UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-12297
UNITED AUTO GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3086739
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
375 PARK AVENUE, NEW YORK, NEW YORK 10152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 223-3300
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 [ ]
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON
STOCK AS OF MAY 11, 1997:
VOTING COMMON STOCK, $0.0001 PAR VALUE 19,624,048
NON-VOTING COMMON STOCK, $0.0001 PAR VALUE 605,454
TABLE OF CONTENTS
PART I
PAGE
1. Financial Statements and Supplementary Data
Consolidated Condensed Balance Sheets as of March 31, 1998
and December 31, 1997 1
Consolidated Condensed Statements of Income for the three
months ended March 31, 1998 and 1997 2
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 3
Notes to Consolidated Condensed Financial Statements 4
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II
1. Legal Proceedings 11
2. Changes in Securities 11
6. Exhibits and Reports on Form 8-K 12
Signatures 14
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
ASSETS
AUTO DEALERSHIPS
Cash and cash equivalents $ 20,524 $ 94,435
Accounts receivable, net 115,529 92,601
Inventories 453,264 324,330
Other current assets 21,505 20,413
----------- -----------
Total current assets 610,822 531,779
Property and equipment, net 43,441 37,588
Intangible assets, net 439,461 326,774
Other assets 26,012 42,322
----------- -----------
TOTAL AUTO DEALERSHIP ASSETS 1,119,736 938,463
----------- -----------
AUTO FINANCE
Cash and cash equivalents 5,463 1,557
Restricted cash 7,423 3,547
Finance assets, net 37,363 30,408
Other assets 2,681 1,687
----------- -----------
TOTAL AUTO FINANCE ASSETS 52,930 37,199
----------- -----------
TOTAL ASSETS $ 1,172,666 $ 975,662
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
AUTO DEALERSHIPS
Floor plan notes payable $ 440,935 $ 328,203
Short-term debt 5,069 6,069
Accounts payable 42,173 30,199
Accrued expenses 40,344 40,136
Current portion of long-term debt 9,909 9,981
----------- -----------
Total current liabilities 538,430 414,588
Long-term debt 273,797 238,550
Other long-term liabilities 22,144 17,369
----------- -----------
TOTAL AUTO DEALERSHIP LIABILITIES 834,371 670,507
----------- -----------
AUTO FINANCE
Short-term debt 385 387
Accounts payable and other liabilities 4,646 4,211
----------- -----------
TOTAL AUTO FINANCE LIABILITIES 5,031 4,598
----------- -----------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Voting common stock 2 2
Additional paid-in capital 341,971 310,373
Accumulated deficit (8,709) (9,818)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 333,264 300,557
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,172,666 $ 975,662
=========== ===========
See Notes to Consolidated Financial Statements
1
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
THREE MONTHS
ENDED
MARCH 31,
----------------------
1998 1997
--------- ---------
AUTO DEALERSHIPS
Vehicle sales $ 616,974 $ 340,833
Finance and insurance 22,881 13,483
Service and parts 70,346 33,884
--------- ---------
Total revenues 710,201 388,200
Cost of sales, including floor plan interest 620,977 340,588
--------- ---------
Gross profit 89,224 47,612
Selling, general and administrative expenses 78,541 41,756
--------- ---------
Operating income 10,683 5,856
Other interest expense (7,094) (469)
Other income (expense), net 353 297
--------- ---------
Income before income taxes - Auto Dealerships 3,942 5,684
--------- ---------
AUTO FINANCE
Revenues 2,181 985
Interest expense (95) (144)
Operating and other expenses (2,073) (937)
--------- ---------
Income (loss) before income taxes - Auto Finance 13 (96)
--------- ---------
TOTAL COMPANY
Income before minority interests, income tax
provision and extraordinary item 3,955 5,588
Minority interests (34) (36)
Income tax provision (1,622) (2,235)
--------- ---------
Income before extraordinary item 2,299 3,317
Extraordinary item (net of income tax benefit of $859) (1,235) --
--------- ---------
Net income $ 1,064 $ 3,317
========= =========
Basic and diluted per share data:
Income before extraordinary item $ 0.12 $ 0.19
========= =========
Net income $ 0.05 $ 0.19
========= =========
See Notes to Consolidated Financial Statements
2
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
----------------------- -----------------------
AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- --------- ----------- ---------
OPERATING ACTIVITIES:
Net income (loss) $1,056 $8 $3,375 ($58)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,439 209 1,642 103
Gain on sales of loans -- (524) -- (361)
Loans originated -- (79,622) -- (23,417)
Loans repaid or sold -- 72,570 -- 18,492
Minority interests 34 -- 36 --
Changes in operating assets and liabilities:
Accounts receivable (1,674) -- (5,412) --
Finance subsidiary assets (2,996) -- (777)
Inventories (33,303) -- (34,534) --
Floor plan notes payable 40,501 -- 36,273 --
Accounts payable and accrued expenses (2,499) 435 (1,801) 878
Other long-term liabilities (256) -- 94 --
Other (1,661) (1,316) (2,314) 130
--------- --------- --------- ---------
Net cash provided by (used in) operating activities: 5,637 (11,236) (2,641) (5,010)
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (3,636) (66) (2,565) (27)
Dealership acquisitions (81,671) -- (7,929) --
Investment in auto finance subsidiary (15,250) 15,250 (5,000) 5,000
Other -- -- (2,560) --
--------- --------- --------- ---------
Net cash provided by (used in) investing activities (100,557) 15,184 (18,054) 4,973
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of stock 366 -- 201 --
Repurchase of common stock -- -- (8,821) --
Proceeds from borrowings of long-term debt 35,900 -- 1,250 --
Deferred financing costs (1,842) -- (1,550) --
Net repayments of short-term debt (2,160) -- -- --
Payments of long-term debt and capitalized leases (11,255) -- (1,177) --
Borrowings from warehouse credit line -- 9,587 -- 17,258
Payments of warehouse credit line -- (9,629) -- (17,278)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 21,009 (42) (10,097) (20)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents (73,911) 3,906 (30,792) (57)
Cash and cash equivalents, beginning of period 94,435 1,557 66,875 1,138
========= ========= ========= =========
Cash and cash equivalents, end of period $ 20,524 $ 5,463 $ 36,083 $ 1,081
========= ========= ========= =========
See Notes to Consolidated Financial Statements
3
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
1. BASIS OF PRESENTATION
The information presented as of March 31, 1998 and 1997 and for the three
month periods then ended is unaudited, but includes all adjustments
(consisting only of normal recurring accruals) which the management of United
Auto Group, Inc. (the "Company") believes to be necessary for the fair
presentation of results for the periods presented. The results for the interim
periods are not necessarily indicative of results to be expected for the year.
These consolidated condensed financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1997, which were included as part of the Company's Annual Report
on Form 10-K. In order to maintain consistency and comparability of financial
information between periods presented, certain reclassifications have been
made to the Company's prior year condensed financial statements to conform to
the current year presentation.
2. CHANGE IN ACCOUNTING PRINCIPLE
In 1997, the Company changed its method of accounting for new vehicle
inventory from LIFO to the specific identification method. Management believes
the specific identification method (i) more accurately matches revenues with
costs, (ii) more accurately reflects the current market value of new vehicle
inventories and (iii) provides for a more meaningful comparison of the
Company's operating results and financial position with that of its
competition. This change in accounting principle has been applied by
retroactively restating the Company's financial statements for all prior
periods. The change in accounting principle did not have a material effect on
the Company's results of operations for the three month period ended March 31,
1997.
3. INVENTORIES
Inventories consisted of the following:
MARCH 31, DECEMBER 31,
1998 1997
-------- --------
New vehicles $334,287 $232,804
Used vehicles 91,412 74,285
Parts, accessories and other 27,565 17,241
-------- --------
Total inventories $453,264 $324,330
======== ========
4. CREDIT AGREEMENT
On February 27, 1998, the Company entered into a new credit agreement (the
"Credit Agreement"), which provides for up to $75,000 in term loans, revolving
loans and letters of credit, to be used principally for acquisitions. Current
borrowings under the Credit Agreement bear interest at LIBOR plus 3.75%.
Pursuant to the terms of the Credit Agreement, the Company is required to pay
certain fees relating to outstanding letters of credit and unused commitments.
During the three month period ending March 31, 1998, the Company recognized an
extraordinary charge of $1,235, net of income taxes of $859, resulting from
the write-off of unamortized deferred financing costs relating to the
Company's previous credit facility.
4
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
The Credit Agreement contains a number of significant covenants that, among
other things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, repay other indebtedness, pay dividends, create liens
on assets, make investments or acquisitions and engage in mergers or
consolidations. In addition, the Company is required to comply with specified
ratios and tests, including cash interest expense coverage, debt service
coverage, debt to earnings ratios and a minimum net worth covenant. The Credit
Agreement also contains typical events of default including change of control
and non-payment of obligations.
5. MANAGED DEALERSHIPS
The Company has entered into management agreements at certain dealerships for
which the closing of the acquisition of such dealerships is pending final
manufacturer approval. Pursuant to such management agreements, the Company is
paid a monthly fee for managing all aspects of the operations of such
dealerships. Management income amounting to $353 for the three month period
ended March 31, 1998 has been included in other income (expense), net in the
accompanying Consolidated Condensed Statements of Income.
6. BUSINESS COMBINATIONS
The Company completed its acquisition of the Young Automotive Group (the
"Young Group"), with operations in Indiana, Illinois, Florida, North Carolina
and South Carolina, in February 1998, pending manufacturer approval relating
to certain franchises. The aggregate consideration for the acquisition
amounted to $68,600, consisting of $50,000 in cash, 1,040,039 shares of UAG
common stock and $7,000 of seller financed promissory notes. The Company has
agreed to make a contingent payment in cash or stock to the extent the shares
issued in connection with this transaction have an aggregate market value of
less than $27,000 on the date they become freely tradable.
The Company also completed its acquisition of the Classic Automotive Group (the
"Classic Group"), with dealership operations in three locations in southern New
Jersey, in March 1998, pending manufacturer approval relating to certain
franchises. The aggregate consideration for the acquisition was $28,700,
consisting of $28,000 in cash and 66,720 shares of UAG common stock. The
Company has agreed to make a contingent payment in cash to the extent the
shares issued in connection with this transaction have an aggregate market
value of less than $759 on the date they become freely tradable.
The Company completed the acquisition of a number of dealerships and
dealership groups during 1998 and 1997. Each of these acquisitions has been
accounted for using the purchase method of accounting and as a result, the
Company's financial statements include the results of operations of such
dealerships and dealership groups only from the respective dates of
acquisition. The following unaudited pro forma summary presents the
consolidated results of operations of the Company for the three months ended
March 31, 1998 and 1997 after reflecting the pro forma adjustments that would
be necessary to present those results as if the acquisitions had been
consummated as of January 1, 1997.
5
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
PRO FORMA RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1998 1997
-------- --------
Revenues $778,489 $804,571
Income before minority interests, income tax provision and
extraordinary item 4,829 7,202
Net income 2,815 4,269
Net income per diluted common share 0.13 0.20
The foregoing pro forma results are not necessarily indicative of results of
operations that would have been reported had the acquisitions been completed
as of January 1, 1997.
7. EARNINGS PER SHARE
A reconciliation of the number of shares used for the calculation of basic and
dilutive earnings per share for the three month periods ended March 31, 1998
and 1997 is as follows:
1998 1997
------ ------
Weighted average number of common shares outstanding 19,781 17,282
Effect of stock options 143 476
------ ------
Weighted average number of common shares
outstanding, including effect of dilutive securities 19,924 17,758
====== ======
8. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents certain supplementary information to the
Consolidated Condensed Statements of Cash Flows:
THREE MONTHS ENDED MARCH 31,
1998 1997
----- ----
AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- ------- ----------- -------
SUPPLEMENTAL INFORMATION:
Cash paid for interest $10,338 $32 $1,429 $72
Cash paid for income taxes 686 52 96 12
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Dealership acquisition costs paid by issuance of stock 31,232 - 7,350 -
Dealership acquisition costs financed by long-term debt 7,800 - - -
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company retails new and used automobiles and light trucks, operates
service and parts departments and sells various aftermarket products,
including finance and insurance contracts. The Company also owns UnitedAuto
Finance, an automobile finance company.
New vehicle revenues include sales to retail customers and to leasing
companies providing consumer automobile leasing. Used vehicle revenues include
amounts received for used vehicles sold to retail customers, leasing companies
providing consumer leasing, other dealers and wholesalers. Finance and
insurance revenues are generated from sales of accessories such as radios,
cellular phones, alarms, custom wheels, paint sealants and fabric protectors,
as well as amounts received as fees for placing extended service contracts,
credit insurance policies, and financing and lease contracts. The Company's
dealerships market a complete line of aftermarket automotive products and
services through its wholly-owned subsidiary, UnitedAuto Care. Service and
parts revenues include fees paid by consumers for repair and maintenance
service and the sale of replacement parts.
UnitedAuto Finance derives revenues from the purchase, sale and servicing of
motor vehicle installment contracts originated by both Company owned and
third-party dealerships, as well as from fees paid by financial institutions
which purchase installment contracts from customers referred to them by
UnitedAuto Finance.
The Company's selling expenses consist of advertising and compensation for
sales department personnel, including commissions and related bonuses. General
and administrative expenses include compensation for administration, finance
and general management personnel, depreciation, amortization, rent, insurance,
utilities and other outside services. Interest expense consists of interest
charges on all of the Company's interest-bearing debt, other than interest
relating to floor plan inventory financing which is included in cost of sales.
During 1997, the Company changed its method of accounting for new vehicle
inventory from LIFO to the specific identification method. All prior period
results of operations in this Management's Discussion and Analysis of
Financial Condition and Results of Operations have been restated to reflect
such change in accounting principle.
In addition, the Company made a number of dealership acquisitions in 1998 and
1997. Each of these acquisitions has been accounted for using the purchase
method of accounting and as a result, the Company's financial statements
include the results of operations of the acquired dealerships only from the
respective dates of acquisition.
7
RESULTS OF OPERATIONS
The following discussion and analysis relates to the Company's consolidated
historical results of operations for the three months ended March 31, 1998 and
1997.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Auto Dealerships
Revenues. Revenues increased by $322.0 million, or 82.9%, from $388.2 million
to $710.2 million. The overall increase in revenues is due principally to
dealership acquisitions made subsequent to January 1, 1997, offset by a $21.2
million net decrease at dealerships divested or to be divested. Revenues at
dealerships owned prior to January 1, 1997, which were essentially flat
quarter over quarter, reflect a 1.9% decline in vehicle sales revenues, offset
by 13.6% and 7.9% increases in finance and insurance and service and parts
revenues, respectively.
Sales of new and used vehicles increased by $276.1 million, or 81.0%, from
$340.8 million to $617.0 million. The increase is due primarily to
acquisitions made subsequent to January 1, 1997, offset by a net decrease at
dealerships owned prior to January 1, 1997 and at dealerships divested or to
be divested. Aggregate unit retail sales of new and used vehicles increased by
63.0% and 75.3%, respectively, due principally to acquisitions, offset by a
net decrease at dealerships which were owned prior to January 1, 1997 and
dealerships divested or to be divested. For the three months ended March 31,
1998, the Company sold 15,899 new vehicles (60.4% of total vehicle sales) and
10,427 used vehicles (39.6% of total vehicle sales). For the three months
ended March 31, 1997, the Company sold 9,751 new vehicles (62.1% of total
vehicle sales) and 5,949 used vehicles (37.9% of total vehicle sales). The
increase in the relative proportion of used vehicle sales to total vehicle
sales was due principally to the expansion of used car operations in response
to the popularity of used cars.
Finance and insurance revenues (aftermarket product sales) increased by $9.4
million, or 69.7%, from $13.5 million to $22.9 million. The increase is due
primarily to (i) acquisitions made subsequent to January 1, 1997, (ii) a net
increase at dealerships which were owned prior to January 1, 1997 and (iii) an
increase at UnitedAuto Care, offset by a net decrease at dealerships divested
or to be divested.
Service and parts revenues increased by $36.5 million, or 107.6%, from $33.9
million to $70.3 million. The increase is due primarily to (i) acquisitions
made subsequent to January 1, 1997 and (ii) a net increase at dealerships
which were owned prior to January 1, 1997, offset by a net decrease at
dealerships divested or to be divested.
Gross Profit. Gross profit increased by $41.6 million, or 87.4%, from $47.6
million to $89.2 million. Gross profit as a percentage of revenues increased
from 12.3% to 12.6%. The increase in gross profit and in gross profit as a
percentage of revenues is due to (i) acquisitions, (ii) increased dealership
finance and insurance and service and parts revenues, which yield higher
margins, as a percentage of total revenues, (iii) improved gross profit
margins on service and parts revenues and (iv) improved penetration and
margins by United AutoCare.
8
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $36.8 million, or 88.1%, from $41.8
million to $78.5 million due principally to acquisitions and an increase in
the infrastructure required to manage the substantial increase in the
Company's operations and the planned expansion of its business in the future.
Such expenses as a percentage of revenue increased from 10.8% to 11.1%.
Other Interest Expense. Other interest expense increased by $6.6 million, from
$0.5 million to $7.1 million. The increase is due to (i) borrowings under the
Company's credit agreement entered into in February 1998, (ii) the issuance of
the Company's Senior Subordinated Notes due 2007 in July and September 1997
and (iii) the issuance of acquisition-related debt.
Other Income (Expense), Net. Other income (expense), net increased by $0.1
million, from $0.3 million to $0.4 million. The increase is due to income
earned pursuant to dealership management agreements during the first quarter
of 1998, offset by a reduction of miscellaneous other income in the prior
year.
Auto Finance
Income (loss) before income taxes. UnitedAuto Finance's reported a modest
profit during the first quarter of 1998 compared with a loss of $0.1 million
in the comparable period of 1997.
Total Company
Income Tax Provision. The 1998 income tax provision decreased $0.6 million
from $2.2 million to $1.6 million. The decrease is due to a decrease in
pre-tax income, offset in part by an increase in the Company's estimated
annual effective income tax rate to 41.0%.
Extraordinary Item. The extraordinary item of $1,235, net of taxes of $859,
represents a loss resulting from the write-off of unamortized deferred
financing costs relating to the Company's previous credit facility
LIQUIDITY AND CAPITAL RESOURCES
CASH AND LIQUIDITY REQUIREMENTS
The cash requirements of the Company are primarily for acquisitions of new
dealerships, working capital and the expansion of existing facilities.
Historically, these cash requirements have been met through issuances of
equity and debt instruments, borrowings under various credit agreements and
cash flow from operations. At March 31, 1998, the Company's dealership
operations had working capital of $72.4 million.
9
During the three months ended March 31, 1998, dealership activities resulted
in net cash provided by operations of $5.6 million. Net cash used by
dealerships in investing activities during the three months ended March 31,
1998 totaled $100.6 million, relating to dealership acquisitions, funding
provided to UnitedAuto Finance and capital expenditures. Dealership financing
activities provided $21.0 million of cash during the three months ended March
31, 1998 principally relating to net proceeds of long-term debt.
The Company finances substantially all of its new and used vehicle inventory
under revolving floor plan financing arrangements with various lenders. The
floor plan lenders pay the manufacturer directly with respect to new vehicles.
The Company makes monthly interest payments on the amount financed, but is not
required to make loan principal repayments prior to the sale of new and used
vehicles. Substantially all of the assets of the Company's dealerships are
subject to security interests granted to their floor plan lending sources.
At March 31, 1998, the Company had approximately $20.5 million of cash
available to fund operations and future acquisitions. In addition, the Company
is party to a $75.0 credit agreement, dated February 27, 1998 (the "Credit
Agreement"), with a group of banks which is to be used principally for
acquisitions. As of March 31, 1998, $38.0 million was available to the Company
under the Credit Agreement.
The Company's principal source of growth has come, and is expected to continue
to come, from acquisitions of automobile dealerships. The Company believes
that its existing capital resources will be sufficient to fund its current
acquisition commitments. To the extent the Company pursues additional
significant acquisitions, it may need to raise additional capital either
through the public or private issuance of equity or debt securities or through
additional bank borrowings. A public equity offering would require the prior
approval of certain automobile manufacturers.
CYCLICALITY
Unit sales of motor vehicles, particularly new vehicles, historically have
been cyclical, fluctuating with general economic cycles. During economic
downturns, the automotive retailing industry tends to experience similar
periods of decline and recession as the general economy. The Company believes
that the industry is influenced by general economic conditions and
particularly by consumer confidence, the level of personal discretionary
spending, interest rates and credit availability.
SEASONALITY
The Company's combined business is modestly seasonal overall. The greatest
seasonalities exist with the dealerships in the New York metropolitan area,
for which the second and third quarters are the strongest with respect to
vehicle related sales. The service and parts business at all dealerships
experiences relatively modest seasonal fluctuations.
10
EFFECTS OF INFLATION
The Company believes that the relatively moderate rates of inflation over the
last few years have not had a significant impact on revenue or profitability.
The Company does not expect inflation to have any near-term material effects
on the sale of its products and services. However, there can be no assurance
that there will be no such effect in the future.
The Company finances substantially all of its inventory through various
revolving floor plan arrangements with interest rates that vary based on the
prime rate or LIBOR. Such rates have historically increased during periods of
increasing inflation. The Company does not believe that it would be placed at
a competitive disadvantage should interest rates increase due to increased
inflation since most other automobile dealers have similar floating rate
borrowing arrangements.
PART II
ITEM 1 - LEGAL PROCEEDINGS
In May and June, 1997, three complaints were filed in the United States
District Court for the Southern District of New York on behalf of a purported
class consisting of all persons who purchased the Company's Voting Common
Stock issued in connection with and/or traceable to the Company's IPO at any
time up to and including February 26, 1997 (the "Lawsuits"). The complaints
name as defendants the Company, Carl Spielvogel, Marshall S. Cogan, J.P.
Morgan Securities Inc., Montgomery Securities and Smith Barney Inc. The
plaintiffs in the Lawsuits seek unspecified damages in connection with their
allegations that the prospectus and the related registration statement
disseminated in connection with the IPO contained material misrepresentations
and omissions in violation of Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933, as amended (the "Securities Act"). They also seek to have their
actions certified as class actions under Federal Rules of Civil Procedure. On
August 5, 1997, the Lawsuits were ordered consolidated for all purposes. On
October 3, 1997, the plaintiffs filed a consolidated amended class action
complaint. On November 17, 1997, the Company filed a motion to dismiss the
consolidated amended class action complaint. The court has not yet ruled on
this motion. The Company believes that the plaintiffs' claims are without
merit and intends to defend the Lawsuits vigorously.
Additionally, the Company and its subsidiaries are involved in litigation that
has arisen in the ordinary course of business. None of these matters, either
individually or in the aggregate, are expected to have a material adverse
effect on the Company's results of operations or financial condition.
ITEM 2 - CHANGES IN SECURITIES
In partial consideration for certain dealerahip acquisitions, the Company
issued 1,328,059 shares of common stock to the sellers of such acquired
dealerships. These shares were issued in reliance on Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any public
offering.
11
ITEM 6 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
3.1(c) Third Restated Certificate of Incorporation.
3.2(a) Restated Bylaws.
4.1(a) Specimen Common Stock certificate.
4.2(f) Indenture, dated as of July 23, 1997, among the Company, the
Guarantors party thereto and The Bank of New York, as Trustee,
including form of Note and Guarantee.
4.4(f) Indenture, dated as of September 16, 1997, among the Company,
the Guarantors party thereto and The Bank of New York, as
Trustee, including form of Series B Note and Guarantee.
10.1.19.1 Credit Agreement, dated as of February 27, 1998, among the
Company, various financial institutions and The Bank of Nova
Scotia, as Administrative Agent.
10.1.19.2 Pledge Agreement, dated as of February 27, 1998, among the
Company, certain subsidiaries thereof and The Bank of Nova
Scotia, as Administrative Agent.
10.1.19.3 Subsidiary Guarantee, dated as of February 27, 1998, among
certain subsidiaries of the Company and The Bank of Nova
Scotia, as Administrative Agent.
10.19.1.3(g) Amendment To Stock Purchase Agreement, dated January 31, 1998,
between and among United Auto Group, Inc., UAG Young, Inc.,
Dan Young Chevrolet, Inc., Dan Young, Inc., Parkway Chevrolet,
Inc., Young Management Group, Inc., Alan V. Young, William A.
Young, Dan E. Young, Conway M. Anderson III, Shirley J. Young
Irrevocable GRAT Trust, Dan E. Young Irrevocable GRAT Trust,
Irrevocable Trust for Alan V. Young and Irrevocable Trust for
William A. Young.
10.19.1.4(g) Amendment To Agreement and Plan of Merger, dated January 31,
1998, between and among United Auto Group, Inc., UAG Kissimmee
Motors, Inc., UAG Paramount Motors, Inc., UAG Century Motors,
Inc., Kissimmee Motors, Inc., Paramount Chevrolet-Geo, Inc.,
Century Chevrolet-Geo, Inc., Alan V. Young, William A. Young,
Jennifer Y. Taggart, Cathy Y. Dyer, Young/AVY II Irrevocable
Trust fbo Lara A. Young, Young/AVY II Irrevocable Trust fbo
Courtney E. Young, Young/AVY II Irrevocable Trust fbo Daniel
A. Young, Young/Way II Irrevocable Trust, Young/Taggart II
Irrevocable Trust fbo William E. Taggart, Young/Taggart II
Irrevocable Trust fbo Mary K. Taggart, Young/Dyer II
Irrevocable GRAT Trust, Shirley J. Young Irrevocable GRAT
Trust and Dan E. Young Irrevocable GRAT Trust.
27.1 Financial Data Schedule.
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(a) Incorporated herein by reference to the identically numbered exhibit
to the Company's Registration Statement on Form S-1, Registration No.
333-09429.
(c) Incorporated herein by reference to the identically numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12297.
(f) Incorporated herein by reference to the identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, File No. 1-12297.
(g) Incorporated herein by reference to the identically numbered exhibit
to the Company's Current Report on Form 8-K filed on February 20,
1998, File No. 1-12297.
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(b) Reports on Form 8-K.
The Company filed the following Current Reports on Form 8-K during the quarter
ended March 31, 1998:
1. January 14, 1998, reporting under Items 5 and 7 (announcement of
certain management changes, a pre-tax fourth quarter 1997 charge and
certain acquisitions in Puerto Rico and Memphis).
2. February 20, 1998, reporting under Items 2, 5 and 7 (announcement of
the consummation of the Young Group acquisition, fourth quarter and
full year 1997 earnings and the Company's placement of a new $75.0
million credit agreement).
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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.
UNITED AUTO GROUP, INC.
By: /s/ Marshall S. Cogan
-------------------------------
Marshall S. Cogan
Chairman of the Board and
Chief Executive Officer
Date: May 15, 1998
By: /s/ James R. Davidson
-------------------------------
James R. Davidson
Executive Vice President
(Chief Accounting Officer)
Date: May 15, 1998
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