-----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, F6yV8avZyRJ97se4Ikk4VqxMUXHBdB0noD8PUfm+El4CNifSskPNj+wpUNdiS5MX kk4PqWQg/cKyw4nrcKh02w== 0000950129-02-004058.txt : 20020813 0000950129-02-004058.hdr.sgml : 20020813 20020813151934 ACCESSION NUMBER: 0000950129-02-004058 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 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: 1934 Act SEC FILE NUMBER: 001-13461 FILM NUMBER: 02729470 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 h99097e10vq.txt GROUP 1 AUTOMOTIVE, INC. - DATED 6/30/2002 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 June 30, 2002 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 July 31, 2002. Title Outstanding ----- ----------- Common stock, par value $.01 23,146,840 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
JUNE 30, DECEMBER 31, 2002 2001 ------------ -------------- (unaudited) ASSETS CURRENT ASSETS: Cash ...................................................... $ 25,334 $ 16,861 Contracts-in-transit ...................................... 127,429 130,351 Accounts and notes receivable, net ........................ 53,863 43,684 Inventories, net .......................................... 519,073 454,961 Deferred income taxes ..................................... 10,341 10,721 Other assets .............................................. 5,643 5,354 ----------- ----------- Total current assets ............................... 741,683 661,932 ----------- ----------- PROPERTY AND EQUIPMENT, net ................................. 94,569 83,011 INTANGIBLE ASSETS, net ...................................... 297,126 282,527 INVESTMENTS AND DEFERRED COSTS FROM REINSURANCE ACTIVITIES ............................... 22,671 21,187 OTHER ASSETS ................................................ 14,354 5,768 ----------- ----------- Total assets ....................................... $ 1,170,403 $ 1,054,425 =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floorplan notes payable ................................... $ 434,537 $ 364,954 Current maturities of long-term debt ...................... 1,611 1,687 Accounts payable .......................................... 79,375 73,089 Accrued expenses .......................................... 66,275 67,489 ----------- ----------- Total current liabilities .......................... 581,798 507,219 ----------- ----------- DEBT, net of current maturities ............................. 9,599 10,497 SENIOR SUBORDINATED NOTES ................................... 78,816 85,002 DEFERRED INCOME TAXES ....................................... 12,986 9,982 OTHER LIABILITIES ........................................... 24,173 20,776 ----------- ----------- Total liabilities before deferred revenues ......... 707,372 633,476 ----------- ----------- DEFERRED REVENUES FROM INSURANCE POLICY AND VEHICLE SERVICE CONTRACT SALES ........................ 29,235 28,706 STOCKHOLDERS' EQUITY: Preferred stock, 1,000,000 shares authorized, none issued or outstanding ................................... -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 23,125,031 and 23,029,853 issued ............ 231 230 Additional paid-in capital ................................ 253,154 251,145 Retained earnings ......................................... 182,590 147,959 Accumulated other comprehensive income (loss) ............. (1,948) (807) Treasury stock, at cost, 12,732 and 343,345 shares ........ (231) (6,284) ----------- ----------- Total stockholders' equity ......................... 433,796 392,243 ----------- ----------- Total liabilities and stockholders' equity ......... $ 1,170,403 $ 1,054,425 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- ----------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ REVENUES: New vehicles.......................................... $ 613,355 $ 592,897 $ 1,164,027 $ 1,130,339 Used vehicles......................................... 284,940 289,702 552,199 564,360 Parts and service..................................... 95,511 88,910 187,202 173,681 Finance and insurance, net............................ 39,298 35,062 75,750 67,055 ------------ ------------ ------------ ------------ Total revenues................................. 1,033,104 1,006,571 1,979,178 1,935,435 COST OF SALES: New vehicles.......................................... 568,006 547,091 1,077,957 1,045,163 Used vehicles......................................... 262,504 266,345 506,338 517,180 Parts and service..................................... 41,831 39,314 82,611 77,343 ------------ ------------ ------------ ------------ Total cost of sales............................ 872,341 852,750 1,666,906 1,639,686 ------------ ------------ ------------ ------------ GROSS PROFIT............................................ 160,763 153,821 312,272 295,749 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............................. 120,773 115,303 237,650 224,498 ------------ ------------ ------------ ------------ Income from operations before non-cash charges....................................... 39,990 38,518 74,622 71,251 DEPRECIATION AND AMORTIZATION EXPENSE................................. 2,785 4,253 5,621 8,484 ------------ ------------ ------------ ------------ Income from operations......................... 37,205 34,265 69,001 62,767 OTHER INCOME AND (EXPENSES): Floorplan interest expense............................ (4,342) (7,830) (8,732) (17,137) Other interest expense, net........................... (2,452) (3,722) (5,191) (7,922) Other income (expense), net........................... (35) (18) (110) 20 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES.............................. 30,376 22,695 54,968 37,728 PROVISION FOR INCOME TAXES.............................. 11,239 8,625 20,338 14,337 ------------ ------------ ------------ ------------ NET INCOME.............................................. $ 19,137 $ 14,070 $ 34,630 $ 23,391 ============ ============ ============ ============ EARNINGS PER SHARE: Basic................................................. $ 0.83 $ 0.72 $ 1.50 $ 1.19 Diluted............................................... $ 0.78 $ 0.68 $ 1.42 $ 1.15 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................................. 23,111,843 19,479,775 23,011,086 19,585,027 Diluted............................................... 24,503,067 20,719,924 24,322,647 20,365,291
The accompanying notes are an integral part of these consolidated financial statements. 3 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
SIX MONTHS ENDED JUNE 30, ---------------------------- 2002 2001 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................................ $ 34,630 $ 23,391 Adjustments to reconcile net income to net cash provided ................. by operating activities: Depreciation and amortization ........................................... 5,621 8,484 Deferred income taxes ................................................... 4,033 (342) Non-cash compensation ................................................... 193 -- Provision for doubtful accounts and uncollectible notes ................. 406 603 Loss (Gain) on sale of assets ........................................... 102 (28) Gain on sale of franchises .............................................. (414) -- --------- --------- Net cash provided by operating activities, before changes in assets and liabilities .......................................... 44,571 32,108 --------- --------- Changes in assets and liabilities: Accounts receivable ................................................. (5,013) (3,080) Inventories ......................................................... (52,858) 22,688 Other assets ........................................................ (10,783) (2,062) Floorplan notes payable ............................................. 26,812 (22,802) Accounts payable and accrued expenses ............................... 8,201 27,249 --------- --------- Net asset and liability changes ................................... (33,641) 21,993 --------- --------- Net cash provided by operating activities ................. 10,930 54,101 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable ............................................. (6,578) (1,496) Collections on notes receivable .......................................... 678 568 Purchases of property and equipment ...................................... (19,488) (6,741) Proceeds from sales of property and equipment ............................ 570 357 Proceeds from sales of franchises ........................................ 7,430 3,973 Cash paid in acquisitions, net of cash received .......................... (21,502) (600) --------- --------- Net cash used by investing activities ..................... (38,890) (3,939) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on revolving credit facility .............................. 32,764 (14,750) Principal payments of long-term debt ..................................... (995) (683) Borrowings of long-term debt ............................................. -- 154 Purchase of senior subordinated notes .................................... (6,128) (5,000) Proceeds from issuance of common stock to benefit plans, including tax benefit ........................................................ 7,870 1,247 Purchase of treasury stock, amounts based on settlement date ............. -- (21,432) --------- --------- Net cash provided (used) by financing activities .......... 33,511 (40,464) --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS ................................... 5,551 9,698 CASH AND CASH EQUIVALENTS, beginning of period .............................. 147,212 140,878 --------- --------- CASH AND CASH EQUIVALENTS, end of period .................................... $ 152,763 $ 150,576 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest ........................................................... $ 14,873 $ 26,932 Taxes .............................................................. $ 12,891 $ 1,954
The accompanying notes are an integral part of these consolidated financial statements. 4 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Group 1 Automotive, Inc., a Delaware corporation, is a specialty retailer in the automotive 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 Mexico, 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 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. 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 and are of a normal recurring nature. 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. Recent Accounting Pronouncements In June 2001, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" was issued. SFAS No. 142 changes the treatment of goodwill by no longer amortizing goodwill; however, other identifiable intangible assets are to be separately recognized and amortized, as applicable. The statement requires, at least annually, an assessment for impairment of goodwill and other indefinite life intangible assets by applying a fair-value based test. A portion of the Company's intangible assets relate to franchise value, which is considered to have an indefinite life, with goodwill accounting for the remainder. The carrying amount of the franchise value intangible assets was $18.7 million at June 30, 2002. The Company adopted this statement effective January 1, 2002. The adoption of the statement resulted in the elimination of approximately $7.5 million of goodwill amortization, annually, subsequent to December 31, 2001. Adoption did not result in an impairment of any intangible assets, based on the fair-value based test; however, changes in the facts and circumstances surrounding this estimate could result in an impairment of intangible assets in the future. In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" was issued. SFAS No. 144 supercedes SFAS No. 121 and Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Results of Operations - Reporting the Effects of the Disposal of a Segment Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 establishes a single accounting model for assets to be disposed of by sale whether previously held and used or newly acquired. SFAS No. 144 retains the provisions of APB No. 30 for presentation of discontinued operations in the income statement, but broadens the presentation to include a component of 5 an entity. The Company adopted this statement effective January 1, 2002, and adoption did not have a material impact on the consolidated results of operations or financial position. 3. EARNINGS PER SHARE: SFAS No. 128, "Earnings per Share" 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:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ----------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Common stock outstanding, beginning of period ........... 23,120,924 19,716,069 23,029,853 21,260,227 Weighted average common stock issued - Employee Stock Purchase Plan ....................... 37,964 81,218 51,208 116,937 Stock options exercised ............................ 61,238 23,260 204,857 20,821 Less: Weighted average treasury shares held and weighted average shares repurchased and cancelled ... (108,283) (340,772) (274,832) (1,812,958) ---------- ---------- ---------- ---------- Shares used in computing basic earnings per share ....... 23,111,843 19,479,775 23,011,086 19,585,027 Dilutive effect of stock options, net of assumed repurchase of treasury stock ....................... 1,391,224 1,240,149 1,311,561 780,264 ---------- ---------- ---------- ---------- Shares used in computing diluted earnings per share ..... 24,503,067 20,719,924 24,322,647 20,365,291 ========== ========== ========== ==========
4. BUSINESS COMBINATIONS AND DISPOSITIONS: During the first six months of 2002, the Company acquired five automobile dealership franchises. The acquisitions were accounted for as purchases. The aggregate consideration paid in completing the acquisitions included approximately $21.5 million in cash, net of cash received, and the assumption of an estimated $15.6 million of inventory financing. 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 $13.7 million of franchise value intangible assets and $4.6 million of goodwill. Additionally, during the first six months of 2002, the Company sold three dealership franchises, with goodwill balances totaling $4.2 million, for $7.4 million in cash. A gain of $0.4 million was recognized on these sales and is recorded in Other Income (Expense), net. 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. 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 and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by all subsidiaries of the Company (the "Subsidiary Guarantors"), other than certain minor subsidiaries. All of the Subsidiary Guarantors are wholly-owned subsidiaries of the Company. Certain manufacturers have minimum working capital guidelines, which may limit a subsidiary's ability to make distributions to the parent company. 6 6. COMPREHENSIVE INCOME:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 2002 2001 2002 2001 -------- -------- -------- -------- (dollars in thousands) Net income .......................................................... $ 19,137 $ 14,070 $ 34,630 $ 23,391 Other comprehensive income: Change in fair value of interest rate swaps, net of tax.......... (2,063) -- (1,141) -- -------- -------- -------- -------- Comprehensive income ................................................ $ 17,074 $ 14,070 $ 33,489 $ 23,391 ======== ======== ======== ========
7. IMPACT OF CHANGE IN ACCOUNTING FOR INTANGIBLE ASSETS:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 2002 2001 2002 2001 ---------- ------- ---------- ------- (dollars in thousands) Net income ................................................. $ 19,137 $14,070 $ 34,630 $23,391 Goodwill amortization expense, net of tax .................. -- 1,412 -- 2,736 ---------- ------- ---------- ------- Pro forma net income ....................................... $ 19,137 $15,482 $ 34,630 $26,127 ========== ======= ========== ======= Pro forma earnings per share: Basic .................................................. $ 0.83 $ 0.79 $ 1.50 $ 1.33 Diluted ................................................ $ 0.78 $ 0.75 $ 1.42 $ 1.28
8. SUBSEQUENT EVENTS: Effective August 1, 2002, the Company completed the acquisition of six automobile dealership franchises in California, with annual revenues of approximately $400 million, in exchange for consideration consisting of $59.3 million in cash, the assumption of approximately $41.0 million of inventory financing and $3.5 million of other debt. On August 8, 2002, the Company announced that the Board of Directors authorized the repurchase of up to $25 million of the Company's common stock. 7 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 specialty retailer in the $1 trillion automotive industry. Through a series of acquisitions we now operate 109 dealership franchises in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Mexico, 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 24 collision service centers. We have diverse sources of revenues, including: new car and truck sales, used car and truck sales, manufacturer remarketed vehicle sales, parts sales, service sales, collision repair service sales, finance fees, vehicle service contract fees, insurance fees, documentary fees and after-market product sales. Sales revenues from new and used vehicle and parts and service include sales to retail customers, other dealerships and wholesalers. Finance and insurance includes revenues from arranging financing, vehicle service and insurance contracts and documentary fees, net of a provision for anticipated chargebacks. Our total 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 finance and insurance) changes. Our gross margin on the sale of products and services generally varies significantly, with new vehicle sales generally resulting in the lowest gross margin and finance and insurance 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 incentive-based compensation for sales, administrative, finance and general management personnel, rent, marketing, insurance and utilities. We believe that approximately 60% of our selling, general and administrative expenses are variable, allowing us to adjust our cost structure based on business trends. Interest expense consists of interest charges on interest-bearing debt, including floorplan inventory financing, net of interest income earned. We receive interest assistance from various of our manufacturers. This assistance, which is reflected as a reduction of cost of sales of new vehicles, generally equals between 70% and 100% of our floorplan interest expense, which mitigates the impact of interest rate changes on our financial results. At times, based on interest rate changes, the interest assistance may be greater than our total floorplan interest expense. SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001 NEW VEHICLE DATA
(dollars in thousands, INCREASE/ PERCENT except per unit amounts) 2002 2001 (DECREASE) CHANGE -------- -------- ---------- ------- Retail unit sales........................... 23,486 22,884 602 2.6% Retail sales revenues....................... $613,355 $592,897 $20,458 3.5% Gross profit................................ $45,349 $45,806 $(457) (1.0)% Average gross profit per retail unit sold... $1,931 $2,002 $(71) (3.5)% Gross margin................................ 7.4% 7.7% (0.3)%
8 USED VEHICLE DATA
(dollars in thousands, INCREASE/ PERCENT except per unit amounts) 2002 2001 (DECREASE) CHANGE -------- -------- ---------- ------- Retail unit sales........................... 16,221 17,028 (807) (4.7)% Total revenues.............................. $284,940 $289,702 $ (4,762) (1.6)% Retail sales revenues (1)................... $228,909 $239,204 $(10,295) (4.3)% Gross profit................................ $ 22,436 $ 23,357 $ (921) (3.9)% Average gross profit per retail unit sold... $ 1,383 $ 1,372 $ 11 0.8 % Retail gross margin (2)..................... 9.8% 9.8% 0.0 % Total gross margin (2)...................... 7.9% 8.1% (0.2)%
- ------------------ (1) Excludes used vehicle wholesale revenues, as these transactions facilitate retail vehicle sales and are not expected to generate profit. (2) Retail gross margin equals gross profit divided by retail sales revenues. Total gross margin equals gross profit divided by total revenues. PARTS AND SERVICE DATA
PERCENT (dollars in thousands) 2002 2001 INCREASE CHANGE ------- ------- -------- ------- Sales revenues.............................. $95,511 $88,910 $6,601 7.4% Gross profit................................ $53,680 $49,596 $4,084 8.2% Gross margin................................ 56.2% 55.8% 0.4%
FINANCE AND INSURANCE, NET
(dollars in thousands) INCREASE/ PERCENT (except per unit amounts) 2002 2001 (DECREASE) CHANGE ------- ------- ----------- -------- Retail new and used unit sales.............. 39,707 39,912 (205) (0.5)% Retail sales revenues....................... $39,298 $35,062 $4,236 12.1 % Finance and insurance, net per retail unit sold.......................... $ 990 $ 878 $ 112 12.8 %
SAME STORE REVENUES COMPARISON (1)
INCREASE/ PERCENT (dollars in thousands) 2002 2001 (DECREASE) CHANGE -------- -------- ----------- -------- New vehicle................................. $584,439 $585,317 $(878) (0.1)% Used vehicle................................ 269,861 282,977 (13,116) (4.6)% Parts and service........................... 87,784 87,869 (85) (0.1)% Finance and insurance, net.................. 36,033 34,408 1,625 4.7 % -------- -------- --------- ------ Total revenues.............. $978,117 $990,571 $(12,454) (1.3)%
- ------------------ (1) Includes only those dealerships owned during all of the months of both periods in the comparison. 9 THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001 REVENUES. Revenues increased $26.5 million, or 2.6%, to $1,033.1 million for the three months ended June 30, 2002, from $1,006.6 million for the three months ended June 30, 2001. New vehicle revenues increased primarily due to an increase in the number of units sold. The increase in units is driven by the dealership operations acquired during 2001 and 2002. The decline in used vehicle revenues was attributable to weakness in the used vehicle market in general, due to the aggressive pricing of new vehicles by the manufacturers. The increase in parts and service revenues was due primarily to the additional dealership operations acquired. Finance and insurance revenues increased primarily due to new product offerings, continued sales training, company-wide benchmarking, a favorable interest rate environment and annual incentives earned on our finance and insurance programs. GROSS PROFIT. Gross profit increased $7.0 million, or 4.6%, to $160.8 million for the three months ended June 30, 2002, from $153.8 million for the three months ended June 30, 2001. The increase was attributable to increased revenues and an increase in gross margin from 15.3% for the three months ended June 30, 2001, to 15.6% for the three months ended June 30, 2002. The gross margin increased as higher margin parts and service, and finance and insurance revenues increased as a percentage of total revenues. Additionally, a higher parts and service gross margin contributed to the overall gross margin increase. These increases were partially offset by declines in the gross margins on new and used vehicles. New vehicle margins are lower partially due to a decline in floorplan assistance paid by the manufacturers, which is recorded as a reduction of cost of sales, as interest rates have fallen significantly from prior year levels. While our gross margin on retail used vehicle sales was consistent with the prior year, the decrease in the overall used vehicle gross margin was due primarily to increased wholesale sales, because of softness in the retail used vehicle market due to aggressive pricing of new vehicles by the manufacturers. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $5.5 million, or 4.8%, to $120.8 million for the three months ended June 30, 2002, from $115.3 million for the three months ended June 30, 2001. The increase was primarily attributable to the additional dealership operations acquired and increased variable expenses, including incentive pay to employees. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense decreased $1.5 million, or 34.9%, to $2.8 million for the three months ended June 30, 2002, from $4.3 million for the three months ended June 30, 2001. The decline was due to the implementation of SFAS No. 142, which resulted in the elimination of goodwill amortization expense. INTEREST EXPENSE. Floorplan and other interest expense, net, decreased $4.8 million, or 41.4%, to $6.8 million for the three months ended June 30, 2002, from $11.6 million for the three months ended June 30, 2001. The decrease was due to a decline in interest rates and the amount of debt outstanding. During the quarter there was a 268 basis point rate reduction of the average interest rate paid on our floorplan notes payable as compared to the prior year period. The decrease in debt outstanding, as compared to the prior year period, was primarily attributable to the use of the proceeds from our October 2001 stock offering, of approximately $100 million, to pay down floorplan debt, and a reduction in the average inventory levels as compared to the prior year. The $100 million used to pay down the floorplan notes payable may be reborrowed in the future to complete acquisitions or for working capital or other corporate purposes. Subsequent to June 30, 2002, approximately $53 million was reborrowed to complete an acquisition. 10 SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001 NEW VEHICLE DATA
(dollars in thousands, INCREASE/ PERCENT except per unit amounts) 2002 2001 (DECREASE) CHANGE ---------- ---------- ---------- ------- Retail unit sales........................... 44,255 43,610 645 1.5 % Retail sales revenues....................... $1,164,027 $1,130,339 $33,688 3.0 % Gross profit................................ $ 86,070 $ 85,176 $ 894 1.0 % Average gross profit per retail unit sold... $ 1,945 $ 1,953 $ (8) (0.4)% Gross margin................................ 7.4% 7.5% (0.1)%
USED VEHICLE DATA
(dollars in thousands, INCREASE/ PERCENT except per unit amounts) 2002 2001 (DECREASE) CHANGE -------- -------- ---------- -------- Retail unit sales........................... 32,380 33,528 (1,148) (3.4)% Total revenues.............................. $552,199 $564,360 $(12,161) (2.2)% Retail sales revenues (1)................... $445,100 $464,303 $(19,203) (4.1)% Gross profit................................ $ 45,861 $ 47,180 $ (1,319) (2.8)% Average gross profit per retail unit sold... $ 1,416 $ 1,407 $ 9 0.6 % Retail gross margin (2)..................... 10.3% 10.2% 0.1 % Total gross margin (2)...................... 8.3% 8.4% (0.1)%
- ------------------ (1) Excludes used vehicle wholesale revenues, as these transactions facilitate retail vehicle sales and are not expected to generate profit. (2) Retail gross margin equals gross profit divided by retail sales revenues. Total gross margin equals gross profit divided by total revenues. PARTS AND SERVICE DATA
PERCENT (dollars in thousands) 2002 2001 INCREASE CHANGE -------- -------- --------- ------- Sales revenues.............................. $187,202 $173,681 $13,521 7.8% Gross profit................................ $104,591 $ 96,338 $ 8,253 8.6% Gross margin................................ 55.9% 55.5% 0.4%
FINANCE AND INSURANCE, NET
(dollars in thousands, INCREASE/ PERCENT except per unit amounts) 2002 2001 (DECREASE) CHANGE ------- ------- ---------- ------ Retail new and used unit sales.............. 76,635 77,138 (503) (0.7)% Retail sales revenues....................... $75,750 $67,055 $8,695 13.0 % Finance and insurance, net per retail unit sold.......................... $ 988 $ 869 $ 119 13.7 %
11 SAME STORE REVENUES COMPARISON (1)
INCREASE/ PERCENT (dollars in thousands) 2002 2001 (DECREASE) CHANGE ---------- ---------- ----------- ------- New vehicle................................. $1,114,440 $1,110,168 $4,272 0.4 % Used vehicle................................ 524,321 548,617 (24,296) (4.4)% Parts and service........................... 173,280 170,752 2,528 1.5 % Finance and insurance, net.................. 69,604 65,867 3,737 5.7 % ----------- ----------- ----------- ---------- Total revenues.............. $1,881,645 $1,895,404 $(13,759) (0.7)%
- ------------------ (1) Includes only those dealerships owned during all of the months of both periods in the comparison. SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 REVENUES. Revenues increased $43.8 million, or 2.3%, to $1,979.2 million for the six months ended June 30, 2002, from $1,935.4 million for the six months ended June 30, 2001. New vehicle revenues increased due to the increase in new vehicle units sold and because our average sales price increased 1.5%. The decline in used vehicle revenues was primarily attributable to weakness in the used vehicle market in general, due to the aggressive pricing of new vehicles by the manufacturers. The increase in parts and service revenues was due to same store sales growth in several of our markets, coupled with the additional dealership operations acquired, partially offset by declines in Austin, Atlanta and Dallas. Finance and insurance revenues increased primarily due to new product offerings, continued sales training, company-wide benchmarking, a favorable interest rate environment and annual incentives earned on our finance and insurance programs. GROSS PROFIT. Gross profit increased $16.6 million, or 5.6%, to $312.3 million for the six months ended June 30, 2002, from $295.7 million for the six months ended June 30, 2001. The increase was attributable to increased revenues and an increase in gross margin from 15.3% for the six months ended June 30, 2001, to 15.8% for the six months ended June 30, 2002. The gross margin increased as higher margin parts and service, and finance and insurance revenues increased as a percentage of total revenues. Additionally, a higher parts and service gross margin contributed to the overall gross margin increase. These increases were partially offset by declines in the gross margins on new and used vehicles. New vehicle margins are lower partially due to a decline in floorplan assistance paid by the manufacturers, which is recorded as a reduction of cost of sales, as interest rates have fallen significantly from prior year levels. While our gross margin on retail used vehicle sales was up slightly compared to the prior year, the decrease in the overall used vehicle gross margin was due primarily to increased wholesale sales, because of softness in the retail used vehicle market due to aggressive pricing of new vehicles by the manufacturers. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $13.2 million, or 5.9%, to $237.7 million for the six months ended June 30, 2002, from $224.5 million for the six months ended June 30, 2001. The increase was primarily attributable to the additional dealership operations acquired and increased variable expenses, including incentive pay to employees. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense decreased $2.9 million, or 34.1%, to $5.6 million for the six months ended June 30, 2002, from $8.5 million for the six months ended June 30, 2001. The decline was due to the implementation of SFAS No. 142, which resulted in the elimination of goodwill amortization expense. INTEREST EXPENSE. Floorplan and other interest expense, net, decreased $11.2 million, or 44.6%, to $13.9 million for the six months ended June 30, 2002, from $25.1 million for the six months ended June 30, 2001. The decrease was due to a decline in interest rates and the amount of debt outstanding. During the six-month period there was a 333 basis point rate reduction of the average interest rate paid on our floorplan notes payable as compared to the prior year period. The decrease in debt outstanding, as compared to the prior year period, was primarily attributable to the use of the proceeds from our 12 October 2001 stock offering, of approximately $100 million, to pay down floorplan debt, and a reduction in the average inventory levels as compared to the prior year. The $100 million used to pay down the floorplan notes payable may be reborrowed in the future to complete acquisitions or for working capital or other corporate purposes. 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 six months of 2002 we generated cash flow from operations, excluding asset and liability changes, of approximately $44.6 million, an increase of $12.5 million compared to the same period in the prior year. After considering asset and liability changes, cash flows from operating activities decreased $43.2 million over the prior year period, primarily due to pay downs on the floorplan debt. INVESTING ACTIVITIES. During the first six months of 2002 we used approximately $38.9 million in investing activities. We paid $19.5 million for purchases of property and equipment, of which $14.6 million was used for the purchase of land and construction of facilities for new or expanded operations. We have used $21.5 million in the acquisition of five franchises and received $7.4 million from the sale of three franchises, for which $0.4 million in gains were recognized. FINANCING ACTIVITIES. During the first six months of 2002 we obtained approximately $33.5 million from financing activities, primarily from borrowings on our credit facility to fund acquisitions and issuances of stock to our benefit plans. These proceeds were partially offset by the utilization of cash to buy back a portion of our senior subordinated notes and for scheduled principal payments on our debt. WORKING CAPITAL. At June 30, 2002, we had working capital of $159.9 million, which is approximately $80.0 million higher than we believe we need to operate our business, excluding future acquisitions. We expect to use this excess working capital to fund acquisitions and anticipated capital expenditures. Historically, we have funded our operations with internally generated cash flow and borrowings. Certain manufacturers have minimum working capital guidelines, which may limit a subsidiary's ability to make distributions to the parent company. While we cannot guarantee it, based on current facts and circumstances, we believe we have adequate cash flows coupled with borrowing capacity under our credit facility to fund our current operations, anticipated capital expenditures and acquisitions. If our acquisition plans, as outlined below, change, we may access the private or public capital markets to obtain additional funding. CREDIT FACILITY We have a $900 million credit facility, which matures in December 2003. The credit facility consists of two tranches: the floorplan and acquisition tranches. The acquisition tranche totals $198.0 million and, as of July 31, 2002, $198.0 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. 13 ACQUISITIONS AND ACQUISITION FINANCING Effective August 1, 2002, we completed our acquisition of six automobile dealership franchises in California, with annual revenues of approximately $400 million, in exchange for consideration consisting of $59.3 million in cash, the assumption of approximately $41.0 million of inventory financing and $3.5 million of other debt. We anticipate acquiring approximately $800 million in revenues during 2002, including pending and closed acquisitions, consisting of both platform and tuck-in acquisitions. 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 current credit facility. STOCK REPURCHASE The board of directors has authorized us to repurchase up to $25 million of our stock, subject to management's judgment and the restrictions of our various debt agreements. Our agreements, subject to other covenants, allow us to spend approximately 33% of our cumulative net income to repurchase stock. We allocate resources based on a risk-adjusted analysis of expected returns. As such, we may repurchase shares of our common stock if market conditions allow us to receive an acceptable return on investment. DISCUSSION OF CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates made by us in the accompanying consolidated financial statements relate to reserves for inventory valuations and future chargebacks on finance and vehicle service contract fees, and valuation of intangible assets. Actual results could differ from those estimates. Critical accounting policies are those that are both most important to the portrayal of a company's financial position and results of operations, and require management's most difficult, subjective or complex judgments. Below is a discussion of what we believe are our critical accounting policies. For additional discussion regarding our accounting policies see Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001. INVENTORIES New, used and demonstrator vehicles are stated at the lower of cost or market, determined on a specific-unit basis. Vehicle inventory cost consists of the amount paid to acquire the inventory, plus reconditioning cost, cost of equipment added and transportation cost. Additionally, we receive interest assistance from most of our manufacturers. The assistance is accounted for as a purchase discount and is reflected as a reduction to the inventory cost on the balance sheet and as a reduction to cost of sales in the income statement as the vehicles are sold. Parts and accessories are stated at the lower of cost (determined on a first-in, first-out basis) or market. As the market value of our inventories typically declines with the passage of time, valuation reserves are provided against the inventory balances based on the agings of the inventories and market trends. FINANCE AND SERVICE CONTRACT INCOME RECOGNITION We arrange financing for customers through various institutions and receive financing fees based on the difference between the loan rates charged to customers over predetermined financing rates set by the financing institution. In addition, we receive fees from the sale of vehicle service contracts to customers. 14 We may be charged back ("chargebacks") for unearned financing fees or vehicle service contract fees in the event of early termination of the contracts by customers. The revenues from financing fees and vehicle service contract fees in administrator-obligor states are recorded at the time of the sale of the vehicles and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. In dealer-obligor states, revenues from vehicle service contract fees and related direct costs are deferred and recognized over the life of the contracts. Finance and vehicle service contract revenues, net of estimated chargebacks, are included in finance and insurance in the accompanying consolidated financial statements. INTANGIBLE ASSETS The following are recently issued statements by the Financial Accounting Standards Board that we believe could have a significant impact on our reported financial condition or statement of operations. In June 2001, SFAS No. 141, "Business Combinations" was issued. SFAS No. 141 eliminates the use of the pooling-of-interests method of accounting for business combinations and establishes the purchase method as the only acceptable method. We adopted this statement effective July 1, 2001. Acquired intangible assets, if any, are separately recognized if, among other things, the benefit is obtained through contractual or other legal rights, such as franchise agreements. Goodwill is recorded only to the extent the purchase price for an entity exceeds the fair value of the net tangible assets and identifiable intangible assets acquired. In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was issued. SFAS No. 142 changes the treatment of goodwill by no longer amortizing goodwill; however, other identifiable intangible assets are to be separately recognized and amortized, as applicable. The statement requires, at least annually, an assessment for impairment of goodwill and other indefinite life intangible assets by applying a fair-value based test. A portion of our intangible assets relate to franchise value, which is considered to have an indefinite life, with goodwill accounting for the remainder. We adopted this statement effective January 1, 2002. The adoption of the statement resulted in the elimination of approximately $7.5 million of goodwill amortization, annually, subsequent to December 31, 2001. Adoption did not result in an impairment of any intangible assets, based on the new fair-value based test; however, changes in the facts and circumstances surrounding this estimate could result in an impairment of intangible assets in the future. 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, including those plans, goals, beliefs and expectations of our officers and directors with respect to, among other things: o the completion of pending and future acquisitions o operating cash flows and availability of capital o future stock repurchases o capital expenditures o business trends, including incentives, product cycles and interest rates o impact of new accounting standards 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: o the future economic environment, including consumer confidence, interest rates and manufacturer incentives, may affect the demand for new and used vehicles and parts and service sales o regulatory environment, adverse legislation, or unexpected litigation 15 o our principal automobile manufacturers, especially Ford, Toyota and GM may not continue to produce or make available to us vehicles that are in high demand by our customers o requirements imposed on us by our manufacturers may affect our acquisitions and capital expenditures related to our dealership facilities o our dealership operations may not perform at expected levels or achieve expected improvements o we may not achieve expected future cost savings and our future costs could be higher than we expected o available capital resources and various debt agreements may limit our ability to repurchase shares. Any repurchases of our stock may be made, from time to time, in accordance with applicable securities laws, in the open market or in privately negotiated transactions at such time and in such amounts, as we consider appropriate o available capital resources may limit our ability to complete acquisitions o available capital resources may limit our ability to complete construction of new or expanded facilities o our cost of financing could increase significantly o new accounting standards could materially impact our earnings per share o pending acquisitions may not be completed due to failure to satisfy closing conditions o we may not reach agreement with additional acquisition candidates 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, 2001, 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, 2001, our floorplan notes payable have increased, primarily due to increases in inventory levels. As of June 30, 2002, there were no amounts outstanding under the acquisition portion of our credit facility. 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 None. 16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the May 22, 2002, Annual Meeting of Stockholders, our stockholders voted on one matter. Election of one Director: The stockholders elected one nominee as a director for a three-year term based on the following voting results: VOTES CAST: ------------------------------------ AGAINST OR NOMINEE ELECTED FOR WITHHELD - ------------------------------- --------------- ---------------- Stephen D. Quinn 21,214,147 164,732 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. 99.1 Certificate of Chief Executive Officer. 99.2 Certificate of Chief Financial Officer. B. REPORTS ON FORM 8-K: On May 13, 2002, the Company filed a Current Report on Form 8-K reporting under Item 4 and including exhibits under Item 7 thereof. On May 15, 2002, the Company filed a Current Report on Form 8-K/A reporting under Item 4 and including exhibits under Item 7 thereof. On May 23, 2002, the Company filed a Current Report on Form 8-K reporting under Item 5 and including exhibits under Item 7 thereof. On July 9, 2002, the Company filed a Current Report on Form 8-K reporting under Item 5 and including exhibits under Item 7 thereof. On July 26, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. On August 8, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. On August 9, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. On August 13, 2002, the Company filed a Current Report on Form 8-K reporting under Item 2 and including exhibits under Item 7 thereof. 17 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. August 13, 2002 By: /s/ Scott L. Thompson - --------------- ---------------------------------------- Date Scott L. Thompson, Executive Vice President, Chief Financial Officer and Treasurer EXHIBIT INDEX Exhibit No. Description ------- ----------- 11.1 Statement re: computation of earnings per share is included under Note 3 to the financial statements. 99.1 Certificate of Chief Executive Officer. 99.2 Certificate of Chief Financial Officer. EX-99.1 3 h99097exv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF GROUP 1 AUTOMOTIVE, INC. PURSUANT TO 18 U.S.C. Section 1350 I, B.B. Hollingsworth, Jr., Chief Executive Officer of Group 1 Automotive, Inc. (the "Company"), hereby certify, to the best of my knowledge, that the accompanying report on Form 10-Q for the quarterly period ending June 30, 2002, and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Report") by the Company fully complies with the requirements of that section. I further certify, to the best of my knowledge, that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ B.B. Hollingsworth, Jr. --------------------------- B.B. Hollingsworth, Jr. August 13, 2002 EX-99.2 4 h99097exv99w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER OF GROUP 1 AUTOMOTIVE, INC. PURSUANT TO 18 U.S.C. Section 1350 I, Scott L. Thompson, Chief Financial Officer of Group 1 Automotive, Inc. (the "Company"), hereby certify, to the best of my knowledge, that the accompanying report on Form 10-Q for the quarterly period ending June 30, 2002, and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Report") by the Company fully complies with the requirements of that section. I further certify, to the best of my knowledge, that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Scott L. Thompson --------------------- Scott L. Thompson August 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----