable, allowing us to adjust our cost structure based on business trends.
Interest expense consists of interest charges on interest-bearing debt,
including floorplan inventory financing, net of interest income earned. We
receive interest assistance from various of our manufacturers. This assistance,
which is reflected as a reduction of cost of sales, generally equals between 80%
and 90% of our floorplan interest expense.
SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE THREE MONTH PERIODS ENDED JUNE
30, 2001 AND JUNE 30, 2000
NEW VEHICLE DATA
<Table>
<Caption>
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2001 2000 (DECREASE) CHANGE
------------ ------------ ------------ ------------
Retail unit sales ........................... 22,884 22,687 197 0.9%
Retail sales revenues ....................... $ 592,897 $ 559,819 $ 33,078 5.9%
Gross profit ................................ $ 45,806 $ 43,718 $ 2,088 4.8%
Average gross profit per retail unit sold ... $ 2,002 $ 1,927 $ 75 3.9%
Gross margin ................................ 7.7% 7.8% (0.1)%
</Table>
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USED VEHICLE DATA
<Table>
<Caption>
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2001 2000 (DECREASE) CHANGE
------------ ------------ ------------ ------------
Retail unit sales ........................... 17,028 15,630 1,398 8.9%
Retail sales revenues (1) ................... $ 239,204 $ 214,293 $ 24,911 11.6%
Gross profit ................................ $ 23,357 $ 21,690 $ 1,667 7.7%
Average gross profit per retail unit sold ... $ 1,372 $ 1,388 $ (16) (1.2)%
Gross margin ................................ 9.8% 10.1% (0.3)%
</Table>
- ----------
(1) Excludes used vehicle wholesale revenues, as these transactions facilitate
retail vehicle sales and are not expected to generate profit.
PARTS AND SERVICE DATA
<Table>
<Caption>
(dollars in thousands) PERCENT
2001 2000 INCREASE CHANGE
------------ ------------ ------------ ------------
Sales revenues ..... $ 88,910 $ 75,223 $ 13,687 18.2%
Gross profit ....... $ 49,596 $ 41,575 $ 8,021 19.3%
Gross margin ....... 55.8% 55.3% 0.5%
</Table>
OTHER DEALERSHIP REVENUES, NET
<Table>
<Caption>
(dollars in thousands,
except per unit amounts) PERCENT
2001 2000 INCREASE CHANGE
------------ ------------ ------------ ------------
Retail new and used unit sales ....... 39,912 38,317 1,595 4.2%
Retail sales revenues ................ $ 35,062 $ 28,714 $ 6,348 22.1%
Other dealership revenues, net per
retail unit sold ................... $ 878 $ 749 $ 129 17.2%
</Table>
SAME STORE REVENUES COMPARISON (2)
<Table>
<Caption>
(dollars in thousands)
PERCENT
2001 2000 INCREASE CHANGE
------------ ------------ ------------ ------------
New vehicle ...................... $ 559,624 $ 546,664 $ 12,960 2.4%
Used vehicle ..................... 268,263 257,072 11,191 4.4%
Parts and service ................ 81,906 72,513 9,393 13.0%
Other dealership revenues, net ... 32,570 27,562 5,008 18.2%
------------ ------------ ------------ ------------
Total revenues ...... $ 942,363 $ 903,811 $ 38,552 4.3%
</Table>
- ----------
(2) Includes only those dealerships owned during all of the months of both
periods in the comparison.
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THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000
REVENUES. Revenues increased $76.5 million, or 8.2%, to $1,006.6
million for the three months ended June 30, 2001, from $930.1 million for the
three months ended June 30, 2000. Although new vehicle unit sales were stable,
new vehicle revenues increased as trucks, which have a higher average selling
price than cars, and luxury vehicles became a greater percentage of our
business. The growth in used vehicle revenues was primarily attributable to
expanded operations in Atlanta, Albuquerque and Boston and dealership operations
acquired in Atlanta. The increase in parts and service revenues was due to
strong same store sales growth in the Houston, south Florida, Oklahoma and
Boston markets, coupled with the additional dealership operations acquired.
Other dealership revenues increased primarily due to increased sales training,
company-wide benchmarking and a favorable interest rate environment.
GROSS PROFIT. Gross profit increased $18.1 million, or 13.3%, to $153.8
million for the three months ended June 30, 2001, from $135.7 million for the
three months ended June 30, 2000. The increase was attributable to increased
revenues and an increase in gross margin from 14.6% for the three months ended
June 30, 2000, to 15.3% for the three months ended June 30, 2001. The gross
margin increased as lower margin new vehicle revenues decreased as a percentage
of total revenues to 58.9% from 60.2%. The gross margin on retail used vehicle
sales decreased to 9.8% from 10.1% due primarily to softness in our Florida used
vehicle operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $16.3 million, or 16.5%, to $115.3 million for
the three months ended June 30, 2001, from $99.0 million for the three months
ended June 30, 2000. The increase was primarily attributable to the additional
dealership operations acquired and increased variable expenses, including
incentive pay to employees. Selling, general and administrative expenses
increased as a percentage of gross profit to 75.0% from 73.0% due primarily to
the additional dealership operations acquired and incentive compensation.
INTEREST EXPENSE. Floorplan and other interest expense, net, decreased
$1.8 million, or 13.4%, to $11.6 million for the three months ended June 30,
2001, from $13.4 million for the three months ended June 30, 2000. The decrease
was due to a decline in interest rates. During the quarter there was a 219 basis
point rate reduction of the average LIBOR as compared to the prior year.
Partially offsetting the rate decrease was an increase in debt outstanding. The
increase in debt outstanding was primarily attributable to the floorplan
borrowings of the additional dealership operations acquired.
SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE SIX MONTH PERIODS ENDED JUNE 30,
2001 AND JUNE 30, 2000
NEW VEHICLE DATA
<Table>
<Caption>
(dollars in thousands,
except per unit amounts) INCREASE/ PERCENT
2001 2000 (DECREASE) CHANGE
------------ ------------ ------------ ------------
Retail unit sales ........................... 43,610 43,466 144 0.3%
Retail sales revenues ....................... $ 1,130,339 $ 1,071,236 $ 59,103 5.5%
Gross profit ................................ $ 85,176 $ 83,328 $ 1,848 2.2%
Average gross profit per retail unit sold ... $ 1,953 $ 1,917 $ 36 1.9%
Gross margin ................................ 7.5% 7.8% (0.3)%
</Table>
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USED VEHICLE DATA
<Table>
<Caption>
(dollars in thousands,
except per unit amounts) PERCENT
2001 2000 INCREASE CHANGE
------------ ------------ ------------ ------------
Retail unit sales ........................... 33,528 30,281 3,247 10.7%
Retail sales revenues (1) ................... $ 464,303 $ 412,895 $ 51,408 12.5%
Gross profit ................................ $ 47,180 $ 41,762 $ 5,418 13.0%
Average gross profit per retail unit sold ... $ 1,407 $ 1,379 $ 28 2.0%
Gross margin ................................ 10.2% 10.1% 0.1%
</Table>
- ----------
(1) Excludes used vehicle wholesale revenues, as these transactions facilitate
retail vehicle sales and are not expected to generate profit.
PARTS AND SERVICE DATA
<Table>
<Caption>
(dollars in thousands) PERCENT
2001 2000 INCREASE CHANGE
------------ ------------ ------------ ------------
Sales revenues ... $ 173,681 $ 148,067 $ 25,614 17.3%
Gross profit ..... $ 96,338 $ 81,290 $ 15,048 18.5%
Gross margin ..... 55.5% 54.9% 0.6%
</Table>
OTHER DEALERSHIP REVENUES, NET
<Table>
<Caption>
(dollars in thousands,
except per unit amounts) PERCENT
2001 2000 INCREASE CHANGE
------------ ------------ ------------ ------------
Retail new and used unit sales ...... 77,138 73,747 3,391 4.6%
Retail sales revenues ............... $ 67,055 $ 54,667 $ 12,388 22.7%
Net revenues per retail unit sold ... $ 869 $ 741 $ 128 17.3%
</Table>
SAME STORE REVENUES COMPARISON (2)
<Table>
<Caption>
(dollars in thousands)
PERCENT
2001 2000 INCREASE CHANGE
------------ ------------ ------------ ------------
New vehicle ...................... $ 1,058,063 $ 1,039,450 $ 18,613 1.8%
Used vehicle ..................... 518,329 494,533 23,796 4.8%
Parts and service ................ 158,201 142,124 16,077 11.3%
Other dealership revenues, net ... 62,102 51,328 10,774 21.0%
------------ ------------ ------------ ------------
Total revenues ....... $ 1,796,695 $ 1,727,435 $ 69,260 4.0%
</Table>
(2) Includes only those dealerships owned during all of the months of both
periods in the comparison.
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SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
REVENUES. Revenues increased $145.4 million, or 8.1%, to $1,935.4
million for the six months ended June 30, 2001, from $1,790.0 million for the
six months ended June 30, 2000. Although new vehicle unit sales were stable, new
vehicle revenues increased as trucks, which have a higher average selling price
than cars, and luxury vehicles became a greater percentage of our business.
The growth in used vehicle revenues was primarily attributable to expanded
operations in Atlanta and Albuquerque and dealership operations acquired in
Atlanta. The increase in parts and service revenues was due to strong same store
growth in the Houston, south Florida, Oklahoma and Boston markets, coupled with
the additional dealership operations acquired. Other dealership revenues
increased primarily due to increased sales training, company-wide benchmarking
and a favorable interest rate environment.
GROSS PROFIT. Gross profit increased $34.7 million, or 13.3%, to $295.7
million for the six months ended June 30, 2001, from $261.0 million for the six
months ended June 30, 2000. The increase was attributable to increased revenues
and an increase in gross margin to 15.3% for the six months ended June 30, 2001,
from 14.6% for the six months ended June 30, 2000. The gross margin increased as
lower margin new vehicle revenues decreased as a percentage of total revenues to
58.4% from 59.8%. The gross margin on new retail vehicle sales declined to 7.5%
from 7.8%, due to aggressively marketing excess inventory during the first three
months of 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $29.7 million, or 15.2%, to $224.5 million for
the six months ended June 30, 2001, from $194.8 million for the six months ended
June 30, 2000. The increase was primarily attributable to the additional
dealership operations acquired and increased variable expenses, including
incentive pay to employees. Selling, general and administrative expenses
increased as a percentage of gross profit to 75.9% from 74.6% due primarily to
the additional dealership operations acquired and incentive compensation.
INTEREST EXPENSE. Floorplan and other interest expense, net, decreased
$0.5 million, or 2.0%, to $25.1 million for the six months ended June 30, 2001,
from $25.6 million for the six months ended June 30, 2000. The decrease was due
to a decline in interest rates. During the six month period ended June 30, 2001,
there was a 130 basis point rate reduction of the average LIBOR as compared to
the prior year. Offsetting the rate decrease was an increase in average debt
outstanding. The increase in debt outstanding was primarily attributable to the
floorplan borrowings of the additional dealership operations acquired,
additional floorplan borrowings due to excess inventory levels during the first
three months of 2001 and borrowings related to share repurchases.
OTHER INCOME, NET. Other income, net, decreased $1,003,000 to $20,000
for the six months ended June 30, 2001, from $1,023,000 for the six months ended
June 30, 2000. The decrease is due primarily to a $1 million gain from the sale
of a Chrysler franchise in Austin, Texas, in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, cash from
operations, our credit facility, which includes the floorplan tranche and the
acquisition tranche, and equity and debt offerings.
CASH FLOWS
OPERATING ACTIVITIES. During the first six months of 2001 we generated
cash flow from operations of approximately $54.1 million, an increase of $39.7
million compared to the same period in the prior year. Excluding working capital
changes, cash flows from operating activities increased $3.3 million over the
prior year period.
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INVESTING ACTIVITIES. During the first six months of 2001 we used
approximately $3.9 million in investing activities. We paid $6.7 million for
purchases of property and equipment, of which $3.4 million was used for the
purchase of land and construction of facilities for new or expanded operations.
We received $4.0 million from the sales of franchises.
FINANCING ACTIVITIES. During the first six months of 2001 we used
approximately $40.5 million in financing activities, primarily to repay
borrowings under our credit facility and for purchases of our common stock.
WORKING CAPITAL. At June 30, 2001, we had working capital of $58.8
million. Historically, we have funded our operations with internally generated
cash flow and borrowings. Certain manufacturers have minimum working capital
guidelines, which may limit a subsidiary's ability to make distributions to the
parent company. While we cannot guarantee it, based on current facts and
circumstances, we believe we have adequate cash flows coupled with borrowings
under our credit facility to fund our current operations.
CREDIT FACILITY
We have a $900 million credit facility, which matures in December 2003.
The credit facility consists of two tranches: the floorplan and acquisition
tranches. The acquisition tranche totals $198 million and, as of June 30, 2001,
$177.5 million was available, subject to a cash flow calculation and the
maintenance of certain financial ratios and various covenants.
CAPITAL EXPENDITURES
Our capital expenditures include expenditures to extend the useful life
of current facilities and expenditures to start or expand operations.
Historically, our annual capital expenditures, exclusive of new or expanded
operations, have approximately equaled our annual depreciation charge.
Expenditures relating to the construction or expansion of dealership facilities,
generally, are driven by new franchises being awarded to us by a manufacturer or
significant growth in sales at an existing facility. During 2001, we plan to
invest approximately $10 million to expand six existing facilities and prepare
three new facilities for operations.
ACQUISITION FINANCING
We anticipate investing between $20 million and $30 million in
completing tuck-in acquisitions during 2001. We expect the cash needed to
complete our acquisitions will come from the operating cash flows of our
existing dealerships and borrowings under our current credit facility.
We anticipate, subject to market conditions, increasing our acquisition
activity during 2002.
STOCK REPURCHASE
The board of directors has authorized us to repurchase a portion of our
stock, subject to management's judgment and the restrictions of our various debt
agreements. Our agreements, subject to other covenants, allow us to spend
approximately 33% of our cumulative net income to repurchase stock. During the
first six months of 2001, we repurchased approximately 545,000 shares for $7.9
million, excluding shares repurchased to fulfill obligations under our employee
stock purchase plan. Management will continue to review its investment
alternatives to determine when it is appropriate to repurchase stock.
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CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS
This quarterly report includes certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements include statements
regarding our plans, goals, beliefs or current expectations, including those
plans, goals, beliefs and expectations of our officers and directors with
respect to, among other things:
o the completion of pending and future acquisitions
o operating cash flows and availability of capital
o future stock repurchases
o capital expenditures
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results in the forward-looking statements for a
number of reasons, including:
o the future economic environment, including consumer
confidence, may affect the demand for new and used vehicles
and parts and service sales
o regulatory environment, adverse legislation, or unexpected
litigation
o our principal automobile manufacturers, especially Ford and
Toyota, may not continue to enjoy high customer satisfaction
with their products and they may not continue to support and
make high-demand vehicles available to us
o requirements imposed on us by our manufacturers may affect our
acquisitions and capital expenditures related to our
dealership facilities
o our dealership operations may not perform at expected levels
or achieve expected improvements
o we may not achieve expected future cost savings and our future
costs could be higher than we expected
o available capital resources and various debt agreements may
limit our ability to repurchase shares. Any repurchases of our
stock may be made, from time to time, in accordance with
applicable securities laws, in the open market or in privately
negotiated transactions at such time and in such amounts, as
we consider appropriate
o available capital resources may limit our ability to complete
acquisitions
o available capital resources may limit our ability to complete
construction of new or expanded facilities
This information and additional factors that could affect our operating
results and performance are described in our filings with the SEC. We urge you
to carefully consider those factors.
All forward-looking statements attributable to us are qualified in
their entirety by this cautionary statement.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following information about our market sensitive financial
instruments updates the information provided as of December 31, 2000, in our
Annual Report on Form 10-K and constitutes a "forward-looking statement". Our
major market risk exposure is changing interest rates. Our policy is to manage
interest rates through use of a combination of fixed and floating rate debt.
Interest rate swaps may be used to adjust interest rate exposures when
appropriate, based upon market conditions. These swaps are entered into with
financial institutions with investment grade credit ratings, thereby minimizing
the risk of credit loss. All items described are non-trading.
Since December 31, 2000, our floorplan notes payable have decreased,
primarily due to decreases in inventory levels. As of June 30, 2001, there was
$20.5 million outstanding under the acquisition portion of the credit facility,
a $14.8 million decrease since December 31, 2000. Additionally, during July
2001, we entered into a two-year interest rate swap with a notional amount of
$100 million. The effect of the swap is to convert the interest rate on a
portion of our borrowings from the 30-day LIBOR to a fixed rate of interest.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, our dealerships are named in claims involving the
manufacture of automobiles, contractual disputes and other matters arising in
the ordinary course of business. Currently, no legal proceedings are pending
against or involve us that, in our opinion, based on current known facts and
circumstances, could reasonably be expected to have a material adverse effect on
our financial position.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the May 23, 2001, Annual Meeting of Stockholders, our stockholders
voted on two matters.
(1) Election of four Directors:
The stockholders elected three of the nominees as directors
for three-year terms based on the following voting results:
<Table>
<Caption>
VOTES CAST:
--------------------------
AGAINST OR
NOMINEE ELECTED FOR WITHHELD
------------------ ---------- ----------
John L. Adams 18,067,281 49,151
Max P. Watson, Jr. 18,065,318 51,114
Kevin H. Whalen 16,639,525 1,476,907
</Table>
The stockholders elected one nominee as director for a
two-year term based on the following voting results:
<Table>
<Caption>
VOTES CAST:
--------------------------
AGAINST OR
NOMINEE ELECTED FOR WITHHELD
------------------ ---------- ----------
Bennett E. Bidwell 18,067,281 49,151
</Table>
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(2) Appointment of Independent Public Accountants:
The stockholders ratified the appointment of Arthur Andersen
LLP as the Company's independent public accountants for 2001.
The results of the voting were as follows:
For 17,814,063
Against 250
Abstain 302,119
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
11.1 Statement re: computation of earnings per share is included
under Note 3 to the financial statements.
B. REPORTS ON FORM 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Group 1 Automotive, Inc.
August 3, 2001 By: /s/ Scott L. Thompson
- -------------- -------------------------------------------
Date Scott L. Thompson, Senior Vice President,
Chief Financial Officer and Treasurer
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