-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lwpk247hHpU+UWSjYaRxRWwQXNgi8/hDADyzzMKfirqdXFhvbeLWO2e6QbxqXQ7N 5XzPLDmr5G2egaiEjAIXHw== 0000950129-00-002428.txt : 20000516 0000950129-00-002428.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950129-00-002428 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROUP 1 AUTOMOTIVE INC CENTRAL INDEX KEY: 0001031203 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 760506313 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13461 FILM NUMBER: 631945 BUSINESS ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7134676268 MAIL ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77024 10-Q 1 GROUP 1 AUTOMOTIVE, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 Commission file number: 1-13461 GROUP 1 AUTOMOTIVE, INC. (Exact name of Registrant as specified in its charter) Delaware 76-0506313 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 950 Echo Lane, Suite 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 [X] No [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Title Outstanding ----- ----------- Common stock, par value $.01 22,420,127 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
MARCH 31, DECEMBER 31, 2000 1999 ---- ---- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents..................................................... $121,263 $118,824 Accounts and notes receivable, net............................................ 38,424 35,296 Inventories, net.............................................................. 452,863 386,255 Deferred income taxes ........................................................ 8,313 8,619 Other assets.................................................................. 4,067 4,429 -------- -------- Total current assets................................................... 624,930 553,423 -------- -------- PROPERTY AND EQUIPMENT, net..................................................... 60,106 46,711 GOODWILL, net................................................................... 262,346 235,312 OTHER ASSETS.................................................................... 7,059 7,464 -------- -------- Total assets........................................................... $954,441 $842,910 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floorplan notes payable....................................................... $428,769 $363,489 Current maturities of long-term debt.......................................... 1,929 1,076 Accounts payable and accrued expenses......................................... 107,875 108,730 -------- -------- Total current liabilities.............................................. 538,573 473,295 -------- -------- DEBT, net of current maturities................................................. 46,087 15,285 SENIOR SUBORDINATED NOTES....................................................... 96,966 97,889 DEFERRED INCOME TAXES........................................................... 3,336 3,217 OTHER LIABILITIES............................................................... 22,137 21,195 STOCKHOLDERS' EQUITY: Preferred stock, 1,000,000 shares authorized, none issued or outstanding....................................................... -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 22,435,255 and 21,801,367 issued................................ 224 218 Additional paid-in capital.................................................... 187,310 181,398 Retained earnings ............................................................ 60,718 51,705 Treasury stock, at cost, 66,126 and 78,609 shares............................. (910) (1,292) -------- -------- Total stockholders' equity............................................. 247,342 232,029 -------- -------- Total liabilities and stockholders' equity............................. $954,441 $842,910 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 3 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- REVENUES: New vehicle .................................................................. $ 511,417 $ 270,118 Used vehicle ................................................................. 249,697 159,779 Parts and service ............................................................ 72,844 43,774 Other dealership revenues, net................................................ 25,953 15,680 --------- ---------- Total revenues......................................................... 859,911 489,351 COST OF SALES: New vehicle .................................................................. 471,807 247,373 Used vehicle ................................................................. 229,625 146,148 Parts and service ............................................................ 33,129 19,636 --------- ---------- Total cost of sales.................................................... 734,561 413,157 GROSS PROFIT.................................................................... 125,350 76,194 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................................................... 95,820 58,278 DEPRECIATION EXPENSE............................................................ 1,750 1,033 AMORTIZATION EXPENSE............................................................ 2,011 1,058 --------- ---------- Income from operations................................................. 25,769 15,825 OTHER INCOME AND EXPENSES: Floorplan interest expense.................................................... (8,373) (3,847) Other interest expense, net................................................... (3,883) (1,786) Other income, net............................................................. 1,024 36 --------- ---------- INCOME BEFORE INCOME TAXES...................................................... 14,537 10,228 PROVISION FOR INCOME TAXES...................................................... 5,524 4,071 --------- ---------- NET INCOME...................................................................... $ 9,013 $ 6,157 ========= ========== Earnings per share: Basic......................................................................... $ 0.40 $ 0.33 Diluted....................................................................... $ 0.40 $ 0.31 Weighted average shares outstanding: Basic......................................................................... 22,384,332 18,921,723 Diluted....................................................................... 22,781,689 19,989,005
The accompanying notes are an integral part of these consolidated financial statements. 3 4 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................................... $ 9,013 $ 6,157 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization............................................... 3,761 2,091 Deferred income taxes....................................................... 311 (150) Provision for doubtful accounts and uncollectible notes..................... 356 186 Loss on sale of assets...................................................... 17 -- Gain on sale of franchise................................................... (1,048) -- Changes in assets and liabilities - Accounts receivable....................................................... (688) (572) Inventories............................................................... (33,009) (31,439) Other assets.............................................................. 355 326 Floorplan notes payable................................................... 31,271 32,882 Accounts payable and accrued expenses..................................... 4,543 4,224 --------- ---------- Total adjustments..................................................... 5,869 7,548 --------- ---------- Net cash provided by operating activities..................... 14,882 13,705 --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable................................................. (914) (502) Collections on notes receivable.............................................. 460 246 Purchases of property and equipment.......................................... (4,760) (8,914) Proceeds from sales of property and equipment................................ 443 5,729 Proceeds from sales of franchises............................................ 9,700 -- Cash paid in acquisitions, net of cash received.............................. (37,490) (18,716) --------- ---------- Net cash used in investing activities......................... (32,561) (22,157) --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments under floorplan facilities for acquisition financing............ -- (79,851) Net (payments) borrowings on acquisition tranche of revolving credit facility.................................................. 21,000 (42,000) Principal payments of long-term debt......................................... (485) (2,705) Borrowings of long-term debt................................................. 489 144 Proceeds from senior subordinated notes offering, net........................ -- 94,781 Purchase of senior subordinated notes........................................ (957) -- Proceeds from common stock offering, net..................................... -- 44,070 Proceeds from issuance of common stock to benefit plans...................... 856 242 Purchase of treasury stock................................................... (785) (643) --------- ---------- Net cash provided by financing activities..................... 20,118 14,038 --------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS....................................... 2,439 5,586 CASH AND CASH EQUIVALENTS, beginning of period.................................. 118,824 66,443 --------- ---------- CASH AND CASH EQUIVALENTS, end of period........................................ $ 121,263 $ 72,029 ========= ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest............................................................... $ 14,911 $ 5,425 Taxes.................................................................. $ 140 $ 1,223
The accompanying notes are an integral part of these consolidated financial statements. 4 5 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Group 1 Automotive, Inc. is a leading operator in the automotive retailing industry. Group 1 Automotive, Inc. is a holding company with its primary operations and assets being its investments in its subsidiaries. These subsidiaries sell new and used cars and light trucks through their dealerships and Internet sites, provide maintenance and repair services and arrange finance, vehicle service and insurance contracts. 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/Reclassifications All acquisitions completed during the periods presented have been accounted for using the purchase method of accounting and their results of operations are included from the effective dates of the closings of the acquisitions. The allocations of purchase price to the assets acquired and liabilities assumed are initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior year financial statements to conform them to the current year presentation. Interim Financial Information These interim financial statements are unaudited, and certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has not been included herein. In the opinion of management, all adjustments necessary to fairly present the financial position, results of operations and cash flows with respect to the interim financial statements, have been properly included. Due to seasonality and other factors, the results of operations for the interim periods are not necessarily indicative of the results that will be realized for the entire fiscal year. 3. EARNINGS PER SHARE: Statement of Financial Accounting Standards ("SFAS") No. 128 requires the presentation of basic earnings per share and diluted earnings per share in financial statements of public enterprises. Under the provisions of this statement, basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. The following table sets forth the shares outstanding for the earnings per share calculations: 5 6
THREE MONTHS ENDED MARCH 31, --------- 2000 1999 ---- ---- Common stock outstanding, beginning of period........................................... 21,801,367 18,267,515 Weighted average common stock issued - Acquisitions....................................................................... 633,888 60,644 Employee Stock Purchase Plan....................................................... 72,483 20,297 Stock offering..................................................................... -- 622,222 Less: Weighted average treasury shares repurchased.................................... (123,406) (48,955) ---------- ---------- Shares used in computing basic earnings per share....................................... 22,384,332 18,921,723 Dilutive effect of stock options, net of assumed repurchase of treasury stock......... 397,357 1,067,282 ---------- ---------- Shares used in computing diluted earnings per share..................................... 22,781,689 19,989,005 ========== ==========
4. BUSINESS COMBINATIONS: During the first three months of 2000, the Company acquired 11 automobile dealership franchises. These acquisitions were accounted for as purchases. The aggregate consideration paid in completing these acquisitions, including real estate acquired, and satisfying certain contingent acquisition payment arrangements from previous transactions included approximately $37.5 million in cash, net of cash received, approximately 630,000 shares of restricted/unregistered common stock, the assumption of an estimated $ 34.0 million of inventory financing and the assumption of approximately $ 10.7 of notes payable. The consolidated balance sheet includes preliminary allocations of the purchase price of the acquisitions, which are subject to final adjustment. These allocations resulted in recording approximately $ 36.0 million of goodwill, which is being amortized over 40 years. The following unaudited pro forma financial information consists of income statement data from continuing operations as presented in the consolidated financial statements plus (1) unaudited income statement data for all acquisitions completed before March 31, 2000, assuming that they occurred on January 1, 1999, (2) the completion of our March 1999 offerings of two million shares of common stock and $100 million of senior subordinated notes assuming they occurred on January 1, 1999, and (3) certain pro forma adjustments discussed below.
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- (in millions, except per share amounts) Revenues .............................................................. $859.9 $776.6 Gross profit .......................................................... 125.4 115.5 Income from operations ................................................ 25.8 25.9 Net income ............................................................ 9.0 9.1 Basic earnings per share .............................................. 0.40 0.41 Diluted earnings per share ............................................ 0.40 0.39
Pro forma adjustments included in the amounts above primarily relate to: (a) increases in revenues related to changes in the contractual commission arrangements on certain third-party products sold by the dealerships; (b) pro forma goodwill amortization expense over an estimated useful life of 40 years; (c) reductions in compensation expense and management fees to the level that certain management employees and owners of the acquired companies will contractually receive; (d) incremental corporate overhead costs related to personnel costs, rents, professional service fees and directors and officers liability insurance premiums; (e) increases in interest expense resulting from borrowings to complete acquisitions; and (f) incremental provisions for federal and state income taxes relating to the compensation differential, S Corporation income and other pro forma adjustments. 6 7 5. SENIOR SUBORDINATED NOTES: The Company completed the offering of $100 million of its 10 7/8% Senior Subordinated Notes due 2009 (the "Notes") on March 5, 1999. The Notes pay interest semi-annually on March 1, and September 1, each year beginning September 1, 1999. Before March 1, 2002, the Company may redeem up to $35 million of the Notes with the proceeds of certain public offerings of common stock at a redemption price of 110.875% of the principal amount plus accrued interest to the redemption date. Additionally, the Company may redeem all or part of the Notes at redemption prices of 105.438%, 103.625%, 101.813% and 100.000% of the principal amount plus accrued interest during the twelve month periods beginning March 1, of 2004, 2005, 2006, and 2007 and thereafter, respectively. The Notes are jointly and severally guaranteed, on an unsecured senior subordinated basis, by all subsidiaries of the Company (the "Subsidiary Guarantors"), other than certain inconsequential subsidiaries. All of the Subsidiary Guarantors are wholly owned subsidiaries of the Company. Certain manufacturers have minimum working capital guidelines, which, under certain circumstances, may impair a subsidiary's ability to make distributions to the parent company. Separate financial statements of the Subsidiary Guarantors are not included because (i) all Subsidiary Guarantors have jointly and severally guaranteed the Notes on a full and unconditional basis, to the maximum extent permitted by law, (ii) the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of the parent on a consolidated basis, and (iii) management has determined that such information is not material to investors. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the response to Part I, Item 1 of this Report and our other filings with the Securities and Exchange Commission ("SEC"). OVERVIEW We are a leading operator in the automotive retailing industry. We own automobile dealership franchises located in Texas, Oklahoma, Florida, New Mexico, Georgia, Colorado, Massachusetts and Louisiana. Through our dealerships and Internet sites, we sell new and used cars and light trucks, and provide maintenance and repair services. We also operate 19 collision service centers. We expect a significant portion of our future growth to come from acquisitions of additional dealerships. We have diverse sources of revenues, including: new car sales, new truck sales, used car sales, used truck sales, manufacturer remarketed vehicle sales, parts sales, service sales, collision repair service sales, finance fees, insurance commissions, vehicle service contract commissions, documentary fees and after-market product sales. Sales revenues from new and used vehicle sales and parts and service sales include sales to retail customers, other dealerships and wholesalers. Other dealership revenues includes revenues from arranging financing, insurance and vehicle service contracts, net of a provision for anticipated chargebacks, and documentary fees. Our gross margin varies as our merchandise mix (the mix between new vehicle sales, used vehicle sales, parts and service sales, collision repair service sales and other dealership revenues) changes. Our gross margin on the sale of products and services generally varies between approximately 7.0% and 85.0%, with new vehicle sales generally resulting in the lowest gross margin and other dealership revenues generally resulting in the highest gross margin. When our new vehicle sales increase or decrease at a rate greater than our other revenue sources, our gross margin responds inversely. Factors such as seasonality, weather, cyclicality and manufacturers' advertising and incentives may impact our merchandise mix and, therefore, influence our gross margin. Selling, general and administrative expenses consist primarily of compensation for sales, administrative, finance and general management personnel, rent, marketing, insurance and utilities. Interest expense consists of interest charges on interest-bearing debt. SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999 NEW VEHICLE DATA
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 2000 1999 (DECREASE) CHANGE ---- ---- ---------- ------ Retail unit sales........................... 20,779 11,324 9,455 83.5 % Retail sales revenues....................... $511,417 $270,118 $241,299 89.3 % Gross profit................................ $39,610 $22,745 $16,865 74.1 % Average gross profit per retail unit sold... $1,906 $2,009 $(103) (5.1)% Gross margin................................ 7.7% 8.4% (0.7)%
8 9 USED VEHICLE DATA
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 2000 1999 (DECREASE) CHANGE ---- ---- ---------- ------ Retail unit sales........................... 14,651 10,021 4,630 46.2% Retail sales revenues (1)................... $198,602 $131,713 $66,889 50.8% Gross profit................................ $20,072 $13,631 $6,441 47.3% Average gross profit per retail unit sold... $1,370 $1,360 $10 0.7% Gross margin................................ 10.1% 10.3% (0.2)%
- ------------------ (1) Excludes wholesale revenues. PARTS AND SERVICE DATA
(dollars in thousands) INCREASE/ PERCENT 2000 1999 (DECREASE) CHANGE ---- ---- ---------- ------ Sales revenues.............................. $72,844 $43,774 $29,070 66.4% Gross profit................................ $39,715 $24,138 $15,577 64.5% Gross margin................................ 54.5% 55.1% (0.6)%
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 2000 1999 (DECREASE) CHANGE ---- ---- ---------- ------ Retail new and used unit sales.............. 35,430 21,345 14,085 66.0 % Retail sales revenues....................... $25,953 $15,680 $10,273 65.5 % Net revenues per retail unit sold........... $733 $735 $(2) (0.3)%
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1999 REVENUES. Revenues increased $370.5 million, or 75.7%, to $859.9 million for the three months ended March 31, 2000, from $489.4 million for the three months ended March 31, 1999. New vehicle revenues increased primarily due to strong customer acceptance of our products, particularly Ford, Honda, Lexus, Nissan, and Toyota, and the acquisitions of additional dealership operations during 1999 and 2000. The growth in used vehicle revenues was primarily attributable to the additional dealership operations acquired and expanded operations in Florida and Dallas. The increase in parts and service revenues was due to the additional dealership operations acquired, coupled with strong organic growth in the Florida market. Other dealership revenues increased primarily due to an increase in the number of retail new and used vehicle sales. GROSS PROFIT. Gross profit increased $49.2 million, or 64.6%, to $125.4 million for the three months ended March 31, 2000, from $76.2 million for the three months ended March 31, 1999. The increase was attributable to increased revenues as gross margin declined to 14.6% for the three months ended March 31, 2000, from 15.6% for the three months ended March 31, 1999. The gross margin declined as lower margin new vehicle revenues increased as a percentage of total revenues to 59.5% from 55.2% and two 9 10 recent platform acquisitions with lower margins joined the group. The gross margin on new retail vehicle sales declined to 7.7% from 8.4%, due to lower margins at the two recent platform acquisitions and two other dealerships focusing on expanding market share, which resulted in lower margins and significant organic revenue growth at those two stores. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $37.5 million, or 64.3%, to $95.8 million for the three months ended March 31, 2000, from $58.3 million for the three months ended March 31, 1999. The increase was primarily attributable to the additional dealership operations acquired and increased variable expenses, particularly incentive pay to employees, which increased as gross profit increased. Additionally, we recorded a non-recurring, $1.5 million charge related to unfavorable medical claims experience during the quarter. Our medical plan was revised as of March 1, 2000. Selling, general and administrative expenses decreased slightly as a percentage of gross profit to 76.4% from 76.5% due primarily to increased operating leverage. Excluding the healthcare charge, selling, general and administrative expenses declined as a percentage of gross profit to 75.2%. INTEREST EXPENSE. Floorplan and other interest expense, net, increased $6.7 million, or 119.6%, to $12.3 million for the three months ended March 31, 2000, from $5.6 million for the three months March 31, 1999. The increase was primarily attributable to the floorplan interest expense of the additional dealership operations acquired and additional interest expense due to borrowings to complete acquisitions. Contributing to the increase was a 90 basis point increase in the weighted average LIBOR. Partially mitigating the LIBOR increase was a 25 basis point rate reduction in the interest rate spread charged on our floorplan notes payable. OTHER INCOME, NET. Other income, net, increased $988,000 to $1,024,000 for the three months ended March 31, 2000, from $36,000 for the three months ended March 31, 1999. The increase is due primarily to a $1.0 million gain from the sale of a Chrysler franchise in Austin, Texas. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are cash on hand, cash from operations, our credit facility, which includes the floorplan tranche and the acquisition tranche, and equity and debt offerings. CASH FLOWS OPERATING ACTIVITIES. During the first three months of 2000 we generated cash flow from operations of approximately $ 14.9 million, primarily from net income plus depreciation, an increase of $ 1.2 million compared to the same period in the prior year. Excluding working capital changes, cash flows from operating activities increased $ 4.1 million over the prior year period. INVESTING ACTIVITIES. During the first three months of 2000 we used approximately $ 32.6 million for investing activities, primarily related to cash paid in completing acquisitions, net of cash balances obtained in the acquisitions. Additionally, we paid $ 4.8 million for purchases of property and equipment, of which $ 2.1 million was used for the purchase of land and construction of facilities for new or expanded operations. FINANCING ACTIVITIES. During the first three months of 2000 we obtained approximately $ 20.1 million from financing activities, primarily borrowings under our credit facility. In March 1999, we completed offerings of 2 million shares of common stock and $100 million of senior subordinated notes with an interest rate of 10 7/8%. The net proceeds from these offerings was approximately $138.8 million. WORKING CAPITAL. At March 31, 2000, we had working capital of $86.4 million. Historically, we have funded our operations with internally generated cash flow and borrowings. Certain manufacturers have minimum working capital guidelines, which, under certain circumstances, may impair a subsidiary's ability to make distributions to the parent company. While we cannot guarantee it, based on current facts 10 11 and circumstances, we believe we have adequate cash flows coupled with borrowings under our credit facility to fund our current operations. CREDIT FACILITY We have a $1 billion credit facility, which matures in December 2003. The credit facility consists of two tranches: the floorplan and acquisition tranches. The acquisition tranche totals $220 million and, as of May 1, 2000, $ 189 million was available, subject to a cash flow calculation and the maintenance of certain financial ratios and various covenants. CAPITAL EXPENDITURES Our capital expenditures include expenditures to extend the useful life 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. Expenditures relating to the construction or expansion of dealership facilities, generally, are driven by new franchises being awarded to us by a manufacturer or significant growth in sales at an existing facility. Although we believe that we will be able to obtain sufficient capital to fund capital expenditures, we cannot guarantee that such capital will be available to us at the time it is required or on terms acceptable to us. ACQUISITION FINANCING We anticipate that our primary use of cash will be for the completion of acquisitions. We expect the cash needed to complete our acquisitions will come from the operating cash flows of our existing dealerships, borrowings under our credit facility, other borrowings, or equity or debt offerings. Although we believe that we will be able to obtain sufficient capital to fund acquisitions, we cannot guarantee that such capital will be available to us at the time it is required or on terms acceptable to us. CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS This quarterly report includes certain "forward-looking statements" within the meeting of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include statements regarding our plans, beliefs or current expectations, including those plans, beliefs and expectations of our officers and directors with respect to, among other things: o future acquisitions; o expected future cost savings; o future capital expenditures; o trends affecting our future financial condition or results of operations; and o our business strategy regarding future operations. Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties. Actual results may differ materially from anticipated results for a number of reasons, including; o industry conditions; o future demand for new and used vehicles; o restrictions imposed on us by automobile manufacturers; o the ability to obtain the consents of automobile manufacturers to our acquisitions; o the availability of capital resources; and 11 12 o the willingness of acquisition candidates to accept our common stock as currency. This information and additional factors that could affect our operating results and performance are described in our filings with the SEC. We urge you to carefully consider those factors. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following information about our market sensitive financial instruments updates the information provided as of December 31, 1999, in our Annual Report on Form 10-K and constitutes a "forward-looking statement". Our major market risk exposure is changing interest rates. Our policy is to manage interest rates through use of a combination of fixed and floating rate debt. Interest rate swaps may be used to adjust interest rate exposures when appropriate, based upon market conditions. These swaps are entered into with financial institutions with investment grade credit ratings, thereby minimizing the risk of credit loss. All items described are non-trading. Since December 31, 1999, our floorplan notes payable have increased due primarily to acquisitions of additional dealership operations and increases in inventory levels. As of March 31, 2000, there was $ 31 million outstanding under the acquisition portion of the credit facility, a $ 21 million increase since December 31, 1999. During the first quarter of 2000, we assumed $ 10.7 million in fixed rate debt in completing acquisitions. Additionally, there have been no changes in the interest swap positions held by us since December 31, 1999. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, our dealerships are named in claims involving the manufacture of automobiles, contractual disputes and other matters arising in the ordinary course of business. Currently, no legal proceedings are pending against or involve us that, in our opinion, based on current known facts and circumstances, could reasonably be expected to have a material adverse effect on our financial position. ITEM 2. CHANGES IN SECURITIES We have entered into agreements to purchase all of the outstanding capital stock or purchase certain assets and assume certain liabilities of various automobile dealerships for cash and shares of our common stock. The following is a summary of the transactions in which stock was issued:
DATE SECURITIES DATE OF AGREEMENT ISSUED ACQUISITION SHARES - ----------------------------- -------------------------- --------------------------- ----------- July 28, 1999 January 3, 2000 Bohn Automotive Group 300,998 August 10, 1999 February 16, 2000 Ira Automotive Group 332,890
We are relying on Regulation D and Section 4(2) under the Securities Act of 1933, as amended, as an exemption from registration of the Common Stock issued in the acquisitions. We believe we are justified in relying on such exemption since all of the stockholders of the groups who have received shares of our common stock are "accredited investors" under Regulation D. 12 13 ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS: 11.1 Statement re: computation of earnings per share is included under Note 3 to the financial statements. 27.1 Financial Data Schedule. B. REPORTS ON FORM 8-K: On March 10, 2000, the Company filed a Current Report of Form 8-K reporting under Item 5 thereof and including exhibits under Item 7 thereof. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Group 1 Automotive, Inc. May 15, 2000 By:/s/ Scott L. Thompson - -------------- -------------------------------------------- Date Scott L. Thompson, Senior Vice President, Chief Financial Officer and Treasurer 14 15 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 11.1 Statement re: computation of earnings per share is included under Note 3 to the financial statements. 27.1 Financial Data Schedule. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 121,263 0 38,424 0 452,863 624,930 60,106 0 954,441 538,573 143,053 0 0 224 247,118 954,441 833,958 859,911 734,561 734,561 99,581 0 12,256 14,537 5,524 9,013 0 0 0 9,013 .40 .40
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