-----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, EfuC4QHCLB9+m2YMvMxwZ4QKkA+tfC+OKzHzN2G66NqS4Hhw6y/mdqXkGtgDC3Q8 rc+wuZo3C+GJXx48nCITNg== 0000950129-02-005578.txt : 20021112 0000950129-02-005578.hdr.sgml : 20021111 20021112163257 ACCESSION NUMBER: 0000950129-02-005578 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 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: 02817530 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 h01116e10vq.txt GROUP 1 AUTOMOTIVE, INC. - DATED 9/30/2002 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 September 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 October 31, 2002. Title Outstanding Common stock, par value $.01 22,490,115 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- (unaudited) ASSETS CURRENT ASSETS: Cash.............................................................................. $ 22,142 $ 16,861 Vehicle receivables and contracts-in-transit...................................... 156,551 130,351 Accounts and notes receivable, net................................................ 56,816 43,684 Inventories, net.................................................................. 536,336 454,961 Deferred income taxes ............................................................ 10,774 10,721 Other assets...................................................................... 6,675 5,354 -------------- ------------- Total current assets....................................................... 789,294 661,932 -------------- ------------- PROPERTY AND EQUIPMENT, net......................................................... 96,279 83,011 INTANGIBLE ASSETS, net.............................................................. 374,362 282,527 INVESTMENTS, AT MARKET VALUE, RELATED TO INSURANCE POLICY SALES................................................. 15,860 14,313 DEFERRED COSTS RELATED TO INSURANCE POLICY AND VEHICLE SERVICE CONTRACT SALES............................... 16,254 6,874 OTHER ASSETS........................................................................ 13,376 5,768 -------------- ------------- Total assets............................................................... $ 1,305,425 $ 1,054,425 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floorplan notes payable........................................................... $ 521,693 $ 364,954 Current maturities of long-term debt.............................................. 1,354 1,687 Accounts payable.................................................................. 86,170 73,089 Accrued expenses.................................................................. 75,012 67,489 -------------- ------------- Total current liabilities.................................................. 684,229 507,219 -------------- ------------- DEBT, net of current maturities..................................................... 9,230 10,497 SENIOR SUBORDINATED NOTES........................................................... 78,213 85,002 DEFERRED INCOME TAXES............................................................... 13,424 9,982 OTHER LIABILITIES................................................................... 31,030 20,776 -------------- ------------- Total liabilities before deferred revenues................................. 816,126 633,476 -------------- ------------- DEFERRED REVENUES FROM INSURANCE POLICY AND VEHICLE SERVICE CONTRACT SALES................................................ 46,901 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, 23,164,331 and 23,029,853 issued.................................... 232 230 Additional paid-in capital........................................................ 254,326 251,145 Retained earnings ................................................................ 202,730 147,959 Accumulated other comprehensive loss ............................................. (3,577) (807) Treasury stock, at cost, 437,122 and 343,345 shares............................... (11,313) (6,284) -------------- ------------- Total stockholders' equity................................................. 442,398 392,243 -------------- ------------- Total liabilities and stockholders' equity................................. $ 1,305,425 $ 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- --------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- REVENUES: New vehicles.......................................... $ 736,429 $ 604,912 $ 1,900,456 $ 1,735,251 Used vehicles......................................... 311,847 284,517 864,046 848,877 Parts and service..................................... 108,295 95,048 295,497 268,729 Finance and insurance, net............................ 46,017 36,553 121,767 103,608 ---------- ---------- ---------- ---------- Total revenues................................. 1,202,588 1,021,030 3,181,766 2,956,465 COST OF SALES: New vehicles, net of floorplan assistance............. 686,312 558,581 1,764,269 1,603,744 Used vehicles......................................... 287,917 261,478 794,255 778,658 Parts and service..................................... 47,851 42,499 130,462 119,842 ---------- ---------- ---------- ---------- Total cost of sales............................ 1,022,080 862,558 2,688,986 2,502,244 ---------- ---------- ---------- ---------- GROSS PROFIT............................................ 180,508 158,472 492,780 454,221 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............................. 137,137 119,381 374,787 343,879 ---------- ---------- ---------- ---------- Income from operations before non-cash charges....................................... 43,371 39,091 117,993 110,342 DEPRECIATION AND AMORTIZATION EXPENSE................................. 3,299 4,324 8,920 12,808 ---------- ---------- ---------- ---------- Income from operations......................... 40,072 34,767 109,073 97,534 OTHER INCOME AND (EXPENSES): Floorplan interest expense............................ (5,082) (6,028) (13,814) (23,165) Other interest expense, net........................... (2,424) (3,132) (7,615) (11,054) Other income (expense), net........................... (80) 28 (190) 48 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES.............................. 32,486 25,635 87,454 63,363 PROVISION FOR INCOME TAXES.............................. 12,345 9,741 32,683 24,078 ---------- ---------- ---------- ---------- NET INCOME.............................................. $ 20,141 $ 15,894 $ 54,771 $ 39,285 ========== ========== ========== ========== EARNINGS PER SHARE: Basic................................................. $ 0.88 $ 0.81 $ 2.38 $ 2.01 Diluted............................................... $ 0.84 $ 0.75 $ 2.26 $ 1.90 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................................. 23,018,226 19,522,456 23,013,492 19,563,941 Diluted............................................... 24,026,015 21,258,841 24,222,717 20,666,414
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)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2002 2001 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................................ $ 54,771 $ 39,285 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................... 8,920 12,808 Deferred income taxes........................................................... 5,087 (1,819) Non-cash compensation........................................................... 193 Provision for doubtful accounts and uncollectible notes......................... 687 773 Loss (Gain) on sale of assets................................................... 102 (17) Gain on sale of franchises...................................................... (414) -- ------------- ------------ Net cash provided by operating activities, before changes in assets and liabilities.................................................. 69,346 51,030 ------------- ------------ Changes in assets and liabilities: Accounts receivable......................................................... (764) (955) Inventories................................................................. (23,188) 82,221 Other assets................................................................ (7,190) (3,122) Floorplan notes payable..................................................... 13,542 (80,619) Accounts payable and accrued expenses....................................... 3,962 37,952 ------------- ------------ Net asset and liability changes........................................... (13,638) 35,477 ------------- ------------ Net cash provided by operating activities......................... 55,708 86,507 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable..................................................... (8,079) (2,035) Collections on notes receivable.................................................. 978 868 Purchases of property and equipment.............................................. (30,472) (11,812) Proceeds from sales of property and equipment.................................... 1,028 615 Proceeds from sales of franchises................................................ 7,430 5,373 Cash paid in acquisitions, net of cash and cash equivalents received............. (67,995) (9,393) ------------- ------------ Net cash used by investing activities............................. (97,110) (16,384) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) on revolving credit facility........................... 83,322 (29,595) Principal payments of long-term debt............................................. (1,610) (1,393) Borrowings of long-term debt..................................................... 10 154 Purchase of senior subordinated notes............................................ (6,800) (9,601) Proceeds from issuance of common stock to benefit plans, including tax benefit................................................................ 9,043 2,655 Purchase of treasury stock, amounts based on settlement date..................... (11,082) (25,778) ------------- ------------ Net cash provided (used) by financing activities.................. 72,883 (63,558) ------------- ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 31,481 6,565 CASH AND CASH EQUIVALENTS, beginning of period...................................... 147,212 140,878 ------------- ------------ CASH AND CASH EQUIVALENTS, end of period............................................ $ 178,693 $ 147,443 ============= ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest................................................................... $ 20,668 $ 34,097 Taxes...................................................................... $ 21,931 $ 4,745
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 accounting principles generally accepted in the United States 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. The Company intends to complete the required assessment at the end of each calendar year, or at such other times as required by events and circumstances at a reporting unit indicating a potential reduction of fair value below book value. A portion of the Company's intangible assets relates 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 $62.8 million at September 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 5 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 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. In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued. SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt" and an amendment of that statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-fund Requirements". This rescission eliminated the requirement to classify gains and losses from debt extinguishment as extraordinary. This statement also amends SFAS No. 13, "Accounting for Leases", to require sales-leaseback accounting for certain lease modifications. 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Common stock outstanding, beginning of period.................... 23,125,031 19,698,782 23,029,853 21,260,227 Weighted average common stock issued - Employee Stock Purchase Plan................................ 30,842 69,224 67,648 154,017 Stock options exercised..................................... 5,009 25,117 259,436 47,779 Less: Weighted average treasury shares held and weighted average shares repurchased and cancelled ........... (142,656) (270,667) (343,445) (1,898,082) ---------- ---------- ---------- ---------- Shares used in computing basic earnings per share................ 23,018,226 19,522,456 23,013,492 19,563,941 Dilutive effect of stock options, net of assumed repurchase of treasury stock................................ 1,007,789 1,736,385 1,209,225 1,102,473 ---------- ---------- ---------- ---------- Shares used in computing diluted earnings per share.............. 24,026,015 21,258,841 24,222,717 20,666,414 ========== ========== ========== ==========
4. BUSINESS COMBINATIONS AND DISPOSITIONS: During the first nine months of 2002, the Company acquired 12 automobile dealership franchises. The acquisitions were accounted for as purchases. The aggregate consideration paid in completing the acquisitions included approximately $68.0 million in cash, net of cash and cash equivalents received, and the assumption of an estimated $57.0 million of inventory financing. Six of the franchises acquired were part of a platform acquisition completed in August of 2002 in California. The acquisition expanded the Company's geographic and brand diversity, and represents its first operations in California. All of the businesses acquired are now 100% wholly-owned subsidiaries of the Company. The Company paid $44.8 million in cash, net of cash and cash equivalents received, and assumed $40.4 million of floorplan notes payable in completing this acquisition. The consolidated balance sheet includes preliminary allocations of the purchase price for all of the acquisitions, and are subject to final adjustment. These allocations resulted in recording approximately $57.5 million of franchise value intangible assets and $38.5 million of goodwill. 6 Additionally, during the first nine months of 2002, the Company sold the net assets, including $4.2 million of goodwill, of four dealership franchises 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. 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 September 30, 2002, assuming that they occurred on January 1, 2001, (2) the completion of our October 2001 offering of 3.3 million shares of common stock, assuming it occurred on January 1, 2001, and (3) certain pro forma adjustments discussed below.
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2002 2001 ------------- ------------ (in millions, except per share amounts) Revenues .............................................................. $ 3,477.7 $ 3,396.2 Gross profit .......................................................... 542.4 527.0 Income from operations ................................................ 121.0 110.2 Net income ............................................................ 60.3 45.3 Basic earnings per share .............................................. 2.62 1.98 Diluted earnings per share ............................................ 2.49 1.89
Pro forma adjustments included in the amounts above primarily relate to: (a) reductions in compensation expense and management fees to the level that certain management employees and owners of the acquired companies will contractually receive; (b) increases in interest expense resulting from borrowings to complete acquisitions, net of interest income from the proceeds of the stock offering; and (c) incremental provisions for federal and state income taxes relating to the compensation differential, S Corporation income and other pro forma adjustments. 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. COMPREHENSIVE INCOME:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ----------- ----------- --------- (dollars in thousands) Net income....................................................... $ 20,141 $ 15,894 $ 54,771 $ 39,285 Other comprehensive loss: Change in fair value of interest rate swaps, net of tax...... (1,630) (2,212) (2,770) (2,212) ------------ ----------- ----------- --------- Comprehensive income ............................................ $ 18,511 $ 13,682 $ 52,001 $ 37,073 ============ =========== =========== =========
7 7. IMPACT OF CHANGE IN ACCOUNTING FOR INTANGIBLE ASSETS:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------ 2002 2001 2002 2001 ----------- ----------- ----------- --------- (dollars in thousands) Net income....................................................... $ 20,141 $ 15,894 $ 54,771 $ 39,285 Goodwill amortization expense, net of tax........................ -- 1,436 -- 4,172 ----------- ----------- ----------- --------- Pro forma net income............................................ $ 20,141 $ 17,330 $ 54,771 $ 43,457 =========== =========== =========== ========= Pro forma earnings per share: Basic........................................................ $ 0.88 $ 0.89 $ 2.38 $ 2.22 Diluted...................................................... $ 0.84 $ 0.82 $ 2.26 $ 2.10
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 specialty retailer in the $1 trillion automotive industry. Through a series of acquisitions we now operate 110 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 sales and parts and service sales 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 SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 NEW VEHICLE DATA (dollars in thousands, except per unit amounts)
INCREASE/ PERCENT 2002 2001 (DECREASE) CHANGE -------- -------- ---------- ------- Retail unit sales........................... 27,994 23,354 4,640 19.9% Retail sales revenues....................... $736,429 $604,912 $131,517 21.7% Gross profit................................ $50,117 $46,331 $3,786 8.2% Average gross profit per retail unit sold... $1,790 $1,984 $(194) (9.8)% Gross margin................................ 6.8% 7.7% (0.9)%
9 USED VEHICLE DATA (dollars in thousands, except per unit amounts)
INCREASE/ PERCENT 2002 2001 (DECREASE) CHANGE -------- -------- ---------- ------- Retail unit sales........................... 18,194 17,256 938 5.4% Total revenues.............................. $311,847 $284,517 $27,330 9.6% Retail sales revenues(1).................... $253,273 $239,915 $13,358 5.6% Gross profit................................ $23,930 $23,039 $891 3.9% Average gross profit per retail unit sold... $1,315 $1,335 $(20) (1.5)% Retail gross margin(2)...................... 9.4% 9.6% (0.2)% Total gross margin(2)....................... 7.7% 8.1% (0.4)%
- ------------------ (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 (dollars in thousands)
PERCENT 2002 2001 INCREASE CHANGE -------- ------- -------- ------- Sales revenues.............................. $108,295 $95,048 $13,247 13.9% Gross profit................................ $60,444 $52,549 $7,895 15.0% Gross margin................................ 55.8% 55.3% 0.5%
FINANCE AND INSURANCE, NET (dollars in thousands, except per unit amounts)
PERCENT 2002 2001 INCREASE CHANGE -------- ------- -------- ------- Retail new and used unit sales.............. 46,188 40,610 5,578 13.7% Retail sales revenues....................... $46,017 $36,553 $9,464 25.9% Finance and insurance, net per retail unit sold.......................... $996 $900 $96 10.7%
SAME STORE REVENUES COMPARISON (1) (dollars in thousands)
INCREASE/ PERCENT 2002 2001 (DECREASE) CHANGE ---------- -------- ---------- ------- New vehicle................................. $640,084 $594,912 $45,172 7.6% Used vehicle................................ 271,919 277,041 (5,122) (1.8)% Parts and service........................... 89,805 92,231 (2,426) (2.6)% Finance and insurance, net.................. 38,986 35,257 3,729 10.6% ---------- -------- ---------- ------- Total revenues.............. $1,040,794 $999,441 $41,353 4.1%
- ------------------ (1) Includes only those dealerships owned during all of the months of both periods in the comparison. 10 THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2001 REVENUES. Revenues increased $181.6 million, or 17.8%, to $1,202.6 million for the three months ended September 30, 2002, from $1,021.0 million for the three months ended September 30, 2001. New vehicle revenues increased primarily due to an increase in the number of units sold. The increase in units was driven by the aggressive pricing of new vehicles by the manufacturers, and the dealership operations acquired during 2001 and 2002. The increase in used vehicle revenues was attributable to the additional dealership operations acquired, partially offset by 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, partially offset by declines at our Ford stores due to the impact of the Ford/Firestone recalls, which increased sales in the prior year, and declines in the Houston market due to the impact of tropical storm Allison, which increased sales in the prior year. Finance and insurance revenues increased primarily due to increased new and used vehicle retail sales and 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 $22.0 million, or 13.9%, to $180.5 million for the three months ended September 30, 2002, from $158.5 million for the three months ended September 30, 2001. The increase was attributable to increased revenues offset by a decrease in gross margin from 15.5% for the three months ended September 30, 2001, to 15.0% for the three months ended September 30, 2002. The gross margin decreased as lower margin new vehicle revenues increased as a percentage of total revenues. Additionally, a lower gross margin on new and used vehicle sales contributed to the overall gross margin decrease. New vehicle margins are lower partially due to a decline in floorplan assistance paid by the manufacturers, as interest rates have fallen significantly from prior year levels. Floorplan assistance is recorded as a reduction of cost of sales. Also, the addition of the dealerships in the California platform, which have lower margins than the group average, in addition to reduced manufacturer incentives to the dealers, contributed to the lower new vehicle margin. 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 $17.7 million, or 14.8%, to $137.1 million for the three months ended September 30, 2002, from $119.4 million for the three months ended September 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 $1.0 million, or 23.3%, to $3.3 million for the three months ended September 30, 2002, from $4.3 million for the three months ended September 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 $1.7 million, or 18.5%, to $7.5 million for the three months ended September 30, 2002, from $9.2 million for the three months ended September 30, 2001. The decrease was due to a decline in interest rates and the amount of total debt outstanding. During the quarter there was a 191 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 borrowings under our credit facility. During the three months ended September 30, 2002, we reborrowed the remaining amount previously used to pay down floorplan debt to complete acquisitions. 11 SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 NEW VEHICLE DATA (dollars in thousands,
INCREASE/ PERCENT 2002 2001 (DECREASE) CHANGE ---------- ---------- ---------- ------- Retail unit sales........................... 72,249 66,963 5,286 7.9% Retail sales revenues....................... $1,900,456 $1,735,251 $165,205 9.5% Gross profit................................ $136,187 $131,507 $4,680 3.6% Average gross profit per retail unit sold... $1,885 $1,964 $(79) (4.0)% Gross margin................................ 7.2% 7.6% (0.4)%
USED VEHICLE DATA (dollars in thousands, except per unit amounts)
INCREASE/ PERCENT 2002 2001 (DECREASE) CHANGE -------- -------- ---------- ------- Retail unit sales........................... 50,574 50,784 (210) (0.4)% Total revenues.............................. $864,046 $848,877 $15,169 1.8% Retail sales revenues (1)................... $698,373 $704,218 $(5,845) (0.8)% Gross profit................................ $69,791 $70,219 $(428) (0.6)% Average gross profit per retail unit sold... $1,380 $1,383 $(3) (0.2)% Retail gross margin (2)..................... 10.0% 10.0% 0.0% Total gross margin (2)...................... 8.1% 8.3% (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 (dollars in thousands)
PERCENT 2002 2001 INCREASE CHANGE -------- -------- ---------- ------- Sales revenues.............................. $295,497 $268,729 $26,768 10.0% Gross profit................................ $165,035 $148,887 $16,148 10.8% Gross margin................................ 55.8% 55.4% 0.4%
FINANCE AND INSURANCE, NET (dollars in thousands, except per unit amounts)
PERCENT 2002 2001 INCREASE CHANGE -------- -------- -------- ------- Retail new and used unit sales.............. 122,823 117,747 5,076 4.3% Retail sales revenues....................... $121,767 $103,608 $18,159 17.5% Finance and insurance, net per retail unit sold.......................... $991 $880 $111 12.6%
12 SAME STORE REVENUES COMPARISON (1) (dollars in thousands)
INCREASE/ PERCENT 2002 2001 (DECREASE) CHANGE ---------- ---------- ---------- ------- New vehicle................................. $1,754,525 $1,705,079 $49,446 2.9 % Used vehicle................................ 796,239 825,659 (29,420) (3.6)% Parts and service........................... 263,085 262,983 102 0.0 % Finance and insurance, net.................. 108,590 101,124 7,466 7.4 % ---------- ---------- ---------- ------- Total revenues.............. $2,922,439 $2,894,845 $27,594 1.0 %
- ------------------ (1) Includes only those dealerships owned during all of the months of both periods in the comparison. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2001 REVENUES. Revenues increased $225.3 million, or 7.6%, to $3,181.8 million for the nine months ended September 30, 2002, from $2,956.5 million for the nine months ended September 30, 2001. New vehicle revenues increased primarily due to the increase in new vehicle units sold. The increase in units was driven by the aggressive pricing of new vehicles by the manufacturers, and the dealership operations acquired during 2001 and 2002. The increase in used vehicle revenues was primarily attributable to the additional dealership operations acquired, partially offset by 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 and increased new and used vehicle retail sales. GROSS PROFIT. Gross profit increased $38.6 million, or 8.5%, to $492.8 million for the nine months ended September 30, 2002, from $454.2 million for the nine months ended September 30, 2001. The increase was attributable to increased revenues and an increase in gross margin from 15.4% for the nine months ended September 30, 2001, to 15.5% for the nine months ended September 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, as interest rates have fallen significantly from prior year levels. Floorplan assistance is recorded as a reduction of cost of sales. 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 $30.9 million, or 9.0%, to $374.8 million for the nine months ended September 30, 2002, from $343.9 million for the nine months ended September 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 $3.9 million, or 30.5%, to $8.9 million for the nine months ended September 30, 2002, from $12.8 million for the nine months ended September 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 $12.8 million, or 37.4%, to $21.4 million for the nine months ended September 30, 2002, from $34.2 million for the nine months ended September 30, 2001. The decrease was due to a decline in interest rates and the amount of debt outstanding. During the nine-month period there was a 286 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 13 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 borrowings under our credit facility, and a reduction in the average inventory levels as compared to the prior year. During the three months ended September 30, 2002, we reborrowed the remaining amount previously used to pay down floorplan debt to complete acquisitions. 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 nine months of 2002 we generated cash flow from operations, excluding asset and liability changes, of approximately $69.3 million, an increase of $18.3 million compared to the same period in the prior year. After considering asset and liability changes, cash flows from operating activities decreased $30.8 million over the prior year period, primarily due to changes in the timing of required tax payments. INVESTING ACTIVITIES. During the first nine months of 2002 we used approximately $97.1 million in investing activities. We paid $30.5 million for purchases of property and equipment, of which $24.3 million was used for the purchase of land and construction of facilities for new or expanded operations. We have used $68.0 million in the acquisitions of 12 franchises and received $7.4 million from the sales of four franchises, for which $0.4 million in gains were recognized. FINANCING ACTIVITIES. During the first nine months of 2002 we obtained approximately $72.9 million from financing activities, primarily from borrowings on our credit facility to fund acquisitions, and from 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 common stock and for scheduled principal payments on our debt. WORKING CAPITAL. At September 30, 2002, we had working capital of $105.1 million, which is approximately $40.0 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 need to 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 October 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. 14 ACQUISITIONS AND ACQUISITION FINANCING We anticipate acquiring approximately $100 million in revenues during the fourth quarter of 2002, consisting of 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 During August 2002, the board of directors authorized us to repurchase up to $25 million of our stock, subject to management's judgment and the restrictions of our various debt agreements. Through September 30, 2002, we have repurchased 424,400 shares at a total cost of $11.1 million. 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 accounting principles generally accepted in the United States 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. 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 15 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 statements of operations. 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. We intend to complete the required assessment at the end of each calendar year, or at such other times as required by events and circumstances at a reporting unit indicating a potential reduction of fair value below book value. A portion of our intangible assets relates 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 the level of manufacturer incentives, may affect the demand for new and used vehicles and parts and service sales o regulatory environment, adverse legislation, or unexpected litigation 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 16 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 and as we have reborrowed amounts previously used to pay down the balance. As of September 30, 2002, there were no amounts outstanding under the acquisition portion of our credit facility. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Within 90 days before the filing of this Report, the Company's principal executive officer and principal financial officer evaluated the effectiveness of the Company's disclosure controls and procedures. Based on the evaluation, the Company's principal executive officer and principal financial officer believe that: o the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and 17 o the Company's disclosure controls and procedures were effective to ensure such information was accumulated and communicated to the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. CHANGES IN INTERNAL CONTROLS There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to their evaluation, nor have there been any corrective actions with regard to significant deficiencies or material weaknesses. 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. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION The certifications by our chief executive officer and chief financial officer required by Section 1350 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 have been provided to the Securities and Exchange Commission as correspondence accompanying this Quarterly Report on Form 10-Q. 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. B. REPORTS ON FORM 8-K: On August 13, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. On August 14, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. 18 On August 30, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. On September 6, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. On October 3, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. On October 24, 2002, the Company filed a Current Report on Form 8-K reporting under Item 9 and including exhibits under Item 7 thereof. 19 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. November 12, 2002 By: /s/ Scott L. Thompson - ----------------- -------------------------------------------- Date Scott L. Thompson, Executive Vice President, Chief Financial Officer and Treasurer 20 CERTIFICATION I, B.B. Hollingsworth, Jr., Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Group 1 Automotive, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ B.B. Hollingsworth, Jr. ----------------------------------- B. B. Hollingsworth, Jr. Chief Executive Officer 21 CERTIFICATION I, Scott L. Thompson, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Group 1 Automotive, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Scott L. Thompson ------------------------ Scott L. Thompson Chief Financial Officer 22 -----END PRIVACY-ENHANCED MESSAGE-----