-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SoEM4Us55gA0XvkvT5APw9HynAcAV6pfeLUR79jCzIgYrutJXwA37LDRc+rFooBf +Nop67skoBIuQpUjuQkbMA== 0000950136-99-000433.txt : 19990412 0000950136-99-000433.hdr.sgml : 19990412 ACCESSION NUMBER: 0000950136-99-000433 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED AUTO GROUP INC CENTRAL INDEX KEY: 0001019849 STANDARD INDUSTRIAL CLASSIFICATION: 5500 IRS NUMBER: 223086739 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12297 FILM NUMBER: 99583798 BUSINESS ADDRESS: STREET 1: 375 PARK AVE STREET 2: 22ND FL CITY: NEW YORK STATE: NY ZIP: 10152 BUSINESS PHONE: 2122233300 MAIL ADDRESS: STREET 1: 375 PARK AVENUE STREET 2: 22ND FL CITY: NEW YORK STATE: NY ZIP: 10152 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Voting Common Stock, par value New York Stock Exchange $0.0001 per share Securities registered pursuant to Section 12(g) of the Act: NONE. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes..x.. No ..... Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the voting common stock and the non-voting common stock held by non-affiliates as of March 24, 1999 was $127,419,860. As of March 24, 1999, there were 21,289,619 shares of voting common stock and 605,454 shares of non-voting common stock outstanding. Portions of the registrant's proxy statement to be filed in connection with the annual meeting of shareholders, presently scheduled to be held on May 20, 1999, are incorporated by reference in Part III of this Form 10-K. TABLE OF CONTENTS PART I
PAGE 1. Business.......................................................................................... 2 2. Properties........................................................................................ 7 3. Legal Proceedings................................................................................. 7 4. Submission of Matters to a Vote of Securityholders................................................ 7 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters............................. 7 6. Selected Consolidated Financial Data.............................................................. 9 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 10 7A. Quantitative and Qualitative Disclosures about Market Risk........................................ 19 8. Financial Statements and Supplementary Data....................................................... 20 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 20 PART III 10. Directors and Executive Officers of the Registrant................................................ 20 11. Executive Compensation............................................................................ 20 12. Security Ownership of Certain Beneficial Owners and Management.................................... 20 13. Certain Relationships and Related Transactions.................................................... 20 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 20
PART I ITEM 1. BUSINESS OVERVIEW United Auto Group, Inc. ("UAG" or the "Company") is a leading acquirer, consolidator and operator of franchised automobile and light truck dealerships and related businesses. The Company is the second largest publicly-traded retailer of new motor vehicles in the United States. At the end of 1998, the Company operated franchises located in Arizona, Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Nevada, New Jersey, New York, North Carolina, South Carolina, Tennessee, Texas and Puerto Rico. As an integral part of its dealership operations, UAG also sells used vehicles. All of UAG's franchised dealerships include integrated service and parts operations, which are an important source of recurring revenues. In addition, UAG dealerships market a complete line of aftermarket automotive products and services through its wholly owned subsidiaries United Auto Care, Inc. ("UAC") and United Auto Care Products, Inc. ("UAC Products"). UAG was incorporated in the State of Delaware in December 1990 and commenced dealership operations in October 1992. Unless the context otherwise requires, references herein to "Common Stock" refers to the Company's Voting Common Stock, par value $0.0001 per share. The Company was formed to capitalize on consolidation opportunities within the highly fragmented automotive retailing industry by acquiring, consolidating, and operating large automobile retailers and related businesses. As capital requirements to operate dealerships continue to increase and many owners who were granted franchises in the 1950s and 1960s approach retirement age, many individual dealers are seeking exit opportunities. These conditions present attractive consolidation opportunities for larger automobile retailers such as UAG. The following table sets forth information with respect to dealerships acquired by the Company during 1998:
DATE ACQUIREE ACQUIRED LOCATIONS FRANCHISES - - -------- -------- --------- ---------- Skelton Group 1/98 Memphis, TN Toyota, Mazda, Hyundai Young Group 2/98 Kissimmee, FL Toyota Indianapolis, IN Chevrolet, Honda, Isuzu Tipton, IN Chevrolet, Buick, Pontiac, GMC Bloomington, IL Chevrolet Goldsboro, NC Cadillac, Chevrolet, Oldsmobile Hilton Head, SC BMW, Buick, Pontiac, GMC Classic Group 2/98 New Jersey Chevrolet, Toyota, Nissan, Buick, GMC, Hyundai, BMW, Acura, Honda Graceland Dodge 2/98 Memphis, TN Dodge Pioneer Ford 4/98 Phoenix, AZ Ford San Diego dealerships 7/98 San Diego, CA Toyota, Lexus, Dodge, Mazda Citrus 11/98 Dade City, FL Chrysler, Plymouth, Dodge
2 UAG purchases substantially all new car inventories directly from manufacturers. Each of the Company's dealerships operates pursuant to a franchise agreement between the applicable manufacturer and the subsidiary of the Company that operates such dealership. In accordance with the individual franchise agreements, each dealership is subject to certain rights and restrictions typical of the industry. The ability of manufacturers to influence the operations of a dealership, or the loss of a franchise agreement, could have a negative impact on the Company's operating results. Manufacturers allocate inventory based on the size and location of dealerships, but actual shipments result from negotiations with individual dealers. The Company believes that larger dealers, such as UAG, are better positioned to secure favorable inventory shipments and optimize manufacturers' allocations. UAG finances its inventory purchases through revolving credit arrangements known in the industry as floor plan facilities. BUSINESS STRATEGY UAG seeks to be a leader in the consolidation of the automotive retailing industry and to increase stockholder value through a business strategy that includes the following principal elements: Acquire and Integrate Profitable Dealership Operations UAG seeks to capitalize on continuing consolidation in the U.S. automotive retailing industry by selectively acquiring profitable dealerships. The Company targets dealerships or dealership groups with established records of profitability as well as with experienced management willing to remain in place. The Company focuses on opportunities in geographic markets with above-average projected population and job growth. The Company attempts to create regional hubs of dealerships that will be able to share administrative and other operations to reduce costs. The Company's acquisition program has been specifically tailored to address dealers' desire to retain a management role in their businesses while achieving personal liquidity. Owners of acquired dealerships typically continue as dealership managers and some also participate in overall Company operations through UAG's Chairman's Committee. The Company believes it provides dealership managers additional management tools, as its economies of scale, marketing expertise and corporate resources act as catalysts for continual dealership growth. In addition, the dealer may retain an equity interest in the business through the ownership of capital stock and/or stock options of UAG. Grow Higher-Margin Operating Businesses UAG is focusing on higher-margin businesses such as the retail sale of used vehicles, aftermarket products and service and parts. Used Vehicles. Used vehicle sales by franchised dealers, with average prices approximating 60% of new vehicle prices, typically generate higher gross margins as a percentage of sales value than new car sales because of limited comparability among them and the somewhat subjective nature of their valuation. Consumer acceptance of used vehicle purchasing has grown, due principally to (i) an increase in the availability of late-model, low-mileage used vehicles due in part to the large supply of vehicles coming off short-term leases, (ii) improvements in the quality of motor vehicles and (iii) increases in the prices of new vehicles. 3 UAG believes that through its new vehicle franchises, it enjoys significant advantages over both independent and chain used-vehicle companies in sourcing used vehicles. Specifically, the Company has access to (i) a steady supply of used vehicles accepted as trade-ins for new vehicle purchases, (ii) off-lease vehicles that were originally leased through the new vehicle franchise and (iii) used vehicle auctions open only to new vehicle dealers. In addition, only new vehicle franchises are able to sell used vehicles certified by the manufacturer under recently introduced programs in which the manufacturer supports specific high-quality used cars with extended warranties and attractive financing options. Aftermarket Products. Each sale of a new or used vehicle provides the opportunity for the Company to sell aftermarket products. Aftermarket products include accessories such as radios, cellular phones, alarms, custom wheels, paint sealants and fabric protectors, as well as agency services such as extended service contracts, credit insurance policies and financing and lease contracts. In addition, the Company receives fees for placing financing and lease contracts. In order to meet customers' needs and help create a "one-stop" shopping experience, management continues to expand aftermarket product offerings through UAC and UAC Products. Service and Parts. Each of UAG's new vehicle dealerships offers a fully integrated service and parts department. The service and parts business provides an important recurring revenue stream to the Company's dealerships, which may help to mitigate the effects of downturns in the automobile sales cycle. Unlike independent service shops or used car dealerships with service operations, UAG is qualified to perform work covered by manufacturer warranties. Since warranty service work is paid for by the manufacturer, consumers are motivated to service their vehicles at a dealership for the warranty period. In recent years, manufacturers have generally lengthened standard warranty coverage on new cars and introduced warranty coverage on used cars, further enhancing customer retention opportunities in the service area. To grow their service and parts businesses, UAG dealerships have implemented programs to track maintenance records of customers and contact them regarding dealership promotions and maintenance schedules. In addition, the Company is actively marketing warranty-covered services to potential customers such as municipalities and corporations with large fleets of automobiles located near certain of its dealerships. The Company is able to offer repair services to such customers on a more efficient and less costly basis than such customers generally can perform themselves. The Company also believes that its market share will grow at the expense of independent mechanics' shops, which may be unable to address the increased mechanical and electronic sophistication of today's motor vehicles and the increased expenses of compliance with more stringent environmental regulations. Implement "Best Practices" The Chairman's Committee, comprised of senior executives and key managers, meets periodically to review the operating performance of individual dealerships, as well as to examine important industry trends and, where appropriate, recommend specific operating improvements. This facilitates implementation of successful strategies throughout the organization so that each dealership can benefit from the successes of the others, as well as from the knowledge and experience of UAG's senior management. Management also attends various industry sponsored leadership and management seminars and receives continuing education in products, marketing strategies and management information systems. The Company shares training techniques across its dealership base and has made improving service absorption and aftermarket revenues a Company-wide focus. 4 Emphasize Customer Service Central to UAG's overall philosophy is customer-oriented service designed to meet the needs of an increasingly sophisticated and demanding automotive consumer through "one-stop" shopping convenience, competitive pricing and a sales staff that is knowledgeable about product offerings and responsive to a customer's particular needs. The Company's goal is to establish lasting relationships with its customers, which enhance its reputation in the community and create the opportunity for significant repeat and referral business. The quality of customer service provided by dealerships' sales and service departments is measured by customer satisfaction index ("CSI") scores, which are derived from data accumulated by manufacturers through individual customer surveys. UAG relies on this data to track the performance of dealership operations and uses it as a factor in determining the compensation of general managers and sales and service personnel in its dealerships. The Company's most recent CSI scores indicate that a majority of its dealerships' CSI scores were at or above the average CSI scores for the applicable regions. COMPETITION Automobile Dealerships The automotive retailing industry is extremely competitive. In large metropolitan areas, consumers have a number of choices in deciding where to purchase a new or used vehicle and where to have such a vehicle serviced. For new vehicle sales, the Company competes with other franchised dealers in each of its marketing areas. The Company does not have any cost advantage in purchasing new vehicles from the manufacturer, and typically relies on advertising and merchandising, sales expertise, service reputation and location of its dealerships to sell new vehicles. In recent years, automobile dealers have also faced increased competition in the sale of new vehicles from independent leasing companies and on-line purchasing services and warehouse clubs. Due to lower overhead and sales costs, these companies may be capable of operating on smaller gross margins and offering lower sales prices than franchised dealers. In addition, the Company may face competition in the future from partnerships between manufacturers and dealers. For used vehicle sales, the Company competes with other franchised dealers, independent used vehicle dealers, automobile rental agencies, private parties and used vehicle "superstores" for supply and resale of used vehicles. The Company believes that the principal competitive factors in vehicle sales are the marketing campaigns conducted by manufacturers, the ability of dealerships to offer a wide selection of the most popular vehicles, the location of dealerships and the quality of customer service. Other competitive factors include customer preference for particular brands of automobiles, pricing (including manufacturer rebates and other special offers) and warranties. The Company believes that its dealerships are competitive in all of these areas. 5 The Company competes against other franchised dealers to perform warranty repairs and against other automobile dealers, franchised and unfranchised service center chains, and independent garages for non-warranty repair and routine maintenance business. The Company competes with other automobile dealers, service stores and auto parts retailers in its parts operations. The Company believes that the principal competitive factors in parts and service sales are price, the use of factory-approved replacement parts, the familiarity with a manufacturer's brands and models and the quality of customer service. A number of regional or national chains offer selected parts and services at prices that may be lower than the Company's prices. EMPLOYEES AND LABOR RELATIONS As of December 31, 1998, UAG employed approximately 5,500 people, approximately 590 of whom are covered by collective bargaining agreements with labor unions. Relations with employees are considered by the Company to be satisfactory. The Company's policy is to motivate its key managers through, among other things, grants of stock options. ENVIRONMENTAL MATTERS As with automobile dealerships generally, and service parts and body shop operations in particular, the Company's business involves the use, handling and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials such as motor oil, waste motor oil and filters, transmission fluid, antifreeze, refrigerant, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels. The Company's business also involves the past and current operation and/or removal of aboveground and underground storage tanks containing such substances or wastes. Accordingly, the Company is subject to regulation by federal, state and local authorities that establish health and environmental quality standards and impose penalties for violations of those standards. The Company is also subject to laws, ordinances and regulations governing remediation of contamination at facilities it operates or to which it sends hazardous or toxic substances or wastes for treatment, recycling or disposal. The Company believes that it does not have any material environmental liabilities and that compliance with environmental laws, ordinances and regulations will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. However, soil and groundwater contamination has been known to exist at certain properties leased by the Company. Furthermore, environmental laws and regulations are complex and subject to frequent change. There can be no assurance that compliance with amended, new or more stringent laws or regulations, stricter interpretations of existing laws or the future discovery of environmental conditions will not require additional expenditures by the Company, or that such expenditures would not be material. 6 ITEM 2. PROPERTIES The Company seeks to structure its operations so as to avoid the ownership of real property. As a result, the Company leases or subleases substantially all of its facilities, including dealerships and office space used for corporate activities. As of December 31, 1998, the Company has leases at the majority of its dealerships, which can include facilities for (i) new and used vehicle sales, (ii) vehicle service operations, (iii) retail and wholesale parts operations, (iv) body shop operations, (v) storage and (vi) general office use. Such leases are generally for a period of between five and twenty years and typically include renewal options for an additional five to ten years in favor of the Company. In addition, the Company leases office space in New York, NY, Purchase, NY and Rochester, NY for the Company's corporate headquarters and other corporate related activities. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are involved in litigation that has arisen in the ordinary course of business. None of these matters, either individually or in the aggregate, are expected to have a material adverse effect on the Company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "UAG." There were 114 holders of record of the Common Stock and one holder of record of the Non-voting Common Stock as of March 24, 1998. There is no established market for the Company's Non-voting Common Stock, but such stock is convertible into an equal number of shares of Voting Common Stock at any time, subject to certain conditions, for no cost at the option of the holder thereof. The following table sets forth the high and low sales prices as reported on the NYSE during each fiscal quarter during 1998 and 1997.
1998 1997 QUARTER ENDED HIGH LOW HIGH LOW - - ------------- ---- --- ---- --- March 31 24 1/8 10 1/4 31 3/4 19 1/4 June 30 21 7/8 13 5/8 19 7/8 16 September 30 26 5/16 11 5/16 27 7/8 19 1/4 December 31 15 8 7/8 26 13/16 13 3/4
7 The Company has not declared or paid dividends on its Common Stock during 1998 or 1997. The Company intends to retain future earnings, if any, to finance the development and expansion of its business and, therefore, does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The decision whether to pay dividends will be made by the Board of Directors of the Company in light of conditions then existing, including the Company's results of operations, financial condition and requirements, business conditions and other factors. The Credit Agreement (as hereinafter defined) restricts the Company from paying dividends in excess of $5.0 million in the aggregate. In addition, the indentures governing the Notes (as hereinafter defined) limit the Company's ability to pay dividends based on a formula which takes into account, among other things, the Company's consolidated net income. The Company is a holding company whose assets consist primarily of the indirect ownership of the capital stock of its operating subsidiaries. Consequently, the Company's ability to pay dividends is dependent upon the earnings of its subsidiaries and their ability to distribute earnings to the Company and other advances and payments by such subsidiaries to the Company. Pursuant to the automobile franchise agreements to which the Company's dealerships are subject, all dealerships are required to maintain a certain minimum working capital, and some dealerships are also required to maintain a certain minimum net worth. These requirements may restrict the ability of the Company's operating subsidiaries to make dividend payments, which in turn may restrict the Company's ability to make dividend payments. 8 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected historical consolidated financial and other data of the Company as of and for the five years in the period ended December 31, 1998. Such financial information has been derived from the Company's consolidated financial statements. During the five year period, the Company made a number of acquisitions, each of which has been accounted for using the purchase method of accounting. Accordingly, the Company's financial statements include the results of operations of the acquired dealerships only from the date of acquisition. As a result, the Company's period to period results of operations vary depending on the dates of such acquisitions. The selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and related footnotes included elsewhere herein. SELECTED CONSOLIDATED FINANCIAL DATA (1) (2)
YEARS ENDED DECEMBER 31, (Dollars in thousands, except per share data) 1998 (3) (4) 1997 (5) (6) 1996 (7) 1995 (8) 1994 ------------- ------------- ----------- --------------- ----------- STATEMENT OF OPERATIONS DATA: AUTO DEALERSHIPS Total revenues $3,343,147 $2,092,593 $1,302,031 $805,621 $731,629 Gross profit 426,899 257,062 145,572 84,987 85,432 Income (loss) from continuing operations 13,378 (7,936) 8,928 (2,825) 125 Net income (loss) (797) (10,140) 3,047 (3,654) (245) Income (loss) from continuing operations per diluted common share 0.64 (0.44) 0.82 (0.52) 0.03 Net income (loss) per diluted common share (0.04) (0.56) 0.28 (0.67) (0.06) OTHER AUTO DEALERSHIP DATA: Gross profit margin 12.8% 12.3% 11.2% 10.5% 11.7% New cars sold at retail 77,403 50,985 36,802 25,138 22,464 Used cars sold at retail 46,724 31,253 18,344 8,953 8,340 -------------------------------------------------------------------------------------------------------------------------- AS OF DECEMBER 31, (Dollars in thousand) 1998 1997 1996 1995 1994 -------------- ------------ ---------- ------------ --------------- BALANCE SHEET DATA: Intangible assets, net $482,049 $326,774 $177,194 $48,774 $23,018 Total assets 1,184,194 971,064 525,373 235,146 174,922 Long-term debt, including current portion 313,021 248,531 16,565 27,242 8,640 Total stockholders' equity 341,650 300,557 284,501 51,699 31,432
9 - - ------------------------------------ (1) The Company made a decision to discontinue the auto finance business of its wholly owned subsidiary, United Auto Finance, Inc. ("UAF"). As a result, UAF will no longer engage in the purchase or sale of automotive loans; however, it will continue to service its securitized portfolios in accordance with contractual commitments. Consequently, UAF has been reported as a discontinued operation in the accompanying consolidated statements of operations. The Company has restated its prior financial statements to present the results of UAF as a discontinued operation for all periods presented. (2) During 1997, the Company changed its method of accounting for new vehicle inventory from LIFO to the specific identification method. The effect of the change in accounting for new vehicle inventories was to increase net income and income before extraordinary item by $573 ($0.05 per diluted share) in 1996, decrease net income and income before extraordinary item by $188 ($0.03 per diluted share) in 1995 and increase net income and income before extraordinary item by $1,446 ($0.38 per diluted share) in 1994. (3) Includes a $12.6 million pre-tax charge for estimated future repair costs under the terms of approximately 51,000 warranty and extended service contracts sold by UAC from January 1, 1997 to October 31, 1998. See footnotes to consolidated financial statements. (4) Includes the results of the Skelton Group, the Young Group, the Classic Group, Graceland Dodge, Pioneer Ford, the San Diego dealerships and Citrus Dodge from their respective dates of acquisition. (5) Includes a $31.7 million charge recorded during 1997 to realign certain elements of the Company's business. See footnotes to consolidated financial statements. (6) Includes the results of Crown Automotive, Hanna Nissan, the Staluppi Automotive Group, the Gene Reed Automotive Group, the Lance Landers dealerships, Stone Mountain Jeep Eagle, Shreveport Dodge, Central Ford, Covington Pike Dodge and the Triangle Group from their respective dates of acquisition (7) Includes the results of Atlanta Toyota, United Nissan (GA), Peachtree Nissan, the Sun Automotive Group, the Evans Group and United Nissan (TN) from their respective dates of acquisition. (8) Includes the results of Landers Auto from its date of acquisition. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL 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. 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. UAG dealerships market a complete line of aftermarket automotive products and services through UAC. Service and parts revenues include fees paid for repair and maintenance service and the sale of replacement parts. The Company also derives revenue from fees paid by financial institutions which purchase installment contracts from customers at the Company's dealerships. 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. 10 The Company has been informed by Trace International Holdings, Inc. ("Trace") and its subsidiary Alpha Automotive, Inc. ("Alpha") that they are in the process of evaluating their ability to meet their obligations with respect to the cost of future repairs under the terms of approximately 51,000 warranty and extended service contracts sold by UAC between January 1, 1997 and October 31, 1998. The repair obligations for these contracts had been contractually assumed by Trace and Alpha. As a result of the uncertainty about Trace and Alpha's ability to perform their contractual obligations, the Company has entered into an insurance agreement with Virginia Surety Company, Inc. ("Virginia Surety") and certain of its affiliates. Virginia Surety is a subsidiary of Aon Corporation, an insurance services holding company. Under the terms of the agreement, affiliates of Virginia Surety have agreed to assume the repair obligations on the 51,000 warranty and extended service contracts in exchange for a fixed premium payable over time. The Company has recorded a $12.6 million pre-tax charge (the "Alpha Charge"), which represents the estimated present value of those premium payments. Such charge has been reflected in cost of goods sold in the accompanying financial statements. The Company has no further financial obligations related to these contracts other than to make the specified premium payments. The Company has terminated the contract with Trace and Alpha with respect to warranty or extended service contracts sold by UAC subsequent to October 31, 1998, and has entered into an agreement with affiliates of Virginia Surety pursuant to which these affiliates will assume the repair obligations on all warranty and extended service contracts sold and to be sold by UAC subsequent to October 31, 1998 in exchange for specified insurance premiums. Trace and Alpha will remain liable with respect to warranty or extended service contracts sold prior to November 1, 1998. Future recoveries from Trace and Alpha will reduce the cost of the Virginia Surety insurance agreement. The Company made a decision to discontinue its auto finance business. As a result, UAF will no longer engage in the purchase or sale of automotive loans; however, it will continue to service its securitized portfolios in accordance with contractual commitments. Consequently, UAF has been reported as a discontinued operation in the accompanying consolidated statements of operations. The Company has restated its prior financial statements to present the results of UAF as a discontinued operation for all periods presented. Based on its most recent Schedule 13-D filed with the Securities and Exchange Commission, Trace is the beneficial owner of 4,016,110 shares of common stock of the Company, which represents approximately 20.5% of the Company's outstanding common stock. Marshall S. Cogan, Chairman and Chief Executive Officer of the Company, is also Chairman and Chief Executive Officer of Trace. During 1997, the Company recorded a pre-tax charge of $31.7 million (the "1997 Charge"). The charge included costs associated with (i) the divestiture of automotive franchises, (ii) the closure of three stand-alone used vehicle satellite locations in Arkansas and the disposal of related inventory, (iii) the implementation of a new policy to more efficiently manage the Company's working capital invested in retail inventory, (iv) excess real estate, (v) the write-off of non-performing assets and (vi) certain corporate consulting agreements. Costs associated with the 1997 Charge amounting to $9.8 million and $20.9 million have been reflected in cost of goods sold and selling, general and administrative expenses, respectively, in the accompanying financial statements. In addition, $1.0 million has been reflected in discontinued operations. Also, the Company changed its method of accounting for new vehicle inventory from LIFO to the specific identification method during 1997. All results of operations and related comparisons in this Management's Discussion and Analysis of Financial Condition and Results of Operations have been restated to reflect such change in accounting principle. 11 Also, the Company made a number of dealership acquisitions in 1998, 1997 and 1996. Each of these acquisitions has been accounted for using the purchase method of accounting and as a result, the Company's financial statements include the results of operations of the acquired dealerships only from the date of acquisition. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Revenues. Revenues increased by $1.3 billion, or 59.8%, from $2.1 billion to $3.3 billion. The overall increase in revenues is due primarily to (i) dealership acquisitions made subsequent to January 1, 1997 and (ii) an overall 5.2% increase in retail revenues at dealerships owned prior to January 1, 1997, partially offset by (i) a decrease in retail vehicle sales revenues and finance and insurance revenues at dealerships in the Atlanta marketplace and (ii) a decrease in revenues at dealerships which were divested during 1998. The overall increase in retail revenues at dealerships owned prior to January 1, 1997 reflects 4.4%, 19.5% and 7.7% increases in retail vehicle sales, finance and insurance and service and parts revenues, respectively. Sales of new and used vehicles increased by $1.1 billion, or 57.8%, from $1.8 billion to $2.9 billion. The increase is due primarily to (i) acquisitions made subsequent to January 1, 1997 and (ii) the net increase at dealerships owned prior to January 1, 1997, offset by (i) the decrease in the Atlanta marketplace and (ii) a decrease at dealerships which were divested during 1998. The increase at dealerships owned prior to January 1, 1997 is due to an increase in the comparative average selling price per vehicle, partially offset by a 2.7% decrease in retail unit sales. Aggregate unit retail sales of new and used vehicles increased by 51.8% and 49.5%, respectively, due principally to acquisitions, offset by (i) the net decrease at dealerships owned prior to January 1, 1997 and (ii) the decrease at dealerships which were divested during 1998. The Company sold 77,403 new vehicles (62.4% of total vehicle sales) and 46,724 used vehicles (37.6% of total vehicle sales) during the year ended December 31, 1998, compared with 50,985 new vehicles (62.0% of total vehicle sales) and 31,253 used vehicles (38.0% of total vehicle sales) during the year ended December 31, 1997. Finance and insurance revenues increased by $53.2 million, or 71.7%, from $74.2 million to $127.4 million. The increase is due primarily to (i) acquisitions made subsequent to January 1, 1997, (ii) the net increase at dealerships owned prior to January 1, 1997 and (iii) an increase in revenues at UAC, offset by (i) the decrease in the Atlanta marketplace and (ii) a decrease at dealerships which were divested during 1998. Service and parts revenues increased by $143.3 million, or 75.1%, from $190.8 million to $334.1 million. The increase is due primarily to (i) acquisitions made subsequent to January 1, 1997 and (ii) the net increase at dealerships owned prior to January 1, 1997, offset by a decrease at dealerships which were divested during 1998. 12 Gross Profit. Gross profit increased by $169.8 million, or 66.1%, from $257.1 million to $426.9 million. The increase in gross profit is due to (i) acquisitions made subsequent to January 1, 1997, (ii) a net increase in total gross profit generated at stores owned prior to January 1, 1997 (iii) the increase in revenues at UAC and (iv) the impact of the 1997 Charge on gross profit in 1997, offset by (i) the impact of the Alpha Charge on gross profit in 1998 and (ii) a decrease at dealerships which were divested during 1998. Gross profit as a percentage of revenues increased from 12.3% to 12.8%. The increase in gross profit as a percentage of revenues is primarily attributable to (i) the increase in higher margin finance and insurance and service and parts revenues as a percentage of total revenues, (ii) improved gross profit margins on retail vehicle sales revenues, (iii) improved gross profit margins on finance and insurance revenues and (iv) improved gross profit margins on service and parts revenues. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $120.0 million, or 47.0%, from $255.1 million to $375.0 million. The increase in selling, general and administrative expense is due principally to (i) acquisitions made subsequent to January 1, 1997, (ii) an increase at stores owned prior to January 1, 1997, offset in part by the impact of the 1997 Charge on selling general and administrative expense in 1997. Such expenses as a percentage of revenue decreased from 12.2% to 11.2%. Other Interest Expense. Other interest expense increased by $17.4 million, from $14.1 million to $31.5 million. The increase is due to (i) the issuance of the Company's Senior Subordinated Notes due 2007 in July and September 1997 and (ii) the incurrence of acquisition-related debt. Other Income (Expense), Net. Other income (expense), net increased by $4.5 million, due primarily to $4.8 million of income earned pursuant to dealership management agreements during 1998. Income Tax Provision. The 1998 income tax provision increased $15.5 million from a benefit of $4.0 million to a provision of $11.6 million. The increase is due to an increase in pre-tax income in 1998 compared with 1997, coupled with an increase in the Company's estimated annual effective income tax rate during 1998. Loss from Discontinued Operations. Loss from discontinued operations increased by $10.7 million from $2.2 million to $12.9 million. The increase in loss from discontinued operations is due primarily to (i) an increase in UAF's 1998 operating loss and (ii) the recording of a $14.4 million loss on disposal, offset by the impact of the 1997 Charge on loss from discontinued operations in 1997. The increase in UAF's 1998 operating loss was due primarily to (i) losses incurred on the sale of loans in private non-securitized transactions, (ii) losses in connection with exiting interest rate management transactions and (iii) asset impairment relating to finance assets. The loss on disposal consists of (i) $5.9 million relating to contractual commitments, the write-off of certain fixed assets, severance and other administrative expenses, (ii) $3.8 million of asset impairment and losses incurred on the sale of loans in private non-securitized transactions, (iii) $3.9 million of estimated future costs associated with servicing its securitized portfolio of retail automotive loans and (iv) $0.8 million relating to the write-off of deferred financing fees in connection with the closure of UAF's warehouse lines. 13 Extraordinary Item. The extraordinary item of $1.2 million, net of taxes of $0.9 million, represents a loss resulting from the first quarter write-off of unamortized deferred financing costs relating to the Company's previous credit facility. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenues. Revenues increased by $790.6 million, or 60.7%, from $1.3 billion to $2.1 billion. The overall increase in revenues is due principally to dealership acquisitions made in 1997 and the inclusion of a full year's revenues for dealerships acquired in 1996, offset by a net decrease in sales at dealerships owned prior to January 1, 1996. The net decrease in revenues at dealerships owned prior to January 1, 1996 is due primarily to (i) a reduction in revenues at Atlanta Toyota, impacted by shortages of inventory of certain models and weakness in the Atlanta market, and (ii) a decrease in sales volume at the Company's DiFeo division, resulting principally from the closure of unprofitable dealerships. Sales of new and used vehicles increased by $663.0 million, or 56.9%, from $1.2 billion to $1.8 billion. The overall increase in vehicle sales is due principally to dealership acquisitions made in 1997 and the inclusion of a full year's revenues for dealerships acquired in 1996, offset by the net decrease in new and used vehicle sales at dealerships owned prior to January 1, 1996 noted above. Aggregate unit retail sales of new and used vehicles increased by 38.5% and 70.4%, respectively, due principally to acquisitions, offset by the sales declines noted above. For the year ended December 31, 1997, the Company sold 50,985 new vehicles (62.0% of total vehicle sales) and 31,253 used vehicles (38.0% of total vehicle sales). For the year ended December 31, 1996, the Company sold 36,802 new vehicles (66.7% of total vehicle sales) and 18,344 used vehicles (33.3% of total vehicle sales). The increase in the relative proportion of used vehicle sales to total vehicle sales was due primarily to the expansion of used car operations in response to the popularity of used cars. New vehicle selling prices increased by an average of 11.4% due primarily to changes in the mix of models sold and changes in manufacturer pricing. Used vehicle selling prices increased by an average of 9.2% due to changes in market conditions which resulted in a change in the mix of used vehicles sold and the increase in sales of recent model year off-lease vehicles. Finance and insurance revenues (aftermarket product sales) increased by $30.6 million, or 70.3%, from $43.6 million to $74.2 million. The increase is due primarily to (i) dealership acquisitions made in 1997, (ii) the inclusion of a full year's revenues for dealerships acquired in 1996 and (iii) the establishment of UAC, partially offset by a net decrease in finance and insurance revenues in the DiFeo Group. The decrease in the DiFeo Group is due principally to the closure of certain franchises. Service and parts revenues increased by $96.9 million, or 103.2%, from $93.9 million to $190.8 million. The increase is due primarily to dealership acquisitions made in 1997 and the inclusion of a full year's revenues for dealerships acquired in 1996, partially offset by a net decrease in service and parts revenues in the DiFeo Group. The decrease in the DiFeo Group is due to the closure of certain franchises. 14 Gross Profit. Gross profit increased by $111.5 million, or 76.6%, from $145.6 million to $257.1 million. Gross profit as a percentage of revenues increased from 11.2% to 12.3%. The increase in gross profit and in gross profit as a percentage of revenues is due to (i) dealership acquisitions made in 1997 and the inclusion of a full year's operations for dealerships acquired in 1996, (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 vehicle sales revenues, (iv) improved gross profit margins on finance and insurance revenues, (v) improved gross profit margins on service and parts revenues and (vi) the establishment of UAC, offset by the 1997 Charge. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $130.8 million, or 105.3%, from $124.2 million to $255.1 million due principally to (i) dealership acquisitions made in 1997 and the inclusion of a full year's operations for dealerships acquired in 1996, (ii) an increase in the infrastructure required to manage the substantial increase in the Company's operations and planned expansion of its business in the future and (iii) the 1997 Charge. Selling, general and administrative expenses as a percentage of revenue increased to 12.2% from 9.5%. Other Interest Expense. Other interest expense increased by $9.7 million, from $4.4 million to $14.1 million. The increase is due to interest expense arising from (i) borrowings under the Senior Credit Facility, (ii) the issuance of the Company's Senior Subordinated Notes due 2007 and (iii) the issuance of acquisition-related debt, offset by a reduction in interest expense due to the retirement of the Company's Senior Notes in October 1996. Other Income (Expense), Net. Other income (expense), net decreased by $2.3 million, from $2.6 million to $0.3 million, due principally to a reduction in related party interest income resulting from the disposition of the minority interests in certain dealerships in October 1996. Income Tax Provision. During 1997, the Company recorded an income tax benefit in the amount of $4.0 million, compared with income tax expense of $7.2 million in the prior year. The change is due to the Company's experiencing a net operating loss in 1997 compared with net income in 1996. Loss from Discontinued Operations. Loss from discontinued operations increased by $1.3 million from $0.9 million to $2.2 million. The increase in loss from discontinued operations is due primarily to (i) an increase in infrastructure spending by UAF in 1997, (ii) charges relating to revised loan loss estimates during 1997 and (iii) the impact of the 1997 Charge. LIQUIDITY AND CAPITAL RESOURCES CASH AND LIQUIDITY REQUIREMENTS The cash requirements of the Company are primarily for the acquisition of new dealerships, working capital and the expansion of existing facilities. Historically, these cash requirements have been met through issuances of equity and debt instruments and cash flow from operations. At December 31, 1998, the Company had working capital of $85.2 million. 15 During 1998, dealership activities resulted in net cash provided by operations of $55.0 million. Net cash used by dealerships in investing activities during the year ended December 31, 1998 totaled $150.2 million, relating primarily to dealership acquisitions, funding provided to UAF and capital expenditures. Dealership financing activities provided $50.6 million of cash during the year ended December 31, 1998, principally relating to net proceeds from the issuance 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 December 31, 1998, the Company had approximately $38.5 million of cash available to fund operations and future acquisitions. In addition, the Company is party to a $75.0 million Credit Agreement, dated February 27, 1998 (as amended) (the "Credit Agreement"), with a group of banks, which was to be used principally for acquisitions. As of March 24, 1999, $4.6 million is available for borrowing under the Credit Agreement. The Credit Agreement restricts the Company from paying dividends in excess of $5.0 million in the aggregate. In addition, the indentures governing the Notes limit the Company's ability to pay dividends based on a formula which takes into account, among other things, the Company's consolidated net income. The Company is a holding company whose assets consist primarily of the indirect ownership of the capital stock of its operating subsidiaries. Consequently, the Company's ability to pay dividends is dependent upon the earnings of its subsidiaries and their ability to distribute earnings to the Company and other advances and payments by such subsidiaries to the Company. The Notes are fully and unconditionally guaranteed on a joint and several basis by the Company's auto dealership subsidiaries. The Company was in compliance with the financial covenants in its Credit Agreement at year end. Nevertheless, the Company anticipates that it may not meet the more stringent first quarter 1999 net worth covenants contained therein primarily as a result of the charges described above. The Company has commenced discussions with its lenders to amend or waive such covenants if necessary; however, there can be no assurance that if such amendments or waivers are necessary, they will be obtained. The Company's principal source of growth has come from acquisitions of automobile dealerships. The Company believes that its existing capital resources will be sufficient to fund its current operations and commitments relating to extended warranty contracts previously assumed by Trace and Alpha. 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. 16 SEASONALITY The Company's combined business is modestly seasonal overall. The greatest seasonalities exist with the dealerships in the northeast United States, for which the second and third quarters are the strongest with respect to vehicle related sales. The service and parts business at all dealerships experiences relatively modest seasonal fluctuations. EFFECTS OF INFLATION The Company believes that the relatively moderate rates of inflation over the last few years have not had a significant impact on revenue or profitability. The Company does not expect inflation to have any near-term material effects on the sale of its products and services. However, there can be no assurance that there will be no such effect in the future. The Company finances substantially all of its inventory through various revolving floor plan arrangements with interest rates that vary based on the prime rate or LIBOR. Such rates have historically increased during periods of increasing inflation. The Company does not believe that it would be placed at a competitive disadvantage should interest rates increase due to increased inflation since most other automobile dealers have similar floating rate borrowing arrangements. IMPACT OF YEAR 2000 Many existing computer systems and related applications use only two digits to identify a year in the date field. As the year 2000 approaches, such programs may be unable to distinguish years beginning with 20 from years beginning with 19. As a result, date sensitive systems and related applications may fail to process data accurately, before, during or after the year 2000. The Company is currently analyzing the potential for year 2000 issues to impact the operations and management of its auto dealerships. The Company's auto dealerships rely heavily upon two mission critical systems: Dealer Management Systems ("DMS") and Dealer Communication Systems ("DCS"). The DMS is a leased computer system that supports critical day-to-day operations of the dealership, including vehicle sales, inventory, service and parts operations and accounting functions. The DCS is a communication system through which the dealerships exchange information with the manufacturer for processes such as ordering vehicles and parts, submitting warranty claims, reporting financial information and receiving technical information for vehicle service activities. The Company has received assurances from each of the providers of these systems that year 2000 compliant versions of the systems have been developed and are available to the Company as part of the recurring maintenance of such systems. To date, the installation of the year 2000 compliant DMS and DCS systems has been completed at more than ninety percent of the Company's dealerships. The remaining dealerships are expected to have installed the year 2000 compliant systems by April 30, 1999. In order to test the ability of the Company's recently upgraded mission critical systems to process date related information correctly, the Company has established a redundant computer platform which is being used to evaluate the reliability of such systems. The majority of such testing is expected to be completed by May 31, 1999. While the testing of the mission critical systems is still pending, the Company has received assurances that the vendors supplying such systems have made all corrections necessary to the systems to ensure date related information is processed correctly. The cost of the upgraded mission critical systems is included in the recurring fees paid by the Company to the system providers. As a result, the implementation of such systems has not resulted in incremental cost to the Company. 17 The Company is also attempting to verify that the critical services provided by external service providers, such as vehicle and parts manufacturers and suppliers, public utilities and financial institutions with which the Company conducts business, will be available without interruption during the transition to the year 2000. Financial institutions with which the auto dealerships conduct critical business activities include floorplan lending sources and retail lending institutions. In the event such service providers are unable to verify their ability to address year 2000 issues, the Company will explore alternative sources for such services. If the Company's current service providers fail to address year 2000 issues, and if the Company is unable to secure such services from an alternative service provider, then such failure could result in a material adverse effect on the Company. In addition to the mission critical systems and critical services noted above, the dealerships utilize a variety of non-critical devices and systems containing embedded systems which may fail to process data accurately, before, during or after the year 2000. Such non-critical devices and systems include personal computers, software applications, service lifts and certain other equipment used by service technicians, phone systems and alarms. The Company has developed a summary list of potential year 2000 issues for its dealerships, which is based on an industry guide designed to help dealerships address year 2000 issues, as well as on information obtained through in-depth reviews of the potential impact of year 2000 issues at certain Company dealerships. Each of the Company's dealerships is scheduled to have completed a thorough review designed to identify such non-mission critical systems and devices by April 30, 1999. In addition, each dealership is expected to have addressed these non-mission critical systems by December 31, 1999. The cost of correcting the non-mission critical systems and devices is not expected to cost in excess of $2.0 million, which will be paid for from the cash flow from operations of the individual dealerships. Despite the Company's efforts and testing, there is a risk that not all possible problems associated with the year 2000 issue will be corrected. Further, despite assurances that the Company has received or will receive, there can be no guarantee that the systems and services provided by vendors, or that the systems of other companies with which the Company does business, will be year 2000 compliant. Any such non-compliance could result in the reduction or shutdown of the retail sale of automobiles and ancillary products, which could have a material adverse effect on the Company. 18 FORWARD LOOKING STATEMENTS Certain portions of this Annual Report contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this Annual Report or incorporated herein by reference regarding the Company's financial position and business strategy may constitute forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations, some of which are described in greater detail elsewhere in this Annual Report, include the following: (i) the Company is subject to the influence of various manufacturers whose franchises it holds; (ii) the Company is leveraged and subject to restrictions imposed by the terms of its indebtedness; (iii) the Company's growth depends in large part on the Company's ability to manage expansion, control costs in its operations and consummate and consolidate dealership acquisitions; (iv) many of the Company's franchise agreements impose restrictions on the transferability of the Company's Common Stock; (v) the Company will require substantial additional capital to acquire automobile dealerships and purchase inventory; (vi) unit sales of motor vehicles historically have been cyclical; (vii) the automotive retailing industry is highly competitive; (viii) the automotive retailing industry is a mature industry; (ix) the Company's success depends to a significant extent on key members of its management; and (x) the Company's business is seasonal. In light of the foregoing, readers of this Annual Report are cautioned not to place undue reliance on the forward-looking statements contained herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Rates. The Company's business is conducted in the United States and its revenues and expenses are transacted solely in U.S. dollars. As a result, the Company's results of operations are not subject to foreign exchange rate fluctuations and, accordingly, the Company does not hedge against such fluctuations. In common with other automobile retailers, the Company purchases certain of its new car inventories from foreign manufacturers. The Company's business in this regard is subject to certain risks, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. The Company's future results could be materially and adversely impacted by changes in these or other factors. 19 Interest Rates. The Company is exposed to market risk from changes in the interest rates on certain of its outstanding indebtedness. The outstanding balance under the Credit Agreement bears interest at a variable rate based on a margin over the prevailing London Interbank Offered Rate ("LIBOR"). Based on the amount outstanding as of March 24, 1999, a 100 basis point change in interest rates would result in an approximate $0.7 million change to the Company's annual interest expense. Similarly, amounts owing under the revolving floor plan financing arrangements, pursuant to which the Company finances substantially all of its vehicle inventory, bear interest at a variable rate based on a margin over LIBOR. Based on the average aggregate outstanding amounts under such financing arrangements for the year ended December 31, 1998, a 100 basis point change in interest rates would result in an approximate $3.8 million change to the Company's annual floor plan interest expense. For fixed rate debt such as the Notes, certain seller financed promissory notes and obligations under certain capital leases, interest rate changes effect the fair market value thereof, but do not impact earnings or cash flows. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements for the information required by this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III The information required by Items 10 through 13 is included in the Company's definitive proxy statement under the captions "The Board of Directors and its Committees," "Election of Directors," "Executive Officers," "Security Ownership of Certain Beneficial Owners and Management" and "Certain Relationships and Related Transactions." Such information is incorporated herein by reference, pursuant to General Instruction G(3). PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K. The Company did not file any Current Reports on Form 8-K during the three month period ended December 31, 1998. 20 (c) 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. 10.1.1(a) Registration Rights Agreement, dated as of October 15, 1993, among the Company and the investors listed therein, as amended July 31, 1996. 10.1.4(a) Form of Warrant. 10.1.8(a) Stock Option Plan of the Company. 10.1.8.1 Amendment to Stock Option Plan of the Company. 10.1.11(a) Letter, dated July 24, 1996, from Chrysler Corporation to the Company. 10.1.12(a) Agreement, dated July 24, 1996, between the Company and Toyota Motor Sales U.S.A., Inc. 10.1.13(a) Non-employee Director Compensation Plan of the Company. 10.1.14(a) Form of Agreement among the Company, certain of its affiliates and American Honda Motor Co., Inc. 10.1.15(a) Form of Option Certificate of the Company in favor of Samuel X. DiFeo and Joseph C. DiFeo. 10.1.18(d) Consulting Agreement, dated March 3, 1997, between the Company and Carl Spielvogel. 10.1.19.1(h) 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(h) 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(h) Subsidiary Guarantee, dated as of February 27, 1998, among certain subsidiaries of the Company and The Bank of Nova Scotia, as Administrative Agent. 10.2.1(a) Honda Automobile Dealer Sales and Service Agreement, including Standard Provisions. 10.2.2(a) Lexus Dealer Agreement, including Standard Provisions. 10.2.3(a) Mitsubishi Dealer Sales and Services Agreement, including Standard Provisions. 10.2.4(a) BMW of North America, Inc. Dealer Agreement, including Standard Provisions. 10.2.5(a) Suzuki Term Dealer Sales and Service Agreement, including Standard Provisions. 10.2.6(a) Toyota Dealer Agreement, including Standard Provisions. 10.2.7(a) General Motors Dealer Sales and Service Agreement, including Standard Provisions. 10.2.9(a) Nissan Dealer Term Sales and Service Agreement, including Standard Provisions. 10.2.10(a) Chrysler Corporation Term Sales and Service Agreement, including Standard Provisions. 10.2.15(a) Hyundai Motor America Dealer Sales and Service Agreement, including Standard Provisions. 21 10.2.21 and Isuzu Dealer Sales and Service Agreement, including Standard .22 (a) Provisions. 10.2.26(a) Settlement Agreement, dated as of October 3, 1996, among the Company and certain of its affiliates, on the one hand, and Samuel X. DiFeo, Joseph C. DiFeo and certain of their affiliates, on the other hand. 10.3.1 Ford Sales and Service Agreement, including Standard Provisions. 10.4.5(a) Employment Agreement, dated as of August 1, 1995, between Landers Auto Sales, Inc. and Steve Landers. 10.5.13(a) Employment Agreement, dated as of January 16, 1996, among the Company, UAG Atlanta, Inc. and John Smith. 10.8.1(a) Stock Purchase Agreement, dated as of June 6, 1996, among the Company, UAG West, Inc., Scottsdale Jaguar, LTD., SA Automotive, LTD., SL Automotive, LTD., SPA Automotive, LTD., LRP, LTD., Sun BMW, LTD., Scottsdale Management Group, LTD., 6725 Dealership LTD. and certain parties named therein, as amended on October 21, 1996 by Amendment No. 1, Amendment No. 2 and Amendment No. 3. 10.8.3(a) Form of Employment Agreement between the Company, UAG West, Inc., and Steven Knappenberger. 10.8.5(a) Audi Dealer Agreement, including Standard Provisions. 10.8.6(a) Acura Automobile Dealer Sales and Service Agreement, including Standard Provisions. 10.8.8(a) Porsche Sales and Service Agreement, including Standard Provisions. 10.8.9(a) Land Rover North America, Inc. Dealer Agreement, including Standard Provisions. 10.8.21(e) Rolls-Royce Dealer Agreement. 10.11.1(b) Agreement and Plan of Merger, dated December 16, 1996, among Crown Jeep Eagle, Inc., Berylson, Inc., Shannon Automotive, Ltd., Kevin J. Coffey, Paul J. Rhodes, the Company, UAG Texas, Inc. and UAG Texas II, Inc. 10.13.1(d) Stock Purchase Agreement, dated February 19, 1997, among the Company, UAG East, Inc., Amity Auto Plaza Ltd., Massapequa Imports Ltd., Westbury Nissan Ltd., Westbury Superstore Ltd., J&S Auto Refinishing Ltd., Florida Chrysler Plymouth Jeep Eagle Inc., Palm Auto Plaza Inc., West Palm Infiniti Inc., West Palm Nissan Inc., Northlake Auto Finish Inc., John A. Staluppi and John A. Staluppi, Jr., as amended April 7, 1997 and April 30, 1997. 10.15.1(e) Stock Purchase Agreement, dated April 12, 1997, among the Company, Gene Reed Chevrolet, Inc., Michael Chevrolet-Oldsmobile, Inc., Reed-Lallier Chevrolet, Inc., Gene Reed, Jr., Michael L. Reed, Michael G. Lallier, Deborah B. Lallier, John P. Jones, Charles J. Bradshaw, Charles J. Bradshaw, Jr., Julia D. Bradshaw and William B. Bradshaw, as amended May 31, 1997. 10.18.1(f) Stock Purchase Agreement, dated July 25, 1997 among The Company, UAG Classic, Inc., Classic Auto Group, Inc., Cherry Hill Classic Cars, Inc., Classic Enterprises, Inc., Classic Buick, Inc., Classic Chevrolet, Inc., Classic Management, Inc., Classic Turnersville, Inc., Classic Imports, Inc. and Thomas J. Hessert, Jr. (as amended). 10.19.1.1(f) Stock Purchase Agreement, dated as of September 25, 1997 among The Company, UAG Young, Inc., Dan Young Chevrolet, Inc., Dan Young, Inc., Parkway Chevrolet, Inc., Young Management Group, Inc. and certain parties named therein. 22 10.19.1.2(f) Agreement and Plan of Merger, dated as of September 25, 1997 among The Company, UAG Kissimmee Motors, Inc., UAG Paramount Motors, Inc., UAG Century Motors, Inc., Paramount Chevrolet-Geo, Inc., Century Chevrolet-Geo, Inc. and certain parties named therein. 10.19.1.3(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. and certain parties named therein. 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. and certain parties named therein. 21.1 Subsidiaries of the Company. 23.1 Consent of PricewaterhouseCoopers LLP 27.1 December 31, 1998 Financial Data Schedule. 27.2 September 30, 1998 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. 27.3 June 30, 1998 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. 27.4 March 31, 1998 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. 27.5 December 31, 1997 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. 27.6 September 30, 1997 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. 27.7 June 30, 1997 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. 27.8 March 31, 1997 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. 27.9 December 31, 1996 Financial Data Schedule, restated to reflect the treatment of the Company's auto finance business as a discontinued operation. - - ------------------------ (a) Incorporated herein by reference to the identically numbered exhibit to the Company's Registration Statement on Form S-1, Registration No. 333-09429. (b) Incorporated herein by reference to the identically numbered exhibit to the Company's Current Report on Form 8-K filed on December 24, 1996, File No. 1-12297. (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. (d) Incorporated herein by reference to the identically numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 1-12297. 23 (e) Incorporated herein by reference to the identically numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 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. (h) Incorporated herein by reference to the identically numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-12297. (d) Schedules - No Financial Statement Schedules are required to be filed as part of this Annual Report on Form 10-K.
24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on March 31, 1999. UNITED AUTO GROUP, INC. By: /s/ Marshall S. Cogan ------------------------ Marshall S. Cogan Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on its behalf by the registrant and in the capacities and on the dates indicated:
Signature Title Date - - --------- ----- ---- /s/ Marshall S. Cogan Chairman of the Board and Chief Executive March 31, 1999 - - --------------------------- Officer (Principal Executive Officer) Marshall S. Cogan /s/ Samuel X. DiFeo President and Chief Operating Officer March 31, 1999 - - --------------------------- and Director Samuel X. DiFeo /s/ Karl H. Winters Executive Vice President and March 31, 1999 - - --------------------------- Chief Financial Officer Karl H. Winters (Principal Financial Officer) /s/ James R. Davidson Executive Vice President - Accounting March 31, 1999 - - --------------------------- and Treasurer James R. Davidson (Principal Accounting Officer) /s/ Robert H. Nelson Executive Vice President - Operations March 31, 1999 - - --------------------------- and Director Robert H. Nelson /s/ Richard Sinkfield Director March 31, 1999 - - --------------------------- Richard Sinkfield /s/ Michael R. Eisenson Director March 31, 1999 - - --------------------------- Michael R. Eisenson /s/ John J. Hannan Director March 31, 1999 - - --------------------------- John J. Hannan /s/ Jules B. Kroll Director March 31, 1999 - - --------------------------- Jules B. Kroll
25 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED AUTO GROUP, INC. Report of Independent Accountants.................................................................. F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997....................................... F-3 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996......... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996............................................................................................ F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996......... F-6 Notes to Consolidated Financial Statements......................................................... F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of United Auto Group, Inc.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of United Auto Group, Inc. (the "Company") at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Princeton, New Jersey March 29, 1999 F-2 UNITED AUTO GROUP, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
December 31, ---------------------------- 1998 1997 ASSETS -------------- ------------ Cash and cash equivalents $38,538 $94,435 Accounts receivable, net 125,460 92,601 Inventories 410,295 324,330 Other current assets 16,420 20,413 ---------------------------- Total current assets 590,713 531,779 Property and equipment, net 51,483 37,588 Intangible assets, net 482,049 326,774 Net assets of discontinued operations 23,323 32,601 Other assets 36,626 42,322 ---------------------------- Total assets $1,184,194 $971,064 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY Floor plan notes payable $397,234 $334,272 Accounts payable 38,435 30,199 Accrued expenses 45,104 40,136 Current portion of long-term debt 24,756 9,981 ---------------------------- Total current liabilities 505,529 414,588 Long-term debt 288,265 238,550 Other long-term liabilities 48,750 17,369 ---------------------------- Total liabilities 842,544 670,507 ---------------------------- Commitments and contingent liabilities Stockholders' Equity Voting Common Stock 2 2 Non-voting Common Stock - - Additional paid-in-capital 352,591 310,373 Accumulated deficit (10,943) (9,818) ---------------------------- Total stockholders' equity 341,650 300,557 ---------------------------- Total liabilities and stockholders' equity $1,184,194 $971,064 ============================
See Notes to Consolidated Financial Statements. F-3 UNITED AUTO GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts)
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 ----- ----- ---- Vehicle sales $2,881,678 $1,827,609 $1,164,569 Finance and insurance 127,405 74,199 43,574 Service and parts 334,064 190,785 93,888 ---------------------------------------- Total revenues 3,343,147 2,092,593 1,302,031 Cost of sales, including floor plan interest 2,916,248 1,835,531 1,156,459 ---------------------------------------- Gross profit 426,899 257,062 145,572 Selling, general and administrative expenses 375,043 255,066 124,244 ---------------------------------------- Operating income 51,856 1,996 21,328 Other interest expense (31,462) (14,071) (4,398) Other income (expense), net 4,800 297 2,506 ---------------------------------------- Income (loss) from continuing operations before minority interests, income tax (provision) benefit and extraordinary item 25,194 (11,778) 19,436 Minority interests (262) (138) (3,306) Income tax (provision) benefit (11,554) 3,980 (7,202) ---------------------------------------- Income (loss) from continuing operations 13,378 (7,936) 8,928 Loss from discontinued operations, net of income tax benefit (12,940) (2,204) (894) ---------------------------------------- Income (loss) before extraordinary item 438 (10,140) 8,034 Extraordinary item (net of income tax benefit of $859 and $2,685 in 1998 and 1996, respectively) (1,235) -- (4,987) ---------------------------------------- Net income (loss) $(797) $(10,140) $3,047 ======================================== Basic income (loss) from continuing operations per common share $0.66 $(0.44) $0.88 ======================================== Basic net income (loss) per common share $(0.04) $(0.56) $0.30 ======================================== Income (loss) from continuing operations per diluted common share $0.64 $(0.44) $0.82 ======================================== Net income (loss) per diluted common share $(0.04) $(0.56) $0.28 ======================================== Shares used in computing basic per share data 20,377 18,227 10,144 ======================================== Shares used in computing diluted per share data 20,932 18,607 10,851 ========================================
See Notes to Consolidated Financial Statements. F-4 UNITED AUTO GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in Thousands)
Class A Voting and Convertible Preferred Non-voting Stock Common Stock Additional Total Issued Issued Paid-in Accumulated Stockholders' Shares Amount Shares Amount Capital Deficit Equity ------ ------ ------ ------ ------- ------- ------ Balances, December 31, 1995 3,650,729 $1 2,582,785 $1 $54,748 $(3,050) $51,699 Issuance of stock, primarily for acquisitions 1,576,617 - 1,010,965 - 22,854 - 22,854 Preferred stock conversion (5,227,346) (1) 5,227,346 - 1 - 1 Issuance of common stock in minority exchanges - - 1,113,841 - 34,015 - 34,015 Issuance of stock in initial public offering - - 6,250,000 1 170,410 - 170,411 Issuance of stock on exercise of warrants - - 1,109,491 - 2,769 - 2,769 Issuance of stock - exercise of stock options - - 46,500 - 884 - 884 Repurchase of common stock - - (46,000) - (1,179) - (1,179) Net income - - - - - 3,047 3,047 --------------------------------------------------------------------------------------------- Balances, December 31, 1996 - - 17,294,928 2 284,502 (3) 284,501 Issuance of stock for acquisitions - - 1,497,218 - 27,986 - 27,986 Issuance of stock - exercise of stock options - - 503,000 - 6,706 6,706 Repurchase of common stock - - (397,000) - (8,821) - (8,821) Unrealized gain on marketable securities - UnitedAuto Finance - - - - - 325 325 Net loss - - - - - (10,140) (10,140) --------------------------------------------------------------------------------------------- Balances, December 31, 1997 - - 18,898,146 2 310,373 (9,818) 300,557 Issuance of stock for acquisitions - - 1,683,638 - 39,632 - 39,632 Issuance of stock - exercise of stock options - - 156,600 - 2,586 - 2,586 Unrealized gain on marketable securities - UnitedAuto Finance - - - - - (328) (328) Net loss - - - - - (797) (797) --------------------------------------------------------------------------------------------- Balances, December 31, 1998 - $- 20,738,384 $2 $352,591 $(10,943) $341,650 =============================================================================================
See Notes to Consolidated Financial Statements. F-5 UNITED AUTO GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
YEARS ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 ------------ ----------- ---------- OPERATING ACTIVITIES: Net income (loss) $(797) $(10,140) $3,047 Adjustments to reconcile net income (loss) to net cash provided by operating activities from continuing operations: Depreciation and amortization 16,464 9,100 5,325 Unusual items 12,550 30,660 - Loss from discontinued operations 12,940 2,204 894 Deferred income taxes 8,561 (9,193) 2,401 Related party interest income - - (2,580) Minority interests 262 138 3,306 Changes in operating assets and liabilities: Accounts receivable (4,709) (8,317) (6,480) Inventories 39,648 (39,280) (10,581) Floor plan notes payable (29,587) 37,210 25,548 Accounts payable and accrued expenses 9,138 2,433 (60) Other (9,422) 3,474 2,422 --------------------------------------- Net cash provided by operating activities of continuing operations 55,048 18,289 23,242 --------------------------------------- INVESTING ACTIVITIES: Purchase of equipment and improvements (12,085) (11,915) (6,457) Dealership acquisitions (138,139) (139,639) (98,812) Other investments - - (3,726) --------------------------------------- Net cash used in investing activities of continuing (150,224) (151,554) (108,995) operations --------------------------------------- FINANCING ACTIVITIES: Proceeds from borrowings of long-term debt 68,400 252,999 20,092 Payments of long-term debt and capital leases (17,956) (54,850) (43,314) Deferred financing costs (1,842) (10,689) (1,011) Proceeds from issuance of stock 2,020 4,772 195,818 Advances from (to) affiliates, net - (718) 225 Repurchase of common stock - (8,821) (1,179) Net repayments of short-term debt - (400) (10,118) --------------------------------------- Net cash provided by financing activities of continuing operations 50,622 182,293 160,513 --------------------------------------- Net cash invested in discontinued operations (11,343) (21,468) (12,582) --------------------------------------- Net increase (decrease) in cash and cash equivalents (55,897) 27,560 62,178 Cash and cash equivalents, beginning of year 94,435 66,875 4,697 --------------------------------------- Cash and cash equivalents, end of year $38,538 $94,435 $66,875 =======================================
See Notes to Consolidated Financial Statements. F-6 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, Except Per Share Amounts) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES United Auto Group, Inc. ("UAG" or the "Company") is engaged in the sale of new and used motor vehicles and related products and services, including vehicle service and parts, finance and insurance products and other aftermarket products. The Company operates dealerships under franchise agreements with a number of automotive manufacturers. In accordance with the individual franchise agreements, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships, or the loss of a franchise agreement, could have a negative impact on the Company's operating results. As discussed in Note 4, the Company has discontinued its auto finance business. As a result, the Company's wholly owned subsidiary, United Auto Finance, Inc. ("UAF"), is presented as a discontinued operation in the accompanying financial statements. Also, as discussed in Note 5, the Company completed a number of acquisitions during the three years in the period ended December 31, 1998. Each of these acquisitions has been accounted for using the purchase method of accounting. As a result, the Company's financial statements include the results of operations of the acquired dealerships only from the date of acquisition. In October 1996, The Company consummated an initial public offering of 6,250,000 shares of its common stock (the "IPO"). Net proceeds from the IPO amounted to $170,410, which were used to prepay outstanding indebtedness, fund certain acquisitions, fund operations of UAF and for working capital purposes. Principles of Consolidation The consolidated financial statements include all significant majority-owned subsidiaries. All material intercompany accounts and transactions among the consolidated subsidiaries have been eliminated. Affiliated companies that are 20% to 50% owned are accounted for using the equity method of accounting. Cash and Cash Equivalents Cash and cash equivalents include all highly-liquid investments that have an original maturity of three months or less at the date of purchase. Fair Value of Financial Instruments Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and debt, including floor plan notes payable. The carrying amount of financial instruments approximates fair value due either to length of maturity or the existence of variable interest rates that approximate prevailing market rates. F-7 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) Revenue Recognition Revenue is generally recognized when vehicles are delivered to consumers, when motor vehicle service work is performed, or when parts are delivered. Finance and insurance revenues are recognized upon the sale of the finance or insurance contract or other aftermarket products. An allowance for chargebacks against revenue relating to the sale of customer finance contracts or other aftermarket products is established when the related revenue is recognized. Inventory Valuation Inventories are stated at the lower of cost or market. Cost for new and used vehicle inventories is determined using the specific identification method. Cost for parts, accessories and other inventories is based on factory list prices. Property and Equipment Property and equipment are recorded at cost and depreciated over estimated useful lives, primarily using the straight-line method. Useful lives for purposes of computing depreciation for assets other than equipment under capital lease and leasehold improvements are between 5 and 10 years. Equipment under capital lease and leasehold improvements are depreciated over the term of the lease or the estimated useful life of the asset, whichever is shorter. Expenditures relating to recurring repair and maintenance are expensed as incurred. Expenditures that increase the useful life or substantially increase the serviceability of an existing asset are capitalized. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income. Income Taxes Income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109") which requires an asset and liability approach to accounting for income taxes. Deferred tax assets or liabilities are computed based upon the difference between financial reporting and tax bases of assets and liabilities using enacted tax rates. A valuation allowance is provided when it is more likely than not that taxable income will not be sufficient to fully realize deferred tax assets. Intangible Assets Intangible assets of $482,049, consisting primarily of excess of cost over the fair value of net assets acquired in purchase business combinations, are being amortized on a straight-line basis over periods not exceeding 40 years. Accumulated amortization at December 31, 1998 amounted to $21,758. Amortization expense for the years ended December 31, 1998, 1997 and 1996 was $11,560, $6,300 and $1,712, respectively. Segment Reporting Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("FAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information". Under FAS No. 131, the Company's operations are considered one reportable segment. The Company does not allocate goodwill amortization, interest on corporate indebtedness or general corporate expenses to its operating subsidiaries. Such items totaled approximately $53,840, $18,772 and $5,873 during 1998, 1997 and 1996, respectively. In addition, corporate assets, primarily relating to cash and cash equivalents, deferred tax assets and intangible assets, totaled approximately $522,183 and $462,293 as of December 31, 1998 and 1997, respectively. F-8 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) Impairment of Long-Lived Assets The carrying value of long-lived assets, including intangibles, is reviewed if the facts and circumstances, such as significant declines in revenues, earnings or cash flows or material adverse changes in the business climate, indicate that it may be impaired. The Company performs its review by comparing the carrying amounts of long-lived assets to the estimated undiscounted cash flows relating to such assets. If any impairment in the value of the long-lived assets is indicated, the carrying value of the long-lived assets is adjusted to reflect such impairment calculated based on the discounted cash flows or the fair value of the impaired assets. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accounts which require the use of significant estimates are accounts receivable, inventories, income taxes, intangible assets, and accrued expenses. Advertising Advertising costs are expensed as incurred. The Company incurred advertising costs of $37,318, $25,075 and $14,217 during the years ended December 31, 1998, 1997 and 1996, respectively. Net Income (Loss) Per Common Share Basic earnings per share data was computed based on the weighted average number of common shares outstanding. Diluted earnings per share data was computed based on the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of stock options, warrants, preferred stock and the dilutive effect of the minimum share price guarantee on the 1,040,039 shares of common stock issued in connection with the acquisition of the Young Automotive Group in 1998 (see Note 5).
YEAR ENDED DECEMBER 31, 1998 1997 1996 ----- ----- ---- Weighted average number of common shares outstanding 20,377 18,277 10,144 Effect of stock options, warrants and preferred stock 77 330 707 Effect of minimum share price guarantee 478 -- -- ============== ============== ============== Weighted average number of common shares outstanding, including effect of dilutive securities 20,932 18,607 10,851 ============== ============== ==============
Reclassifications In order to maintain consistency and comparability of financial information between periods presented, certain reclassifications have been made to the Company's December 31, 1997 financial statements to conform to the current year presentation. F-9 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) 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. This change in accounting principle has been applied by retroactively restating the Company's financial statements for prior years. The effect of the change in accounting principle was to increase income before extraordinary item and net income by $573 ($0.05 per diluted share) in 1996. 3. UNUSUAL ITEMS The Company has been informed by Trace International Holdings, Inc. ("Trace") and its subsidiary Alpha Automotive, Inc. ("Alpha") that they are in the process of evaluating their ability to meet their obligations with respect to the cost of future repairs under the terms of approximately 51,000 warranty and extended service contracts sold by United Auto Care, Inc. ("UAC") between January 1, 1997 and October 31, 1998. The repair obligations for these contracts had been contractually assumed by Trace and Alpha. As a result of the uncertainty about Trace and Alpha's ability to perform their contractual obligations, the Company has entered into an insurance agreement with Virginia Surety Company, Inc. ("Virginia Surety") and certain of its affiliates. Virginia Surety is a subsidiary of Aon Corporation, an insurance services holding company. Under the terms of the agreement, affiliates of Virginia Surety have agreed to assume the repair obligations on the 51,000 warranty and extended service contracts in exchange for a fixed premium payable over time. The Company has recorded a $12,550 pre-tax charge, which represents the estimated present value of those premium payments. Such charge has been reflected in cost of goods sold in the accompanying consolidated statement of operations. The Company has no further financial obligations related to these contracts other than to make the specified premium payments. The Company has terminated the contract with Trace and Alpha with respect to warranty or extended service contracts sold by UAC subsequent to October 31, 1998, and has entered into an agreement with affiliates of Virginia Surety pursuant to which these affiliates will assume the repair obligations on all warranty and extended service contracts sold and to be sold by UAC subsequent to October 31, 1998 in exchange for specified insurance premiums. Trace and Alpha will remain liable with respect to warranty or extended service contracts sold prior to November 1, 1998. Future recoveries from Trace and Alpha will reduce the cost to the Company of the Virginia Surety insurance agreement. During the fourth quarter of 1997, the Company recorded a $31,660 pre-tax charge. The charge included costs associated with (i) the divestiture of automotive franchises, (ii) the closure of three stand-alone used vehicle satellite locations in Arkansas and the disposal of related inventory, (iii) the implementation of a new policy to more efficiently manage the Company's working capital invested in retail inventory, (iv) excess real estate, (v) the write-off of non-performing assets and (vi) certain corporate consulting agreements. Costs associated with the pre-tax charge amounting to $9,757 and $20,903 have been reflected in cost of goods sold and selling, general and administrative expenses, respectively, in the consolidated statements of operations. In addition, $1,000 has been reflected in discontinued operations. F-10 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) 4. DISCONTINUED OPERATIONS The Company made a decision to discontinue its auto finance business. As a result, UAF will no longer engage in the purchase or sale of automotive loans; however, it will continue to service its securitized portfolios in accordance with contractual commitments. Consequently, UAF has been reported as a discontinued operation in the accompanying consolidated statements of operations. In addition, the remaining assets and liabilities of UAF have been presented as a separate line item in non-current assets on the consolidated balance sheets. The Company has restated its prior financial statements to present the results of UAF as a discontinued operation for all periods presented. Summarized financial information of UAF follows:
YEAR ENDED DECEMBER 31, 1998 1997 1996 ----- ----- ---- Revenues $5,108 $2,615 $1,798 Loss from operations, net of taxes of $2,089, $1,531 and $596 in 1998, 1997 and 1996, respectively. (3,714) (2,204) (894) Loss on disposal, net of taxes of $5,189 (9,226) -- -- Net loss (12,940) (2,204) (894) Net loss per diluted common share (0.62) (0.12) (0.08) AS OF DECEMBER 31, 1998 1997 1996 ----- ----- ---- Cash and cash equivalents $3,615 $1,557 $1,138 Restricted cash 1,009 3,547 1,850 Finance assets, net 26,947 30,408 12,476 Other assets 967 1,687 1,959 Short-term debt, accrued liabilites and other liabilities 9,215 4,598 2,871
The loss on disposal consists of (i) $5,888 relating to contractual commitments, the write-off of certain fixed assets, severance and other administrative expenses, (ii) $3,803 of asset impairment and losses incurred on the sale of loans in private non-securitized transactions, (iii) $3,912 of estimated future costs associated with servicing its securitized portfolio of retail automotive loans and (iv) $812 relating to the write-off of deferred financing fees in connection with the closure of UAF's warehouse lines. 5. BUSINESS COMBINATIONS During 1998 and 1997, the Company completed a number of acquisitions. Each of these acquisitions has been accounted for using the purchase method of accounting. As a result, the Company's financial statements include the results of operations of the acquired dealerships only from the date of acquisition. In January 1998, the Company acquired the Skelton Automotive Group, located in Memphis Tennessee. Consideration for the purchase amounted to $16,500, including $14,700 in cash and $1,800 of seller financed promissory notes. F-11 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) In February 1998, the Company acquired the Young Automotive Group, with operations in Indiana, Illinois, North Carolina, South Carolina and Florida. The aggregate consideration for the acquisition amounted to $84,000, consisting of $50,000 in cash, 1,040,039 shares of UAG common stock and $7,000 of seller financed promissory notes. The Company agreed to make a contingent payment in cash or stock to the extent the shares issued in connection with this transaction have an aggregate market value of less than $27,000 on the dates they become freely tradable. In February 1999, the Company settled a portion of this obligation with respect to 444,987 shares by issuing 1,156,689 additional shares of common stock. The remaining 595,052 shares become freely tradable in June 1999. In February 1998, the Company acquired the Classic Automotive Group in New Jersey. The aggregate consideration for the acquisition was $28,700, consisting of $28,000 in cash and $700 of UAG common stock. The Company 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 $759 on the date they become freely tradable. In March 1999, the Company settled its obligation with respect to the share price guarantee by paying $306 in cash. During the year ended December 31, 1998, the Company also acquired (i) Graceland Dodge, located in Memphis Tennessee, (ii) Pioneer Ford, located in Phoenix Arizona, (iii) a group of dealerships which operate Toyota, Lexus, Dodge and Mazda franchises in San Diego California (the "San Diego dealerships") and (iv) a 70% interest in Citrus Dodge, located in Dade City Florida. The aggregate consideration for such acquisitions amounted to $50,859, consisting of $39,059 in cash, $8,400 of UAG common stock and $3,400 of seller financed promissory notes. The Company has agreed to make contingent payments in cash to the extent the shares issued in connection with these transactions have an aggregate market value of less than $8,400 in July 1999. In December 1997, the Company acquired the Triangle Group, located in Puerto Rico, for $12,800 in cash. In addition, if the Triangle Group achieves certain levels of annual pre-tax earnings during any of the next ten years, the Company will be required to make additional payments. No payments were required based on 1998 earnings. In May 1997, the Company acquired the Gene Reed Automotive Group, located in North and South Carolina, for $34,000, consisting of $17,000 in cash, $4,000 of promissory notes and $13,000 of UAG common stock. In April 1997, the Company acquired the Staluppi Automotive Group (the "Staluppi Group"), located in New York and Florida, for $49,614, consisting of $25,450 in cash, $21,864 of promissory notes and $2,300 of UAG common stock. In addition, if the Staluppi Group achieves certain levels of annual pre-tax earnings during any of the next three years, the Company will be required to make additional payments. In the Company's opinion, it is unlikely that any additional payments will be required. F-12 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) In April 1997, the Company acquired Gary Hanna Nissan, Inc., located in Las Vegas Nevada, for $13,740, consisting of $7,000 in cash, $1,240 of promissory notes and $5,500 of UAG common stock. In February 1997, the Company acquired Shannon Automotive Limited, located in the Houston area, for $7,000 in cash and 335,329 shares of UAG common stock. During the year ended December 31, 1997, the Company also acquired (i) Covington Pike Dodge, located in Memphis Tennessee, (ii) Central Ford, located in Little Rock Arkansas, (iii) Shreveport Dodge, located in Shreveport Louisiana, (iv) Stone Mountain Chyrsler-Plymouth Jeep-Eagle, located in Stone Mountain Georgia and (v) the Lance Landers dealerships, located in Benton Arkansas. The Company paid $15,500 in cash in consideration for such acquisitions. In addition, the Company has agreed to make a contingent payment in cash to the extent that 375,404 shares of common stock issued in connection with an acquisition that took place prior to 1997 have an aggregate market value of less than $9,400 in December 1999. Pro Forma Results of Operations The following unaudited consolidated pro forma results of operations of the Company for the years ended December 31, 1998 and 1997 give effect to (i) acquisitions consummated during 1998 and 1997, (ii) the divestiture of certain dealerships during 1998, (iii) the discontinuation of the Company's auto finance operations and (iv) the offering of the Company's Senior Subordinated Notes due 2007 as if they had occurred on January 1, 1997.
YEAR ENDED 1998 1997 ----- ---- Revenues $3,520,594 $3,552,256 Income (loss) from continuing operations before minority interests and income tax provision 27,371 (579) Net income (loss) 14,792 (485) Net income (loss) per diluted common share 0.71 (0.02)
6. INVENTORIES Inventories consisted of the following:
DECEMBER 31, 1998 1997 ------ --------- New vehicles $284,343 $232,804 Used vehicles 99,411 74,285 Parts, accessories and other 26,541 17,241 ---------------------------- Total Inventories $410,295 $324,330 ============================
F-13 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) 7. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
DECEMBER 31, 1998 1997 ---------- ---------- Furniture, fixtures and equipment $30,658 $18,202 Equipment under capital lease 7,191 4,280 Leasehold improvements 28,048 21,546 ------------------------- Total 65,897 44,028 Less: Accumulated depreciation and amortization 14,414 6,440 ------------------------- Property and equipment, net $51,483 $37,588 =========================
Depreciation and amortization expense for the years ended December 31, 1998, 1997 and 1996 was $4,904, $2,800 and $1,888, respectively. Accumulated amortization at December 31, 1998 and 1997 on equipment under capital lease, included in accumulated depreciation and amortization above, amounted to $1,614 and $830, respectively. 8. FLOOR PLAN NOTES PAYABLE The Company's automobile dealerships have "floor plan" agreements with several finance companies to finance the purchase of their automobile inventory. Floor plan notes payable consisted of the following:
DECEMBER 31, 1998 1997 ---------- ----------- Chrysler Financial Corporation, interest - 7.55% and 8.26% at December 31, 1998 and 1997, respectively. $216,541 $221,971 World Omni Corp., interest - 7.55% and 8.26% at December 31, 1998 and 1997, respectively. 57,038 91,388 BancOne, interest - 7.25% at December 31, 1998. 34,006 -- Ford Motor Credit and Primus, interest - 7.55% at December 31, 1998. 39,237 -- Other, interest - between 7.25% and 7.53% at December 31, 1998 and between 7.87% and 8.97% at December 31, 1997. 50,412 20,913 --------------------------- Total floor plan notes payable $397,234 $334,272 ===========================
The floor plan agreements grant a security interest in substantially all assets of the dealerships and require the repayment of debt after a vehicle's sale. Interest rates on the floor plan agreements are variable and increase or decrease based on movements in prime or LIBOR borrowing rates. Floor plan interest expense for the years ended December 31, 1998, 1997 and 1996 was $28,719, $19,296 and $12,578, respectively. The weighted average interest rate on floor plan borrowings was 7.6%, 8.2% and 8.3% for the years ended December 31, 1998, 1997 and 1996, respectively. F-14 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) 9. LONG-TERM DEBT Long-term debt consisted of the following:
December 31, 1998 1997 ----------- ---------- Series A and B Senior Subordinated Notes due 2007, less net unamortized discount of $1,572 and $1,744 at December 31, 1998 and 1997, respectively. $198,428 $198,256 Credit Agreement, weighted average interest - 9.24% at December 31, 1998. 68,400 -- Seller financed promissory notes payable through 2002, weighted average interest - 7.53% and 7.22% at December 31, 1998 and 1997, respectively. 28,510 36,096 Term loans, weighted average interest - 8.24% and 8.26% at December 31, 1998 and 1997, respectively. 5,776 3,266 Capitalized lease obligations 7,908 3,867 Other 3,999 7,046 -------------------------- Total long-term debt 313,021 248,531 Less: Current portion 24,756 9,981 -------------------------- Net long-term debt $288,265 $238,550 ==========================
Scheduled maturities of long-term debt for each of the next five years and thereafter are as follows:
1999 $24,756 2000 49,007 2001 34,280 2002 2,738 2003 1,041 2004 and thereafter 201,199 ---------------- Total long-term debt $313,021 ================
In February 1998, the Company entered into a credit agreement with a group of banks which provides for up to $75,000 in term loans, revolving loans and letters of credit, to be used principally for acquisitions (as amended, the "Credit Agreement"). The Credit Agreement bears interest at LIBOR plus 3.75% and matures in February 2001. 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. Outstanding borrowings under the Credit Agreement as of December 31, 1998 amounted to $68,400. In addition, a $1,600 letter of credit was outstanding as of December 31, 1998. 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 defaults including change of control, material adverse change and non-payment of obligations. The Company was in compliance with the financial covenants in its Credit Agreement at year end. Nevertheless, the Company anticipates that it may not meet the more stringent first quarter 1999 net worth covenants contained therein primarily as a result of the charges described in Note 3. The Company has commenced discussions with its lenders to amend or waive such covenants if necessary; however, there can be no assurance that if such amendments or waivers are necessary, they will be obtained. The Credit Agreement replaced the Company's previous credit facility, which was terminated upon the effective date of the Credit Agreement. The Company incurred an extraordinary charge of $1,235 ($0.06 per diluted share), net of income taxes of $859, resulting from the write-off of unamortized deferred financing costs relating to the Company's previous credit facility. F-15 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) On July 23, 1997, the Company completed the sale of $150,000 aggregate principal amount of 11% Senior Subordinated Notes due 2007 (the "Series A Notes"). On September 16, 1997, the Company completed the sale of an additional $50,000 aggregate principal amount of 11% Senior Subordinated Notes due 2007, Series B (together with the Series A Notes the "Notes"). The sale of the Notes were exempt from registration under the Securities Act of 1933 pursuant to Rule 144A thereunder. Proceeds from the offering of the Notes after issue discount, discount to initial purchasers and transaction costs amounted to approximately $189,469. The Notes are fully and unconditionally guaranteed on a joint and several basis by the Company's auto dealership subsidiaries (the "Note Guarantors"). Separate financial information of the Note Guarantors has been omitted because (i) the Company is a holding company with no independent operations and (ii) financial information for the Note Guarantors is presented on the face of the Company's consolidated financial statements. During 1996, the Company redeemed certain indebtedness with a portion of the proceeds from the IPO. The redemption of such indebtedness resulted in an extraordinary pre-tax loss of $7,672. The redeemed indebtedness contained detachable warrants that granted holders the option to purchase UAG Common Stock at $0.01 per share. Upon the consummation of the IPO, 1,109,491 shares of UAG Common Stock were issued in a cash-less exchange for all of the then outstanding warrants. The settlement of the warrants resulted in a $2,769 increase to the Company's stockholders' equity. 10. OPERATING LEASE OBLIGATIONS The Company leases its dealership facilities and corporate office under non-cancelable operating lease agreements with expiration dates through 2036, including all option periods available to the Company. Minimum future rental payments required under non-cancelable operating leases in effect as of December 31, 1998 follow:
1999 $30,477 2000 30,117 2001 29,606 2002 27,895 2003 26,802 2004 and thereafter 369,788 ------------- $514,685 =============
Rent expense for the years ended December 31, 1998, 1997, and 1996 amounted to $26,917, $17,674 and $8,729, respectively. A number of the dealership leases are with former owners who continue to operate the dealerships as employees of the Company. Of the total rental payments, $11,140, $10,911 and $5,240, respectively, were made to related parties during 1998, 1997, and 1996, respectively. F-16 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) 11. RELATED PARTY TRANSACTIONS As noted above, the Company is the tenant under a number of non-cancelable lease agreements with employees of the Company, all of whom are former owners of dealerships purchased by the Company. The Company believes all such leases are on terms no less favorable to the Company than would be obtained through arm's-length negotiations with unaffiliated third parties. The Company 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 dealerships' operations. During 1998, management fee income amounting to $4,800 has been included in other income (expense), net in the accompanying consolidated statements of operations. As discussed in Note 3, the Company was party to an agreement whereby the Company's exposures with respect to the majority of the extended service contracts sold by UAC during the period from January 1, 1997 through October 31, 1998 were assumed by Trace and Alpha in exchange for certain fees. During the period covered by the agreement, the Company remitted approximately $7,729 to Alpha. Such remittances reflect approximately $10,111 in fees for the assumption of obligations with respect to the 51,000 warranty and extended service contracts, offset by approximately $2,383 of claims payments relating such contracts. As noted, the contract with Trace and Alpha was terminated effective October 31, 1998. From time to time, the Company has paid and/or received fees from Trace and its affiliates for services rendered in the normal course of business. These transactions reflect the providers' cost or an amount mutually agreed upon by both parties. It is the Company's belief that the payments relating to these transactions are on terms at least as favorable as those which could be obtained from an unrelated third party. Aggregate (income) expense relating to such transactions of $260, $(2,118) and $225 for the years ending December 31, 1998, 1997 and 1996, respectively, has been reflected in selling, general and administrative expenses in the accompanying financial statements. As of December 31, 1998 and 1997, the Company owes $200 and $616, respectively, for such services. During 1996, the Company recognized $2,580 of income relating to interest on advances made to minority or former minority shareholders and certain of their related entities for certain business acquisitions and interest on working capital advances to dealerships owned by those shareholders in which the Company had no ownership. Such income has been reflected in other income (expense), net in the accompanying financial statements. F-17 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) 12. STOCK COMPENSATION PLANS During 1996, the Company's Board of Directors and stockholders adopted a Stock Option Plan. Under the Stock Option Plan, all full-time employees of the Company and its subsidiaries and affiliates are eligible to participate. During 1998, the Company granted options to purchase 492,390 shares at the fair market value of the Company's stock on the date of the grant. Options granted under the Stock Option Plan have a ten year life and typically vest on a pro-rata basis over five years. As of December 31, 1998, the aggregate number of shares of Common Stock for which stock options may be granted under the Stock Option Plan may not exceed 2,000,838. As of December 31, 1998, 488,023 shares of Common Stock were available for the grant of options under the Stock Option Plan. Presented below is a summary of the status of stock options held by eligible employees during 1998 and 1997:
YEAR ENDED DECEMBER 31, 1998 1997 1996 --------------------------- -------------------------- --------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE STOCK OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE - - ----------------------------- -------------- ------------- ------------- ------------- ------------ -------------- Options outstanding at beginning of year 1,078,975 $18.45 1,026,500 $13.90 127,200 $12.50 Granted 492,390 17.67 594,800 18.98 945,800 14.22 Exercised 186,600 11.50 503,000 10.34 46,500 10.00 Forfeited 157,375 25.82 39,325 11.41 -- -- ============== ============= ============= ============= ============ ============== Options outstanding at end of year 1,227,390 $18.06 1,078,975 $18.45 1,026,500 $13.90 ============== ============= ============= ============= ============ ==============
The following table summarizes the status of UAG's employee stock options outstanding and exercisable at January 1, 1999:
STOCK OPTIONS STOCK OPTIONS OUTSTANDING EXERCISABLE ---------------------------------- ------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE SHARES LIFE PRICE SHARES PRICE - - ------------------ ---------------- ---------------- ---------------- -------------- 150,000 6.7 $30.00 125,000 $30.00 169,800 7.8 10.00 70,656 10.00 285,700 8.6 17.00 75,700 17.00 451,000 9.3 17.50 -- -- 170,890 8.8 20.17 25,900 20.38 - - ------------------ ---------------- 1,227,390 297,256 ================== ================
The Company has adopted the disclosure only provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123"). Had the Company elected to recognize compensation expense for stock options based on the fair value at the grant dates of awards, net income and earnings per share would have been as follows: F-18
YEAR EBDED DECENBER 31, 1998 1997 1996 ----- ----- ---- Income (loss) from continuing operations $12,253 $ (8,556) 7,988 Income (loss) from continuing operations per diluted share 0.59 (0.47) 0.74 Net income (loss) (1,922) (10,760) 2,107 Net income (loss) per diluted share (0.09) (0.59) 0.19
The weighted average fair value of the Company's stock options was calculated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998 and 1997: no dividend yield; expected volatility of 30%; a risk-free interest rate of 7% and expected lives of five years. The weighted average fair value of options granted during the years ended December 31, 1998, 1997 and 1996 is $6.99, $4.74 and 4.23 per share, respectively. 13. STOCKHOLDERS' EQUITY At December 31, 1998 and 1997, the following classes of stock are authorized, issued or outstanding (share amounts in thousands):
Preferred Stock, $0.0001 par value; 100 shares authorized, none issued and $- $- outstanding Voting Common Stock, $0.0001 par value, 40,000 shares authorized; 20,133 shares issued, including 443 treasury shares, at December 31, 1998; 18,736 shares issued, including 443 treasury shares, at December 31, 1997. 2 2 Non-voting Common Stock, $0.0001 par value, 1,125 shares authorized; 605 issued and outstanding at December 31, 1996 and 1995. - - Class C Common Stock, $0.0001 par value, 20,000 shares authorized; none issued and outstanding - - Additional paid-in-capital 352,591 310,373 Accumulated deficit (10,943) (9,818) -------------------------- Total stockholders' equity $341,650 $300,557 ==========================
14. INCOME TAXES The income tax (provision) benefit relating to income (loss) from continuing operations consisted of the following:
YEAR ENDED DECEMBER 31, 1998 1997 1996 ------------ ------------ -------------- Current: Federal $(278) $-- $(187) State and local (3,915) (1,932) (997) ------------------------------------------ Total current (4,193) (1,932) (1,184) ------------------------------------------ Deferred: Federal (4,733) 3,149 (6,018) State and local (2,628) 2,763 -- ------------------------------------------ Total deferred (7,361) 5,912 (6,018) ------------------------------------------ Income tax (provision) benefit relating to continuing operations before extraordinary item (11,554) 3,980 (7,202) Income tax benefit from extraordinary item 859 -- 2,685 ------------------------------------------ Income tax (provision) benefit relating to continuing operations $(10,695) $3,980 $(4,517) ==========================================
F-19 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) The income tax (provision) benefit relating to income (loss) from continuing operations varied from the U.S. federal statutory income tax rate due to the following:
YEARS ENDED DECEMBER 31, 1998 1997 1996 ----------- ------------ ----------- Income tax (provision) benefit relating to continuing operations at Federal statutory rate of 35%. $(8,818) $4,122 $(5,663) State and local income taxes, net of federal benefit (1,994) 496 (982) Impact of change in effective state rate on temporary differences, net of federal benefit (1,641) - - Valuation allowance 1,700 - - Non-deductible amortization of goodwill (1,412) (750) - Revision to estimated liabilities 903 - - Tax on income of minority interests - - (570) Other (292) 112 13 ------------------------------------- Income tax (provision) benefit relating to continuing operations before extraordinary item $(11,554) $3,980 $(7,202) =====================================
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under SFAS 109, deferred income taxes reflect the estimated tax effect of temporary differences between assets and liabilities for financial accounting purposes and those amounts as measured by tax laws and regulations. The components of deferred tax assets and liabilities at December 31, 1998 and 1997 were as follows:
1998 1997 DEFERRED TAX ASSETS ------------ ---------- Net operating loss carryforwards $4,387 $7,751 Accrued liabilities 5,940 4,988 Partnership investments 866 2,038 Capital loss carryforwards 3,990 3,190 Sale of finance receivables and other items 4,527 -- Other 2,423 1,262 ------------------------- Total deferred tax assets 22,133 19,229 Valuation allowance (1,490) (3,190) ------------------------- Net deferred tax assets $20,643 $16,039 ------------------------- DEFERRED TAX LIABILITIES Depreciation and amortization $(10,236) $(3,848) Sale of finance receivables and other items -- (861) ------------------------- Total deferred tax liabilities (10,236) (4,709) ------------------------- Net deferred tax assets (liabilities) $10,407 $11,330 =========================
At December 31, 1998, the Company has $6,974 of federal net operating loss carryforwards that expire through 2012. In addition, at December 31, 1998, the Company also has $23,825 of state net operating loss carryforwards that expire at various dates through 2013. F-20 UNITED AUTO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands, Except Per Share Amounts) 15. SUPPLEMENTAL CASH FLOW INFORMATION The following table presents supplementary cash flow information:
1998 1997 1996 --------- ----------- ----------- Cash paid interest $26,683 $8,016 $9,912 Cash paid income taxes 3,234 3,321 420 Non-cash financing and investing activities: Dealership acquisition costs financed by issuance of stock 36,100 28,150 -- Dealership acquisition cost financed by long-term debt 12,200 27,104 4,100 Stock issuance costs amortized against proceeds from issuance of -- -- 775 stock Minority interests acquired by issuance of stock -- -- 34,015
16. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH STATEMENTS OF OPERATIONS DATA (1) (2): QUARTER (3) QUARTER QUARTER QUARTER (4) ----------- ------- ------- ----------- 1998 (5) Total revenues $711,709 $896,419 $897,006 $838,013 Gross profit 89,224 112,562 122,058 103,055 Income (loss) from continuing operations 2,291 8,027 8,060 (5,000) Net income (loss) 1,064 8,193 8,227 (18,281) Income (loss) from continuing operations per diluted common share 0.12 0.39 0.39 (0.22) Net income (loss) per diluted common share 0.05 0.40 0.40 (0.81)
FIRST SECOND THIRD FOURTH STATEMENTS OF OPERATIONS DATA (1) (2): QUARTER QUARTER QUARTER QUARTER (4) ------- ------- ------- ----------- 1997 (6) Total revenues $389,288 $528,374 $627,609 $547,322 Gross profit 47,612 68,650 80,641 60,159 Income (loss) from continuing operations 3,374 7,660 6,563 (25,533) Net income (loss) 3,317 7,599 5,870 (26,926) Income (loss) from continuing operations per diluted common share 0.19 0.42 0.34 (1.34) Net income (loss) per diluted common share 0.19 0.42 0.31 (1.41)
(1) As discussed in Note 2, the Company changed its method of accounting for new vehicle inventory from LIFO to the specific identification method. (2) As discussed in Note 4, the results of UAF have been recorded as discontinued operations. (3) As discussed in Note 9, the Company recorded an extraordinary loss of $1,235 during the first quarter of 1998. (4) As discussed in Note 3, the Company recorded $12.7 million and $31.7 million charges during the fourth quarters of 1998 and 1997, respectively. (5) Includes the results of the Skelton Group, the Young Group, the Classic Group, Graceland Dodge, Pioneer Ford, the San Diego dealerships and Citrus Dodge from their respective dates of acquisition. (6) Includes the results of Crown Automotive, Hanna Nissan, the Staluppi Automotive Group, the Gene Reed Automotive Group, the Lance Landers dealerships, Stone Mountain Jeep Eagle, Shreveport Dodge, Central Ford, Covington Pike Dodge and the Triangle Group from their respective dates of acquisition. The net income (loss) per common share amounts are calculated independently for each of the quarters presented. The sum of the quarters may not equal the full year net income (loss) per common share amounts. F-21 EX-10.1.8.1 2 AMENDMENT TO STOCK OPTION PLAN Exhibit 10.1.8.1 AMENDMENT ONE TO THE UNITED AUTO GROUP, INC. STOCK OPTION PLAN Effective April 29, 1998, the Board of Directors of the United Auto Group, Inc. amended the United Auto Group, Inc. Stock Option Plan as follows: 1. The reference to "1,500,838" in the second sentence of Article III shall be replaced with a reference to "2,000,838" 2. The following shall be added to the end of the first paragraph of Article III: The aggregate number of shares of common Stock with respect to which options may be granted during any calendar year to any Eligible Employee is 500,000. 3. The first paragraph of Article X shall be deleted and the following shall be inserted in its place: The Aggregate and maximum number of shares of Common Stock which may be purchased or acquired pursuant to Options granted hereunder, the number of shares of Common Stock to which each Option relates, the Exercise Price in respect of such option, and the maximum number of shares which may be granted to each Eligible Employee during any calendar year shall be appropriately adjusted for any increase or decrease in the number of outstanding shares of Common stock resulting from a stock split or other subdivision or consolidation of shares of Common Stock or for other capital distributions or other increases or decreases in the outstanding shares of Common Stock effected without receipt of consideration in any form permitted under Delaware Law. Any adjustment shall be conclusively determined by the Committee. EX-21.1 3 SUBSIDIARIES Exhibit 21.1 UNITED AUTO GROUP, INC. Subsidiaries as of December 31, 1998
NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- Carolinas Gene Reed Chevrolet, Inc. SC d/b/a Gene Reed Chevrolet Michael Chevrolet-Oldsmobile, Inc. SC d/b/a Michael Chevrolet Oldsmobile Reed-Lallier Chevrolet, Inc. NC d/b/a Reed-Lallier Chevrolet UAG Carolina, Inc. DE DiFeo-Danbury Danbury Auto Partnership NJ d/b/a Fair Honda Danbury Auto Partnership NJ d/b/a UnitedAuto Mart Danbury Chrysler Plymouth Partnership NJ d/b/a Fair Dodge DiFeo-Jersey City DiFeo Chevrolet-Geo Partnership NJ DiFeo Hyundai Partnership NJ DiFeo Nissan Partnership NJ d/b/a DiFeo Nissan DiFeo Partnership HCT, Inc. DE DiFeo Partnership RCM, Inc. DE Page 1 NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- DiFeo Partnership SCT, Inc. DE DiFeo Partnership X, Inc. DE DiFeo Partnership, Inc. DE DiFeo Tenafly Partnership NJ d/b/a DiFeo BMW Hudson Motors Partnership NJ d/b/a Hudson Toyota UAG Hudson, Inc. NJ J & F Oldsmobile Partnership NJ Somerset Motors Partnership NJ d/b/a DiFeo Lexus Somerset Motors, Inc. NJ UAG Northeast (NY), Inc. DE UAG Northeast, Inc. DE UAG Northeast Body Shop, Inc. DE DiFeo-Nyack County Auto Group Partnership NJ d/b/a Rockland Toyota DiFeo Chrysler Plymouth Jeep Eagle Partnership NJ d/b/a DiFeo Chrysler Plymouth/ Jeep Eagle/ Hyundai DiFeo Partnership RCT, Inc. DE Rockland Motors Partnership NJ d/b/a Rockland Mitsubishi DiFeo-Toms River NJ DiFeo Partnership IX, Inc. DE DiFeo Partnership VIII, Inc. DE Page 2 NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- OCM Partnership NJ d/b/a Gateway Mitsubishi OCT Partnership NJ d/b/a Gateway Toyota Georgia UAG Duluth, Inc. TX d/b/a Atlanta Toyota Peachtree Nissan, Inc. GA d/b/a Peachtree Nissan UAG Atlanta II, Inc. DE UAG Atlanta III, Inc. DE UAG Atlanta IV Motors, Inc. GA d/b/a United BMW UAG Atlanta IV, Inc. DE UAG Atlanta V, Inc. DE UAG Atlanta VI, Inc. DE UAG Atlanta, Inc. DE United Jeep Chrysler Plymouth of Stone Mountain, Inc. GA d/b/a United Jeep Chrysler Plymouth of Stone Mountain United Nissan, Inc. (GA) GA d/b/a United Nissan Arkansas BPT Holdings, Inc. AR Central Ford Center, Inc. AR d/b/a Landers Ford Landers Auto Sales, Inc. AR d/b/a Landers Isuzu Page 3 NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- Landers Auto Sales, Inc. AR d/b/a Landers Jeep/Eagle/Chrysler Plymouth/Dodge Landers Buick-Pontiac, Inc. AR d/b/a Landers Buick-Pontiac/ GMC Truck Landers United Auto Group No. 2, Inc. AR d/b/a Landers Used Cars-North Landers United Auto Group No. 3, Inc. AR Landers United Auto Group No. 4, Inc. AR Landers United Auto Group No. 5, Inc. AR Landers United Auto Group, Inc. AR United Landers, Inc. DE Louisiana UnitedAuto Dodge of Shreveport, Inc. DE d/b/a UnitedAuto Dodge of Shreveport Nevada UAG Nevada, Inc. DE United Nissan, Inc. (NV) NV Puerto Rico HVP Motor Corporation PR d/b/a Triangle del Caribe PVH Motor Corporation PR d/b/a Triangle Chrysler de Infanteria S.H.V.P. Motor Corp. PR d/b/a Triangle el Comandante UAG-Caribbean, Inc. DE Page 4 NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- VPH Motor Corporation PR d/b/a Triangle del Oeste Sun-Arizona 6725 Agent Partnership AZ SA Automotive, Ltd. AZ d/b/a Scottsdale Acura Scottsdale Audi, Ltd. AZ Scottsdale Management Group, Ltd. AZ SK Motors, Ltd. AZ d/b/a Scottsdale Porsche/Audi/Rolls-Royce/Bentley SL Automotive, Ltd. AZ d/b/a Scottsdale Lexus SPA Automotive, Ltd. AZ d/b/a Land Rover Scottsdale Sun Motors, Ltd. AZ d/b/a Camelback BMW LRP, Ltd. AZ d/b/a Land Rover Phoenix UAG West, Inc. DE Pioneer Ford Sales Inc. AZ d/b/a Pioneer Ford Tennessee UAG Tennessee, Inc. DE United Nissan, Inc. (TN) TN d/b/a United Nissan Covington Pike Dodge, Inc. DE d/b/a Covington Pike Dodge UAG Memphis, Inc. DE Page 5 NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- UAG Memphis II, Inc. DE d/b/a Covington Pike Toyota UAG Memphis III, Inc. DE d/b/a Covington Pike Hyundai UAG Memphis IV, Inc. DE d/b/a Covington Pike Mazda The New Graceland Dodge, Inc. TN d/b/a Graceland Dodge Texas Shannon Automotive, Ltd. TX d/b/a Crown Jeep Eagle/Chrysler Plymouth Shannon Automotive, Ltd. TX d/b/a Crown Dodge UAG Texas II, Inc. DE UAG Texas, Inc. DE UAG East-North UAG East, Inc. DE Westbury Nissan Ltd. NY d/b/a Westbury Nissan Superstore Westbury Superstore, Ltd. NY d/b/a Westbury Toyota Cherry Hill Classic Cars, Inc. NJ d/b/a Classic Saab Classic Auto Group, Inc. NJ d/b/a Classic BMW and Classic Chevrolet/Buick of Turnersville Classic Motor Sales, LLC DE d/b/a Classic Honda Page 6 NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- Classic Chevrolet, Inc. NJ Classic Chevrolet UAG East-South Auto Mall Payroll Services, Inc. FL Auto Mall Storage, Inc. FL Florida Chrysler Plymouth Jeep Eagle, Inc. FL d/b/a Florida Chrysler Plymouth/Jeep Eagle Northlake Auto Finish, Inc. FL Palm Auto Plaza, Inc. FL d/b/a Palm Beach Toyota West Palm Automall, Inc. FL West Palm Infiniti, Inc. FL d/b/a West Palm Infiniti West Palm Nissan, Inc. FL d/b/a West Palm Nissan UAG Citrus, Inc. DE UAG Citrus Motors, LLC DE California Kearny Mesa Toyota, Inc. CA Kearny Mesa Toyota Tri-City Leasing, Inc. CA Kearny Mesa Dodge/ Mazda Relentless Pursuit Enterprises, Inc. CA Lexus Kearny Mesa United AutoCare United AutoCare Products, Inc. DE United AutoCare, Inc. DE Page 7 NAME OF COMPANY STATE OF INCORPORATION - - -------------- ---------------------- UnitedAuto Care (Bermuda), Ltd. BERMUDA UnitedAuto Finance Atlantic Auto Funding Corporation DE Atlantic Auto Second Funding Corporation DE Atlantic Auto Third Funding Corporation DE UnitedAuto Finance Inc. DE Other UAG Capital Management, Inc. GA UAG Finance Company, Inc. DE UnitedAuto Enterprises, Inc. DE D. Young Chevrolet, LLC DE d/b/a Dan Young Chevrolet and Dan Young Isuzu Dan Young Motors, LLC DE d/b/a Dan Young Honda Dan Young Tipton, LLC DE Dan Young GM Center UAG Century Motors, Inc. DE d/b/a Century Chevrolet UAG Paramount Motors, Inc. DE d/b/a Paramount Chevrolet, Geo, Oldsmobile Young Management Group, Inc. IN d/b/a Heritage Motor Car Company
Page 8 EX-23.1 4 ACCOUNTANTS CONSENT Exhibit 23.1 Consent Of Independent Accountants We consent to the incorporation by reference in the registration statements of United Auto Group, Inc. on Form S-3 (Registration No. 333-39997) and Form S-8 (Registration Nos. 333-14971 and 333-26219) of our report dated March 29, 1999 on our audits of the consolidated financial statements as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997, and 1996, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Princeton, New Jersey March 29, 1999 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 38,538 0 126,320 (860) 482,049 590,713 65,897 (14,414) 1,184,194 505,529 288,265 0 0 2 341,648 1,184,194 3,343,147 3,343,147 2,916,248 3,291,291 4,800 0 31,462 25,194 (11,554) 13,378 (12,940) (1,235) 0 (797) (0.04) (0.04)
EX-27.2 6 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 9-MOS YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 SEP-30-1998 DEC-31-1997 25,332 94,435 0 0 124,971 93,488 (594) (887) 359,558 324,330 534,098 531,779 62,067 44,028 (9,868) (6,440) 1,141,575 971,064 455,559 414,588 303,394 238,550 0 0 0 0 2 2 352,027 300,555 1,141,575 971,064 2,505,134 2,092,593 2,505,134 2,092,593 2,181,290 1,835,531 2,453,973 2,090,597 3,627 297 0 0 23,381 14,071 31,407 (11,778) (12,903) 3,980 18,378 (7,936) 341 (2,204) (1,235) 0 0 0 17,484 (10,140) 0.86 (0.56) 0.86 (0.56)
EX-27.3 7 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 6-MOS YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 JUN-30-1998 DEC-31-1997 36,428 94,435 0 0 123,949 93,488 (553) (887) 399,443 324,330 1,117,354 531,779 55,481 44,028 (10,638) (6,440) 1,166,997 971,064 482,798 414,588 301,403 238,550 0 0 0 0 2 2 342,217 300,555 1,166,997 971,064 1,608,128 2,092,593 1,608,128 2,092,593 1,406,342 1,835,531 1,577,349 2,090,597 1,848 297 0 0 14,974 14,071 17,653 (11,778) (7,251) 3,980 10,318 (7,936) 174 (2,204) (1,235) 0 0 0 9,257 (10,140) 0.46 (0.56) 0.46 (0.56)
EX-27.4 8 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 3-MOS YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 MAR-31-1998 DEC-31-1997 20,524 94,435 0 0 117,035 93,488 (1,506) (887) 453,264 324,330 610,822 531,779 50,698 44,028 (7,257) (6,440) 1,167,635 971,064 538,430 414,588 273,797 238,550 0 0 0 0 2 2 333,262 300,555 1,167,635 971,064 711,709 2,092,593 711,709 2,092,593 622,485 1,835,531 701,026 2,090,597 353 297 0 0 (7,094) 14,071 3,942 (11,778) (1,617) 3,980 2,291 (7,936) 8 (2,204) (1,235) 0 0 0 1,064 (10,140) 0.05 (0.56) 0.05 (0.56)
EX-27.5 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 94,435 0 93,488 (887) 324,330 531,779 44,028 (6,440) 971,064 414,588 238,550 0 0 2 300,555 971,064 2,092,593 2,092,593 1,835,531 2,090,597 297 0 14,071 (11,778) 3,980 (7,936) (2,204) 0 0 (10,140) (0.56) (0.56)
EX-27.6 10 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 9-MOS YEAR DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 SEP-30-1997 DEC-31-1996 172,638 66,875 0 0 82,842 53,241 (2,472) (1,223) 254,182 173,983 516,819 304,699 39,427 25,967 (4,949) (3,626) 890,034 525,373 316,704 223,550 237,356 11,121 0 0 0 0 2 2 327,093 284,499 890,034 525,373 1,545,231 1,302,031 1,545,231 1,302,031 1,348,368 1,156,459 1,508,735 1,280,703 297 2,506 0 0 7,249 4,398 29,584 19,436 (11,869) (7,202) 17,597 8,928 (811) (894) 0 (4,987) 0 0 16,786 3,047 0.91 0.30 0.91 0.28
EX-27.7 11 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 6-MOS YEAR DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 JUN-30-1997 DEC-31-1996 43,318 66,875 0 0 85,699 53,241 (4,816) (1,223) 272,800 173,983 404,608 304,699 37,286 25,967 (4,346) (3,626) 756,858 525,373 333,731 223,550 93,722 11,121 0 0 0 0 2 2 320,603 284,499 756,858 525,373 917,622 1,302,031 917,622 1,302,031 801,400 1,156,459 897,123 1,280,703 297 2,506 0 0 2,246 4,398 18,590 19,436 (7,459) (7,202) 11,034 8,928 (118) (894) 0 (4,987) 0 0 10,916 3,047 0.61 0.30 0.61 0.28
EX-27.8 12 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 3-MOS YEAR DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 MAR-31-1997 DEC-31-1996 36,083 66,875 0 0 62,461 53,241 (1,147) (1,223) 218,576 173,983 329,826 304,699 28,879 25,967 (4,020) (3,626) 573,006 525,373 268,395 223,550 11,777 11,121 0 0 0 0 2 2 286,537 284,499 573,006 525,373 389,288 1,302,031 389,288 1,302,031 341,676 1,156,459 383,432 1,280,703 297 2,506 0 0 (469) 4,398 5,684 19,436 (2,274) (7,202) 3,374 8,928 (57) (894) 0 (4,987) 0 0 3,317 3,047 0.19 0.30 0.19 0.28
EX-27.9 13 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 66,875 0 53,241 (1,223) 173,983 304,699 25,967 (3,626) 525,373 223,550 11,121 0 0 2 284,499 525,373 1,302,031 1,302,031 1,156,459 1,280,703 2,506 0 4,398 19,436 (7,202) 8,928 (894) (4,987) 0 3,047 0.30 0.28
-----END PRIVACY-ENHANCED MESSAGE-----