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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 March 31, 1999
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 350
Houston, Texas 77024
(Address of principal executive offices) (Zip code)
(713) 467-6268
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
----- -----------
Common stock, par value $.01 20,760,441
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 72,029 $ 66,443
Accounts and notes receivable, net .................. 22,022 21,373
Inventories, net .................................... 262,940 219,176
Deferred income taxes ............................... 12,212 11,212
Other assets ........................................ 6,291 8,718
---------- ----------
Total current assets ......................... 375,494 326,922
---------- ----------
PROPERTY AND EQUIPMENT, net ........................... 26,313 21,960
GOODWILL, net ......................................... 134,774 123,587
OTHER ASSETS .......................................... 8,215 5,241
---------- ----------
Total assets ................................. $ 544,796 $ 477,710
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable ............................. $ 158,761 $ 193,405
Current maturities of long-term debt ................ 424 2,966
Accounts payable and accrued expenses ............... 79,223 82,300
---------- ----------
Total current liabilities .................... 238,408 278,671
---------- ----------
DEBT, net of current maturities ....................... 1,058 42,821
SENIOR SUBORDINATED NOTES ............................. 97,791 --
OTHER LIABILITIES ..................................... 19,116 20,034
STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized, none
issued or outstanding ............................. -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,457,582 and 18,267,515 issued ...... 205 183
Additional paid-in capital .......................... 164,838 118,469
Retained earnings ................................... 24,347 18,190
Treasury stock, at cost, 43,669 and 37,366 shares ... (967) (658)
---------- ----------
Total stockholders' equity ................... 188,423 136,184
---------- ----------
Total liabilities and stockholders' equity ... $ 544,796 $ 477,710
========== ==========
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)
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
REVENUES:
New vehicle ......................................... $ 270,118 $ 138,022
Used vehicle ........................................ 159,779 87,119
Parts and service ................................... 43,774 21,568
Other dealership revenues, net ...................... 15,680 7,225
------------ ------------
Total revenues ............................... 489,351 253,934
COST OF SALES:
New vehicle ......................................... 247,373 127,376
Used vehicle ........................................ 146,148 80,560
Parts and service ................................... 19,636 9,978
------------ ------------
Total cost of sales .......................... 413,157 217,914
GROSS PROFIT .......................................... 76,194 36,020
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............................... 58,278 27,736
DEPRECIATION AND AMORTIZATION ......................... 2,091 819
------------ ------------
Income from operations ....................... 15,825 7,465
OTHER INCOME AND EXPENSES:
Floorplan interest expense .......................... (3,847) (1,824)
Other interest expense, net ......................... (1,786) (312)
Other income (expense), net ......................... 36 (23)
------------ ------------
INCOME BEFORE INCOME TAXES ............................ 10,228 5,306
PROVISION FOR INCOME TAXES ............................ 4,071 2,192
------------ ------------
NET INCOME ............................................ $ 6,157 $ 3,114
============ ============
Earnings per share:
Basic ............................................... $ 0.33 $ 0.21
Diluted ............................................. $ 0.31 $ 0.20
Weighted average shares outstanding:
Basic ............................................... 18,921,723 15,197,670
Diluted ............................................. 19,989,005 15,596,155
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)
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 6,157 $ 3,114
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization ................................. 2,091 819
Deferred income taxes ......................................... (150) (1,301)
Provision for doubtful accounts and uncollectible notes ....... 186 16
Changes in assets and liabilities -
Accounts receivable ......................................... (572) 1,273
Inventories ................................................. (31,439) (6,556)
Other assets ................................................ 326 (1,167)
Floorplan notes payable ..................................... 32,882 9,279
Accounts payable and accrued expenses ....................... 4,224 (1,734)
---------- ----------
Total adjustments ....................................... 7,548 629
---------- ----------
Net cash provided by operating activities ....... 13,705 3,743
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable ................................... (502) (705)
Collections on notes receivable ................................ 246 373
Purchases of property and equipment ............................ (8,914) (1,468)
Proceeds from sales of property and equipment .................. 5,729 2
Cash paid in acquisitions, net of cash received ................ (18,716) (14,318)
---------- ----------
Net cash used in investing activities ........... (22,157) (16,116)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under floorplan
facilities for acquisition financing ......................... (79,851) 19,998
Net payments on acquisition tranche of revolving credit facility (42,000) --
Principal payments of long-term debt ........................... (2,705) (1,630)
Borrowings of long-term debt ................................... 144 120
Proceeds from senior subordinated notes offering, net .......... 94,781 --
Proceeds from common stock offering, net ....................... 44,070 --
Proceeds from issuance of common stock to benefit plans ........ 242 --
Purchase of treasury stock ..................................... (643) (159)
---------- ----------
Net cash provided by financing activities ....... 14,038 18,329
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ......................... 5,586 5,956
CASH AND CASH EQUIVALENTS, beginning of period .................... 66,443 35,092
---------- ----------
CASH AND CASH EQUIVALENTS, end of period .......................... $ 72,029 $ 41,048
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest ................................................. $ 5,425 $ 1,702
Taxes .................................................... $ 1,223 $ 1,910
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. was founded to become a leading operator and
consolidator in the highly fragmented automotive retailing industry. Group 1
Automotive, Inc. is a holding company with no operations or assets, other than
its investments in its subsidiaries. These subsidiaries sell new and used cars
and light trucks, provide maintenance and repair services and arrange finance,
vehicle service and insurance contracts. Group 1 Automotive, Inc. and
Subsidiaries are herein collectively referred to as the "Company" or "Group 1".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation/Reclassifications
All acquisitions completed during the periods presented have been
accounted for using the purchase method of accounting and their results of
operations are included from the effective dates of the closings of the
acquisitions. The allocations of purchase price to the assets acquired and
liabilities assumed are initially assigned and recorded based on preliminary
estimates of fair value and may be revised as additional information concerning
the valuation of such assets and liabilities becomes available. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior year financial statements to
conform them to the current year presentation.
Interim Financial Information
These interim financial statements are unaudited, and certain information
normally included in financial statements prepared in accordance with generally
accepted accounting principles has not been included herein. In the opinion of
management, all adjustments necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been properly included. Due to seasonality and other factors,
the results of operations for the interim periods are not necessarily indicative
of the results that will be realized for the entire fiscal year.
3. EARNINGS PER SHARE:
Statement of Financial Accounting Standards ("SFAS") No. 128 requires the
presentation of basic earnings per share and diluted earnings per share in
financial statements of public enterprises. Under the provisions of this
statement, basic earnings per share is computed based on weighted average shares
outstanding and excludes dilutive securities. Diluted earnings per share is
computed including the impacts of all potentially dilutive securities. The
following table sets forth the shares outstanding for the earnings per share
calculations:
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THREE MONTHS ENDED MARCH 31,
---------------------------------
1999 1998
------------ ------------
Common stock outstanding, beginning of period ............ 18,267,515 14,673,051
Weighted average common stock issued -
Acquisitions ........................................ 60,644 537,952
Employee Stock Purchase Plan ........................ 20,297 --
Stock offering ...................................... 622,222 --
Less: Weighted average treasury shares repurchased ..... (48,955) (13,333)
------------ ------------
Shares used in computing basic earnings per share ........ 18,921,723 15,197,670
Dilutive effect of stock options, net of assumed
repurchase of treasury stock ........................ 1,067,282 398,485
------------ ------------
Shares used in computing diluted earnings per share ...... 19,989,005 15,596,155
============ ============
4. BUSINESS COMBINATIONS
During the first three months of 1999, the Company acquired five
automobile dealership franchises. These acquisitions were accounted for as
purchases. The consideration paid in completing these acquisitions and in
settlement of certain contingent acquisition payment arrangements included
approximately $18.7 million in cash, net of cash received, approximately 190,000
shares of restricted/unregistered common stock and the assumption of an
estimated $12.1 million of inventory financing. The consolidated balance sheet
includes preliminary allocations of the purchase price of the acquisitions,
which are subject to final adjustment. These allocations resulted in recording
approximately $10.9 million of goodwill, which is being amortized over 40 years.
The following unaudited pro forma financial information consists of
income statement data from continuing operations as presented in the
consolidated financial statements plus (1) unaudited income statement data for
all acquisitions, completed before March 31, 1999, assuming that they occurred
on January 1, 1998 and (2) certain pro forma adjustments discussed below.
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
---- ----
(in millions, except per share amounts)
Revenues .............................................. $ 492.7 $ 423.2
Gross profit .......................................... 76.8 63.3
Income from operations ................................ 15.9 13.1
Net income ............................................ 6.2 4.5
Basic earnings per share .............................. 0.33 0.25
Diluted earnings per share ............................ 0.31 0.24
Pro forma adjustments included in the amounts above primarily relate to:
(a) increases in revenues related to changes in the contractual commission
arrangements on certain third-party products sold by the dealerships; (b) pro
forma goodwill amortization expense over an estimated useful life of 40 years;
(c) reductions in compensation expense and management fees to the level that
certain management employees and owners of the acquired companies will
contractually receive; (d) incremental corporate overhead costs related to
personnel costs, rents, professional service fees and directors and officers
liability insurance premiums; (e) increases in interest expense resulting from
borrowings to complete acquisitions; and (f) incremental provisions for federal
and state income taxes relating to the compensation differential, S Corporation
income and other pro forma adjustments.
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5. SENIOR SUBORDINATED NOTES
The Company completed the offering of $100 million of its 10 7/8% Senior
Subordinated Notes due 2009 (the "Notes") on March 5, 1999. The Notes pay
interest semi-annually on March 1, and September 1, each year beginning
September 1, 1999. Before March 1, 2002, the Company may redeem up to $35
million of the Notes with the proceeds of certain public offerings of common
stock at a redemption price of 110.875% of the principal amount plus accrued
interest to the redemption date. Additionally, the Company may redeem all or
part of the Notes at redemption prices of 105.438%, 103.625%, 101.813% and
100.000% of the principal amount plus accrued interest during the twelve month
periods beginning March 1, of 2004, 2005, 2006, and 2007 and thereafter,
respectively. The Notes are jointly and severally guaranteed, on an unsecured
senior subordinated basis, by all subsidiaries of the Company (the "Subsidiary
Guarantors"), other than certain inconsequential subsidiaries. All of the
Subsidiary Guarantors are wholly owned subsidiaries of the Company. Certain
manufacturers have minimum working capital guidelines, which, under certain
circumstances, may impair a subsidiary's ability to make distributions to the
parent company. Separate financial statements of the Subsidiary Guarantors are
not included because (i) all Subsidiary Guarantors have jointly and severally
guaranteed the Notes on a full and unconditional basis, to the maximum extent
permitted by law, (ii) the aggregate assets, liabilities, earnings and equity of
the Subsidiary Guarantors are substantially equivalent to the assets,
liabilities, earnings and equity of the parent on a consolidated basis, and
(iii) management has determined that such information is not material to
investors.
6. SUBSEQUENT EVENT
The Company closed an amendment to its syndicated credit facility on May
11, 1999, increasing its credit facility to $500 million. The credit facility
consists of two tranches: the floorplan tranche and the acquisition tranche. The
acquisition tranche totals $110 million and, as of May 11, 1999, $110 million
was available, subject to a cash flow calculation and the maintenance of certain
financial ratios.
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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 and consolidator in the highly fragmented
automotive retailing industry. We own automobile dealership franchises located
in Texas, Oklahoma, Florida, New Mexico, Georgia and Colorado. At all of our
dealerships we sell new and used cars and light trucks, and provide maintenance
and repair services. We also operate 12 collision service centers. We expect a
significant portion of our future growth to come from acquisitions of additional
dealerships.
We have diverse sources of revenues, including: new car sales, new truck
sales, used car sales, used truck sales, manufacturer remarketed vehicle sales,
parts sales, service sales, collision repair service sales, finance fees,
insurance commissions, vehicle service contract commissions, documentary fees
and after-market product sales. Sales revenues from new and used vehicle sales
and parts and service sales include sales to retail customers, other dealerships
and wholesalers. Other dealership revenues includes revenues from arranging
financing, insurance and vehicle service contracts, net of a provision for
anticipated chargebacks, and documentary fees.
Our gross margin varies as our merchandise mix (the mix between new
vehicle sales, used vehicle sales, parts and service sales, collision repair
service sales and other dealership revenues) changes. Our gross margin on the
sale of products and services generally varies between approximately 7.5% and
85.0%, with new vehicle sales generally resulting in the lowest gross margin and
other dealership revenues generally resulting in the highest gross margin. When
our new vehicle sales increase or decrease at a rate greater than our other
revenue sources, our gross margin responds inversely. Factors such as
seasonality, weather, cyclicality and manufacturers' advertising and incentives
may impact our merchandise mix and, therefore, influence our gross margin.
Selling, general and administrative expenses consist primarily of
compensation for sales, administrative, finance and general management
personnel, rent, marketing, insurance and utilities. Interest expense consists
of interest charges on interest-bearing debt, including floorplan inventory
financing, net of interest income earned.
SELECTED OPERATIONAL AND FINANCIAL DATA
NEW VEHICLE DATA
THREE MONTHS ENDED
(dollars in thousands, MARCH 31,
except per unit amounts) ---------
INCREASE/ PERCENT
1999 1998 (DECREASE) CHANGE
---------- ---------- ---------- -------
Retail unit sales ........................... 11,324 5,972 5,352 89.6%
Retail sales revenues ....................... $ 270,118 $ 138,022 $ 132,096 95.7%
Gross profit ................................ $ 22,745 $ 10,646 $ 12,099 113.6%
Gross margin ................................ 8.4% 7.7% 0.7% 9.1%
Average gross profit per retail unit sold ... $ 2,009 $ 1,783 $ 226 12.7%
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USED VEHICLE DATA
THREE MONTHS ENDED
(dollars in thousands, MARCH 31,
except per unit amounts) ---------
INCREASE/ PERCENT
1999 1998 (DECREASE) CHANGE
---------- ---------- ---------- -------
Retail unit sales ........................... 10,021 5,354 4,667 87.2%
Retail sales revenues(1) .................... $ 131,713 $ 70,976 $ 60,737 85.6%
Gross profit ................................ $ 13,631 $ 6,559 $ 7,072 107.8%
Gross margin ................................ 10.3% 9.2% 1.1% 12.0%
Average gross profit per retail unit sold ... $ 1,360 $ 1,225 $ 135 11.0%
(1) Excludes wholesale revenues.
PARTS AND SERVICE DATA
THREE MONTHS ENDED
(dollars in thousands) MARCH 31,
---------
INCREASE/ PERCENT
1999 1998 (DECREASE) CHANGE
---------- ---------- ---------- -------
Sales revenue ............................... $ 43,774 $ 21,568 $ 22,206 103.0%
Gross profit ................................ $ 24,138 $ 11,590 $ 12,548 108.3%
Gross margin ................................ 55.1% 53.7% 1.4% 2.6%
OTHER DEALERSHIP REVENUES, NET
THREE MONTHS ENDED
(dollars in thousands, MARCH 31,
except per unit amounts) ---------
INCREASE/ PERCENT
1999 1998 (DECREASE) CHANGE
---------- ---------- ---------- -------
Retail new and used unit sales .............. 21,345 11,326 10,019 88.5%
Retail sales revenues ....................... $ 15,680 $ 7,225 $ 8,455 117.0%
Net revenues per retail unit sold ........... $ 735 $ 638 $ 97 15.2%
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
REVENUES. Revenues increased $235.5 million, or 92.8%, to $489.4 million
for the three months ended March 31, 1999, from $253.9 million for the three
months ended March 31, 1998. New vehicle revenues increased primarily due to
strong customer acceptance of our products, particularly Acura, Lexus and Ford,
and the acquisitions of additional dealership operations during 1998 and 1999.
During the three months ended March 31, 1999, strong sales incentives and
advertising programs by the manufacturers enhanced the new vehicle sales efforts
of our dealerships. The growth in used vehicle revenues was primarily
attributable to an emphasis on used vehicle sales in the Oklahoma and Houston
markets, and the additional franchise operations acquired. The increase in parts
and service revenues was due significantly to the additional dealership
operations acquired, coupled with strong growth in the Houston and Beaumont
markets. Other dealership revenues increased primarily due to the implementation
of our vehicle service contract and insurance programs, and related training,
which resulted in improved revenues per unit, and an increase in the number of
retail new and used vehicle sales.
GROSS PROFIT. Gross profit increased $40.2 million, or 111.7%, to $76.2
million for the three months ended March 31, 1999, from $36.0 million for the
three months ended March 31, 1998. The increase was attributable to increased
revenues and an increased gross margin to 15.6% for the three months ended
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March 31, 1999, from 14.2% for the three months ended March 31, 1998. The
increase in gross margin was caused primarily by improvements in other
dealership revenues per unit and increases in the gross margin earned on new and
used vehicle sales and parts and service sales. Additionally, changes in the
merchandising mix, higher margin parts and service sales and other dealership
revenues increased as a percentage of total revenues, added to the gross margin
improvement. The gross margin on new retail vehicle sales improved to 8.4% from
7.7%, due significantly to strong manufacturer sales incentive and advertising
programs during the quarter. The increase in gross margin on used retail vehicle
sales to 10.3% from 9.2% was primarily attributable to an emphasis on used
vehicles, particularly inventory management.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $30.6 million, or 110.5%, to $58.3 million for
the three months ended March 31, 1999, from $27.7 million for the three months
ended March 31, 1998. The increase was primarily attributable to the additional
dealership operations acquired and increased variable expenses, particularly
incentive pay to employees, which increased as revenues and gross profit
increased. Selling, general and administrative expenses decreased as a
percentage of gross profit to 76.5% from 77.0% as dealership managers were able
to control costs while improving sales and gross profit.
INTEREST EXPENSE. Floorplan and other interest expense, net, increased
$3.5 million, or 166.7%, to $5.6 million for the three months ended March 31,
1999, from $2.1 million for the three months ended March 31, 1998. The increase
was primarily attributable to the floorplan interest expense of the additional
dealership operations acquired and additional interest expense due to borrowings
to complete acquisitions. A portion of the increase is due to the completion of
our offering of $100 million of senior subordinated notes during the first
quarter of 1999. Until all the proceeds of the offering are utilized in
completing acquisitions, we are using the funds to temporarily pay down our
floorplan notes payable, which have a lower interest rate than the long-term
senior subordinated notes. Partially offsetting the increases were cost
reductions realized as we obtained a lower interest rate on floorplan notes
payable through our credit facility.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, cash from
operations, our credit facility, which includes the floorplan facility and the
acquisition facility, and equity and debt offerings.
CASH FLOWS
OPERATING ACTIVITIES. During the first three months of 1999 we generated
cash flow from operations of approximately $13.7 million, primarily from net
income plus depreciation, an increase of $10.0 million compared to the same
period in the prior year.
INVESTING ACTIVITIES. During the first three months of 1999 we used
approximately $22.2 million for investing activities, primarily related to cash
paid in completing acquisitions, net of cash balances obtained in the
acquisitions. Additionally, we paid $8.9 million for purchases of property and
equipment, of which $7.3 million was used for the purchase of land and
construction of facilities for new or expanded operations, including the new
Lexus companion dealership located in south Houston. Partially offsetting these
uses of cash, we received $5.7 million from sales of property and equipment. The
proceeds were received primarily from the sale of dealership properties to a
REIT for approximately $5.5 million.
FINANCING ACTIVITIES. During the first three months of 1999 we obtained
approximately $14.0 million from financing activities. In March 1999, we
completed offerings of 2 million shares of common stock and $100 million of
senior subordinated notes with an interest rate of 10 7/8%. The proceeds of
approximately $138.9 million were used to repay $59.0 borrowed under the
acquisition portion of the credit facility and approximately $79.9 million of
floorplan notes payable. The amounts paid down on the credit facility are
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expected to be drawn in the future to complete acquisitions. Additionally, in
connection with the sale of the properties to a REIT, we paid off mortgages of
approximately $2.5 million.
WORKING CAPITAL. At March 31, 1999, we had working capital of $137.1
million. Historically, we have funded our operations with internally generated
cash flow and borrowings. Certain manufacturers have minimum working capital
guidelines, which, under certain circumstances, may impair a subsidiary's
ability to make distributions to the parent company. While we cannot guarantee
it, based on current facts and circumstances, we believe we have adequate cash
flows coupled with borrowings under our credit facility to fund our current
operations.
CREDIT FACILITY
We closed an amendment to our credit facility on May 11, 1999, increasing
the credit facility to $500 million. The credit facility consists of two
tranches: the floorplan tranche and the acquisition tranche. The acquisition
tranche totals $110 million and, as of May 11, 1999, $110 million was available,
subject to a cash flow calculation and the maintenance of certain financial
ratios.
ACQUISITION FINANCING
We anticipate that our primary use of cash will be for the completion of
acquisitions. We expect the cash needed to complete our acquisitions will come
from the operating cash flows of our existing dealerships, borrowings under our
credit facilities, other borrowings, or equity or debt offerings. Although we
believe that we will be able to obtain sufficient capital to fund acquisitions,
we cannot guarantee that such capital will be available to us at the time it is
required or on terms acceptable to us.
YEAR 2000 CONVERSION
Year 2000 issues result from the inability of computer programs or
computerized equipment to accurately calculate, store or use a date subsequent
to December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the year 2000 is represented as the year 1900. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
We have recognized the need to ensure that our computer systems,
equipment and operations will not be adversely impacted by the change to the
calendar year 2000. As such, we have taken steps to identify potential areas of
risk and are addressing these in our planning, purchasing and daily operations.
We have conducted a third party survey of all of the individual dealership
systems, equipment and operations and have developed an action plan, which is
currently being implemented, to correct deficiencies before year-end. The total
cost of converting all internal systems, equipment and operations for the year
2000 has not been fully quantified, but is not expected to be material to our
financial position. In connection with acquisitions, we review and address each
candidate's year 2000 readiness during the due diligence process.
We are currently reviewing the potential adverse impact, resulting from
the failure of third party service providers and vendors to prepare for the year
2000. We are dependent upon our dealerships' computer systems in our daily
operations. All of our dealerships are, or are expected, by year-end, to be,
using a computer system supported by a major automobile dealership computer
system provider. We have contacted each of our providers and have received
written assurance from them that their systems are, or will be, year 2000 ready.
We are dependent upon these providers, as are most dealerships in the United
States, to address the year 2000 issue.
We are primarily dependent upon the manufacturers for the production and
delivery of new vehicles and parts. Although we have no reason to believe that
our manufacturers will not be year 2000 ready, we have been unable to obtain
written assurance from them that their systems are year 2000 ready.
While we are in the process of developing contingency plans, failure by
us, our manufacturers or third party service providers and vendors to adequately
address the year 2000 issue could have an
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adverse effect on us. If we or our third party service providers do not
adequately address the year 2000 issue, we may be required to handle all
business on a handwritten basis. While this would reduce operational efficiency,
we would still be able to continue our operations. If our manufacturers fail to
adequately address the year 2000 issue, and do not correct the problems timely,
we may experience shortages in new vehicle and parts inventories.
CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS
This quarterly report and Management's Discussion and Analysis of
Financial Condition and Results of Operations include certain "forward-looking
statements" within the meeting of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements include
statements regarding our plans, beliefs or current expectations, including those
plans, beliefs and expectations of our officers and directors with respect to,
among other things:
o future acquisitions;
o expected future cost savings;
o future capital expenditures;
o trends affecting our future financial condition or results of
operations; and
o our business strategy regarding future operations.
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results for a number of reasons, including;
o industry conditions;
o future demand for new and used vehicles;
o restrictions imposed on us by automobile manufacturers;
o the ability to obtain the consents of automobile manufacturers to
our acquisitions;
o the availability of capital resources; and
o the willingness of acquisition candidates to accept our common
stock as currency.
This information and additional factors that could affect our operating
results and performance are described in our filings with the SEC. We urge you
to carefully consider those factors.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, our dealerships are named in claims involving the
manufacture of automobiles, contractual disputes and other matters arising in
the ordinary course of business. Currently, no legal proceedings are pending
against or involve us that, in our opinion, based on current known facts and
circumstances, could reasonably be expected to have a material adverse effect on
our financial position.
ITEM 2. CHANGES IN SECURITIES
We have entered into agreements to purchase all of the outstanding
capital stock or purchase certain assets and assume certain liabilities of
various automobile dealerships for cash and shares of our common stock. The
following is a summary of the transactions in which stock was or is to be
issued:
DATE SECURITIES
DATE OF AGREEMENT ISSUED ACQUISITION SHARES
- ------------------- ----------------- ----------------------------- ---------
December 17, 1997 March 24, 1999 Carroll Automotive Group 20,981
February 25, 1998 March 15, 1999 Johns Automotive Group 151,260
November 20, 1998 February 4, 1999 Sunshine Buick, Pontiac, GMC 17,826
November 25, 1998 April 14, 1999 Tidwell Ford 346,558
January 25, 1999 Pending closing Messer Automotive Group 548,647
March 10, 1999 Pending closing Sansing Automotive Group 529,332
We are relying on Regulation D under the Securities Act of 1933, as
amended, as an exemption from registration of the Common Stock to be issued in
the acquisitions. We believe we are justified in relying on such exemption since
all but four stockholders of the groups who have or will receive shares of our
common stock are "accredited investors" under Regulation D, and we have
otherwise complied with Regulation D.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
10.1 Second Amendment to Group 1 Automotive, Inc. 1996 Stock Incentive
Plan
10.2 Asset purchase agreement by and among Delaware Acquisitions-F,
L.L.C., a wholly owned subsidiary of Group 1 Automotive, Inc.,
and Gene Messer Ford of Amarillo, Inc. dated January 25, 1999.
10.3 Asset purchase agreement by and among Delaware Acquisitions-CC,
L.L.C., a wholly owned subsidiary of Group 1 Automotive, Inc.,
Delaware Acquisitions-GM, L.L.C., a wholly owned subsidiary of
Group 1 Automotive, Inc., and Gene Messer Cadillac, Inc. dated
January 25, 1999.
10.4 Asset purchase agreement by and among Delaware Acquisitions-F,
L.L.C., a wholly owned subsidiary of Group 1 Automotive, Inc.,
and Gene Messer Ford, Inc. dated January 25, 1999.
10.5 Asset purchase agreement by and among Delaware Acquisitions-T,
L.L.C., a wholly owned subsidiary of Group 1 Automotive, Inc.,
and Messer, Wessels and Messer, Inc. dated January 25, 1999.
10.6 Asset purchase agreement by and among Delaware Acquisitions-F,
L.L.C., a wholly owned subsidiary of Group 1 Automotive, Inc.,
and Rockwall Ford-Mercury, Ltd. dated January 25, 1999.
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10.7 Asset purchase agreement by and among Lubbock Automotive-M, Inc.,
a wholly owned subsidiary of Group 1 Automotive, Inc., and
Gene Messer Imports, Inc. dated January 25, 1999.
11.1 Statement re: computation of earnings per share is included under
Note 3 to the financial statements.
27.1 Financial Data Schedule.
B. REPORTS ON FORM 8-K:
On January 25, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On January 26, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On February 5, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On February 24, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On March 5, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
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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.
May 14, 1999 By: /s/ Scott L. Thompson
- ------------ ----------------------------------------
Date Scott L. Thompson, Senior Vice President,
Chief Financial Officer and Treasurer
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
10.1 Second Amendment to Group 1 Automotive, Inc. 1996 Stock Incentive
Plan
10.2 Asset purchase agreement by and among Delaware Acquisitions-F, L.L.C., a
wholly owned subsidiary of Group 1 Automotive, Inc., and Gene
Messer Ford of Amarillo, Inc. dated January 25, 1999.
10.3 Asset purchase agreement by and among Delaware Acquisitions-CC, L.L.C.,
a wholly owned subsidiary of Group 1 Automotive, Inc., Delaware
Acquisitions-GM, L.L.C., a wholly owned subsidiary of Group 1
Automotive, Inc., and Gene Messer Cadillac, Inc. dated January 25,
1999.
10.4 Asset purchase agreement by and among Delaware Acquisitions-F, L.L.C., a
wholly owned subsidiary of Group 1 Automotive, Inc., and Gene
Messer Ford, Inc. dated January 25, 1999.
10.5 Asset purchase agreement by and among Delaware Acquisitions-T, L.L.C., a
wholly owned subsidiary of Group 1 Automotive, Inc., and Messer,
Wessels and Messer, Inc. dated January 25, 1999.
10.6 Asset purchase agreement by and among Delaware Acquisitions-F, L.L.C., a
wholly owned subsidiary of Group 1 Automotive, Inc., and Rockwall
Ford-Mercury, Ltd. dated January 25, 1999.
10.7 Asset purchase agreement by and among Lubbock Automotive-M, Inc., a wholly
owned subsidiary of Group 1 Automotive, Inc., and Gene Messer
Imports, Inc. dated January 25, 1999.
11.1 Statement re: computation of earnings per share is included under
Note 3 to the financial statements.
27.1 Financial Data Schedule.