-----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, Jj1SJ7FI1HUVGQ5fAJJFqm7Ezn0cVwKij0WsTZGpx/Uhe36GN+ub3mf+tL5XwUnu Q2NzelL4mEK3VVZFjhDpYA== 0000950129-98-002120.txt : 19980515 0000950129-98-002120.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950129-98-002120 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROUP 1 AUTOMOTIVE INC CENTRAL INDEX KEY: 0001031203 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 760506313 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13461 FILM NUMBER: 98621335 BUSINESS ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 350 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7134676268 MAIL ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 350 CITY: HOUSTON STATE: TX ZIP: 77024 10-Q 1 GROUP 1 AUTOMOTIVE, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 Commission file number: 1-13461 GROUP 1 AUTOMOTIVE, INC. (Exact name of Registrant as specified in its charter) Delaware 76-0506313 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 950 Echo Lane, Suite 350 Houston, Texas 77024 (Address of principal executive offices) (Zip code) (713)467-6268 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Title Outstanding ----- ------------- Common Stock, par value $.01 17,788,278
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED COMBINED STATEMENTS OF OPERATIONS BASIS OF PRESENTATION In October 1997, Group 1 Automotive, Inc.("Group 1") completed its acquisition of substantially all of the net assets of four automobile dealership groups (the "Founding Groups") simultaneous with the completion of its initial public offering. The Founding Groups were acquired in exchange for a combination of cash and common stock of Group 1 Automotive, Inc. During 1998, Group 1 acquired four additional automobile dealerships, which have been accounted for as purchases (the "Purchased Companies"). The accompanying historical combined statement of operations, for the three months ended March 31, 1998, includes the operations of Group 1 and the Founding Groups, from January 1, 1998, and the Purchased Companies, from the effective dates of the acquisitions. The accompanying pro forma combined statement of operations, for the three months ended March 31, 1997, includes the combined operations of Group 1 and the Founding Groups, from January 1, 1997, and gives effect to the completion of Group 1's initial public offering. The 1997 data may not be comparable to and may not be indicative of the Group 1's post-combination results of operations because (i) the Founding Groups were not under common control of management and had different tax structures (S Corporations and C Corporations) during the periods presented and (ii) the purchase method was used to establish a new basis of accounting to record the acquisitions. Operating results of interim periods are not necessarily indicative of the results for full year periods. The results of operations have historically been subject to seasonal fluctuations. These combined statements of operations should be read in conjunction with the financial statements presented in the Company's Annual Report on Form 10-K. 2 3 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED COMBINED STATEMENTS OF OPERATIONS (in thousands of dollars, except per share amounts)
THREE MONTHS ENDED MARCH 31, ------------------------------ 1998 1997 ------------ ------------ HISTORICAL PRO FORMA ------------ ------------ REVENUES: New vehicle sales ........................................... $ 138,022 $ 117,418 Used vehicle sales .......................................... 87,119 73,217 Parts and service sales ..................................... 21,568 19,030 Other dealership revenues, net .............................. 7,225 5,717 ------------ ------------ Total revenues ............................................ 253,934 215,382 COST OF SALES: New vehicle sales ........................................... 127,376 107,021 Used vehicle sales .......................................... 80,560 68,159 Parts and service sales ..................................... 9,978 9,158 ------------ ------------ Total cost of sales ....................................... 217,914 184,338 ------------ ------------ GROSS PROFIT ................................................... 36,020 31,044 GOODWILL AMORTIZATION .......................................... 243 200 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ...................................... 28,312 25,274 ------------ ------------ Income from operations .............................. 7,465 5,570 OTHER INCOME AND EXPENSES: Interest expense, net ........................................ (2,136) (1,556) Other expense, net ........................................... (23) (21) ------------ ------------ INCOME BEFORE INCOME TAXES ..................................... 5,306 3,993 PROVISION FOR INCOME TAXES ..................................... 2,192 1,656 ------------ ------------ NET INCOME ..................................................... $ 3,114 $ 2,337 ============ ============ Earnings per share on net income: Basic ........................................................ $ 0.21 $ 0.16 Diluted ...................................................... $ 0.20 $ 0.15 Weighted average shares outstanding: Basic ........................................................ 15,197,670 14,673,051 Diluted ...................................................... 15,596,155 15,101,510
The accompanying notes are an integral part of these combined statements of operations. 3 4 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO COMBINED STATEMENTS OF OPERATIONS 1. BASIS OF PRESENTATION The 1998 historical combined data are a presentation in accordance with generally accepted accounting principles. The financial data represents the historical results of operations of Group 1 and the Founding Groups, for the three months ended March 31, 1998, and the Purchased Companies, from the effective dates of the acquisitions. The 1997 pro forma combined data does not purport to be a presentation in accordance with generally accepted accounting principles, but represents a summation of certain data on an historical basis including the effects of the pro forma adjustments. This data may not be comparable to and may not be indicative of Group 1's post-combination results of operations because (i) the acquired dealerships were not under common control of management and had different tax structures (S Corporations and C Corporations) during the periods presented and (ii) the purchase method was used to establish a new basis of accounting to record the acquisitions. The pro forma adjustments primarily relate to: (a) increases in revenues and decreases in cost of sales related to commission arrangements on certain third-party products sold by the dealerships which previously benefited the stockholders and which were terminated in conjunction with the acquisitions, allowing the companies to realize the benefits thereafter; (b) pro forma goodwill amortization expense over an estimated useful life of 40 years; (c) reductions in compensation expense and management fees to the level that certain management employees and owners of the acquired companies will contractually receive; (d) incremental corporate overhead costs related to personnel costs, rents, professional service fees and directors and officers liability insurance premiums; (e) net decreases in interest expense resulting from the repayment of floorplan obligations with proceeds from the offering, net of cash utilized to complete acquisitions; and (f) incremental provisions for federal and state income taxes relating to the compensation differential, S Corporation income and other pro forma adjustments. 2. EARNINGS PER SHARE SFAS No. 128 requires the presentation of basic earnings per share and diluted earnings per share in financial statements of public enterprises. Under the provisions of this statement, basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. The following table sets forth the shares outstanding for the earnings per share calculations:
FOR THE THREE MONTHS ENDED -------------------------------- MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- HISTORICAL PRO FORMA -------------- -------------- Common stock outstanding, beginning of period .................................... 14,673,051 450,000 Shares issued in initial public offering ......................................... -- 5,148,136 Shares issued in acquisition of Founding Companies ............................... -- 9,074,915 Weighted average common stock issued to Purchased Companies ...................... 537,952 -- Less: weighted average treasury shares repurchased ............................... (13,333) -- ---------- ---------- Shares used in computing basic earnings per share ............................ 15,197,670 14,673,051 Dilutive effect of stock options, net of assumed repurchase of treasury stock .... 398,485 428,459 ---------- ---------- Shares used in computing diluted earnings per share .......................... 15,596,155 15,101,510 ========== ==========
4 5 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ ASSETS (unaudited) CURRENT ASSETS: Cash and cash equivalents ................................. $ 41,048 $ 35,092 Accounts receivable, net .................................. 9,722 9,749 Inventories ............................................... 149,944 105,421 Deferred income taxes ..................................... 8,622 8,692 Other assets .............................................. 3,207 2,728 --------- --------- Total current assets ................................ 212,543 161,682 --------- --------- PROPERTY AND EQUIPMENT, net ................................. 25,004 21,586 GOODWILL, net ............................................... 56,761 27,078 OTHER ASSETS ................................................ 4,109 2,803 --------- --------- Total assets ........................................ $ 298,417 $ 213,149 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floorplan notes payable ................................... $ 122,560 $ 58,488 Current maturities of long-term debt ...................... 1,308 2,316 Accounts payable and accrued expenses ..................... 61,768 50,668 --------- --------- Total current liabilities ........................... 185,636 111,472 --------- --------- LONG-TERM DEBT, net of current maturities ................... 6,866 7,053 LONG-TERM DEFERRED INCOME TAXES ............................. 3,882 3,699 OTHER LONG-TERM LIABILITIES ................................. 1,472 1,553 STOCKHOLDERS' EQUITY: Preferred stock, 1,000,000 shares authorized, none issued or outstanding ............................. -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 16,101,209 and 14,673,051 issued and outstanding ................................. 161 147 Additional paid-in capital ................................ 100,066 91,846 Retained earnings (deficit) ............................... 585 (2,529) Treasury stock, at cost, 25,000 and 10,000 shares ......... (251) (92) --------- --------- Total stockholders' equity .......................... 100,561 89,372 --------- --------- Total liabilities and stockholders' equity .......... $ 298,417 $ 213,149 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of dollars, except per share amounts)
THREE MONTHS ENDED MARCH 31, ------------------------------ 1998 1997 ------------ ------------ REVENUES: New vehicle sales ..................... $ 138,022 $ 38,248 Used vehicle sales .................... 87,119 25,606 Parts and service sales ............... 21,568 5,413 Other dealership revenues, net ........ 7,225 1,841 ------------ ------------ Total revenues .................. 253,934 71,108 COST OF SALES: New vehicle sales ..................... 127,376 35,700 Used vehicle sales .................... 80,560 23,174 Parts and service sales ............... 9,978 2,378 ------------ ------------ Total cost of sales ............. 217,914 61,252 ------------ ------------ GROSS PROFIT ............................ 36,020 9,856 GOODWILL AMORTIZATION ................... 243 10 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ............... 28,312 8,012 ------------ ------------ Income from operations .......... 7,465 1,834 OTHER INCOME AND EXPENSES: Interest expense, net ................. (2,136) (883) Other income (expense), net ........... (23) 14 ------------ ------------ INCOME BEFORE INCOME TAXES .............. 5,306 965 PROVISION (BENEFIT) FOR INCOME TAXES .... 2,192 (39) ------------ ------------ NET INCOME .............................. $ 3,114 $ 1,004 ============ ============ S Corporation pro forma income taxes .... 425 ------------ Pro forma net income .................... $ 579 ============ Earnings per share on net income: Basic ................................. $ 0.21 Diluted ............................... $ 0.20 Weighted average shares outstanding: Basic ................................. 15,197,670 Diluted ............................... 15,596,155
The accompanying notes are an integral part of these consolidated financial statements. 6 7 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ------------ ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................ $ 3,114 $ 1,004 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization ...................................... 819 243 Deferred income taxes .............................................. (1,301) (1) Provision for doubtful accounts and uncollectible notes ............ 16 25 Changes in assets and liabilities - Accounts receivable ................................................ 1,273 322 Inventories ...................................................... (6,556) (1,963) Other assets ..................................................... (1,167) 130 Floorplan notes payable .......................................... 9,279 510 Accounts payable and accrued expenses ............................ (1,734) (144) -------- -------- Total adjustments ............................................ 629 (878) -------- -------- Net cash provided by operating activities .................... 3,743 126 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable ....................................... (705) -- Collections on notes receivable .................................... 373 -- Purchases of property and equipment ................................ (1,468) (147) Proceeds from sale of property and equipment ....................... 2 -- Cash paid in acquisitions, net of cash received .................... (14,318) -- -------- -------- Net cash used in investing activities ........................ (16,116) (147) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under floorplan facilities for acquisition financing .... 19,998 -- Principal payments of long-term debt ............................... (1,630) (124) Borrowings of long-term debt ....................................... 120 -- Purchase of treasury stock ......................................... (159) -- Dividends paid in cash ............................................. -- (1,004) -------- -------- Net cash provided by (used in) financing activities .......... 18,329 (1,128) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 5,956 (1,149) CASH AND CASH EQUIVALENTS, beginning of period .......................... 35,092 11,679 -------- -------- CASH AND CASH EQUIVALENTS, end of period ................................ $ 41,048 $ 10,530 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest ......................................................... $ 1,702 $ 964 Taxes ............................................................ 1,910 --
The accompanying notes are an integral part of these consolidated financial statements. 7 8 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Group 1 Automotive, Inc. and subsidiaries ("Group 1" or the "Company") was founded in December 1995 to become a leading consolidator in the highly fragmented automobile retailing industry. The Company is primarily engaged in the retail sale of new and used vehicles and the arranging of finance, insurance and service contracts thereon. In addition, the Company sells automotive parts and provides vehicle servicing. In October 1997, Group 1 acquired four separate dealership groups (the "Founding Groups"), consisting of 30 dealership franchises and related businesses, in exchange for consideration consisting of a combination of cash and restricted Common Stock. Concurrent with the acquisition of the Founding Groups, Group 1 completed an initial public offering of 5,520,000 shares of Common Stock. During the first quarter of 1998 the Company acquired four additional dealership franchises in exchange for a combination of cash and restricted Common Stock. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation For financial statement presentation purposes, as required by the Securities and Exchange Commission, Howard Group, one of the Founding Groups, has been identified as the accounting acquiror. The acquisition of the remaining Founding Groups was accounted for using the purchase method of accounting. The operations of Group 1 Automotive, Inc., the parent company, and the Founding Groups, excluding the Howard Group, are included in the results of operations beginning October 31, 1997, the effective closing date of the acquisitions for accounting purposes. The results of operations of the Howard Group are included for all periods presented. The operations of all acquisitions subsequent to October 31, 1997, are included from the effective dates of the closings of the acquisitions. The allocation of purchase price to the assets acquired and liabilities assumed has been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. All significant intercompany balances and transactions have been eliminated in consolidation. 3. EARNINGS PER SHARE: SFAS No. 128 requires the presentation of basic earnings per share and diluted earnings per share in financial statements of public enterprises. Under the provisions of this statement, basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. As the Company was not a public enterprise until October 1997, and the companies included in the statements of operations were under different tax structures (S Corporations and C Corporations), no earnings per share data has been presented for the historical results of operations for the three months ended March 31, 1997. The following table sets forth the shares outstanding for the earnings per share calculations: 8 9
THREE MONTHS ENDED MARCH 31, 1998 ------------------ Common stock outstanding, beginning of period ..................................... 14,673,051 Weighted average common stock issued in acquisitions .............................. 537,952 Less: weighted average treasury shares repurchased ................................ (13,333) ---------- Shares used in computing basic earnings per share ............................. 15,197,670 Dilutive effect of stock options, net of assumed repurchase of treasury stock ..... 398,485 ---------- Shares used in computing diluted earnings per share ........................... 15,596,155 ==========
4. BUSINESS COMBINATIONS During the first quarter of 1998, the Company acquired four automobile dealership operations. These acquisitions were accounted for as purchases. The aggregate consideration paid in completing these acquisitions included approximately $20.0 million in cash, approximately 1.4 million shares of restricted Common Stock and the assumption of an estimated $34.8 million of inventory financing. Additional consideration, to be paid based on performance over a specified period, is limited to a maximum of $7.5 million ($2.5 million of which is guaranteed), is payable in cash and Common Stock and will result in an increase in goodwill on the balance sheet of the Company. As part of certain of the acquisitions, the Company has committed, for a limited period of time, to certain sellers that they will realize an agreed upon minimum price upon the sale of the Common Stock received in the acquisitions. If the Company is called upon to perform under this arrangement, the cash payment will result in additional goodwill on the balance sheet of the Company. The accompanying consolidated balance sheet includes preliminary allocations of the purchase price of the acquisitions, which are subject to final adjustment. The preliminary allocations resulted in recording approximately $29.8 million of goodwill, which is being amortized over 40 years. The following pro forma financial information consists of income statement data from continuing operations as presented in the consolidated financial statements plus (1) income statement data for all acquisitions, completed before March 31, 1998, assuming that they occurred on January 1, 1997, (2) the completion of the IPO as of January 1, 1997 and (3) certain pro forma adjustments discussed below.
THREE MONTHS ENDED MARCH 31, ------------------------------------- 1998 1997 ------------- -------------- (in thousands, except per share amounts) Revenues .............................. $293,787 $269,999 Gross profit .......................... 41,689 38,792 Income from operations ................ 8,617 7,096 Net income ............................ 3,324 2,505 Basic earnings per share .............. 0.21 0.16 Diluted earnings per share ............ $0.20 $0.15
Pro forma adjustments included in the amounts above primarily relate to: (a) increases in revenues and decreases in cost of sales related to commission arrangements on certain third-party products sold by the dealerships which previously benefited the stockholders and which were terminated in conjunction with the acquisitions, allowing the companies to realize the benefits thereafter; (b) pro forma goodwill amortization expense over an estimated useful life of 40 years; (c) reductions in compensation expense and management fees to the level that certain management employees and owners of the acquired companies will contractually receive; (d) 9 10 incremental corporate overhead costs related to personnel costs, rents, professional service fees and directors and officers liability insurance premiums; (e) net decreases in interest expense resulting from the repayment of floorplan obligations with proceeds from the offering, net of cash utilized to complete acquisitions; and (f) incremental provisions for federal and state income taxes relating to the compensation differential, S Corporation income and other pro forma adjustments. 5. SUBSEQUENT EVENTS Effective during April and May of 1998, for accounting purposes, the Company completed acquisitions of several automobile dealerships in exchange for consideration consisting of approximately $41.8 million in cash, approximately 1.7 million shares of restricted Common Stock and the assumption of an estimated $47.2 million of inventory financing. Additional consideration, to be paid based on performance over a specified period, is payable in cash and Common Stock and will result in an increase in goodwill on the balance sheet of the Company. As part of certain of the acquisitions, the Company has committed, for a limited period of time, to certain sellers that they will realize an agreed upon minimum price upon the sale of the Common Stock received in the acquisitions. If the Company is called upon to perform under this arrangement, the cash payment will result in additional goodwill on the balance sheet of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the response to Part I, Item 1 of this Report and the Company's Annual Report on Form 10-K. OVERVIEW The Company owns automobile dealership franchises located in Florida, Georgia, Oklahoma and Texas. Additionally, the Company provides maintenance and repair services at its dealerships and collision service centers. The Company expects that a significant portion of its future growth will be derived from acquisitions of additional dealerships. The Company has diverse sources of revenues, including: new car sales, new truck sales, used car sales, used truck sales, manufacturer remarketed vehicle sales, parts sales, service sales, collision repair services, finance fees, insurance commissions, extended service contract sales, documentary fees and after-market product sales. Sales revenues include sales to retail customers, other dealers and wholesalers. Other dealership revenue includes revenue from arranging financing and selling insurance and extended service contracts, net of a provision for anticipated chargebacks, and documentary fees charged to customers. The Company's gross profit will vary as the Company's merchandise mix (the mix between new vehicle sales, used vehicle sales, parts and service sales, collision repair services and other dealership revenues) changes. The gross margin realized by the Company on the sale of its products and services generally varies between approximately 7.5% and 60.0%, with new vehicle sales generally resulting in the lowest gross margin and parts and service sales generally resulting in the highest gross margin. When the Company's new vehicle sales increase or decrease at a rate greater than the Company's other revenue sources, the Company's gross margin will respond inversely. Factors such as seasonality, weather, cyclicality and manufacturers' advertising and incentives may impact the Company's merchandise mix and, therefore influence the Company's gross margin. Selling, general and administrative expenses consist primarily of compensation for sales, administrative, finance and general management personnel, rent, marketing, insurance and utilities. Interest expense consists of interest charges on interest-bearing debt, including floorplan inventory financing, net of interest income earned. 10 11 SELECTED OPERATIONAL AND FINANCIAL DATA NEW VEHICLE DATA
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ---------- ------------ HISTORICAL PRO FORMA ---------- ------------ (dollars in thousands) Retail unit sales ......................................................... 5,972 5,451 Retail sales revenue ...................................................... $138,022 $117,418 Gross profit .............................................................. $ 10,646 $ 10,397 Gross margin .............................................................. 7.7% 8.9% Average gross profit per retail unit sold ................................. $ 1,783 $ 1,907
USED VEHICLE DATA
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ---------- ---------- HISTORICAL PRO FORMA ---------- ---------- (dollars in thousands) Retail unit sales .................................................... 5,354 4,479 Retail sales revenue (1) ............................................. $70,976 $59,169 Gross profit ......................................................... $ 6,559 $ 5,058 Gross margin ......................................................... 9.2% 8.6% Average gross profit per retail unit sold ............................ $ 1,225 $ 1,129
- --------------- (1) Excludes wholesale revenues. PARTS AND SERVICE DATA
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ---------- --------- HISTORICAL PRO FORMA ---------- --------- (dollars in thousands) Sales revenue ............................................................. $21,568 $19,030 Gross profit .............................................................. $11,590 $ 9,872 Gross margin .............................................................. 53.7% 51.9%
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH PRO FORMA THREE MONTHS ENDED MARCH 31, 1997 REVENUES. Revenues increased $38.5 million, or 17.9%, from $215.4 million for the three months ended March 31, 1997 to $253.9 million for the three months ended March 31, 1998. New vehicle revenues increased $20.6 million, or 17.6% from $117.4 million for the three months ended March 31, 1997 to $138.0 million for the three months ended March 31, 1998. The increase in revenue was primarily attributable to strong customer acceptance of the Company's products, particularly Toyota and Lexus, accounting for approximately one-third of the increase and the acquisition of four additional dealership franchises during the first quarter of 1998. The increase was partially offset by reduced sales at the Company's Nissan franchises, which declined due to 11 12 reduced manufacturer sales incentives as compared to the prior year. Used vehicle revenues increased $13.9 million, or 19.0%, from $73.2 million for the three months ended March 31, 1997 to $87.1 million for the three months ended March 31, 1998. The increase was primarily attributable to the additional franchise operations acquired, successful marketing efforts and an emphasis on used vehicle sales in the Oklahoma market, with existing operations accounting for over one-half of the increase. Parts and service sales increased $2.6 million, or 13.7%, from $19.0 million for the three months ended March 31, 1997 to $21.6 million for the three months ended March 31, 1998. The increase was primarily attributable to the additional dealership operations acquired. Other dealership revenues increased $1.5 million or 26.3% from $5.7 million for the three months ended March 31, 1997 to $7.2 million for the three months ended March 31, 1998. The increase was due primarily to an increase in the number of retail new and used vehicle sales and improved profit per unit as the Company's new service contract and insurance programs were implemented. GROSS PROFIT. Gross profit increased $5.0 million, or 16.1%, from $31.0 million for the three months ended March 31, 1997 to $36.0 million for the three months ended March 31, 1998. The increase was attributable to increased revenues, partially offset by a reduced gross margin. The gross margin on new retail vehicle sales declined from 8.9% for the three months ended March 31, 1997 to 7.7% for the three months ended March 31, 1998. The decline is attributable primarily to reduced margins in the Nissan product line, due to reduced manufacturer sales incentives in 1998, and reduced margins in the Oklahoma market. The gross margin for used retail vehicle sales increased from 8.6% for the three months ended March 31, 1997 to 9.2% for the three months ended March 31, 1998. The increase was primarily attributable to an emphasis on the used vehicle operations in the Oklahoma platform. Parts and service gross margin increased from 51.9% for the three months ended March 31, 1997 to 53.7% for the three months ended March 31, 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $3.0 million, or 11.9%, from $25.3 million for the three months ended March 31, 1997 to $28.3 million for the three months ended March 31, 1998. The increase was primarily attributable to the additional dealership operations acquired and increased variable expenses, particularly incentive pay to employees, which increase as revenues and gross profit increase. Selling, general and administrative expenses declined as a percentage of revenues from 11.7% for the three months ended March 31, 1997 to 11.2% for the three months ended March 31, 1998. The decline is primarily attributable to maintaining total expenses at a constant level by offsetting increased variable expenses with cost reductions, such as insurance savings. Additionally, by implementing the Company's budgeting process, the dealership managers have taken a more pro-active approach to managing their expense levels. INTEREST EXPENSE, NET. Interest expense, net, increased $0.5 million, or 31.3%, from $1.6 million for the three months ended March 31, 1997 to $2.1 million for the three months ended March 31, 1998. The increase was primarily attributable to the interest expense of the additional dealership operations acquired and reduced interest earnings due to the utilization of cash in completing the acquisitions. Partially offsetting the increases were cost reductions realized due to the lower interest rates on floorplan notes payable obtained though the Company's credit facility completed December 31, 1997. HISTORICAL RESULTS OF OPERATIONS - GROUP 1 AUTOMOTIVE, INC. THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1997 REVENUES. Revenues increased $182.8 million, or 257.1%, from $71.1 million for the three months ended March 31, 1997 to $253.9 million for the three months ended March 31, 1998. New vehicle revenues increased $99.8 million, or 261.3% from $38.2 million for the three months ended March 31, 1997 to $138.0 million for the three months ended March 31, 1998. Used vehicle revenues increased $61.5 million, or 240.2%, from $25.6 million for the three months ended March 12 13 31, 1997 to $87.1 million for the three months ended March 31, 1998. Parts and service sales increased $16.2 million, or 300.0%, from $5.4 million for the three months ended March 31, 1997 to $21.6 million for the three months ended March 31, 1998. Other dealership revenues increased $5.4 million or 300.0% from $1.8 million for the three months ended March 31, 1997 to $7.2 million for the three months ended March 31, 1998. These increases were due primarily to the inclusion of the dealership operations acquired since October 31, 1997. GROSS PROFIT. Gross profit increased $26.1 million, or 263.6%, from $9.9 million for the three months ended March 31, 1997 to $36.0 million for the three months ended March 31, 1998. The increase was attributable to the inclusion of the dealership operations acquired since October 31, 1997 and an increased gross margin from 13.9% for the three months ended March 31, 1997 to 14.2% for the three months ended March 31, 1998. This increase was due primarily to increased vehicle gross margins and an increase in higher gross margin parts and service sales and other dealership revenues as a percentage of total revenues. The increased vehicle margin was primarily attributable to the acquisition of dealership operations with higher new vehicle gross margins than the operations included for the three months ended March 31, 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $20.3 million, or 253.8%, from $8.0 million for the three months ended March 31, 1997 to $28.3 million for the three months ended March 31, 1998. The increase was primarily attributable to the additional dealership operations acquired. INTEREST EXPENSE, NET. Interest expense, net, increased $1.2 million, or 133.3%, from $0.9 million for the three months ended March 31, 1997 to $2.1 million for the three months ended March 31, 1998. The increase was primarily attributable to the interest expense of the additional dealership operations acquired and reduced interest earnings due to the utilization of cash in completing the acquisitions. Partially offsetting the increases were cost reductions realized due to the lower interest rates on floorplan notes payable obtained though the Company's credit facility completed December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are cash on hand, cash from operations, floorplan financing and its credit facility. During the first quarter of 1998 the Company generated cash from operations of approximately $3.7 million. The cash flow was generated primarily by net income. The Company used approximately $16.1 million for investing activities, primarily related to cash paid in completing acquisitions offset by the cash balances obtained in the acquisitions. The Company obtained approximately $18.3 million from financing activities. The cash was generated primarily from drawings on the Company's floorplan facilities and was utilized in completing acquisitions. At March 31, 1998, the Company had working capital of $26.9 million. Historically, the Company has funded its operations with internally generated cash flow and borrowings from lenders. While there can be no assurance, based on current facts and circumstances, management believes it has adequate cash flows and financing alternatives to fund its current operations, exclusive of acquisitions. In order to continue to implement the Company's growth through acquisition strategy, the Company will need to raise additional funds or primarily utilize its Common Stock to complete acquisitions. CREDIT FACILITY The Company has negotiated and executed an arrangement letter with Chase Securities, Inc. and Comerica Bank to increase it existing $125 million credit facility to a $250 million credit facility to be used for acquisitions, floorplan financing, general corporate purposes, capital 13 14 expenditures and working capital. The amended credit facility was over-subscribed with the commitments received by the Company allowing it to increase the facility to $345 million. FORWARD LOOKING INFORMATION This Quarterly Report and Management's Discussion and Analysis of Results of Operations and Financial Condition include certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this document, including statements regarding potential acquisitions, expected cost savings, planned capital expenditures, the Company's future financial position, business strategy and other plans and objectives for future operations are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements are based upon assumptions and anticipated results that are subject to numerous uncertainties. Actual results may vary significantly from those anticipated due to many factors, including industry conditions, future demand for new and used vehicles, the ability to obtain Manufacturer consents to acquisitions, the availability of capital resources and the willingness of acquisition candidates to accept the Company's capital stock as currency. These important factors, risks and uncertainties include, but are not limited to, those described in the Company 's Annual Report on Form 10-K. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company's dealerships are named in claims involving the manufacture of automobiles, contractual disputes and other matters arising in the ordinary course of business. Currently, no legal proceedings are pending against or involve the Company that, in the opinion of management, could be expected to have a material adverse effect on the business, financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES On March 16, 1998 the Company issued 1,428,158 shares of its common stock in completing the acquisition of the Carroll Group, pursuant to the purchase agreements executed on December 17, 1997. On April 1, 1998 the Company issued 805,929 shares of its common stock in completing the acquisition of the Maxwell Group, pursuant to the purchase agreements executed on December 18, 1997. On May 11, 1998 the Company issued 10,000 shares of its common stock in completing the acquisition of Flamingo Ford, pursuant to the closing memorandum executed on May 11, 1998. The Company relied on Regulation D under the Securities Act of 1933 as an exemption from Registration. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS: 1. 27. Financial Data Schedule B. REPORTS ON FROM 8-K: On March 31, 1998, the Company filed a Current Report on Form 8-K reporting under Item 2 thereof and including exhibits under Item 7 thereof. On April 15, 1998, the Company filed a Current Report on Form 8-K reporting under Item 2 thereof and including exhibits under Item 7 thereof. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Group 1 Automotive, Inc. May 14, 1998 By: /s/ Scott L. Thompson - ----------------- --------------------- Date Scott L. Thompson, Senior Vice President - Chief Financial Officer 15 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 41,048 0 9,722 0 149,944 212,543 25,004 0 298,417 185,636 6,866 0 0 161 100,400 0 246,709 253,934 217,914 217,914 28,555 0 2,136 5,306 2,192 3,114 0 0 0 3,114 .21 .20
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