e10vq
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
OR
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o |
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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: 1-13461
Group 1 Automotive, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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76-0506313
(I.R.S. Employer
Identification No.) |
950 Echo Lane, Suite 100
Houston, Texas 77024
(Address of Principal Executive Offices) (Zip Code)
(713) 647-5700
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o
As of July 29, 2005, the Company had 24,194,436 shares of common stock, par value $.01,
outstanding.
Part I. Financial Information
Item 1. Financial Statements
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
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June 30, |
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December 31, |
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2005 |
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2004 |
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(unaudited) |
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ASSETS |
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Current assets: |
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|
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|
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|
Cash and cash equivalents |
|
$ |
28,449 |
|
|
$ |
37,750 |
|
Contracts-in-transit and vehicle receivables, net |
|
|
179,651 |
|
|
|
172,402 |
|
Accounts and notes receivable, net |
|
|
78,839 |
|
|
|
76,687 |
|
Inventories |
|
|
860,233 |
|
|
|
877,575 |
|
Deferred income taxes |
|
|
17,322 |
|
|
|
14,755 |
|
Prepaid expenses and other current assets |
|
|
20,781 |
|
|
|
26,046 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,185,275 |
|
|
|
1,205,215 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
173,914 |
|
|
|
160,297 |
|
Goodwill |
|
|
373,819 |
|
|
|
366,673 |
|
Intangible franchise rights |
|
|
171,858 |
|
|
|
187,135 |
|
Deferred costs related to insurance policy and vehicle service
contract sales |
|
|
6,915 |
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|
|
7,996 |
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Other assets |
|
|
18,096 |
|
|
|
19,904 |
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|
|
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|
|
|
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Total assets |
|
$ |
1,929,877 |
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|
$ |
1,947,220 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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|
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Floorplan notes payable |
|
$ |
819,929 |
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|
$ |
848,260 |
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Acquisition line |
|
|
50,000 |
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|
|
— |
|
Current maturities of long-term debt |
|
|
1,046 |
|
|
|
1,054 |
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Accounts payable |
|
|
114,513 |
|
|
|
108,920 |
|
Accrued expenses |
|
|
104,982 |
|
|
|
91,528 |
|
|
|
|
|
|
|
|
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Total current liabilities |
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1,090,470 |
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|
1,049,762 |
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|
|
|
|
|
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Long-term debt, net of current maturities |
|
|
158,266 |
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|
156,747 |
|
Acquisition line |
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|
— |
|
|
|
84,000 |
|
Deferred income taxes |
|
|
26,599 |
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|
33,197 |
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Other liabilities |
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27,466 |
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|
24,288 |
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|
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|
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Total liabilities before deferred revenues |
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1,302,801 |
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1,347,994 |
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|
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Deferred revenues |
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28,392 |
|
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|
32,052 |
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Stockholders’ equity: |
|
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|
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|
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Preferred stock, 1,000 shares authorized; none issued or outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $.01 par value, 50,000 shares
authorized; 24,168 and 23,916 issued, respectively |
|
|
242 |
|
|
|
239 |
|
Additional paid-in capital |
|
|
267,342 |
|
|
|
265,645 |
|
Retained earnings |
|
|
335,382 |
|
|
|
318,931 |
|
Accumulated other comprehensive loss |
|
|
(189 |
) |
|
|
(173 |
) |
Deferred stock-based compensation |
|
|
(4,093 |
) |
|
|
— |
|
Treasury stock, at cost; zero and 607 shares, respectively |
|
|
— |
|
|
|
(17,468 |
) |
|
|
|
|
|
|
|
|
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Total stockholders’ equity |
|
|
598,684 |
|
|
|
567,174 |
|
|
|
|
|
|
|
|
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|
Total liabilities and stockholders’ equity |
|
$ |
1,929,877 |
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|
$ |
1,947,220 |
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|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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Three Months Ended June 30, |
|
Six Months Ended June 30, |
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2005 |
|
2004 |
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2005 |
|
2004 |
REVENUES: |
|
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|
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New vehicle retail sales |
|
$ |
980,375 |
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|
$ |
813,918 |
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|
$ |
1,814,320 |
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$ |
1,489,895 |
|
Used vehicle retail sales |
|
|
278,787 |
|
|
|
241,342 |
|
|
|
540,332 |
|
|
|
471,997 |
|
Used vehicle wholesale sales |
|
|
106,786 |
|
|
|
87,106 |
|
|
|
202,980 |
|
|
|
163,297 |
|
Parts and service sales |
|
|
163,057 |
|
|
|
131,283 |
|
|
|
322,517 |
|
|
|
255,303 |
|
Finance, insurance and other, net |
|
|
48,328 |
|
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|
41,252 |
|
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|
93,911 |
|
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|
81,436 |
|
|
|
|
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|
|
|
|
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Total revenues |
|
|
1,577,333 |
|
|
|
1,314,901 |
|
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|
2,974,060 |
|
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|
2,461,928 |
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COST OF SALES: |
|
|
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|
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|
|
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|
New vehicle retail sales |
|
|
911,815 |
|
|
|
756,519 |
|
|
|
1,686,648 |
|
|
|
1,384,603 |
|
Used vehicle retail sales |
|
|
244,053 |
|
|
|
212,154 |
|
|
|
472,222 |
|
|
|
414,239 |
|
Used vehicle wholesale sales |
|
|
107,378 |
|
|
|
88,723 |
|
|
|
203,454 |
|
|
|
165,894 |
|
Parts and service sales |
|
|
73,998 |
|
|
|
58,995 |
|
|
|
147,157 |
|
|
|
115,254 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Total cost of sales |
|
|
1,337,244 |
|
|
|
1,116,391 |
|
|
|
2,509,481 |
|
|
|
2,079,990 |
|
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|
|
|
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|
|
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|
|
|
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|
|
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|
|
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|
GROSS PROFIT |
|
|
240,089 |
|
|
|
198,510 |
|
|
|
464,579 |
|
|
|
381,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Selling, general and administrative expenses |
|
|
192,347 |
|
|
|
159,941 |
|
|
|
374,637 |
|
|
|
306,628 |
|
Depreciation and amortization expense |
|
|
4,302 |
|
|
|
3,607 |
|
|
|
9,925 |
|
|
|
7,155 |
|
|
|
|
|
|
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|
INCOME FROM OPERATIONS |
|
|
43,440 |
|
|
|
34,962 |
|
|
|
80,017 |
|
|
|
68,155 |
|
|
|
|
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|
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OTHER INCOME AND (EXPENSE): |
|
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|
Floorplan interest expense |
|
|
(10,074 |
) |
|
|
(5,965 |
) |
|
|
(18,739 |
) |
|
|
(10,846 |
) |
Other interest expense, net |
|
|
(4,706 |
) |
|
|
(3,793 |
) |
|
|
(9,830 |
) |
|
|
(8,931 |
) |
Loss on redemption of senior subordinated notes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,381 |
) |
Other income (expense), net |
|
|
11 |
|
|
|
(62 |
) |
|
|
8 |
|
|
|
(63 |
) |
|
|
|
|
|
|
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|
|
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|
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|
INCOME BEFORE INCOME TAXES |
|
|
28,671 |
|
|
|
25,142 |
|
|
|
51,456 |
|
|
|
41,934 |
|
Provision for income taxes |
|
|
10,582 |
|
|
|
9,428 |
|
|
|
18,967 |
|
|
|
15,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE |
|
|
18,089 |
|
|
|
15,714 |
|
|
|
32,489 |
|
|
|
26,201 |
|
Cumulative effect of a change in accounting
principle, net of tax benefit of $10,231 |
|
|
— |
|
|
|
— |
|
|
|
(16,038 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
18,089 |
|
|
$ |
15,714 |
|
|
$ |
16,451 |
|
|
$ |
26,201 |
|
|
|
|
|
|
|
|
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|
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EARNINGS (LOSS) PER SHARE: |
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BASIC: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle |
|
$ |
0.76 |
|
|
$ |
0.70 |
|
|
$ |
1.38 |
|
|
$ |
1.16 |
|
Cumulative effect of a change in accounting principle |
|
|
— |
|
|
|
— |
|
|
|
(0.68 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.76 |
|
|
$ |
0.70 |
|
|
$ |
0.70 |
|
|
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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DILUTED: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle |
|
$ |
0.75 |
|
|
$ |
0.67 |
|
|
$ |
1.36 |
|
|
$ |
1.12 |
|
Cumulative effect of a change in accounting principle |
|
|
— |
|
|
|
— |
|
|
|
(0.67 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.75 |
|
|
$ |
0.67 |
|
|
$ |
0.69 |
|
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
23,737 |
|
|
|
22,582 |
|
|
|
23,596 |
|
|
|
22,553 |
|
Diluted |
|
|
23,985 |
|
|
|
23,355 |
|
|
|
23,935 |
|
|
|
23,372 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2005 |
|
2004 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
16,451 |
|
|
$ |
26,201 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of tax |
|
|
16,038 |
|
|
|
— |
|
Depreciation and amortization |
|
|
9,925 |
|
|
|
7,155 |
|
Amortization of debt discount and issue costs |
|
|
920 |
|
|
|
1,011 |
|
Amortization of deferred compensation |
|
|
733 |
|
|
|
— |
|
Deferred income taxes |
|
|
2,043 |
|
|
|
1,711 |
|
Tax benefit from options exercised |
|
|
3,080 |
|
|
|
706 |
|
Provision for doubtful accounts and uncollectible notes |
|
|
1,098 |
|
|
|
(17 |
) |
Losses on sales of assets |
|
|
256 |
|
|
|
79 |
|
Loss on repurchase of senior subordinated notes |
|
|
— |
|
|
|
6,381 |
|
Changes in operating assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
Contracts-in-transit and vehicle receivables |
|
|
(7,249 |
) |
|
|
(4,978 |
) |
Accounts and notes receivable |
|
|
(2,800 |
) |
|
|
(9,644 |
) |
Inventories |
|
|
31,942 |
|
|
|
(78,403 |
) |
Prepaid expenses and other assets |
|
|
7,478 |
|
|
|
1,536 |
|
Floorplan notes payable |
|
|
(40,300 |
) |
|
|
81,535 |
|
Accounts payable and accrued expenses |
|
|
18,409 |
|
|
|
27,641 |
|
Deferred revenues |
|
|
(3,704 |
) |
|
|
(5,504 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
54,320 |
|
|
|
55,410 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(28,261 |
) |
|
|
(27,942 |
) |
Proceeds from sales of property and equipment |
|
|
8,616 |
|
|
|
196 |
|
Purchases of restricted investments |
|
|
(814 |
) |
|
|
(660 |
) |
Maturities of restricted investments |
|
|
377 |
|
|
|
715 |
|
Decrease in restricted cash |
|
|
550 |
|
|
|
517 |
|
Escrow deposits for acquisition of franchises |
|
|
— |
|
|
|
(6,500 |
) |
Cash paid in acquisitions, net of cash received |
|
|
(18,989 |
) |
|
|
(94,540 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(38,521 |
) |
|
|
(128,214 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net borrowings (payments) on revolving credit facility |
|
|
(35,768 |
) |
|
|
168,852 |
|
Principal payments of long-term debt |
|
|
(594 |
) |
|
|
(449 |
) |
Repurchase of senior subordinated notes |
|
|
— |
|
|
|
(79,479 |
) |
Proceeds from issuance of common stock to benefit plans |
|
|
11,572 |
|
|
|
4,063 |
|
Repurchase of common stock, amounts based on settlement date |
|
|
(310 |
) |
|
|
(7,019 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(25,100 |
) |
|
|
85,968 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(9,301 |
) |
|
|
13,164 |
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
37,750 |
|
|
|
26,483 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
28,449 |
|
|
$ |
39,647 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
28,065 |
|
|
$ |
30,604 |
|
Income taxes, net of refunds received |
|
$ |
3,904 |
|
|
$ |
343 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. |
|
BUSINESS AND ORGANIZATION: |
Group 1 Automotive, Inc., a Delaware corporation, is a leading operator in the automotive
retailing industry. Group 1 Automotive, Inc. is a holding company with no independent assets or
operations other than its investments in its subsidiaries, which are located in California,
Colorado, Florida, Georgia, Louisiana, Massachusetts, New Hampshire, New Jersey, New Mexico, New
York, Oklahoma and Texas. These subsidiaries sell new and used cars and light trucks through their
dealerships and Internet sites; arrange related financing, vehicle service and insurance contracts;
provide maintenance and repair services; and sell replacement parts. Group 1 Automotive, Inc. and
its subsidiaries are herein collectively referred to as the “Company” or “Group 1.”
2. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
Basis of Presentation
All acquisitions of dealerships completed during the periods presented have been accounted for
using the purchase method of accounting and their results of operations are included from the
effective dates of the closings of the acquisitions. The allocations of purchase price to the
assets acquired and liabilities assumed are assigned and recorded based on estimates of fair value.
All intercompany balances and transactions have been eliminated in consolidation.
Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments of a normal and recurring nature considered necessary for a fair
presentation have been included. Due to seasonality and other factors, the results of operations
for the interim period are not necessarily indicative of the results that will be realized for the
entire fiscal year. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2004.
Intangible Franchise Rights
The Company’s only significant identifiable intangible assets, other than goodwill, are rights
under franchise agreements with manufacturers, which are recorded at an individual dealership
level. The Company expects these franchise agreements to continue for an indefinite period and,
when these agreements do not have indefinite terms, the Company believes that renewal of these
agreements can be obtained without substantial cost. As such, the Company believes that its
franchise agreements will contribute to cash flows for an indefinite period and, therefore, the
carrying amount of franchise rights are not amortized. Franchise rights acquired in acquisitions
prior to July 1, 2001, were recorded and amortized as part of goodwill and remain as part of
goodwill in the accompanying consolidated balance sheets at June 30, 2005 and December 31, 2004.
Since July 1, 2001, intangible franchise rights acquired in business combinations have been
recorded as distinctly separate intangible assets and, in accordance with Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), the Company
evaluates these franchise rights for impairment annually, or more frequently if events or
circumstances indicate possible impairment.
At the September 2004 meeting of the Emerging Issues Task Force, the SEC staff issued Staff
Announcement No. D-108, “Use of the Residual Method to Value Acquired Assets Other Than Goodwill”
(“EITF D-108”) which states that for business combinations after September 29, 2004, the residual
method should no longer be used to value intangible assets other than goodwill. Rather, a direct
value method should be used to determine the fair value of all intangible assets other than
goodwill required to be recognized under SFAS No. 141, “Business Combinations.” Additionally,
registrants who have applied a residual method to the valuation of intangible assets for purposes
of impairment testing under SFAS No. 142, shall perform an impairment test using a direct value
method on all intangible assets that were previously valued using a residual method by no later
than the beginning of their first fiscal year beginning after December 15, 2004.
In performing this transitional impairment test as of January 1, 2005, the Company tested the
carrying value of each individual franchise right that had been recorded for impairment by using a
discounted cash flow model. Included in this “direct” analysis were assumptions, at a dealership
level, regarding which cash flow streams were directly attributable to each dealership’s franchise
rights, revenue growth rates, future gross margins and future selling, general and administrative
expenses. Using an estimated weighted average cost of capital, estimated residual values at the
end of the forecast period and future capital expenditure requirements, the Company calculated the
fair value of each dealership’s franchise rights after considering estimated values for tangible
assets, working capital and workforce.
For some of the Company’s dealerships, this transitional impairment test resulted in an
estimated fair value that was less than the carrying value of their intangible franchise rights.
As a result, a non-cash charge of $16.0 million, net of deferred taxes of $10.2 million, was
recorded in the first quarter of 2005 as a cumulative effect of a change in accounting principle in
accordance
6
with the transitional rules of EITF D-108. Any future impairment charges will be recorded as
a component of operating income in the Company’s consolidated statement of operations.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No.
25”). Accordingly, compensation expense for stock-based awards is measured as the excess, if any,
of the quoted market price of the Company’s common stock at the date of grant over the amount an
employee must pay to acquire the common stock. Typically, the Company grants options at prices
equal to the market price of its common stock on the date of grant and therefore does not record
compensation expense related to these grants. Additionally, no compensation expense is recorded
for shares issued pursuant to the employee stock purchase plan as it is a “noncompensatory” plan,
as that term is defined in APB No. 25.
During 2005, the Company’s directors and certain employees were granted, at no cost to the
recipient, restricted stock awards or, at their election, phantom stock awards, covering a total of
214,712 common shares, pursuant to the Company’s 1996 Stock Incentive Plan, as amended. The shares
of restricted stock are considered outstanding at the date of grant, but are restricted from
disposition for periods ranging from six months to five years. In the event the employee or
director terminates his or her employment or directorship with the Company prior to the lapse of
the restrictions, the shares, in most cases, will be forfeited to the Company. The phantom stock
awards will settle in shares of common stock upon the termination of the grantees’ employment or
directorship and have vesting periods ranging from six months to five years. As both of these
awards are fixed, compensation was measured at the date of grant and recorded as a deferred charge
to stockholders’ equity. This deferred stock-based compensation will be amortized ratably to
income over the vesting periods of the individual awards.
SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an
Amendment of FASB Statement No. 123,” requires companies that continue to account for stock-based
compensation in accordance with APB No. 25 to disclose certain information using a tabular
presentation. The table presented below illustrates the effect on net income and earnings per
share as if the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation,” had been applied to the Company’s stock-based employee compensation plans. Under
the provisions of SFAS No. 123, compensation cost for stock-based compensation is determined based
on fair values as of the dates of grant and compensation cost is amortized over the applicable
vesting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in thousands, except per share amounts) |
Net income, as reported |
|
$ |
18,089 |
|
|
$ |
15,714 |
|
|
$ |
16,451 |
|
|
$ |
26,201 |
|
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects |
|
|
363 |
|
|
|
— |
|
|
|
458 |
|
|
|
— |
|
Deduct: Stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects |
|
|
(978 |
) |
|
|
(832 |
) |
|
|
(1,621 |
) |
|
|
(1,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
17,474 |
|
|
$ |
14,882 |
|
|
$ |
15,288 |
|
|
$ |
24,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic — as reported |
|
$ |
0.76 |
|
|
$ |
0.70 |
|
|
$ |
0.70 |
|
|
$ |
1.16 |
|
Basic — pro forma |
|
$ |
0.74 |
|
|
$ |
0.66 |
|
|
$ |
0.65 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted — as reported |
|
$ |
0.75 |
|
|
$ |
0.67 |
|
|
$ |
0.69 |
|
|
$ |
1.12 |
|
Diluted — pro forma |
|
$ |
0.73 |
|
|
$ |
0.64 |
|
|
$ |
0.64 |
|
|
$ |
1.04 |
|
Income Taxes
The Company operates in 12 states, each of which has unique tax rates and payment
calculations. As the amount of income generated in each state varies from period to period, the
Company’s estimated effective tax rate varies based on the proportion of taxable income generated
in each state.
The effective income tax rate for the three and six months ended June 30, 2005 and 2004,
differed from the federal statutory rate of 35% due primarily to the impact of state income taxes.
Self-Insured Medical and Property/Casualty Plans
The Company is self-insured for a portion of the claims related to its employee medical
benefits and property/casualty insurance programs. Currently, the portion of claims not covered by
insurance are accrued based upon the Company’s estimates of the aggregate liability for claims
incurred using the Company’s historical claims experience.
7
The Company recently engaged a third-party actuary to conduct a study of the Company’s
self-insured property and casualty risk exposure. This study may result in the Company recording
an adjustment to its current accrual. The Company does not believe any such adjustment will have a
material adverse effect on its financial position, results of operations or cash flows. The
Company expects to complete its analysis of the results of the study during the third quarter of
2005.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R)
requires that companies recognize compensation expense equal to the fair value of stock options and
other share-based payments. The standard was initially to be effective beginning in the third
quarter of 2005, but on April 15, 2005, the SEC changed the required adoption period to be the
first interim period of a registrant’s fiscal year beginning after June 15, 2005. As a result, the
Company must adopt the provisions of SFAS No. 123(R) effective January 1, 2006. The impact on the
Company’s net income will include the remaining amortization of the fair value of existing
stock-based awards currently disclosed as pro forma expense above, and is contingent upon the
number and form of future grants and the determination of the appropriate valuation model. The
Company is evaluating the requirements of SFAS No. 123(R) and has not yet determined the method of
adoption or the effect of adopting SFAS No. 123(R), or whether the adoption
will result in amounts that are similar to the current pro forma disclosures required under SFAS
No. 123 presented above.
Reclassifications
Certain reclassifications have been made to the prior period to conform to the current period
presentation.
3. |
|
EARNINGS (LOSS) PER SHARE: |
Basic earnings per share is computed based on weighted average shares outstanding and excludes
dilutive securities. Diluted earnings per share is computed including the impact of all
potentially dilutive securities. The following table sets forth the calculation of earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in thousands, except per share amounts) |
Income before cumulative effect of a change in
accounting principle |
|
$ |
18,089 |
|
|
$ |
15,714 |
|
|
$ |
32,489 |
|
|
$ |
26,201 |
|
Cumulative effect of a change in accounting principle,
net of tax benefit |
|
|
— |
|
|
|
— |
|
|
|
(16,038 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,089 |
|
|
$ |
15,714 |
|
|
$ |
16,451 |
|
|
$ |
26,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding |
|
|
23,737 |
|
|
|
22,582 |
|
|
|
23,596 |
|
|
|
22,553 |
|
Dilutive effect of stock-based awards, net of assumed
repurchase of treasury stock |
|
|
248 |
|
|
|
773 |
|
|
|
339 |
|
|
|
819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
23,985 |
|
|
|
23,355 |
|
|
|
23,935 |
|
|
|
23,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle |
|
$ |
0.76 |
|
|
$ |
0.70 |
|
|
$ |
1.38 |
|
|
$ |
1.16 |
|
Cumulative effect of a change in accounting principle |
|
|
— |
|
|
|
— |
|
|
|
(0.68 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.76 |
|
|
$ |
0.70 |
|
|
$ |
0.70 |
|
|
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle |
|
$ |
0.75 |
|
|
$ |
0.67 |
|
|
$ |
1.36 |
|
|
$ |
1.12 |
|
Cumulative effect of a change in accounting principle |
|
|
— |
|
|
|
— |
|
|
|
(0.67 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.75 |
|
|
$ |
0.67 |
|
|
$ |
0.69 |
|
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. |
|
RELATED PARTY TRANSACTIONS: |
In February 2005, the Company sold recently acquired real estate to a partnership,
some of the partners of which are among the management of one of the Company’s platforms, for approximately
$4.2 million, the same amount the Company paid to a
third party for the property in November 2004. Upon completion of a new dealership facility
on the property, the Company will lease the land and facility back from the partnership under terms
to be finalized upon completion of the facility.
8
In May 2005, in connection with a tuck-in acquisition, the Company assigned its right to buy
the related dealership real estate to a partnership, some of the partners of which are among the
management of one of the Company’s platforms. The partnership purchased the dealership real estate
at appraised value and entered into a 15-year lease with the Company. The lease has three
five-year renewal options, solely at the Company’s discretion, and the future minimum lease
payments over the initial lease term are approximately $5.1 million. The Company believes that the
terms of the lease are at fair market value and are comparable to terms in leases recently executed
by the Company with third parties.
Also in May 2005, in connection with the acquisition of a right to acquire a new franchise,
the Company assigned its right to acquire related real estate to a partnership, the partners of
which are among the management of one of the Company’s platforms. The partnership purchased the
real estate at appraised value and entered into an intent to lease agreement with the Company,
pursuant to which the Company is expected to lease the property upon completion of a new dealership
facility. The lease terms will be finalized upon completion of the facility. In the event that
the Company does not enter into a lease agreement with the partnership, the Company is obligated to
purchase the real estate at the partnership’s cost basis of $1.9 million.
In June 2005, the Company sold and leased back a dealership facility from a partnership, the
partners of which are among the management of one of the Company’s platforms. The total sales
price was $2.2 million, which the Company believes represents fair market value. The lease has a
15-year initial term, three five-year renewal options, solely at the Company’s discretion, and
future minimum lease payments over the initial lease term of approximately $2.9 million. The
Company believes that the terms of the lease are at fair market value and are comparable to terms
in leases recently executed by the Company with third parties.
5. |
|
COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in thousands) |
Net income |
|
$ |
18,089 |
|
|
$ |
15,714 |
|
|
$ |
16,451 |
|
|
$ |
26,201 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swaps, net of tax |
|
|
— |
|
|
|
506 |
|
|
|
— |
|
|
|
826 |
|
Unrealized gains (losses) on available for sale securities,
net of tax |
|
|
14 |
|
|
|
— |
|
|
|
(16 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
18,103 |
|
|
$ |
16,220 |
|
|
$ |
16,435 |
|
|
$ |
27,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. |
|
COMMITMENTS AND CONTINGENCIES: |
From time to time, our dealerships are named in claims involving the manufacture of
automobiles, contractual disputes and other matters arising in the ordinary course of business.
The Texas Automobile Dealers Association (“TADA”) and certain new vehicle dealerships in Texas
that are members of the TADA, including a number of the Company’s Texas dealership subsidiaries,
have been named in two state court class action lawsuits and one federal court class action
lawsuit. The three actions allege that since January 1994, Texas dealers have deceived customers
with respect to a vehicle inventory tax and violated federal antitrust and other laws. In April
2002, the state court in which two of the actions are pending certified classes of consumers on
whose behalf the action would proceed. In October 2002, the Texas Court of Appeals affirmed the
trial court’s order of class certification in the state action. The defendants requested that the
Texas Supreme Court review that decision, and the Court declined that request on March 26, 2004.
The defendants petitioned the Texas Supreme Court to reconsider its denial, and that petition was
denied on September 10, 2004. In the federal antitrust action, in March 2003, the federal district
court also certified a class of consumers. Defendants appealed the district court’s certification
to the Fifth Circuit Court of Appeals, which on October 5, 2004, reversed the class certification
order and remanded the case back to the federal district court for further proceedings. In
February 2005, the plaintiffs in the federal action sought a writ of certiorari to the United
States Supreme Court in order to obtain review of the Fifth Circuit’s order, which request the
Court denied. In June 2005, the Company’s Texas dealerships and certain other defendants in the
lawsuits entered settlements with the plaintiffs in each of the cases. The settlements are
contingent upon and subject to court approval. Estimated expenses of the proposed settlements
include the Company’s dealerships issuing certificates for discounts off future vehicle purchases,
refunding cash in some circumstances, and paying attorneys’ fees and certain costs. Dealers
participating in the settlements would agree to certain disclosures regarding inventory tax charges
when itemizing such charges on customer invoices. Estimated expenses of the proposed settlements
of $1.5 million have been included in accrued expenses in the
accompanying consolidated balance sheet. If approved, the Company does not believe that these settlements will have a material
adverse effect on the Company’s financial position, results of operations or cash flows. If the
settlements are not approved, the Company will continue
to vigorously assert available defenses in connection with these lawsuits. While the Company
does not believe this litigation will have a material adverse effect on its financial position,
results of operations or cash flows, no assurance can be given as to its ultimate outcome. A
settlement on different terms or an adverse resolution of this matter in litigation could result in
the payment of significant costs and damages.
Other than the foregoing cases, there are currently no legal proceedings pending against or
involving the Company that, in management’s opinion, based on current known facts and
circumstances, are expected to have a material adverse effect on the Company’s financial position
or results of operations.
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. Our actual results may
differ materially from those discussed in the forward-looking statements because of various
factors. See “Cautionary Statement about Forward-Looking Statements.”
Overview
We are a leading operator in the $1 trillion automotive retailing industry. As of June 30,
2005, we owned and operated 143 dealership franchises, representing 33 brands, primarily located in
major metropolitan markets in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New
Hampshire, New Jersey, New Mexico, New York, Oklahoma and Texas. Through our dealerships and
Internet sites, we sell new and used cars and light trucks; arrange related financing, vehicle
service and insurance contracts; provide maintenance and repair services; and sell replacement
parts. We also operate 31 collision service centers.
Our operating results reflect the combined performance of each of our inter-related business
activities, which include the sale of new vehicles, used vehicles, finance and insurance products,
and parts, service and collision repair services. Historically, each of these activities has been
directly or indirectly impacted by a variety of supply/demand factors, including vehicle
inventories, consumer confidence, discretionary spending, availability and affordability of
consumer credit, manufacturer incentives, weather patterns, fuel prices and interest rates. For
example, during periods of sustained economic downturn or significant supply/demand imbalances, new
vehicle sales may be negatively impacted as consumers shift their purchases to used vehicles. Some
consumers may even delay their purchasing decisions altogether, electing instead to repair their
existing vehicles. In such cases, however, we believe the impact on our overall business is
mitigated by our ability to offer other products and services, such as used vehicles and parts,
service and collision repair services.
Our operations are also subject to seasonal variations as demand for automobiles is generally
lower during the winter months than in other seasons. A greater amount of vehicle sales generally
occurs in the second and third quarters of each year due in part to weather-related factors,
consumer buying patterns, the historical timing of major manufacturer incentive programs, and the
introduction of new vehicle models. Accordingly, we expect our operating results to be higher in
the second and third quarters as compared to the first and fourth quarters.
Our performance, excluding the impact of the cumulative effect of a change in accounting
principle discussed below, during the first six months of 2005, and specifically the second
quarter, improved on both a Same Store (see term defined in “Results of Operations”) and
consolidated basis over the prior year periods. We realized improvements in most Same Store
metrics and realized the benefits of our 2004 acquisitions in the current year. For the three and
six months ended June 30, 2005, we reported net income of $18.1 million and $16.5 million and
diluted earnings per share of $0.75 and $0.69, respectively, compared to net income of $15.7
million and $26.2 million and diluted earnings per share of $0.67 and $1.12, respectively, during
the comparable periods of 2004. The following items significantly affected our financial position
and results of operations in 2005 and 2004, and may cause our reported results to not be comparable
or indicative of our future performance.
|
• |
|
Cumulative Effect of a Change in Accounting Principle: For some of our dealerships,
our adoption of EITF D-108, “Use of the Residual Method to Value Acquired Assets Other
Than Goodwill,” resulted in intangible franchise rights having carrying values that were
in excess of their fair values. This required us to write-off the excess value of $16.0
million, net of deferred taxes of $10.2 million, or $0.67 per diluted share, as the
cumulative effect of a change in accounting principle in the first quarter of this year. |
|
|
• |
|
Loss on Redemption of Senior Subordinated Notes: In March 2004, we completed the
redemption of all of our outstanding 10 7/8% senior subordinated notes and incurred a $6.4
million pretax charge, or $4.0 million and $0.17 per diluted share on an after-tax basis. |
For the three months and six months ended June 30, 2005, as compared to the same periods of
2004, our consolidated revenues increased 20.0% and 20.8%, respectively, and our consolidated gross
profit increased 20.9% and 21.6%, respectively, primarily because of acquisitions closed during
2004 together with improvements from our Same Store locations. During these same periods of 2005,
our Same Store revenues increased 3.9% and 2.1%, respectively, compared to the same periods of
2004, due to increases in all our business lines. Our Same Store gross profit increased 4.5%,
during the second quarter, and 3.1%, during the six months ended June 30, 2005, compared to the
same periods of 2004, due also to increases in the gross profit realized from each business line
other than new vehicles. Our new vehicle gross profit remained relatively unchanged between the
periods. On a Same Store basis, during the second quarter of 2005, we realized a slight
improvement in total gross margin, to 15.2% from 15.1% in the comparable period in 2004.
During the second quarter and first six months of 2005, as compared to 2004, we had a 20.3%
and 22.2% increase in selling, general and administrative (“SG&A”) expense primarily because of
acquisitions closed during 2004. Our Same Store SG&A expense as a percentage of gross profit
declined approximately 40 basis points during the three months ended June 30, 2005, as compared to
2004, as we continued to address our spending levels.
10
Finally, during the second quarter and first six months of 2005, as compared to 2004, we had a
68.9% and 72.8% increase in floorplan interest expense and a 24.1% and 10.1% increase in other
interest expense. The increases in floorplan interest expense were driven by increases in both the
average outstanding floorplan borrowings during the periods, as well as increases in average
interest rates. The increase in other interest expense is primarily a result of higher average
borrowings outstanding during the periods, as our weighted average interest rate declined in both
periods.
We address these items, and other variances between the periods presented, in the results of
operations section below.
Critical Accounting Policies and Accounting Estimates
Our condensed consolidated financial statements are impacted by the accounting policies we use
and the estimates and assumptions we make during their preparation. We disclosed our critical
accounting policies and estimates in our 2004 Annual Report on Form 10-K. With the exception of
the discussion below regarding a change to our method of valuation of intangible franchise rights,
no significant changes have occurred since that time.
Intangible Franchise Rights. Our only significant identified intangible assets, other than
goodwill, are rights under our franchise agreements with manufacturers. We expect these franchise
agreements to continue for an indefinite period but, when these agreements do not have indefinite
terms, we believe that renewal of these agreements can be obtained without substantial cost. As
such, we believe that our franchise agreements will contribute to cash flows for an indefinite
period. Therefore, we do not amortize the carrying amount of our franchise rights. Franchise
rights acquired in acquisitions prior to July 1, 2001, were not separately recorded, but were
recorded and amortized as part of goodwill and remain a part of goodwill at June 30, 2005 and
December 31, 2004 in the accompanying consolidated balance sheets. Like goodwill, and in
accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets,” we test our franchise rights for impairment annually, or more frequently if events or
circumstances indicate possible impairment, using a fair-value method.
At the September 2004 meeting of the Emerging Issues Task Force, the SEC staff issued Staff
Announcement No. D-108, “Use of the Residual Method to Value Acquired Assets Other Than Goodwill,”
which states that for business combinations after September 29, 2004, the residual method should no
longer be used to value intangible assets other than goodwill. Rather, a direct value method should
be used to determine the fair value of all intangible assets other than goodwill required to be
recognized under SFAS No. 141, “Business Combinations.” Additionally, registrants who have applied
a residual method to the valuation of intangible assets for purposes of impairment testing under
SFAS No. 142, shall perform an impairment test using a direct value method on all intangible assets
that were previously valued using a residual method by no later than the beginning of their first
fiscal year beginning after December 15, 2004.
To test the carrying value of each individual franchise right for impairment under EITF D-108,
we use a discounted cash flow based approach. Included in this analysis are assumptions, at a
dealership level, regarding the cash flows directly attributable to the franchise right, revenue
growth rates, future gross margins and future selling, general and administrative expenses. Using
an estimated weighted average cost of capital, estimated residual values at the end of the forecast
period and future capital expenditure requirements, we calculate the fair value of each
dealership’s franchise rights after considering estimated values for tangible assets, working
capital and workforce.
For some of the Company’s dealerships, the adoption of the annual impairment provisions as of
January 1, 2005 resulted in a fair value that was less than the carrying value of their intangible
franchise rights. As a result, a non-cash charge of $16.0 million, net of deferred taxes of $10.2
million, was recorded as a cumulative effect of a change in accounting principle in accordance with
the transitional rules of EITF D-108 in the first quarter of 2005. Any future impairment charges
will be recorded as a component of operating income in the Company’s consolidated statement of
operations.
If any one of the above assumptions changes, including in some cases small changes, or fails
to materialize, the resulting decline in our estimated fair value could result in a material
impairment charge to the intangible franchise right associated with the applicable dealership. For
example, if our assumptions regarding the future interest rates used in our estimate of weighted
average cost of capital change by 100 basis points, and all other assumptions remain constant, the
non-cash charge would change by $3.9 million.
Self-Insured Property and Casualty Risk Reserves. We are self-insured for a portion of the
claims related to our property and casualty insurance programs, requiring us to make estimates
regarding expected claims to be incurred. These estimates, for the portion of claims not covered
by insurance, are currently based primarily on our historical claims experience and projected
inflation in claims costs in future periods. Changes in the frequency or severity of claims from
historical levels could influence our reserve for claims and our financial position, results of
operations and cash flows. A 10% change in the historical loss history used in determining our
estimate of future losses would have changed our reserve at June 30, 2005, by $1.8 million.
11
Our
potential exposure under all of our self-insured property and casualty plans currently totals $41.2
million, before consideration of accruals we have recorded related to our loss projections. After
consideration of these accruals, our remaining potential loss exposure under these plans totals
approximately $17.6 million at June 30, 2005.
We recently engaged a third-party actuary to conduct a study of our self-insured property and
casualty risk exposure. This study may result in us recording an adjustment to our current
accrual. We do not believe any such adjustment will have a material adverse effect on our
financial position, results of operations or cash flows. We expect to complete our analysis of the
results of the study during the third quarter of 2005.
Results of Operations
The following tables present comparative financial and non-financial data for the three and
six months ended June 30, 2005 and 2004, of (a) our “Same Store” locations, (b) those locations
acquired or disposed of (“Transactions”) during the periods, and (c) the total company. Same Store
amounts include the results of dealerships for the identical months in each period presented in the
comparison, commencing with the first month in which we owned the dealership and, in the case of
dispositions, ending with the last month it was owned. Same Store results also include the
activities of the corporate office.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Vehicle Retail Data |
|
|
|
|
|
(dollars in thousands, |
|
|
|
|
|
except per unit amounts) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Retail Unit Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
29,942 |
|
|
|
1.7 |
% |
|
|
29,441 |
|
|
|
|
54,028 |
|
|
|
0.3 |
% |
|
|
53,873 |
|
Transactions |
|
|
3,779 |
|
|
|
|
|
|
|
— |
|
|
|
|
8,526 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
33,721 |
|
|
|
14.5 |
% |
|
|
29,441 |
|
|
|
|
62,554 |
|
|
|
16.1 |
% |
|
|
53,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Sales Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
840,431 |
|
|
|
3.3 |
% |
|
$ |
813,918 |
|
|
|
$ |
1,515,936 |
|
|
|
1.7 |
% |
|
$ |
1,489,895 |
|
Transactions |
|
|
139,944 |
|
|
|
|
|
|
|
— |
|
|
|
|
298,384 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
980,375 |
|
|
|
20.5 |
% |
|
$ |
813,918 |
|
|
|
$ |
1,814,320 |
|
|
|
21.8 |
% |
|
$ |
1,489,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
57,134 |
|
|
|
(0.5 |
)% |
|
$ |
57,399 |
|
|
|
$ |
105,167 |
|
|
|
(0.1 |
)% |
|
$ |
105,292 |
|
Transactions |
|
|
11,426 |
|
|
|
|
|
|
|
— |
|
|
|
|
22,505 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
68,560 |
|
|
|
19.4 |
% |
|
$ |
57,399 |
|
|
|
$ |
127,672 |
|
|
|
21.3 |
% |
|
$ |
105,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit per Retail Unit Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
1,908 |
|
|
|
(2.2 |
)% |
|
$ |
1,950 |
|
|
|
$ |
1,947 |
|
|
|
(0.4 |
)% |
|
$ |
1,954 |
|
Transactions |
|
$ |
3,024 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,640 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,033 |
|
|
|
4.3 |
% |
|
$ |
1,950 |
|
|
|
$ |
2,041 |
|
|
|
4.5 |
% |
|
$ |
1,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
6.8 |
% |
|
|
|
|
|
|
7.1 |
% |
|
|
|
6.9 |
% |
|
|
|
|
|
|
7.1 |
% |
Transactions |
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
7.0 |
% |
|
|
|
|
|
|
7.1 |
% |
|
|
|
7.0 |
% |
|
|
|
|
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Days Supply (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
63 |
|
|
|
(19.2 |
)% |
|
|
78 |
|
|
|
|
63 |
|
|
|
(19.2 |
)% |
|
|
78 |
|
Transactions |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
Total |
|
|
62 |
|
|
|
(20.5 |
)% |
|
|
78 |
|
|
|
|
62 |
|
|
|
(20.5 |
)% |
|
|
78 |
|
|
|
|
(1) |
|
Inventory days supply equals units in inventory at the end of the period, divided by unit sales for the month then ended,
multiplied by 30 days. |
Our new vehicle unit sales, revenues and gross profit during the three and six months
ended June 30, 2005, outpaced the same periods in 2004 due primarily to the current year
contribution of our acquisitions completed throughout 2004 plus modest Same Store growth in unit
sales and revenue. The 3.3% increase in Same Store revenue for the three months ended was due in
equal part to increases in sales volume and in our average selling price per unit, while the
1.7% increase during the six months ended was primarily attributable to increases in our average
selling price per unit. Sizeable increases in sales volume in most of our General Motors brands,
due to the manufacturer’s recent incentive program, as well as Toyota, Nissan and Chrysler were
12
partially offset by decreases in volume in our Ford and Dodge dealerships. The following table
sets forth our top ten Same Store brands, based on retail unit sales volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store New Vehicle Unit Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Toyota/Scion |
|
|
6,978 |
|
|
|
8.2 |
% |
|
|
6,450 |
|
|
|
|
12,343 |
|
|
|
6.2 |
% |
|
|
11,617 |
|
Ford |
|
|
5,073 |
|
|
|
(6.2 |
) |
|
|
5,409 |
|
|
|
|
9,435 |
|
|
|
(7.6 |
) |
|
|
10,210 |
|
Nissan |
|
|
2,724 |
|
|
|
9.9 |
|
|
|
2,479 |
|
|
|
|
5,378 |
|
|
|
10.0 |
|
|
|
4,890 |
|
Chevrolet |
|
|
2,613 |
|
|
|
11.8 |
|
|
|
2,337 |
|
|
|
|
4,440 |
|
|
|
6.6 |
|
|
|
4,165 |
|
Honda |
|
|
2,573 |
|
|
|
0.5 |
|
|
|
2,560 |
|
|
|
|
4,639 |
|
|
|
(0.3 |
) |
|
|
4,653 |
|
Dodge |
|
|
1,833 |
|
|
|
(12.0 |
) |
|
|
2,084 |
|
|
|
|
3,180 |
|
|
|
(17.1 |
) |
|
|
3,838 |
|
Lexus |
|
|
1,441 |
|
|
|
1.1 |
|
|
|
1,425 |
|
|
|
|
2,631 |
|
|
|
(0.9 |
) |
|
|
2,654 |
|
Chrysler |
|
|
1,033 |
|
|
|
15.0 |
|
|
|
898 |
|
|
|
|
1,809 |
|
|
|
24.2 |
|
|
|
1,456 |
|
Jeep |
|
|
741 |
|
|
|
(2.2 |
) |
|
|
758 |
|
|
|
|
1,375 |
|
|
|
(5.2 |
) |
|
|
1,450 |
|
GMC |
|
|
719 |
|
|
|
17.1 |
|
|
|
614 |
|
|
|
|
1,136 |
|
|
|
8.6 |
|
|
|
1,046 |
|
Other |
|
|
4,214 |
|
|
|
(4.8 |
) |
|
|
4,427 |
|
|
|
|
7,662 |
|
|
|
(2.9 |
) |
|
|
7,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
29,942 |
|
|
|
1.7 |
|
|
|
29,441 |
|
|
|
|
54,028 |
|
|
|
0.3 |
|
|
|
53,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With the recent influx of other manufacturer incentives countering General Motors’ popular
employee discount program, we expect our near-term new vehicle sales volumes to continue to exceed
prior year levels. We also expect new vehicle gross margin to
continue to reflect the highly competitive environment created by these programs.
Our consolidated new vehicle gross margin declined from 7.1% for the three and six months
ended June 30, 2004, to 7.0% for the three months and six months ended June 30, 2005. The
favorable impact of luxury franchises acquired last year, which generally yield higher gross
margins than domestic or import non-luxury franchises, was offset by decreases in our Same Store
gross margin.
Most manufacturers offer interest assistance to offset floorplan interest charges incurred in
connection with inventory purchases. Although certain of our manufacturers offer assistance that
varies with changes in interest rates, albeit on a lag from changes in the underlying interest
rates, other of our manufacturers’ assistance is relatively fixed. This assistance has ranged from
approximately 77% to 158% of our total floorplan interest expense over the past five years. For
the second quarter of 2005 as compared to 2004, this ratio declined from 138% to 96%, primarily due
to rising interest rates. We record these incentives as a reduction of new vehicle cost of sales
as the vehicles are sold, which impacts the gross profit and gross margin detailed above. The
total assistance recognized in cost of goods sold during the three months ended June 30, 2005 and
2004, was $9.7 million and $8.3 million, respectively, while the assistance for the six months
ended June 30, 2005 and 2004, was $17.8 million and $15.0 million, respectively.
Finally, our days’ supply of new vehicle inventory continues to decrease, from 78 days’ supply
at June 30, 2004, to 62 days’ supply at June 30, 2005, as we work towards our target level of 60
days’ supply. Our 62 days’ supply at June 30, 2005, was negatively impacted by our domestic
inventory, which stood at 83 days’ supply, versus our import and luxury brands in which we had 46
and 47 days’ supply, respectively.
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used Vehicle Retail Data |
|
|
|
|
|
(dollars in thousands, |
|
|
|
|
|
except per unit amounts) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Retail Unit Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
15,976 |
|
|
|
(2.7 |
)% |
|
|
16,425 |
|
|
|
|
31,198 |
|
|
|
(4.3 |
)% |
|
|
32,611 |
|
Transactions |
|
|
1,465 |
|
|
|
|
|
|
|
— |
|
|
|
|
3,485 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17,441 |
|
|
|
6.2 |
% |
|
|
16,425 |
|
|
|
|
34,683 |
|
|
|
6.4 |
% |
|
|
32,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Sales Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
247,894 |
|
|
|
2.7 |
% |
|
$ |
241,342 |
|
|
|
$ |
471,565 |
|
|
|
(0.1 |
)% |
|
$ |
471,997 |
|
Transactions |
|
|
30,893 |
|
|
|
|
|
|
|
— |
|
|
|
|
68,767 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
278,787 |
|
|
|
15.5 |
% |
|
$ |
241,342 |
|
|
|
$ |
540,332 |
|
|
|
14.5 |
% |
|
$ |
471,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
31,395 |
|
|
|
7.6 |
% |
|
$ |
29,188 |
|
|
|
$ |
60,042 |
|
|
|
4.0 |
% |
|
$ |
57,758 |
|
Transactions |
|
|
3,339 |
|
|
|
|
|
|
|
— |
|
|
|
|
8,068 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,734 |
|
|
|
19.0 |
% |
|
$ |
29,188 |
|
|
|
$ |
68,110 |
|
|
|
17.9 |
% |
|
$ |
57,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit per Retail
Unit Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
1,965 |
|
|
|
10.6 |
% |
|
$ |
1,777 |
|
|
|
$ |
1,925 |
|
|
|
8.7 |
% |
|
$ |
1,771 |
|
Transactions |
|
$ |
2,279 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,315 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,992 |
|
|
|
12.1 |
% |
|
$ |
1,777 |
|
|
|
$ |
1,964 |
|
|
|
10.9 |
% |
|
$ |
1,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
12.7 |
% |
|
|
|
|
|
|
12.1 |
% |
|
|
|
12.7 |
% |
|
|
|
|
|
|
12.2 |
% |
Transactions |
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
11.7 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
12.5 |
% |
|
|
|
|
|
|
12.1 |
% |
|
|
|
12.6 |
% |
|
|
|
|
|
|
12.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used Vehicle Wholesale Data |
|
|
|
|
|
(dollars in thousands, |
|
|
|
|
|
except per unit amounts) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Wholesale Unit Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
12,182 |
|
|
|
2.4 |
% |
|
|
11,894 |
|
|
|
|
22,878 |
|
|
|
0.9 |
% |
|
|
22,684 |
|
Transactions |
|
|
1,058 |
|
|
|
|
|
|
|
— |
|
|
|
|
2,810 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
13,240 |
|
|
|
11.3 |
% |
|
|
11,894 |
|
|
|
|
25,688 |
|
|
|
13.2 |
% |
|
|
22,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Sales Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
94,507 |
|
|
|
8.5 |
% |
|
$ |
87,106 |
|
|
|
$ |
174,509 |
|
|
|
6.9 |
% |
|
$ |
163,297 |
|
Transactions |
|
|
12,279 |
|
|
|
|
|
|
|
— |
|
|
|
|
28,471 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
106,786 |
|
|
|
22.6 |
% |
|
$ |
87,106 |
|
|
|
$ |
202,980 |
|
|
|
24.3 |
% |
|
$ |
163,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
(681 |
) |
|
|
57.9 |
% |
|
$ |
(1,617 |
) |
|
|
$ |
(532 |
) |
|
|
79.5 |
% |
|
$ |
(2,597 |
) |
Transactions |
|
|
89 |
|
|
|
|
|
|
|
— |
|
|
|
|
58 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(592 |
) |
|
|
63.4 |
% |
|
$ |
(1,617 |
) |
|
|
$ |
(474 |
) |
|
|
81.7 |
% |
|
$ |
(2,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Profit (Loss) per
Wholesale Unit Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
(56 |
) |
|
|
58.8 |
% |
|
$ |
(136 |
) |
|
|
$ |
(23 |
) |
|
|
79.8 |
% |
|
$ |
(114 |
) |
Transactions |
|
$ |
85 |
|
|
|
|
|
|
|
|
|
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(45 |
) |
|
|
66.9 |
% |
|
$ |
(136 |
) |
|
|
$ |
(18 |
) |
|
|
84.2 |
% |
|
$ |
(114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
(0.7 |
)% |
|
|
|
|
|
|
(1.9 |
)% |
|
|
|
(0.3 |
)% |
|
|
|
|
|
|
(1.6 |
)% |
Transactions |
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
(0.6 |
)% |
|
|
|
|
|
|
(1.9 |
)% |
|
|
|
(0.2 |
)% |
|
|
|
|
|
|
(1.6 |
)% |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Used Vehicle Data |
|
|
|
|
|
(dollars in thousands, |
|
|
|
|
|
except per unit amounts) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Used Vehicle Unit Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
28,158 |
|
|
|
(0.6 |
)% |
|
|
28,319 |
|
|
|
|
54,076 |
|
|
|
(2.2 |
)% |
|
|
55,295 |
|
Transactions |
|
|
2,523 |
|
|
|
|
|
|
|
— |
|
|
|
|
6,295 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
30,681 |
|
|
|
8.3 |
% |
|
|
28,319 |
|
|
|
|
60,371 |
|
|
|
9.2 |
% |
|
|
55,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
342,401 |
|
|
|
4.2 |
% |
|
$ |
328,448 |
|
|
|
$ |
646,074 |
|
|
|
1.7 |
% |
|
$ |
635,294 |
|
Transactions |
|
|
43,172 |
|
|
|
|
|
|
|
— |
|
|
|
|
97,238 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
385,573 |
|
|
|
17.4 |
% |
|
$ |
328,448 |
|
|
|
$ |
743,312 |
|
|
|
17.0 |
% |
|
$ |
635,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
30,714 |
|
|
|
11.4 |
% |
|
$ |
27,571 |
|
|
|
$ |
59,510 |
|
|
|
7.9 |
% |
|
$ |
55,161 |
|
Transactions |
|
|
3,428 |
|
|
|
|
|
|
|
— |
|
|
|
|
8,126 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,142 |
|
|
|
23.8 |
% |
|
$ |
27,571 |
|
|
|
$ |
67,636 |
|
|
|
22.6 |
% |
|
$ |
55,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit per Used Vehicle
Unit Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
1,091 |
|
|
|
12.0 |
% |
|
$ |
974 |
|
|
|
$ |
1,100 |
|
|
|
10.2 |
% |
|
$ |
998 |
|
Transactions |
|
$ |
1,359 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,291 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,113 |
|
|
|
14.3 |
% |
|
$ |
974 |
|
|
|
$ |
1,120 |
|
|
|
12.2 |
% |
|
$ |
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
9.0 |
% |
|
|
|
|
|
|
8.4 |
% |
|
|
|
9.2 |
% |
|
|
|
|
|
|
8.7 |
% |
Transactions |
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
8.9 |
% |
|
|
|
|
|
|
8.4 |
% |
|
|
|
9.1 |
% |
|
|
|
|
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Days Supply (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
29 |
|
|
|
(3.3 |
)% |
|
|
30 |
|
|
|
|
29 |
|
|
|
(3.3 |
)% |
|
|
30 |
|
Transactions |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
Total |
|
|
29 |
|
|
|
(3.3 |
)% |
|
|
30 |
|
|
|
|
29 |
|
|
|
(3.3 |
)% |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Used Gross Profit
per Retail Unit Sold (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
1,923 |
|
|
|
14.5 |
% |
|
$ |
1,679 |
|
|
|
$ |
1,907 |
|
|
|
12.8 |
% |
|
$ |
1,691 |
|
Transactions |
|
$ |
2,340 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,332 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,958 |
|
|
|
16.6 |
% |
|
$ |
1,679 |
|
|
|
$ |
1,950 |
|
|
|
15.3 |
% |
|
$ |
1,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Used Gross Margin (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
12.4 |
% |
|
|
|
|
|
|
11.4 |
% |
|
|
|
12.6 |
% |
|
|
|
|
|
|
11.7 |
% |
Transactions |
|
|
11.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
12.2 |
% |
|
|
|
|
|
|
11.4 |
% |
|
|
|
12.5 |
% |
|
|
|
|
|
|
11.7 |
% |
|
|
|
(1) |
|
Inventory days supply equals units in inventory at the end of the period, divided by unit sales for the month then ended,
multiplied by 30 days. |
|
(2) |
|
Adjusted used gross profit per retail unit sold equals total gross profit, which includes net wholesale profit or loss, divided by
retail unit sales. The net profit or loss on wholesale vehicle sales is included in this number, as these transactions facilitate
retail vehicle sales and management of inventory levels. |
|
(3) |
|
Adjusted used gross margin equals total gross profit, which includes net wholesale profit or loss, divided by retail sales
revenues. The net profit or loss on wholesale vehicle sales is included in this number, as these transactions facilitate retail
vehicle sales and management of inventory levels. |
Our used vehicle results are directly affected by the level of manufacturer incentives on
new vehicles, the number and quality of trade-ins and lease turn-ins, and the availability of
consumer credit. During the three and six months ended June 30, 2005, we saw increases in Same
Store average sales price and gross profit per unit, offset by a slight decline in Same Store used
vehicle volume, that resulted in increases in revenues and gross profit. We realized improved
margins in both retail and wholesale sales for the three and six months ended June 30, 2005
relative to the same periods last year, though the continued shift of used vehicle sales toward
more wholesale sales tempered this overall improvement.
15
The dealerships we acquired during 2004, although yielding a lower used vehicle retail gross
margin than our Same Stores, realized a higher average gross profit per retail vehicle sold than
our Same Stores. We believe both of these factors result from the impact of luxury dealerships
acquired, whose used vehicle businesses typically have higher retail sales prices and higher gross
profit per unit sold.
Finally,
our days’ supply of used vehicle inventory decreased from 30 days at June 30, 2004, to
29 days’ supply at June 30, 2005. We have recently increased our target from 30 to 37 days. We
believe this new target effectively balances the increased risk in the used car business as a
result of continuing new car incentive programs with the need to give our operators more latitude
with which to manage their used car inventories, taking into consideration the time required to
refurbish a used vehicle and provide for sufficient inventory on display at any one time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parts and Service Data |
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Parts and Service Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
138,635 |
|
|
|
5.6 |
% |
|
$ |
131,283 |
|
|
|
$ |
267,211 |
|
|
|
4.7 |
% |
|
$ |
255,303 |
|
Transactions |
|
|
24,422 |
|
|
|
|
|
|
|
— |
|
|
|
|
55,306 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
163,057 |
|
|
|
24.2 |
% |
|
$ |
131,283 |
|
|
|
$ |
322,517 |
|
|
|
26.3 |
% |
|
$ |
255,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
75,412 |
|
|
|
4.3 |
% |
|
$ |
72,288 |
|
|
|
$ |
144,970 |
|
|
|
3.5 |
% |
|
$ |
140,049 |
|
Transactions |
|
|
13,647 |
|
|
|
|
|
|
|
— |
|
|
|
|
30,390 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
89,059 |
|
|
|
23.2 |
% |
|
$ |
72,288 |
|
|
|
$ |
175,360 |
|
|
|
25.2 |
% |
|
$ |
140,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
54.4 |
% |
|
|
|
|
|
|
55.1 |
% |
|
|
|
54.3 |
% |
|
|
|
|
|
|
54.9 |
% |
Transactions |
|
|
55.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
54.9 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
54.6 |
% |
|
|
|
|
|
|
55.1 |
% |
|
|
|
54.4 |
% |
|
|
|
|
|
|
54.9 |
% |
Our Same Store parts and service revenues increased 5.6% and 4.7%, respectively, and gross
profit increased 4.3% and 3.5%, respectively, for the three and six month periods ended June 30,
2005, versus the same periods in 2004. These increases were primarily driven by improvements in
our retail and wholesale parts businesses, as well as our customer pay service business.
Our Same Store parts sales increased $5.5 million, or 7.2%, for the three months ended June
30, 2005, and increased $9.6 million, or 6.5%, for the six months then ended versus the comparable
periods in 2004. These increases were driven by increases in retail
sales of 5.1% and 3.6% for the three and six month periods,
respectively, and increases in our lower margin wholesale sales of 11.0% and 11.7%, respectively.
Despite increases in Same Store gross profit in both periods, this change in sales mix led to
declines in our overall parts gross margin as our individual retail and wholesale parts margins
were relatively constant between the periods.
Our Same Store service business also saw improvements in both revenues and gross profit.
During the second quarter and first six months of 2005, as compared to 2004, our service revenue
increased 3.7% and 2.4%, respectively, while our gross profit
increased 3.7% in the second quarter
of 2005, as compared to the same period of 2004, and increased 2.7% during the six-month
period. These increases were driven by increased customer pay sales, as warranty sales were
relatively constant.
The inclusion of our 2004 acquisitions in our 2005 results helped bolster our total parts and
service gross margin as these franchises realized margins of 55.9% and 54.9% for the three and six
month periods, respectively.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance and Insurance Data |
|
|
|
|
|
(dollars in thousands, |
|
|
|
|
|
except per unit amounts) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Retail New and Used
Unit Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
45,918 |
|
|
|
0.1 |
% |
|
|
45,866 |
|
|
|
|
85,226 |
|
|
|
(1.5 |
)% |
|
|
86,484 |
|
Transactions |
|
|
5,244 |
|
|
|
|
|
|
|
— |
|
|
|
|
12,011 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
51,162 |
|
|
|
11.5 |
% |
|
|
45,866 |
|
|
|
|
97,237 |
|
|
|
12.4 |
% |
|
|
86,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Finance Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
17,088 |
|
|
|
2.9 |
% |
|
$ |
16,608 |
|
|
|
$ |
31,194 |
|
|
|
(3.0 |
)% |
|
$ |
32,170 |
|
Transactions |
|
|
2,018 |
|
|
|
|
|
|
|
— |
|
|
|
|
4,151 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,106 |
|
|
|
15.0 |
% |
|
$ |
16,608 |
|
|
|
$ |
35,345 |
|
|
|
9.9 |
% |
|
$ |
32,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Service Contract Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
15,970 |
|
|
|
5.3 |
% |
|
$ |
15,166 |
|
|
|
$ |
32,712 |
|
|
|
6.5 |
% |
|
$ |
30,712 |
|
Transactions |
|
|
1,278 |
|
|
|
|
|
|
|
— |
|
|
|
|
3,365 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,248 |
|
|
|
13.7 |
% |
|
$ |
15,166 |
|
|
|
$ |
36,077 |
|
|
|
17.5 |
% |
|
$ |
30,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
11,031 |
|
|
|
16.4 |
% |
|
$ |
9,478 |
|
|
|
$ |
20,322 |
|
|
|
9.5 |
% |
|
$ |
18,554 |
|
Transactions |
|
|
943 |
|
|
|
|
|
|
|
— |
|
|
|
|
2,167 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,974 |
|
|
|
26.3 |
% |
|
$ |
9,478 |
|
|
|
$ |
22,489 |
|
|
|
21.2 |
% |
|
$ |
18,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
44,089 |
|
|
|
6.9 |
% |
|
$ |
41,252 |
|
|
|
$ |
84,228 |
|
|
|
3.4 |
% |
|
$ |
81,436 |
|
Transactions |
|
|
4,239 |
|
|
|
|
|
|
|
— |
|
|
|
|
9,683 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48,328 |
|
|
|
17.2 |
% |
|
$ |
41,252 |
|
|
|
$ |
93,911 |
|
|
|
15.3 |
% |
|
$ |
81,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance and Insurance
Revenues per Unit Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
960 |
|
|
|
6.8 |
% |
|
$ |
899 |
|
|
|
$ |
988 |
|
|
|
4.9 |
% |
|
$ |
942 |
|
Transactions |
|
$ |
808 |
|
|
|
|
|
|
|
|
|
|
|
$ |
806 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
945 |
|
|
|
5.1 |
% |
|
$ |
899 |
|
|
|
$ |
966 |
|
|
|
2.5 |
% |
|
$ |
942 |
|
Total finance, insurance and other revenues increased 17.2% and 15.3% during the three and six
months ended June 30, 2005, respectively, as compared to 2004, due to Same Store growth of 6.9% and
3.4%, respectively, plus the impact of our 2004 acquisitions. Total average finance and insurance
revenues per retail unit sold improved during the three and six month periods, despite the addition
of our 2004 acquisitions, which generally had lower penetration of finance and insurance products
on sales of new and used vehicles than our existing stores.
With respect to Same Store retail finance fees, during the second quarter of 2005, as compared
to 2004, we saw a 2.9% increase in fee income on relatively flat total retail vehicle sales. This
increase was primarily attributable to a $0.6 million increase from higher revenue per contract on
new and used vehicle financings. For the six months ended
June 30, 2005, we experienced a 3.0%
decrease in finance fee income primarily due to a $0.7 million increase in chargeback expense and a
1.5% decline in total retail vehicle sales. The increase in chargeback expense is due to an
increase in customer refinancing activity, in which a customer obtains a new, lower rate loan from
a third-party source in order to replace the original loan chosen by the customer to obtain upfront
manufacturer incentives.
With respect to Same Store vehicle service contract fees, during the second quarter of 2005,
as compared to 2004, we saw a 5.3% increase in income on, again, relatively flat total retail
vehicle sales. This increase was primarily attributable to a $0.8 million increase from higher
revenue per contract on new and used vehicle transactions along with a $0.3 million increase from
higher penetration of contract sales in new vehicle transactions. For the six months ended June
30, 2005, we experienced a 6.5% increase in income on a 1.5% decrease in total retail vehicle
sales. This increase was primarily attributable to a $2.4 million increase from higher revenue per
contract on new and used vehicle transactions and a $0.8 million increase from higher penetration
of contract sales in new vehicle transactions. These increases were partially offset by a $0.5
million impact from a
4.3% decline in used vehicle unit sales and a $0.4 million impact from a decline in the
penetration rate of contract sales in used vehicle transactions.
17
With respect to Same Store insurance and other sales revenue, we saw increases during the
first six months of 2005, due primarily to increases in the second quarter of 2005, as compared to
2004, of $0.7 million in revenue associated with the sale of guaranteed asset protection insurance
products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Data |
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Personnel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
100,682 |
|
|
|
6.3 |
% |
|
$ |
94,712 |
|
|
|
$ |
192,938 |
|
|
|
5.1 |
% |
|
$ |
183,609 |
|
Transactions |
|
|
15,743 |
|
|
|
|
|
|
|
— |
|
|
|
|
34,521 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
116,425 |
|
|
|
22.9 |
% |
|
$ |
94,712 |
|
|
|
$ |
227,459 |
|
|
|
23.9 |
% |
|
$ |
183,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
15,480 |
|
|
|
(8.6 |
)% |
|
$ |
16,931 |
|
|
|
$ |
29,137 |
|
|
|
(8.1 |
)% |
|
$ |
31,707 |
|
Transactions |
|
|
2,255 |
|
|
|
|
|
|
|
— |
|
|
|
|
5,168 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,735 |
|
|
|
4.7 |
% |
|
$ |
16,931 |
|
|
|
$ |
34,305 |
|
|
|
8.2 |
% |
|
$ |
31,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and Facility Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
18,928 |
|
|
|
3.0 |
% |
|
$ |
18,373 |
|
|
|
$ |
37,266 |
|
|
|
2.1 |
% |
|
$ |
36,489 |
|
Transactions |
|
|
3,472 |
|
|
|
|
|
|
|
— |
|
|
|
|
7,491 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22,400 |
|
|
|
21.9 |
% |
|
$ |
18,373 |
|
|
|
$ |
44,757 |
|
|
|
22.7 |
% |
|
$ |
36,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other SG&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
31,276 |
|
|
|
4.5 |
% |
|
$ |
29,925 |
|
|
|
$ |
58,021 |
|
|
|
5.8 |
% |
|
$ |
54,823 |
|
Transactions |
|
|
4,511 |
|
|
|
|
|
|
|
— |
|
|
|
|
10,095 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,787 |
|
|
|
19.6 |
% |
|
$ |
29,925 |
|
|
|
$ |
68,116 |
|
|
|
24.2 |
% |
|
$ |
54,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
166,366 |
|
|
|
4.0 |
% |
|
$ |
159,941 |
|
|
|
$ |
317,362 |
|
|
|
3.5 |
% |
|
$ |
306,628 |
|
Transactions |
|
|
25,981 |
|
|
|
|
|
|
|
— |
|
|
|
|
57,275 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
192,347 |
|
|
|
20.3 |
% |
|
$ |
159,941 |
|
|
|
$ |
374,637 |
|
|
|
22.2 |
% |
|
$ |
306,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
$ |
207,349 |
|
|
|
4.5 |
% |
|
$ |
198,510 |
|
|
|
$ |
393,875 |
|
|
|
3.1 |
% |
|
$ |
381,938 |
|
Transactions |
|
|
32,740 |
|
|
|
|
|
|
|
— |
|
|
|
|
70,704 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
240,089 |
|
|
|
20.9 |
% |
|
$ |
198,510 |
|
|
|
$ |
464,579 |
|
|
|
21.6 |
% |
|
$ |
381,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A as % of Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Stores |
|
|
80.2 |
% |
|
|
|
|
|
|
80.6 |
% |
|
|
|
80.6 |
% |
|
|
|
|
|
|
80.3 |
% |
Transactions |
|
|
79.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
81.0 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
80.1 |
% |
|
|
|
|
|
|
80.6 |
% |
|
|
|
80.6 |
% |
|
|
|
|
|
|
80.3 |
% |
Our selling, general and administrative (SG&A) expenses consist primarily of salaries,
commissions and incentive-based compensation, as well as advertising, rent and other miscellaneous
expenses. We believe that our personnel and advertising expenses are variable and can be adjusted
in response to changing business conditions. In such a case, however, it may take us several
months to adjust our cost structure, or we may elect not to fully adjust a variable component, such
as advertising expenses.
For the three months ended June 30, 2005, SG&A expenses decreased as a percentage of gross
profit on a Same Store basis to 80.2% from 80.6% during 2004, and increased slightly for the
comparable six-month period. The decrease in the three months ended June 30, 2005, as compared to
2004, resulted primarily from a reduction in advertising expenses, as well as a reduction in our
dealership-level personnel related costs as a percentage of gross profit. Excluding costs
associated with the transition of our Chief Executive Officer position, including signing bonus,
relocation fees, executive search and legal fees, and other miscellaneous costs, Same Store SG&A
would have been 79.4% and 80.2% of gross profit for the three and six month periods.
Same Store personnel expenses slightly outpaced the growth in gross profit due to the
compensation component of the Chief Executive Officer transitional expenses noted above and other
corporate-level expenses. Excluding the Chief Executive Officer transitional expenses, our Same
Store personnel expenses would have increased approximately 4.5% quarter over quarter and 4.2% year
over year, more consistent with the increases noted in Same Store gross profit. We had increases in
dealership level compensation, as the variable compensation of our commissioned salespeople and platform management is closely tied to dealership
18
gross profit; however for the three and six months ended
June 30, 2005, these increased only 3.8% and 2.7%, respectively, which were below the increases in
gross profit noted above.
Our advertising programs are managed locally and expense varies period to period based upon
current trends, market factors and other circumstances in each individual market. We have closely
scrutinized our levels and types of advertising expenditures over the last six months, resulting in
the above noted decreases.
The increases in Same Store rent and facility costs for the quarter and year-to-date periods
are primarily due to rent increases associated with new facilities
and index-based rent
increases on existing facilities.
Other SG&A consists primarily of insurance, freight, supplies, professional fees, loaner car
expenses, vehicle delivery expenses, software licenses and other data processing costs, and
miscellaneous other operating costs not related to personnel, advertising or facilities. For the
three months ended June 30, 2005, as compared to the same period of 2004, we had increases totaling $2.7 million in a
number of areas partially offset by a $1.4 million decrease due to lower
losses from our property and casualty retained risk program. The largest causes of the $2.7
million increase were:
|
• |
|
a $0.7 million increase in professional fees, primarily consisting of legal fees and
expenses, executive search fees, and board of director fees and expenses; |
|
|
• |
|
a $0.7 million increase in bad debt expense; |
|
|
• |
|
a $0.3 million increase in delivery-related expenses, primarily as a result of higher fuel costs; and |
|
|
• |
|
a $0.3 million increase in travel-related expenditures. |
For the six months ended June 30, 2005, as compared to the same period of 2004, we had
increases totaling $3.9 million in a number of areas partially offset by a $0.7 million decrease
due to lower losses from our property and casualty retained risk program. The largest causes of
the $3.9 million increase were:
|
• |
|
a $1.5 million increase in professional fees, primarily consisting of legal fees and
expenses, executive search fees, and board of director fees and expenses; |
|
|
• |
|
a $1.0 million increase in delivery related expenses, primarily as a result of higher fuel costs; and |
|
|
• |
|
a $0.9 million increase in bad debt expense. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expense |
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Same Stores |
|
$ |
3,830 |
|
|
|
6.2 |
% |
|
$ |
3,607 |
|
|
|
$ |
8,764 |
|
|
|
22.5 |
% |
|
$ |
7,155 |
|
Transactions |
|
|
472 |
|
|
|
|
|
|
|
— |
|
|
|
|
1,161 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,302 |
|
|
|
19.3 |
% |
|
$ |
3,607 |
|
|
|
$ |
9,925 |
|
|
|
38.7 |
% |
|
$ |
7,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our year-to-date Same Store depreciation and amortization expense increased primarily because
of a $1.0 million charge, during the first quarter of 2005, resulting from an adjustment to the
depreciable lives of certain of our leasehold improvements to reflect better their remaining useful
lives. The remainder of the year-to-date increase and the increase in the quarter are due to a
number of facility additions, including service bay expansions, facility upgrades and manufacturer
required image renovations completed during the last twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floorplan Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2005 |
|
% Change |
|
2004 |
|
|
2005 |
|
% Change |
|
2004 |
Same Stores |
|
$ |
8,842 |
|
|
|
48.2 |
% |
|
$ |
5,965 |
|
|
|
$ |
15,996 |
|
|
|
47.5 |
% |
|
$ |
10,846 |
|
Transactions |
|
|
1,232 |
|
|
|
|
|
|
|
— |
|
|
|
|
2,743 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,074 |
|
|
|
68.9 |
% |
|
$ |
5,965 |
|
|
|
$ |
18,739 |
|
|
|
72.8 |
% |
|
$ |
10,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Our floorplan interest expense fluctuates based on changes in borrowings outstanding and
interest rates, which are based on LIBOR (or Prime in some cases) plus a spread. Our Same Store
floorplan interest expense increased during the three months ended June 30, 2005, compared to 2004,
because of an approximate 200 basis point increase in weighted average interest rates. Partially
offsetting this increase was an approximate $14.1 million decrease in weighted average borrowings
outstanding between the periods and the maturity of an interest rate swap that accounted for
approximately $0.7 million of the expense in the second quarter of 2004.
Our Same Store floorplan interest expense for the first six months of 2005 suffered from an
approximate 175 basis point increase in weighted average interest rates and a $39.5 million
increase in our weighted average borrowings outstanding. These increases were tempered by the
maturity of our interest rate swap that accounted for approximately $1.3 million of the expense for
the six months ended June 30, 2004. The increase in weighted average borrowings was primarily a
result of the use of the proceeds from our 8 1/4% senior subordinated notes offering in August 2003
to temporarily pay down our floorplan notes payable in 2004. These funds were partially redrawn in
March 2004 to fund the redemption of our 10 7/8% senior subordinated notes, and fully used by the
end of 2004 for acquisitions.
Other Interest Expense, net
Other net interest expense, which consists of interest charges on our long-term debt and our
acquisition line, partially offset by interest income, increased during the second quarter and
first six months of 2005, as compared to 2004. These increases were the result of increases of
approximately $56.9 million and $44.7 million in weighted average borrowings outstanding for the
three and six months ended June 30, 2005, respectively, partially offset by 70 basis point and 105
basis point decreases in weighted average interest rates during the periods. During 2005, our
average debt outstanding increased, as compared to the comparable periods in 2004, due to a number
of acquisitions funded through our acquisition line in the latter half of 2004. This increase in
acquisition borrowings drove the decrease in our weighted average interest rates during the
periods, as this line carries a lower interest rate than the 10 7/8% senior subordinated notes that
were redeemed in March 2004 and our other senior subordinated debt outstanding.
Loss on Redemption of Senior Subordinated Notes
On March 1, 2004, we completed the redemption of all of our 10 7/8% senior subordinated notes.
We incurred a $6.4 million pretax charge in completing the redemption, consisting of a $4.1
million redemption premium and a $2.3 million non-cash write-off of unamortized bond discount and
deferred financing costs.
Provision for Income Taxes
Our provision for income taxes increased $1.2 million, to $10.6 million, for the three months
ended June 30, 2005, from $9.4 million for the three months ended June 30, 2004. For the six
months ended June 30, 2005, our provision, excluding the tax benefit associated with the cumulative
effect of a change in accounting principle discussed below, increased $3.2 million, to $19.0
million from $15.7 million, as compared to the six months ended June 30, 2004. For the three and
six months ended June 30, 2005, our effective tax rate decreased to 36.9%, from 37.5% for the
comparative periods of 2004, due primarily to varying state income tax rates and changes to the
distribution of our earnings in those states.
Cumulative Effect of a Change in Accounting Principle
At the September 2004 meeting of the Emerging Issues Task Force, the SEC staff issued Staff
Announcement No. D-108, “Use of the Residual Method to Value Acquired Assets Other Than Goodwill,”
which states that a residual method should no longer be used to value intangible assets other than
goodwill. Rather, a direct value method should be used to determine the fair value of all
intangible assets other than goodwill required to be recognized under SFAS No. 141, “Business
Combinations.” Registrants who have applied a residual method to the valuation of intangible
assets other than goodwill for purposes of impairment testing under SFAS No. 142, “Goodwill and
Other Intangible Assets,” shall perform a transitional impairment test using a direct value method
on all intangible assets other than goodwill that were previously valued using another method by no
later than the beginning of their first fiscal year beginning after December 15, 2004.
Our adoption of EITF D-108 in the first quarter of 2005 resulted in some of our dealerships
having intangible franchise rights carrying values that were in excess of their estimated fair
values. This required us to record the excess of the carrying value over the fair value of $16.0
million, net of deferred taxes of $10.2 million, as a cumulative effect of a change in accounting
principle.
Liquidity and Capital Resources
Our liquidity and capital resources are primarily derived from cash on hand, cash from
operations, borrowings under our credit facilities, which provide floorplan, working capital and
acquisition financing, and proceeds from debt and equity offerings. While we cannot guarantee it,
based on current facts and circumstances we believe we have adequate cash flow, coupled with
available borrowing capacity, to fund our current operations, capital expenditures and acquisition
program for 2005. If our capital
20
expenditures or acquisition plans for 2005 change, we may need to
access the private or public capital markets to obtain additional funding.
Sources of Liquidity and Capital Resources
As of June 30, 2005, our total cash on hand was $28.4 million.
Cash Flows. The following is a discussion of our cash flows for the six months ended June 30,
2005 and 2004.
Operating activities. For the six months ended June 30, 2005, we generated $54.3 million in
net cash from operating activities, primarily driven by net income, after adding back depreciation
and amortization and other non-cash charges, including the $16.0 million after-tax charge related
to the change in accounting principle.
For the six months ended June 30, 2004, we generated $55.4 million of cash flow from
operations, primarily driven by net income, after adding back depreciation and amortization and the
$6.4 million pretax loss on the redemption of our 10 7/8% senior subordinated notes.
Investing activities. During the first six months of 2005, we used approximately $38.5
million in investing activities. We used $19.0 million for acquisitions, net of cash received, and
$28.3 million for purchases of property and equipment. Approximately $22.1 million of the property
and equipment purchases was for the purchase of land and construction of new or expanded
facilities. Partially offsetting these uses was approximately $8.6 million in proceeds from sales
of property and equipment.
During the first six months of 2004, the $128.2 million of cash used in investing activities
included $94.5 million of cash used in acquisitions, net of cash received, and $27.9 million for
purchases of property and equipment, of which approximately $17.2 million was for the purchase of
land and construction of new or expanded facilities.
Financing activities. We used approximately $25.1 million in financing activities during the
six months ended June 30, 2005, primarily to repay borrowings under our revolving credit facility.
We received $11.6 million from financing activities during this period in connection with the
exercise of stock options and the sale of shares pursuant to our employee stock purchase plan.
We obtained approximately $86.0 million from financing activities during the first six months
of 2004, primarily from borrowings under our revolving credit facility. Partially offsetting the
funds obtained through borrowings was the use of $79.5 million to complete the redemption of all of
our 10 7/8% senior subordinated notes. We also spent $7.0 million repurchasing our common stock in
the first quarter of 2004.
Working Capital. At June 30, 2005, we had working capital of $94.8 million. Changes in our
working capital are generally a function of changes in the percentage of our vehicle inventory that
is financed. Borrowings on our new vehicle floorplan notes payable, subject to agreed upon pay-off
terms, are equal to 100% of the factory invoice of the vehicles. Borrowings on our used vehicle
floorplan notes payable, subject to agreed upon pay-off terms, are limited to 55% of the aggregate
book value of our used vehicle inventory. At times, we have made payments on our floorplan notes
payable using excess cash flow from operations and the proceeds of debt and equity offerings. As
needed, we reborrow the amounts later, up to the limits on the floorplan notes payable discussed
below, for working capital, acquisitions, capital expenditures or general corporate purposes.
In addition, the classification of the outstanding balance under our acquisition line of
credit as a current liability affected our working capital at June 30, 2005, as the underlying
facility matures in June 2006.
Credit Facilities. Our various credit facilities are used to finance the purchase of
inventory, provide acquisition funding and provide working capital for general corporate purposes.
Our two facilities currently provide us with a total of $1.2 billion of borrowing capacity.
Revolving Credit Facility. This facility matures in June 2006 and provides a total of $937.0
million of financing. We can further expand the facility to its maximum commitment of $1.0
billion, subject to participating lender approval. This facility consists of two tranches: $769.2
million for floorplan financing, which we refer to as the floorplan tranche, and $162.8 million for
acquisitions, capital expenditures and general corporate purposes, including the issuance of
letters of credit. We refer to this tranche as the acquisition line. The floorplan tranche bears
interest at rates equal to LIBOR plus 112.5 basis points for new
vehicle inventory and LIBOR plus 125 basis points for used vehicle inventory. The acquisition
line bears interest at LIBOR plus a margin that ranges from 175 to 325 basis points, depending on
our leverage ratio.
At the present time, borrowings under our acquisition line are recorded as current liabilities
because our facility matures within the next twelve months. Absent this circumstance, these
borrowings typically would be recorded as long-term debt. We plan to enter into a new revolving
credit facility prior to the maturity of our current facility in June 2006.
21
Our revolving credit facility contains various covenants including financial ratios, such as
fixed-charge coverage and interest coverage, and a minimum net worth requirement, among others, as
well as additional maintenance requirements. We were in compliance with these covenants at June
30, 2005.
Our group of lenders is comprised of 13 major financial institutions, including two
manufacturer captive finance companies. As of June 30, 2005, $103.2 million was available, after
deducting $9.5 million for outstanding letters of credit, to be drawn under the acquisition line,
and $162.9 million was available to be drawn under the floorplan tranche for inventory purchases.
Ford Motor Credit Facility. We have a separate floorplan financing arrangement with Ford
Motor Credit Company, which we refer to as the FMCC facility, to provide financing for our entire
Ford, Lincoln and Mercury new vehicle inventory. The FMCC facility, which matures in June 2006,
provides for up to $300.0 million of financing for inventory at an interest rate equal to Prime
plus 100 basis points minus certain incentives. As of June 30, 2005, $107.8 million was available
for inventory purchases under the FMCC facility. We expect the net cost of our borrowings under
the FMCC facility, after all incentives, to be slightly higher than the cost of borrowing under the
floorplan tranche of our revolving credit facility.
The following table summarizes the current status of our credit facilities as of June 30,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
Credit Facility |
|
Commitment |
|
Outstanding |
|
Available |
|
|
|
|
|
|
(in thousands) |
|
|
|
|
Floorplan Tranche |
|
$ |
769,247 |
|
|
$ |
606,494 |
|
|
$ |
162,753 |
|
Acquisition Line (1)(2) |
|
|
162,753 |
|
|
|
59,519 |
|
|
|
103,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revolving Credit Facility |
|
|
932,000 |
|
|
|
666,013 |
|
|
|
265,987 |
|
FMCC Facility |
|
|
300,000 |
|
|
|
192,203 |
|
|
|
107,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Facilities |
|
$ |
1,232,000 |
|
|
$ |
858,216 |
|
|
$ |
373,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The outstanding balance at June 30, 2005, includes $9.5 million of letters of credit. |
|
(2) |
|
The total commitment reflects the aggregate commitment of $167.8 million less $5.0 million of
reserves as required by the lenders. |
Uses of Liquidity and Capital Resources
Senior Subordinated Notes Redemption. On March 1, 2004, we completed the redemption of all of
our 10 7/8% senior subordinated notes. Total cash used in completing the redemption, excluding
accrued interest of $4.1 million, was $79.5 million.
Capital Expenditures. Our capital expenditures include expenditures to extend the useful
lives of current facilities and expenditures to start or expand operations. Historically, our
annual capital expenditures, exclusive of new or expanded operations, have approximately equaled
our annual depreciation charge. In general, expenditures relating to the construction or expansion
of dealership facilities are driven by new franchises being granted to us by a manufacturer,
significant growth in sales at an existing facility, or manufacturer imaging programs.
During 2005, we plan to invest a total of approximately $52.8 million to expand or relocate 11
existing facilities, prepare six new facilities for operations, perform manufacturer required
imaging projects at four locations, and purchase equipment for new and expanded facilities. We
have agreed to sell and leaseback two of the projects scheduled for completion during 2005. In
addition, during the quarter, we sold and leased back one project previously completed during 2004.
We also sold one parcel of land purchased during 2004 in connection with a planned facility
relocation. This land will be leased back together with a newly constructed dealership facility
upon completion, which is expected in 2006. Expected total proceeds for the year from the sales of
construction projects is estimated at approximately $21.4 million, resulting in net capital
expenditures for new and expanded operations of $31.4 million.
Acquisitions. Our acquisition target for 2005 is to complete strategic acquisitions that have
approximately $300.0 million in expected annual revenues. We expect the cash needed to complete
our acquisitions will come from excess working capital, operating cash flows of our dealerships,
and borrowings under our credit facility. Depending on the market value of our common
stock, we may issue common stock to fund a portion of the purchase price of acquisitions. We
purchase businesses based on expected return on investment. Generally, the purchase price is
approximately 15% to 20% of the expected annual revenues. Thus, our targeted acquisition budget of $300.0
million is expected to cost between $45.0 and $60.0 million.
Stock Repurchases. In March 2004, our board of directors authorized us to repurchase up to
$25.0 million of our stock, subject to management’s judgment and the restrictions of our various
debt agreements. As of June 30, 2005, $18.9 million remained under the board of directors’ March
2004 authorization.
22
Cautionary Statement about Forward-Looking Statements
This quarterly report includes certain “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements include statements regarding our plans, goals, beliefs or current expectations
with respect to, among other things:
|
• |
|
our future operating performance; |
|
|
• |
|
our ability to improve our margins; |
|
|
• |
|
operating cash flows and availability of capital; |
|
|
• |
|
the completion of future acquisitions; |
|
|
• |
|
the future revenues of acquired dealerships; |
|
|
• |
|
future stock repurchases; |
|
|
• |
|
net capital expenditures; |
|
|
• |
|
changes in sales volumes in the new and used vehicle and parts and service markets; |
|
|
• |
|
business trends in the retail automotive industry, including the level of manufacturer
incentives, new and used vehicle retail sales volume, customer demand, interest rates and
changes in industrywide inventory levels; and |
|
|
• |
|
availability of financing for inventory and working capital. |
Any such forward-looking statements are not assurances of future performance and involve risks
and uncertainties. Actual results may differ materially from anticipated results in the
forward-looking statements for a number of reasons, including:
|
• |
|
the future economic environment, including consumer confidence, interest rates, the
price of gasoline, the level of manufacturer incentives and the availability of consumer
credit may affect the demand for new and used vehicles, replacement parts, maintenance and
repair services and finance and insurance products; |
|
|
• |
|
adverse international developments such as war, terrorism, political conflicts or other
hostilities may adversely affect the demand for our products and services; |
|
|
• |
|
the future regulatory environment, unexpected litigation or adverse legislation,
including changes in state franchise laws, may impose additional costs on us or otherwise
adversely affect us; |
|
|
• |
|
our principal automobile manufacturers, especially Toyota/Lexus, Ford, DaimlerChrysler,
General Motors, Honda/Acura and Nissan/Infiniti, may not continue to produce or make
available to us vehicles that are in high demand by our customers; |
|
|
• |
|
requirements imposed on us by our manufacturers may limit our acquisitions and require
us to increase the level of capital expenditures related to our dealership facilities; |
|
|
• |
|
our dealership operations may not perform at expected levels or achieve expected improvements; |
|
|
• |
|
our failure to achieve expected future cost savings or future costs being higher than we expect; |
|
|
• |
|
available capital resources and various debt agreements may limit our ability to
complete acquisitions, complete construction of new or expanded facilities and repurchase shares; |
|
|
• |
|
our cost of financing could increase significantly; |
|
|
• |
|
new accounting standards could materially impact our reported earnings per share; |
|
|
• |
|
our inability to complete additional acquisitions or changes in the pace of acquisitions; |
|
|
• |
|
the inability to adjust our cost structure to offset any reduction in the demand for our products and services; |
|
|
• |
|
our loss of key personnel; |
|
|
• |
|
competition in our industry may impact our operations or our ability to complete acquisitions; |
|
|
• |
|
the failure to achieve expected sales volumes from our new franchises; |
|
|
• |
|
insurance costs could increase significantly and all of our losses may not be covered by insurance; and |
|
|
• |
|
our inability to obtain inventory of new and used vehicles and parts, including imported
inventory, at the cost, or in the volume, we expect. |
These factors, as well as additional factors that could affect our operating results and
performance are described in our Form 10-K under the headings “Business — Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We urge
you to carefully consider those factors.
All forward-looking statements attributable to us are qualified in their entirety by this
cautionary statement. We undertake no duty to update the forward-looking statements.
23
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information about our market sensitive financial instruments was provided as of December 31,
2004, in our Annual Report on Form 10-K. There have been no significant changes in our market risk
from those disclosed at that time during the three months ended June 30, 2005.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this
quarterly report. Based upon that evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures were effective as of June
30, 2005, to ensure that material information was accumulated, and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
During the three months ended June 30, 2005, we have made no change in our internal controls
over financial reporting that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
From time to time, our dealerships are named in claims involving the manufacture of
automobiles, contractual disputes and other matters arising in the ordinary course of business.
The Texas Automobile Dealers Association (“TADA”) and certain new vehicle dealerships in Texas
that are members of the TADA, including a number of our Texas dealership subsidiaries, have been
named in two state court class action lawsuits and one federal court class action lawsuit. The
three actions allege that since January 1994, Texas dealers have deceived customers with respect to
a vehicle inventory tax and violated federal antitrust and other laws. In April 2002, the state
court in which two of the actions are pending certified classes of consumers on whose behalf the
action would proceed. In October 2002, the Texas Court of Appeals affirmed the trial court’s order
of class certification in the state action. The defendants requested that the Texas Supreme Court
review that decision, and the Court declined that request on March 26, 2004. The defendants
petitioned the Texas Supreme Court to reconsider its denial, and that petition was denied on
September 10, 2004. In the federal antitrust action, in March 2003, the federal district court
also certified a class of consumers. Defendants appealed the district court’s certification to the
Fifth Circuit Court of Appeals, which on October 5, 2004, reversed the class certification order
and remanded the case back to the federal district court for further proceedings. In February
2005, the plaintiffs in the federal action sought a writ of certiorari to the United States Supreme
Court in order to obtain review of the Fifth Circuit’s order, which request the Court denied. In
June, our Texas dealerships and certain other defendants in the lawsuits entered settlements with
the plaintiffs in each of the cases. The settlements are contingent upon and subject to court
approval. Estimated expense of the proposed settlements include our dealerships issuing
certificates for discounts off future vehicle purchases, refunding cash in some circumstances, and
paying attorneys’ fees and certain costs. Dealers participating in the settlements would agree to
certain disclosures regarding inventory tax charges when itemizing such charges on customer
invoices. If approved, we do not believe that these settlements will have a material adverse
effect on our financial position, results of operations or cash flows. If the settlements are not
approved, we will continue to vigorously assert available defenses in connection with these
lawsuits. While we do not believe this litigation will have a material adverse effect on our
financial condition or results of operations, no assurance can be given as to its ultimate outcome.
A settlement on different terms or an adverse resolution of this matter in litigation could result
in the payment of significant costs and damages.
In addition to the foregoing cases, there are currently no legal proceedings pending against
or involving us that, in our opinion, based on current known facts and circumstances, are expected
to have a material adverse effect on our financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
From time to time, the board of directors authorizes management to repurchase shares of its
common stock, subject to the restrictions of various debt agreements and management’s judgment.
The first such authorization occurred in October 2000, and was disclosed in our Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000. We have reported subsequent changes
to the authorization in our SEC filings since that date. In March 2004, the board of directors
authorized management to repurchase up to $25.0 million of its common stock. As of June 30, 2005, $18.9 million remained under the
board of directors’ March 2004 authorization.
During the
three months ended June 30, 2005, we acquired 11,588 shares of our common stock, valued at $310,000, from the Company’s former Chairman, Chief Executive Officer and President in payment of the exercise price of vested stock options.
24
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the May 18, 2005, Annual Meeting of Stockholders, our stockholders voted on two matters.
|
1. |
|
Election of two directors: |
The stockholders elected two (2) nominees
as directors for a three-year term based on the
following voting results:
|
|
|
|
|
|
|
|
|
|
|
Votes Cast: |
Nominees Elected |
|
For |
|
Withheld |
Louis E. Lataif |
|
|
21,889,809 |
|
|
|
475,946 |
|
Stephen D. Quinn |
|
|
21,605,103 |
|
|
|
760,652 |
|
Our other continuing directors are:
John L. Adams
Earl J. Hesterberg
Robert E. Howard II
J. Terry Strange
Max P. Watson, Jr. |
|
2. |
|
Ratification of the appointment of Ernst & Young LLP as Independent Auditors: |
The stockholders ratified the appointment
of Ernst & Young LLP as independent auditors for
the year ended December 31, 2005. The results of the voting were as follows:
|
|
|
|
|
For |
|
|
22,355,473 |
|
Against |
|
|
7,482 |
|
Abstain |
|
|
2,800 |
|
Item 5. Other Information
None.
Item 6. Exhibits
|
|
|
10.1*
|
|
Separation Agreement and General Release by and between Group 1 Automotive, Inc. and B.B. Hollingsworth, Jr. |
|
|
|
11.1
|
|
Statement re: computation of earnings per share is included under Note 3 to the financial statements. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
* Management contract or compensatory plan or arrangement.
25
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. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert T. Ray |
|
|
|
|
|
|
|
|
|
Date: August 9, 2005
|
|
|
|
Robert T. Ray, Senior Vice President, |
|
|
|
|
|
|
Chief Financial Officer and Treasurer |
|
|
|
|
|
|
(Principal Financial and Accounting Officer)
|
|
|
26
Exhibits |
|
INDEX TO EXHIBITS |
|
|
|
10.1
|
|
Separation Agreement and General Release by and between Group 1 Automotive, Inc. and B.B. Hollingsworth, Jr. |
|
|
|
11.1
|
|
Statement re: computation of earnings per share is included under Note 3 to the financial statements. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |