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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER: 1-13461
GROUP 1 AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0506313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 ECHO LANE, SUITE 100, HOUSTON, TEXAS 77024
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code (713) 647-5700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Securities Exchanges on which Registered
------------------- -----------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $186.1 million as of February 28, 2001
(based on the last sale price of such stock as quoted on the New York Stock
Exchange). At such date there was no non-voting stock outstanding.
As of February 28, 2001, there were 19,681,065 shares of Registrant's
Common Stock, par value $.01 per share, outstanding.
Documents incorporated by reference: Proxy Statement of Group 1
Automotive, Inc. for the Annual Meeting of Stockholders to be held on May 23,
2001, which is incorporated into Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I.....................................................................................................4
Item 1. Business.......................................................................................4
Item 2. Properties....................................................................................14
Item 3. Legal Proceedings.............................................................................14
Item 4. Submission of Matters to a Vote of Security Holders...........................................14
PART II...................................................................................................15
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.........................15
Item 6. Selected Consolidated Financial Data..........................................................16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........17
Item 7A. Qualitative and Quantitative Disclosures About Market Risk....................................26
Item 8. Financial Statements and Supplementary Data...................................................27
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..........27
PART III..................................................................................................27
Item 10. Directors and Executive Officers of the Registrant............................................27
Item 11. Executive Compensation........................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management................................27
Item 13. Certain Relationships and Related Transactions................................................27
PART IV...................................................................................................27
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..............................27
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PART I
ITEM 1. BUSINESS
GENERAL
Group 1 Automotive, Inc. ("Group 1", the "Company", "we" or "us") is
a leading operator in the automotive retailing industry. Through a series of
acquisitions, we own 100 dealership franchises. Our automobile dealership
franchises are located in Texas, Oklahoma, Florida, New Mexico, Georgia,
Colorado, Louisiana and Massachusetts. Through our dealerships and Internet
sites, we sell new and used cars and light trucks, provide maintenance and
repair services, sell replacement parts and arrange vehicle finance, service and
insurance contracts.
OPERATING STRATEGY
We follow an operating strategy that focuses on decentralized
management, expansion of higher margin businesses, customer service,
centralization of certain administrative functions and new technology
initiatives.
DECENTRALIZED MANAGEMENT. We believe that by managing our dealerships
on a decentralized basis, we provide superior customer service and a focused,
market-specific responsiveness to sales, service, marketing and inventory
control. Local presence and an in-depth knowledge of customers' needs and
preferences are important in generating market share growth. By coordinating
certain operations on a platform basis, we believe that we will achieve cost
savings in such areas as advertising, vendor consolidation, data processing and
personnel utilization.
EXPAND HIGHER MARGIN ACTIVITIES. We focus on expanding our higher
margin businesses such as used vehicle retail sales, parts and service and
arranging vehicle finance, service and insurance contracts. While each of our
platforms operates independently in a manner consistent with its specific
market's characteristics, they also pursue an integrated company-wide strategy
designed to grow each of these higher margin businesses to enhance profitability
and stimulate internal growth. With a competitive advantage in sourcing
inventory, new vehicle franchises are especially well positioned to capitalize
on industry growth in used vehicle sales. In addition, each of our dealerships
offers an integrated parts and service department, which provides an important
source of recurring higher margin revenues. We also have the opportunity on each
new or used vehicle sold to generate incremental revenues from the arranging of
finance and lease contracts, vehicle service contracts and credit insurance
policies.
COMMITMENT TO CUSTOMER SERVICE. We focus on providing high quality
service to meet the needs of customers. Our dealerships strive to cultivate
lasting relationships with their customers, and we believe these efforts
increase our opportunities for significant repeat and referral business. For
example, the dealerships regard their service and repair activities as an
integral part of their overall approach to customer service. This approach
provides us with an opportunity to foster ongoing relationships with customers
and deepen customer loyalty. In addition, our dealerships continually review
their processes in an effort to better meet the needs of their customers. Some
of our dealerships utilize the one-price method of pricing their inventory for
sale, while the majority of our dealerships utilize non-confrontational variable
pricing.
NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. We believe that by
consolidating the purchasing power of our dealerships on a centralized basis we
have benefited from significant cost savings. For example, since we began
operations, we have significantly reduced the interest rate on our floorplan
financing through our consolidated credit facility. Furthermore, we have
benefited from the consolidation of administrative functions such as risk
management, employee benefits and employee training.
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TECHNOLOGY INITIATIVES. We use the Internet to more effectively
communicate with our customers. Customers can arrange service appointments,
search our inventory and receive notice of special offers. Our platform portal
web pages provide customers a direct one-stop shopping experience in their local
market, providing multiple brands and an extensive inventory of vehicles. Also,
as franchised dealerships, we receive Internet leads from manufacturers'
e-commerce programs and, through a contractual relationship with an e-commerce
software company, we receive Internet leads from several major portals. Lastly,
at times, we use automotive Internet referral services to provide incremental
sales opportunities.
DEALERSHIP OPERATIONS
Each of our platforms has an established management structure that
promotes and rewards entrepreneurial spirit, and the achievement of team goals.
The general manager of each dealership is ultimately responsible for the
operation, personnel and financial performance of the dealership. The general
manager is complemented with a management team consisting of a new vehicle sales
manager, used vehicle sales manager, parts and service managers and finance
managers. Each dealership is operated as a distinct profit center, in which
dealership general managers are given a high degree of autonomy. The general
manager and the other members of the dealership management team, as long-time
members of their local communities, are typically best able to judge how to
conduct day-to-day operations based on their experience in and familiarity with
the local market.
NEW VEHICLE SALES. We currently represent 30 American, Asian and
European brands of economy, family, sports and luxury cars, light trucks and
sport utility vehicles. The following table sets forth for the twelve months
ended December 31, 2000, the brands of new vehicles sold at retail by us on an
actual and on a pro forma basis assuming that all of our dealerships (acquired
by December 31, 2000) were acquired on January 1, 2000. These results may not be
indicative of our results after the acquisition of the dealerships by us:
PRO FORMA NUMBER OF NEW PERCENTAGE OF PRO FORMA ACTUAL NUMBER OF NEW
MANUFACTURER VEHICLES SOLD TOTAL VEHICLES SOLD
- ------------------------------- ------------------------------- -------------------------- ------------------------------
Ford........................ 28,052 30.7% 26,597
Toyota...................... 17,233 18.9 14,913
Chevrolet................... 6,830 7.5 6,830
Dodge....................... 6,375 7.0 5,944
Nissan...................... 5,100 5.6 5,100
Lexus........................ 4,273 4.7 4,273
Honda........................ 3,786 4.1 3,786
Mitsubishi................... 2,437 2.7 2,437
Chrysler..................... 2,059 2.2 2,059
Jeep......................... 2,038 2.2 2,038
GMC.......................... 1,999 2.2 1,999
Pontiac...................... 1,702 1.8 1,702
Acura........................ 1,529 1.7 1,529
Isuzu........................ 1,230 1.3 1,230
Plymouth..................... 1,134 1.2 1,134
Audi......................... 826 0.9 826
Subaru....................... 800 0.9 800
Mercedes Benz................ 692 0.7 692
Mazda........................ 645 0.7 645
Buick........................ 568 0.6 568
Volkswagen................... 361 0.4 361
Hyundai...................... 358 0.4 358
Mercury...................... 329 0.4 61
Cadillac..................... 257 0.3 257
Lincoln...................... 240 0.3 25
BMW.......................... 185 0.2 185
Other........................ 380 0.4 380
------------------------------- -------------------------- ------------------------------
TOTAL.................. 91,418 100.0% 86,729
=============================== ========================== ==============================
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Our dealerships' new vehicle retail sales include traditional new
vehicle retail lease transactions and lease-type transactions, both of which are
arranged by the dealerships. New vehicle leases generally have short terms,
bringing the customer back to the market sooner than if the purchase were debt
financed. In addition, leases provide our dealerships with a steady source of
late-model, off-lease vehicles for their used vehicle inventory. Generally,
leased vehicles remain under factory warranty for the term of the lease,
allowing the dealerships to provide repair service to the lessee throughout the
lease term.
Our dealerships seek to provide customer-oriented service designed to
meet the needs of its customers and establish lasting relationships that will
result in repeat and referral business. The dealerships continually evaluate
innovative ways to improve the buying experience for their customers. We believe
that our ability to share best practices among our dealerships gives us an
advantage over smaller dealerships. For example, the dealerships strive to:
(1) employ more efficient selling approaches;
(2) utilize computer technology that decreases the time necessary to
purchase a vehicle;
(3) engage in extensive follow-up after a sale in order to develop
long-term relationships with customers; and
(4) extensively train their sales staffs to be able to meet the needs
of the customer.
Our dealerships acquire substantially their entire new vehicle
inventory from automobile manufacturers ("Manufacturers"). Manufacturers
allocate a limited inventory among their franchised dealers based primarily on
sales volume and input from dealers. Our dealerships finance their inventory
purchases through the floorplan portion of our revolving credit facility. We
receive interest assistance from various Manufacturers. In general, this
assistance equals approximately 80% to 90% of our floorplan notes payable
interest expense. During 2000, we recognized $31.1 million of assistance, which
we accounted for as a purchase discount and reflected as a reduction of cost of
sales in the income statement as vehicles were sold.
USED VEHICLE SALES. We sell used vehicles at each of our franchised
dealerships. Sales of used vehicles are a significant source of profit for the
dealerships. Consumer demand for used vehicles has increased as more high
quality used vehicles have become available. Furthermore, used vehicles
typically generate higher gross margins than new vehicles because of their
limited comparability and the somewhat subjective nature of their valuation. We
intend to continue growing our used vehicle sales operations by maintaining a
high quality inventory, providing competitive prices, offering vehicle service
contracts for our used vehicles, and continuing to promote used vehicle sales.
Profits from sales of used vehicles depend primarily on the
dealerships' ability to obtain a high quality supply of used vehicles and
effectively manage that inventory. Our new vehicle operations provide the used
vehicle operations with a large supply of high quality trade-ins and off-lease
vehicles, which are the best sources of high quality used vehicles. The
dealerships supplement their used vehicle inventory with used vehicles purchased
at auctions.
Each of the dealerships generally maintains a 30-day supply of used
vehicles and offers to other dealers and wholesalers used vehicles that they do
not retail to customers. Vehicles may be transferred among our dealerships to
provide balanced inventories of used vehicles at each of our dealerships.
Our dealerships have taken several steps towards building customer
confidence in their used vehicle inventory, including participation in
manufacturer certification processes, which are available only to new vehicle
franchises. This process makes these used vehicles eligible for new vehicle
benefits such as new vehicle finance rates and in some cases, the manufacturer
warranty is extended. In addition, the dealerships offer vehicle service
contracts covering the used vehicles that they sell.
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We believe that our franchised dealerships' strengths in offering
used vehicles include:
(1) access to trade-ins on new vehicle purchases, which are typically
lower mileage and higher quality relative to trade-ins on used
car purchases,
(2) access to late-model, low mileage off-lease vehicles, and
(3) the availability of manufacturer certification programs for our
higher quality used vehicles.
A supply of high quality trade-ins and off-lease vehicles reduces our
dependence on auction vehicles, which are typically a higher cost source of used
vehicles.
PARTS AND SERVICE SALES. We provide parts and service at each of our
franchised dealerships, primarily for the vehicle makes sold at that dealership.
We perform both warranty and non-warranty service work. Warranty work accounts
for approximately 20% of our parts, service and collision service revenues. In
addition to each of our dealerships' parts and service businesses, we currently
own 21 collision service centers.
Historically, the automotive repair industry has been highly
fragmented. However, we believe that the increased use of advanced technology in
vehicles has made it difficult for independent repair shops to retain the
expertise to perform major or technical repairs. Additionally, Manufacturers
permit warranty work to be performed only at franchised dealerships. Hence,
unlike independent service operations, our franchised dealerships are qualified
to perform work covered by Manufacturer warranties. Given the increasing
technological complexity of motor vehicles and the trend toward extended
manufacturer and dealer warranty periods for new vehicles, we believe that an
increasing percentage of repair work will be performed at our franchised
dealerships, each of which have the sophisticated equipment and skilled
personnel necessary to perform such repairs and offer vehicle service contracts.
We attribute our profitability in parts and service to a
comprehensive management system, including the use of variable rate pricing
structures, cultivation of strong customer relationships through an emphasis on
preventive maintenance and the efficient management of parts inventory.
In charging for their technicians' labor, our dealerships use
variable rate structures designed to reflect the difficulty and sophistication
of different types of repairs. The percentage mark-ups on parts are similarly
priced based on market conditions for different parts. We believe that variable
rate pricing helps our dealerships achieve overall gross margins in parts and
service which are superior to those of certain competitors who rely on fixed
labor rates and percentage markups. Additionally, it allows the dealership to be
competitive with local service centers that provide discounted pricing on select
services.
Our dealerships seek to retain each vehicle purchaser as a customer
of the dealership's parts and service departments. The dealerships have systems
in place that track their customers' maintenance records and notify owners of
vehicles purchased or serviced at the dealerships when their vehicles are due
for periodic services. The dealerships regard service and repair activities as
an integral part of their overall approach to customer service, providing an
opportunity to foster ongoing relationships with the dealership's customers and
deepen customer loyalty.
The dealerships' parts departments support their respective sales and
service departments. Each of the dealerships sell factory-approved parts for
vehicle makes and models sold by that dealership. These parts are used either in
repairs made by the dealership, sold at retail to its customers or at wholesale
to independent repair shops and other franchised dealerships. Currently, each of
the dealerships employs its own parts manager and independently controls its
parts inventory and sales. Our dealerships frequently obtain unstocked parts
from each other.
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OTHER DEALERSHIP REVENUES. Other dealership revenues consists
primarily of finance, vehicle service contract and insurance income. The
dealerships arrange financing for their customers' vehicle purchases, sell
vehicle service contracts and arrange selected types of credit insurance in
connection with the financing of vehicle sales. We place heavy emphasis on
finance and insurance ("F&I") and offer advanced F&I training to their finance
and insurance managers. Typically, the dealerships forward proposed financing
contracts to Manufacturers' captive finance companies, selected commercial banks
or other financing parties. The dealerships receive a financing fee from the
lender for arranging the financing and are typically assessed a chargeback
against a portion of the financing fee if the contract is terminated prior to
its scheduled maturity for any reason, such as early repayment or default. We do
not own a finance company and, generally, do not retain credit risk after a loan
is made.
At the time of a new vehicle sale, the dealerships offer vehicle
service contracts to supplement the manufacturer warranty. Additionally, the
dealerships sell primary vehicle service contracts for used vehicles. Our
dealerships sell service contracts of third party vendors and Manufacturers, for
which they recognize a commission upon the sale of the contract.
The dealerships also offer certain types of credit insurance to
customers who arrange the financing of their vehicle purchases through the
dealerships. The dealerships sell credit life insurance policies to these
customers, providing for repayment of the vehicle loan if the obligor dies while
the loan is outstanding. The dealerships also sell accident and disability
insurance policies, which provide payment of the monthly loan obligations during
a period in which the obligor is disabled. The dealerships sell such insurance
through third party vendors and we reinsure the policies. As such, we defer all
of the revenues and direct costs related to the sales of these policies and
recognize them over the life of the policies.
Also included in other dealership revenues is income from
Manufacturer incentives. Increasingly, the Manufacturers are offering incentives
to dealerships that achieve various goals set by the Manufacturers.
ACQUISITION PROGRAM
Under our acquisition program, we pursue:
(1) "platform" acquisitions of large, profitable and well managed
dealerships in large metropolitan and high-growth suburban
geographic markets that we do not currently serve, and
(2) smaller "tuck-in" acquisitions to existing platforms that allow
us to increase brand diversity, capitalize on economies of scale
and offer a greater breadth of products and services in each of
the markets in which we operate.
We have used, and may in the future use, our common stock to fund a
portion of our acquisitions. In addition, we have a revolving credit facility,
which provides us with the ability to borrow up to $198 million for acquisitions
and working capital needs.
During 2001, we anticipate that we will use a portion of our
operating cash flow to complete tuck-in acquisitions and will not close any
platform acquisitions.
ENTERING NEW GEOGRAPHIC MARKETS. We intend, over time, to expand into
geographic markets we do not currently serve by acquiring large, profitable and
well-established megadealers that are leaders in their regional markets. We
pursue megadealers that have superior operational and financial management
personnel, which we seek to retain. We believe that by retaining existing high
quality management we will be able to effectively operate acquired megadealers
with management personnel who understand the local market without having to
employ and train new and untested personnel.
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EXPANDING WITHIN EXISTING MARKETS. We plan to make tuck-in
acquisitions of additional dealerships in each of the markets in which we
operate, including acquisitions that increase the brands, products and services
offered in these markets. We believe that these acquisitions will increase our
operating efficiencies and cost savings on a regional level in areas such as
advertising, vendor consolidation, data processing and personnel utilization.
AGREEMENTS WITH MANUFACTURERS
The following table sets forth the percentage of our new vehicle
retail unit sales attributable to the Manufacturers we represented during 2000
that represented 10% or more of new vehicle retail unit sales, on a pro forma
basis giving effect to all of our acquisitions in 2000:
PERCENTAGE OF OUR
NEW VEHICLE
PRO FORMA RETAIL
UNITS SOLD DURING THE TWELVE
MONTHS ENDED
MANUFACTURER DECEMBER 31, 2000
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Ford......................................................... 32.2%
Toyota/Lexus................................................. 23.6%
DaimlerChrysler.............................................. 13.3%
General Motors............................................... 12.5%
FRANCHISE AGREEMENTS. Each of our dealerships operates under a
franchise agreement with one of our Manufacturers (or authorized distributors).
Under our dealership franchise agreements, the Manufacturers exert considerable
influence over the operations of our dealerships. Each of the franchise
agreements may be terminated or not renewed by the Manufacturer for a variety of
reasons, including any unapproved changes of ownership or management. While we
believe that we will be able to renew all of our franchise agreements, we cannot
guarantee that all of our franchise agreements will be renewed or that the terms
of the renewals will be favorable to us. Our franchise agreements do not give us
the exclusive right to sell a Manufacturer's product within a given geographic
area. Accordingly, a Manufacturer may, subject to any protection of state law,
grant another dealer a franchise to start a new dealership near one of our
locations, or an existing dealer may move a dealership to a location, which
would compete directly with us.
Acquisitions. We must obtain the consent of the Manufacturer prior to
the acquisition of any of its dealership franchises. Delays in obtaining, or
failing to obtain, Manufacturer approvals for dealership acquisitions could
adversely affect our acquisition program. Obtaining the consent of a
Manufacturer for the acquisition of a dealership could take a significant amount
of time or might be rejected entirely. In determining whether to approve an
acquisition, Manufacturers may consider many factors, including the moral
character and business experience of the dealership principals and the financial
condition, ownership structure and customer satisfaction index scores of our
dealerships.
Our Manufacturers attempt to measure customers' satisfaction with
automobile dealerships through systems generally known as the customer
satisfaction index or "CSI". The Manufacturers have modified the components of
their CSI scores from time to time in the past, and they may replace them with
different systems.
In addition, a Manufacturer may limit the number of its dealerships
that we may own or the number that we may own in a particular geographic area.
The following is a summary of the restrictions imposed by the Manufacturers that
accounted for 10% or more of our new vehicle retail unit sales.
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Ford. Ford currently limits the number of dealerships that we may own
to the greater of (1) 15 Ford and 15 Lincoln Mercury dealerships and (2) that
number of Ford and Lincoln Mercury dealerships accounting for 5% of the
preceding year's total Ford, Lincoln and Mercury retail sales of those brands in
the United States. In addition, Ford limits us to one Ford dealership in a
Ford-defined market area having two or less authorized Ford dealerships and
one-third of Ford dealerships in any Ford-defined market area having more than
three authorized Ford dealerships. In many of its dealership franchise
agreements Ford has the right of first refusal to acquire, subject to applicable
state law, a Ford franchised dealership when its ownership changes.
Toyota. Toyota restricts the number of dealerships that we may own
and the time frame over which we may acquire them. We can acquire no more than
two Toyota dealerships in each semi-annual period from January to June and July
to December until we acquire a total of seven Toyota dealerships. After we
acquire seven Toyota dealerships we can acquire, if we are then qualified,
additional dealerships, over a minimum of seven semi-annual periods, up to a
maximum number of dealerships equal to 5% of Toyota's aggregate national annual
retail sales volume. In addition, Toyota restricts the number of Toyota
dealerships that we may acquire in any Toyota-defined region and "Metro" market,
as well as any contiguous market. We may acquire only three Lexus dealerships
nationally and two Lexus dealerships in any one of the four Lexus geographic
areas. While we own a Lexus companion dealership located south of Houston, this
dealership is not considered by Lexus to be a new and separate Lexus dealership
for purposes of the restriction on the number of Lexus dealerships we may
acquire.
Chrysler. Currently, we have no agreement with Chrysler restricting
our ability to acquire Chrysler dealerships. Chrysler has advised us that in
determining whether to approve an acquisition of a Chrysler dealership, Chrysler
considers the number of Chrysler dealerships the acquiring company already owns.
Chrysler currently carefully considers, on a case-by-case basis, any acquisition
that would cause the acquiring company to own more than 10 Chrysler dealerships
nationally, six in the same Chrysler-defined zone and two in the same market.
General Motors. General Motors currently evaluates our acquisitions
of GM dealerships on a case-by-case basis. GM, however, limits the maximum
number of GM dealerships that we may acquire at any time to 50% of the GM
dealerships, by franchise line, in a GM-defined geographic market area.
Additionally, our current agreement with GM does not include Saturn dealerships
and our future acquisition of a Saturn dealership will be subject to GM approval
on a case-by-case basis.
We currently own 18 Ford, 28 Chrysler, seven Toyota and two Lexus
dealership franchises. Under current restrictions, we may acquire the maximum
number of Toyota dealerships described above based on aggregate national retail
sales volume of Toyota, one additional Lexus dealership and the maximum number
of Ford, Lincoln and Mercury dealerships described above based on aggregate
Ford, Lincoln and Mercury national retail sales. We currently represent only,
approximately, 0.7% and 1.2% of the national retail sales of Ford and Toyota,
respectively.
FINANCINGS. Provisions in our agreements with our Manufacturers may
restrict in the future our ability to obtain certain types of financing. A
number of our Manufacturers prohibit pledging the stock of their franchised
dealerships. For example, our agreement with General Motors contains provisions
prohibiting pledging the stock of our GM franchised dealerships. Our agreement
with Ford permits pledging our Ford franchised dealerships' stock and assets,
but only for Ford dealership-related debt. Moreover, our Ford agreement permits
our Ford franchised dealerships to guarantee, and to use Ford franchised
dealership assets to secure, our debt, but only for Ford dealership-related
debt. Ford waived that requirement with respect to our March 1999, senior
subordinated notes offering and the subsidiary guarantees of those notes.
Certain Manufacturers require us to meet certain financial ratios, which, if we
fail to meet these ratios the Manufacturers may reject proposed acquisitions,
and may give them the right to purchase their franchises for fair value.
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OUR OWNERSHIP AND MANAGEMENT. As a condition to granting their
consent to our previous acquisitions and our initial public offering, some
Manufacturers have imposed other restrictions on us.
These restrictions prohibit, among other things:
- any one person, who in the opinion of the Manufacturer is
unqualified to own its franchised dealership or has interests
incompatible with the Manufacturer, from acquiring more than a
specified percentage of our common stock (for example, 20% in the
case of General Motors and Toyota, and 50% in the case of Ford);
- certain material changes in us or extraordinary corporate
transactions such as a merger or sale of a material amount of our
assets;
- the removal of a dealership general manager without the consent
of the Manufacturer;
- the use of dealership facilities to sell or service new vehicles
of other Manufacturers, in certain situations; and
- change in control of our Board of Directors or management.
If we are unable to comply with these restrictions, we generally must
(1) sell the assets of the dealerships to the Manufacturer or to a third party
acceptable to the Manufacturer, or (2) terminate the dealership agreements with
the Manufacturer. The Manufacturers may impose additional restrictions on us in
the future.
OPERATIONS. We depend on our Manufacturers for operational support:
- We depend on the Manufacturers to provide us with a desirable mix
of new vehicles. The most popular vehicles usually produce the
highest profit margins and are frequently difficult to obtain
from the Manufacturers. If we cannot obtain sufficient quantities
of the most popular models, our profitability may be adversely
affected. Sales of less desirable models may reduce our profit
margins.
- We depend on the Manufacturers for sales incentives and other
programs that are intended to promote dealership sales or support
dealership profitability. Manufacturers historically have made
many changes to their incentive programs during each year. A
discontinuation or change in Manufacturers' incentive programs
could adversely affect our business. Moreover, some Manufacturers
use a dealership's CSI scores as a factor for participating in
incentive programs. Failure to comply with the CSI standards
could adversely affect our participation in dealership incentive
programs, which could have a material adverse effect on us.
Our Manufacturer agreements also specify that, in certain situations,
we cannot operate a dealership franchised by another Manufacturer in the same
building as that Manufacturer's franchised dealership. In addition, some
Manufacturers, like GM, are in the process of realigning their franchised
dealerships along defined "channels", such as combining Pontiac, Buick and GMC
in one dealership location. As a result, GM may require us to move or sell some
dealerships. Moreover, our Manufacturers generally require that the dealership
premises meet defined image standards. All of these requirements could impose
significant capital expenditures on us in the future.
COMPETITION
The automotive retailing industry is highly competitive. In large
metropolitan areas consumers have a number of choices in deciding where to
purchase a new or used vehicle and where to have the vehicle serviced.
In the new vehicle area, our dealerships compete with other
franchised dealerships in their marketing areas. Our dealerships do not have any
cost advantage in purchasing new vehicles from the Manufacturers, and typically
rely on advertising and merchandising, sales
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expertise, service reputation and location of the dealership to sell new
vehicles. In recent years, automobile dealers have also faced increased
competition in the sale or lease of new vehicles from independent leasing
companies, on-line purchasing services and warehouse clubs. In addition, Ford
has acquired and subsequently operated automobile dealerships for the purpose of
consolidating Ford dealerships in a few markets. It is our understanding, at
this time, however, that Ford does not intend to purchase, operate and
consolidate dealerships in any other markets.
In used vehicles, our dealerships compete with other franchised
dealers, independent used vehicle dealers, automobile rental agencies and
private parties for supply and resale of used vehicles.
Our dealerships compete against franchised dealers to perform
warranty repairs and against other automobile dealers, franchised and
independent service center chains and independent garages for non-warranty
repair and routine maintenance business. The dealerships compete with other
automobile dealers, service stores and auto parts retailers in their parts
operations. We believe that the principal competitive factors in parts and
service sales are the quality of customer service, the use of factory-approved
replacement parts, familiarity with a Manufacturer's brands and models and
price. A number of regional or national chains offer selected parts and services
at prices that may be lower than the dealership's prices.
GOVERNMENTAL REGULATIONS
A number of regulations affect our business of marketing, selling,
financing and servicing automobiles. We are also subject to laws and regulations
relating to business corporations generally.
Generally, we must obtain a license in order to establish, operate or
relocate a dealership or provide certain automotive repair services. These laws
also regulate the way we conduct our business, including our advertising and
sales practices.
Various federal and state laws established to protect dealerships
from the general unequal bargaining power between the parties also govern the
automobile franchise relationship. The following discussion of state court and
administrative holdings and various state laws is based on management's beliefs
and may not be an accurate description of the state court and administrative
holdings and various state laws. The state statutes generally provide that it is
a violation for a manufacturer to terminate or fail to renew a franchise without
good cause. These statutes also provide that the manufacturer is prohibited from
unreasonably withholding approval for a proposed change in ownership of the
dealership. Acceptable grounds for disapproval include material reasons relating
to the character, financial ability or business experience of the proposed
transferee. Accordingly, certain provisions of the franchise agreements,
particularly as they relate to a manufacturer's rights to terminate or fail to
renew the franchise, have repeatedly been held invalid by state courts and
administrative agencies.
Our financing activities with our customers are subject to federal
truth in lending, consumer leasing and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
insurance laws, usury laws and other installment sales laws. Some states
regulate finance fees that may be paid as a result of vehicle sales. Penalties
for violation of any of these laws or regulations may include revocation of
certain licenses, assessment of criminal and civil fines and penalties, and in
certain instances, create a private cause of action for individuals. We believe
that our dealerships comply substantially with all laws and regulations
affecting their business and do not have any material liabilities under such
laws and regulations and that compliance with all such laws and regulations will
not, individually or in the aggregate, have a material adverse effect on its
capital expenditures, earnings, or competitive position.
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ENVIRONMENTAL MATTERS
We are subject to a wide range of federal, state, and local
environmental laws and regulations, including those governing discharges into
the air and water, the storage of petroleum substances and chemicals, the
handling and disposal of wastes, and the remediation of contamination arising
from spills and releases. As with automobile dealerships generally, and parts,
service and collision service center operations in particular, our business
involves the generation, use, handling, storage, transport and disposal of
hazardous or toxic substances or wastes. Operations involving the management of
hazardous and nonhazardous wastes are subject to requirements of the federal
Resource Conservation and Recovery Act and comparable state statutes. Pursuant
to these laws, federal and state environmental agencies have established
approved methods for storage, treatment, and disposal of regulated wastes with
which we must comply.
Our business involves the use of aboveground and underground storage
tanks. Under applicable laws and regulations, we are responsible for the proper
use, maintenance and abandonment of regulated storage tanks which we own or
operate, and for remediation of subsurface soils and groundwater impacted by
releases from such existing or abandoned aboveground or underground storage
tanks. In addition to these regulated tanks, we own, operate, or have otherwise
abandoned, other underground and aboveground devices or containers (e.g.,
automotive lifts and service pits) that may not be classified as regulated
tanks, but which are capable of releasing stored materials into the environment,
thereby potentially obligating us to remediate any soils or groundwater
resulting from such releases.
We are also subject to laws and regulations governing remediation of
contamination at facilities we operate or to which we send hazardous or toxic
substances or wastes for treatment, recycling or disposal. The Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known as
the "Superfund" law, imposes liability, without regard to fault or the legality
of the original conduct, on certain classes of persons that are considered to
have contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of the disposal site or sites where
the release occurred and companies that disposed or arranged for the disposal of
the hazardous substances released at such sites. Under CERCLA, these
"responsible parties" may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment, for damages to natural resources and for the costs of certain
health studies, and it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances.
Further, the Federal Water Pollution Control Act, also known as the
Clean Water Act, and comparable state laws prohibit discharges of pollutants
into regulated waters without authorized National Pollution Discharge
Elimination System (NPDES) and similar state permits, require containment of
potential discharges of oil or hazardous substances, and require preparation of
spill contingency plans.
Environmental laws and regulations have become very complex and
stringent over the years, and the task of achieving and maintaining full
compliance with all applicable environmental laws and regulations has become
much more rigorous. We currently own or lease, and in connection with our
acquisition program will in the future own or lease, properties that in some
instances have been used for auto retailing and servicing for many years.
Although we have utilized operating and disposal practices that were standard in
the industry at the time, it is possible that environmentally sensitive
materials such as new and used motor oil, transmission fluids, antifreeze,
lubricants, solvents and motor fuels may have been spilled or released on or
under the properties owned or leased by us or on or under other locations where
such materials were taken for disposal. Further, we believe that structures
found on some of these properties may contain suspect asbestos-containing
materials, albeit in nonfriable, undisturbed condition. In addition, many of
these properties have been operated by third parties whose use, handling and
disposal of such environmentally sensitive materials were not under the
Company's control.
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These properties and the waste materials spilled, released or
otherwise found thereon may be subject to RCRA, CERCLA, the federal Clean Air
Act and analogous state laws. Under such laws, we could be required to remove or
remediate previously spilled or released waste materials (including such
materials spilled or released by prior owners or operators), or property
contamination (including groundwater contamination caused by prior owners or
operators), or to perform monitoring or remedial activities to prevent future
contamination (including asbestos found to be in a friable and disturbed
condition). However, we believe that we are not subject to any material
environmental liabilities and that compliance with environmental laws and
regulations does not have a material adverse effect on our operations, earnings
or competitive position. Moreover, we generally obtain environmental studies on
dealerships to be acquired and, as necessary, implement environmental management
or remedial activities to reduce the risk of noncompliance with environmental
laws and regulations.
EMPLOYEES
As of December 31, 2000, we employed approximately 5,830 people, of
whom approximately 1,160 were employed in managerial positions, 1,670 were
employed in non-managerial sales positions, 2,140 were employed in
non-managerial parts and service positions and 860 were employed in
administrative support positions.
We believe that our relationships with our employees are favorable.
None of our employees are represented by a labor union, however, because of our
dependence on the Manufacturers we may be affected by labor strikes, work
slowdowns and walkouts at the Manufacturers' manufacturing facilities.
ITEM 2. PROPERTIES
We use a number of facilities to conduct our dealership operations.
Each of our dealerships may include facilities for (1) new and used vehicle
sales, (2) vehicle service operations, (3) retail and wholesale parts
operations, (4) collision service operations, (5) storage and (6) general office
use. We try to structure our operations so as to avoid the ownership of real
property. In connection with our acquisitions, we generally seek to lease rather
than acquire the facilities on which the acquired dealerships are located. We
generally enter into lease agreements with respect to such facilities that have
30-year total terms with 15-year initial terms and three five-year option
periods, at our option, with respect to both third-party and related-party
leases. As a result, we lease the majority of our facilities under long-term
operating leases.
ITEM 3. 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, could be expected to have a material
adverse effect on our business, financial condition or results of operations.
For example, we have been named as one of several defendants in a number of
suits regarding deaths or injuries alleged to be attributable to tread
separation of Firestone tires on Ford vehicles. While substantial damages have
been sought in these suits, we believe that we have meritorious defenses and
that we are entitled to seek indemnity from Ford or Bridgestone/Firestone, Inc.
for any potential costs or liabilities associated with these suits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "GPI". There were 147 holders of record of our Common Stock as
of February 28, 2001.
The following table presents the quarterly high and low sales prices
for our common stock since January 1, 1999, as reported on the New York Stock
Exchange Composite Tape under the symbol "GPI".
HIGH LOW
------------------------- -----------------------
1999:
First Quarter............................................... $30.0000 $18.3125
Second Quarter.............................................. 26.9375 20.6875
Third Quarter............................................... 25.5000 17.7500
Fourth Quarter.............................................. 18.3750 12.7500
2000:
First Quarter............................................... 14.6250 9.5000
Second Quarter.............................................. 16.8750 10.5000
Third Quarter............................................... 12.1250 9.5625
Fourth Quarter.............................................. 10.7500 8.0625
2001:
First Quarter (through March 6, 2001)....................... 13.0000 8.1250
We have never declared or paid dividends on our Common Stock. We
intend to retain future earnings, if any, to finance the development and
expansion of our business and/or repurchase our Common Stock. Therefore, we do
not anticipate paying any cash dividends on our Common Stock in the foreseeable
future. The decision whether to pay dividends will be made by our Board of
Directors after considering our results of operations, financial condition,
capital requirements, general business conditions and other factors.
Certain provisions of the Credit Facility and the senior subordinated
notes require us to maintain certain financial ratios and restrict us from
making substantial disbursements outside the ordinary course of business,
including limitations on the payment of cash dividends. In addition, pursuant to
the automobile franchise agreements to which our dealerships are subject, all
dealerships are required to maintain a certain minimum working capital.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
We completed our initial public offering and acquisition of our first
four dealership groups on November 3, 1997. Before that date, Group 1
Automotive, Inc. had no operations and each of the dealership groups were
privately owned and operated independently. The financial data as of December
31, 2000, 1999, 1998 and 1997, and for the three years in the period ended
December 31, 2000, include the operations of all dealerships acquired from the
effective dates of the acquisitions. The following selected historical financial
data as of December 31, 2000, 1999, 1998 and 1997, and for each of the three
years in the period ended December 31, 2000, have been derived from audited
financial statements.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998
---------------- ------------- ---------------
(dollars in thousands, except per share amounts)
INCOME STATEMENT DATA:
Revenues.................................. $3,586,146 $2,508,324 $1,630,057
Cost of sales............................. 3,058,709 2,131,967 1,393,547
---------------- ------------- ---------------
Gross profit........................... 527,437 376,357 236,510
Selling, general and
administrative expenses................ 393,679 279,791 178,038
Depreciation and amortization............. 16,038 10,616 6,426
---------------- ------------- ---------------
Income from operations................. 117,720 85,950 52,046
Other income (expense):
Floorplan interest expense............. (37,536) (20,395) (12,837)
Other interest expense, net............ (15,500) (10,052) (4,027)
Other income, net...................... 1,142 186 39
---------------- ------------- ---------------
Income before income taxes............. 65,826 55,689 35,221
Provision for income taxes................ 25,014 22,174 14,502
---------------- ------------- ---------------
Net income............................. $40,812 $33,515 $20,719
================ ============= ===============
Earnings per share:
Basic.................................. $1.91 $1.62 $1.20
Diluted................................ $1.88 $1.55 $1.16
Weighted average shares outstanding:
Basic.................................. 21,377,902 20,683,308 17,281,165
Diluted................................ 21,709,833 21,558,920 17,904,878
AS OF DECEMBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997
--------------- ----------------- ----------------- -----------------
(in thousands)
BALANCE SHEET DATA:
Working capital.............................. $54,769 $80,128 $48,251 $55,475
Inventories.................................. 527,101 386,255 219,176 105,421
Total assets................................. 1,099,553 842,910 477,710 213,149
Total long-term debt, including current
portion.................................... 141,899 114,250 45,787 9,369
Stockholders' equity......................... 247,416 232,029 136,184 89,372
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a leading operator in the automotive retailing industry. We
own automobile dealership franchises located in Texas, Oklahoma, Florida, New
Mexico, Georgia, Colorado, Louisiana and Massachusetts. Through our dealerships
and Internet sites, we sell new and used cars and light trucks, and provide
maintenance and repair services. We also operate 21 collision service centers.
We have diverse sources of revenues, including: new car sales, new
truck sales, used car sales, used truck sales, manufacturer remarketed vehicle
sales, parts sales, service sales, collision repair services, finance fees,
vehicle service contract commissions, insurance commissions, documentary fees
and after-market product sales. Sales revenues from new and used vehicle sales
and parts and service sales include sales to retail customers, other dealerships
and wholesalers. Other dealership revenue includes revenues from arranging
financing, vehicle service and insurance contracts, net of a provision for
anticipated chargebacks, and documentary fees.
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 other dealership revenues) changes. Our gross margin on the
sale of products and services varies significantly, with new vehicle sales
generally resulting in the lowest gross margin and other dealership revenue
sales generally resulting in the highest gross margin. When our new vehicle
sales increase or decrease at a rate greater than our other revenue sources, our
gross margin responds inversely. Factors such as seasonality, weather,
cyclicality and manufacturers' advertising and incentives may impact our
merchandise mix, and therefore influence our gross margin.
Selling, general and administrative expenses consist primarily of
compensation for sales, administrative, finance and general management
personnel, rent, marketing, insurance and utilities. Interest expense consists
of interest charges on interest-bearing debt, including floorplan inventory
financing, net of interest income earned. 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.
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RESULTS OF OPERATIONS
SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, 2000
AND DECEMBER 31, 1999
NEW VEHICLE DATA
(dollars in thousands,
except per unit amounts)
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
Retail unit sales................................... 86,729 60,384 26,345 43.6 %
Retail sales revenues............................... $2,165,954 $1,465,759 $700,195 47.8 %
Gross profit........................................ $169,690 $121,639 $48,051 39.5 %
Average gross profit per retail unit sold.......... $1,957 $2,014 $(57) (2.8)%
Gross margin........................................ 7.8 % 8.3 % (0.5) % -
USED VEHICLE DATA
(dollars in thousands,
except per unit amounts)
PERCENT
2000 1999 INCREASE CHANGE
---- ---- -------- ------
Retail unit sales................................... 59,144 45,630 13,514 29.6 %
Retail sales revenues (1)........................... $804,039 $606,764 $197,275 32.5 %
Gross profit........................................ $79,940 $59,308 $20,632 34.8 %
Average gross profit per retail unit sold........... $1,352 $1,300 $52 4.0 %
Gross margin........................................ 9.9 % 9.8 % 0.1 % -
- -------------
(1) Excludes used vehicle wholesale revenues, as these transactions facilitate
retail vehicle sales and are not expected to generate profit.
PARTS AND SERVICE DATA
(dollars in thousands)
INCREASE/ PERCENT
2000 1999 (DECREASE) CHANGE
---- ---- ---------- ------
Sales revenues...................................... $306,089 $212,970 $93,119 43.7 %
Gross profit........................................ $167,463 $116,622 $50,841 43.6 %
Gross margin........................................ 54.7 % 54.8 % (0.1) % -
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands,
except per unit amounts)
PERCENT
2000 1999 INCREASE CHANGE
---- ---- -------- ------
Retail new and used unit sales...................... 145,873 106,014 39,859 37.6 %
Retail sales revenues............................... $110,344 $78,788 $31,556 40.1 %
Other dealership revenues, net per retail unit
sold.............................................. $756 $743 $13
1.7 %
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YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
REVENUES. Revenues increased $1,077.8 million, or 43.0%, to $3,586.1
million for the year ended December 31, 2000, from $2,508.3 million for the year
ended December 31, 1999. New vehicle revenues increased primarily due to strong
customer acceptance of our products, particularly Lexus, Honda, Nissan and
Toyota, partially offset by some weakness in the General Motors brands, and the
acquisitions of additional dealership operations during 1999 and 2000. The
growth in used vehicle revenues was primarily attributable to an emphasis on
used vehicle sales in the Dallas, Denver, Oklahoma and south Florida markets,
and the additional dealership operations acquired. The increase in parts and
service revenues was due to the additional dealership operations acquired,
coupled with strong organic growth in the Austin, Houston and south Florida
markets. Other dealership revenues increased primarily due to an increase in the
number of retail new and used vehicle sales.
GROSS PROFIT. Gross profit increased $151.0 million, or 40.1%, to
$527.4 million for the year ended December 31, 2000, from $376.4 million for the
year ended December 31, 1999. The increase was attributable to increased
revenues net of a decrease in gross margin from 15.0% for the year ended
December 31, 1999, to 14.7% for the year ended December 31, 2000. The gross
margin decreased as lower margin new vehicle revenues increased as a percentage
of total revenues, and the gross margin on new vehicle sales declined. The gross
margin on new retail vehicle sales declined to 7.8% from 8.3% due to the lower
margins of our last two platform acquisitions. Our new vehicle gross margin
would have been 8.2%, excluding the impact of our last two platform
acquisitions. The gross margins on our other products and services remained
relatively consistent with the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $113.9 million, or 40.7%, to $393.7 million
for the year ended December 31, 2000, from $279.8 million for the year ended
December 31, 1999. The increase was primarily attributable to the additional
dealership operations acquired and increased variable expenses, particularly
incentive pay to employees, which increased as gross profit increased.
Additionally, we recorded a $1.5 million charge, during the first quarter of
2000, related to unfavorable medical claims experience. Our medical plan was
revised as of March 1, 2000. Selling, general and administrative expenses
increased as a percentage of gross profit to 74.6% from 74.3% due to the medical
plan charge and under-performance in our Albuquerque and south Florida
operations.
INTEREST EXPENSE. Floorplan and other interest expense, net,
increased $22.6 million, or 74.3%, to $53.0 million for the year ended December
31, 2000, from $30.4 million for the year ended December 31, 1999. The increase
was due to increases in total debt outstanding and interest rates. The increase
in debt outstanding was primarily attributable to the floorplan borrowings of
the additional dealership operations acquired and additional borrowings to
complete acquisitions. Further, contributing to the increase was a 100 basis
point increase in the weighted average LIBOR. Partially mitigating the LIBOR
increase was a 25 basis point rate reduction of the spread charged on our
floorplan notes payable, which was effective in May 1999. Additionally, in
December 2000, we received another 12.5 basis point reduction of the spread
charged.
OTHER INCOME, NET. Other income, net, increased $956,000 to
$1,142,000 for the year ended December 31, 2000, from $186,000 for the year
ended December 31, 1999. The increase is due primarily to a $1.0 million gain
from the sale of a Chrysler franchise in Austin, Texas.
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SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, 1999
AND DECEMBER 31, 1998
NEW VEHICLE DATA
(dollars in thousands,
except per unit amounts)
PERCENT
1999 1998 INCREASE CHANGE
---- ---- -------- ------
Retail unit sales................................... 60,384 39,822 20,562 51.6 %
Retail sales revenues............................... $1,465,759 $931,205 $534,554 57.4 %
Gross profit........................................ $121,639 $74,096 $47,543 64.2 %
Average gross profit per retail unit sold........... $2,014 $1,861 $153 8.2 %
Gross margin........................................ 8.3 % 8.0 % 0.3 % -
USED VEHICLE DATA
(dollars in thousands,
except per unit amounts)
PERCENT
1999 1998 INCREASE CHANGE
---- ---- -------- ------
Retail unit sales................................... 45,630 31,248 14,382 46.0 %
Retail sales revenues (1)........................... $606,764 $411,065 $195,699 47.6 %
Gross profit........................................ $59,308 $38,282 $21,026 54.9 %
Average gross profit per retail unit sold........... $1,300 $1,225 $75 6.1 %
Gross margin........................................ 9.8 % 9.3 % 0.5 % -
- ------------
(1) Excludes used vehicle wholesale revenues, as these transactions facilitate
retail vehicle sales and are not expected to generate profit.
PARTS AND SERVICE DATA
(dollars in thousands)
PERCENT
1999 1998 INCREASE CHANGE
---- ---- -------- ------
Sales revenues...................................... $212,970 $139,144 $73,826 53.1 %
Gross profit........................................ $116,622 $74,616 $42,006 56.3 %
Gross margin........................................ 54.8 % 53.6 % 1.2 % -
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands,
except per unit amounts)
PERCENT
1999 1998 INCREASE CHANGE
---- ---- -------- ------
Retail new and used unit sales...................... 106,014 71,070 34,944 49.2 %
Retail sales revenues............................... $78,788 $49,516 $29,272 59.1 %
Other dealership revenues, net per retail unit
sold.............................................. $743 $697 $46 6.6 %
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YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased $878.2 million, or 53.9%, to $2,508.3
million for the year ended December 31, 1999, from $1,630.1 million for the year
ended December 31, 1998. New vehicle revenues increased primarily due to strong
customer acceptance of our products, particularly Chevrolet, Ford, Lexus and
Honda, and the acquisitions of additional dealership operations during 1998 and
1999. The growth in used vehicle revenues was primarily attributable to an
emphasis on used vehicle sales in the Houston and Oklahoma markets, and the
additional dealership operations acquired. The increase in parts and service
revenues was due to the additional dealership operations acquired, coupled with
strong organic growth in the Denver, Houston and Beaumont markets. Other
dealership revenues increased primarily due to the implementation of our vehicle
service contract and insurance programs, and related training, which resulted in
improved revenues per unit, in addition to an increase in the number of retail
new and used vehicle sales.
GROSS PROFIT. Gross profit increased $139.9 million, or 59.2%, to
$376.4 million for the year ended December 31, 1999, from $236.5 million for the
year ended December 31, 1998. The increase was attributable to increased
revenues and an increase in gross margin from 14.5% for the year ended December
31, 1998, to 15.0% for the year ended December 31, 1999. The gross margin
increased even though lower margin new vehicle revenues increased as a
percentage of total revenues, as improvements in other dealership revenues per
unit and increases in the gross margin on new and used vehicle sales and parts
and service sales offset the change in the merchandising mix. The gross margin
on new vehicle retail sales improved to 8.3% from 8.0% due to our dealership
managers performing well in a favorable market and our sales training programs.
The increase in gross margin on used vehicle retail sales to 9.8% from 9.3% was
primarily attributable to our dealership managers performing well in a favorable
operating environment and our sales training programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $101.8 million, or 57.2%, to $279.8 million
for the year ended December 31, 1999, from $178.0 million for the year ended
December 31, 1998. The increase was primarily attributable to the additional
dealership operations acquired and increased variable expenses, particularly
incentive pay to employees, which increased as gross profit increased. Selling,
general and administrative expenses decreased as a percentage of gross profit to
74.3% from 75.3% due primarily to increased operating leverage.
INTEREST EXPENSE. Floorplan and other interest expense, net,
increased $13.5 million, or 79.9%, to $30.4 million for the year ended December
31, 1999, from $16.9 million for the year ended December 31, 1998. The increase
was primarily attributable to the floorplan interest expense of the additional
dealership operations acquired and borrowings to complete acquisitions. A
portion of the increase is due to the completion of our offering of $100 million
of senior subordinated notes during the first quarter of 1999. Partially
offsetting the increases was a 40 basis point decline in the weighted average
interest rate on our floorplan notes payable. Contributing to the rate decline
was a rate reduction realized from obtaining a lower interest rate on our
floorplan notes payable.
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LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash from operations, our
credit facility (which includes the floorplan facility and the acquisition
facility) and equity and debt offerings.
The following table sets forth selected historical information from
our statements of cash flows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
(in thousands)
Net cash provided by operating
activities.......................... $95,592 $73,224 $24,277
Net cash used in investing activities.. (72,768) (126,944) (58,225)
Net cash provided by (used in)
financing activities................ (770) 106,101 65,299
---------------------- ---------------------- ----------------------
Net increase in cash and cash
equivalents......................... $22,054 $52,381 $31,351
====================== ====================== ======================
CASH FLOWS
Total cash and cash equivalents at December 31, 2000, were $140.9
million.
OPERATING ACTIVITIES. For the three-year period ended December 31,
2000, we generated $193.1 million in net cash from operating activities,
primarily driven by net income plus depreciation and amortization. Excluding
working capital changes, during 2000 cash flows from operating activities
increased $14.0 million over the prior-year period.
INVESTING ACTIVITIES. The $72.8 million of cash used for investing
activities during 2000 was primarily attributable to cash paid in completing
acquisitions, net of cash balances obtained in the acquisitions, and purchases
of property and equipment, partially offset by proceeds from the sales of
franchises. During 2000, we used approximately $17.3 million in purchasing
property and equipment, of which, approximately $8.8 million was for the
purchase of land and construction of new facilities.
During 1999, $126.9 million was used for investing activities,
primarily attributable to completing acquisitions, net of cash balances obtained
in the acquisitions, and purchases of property and equipment, partially offset
by sales of property and equipment. During 1999, we used approximately $27.4
million in purchasing property and equipment, of which, approximately $19.6
million was for the purchase of land and construction of new facilities.
Partially offsetting these uses of cash, we received $11.7 million from sales of
property and equipment. The proceeds were received primarily from the sale of
dealership properties to a REIT for approximately $11.2 million, and for which
no gain or loss was recognized.
During 1998, $58.2 million was used in investing activities,
primarily for acquisitions, net of cash received, and purchases of property and
equipment, net of sales. Of the $9.7 million used in purchasing property and
equipment during 1998, approximately $5.6 million related to the purchase of
land and construction of facilities for new or expanded operations. During
December 1998, we completed the sale and leaseback of six dealership properties
and received $20.0 million in gross proceeds from the sale, for which no gain or
loss was recognized.
FINANCING ACTIVITIES. We used approximately $770,000 during 2000, and
obtained approximately $106.1 million and $65.3 million during 1999 and 1998,
respectively, through financing activities.
During 2000 we used approximately $770,000 in financing activities.
Cash was provided primarily through borrowings on our revolving credit facility.
We used $6.3 million for principal payments of long-term debt. Additionally, we
used $20.9 million for purchases of treasury stock.
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The net cash provided during 1999 was generated primarily from our
March 1999 offerings of 2 million shares of common stock and $100 million of
senior subordinated notes. The net proceeds from these offerings, approximately
$137.7 million, were used to repay $59.0 million borrowed under the acquisition
portion of the credit facility, with the remainder of the proceeds being used in
completing acquisitions during 1999. Additionally, in connection with the sale
of properties to a REIT, we paid off mortgages of approximately $2.5 million.
The net cash provided during 1998 was generated primarily from
drawings on our credit facility and was utilized in completing acquisitions and
supporting increased sales volumes. Partially offsetting the $75.5 million in
borrowings was $10.0 million in principal payments on long-term debt, of which
$6.6 million was related to the payoff of mortgages in connection with the sale
and leaseback transaction completed in December 1998.
WORKING CAPITAL. At December 31, 2000, we had working capital of
$54.8 million. 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 flow coupled with borrowing
capacity under our credit facility to fund our current operations.
During 1999 we opened a new facility in south Florida. Although
revenues have experienced a positive trend and the operation is generating
positive cash flow, the new facility has not met our expectations. During the
fourth quarter of 2000, a new operator was appointed for the south Florida
operations. As part of the management change, we repurchased 1.3 million shares
of our stock from the former operator and others for $14.4 million and settled
various contingent acquisition payments for $6.8 million. The funding of these
transactions occurred in January 2001.
STOCK REPURCHASE
The board of directors has authorized us to repurchase a portion 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 percent of our cumulative net income to repurchase stock.
During 2000 we repurchased 2.7 million shares for $31.4 million, excluding
shares repurchased to fulfill obligations under our employee stock purchase
plan. We anticipate, subject to market conditions, that we will spend
approximately $12 million repurchasing stock during 2001.
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. During 2001, we plan to
invest approximately $10 million to expand six existing facilities and prepare
three new facilities for operations.
ACQUISITION FINANCING
We anticipate investing between $20 million and $30 million in
completing tuck-in acquisitions during 2001. We expect the cash needed to
complete our acquisitions will come from the operating cash flows of our
existing dealerships and borrowings under our current credit facilities.
23
24
CREDIT FACILITY
In December 2000, we amended our credit facility to decrease the
commitment from $1 billion to $900 million and reduce the rate charged on our
floorplan facility to LIBOR plus 112.5 basis points. The credit facility
provides a floorplan facility of $702 million for financing vehicle inventories
and an acquisition facility of $198 million for financing acquisitions, general
corporate purposes and capital expenditures. The lending group making up the
credit facility is comprised of 15 major financial institutions, including five
manufacturer captive finance companies. The manufacturer captive finance
companies include Ford Motor Credit Company, Toyota Motor Credit Company, BMW
Financial Services, N.A., Inc., Chrysler Financial Company, L.L.C. and Mercedes
Benz Credit Corporation. As of March 15, 2001, $143 million is available to be
drawn under the acquisition facility, subject to a cash flow calculation and the
maintenance of certain financial ratios and various covenants. The credit
facility allows 33% of net income to be paid as cash dividends.
LEASES
We lease various real estate, facilities and equipment under
long-term operating lease agreements, including leases with related parties.
Generally, the related-party and third-party leases have 30-year total terms
with initial terms of 15 years and three five-year option periods, at our
option. Additionally, we generally have an option to purchase the real estate
and facilities at the end of the lease term, and a right of first refusal,
giving us the opportunity to purchase the real estate and facilities, if the
owner reaches an agreement to sell them to a third party.
DEPENDENCE ON THE SUCCESS OF OUR MANUFACTURERS
Our success depends upon the overall success of the line of vehicles
that each of our dealerships sells. Demand for our Manufacturers' vehicles as
well as the financial condition, management, marketing, production and
distribution capabilities of our Manufacturers affect our business. Our Ford,
Toyota and Lexus dealerships represent approximately 56% of our total new
vehicle retail sales.
Although we have attempted to lessen our dependence on any one
Manufacturer by buying dealerships representing a number of different domestic
and foreign Manufacturers, events such as labor disputes and other production
disruptions that may adversely affect a Manufacturer may also adversely affect
us. Similarly, the late delivery of vehicles from Manufacturers, which sometimes
occurs during periods of new product introductions, can lead to reduced sales
during those periods. Moreover, any event that causes adverse publicity
involving any of our Manufacturers may have an adverse effect on us regardless
of whether such event involves any of our dealerships.
IMPACT OF ACQUISITIONS ON GROWTH
Growth in our revenues and earnings will be impacted by our ability
to acquire and successfully operate dealerships. There can be no assurance that
we will be able to identify and acquire dealerships in the future. In addition,
managing and integrating additional dealerships into our existing mix of
dealerships may result in substantial costs, delays or other operational or
financial problems.
Restrictions by our Manufacturers as well as covenants contained in
our debt instruments limit our ability to acquire additional dealerships. In
addition, increased competition for acquisition candidates may develop, which
could result in fewer acquisition opportunities available to us and/or higher
acquisition prices.
Further, acquisitions involve a number of special risks, including
possible diversion of resources and management's attention, inability to retain
key acquired personnel and risks
24
25
associated with unanticipated events or liabilities, some or all of which could
have a material adverse effect on our business, financial condition and results
of operations.
We will continue to need substantial capital in order to acquire
additional automobile dealerships. In the past, we have financed these
acquisitions with a combination of cash flow from operations, proceeds from
borrowings under our credit facility and issuances of our common stock.
CYCLICALITY
Our operations, like the automotive retailing industry in general,
can be impacted by a number of factors relating to general economic conditions,
including consumer business cycles, consumer confidence, economic conditions,
availability of consumer credit and interest rates. Although the above factors,
among others, may impact our business, we believe the impact on our operations
of future negative trends in such factors will be somewhat mitigated by our (i)
strong parts, service and collision repair service operations, (ii) variable
cost structure, (iii) geographic diversity and (iv) product diversity.
SEASONALITY
Our operations are subject to seasonal variations, with the second
and third quarters generally contributing more operating profit than the first
and fourth quarters. Three primary forces drive this seasonality: (i)
manufacturer-related factors, primarily the historical timing of major
manufacturer incentive programs and model changeovers, (ii) weather-related
factors and (iii) consumer buying patterns.
CURRENT BUSINESS TRENDS
During 2000, approximately 17.4 million new vehicles were sold in the
United States. Industry analyst estimates for 2001 are predicting new vehicle
unit sales of between 15.5 million and 16.5 million units, as consumer
confidence levels have trended downward from the prior year. Annual sales of
15.5 million units would rank as the fifth highest total of new vehicle retail
sales in the United States during the past 100 years. With respect to interest
rates, the one-month LIBOR, which averaged approximately 6.4% during 2000, has
fallen to approximately 5.2% in March 2001, after reaching a high, during
November 2000, of approximately 6.8%.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This annual 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:
- the completion of pending and future acquisitions
- operating cash flows and availability of capital
- future stock repurchases
- capital expenditures
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results in the forward-looking statements for a
number of reasons, including;
- the future economic environment, including consumer confidence,
may affect the demand for new and used vehicles and parts and
service sales
- regulatory environment, adverse legislation, or unexpected
litigation
25
26
- our principal automobile manufacturers, especially Ford and
Toyota, may not continue to enjoy high customer satisfaction with
their products and they may not continue to support and make
high-demand vehicles available to us
- requirements imposed on us by our Manufacturers may affect our
acquisitions and capital expenditures related to our dealership
facilities
- our dealership operations may not perform at expected levels or
achieve expected improvements
- we may not achieve expected future cost savings and our future
costs could be higher than we expected
- 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
- available capital resources may limit our ability to complete
acquisitions
- available capital resources may limit our ability to complete
construction of new or expanded facilities
The information contained in this annual report, including the
information set forth under the heading "Business", identify factors that could
affect our operating results and performance. 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 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about our market-sensitive
financial instruments 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.
FAIR VALUE
EXPECTED MATURITY DATE DECEMBER 31, 2000
------------------------------------------------------------------------------ ---------------
(dollars in millions) 2001 2002 2003 2004 2005 Thereafter Total
--------- --------- -------- --------- ------- ------------ ---------
VARIABLE RATE DEBT
Current......................... $0.1 $- $536.7 $- $- $- $536.8 $536.8
Average interest rates........ 8.35% - 7.97% - - -
Non-current..................... $- $0.2 $35.3 $- $- $- $35.5 $35.5
Average interest rates........ - 8.35% 8.70% - - -
--------- --------- -------- --------- ------- ------------ ---------
Total variable rate debt........ $0.1 $0.2 $572.0 $0.0 $0.0 $0.0 $572.3
Interest rate swap.............. $- $- $- $- $- $- $- $-
Average pay rate (fixed)...... - - - - - -
Average receive rate (variable) - - - - - -
--------- --------- -------- --------- ------- ------------ ---------
Net variable rate debt.......... $0.1 $0.2 $572.0 $0.0 $0.0 $0.0 $572.3
========= ========= ======== ========= ======= ============ =========
We receive interest assistance from various Manufacturers. In
general, this assistance equals approximately 80% to 90% of our floorplan notes
payable interest expense. During 2000, we recognized $31.1 million of
assistance, which we accounted for as a purchase discount and reflected as a
reduction of cost of sales in the income statement as vehicles were sold.
26
27
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements for the information required by this
item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
For information concerning:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the definitive Proxy Statement of Group 1 Automotive, Inc. for
the Annual Meeting of Stockholders to be held May 23, 2001, which will be filed
with the Securities and Exchange Commission and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K
None.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
3.2 -- Certificate of Designation of Series A Junior Participating Preferred
Stock (Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 Registration No. 333-29893).
3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the
Company's Registration Statement on Form S-1 Registration No. 333-29893).
4.1 -- Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
4.2 -- Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement on Form S-3 Registration No. 333-69693).
27
28
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.3 -- Form of Subordinated Debt Securities (included in Exhibit 4.2).
4.4 -- First Supplemental Indenture dated as of March 5, 1999 among Group 1 Automotive, Inc.,
the Subsidiary Guarantors named therein and IBJ Whitehall Bank & Trust Company
(Incorporated by reference to Exhibit 4.1 of the Company's current report of Form 8-K
dated March 5, 1999).
4.5 -- Form of 10 7/8% Senior Subordinated Note due March 1, 2009 (included in Exhibit 4.4).
10.1 -- Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997
(Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.2 -- Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997
(Incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K
for the year-ended December 31, 1997).
10.3 -- Consulting Agreement between the Company and Sterling B. McCall, Jr. dated November 4, 1999
(Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1999).
10.4 -- Employment Agreement between the Company and Charles M. Smith dated November 3, 1997
(Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.5 -- Employment Agreement between the Company and John T. Turner dated November 3, 1997
(Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.6 -- Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997
(Incorporated by reference to Exhibit10.6 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.7 -- 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.8 -- First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8
of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.9 -- Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by
reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.10 -- Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.11 -- Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.12 -- Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate (Incorporated by
reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.13 -- Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.14 -- Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C.,
as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.15 -- 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.16 -- Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc. (Incorporated
by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1
Registration No. 333-29893).
28
29
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
10.17 -- Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service
Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement
on Form S-1 Registration No. 333-29893).
10.18 -- Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc.
dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
10.19 -- Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated
April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement
on Form S-1 Registration No. 333-29893).
10.20 -- Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc.
dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893.
10.21 -- Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by
reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.22 -- Fourth Amended and Restated Revolving Credit Agreement, dated as of October 15, 1999, and
Effective as of November 1, 1999 (Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated October 29, 1999).
10.23 -- Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated as of March 7, 2000.
10.24 -- Second Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated as of May 22, 2000.
10.25 -- Third Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated as of December 1, 2000.
10.26 -- Stock Pledge Agreement dated December 19, 1997 (Incorporated by reference to Exhibit 10.54 of the
Company's Annual Report on Form 10-K for the year-ended December 31, 1997).
10.27 -- First Amendment to Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998).
10.28 -- Employment Agreement between the Company and Johns S. Bishop dated October 7, 1998 (Incorporated
by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K for the year-ended
December 31, 1998).
10.29 -- Form of Ford Motor Company Sales and Service Agreement (Incorporated by reference to Exhibit 10.38
of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998).
10.30 -- Form of Chrysler Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.39
of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998).
10.31 -- Second Amendment to the 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K dated May 14, 1999).
10.32 -- Group 1 Automotive, Inc. Deferred Compensation Plan effective November 10, 1999 (Incorporated by
reference to Exhibit 10.31 of the Company's Annual Report on Form 10-K for the year-ended December
31, 1999).
11.1 -- Statement re: computation of earnings per share is included under Note 2 to the financial statements.
21.1 -- Group 1 Automotive, Inc. Subsidiary List.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
29
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the city of Houston,
Texas, on the 20th day of March, 2001.
Group 1 Automotive, Inc.
By:/s/ B.B. Hollingsworth, Jr.
--------------------------------------------
B.B. Hollingsworth, Jr.
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on the 20th day of March, 2001.
SIGNATURE TITLE
--------- -----
/s/ B.B. Hollingsworth, Jr. Chairman, President and Chief
- ------------------------------------------------- Executive Officer and Director (Principal
B.B. Hollingsworth, Jr. Executive Officer)
/s/ Scott L. Thompson Senior Vice President - Chief Financial
- ------------------------------------------------- Officer and Treasurer (Chief Financial
Scott L. Thompson and Accounting Officer)
/s/ Robert E. Howard, II Director
- -------------------------------------------------
Robert E. Howard, II
/s/ John L. Adams Director
- -------------------------------------------------
John L. Adams
/s/ Charles M. Smith Director
- -------------------------------------------------
Charles M. Smith
/s/ John H. Duncan Director
- -------------------------------------------------
John H. Duncan
/s/ Bennett E. Bidwell Director
- -------------------------------------------------
Bennett E. Bidwell
30
31
INDEX TO FINANCIAL STATEMENTS
Group 1 Automotive, Inc. and Subsidiaries -- Consolidated Financial Statements
Report of Independent Public Accountants......................................................F-2
Consolidated Balance Sheets...................................................................F-3
Consolidated Statements of Operations.........................................................F-4
Consolidated Statements of Stockholders' Equity...............................................F-5
Consolidated Statements of Cash Flows.........................................................F-6
Notes to Consolidated Financial Statements....................................................F-7
F-1
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Group 1 Automotive, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Group
1 Automotive, Inc. and Subsidiaries (a Delaware corporation) (the "Company") as
of December 31, 2000 and 1999 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Houston, Texas
February 15, 2001
F-2
33
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------------------------------
2000 1999
--------------------- ----------------------
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $140,878 $118,824
Accounts and notes receivable, net.................................. 39,709 35,296
Inventories......................................................... 527,101 386,255
Deferred income taxes............................................... 7,661 8,619
Other assets........................................................ 5,190 4,429
--------------------- ----------------------
Total current assets............................................. 720,539 553,423
--------------------- ----------------------
PROPERTY AND EQUIPMENT, net............................................ 70,901 46,711
GOODWILL, net.......................................................... 285,892 235,312
OTHER ASSETS........................................................... 22,221 7,464
--------------------- ----------------------
Total assets..................................................... $1,099,553 $842,910
===================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable............................................. $536,707 $363,489
Current maturities of long-term debt................................ 1,506 1,076
Accounts payable.................................................... 57,872 46,437
Accrued expenses.................................................... 69,685 62,293
--------------------- ----------------------
Total current liabilities........................................ 665,770 473,295
--------------------- ----------------------
DEBT, net of current maturities........................................ 45,949 15,285
SENIOR SUBORDINATED NOTES.............................................. 94,444 97,889
DEFERRED INCOME TAXES.................................................. 8,668 3,217
OTHER LIABILITIES...................................................... 37,306 21,195
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized, none
issued or outstanding............................................ - -
Common stock, $.01 par value, 50,000,000 shares
authorized, 21,260,227 and 21,801,367 issued..................... 213 218
Additional paid-in capital.......................................... 170,683 181,398
Retained earnings................................................... 92,517 51,705
Treasury stock, at cost, 1,494,488 and 78,609 shares................ (15,997) (1,292)
--------------------- ----------------------
Total stockholders' equity....................................... 247,416 232,029
--------------------- ----------------------
Total liabilities and stockholders' equity....................... $1,099,553 $842,910
===================== ======================
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
34
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2000 1999 1998
----------------------- ------------------------- ---------------------
(dollars in thousands, except per share amounts)
REVENUES:
New vehicle sales................................ $2,165,954 $1,465,759 $931,205
Used vehicle sales............................... 1,003,759 750,807 510,192
Parts and service sales.......................... 306,089 212,970 139,144
Other dealership revenues, net................... 110,344 78,788 49,516
----------------------- ------------------------ -----------------------
Total revenues................................ 3,586,146 2,508,324 1,630,057
COST OF SALES:
New vehicle sales................................ 1,996,264 1,344,120 857,109
Used vehicle sales............................... 923,819 691,499 471,910
Parts and service sales.......................... 138,626 96,348 64,528
----------------------- ------------------------ -----------------------
Total cost of sales........................... 3,058,709 2,131,967 1,393,547
----------------------- ------------------------ -----------------------
GROSS PROFIT........................................ 527,437 376,357 236,510
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.......................... 393,679 279,791 178,038
----------------------- ------------------------ -----------------------
Income from operations before non-cash charges 133,758 96,566 58,472
DEPRECIATION EXPENSE................................ 7,587 4,853 3,783
AMORTIZATION EXPENSE................................ 8,451 5,763 2,643
----------------------- ------------------------ -----------------------
Income from operations........................ 117,720 85,950 52,046
OTHER INCOME AND (EXPENSES):
Floorplan interest expense, before manufacturer
interest assistance............................ (37,536) (20,395) (12,837)
Other interest expense, net..................... (15,500) (10,052) (4,027)
Other income, net............................... 1,142 186 39
----------------------- ------------------------ -----------------------
INCOME BEFORE INCOME TAXES.......................... 65,826 55,689 35,221
PROVISION FOR INCOME TAXES.......................... 25,014 22,174 14,502
----------------------- ------------------------ -----------------------
NET INCOME.......................................... $40,812 $33,515 $20,719
======================= ======================== =======================
Earnings per share:
Basic............................................ $1.91 $1.62 $1.20
Diluted.......................................... $1.88 $1.55 $1.16
Weighted average shares outstanding:
Basic............................................ 21,377,902 20,683,308 17,281,165
Diluted.......................................... 21,709,833 21,558,920 17,904,878
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
35
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL RETAINED TREASURY
--------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) STOCK TOTAL
------------ ----------- --------------- --------------- ------------ -------------
(dollars in thousands)
BALANCE, December 31, 1997......... 14,673,051 $147 $91,846 $(2,529) $(92) $89,372
Net income...................... - - - 20,719 - 20,719
Issuance of common
stock in acquisitions.......... 3,516,805 35 26,770 - - 26,805
Proceeds from sales of common
stock under employee benefit
plans......................... 234,650 1 2,063 - - 2,064
Issuance of treasury stock to
employee benefit
Plan.......................... (156,991) - (2,210) - 2,210 -
Purchase of treasury
Stock......................... - - - - (2,776) (2,776)
------------- ----------- --------------- --------------- ------------ -------------
BALANCE, December 31, 1998......... 18,267,515 183 118,469 18,190 (658) 136,184
Net income...................... - - - 33,515 - 33,515
Common stock offering, net...... 2,000,000 20 42,866 - - 42,886
Issuance of common
stock in acquisitions......... 1,459,852 15 21,069 - - 21,084
Proceeds from sales of common
stock under employee benefit
plans......................... 322,195 3 4,195 - - 4,198
Issuance of treasury stock to
employee benefit
plan.......................... (248,195) (3) (5,201) - 5,204 -
Purchase of treasury
stock......................... - - - - (5,838) (5,838)
------------- ----------- --------------- --------------- ------------ -------------
BALANCE, December 31, 1999......... 21,801,367 218 181,398 51,705 (1,292) 232,029
Net income...................... - - - 40,812 - 40,812
Issuance of common
stock in acquisitions......... 633,888 6 6,223 - - 6,229
Proceeds from sales of common
stock under employee benefit
plans......................... 413,004 4 3,680 - - 3,684
Issuance of treasury stock to
employee benefit
plan.......................... (341,004) (3) (4,510) - 4,513 -
Purchase of treasury
stock......................... - - - - (35,338) (35,338)
Cancellation of treasury stock
purchased...................... (1,247,028) (12) (16,108) - 16,120 -
------------- ----------- --------------- --------------- ------------ -------------
BALANCE, December 31, 2000......... 21,260,227 $213 $170,683 $92,517 $(15,997) $247,416
============= =========== =============== =============== ============ =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
36
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $40,812 $33,515 $20,719
Adjustments to reconcile net income to net
cash provided by operating activities __
Depreciation and amortization................................. 16,038 10,616 6,426
Deferred income taxes......................................... 6,370 4,011 (4,201)
Provision for doubtful accounts and uncollectible notes....... 1,176 1,153 356
Gain on sale of assets........................................ (87) (53) (115)
Gain on sale of franchise..................................... (1,048) __ __
Changes in assets and liabilities -
Accounts receivable......................................... (1,930) (4,717) (4,544)
Inventories................................................. (78,480) (49,079) 44
Prepaid expenses and other assets........................... (2,167) (3,487) (2,661)
Floorplan notes payable..................................... 113,424 68,584 (1,730)
Accounts payable and accrued expenses....................... 1,484 12,681 9,983
----------------- ----------------- -----------------
Total adjustments........................................... 54,780 39,709 3,558
----------------- ----------------- -----------------
Net cash provided by operating activities................ 95,592 73,224 24,277
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable.................................. (2,933) (2,452) (2,276)
Collections on notes receivable............................... 1,413 1,040 1,630
Purchases of property and equipment........................... (17,252) (27,382) (9,695)
Proceeds from sale of property and equipment.................. 1,371 11,705 20,238
Proceeds from sales of franchises............................. 9,700 __ __
Cash paid in acquisitions, net of cash received............... (65,067) (109,855) (68,122)
----------------- ----------------- -----------------
Net cash used in investing activities.................... (72,768) (126,944) (58,225)
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on revolving credit facility........ 25,250 (32,000) 75,523
Principal payments of long-term debt.......................... (6,321) (3,610) (10,001)
Borrowings of long-term debt.................................. 1,098 5,684 490
Proceeds from common stock offering, net...................... __ 42,886 __
Proceeds from senior subordinated notes offering, net......... __ 94,781 __
Purchase of senior subordinated notes......................... (3,587) __ __
Proceeds from issuance of common stock to benefit plans....... 3,684 4,198 2,063
Purchase of treasury stock, net of payables for purchases..... (20,894) (5,838) (2,776)
----------------- ----------------- -----------------
Net cash provided by (used in) financing activities...... (770) 106,101 65,299
----------------- ----------------- -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................... 22,054 52,381 31,351
CASH AND CASH EQUIVALENTS, beginning of period...................... 118,824 66,443 35,092
----------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period............................ $140,878 $118,824 $66,443
================= ================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest...................................................... $53,226 $27,156 $15,218
Taxes......................................................... $19,150 $22,812 $17,832
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
37
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Group 1 Automotive, Inc. is a leading operator in the automotive
retailing industry. Group 1 Automotive, Inc. is a holding company with its
primary operations and assets being its investments in its subsidiaries. These
subsidiaries sell new and used cars and light trucks through their dealerships
and Internet sites, provide maintenance and repair services and arrange vehicle
finance, service and insurance contracts. Group 1 Automotive, Inc. and its
subsidiaries are herein collectively referred to as the "Company" or "Group 1".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
All acquisitions completed during the periods presented have been
accounted for using the purchase method of accounting and their results of
operations are included from the effective dates of the closings of the
acquisitions. The allocations of purchase price to the assets acquired and
liabilities assumed have been initially assigned and recorded based on
preliminary estimates of fair value and may be revised as additional information
concerning the valuation of such assets and liabilities becomes available. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition
Revenues from vehicle sales, parts sales and vehicle service are
recognized upon completion of the sale and delivery to the customer.
Finance, Insurance and Service Contract Income Recognition
The Company arranges financing for customers through various
institutions and receives financing fees based on the difference between the
loan rates charged to customers over predetermined financing rates set by the
financing institution. In addition, the Company receives commissions from the
sale of vehicle service contracts to customers.
The Company may be charged back ("chargebacks") for unearned
financing fees or vehicle service contract commissions in the event of early
termination of the contracts by customers. The revenues from financing fees and
commissions 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. Finance and vehicle
service contract revenues, net of estimated chargebacks, are included in other
dealership revenue in the accompanying consolidated financial statements.
The Company has consolidated the operations of its reinsurance
company, effective January 1, 2000. The Company reinsures the credit life and
accident and health policies sold by its dealerships. All of the revenues and
related direct cost from the sales of these policies are deferred and recognized
over the life of the policies, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 60.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments that have
an original maturity of three months or less at the date of purchase, as well as
contracts-in-transit. Contracts-in-transit represent contracts on vehicles sold,
for which the proceeds are in transit from financing institutions. As of
December 31, 2000 and 1999, contracts-in-transit totaled $117.6 and $91.7
million, respectively.
Inventories
New, used and demonstrator vehicles are stated at the lower of cost
or market, determined on a specific-unit basis. Parts and accessories are stated
at the lower of cost (determined on a first-in, first-out basis) or market.
F-7
38
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company receives interest assistance from various of the
automobile 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.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated useful life of the asset.
Expenditures for major additions or improvements, which extend the
useful lives of assets, are capitalized. Minor replacements, maintenance and
repairs, which do not improve or extend the lives of such assets, are charged to
operations as incurred. Disposals are removed at cost less accumulated
depreciation, and any resulting gain or loss is reflected in current operations.
Goodwill
Goodwill represents the excess of the purchase price of dealerships
acquired over the fair value of tangible assets acquired at the date of
acquisition. Goodwill is amortized on a straight-line basis over 40 years.
Amortization expense charged to operations totaled approximately $6.7, $4.5, and
$2.2 million for the years ended December 31, 2000, 1999 and 1998, respectively.
Accumulated amortization totaled approximately $13.7 and $7.0 million as of
December 31, 2000 and 1999, respectively.
Income Taxes
The Company follows the liability method of accounting for income
taxes in accordance with SFAS No. 109. Under this method, deferred income taxes
are recorded based upon differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the underlying assets are realized or
liabilities are settled. A valuation allowance reduces deferred tax assets when
it is more likely than not that some or all of the deferred tax assets will not
be realized.
Self-Insured Medical and Property/Casualty Plans
The Company is self-insured for a portion of the claims related to
its employee medical benefits and property/casualty insurance programs. Claims,
not subject to stop-loss insurance, are accrued based upon the Company's
estimates of the aggregate liability for claims incurred using certain actuarial
assumptions and the Company's historical claims experience.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of floorplan
notes payable and long-term debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
Specifically, the carrying value of the Company's senior subordinated notes
approximates fair value as they were trading in the market at prices near book
value.
Advertising
The Company expenses production and other costs of advertising as
incurred. Advertising expense for the years ended December 31, 2000, 1999, and
1998 totaled $38.1, $25.9 and $16.8 million, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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 management in the
accompanying financial statements relate to reserves
F-8
39
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for vehicle valuations, retail loan guarantees and future chargebacks on finance
and service contract income. Actual results could differ from those estimates.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash
equivalents include contracts-in-transit, which are typically collected within
15 days. Additionally, the net change in floorplan financing of inventory, which
is a customary financing technique in the industry, is reflected as an operating
activity in the statements of cash flows.
Earnings Per Share
SFAS No. 128 requires the presentation of basic earnings per share
and diluted earnings per share in financial statements of public enterprises.
Under the provisions of this statement, basic earnings per share is computed
based on weighted average shares outstanding and excludes dilutive securities.
Diluted earnings per share is computed including the impacts of all potentially
dilutive securities. The following table sets forth the shares outstanding for
the earnings per share calculations for the years ended December 31, 2000, 1999
and 1998:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998
------------------ ------------- ---------------
Common stock issued, beginning of period................................. 21,801,367 18,267,515 14,673,051
Weighted average common stock issued in offerings.................... - 1,664,049 -
Weighted average common stock issued in acquisitions................. 633,888 739,071 2,591,834
Weighted average common stock issued to employee stock purchase plan. 208,202 128,757 90,123
Weighted average common stock issued in stock option exercises....... 14,191 32,978 15,953
Less: Weighted average treasury shares purchased and weighted
average shares repurchased and cancelled.......................... (1,279,747) (149,062) (89,796)
------------------ ------------- ---------------
Shares used in computing basic earnings per share........................ 21,377,902 20,683,308 17,281,165
Dilutive effect of stock options, net of assumed repurchase of
treasury stock.................................................... 331,931 875,612 623,713
------------------ ------------- ---------------
Shares used in computing diluted earnings per share...................... 21,709,833 21,558,920 17,904,878
================== ============= ===============
Recent Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. The accounting for
changes in the fair value of a derivative (that is, gains or losses) depends on
the intended use of the derivative and the resulting designation. SFAS No. 137
amended the effective date to be for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 138, issued in June 2000, addresses a
limited number of issues that were causing implementation difficulties for
numerous entities applying SFAS No. 133. Management does not believe that the
adoption of this statement will have a material impact on the financial position
or results of operations of the Company.
F-9
40
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 is
effective for years beginning after December 31, 1999, and provides guidance
related to recognizing revenue in circumstances where no specific accounting
standards exist. Adoption of SAB No. 101 did not have a material impact on the
Company's revenue recognition policies.
Business Segment Information
The Company, through its operating companies, operates in the
automotive retailing industry. All of the operating companies sell new and used
vehicles, provide maintenance and repair services, sell replacement parts and
arrange vehicle financing, service and insurance contracts. For the reasons
discussed below, all of our operating companies represent one reportable segment
under SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information." Accordingly, the accompanying consolidated financial statements
reflect the operating results of the Company's reportable segment.
The Company's operating companies deliver the same products and
services to a common customer group. The Company's customers, generally, are
individuals. All of the operating companies, generally, follow the same
procedures and methods in managing their operations. Each operating company also
operates in a similar regulatory environment. The Company's management evaluates
performance and allocates resources based on the operating results of the
individual operating companies.
3. BUSINESS COMBINATIONS:
During 2000, the Company acquired 16 automobile dealership
franchises. These acquisitions were accounted for as purchases. The aggregate
consideration paid in completing these acquisitions, including real estate
acquired, and satisfying certain contingent acquisition payment arrangements
from previous transactions included approximately $65.1 million in cash, net of
cash received, $6.8 million of acquisition payments payable, the issuance of
approximately 630,000 shares of restricted/unregistered common stock, the
assumption of an estimated $59.8 million of inventory financing and the
assumption of approximately $11.1 million of notes payable. The consolidated
balance sheet includes preliminary allocations of the purchase price of the
acquisitions, which are subject to final adjustment. These allocations resulted
in recording approximately $64.3 million of goodwill, which is being amortized
over 40 years.
During 1999, the Company acquired 32 automobile dealership
franchises. These acquisitions were accounted for as purchases. The aggregate
consideration paid in completing these acquisitions, including real estate
acquired, and satisfying certain contingent acquisition payment arrangements
from previous transactions included approximately $109.9 million in cash, net of
cash received, approximately 1.5 million shares of common stock and the
assumption of an estimated $101.5 million of inventory financing and
approximately $500,000 of notes payable. The purchase price allocations resulted
in recording approximately $116.2 million of goodwill, which is being amortized
over 40 years.
During 1998, the Company acquired 33 automobile dealership
franchises. These acquisitions were accounted for as purchases. The aggregate
consideration paid in completing these acquisitions, including real estate
acquired, included approximately $68.1 million in cash, net of cash received,
approximately 3.5 million shares of common stock and the assumption of an
estimated $103.1 million in inventory financing and $2.9 million of mortgage
financing. The purchase price allocations resulted in recording approximately
$98.7 million of goodwill, which is being amortized over 40 years.
F-10
41
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following 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 December 31, 2000, assuming that they occurred on
January 1, 1999, (2) the completion of our March 1999 offerings of two million
shares of common stock and $100 million of senior subordinated notes, assuming
they occurred on January 1, 1999, and (3) certain pro forma adjustments
discussed below.
2000 1999
---------------------- -----------------
(in millions, except per share amounts)
(unaudited)
Revenues ................................ $3,783.3 $3,566.0
Gross profit ............................ 551.3 514.7
Income from operations .................. 121.3 117.3
Net income .............................. 40.4 42.6
Basic earnings per share ................ 1.89 1.90
Diluted earnings per share .............. 1.86 1.83
Pro forma adjustments included in the amounts above primarily relate
to: (a) increases in revenues related to changes in the contractual commission
arrangements on certain third-party products sold by the dealerships; (b) pro
forma goodwill amortization expense over an estimated useful life of 40 years;
(c) reductions in compensation expense and management fees to the level that
certain management employees and owners of the acquired companies will
contractually receive; (d) incremental corporate overhead costs related to
personnel costs, rents, professional service fees and directors and officers
liability insurance premiums; (e) net increases in interest expense resulting
from net cash borrowings utilized to complete acquisitions, partially offset by
interest rate reductions received; and (f) incremental provisions for federal
and state income taxes relating to the compensation differential, S Corporation
income and other pro forma adjustments.
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts and notes receivable consist of the following:
DECEMBER 31,
----------------------------------------------
2000 1999
-------------------- -----------------
(in thousands)
Amounts due from manufacturers........................ $19,882 $17,189
Parts and service receivables......................... 9,446 6,786
Due from finance companies............................ 6,196 6,177
Other................................................. 6,920 6,783
-------------------- -----------------
Total accounts and notes receivable............... 42,444 36,935
Less - Allowance for doubtful accounts................ (2,735) (1,639)
-------------------- -----------------
Accounts and notes receivable, net................ $39,709 $35,296
==================== =================
Inventories, net of valuation reserves, consist of the following:
DECEMBER 31,
-----------------------------------------------
2000 1999
------------------- --------------------
(in thousands)
New vehicles........................................... $420,541 $286,815
Used vehicles.......................................... 69,656 68,287
Rental vehicles........................................ 11,513 11,115
Parts, accessories and other........................... 25,391 20,038
-------------------- ---------------------
Total inventories.................................. $527,101 $386,255
==================== =====================
F-11
42
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED USEFUL DECEMBER 31,
LIVES ----------------------------------------------
IN YEARS 2000 1999
-------------------- ------------------ ----------------------
(in thousands)
Land....................................... - $16,285 $5,985
Buildings.................................. 30 to 40 13,862 7,701
Leasehold improvements..................... 7 to 15 10,835 10,586
Machinery and equipment.................... 3 to 7 24,039 16,480
Furniture and fixtures..................... 5 to 7 20,208 13,958
Company vehicles........................... 5 3,510 2,596
------------------ ----------------------
Total ................................ 88,739 57,306
Less -- Accumulated depreciation........... (17,838) (10,595)
------------------ ----------------------
Property and equipment, net............. $70,901 $46,711
================== ======================
6. FLOORPLAN NOTES PAYABLE:
Floorplan notes payable reflect amounts payable for the purchase of
specific vehicle inventory and consist of the following:
DECEMBER 31,
------------------------------------------------
2000 1999
-------------------- ---------------------
(in thousands)
New vehicles......................................... $484,108 $320,058
Used vehicles........................................ 40,908 32,719
Rental vehicles...................................... 11,691 10,712
-------------------- ---------------------
Total floorplan notes payable............. $536,707 $363,489
==================== =====================
The Company obtains its floorplan financing through its Revolving
Credit Agreement with a lending group (the "Credit Facility"). The lending group
making up the Credit Facility is comprised of 15 major financial institutions,
including five manufacturer captive finance companies. The manufacturer captive
finance companies include Ford Motor Credit Company, Toyota Motor Credit
Company, BMW Financial Services, N.A., Inc., Chrysler Financial Company, L.L.C.
and Mercedes Benz Credit Corporation. The maturity date of the Credit Facility
is December 31, 2003. The notes payable bear interest at the London Interbank
Offered Rate ("LIBOR") plus 112.5 basis points. As discussed more fully in Note
1, the Company receives interest assistance from various automobile
manufacturers. The assistance, generally, equals approximately 80% to 90% of the
Company's floorplan notes payable interest expense.
As of December 31, 2000 and 1999, the interest rate on floorplan
notes payable outstanding was 7.97% and 7.72%, respectively. The floorplan
arrangement permits the Company to borrow up to $702 million, dependent upon new
and used vehicle inventory levels. As of December 31, 2000, total available
borrowings under floorplan agreements were approximately $165 million.
Vehicle payments on the notes are due when the related vehicles are
sold. The notes are collateralized by substantially all of the inventories of
the Company.
F-12
43
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT:
DECEMBER 31,
---------------------------------------
2000 1999
----------------- -----------------
(in thousands)
Credit Facility (described below)............................. $35,250 $10,000
Real estate note payable, maturing June 2018, bearing interest
at 9.01%, with a monthly payment of $54,023................ 5,699 __
Note payable, maturing June 2013, bearing interest at 8.89%,
with a monthly payment of $36,774 ......................... 3,321 __
Related party notes payable, maturing in November 2007, bearing
interest at LIBOR plus 400 basis points.................... __ 3,835
Other notes payable, maturing in varying amounts through
February 2006 with a weighted average interest rate of 8.63% 3,185 2,526
----------------- -----------------
Total long-term debt.......................................... 47,455 16,361
Less - Current portion..................................... (1,506) (1,076)
----------------- -----------------
Long-term portion............................................. $45,949 $15,285
================= =================
In addition to floorplan notes payable, the Credit Facility provides
an acquisition line of credit of up to $198 million, for the financing of
acquisitions, general corporate purposes or capital expenditures. The amount of
funds available under the acquisition line is dependent upon a calculation based
on the Company's cash flow and maintaining certain financial ratios. The
acquisition line of credit of the Credit Facility bears interest based on the
LIBOR plus a margin varying from 175 to 325 basis points, dependent upon certain
financial ratios. Additionally, the loan agreement contains various covenants
including financial ratios, such as, fixed-charge coverage, interest coverage
and a minimum net worth requirement, among others, and other requirements, which
must be maintained by the Company. As of December 31, 2000, the Company was in
compliance with the requirements of the debt agreement. The agreement allows 33%
of net income to be paid as cash dividends. The interest rate on borrowings
under the acquisition line of credit of the Credit Facility was 8.70% and 8.21%,
at December 31, 2000 and 1999, respectively. Land, buildings or other assets
secure all of the notes payable.
Total interest incurred on long-term debt was approximately $5.7,
$2.4 and $4.5 million for the years ended December 31, 2000, 1999 and 1998,
respectively, which included approximately $352,000 and $592,000 of capitalized
interest in 2000 and 1999, respectively.
The aggregate maturities of long-term debt as of December 31, 2000,
were as follows (in thousands):
2001 .......................... $1,506
2002 .......................... 1,685
2003........................... 36,003
2004 .......................... 493
2005 .......................... 492
Thereafter..................... 7,276
-----------------------
Total long-term debt........ $47,455
=======================
F-13
44
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. 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. Before March 1,
2002, the Company may redeem up to $35 million of the Notes with the proceeds of
certain public offerings of common stock at a redemption price of 110.875% of
the principal amount plus accrued interest to the redemption date. Additionally,
the Company may redeem all or part of the Notes at redemption prices of
105.438%, 103.625%, 101.813% and 100.000% of the principal amount plus accrued
interest during the twelve-month periods beginning March 1, of 2004, 2005, 2006,
and 2007 and thereafter, respectively. The Notes are jointly and severally
guaranteed, on an unsecured senior subordinated basis, by all subsidiaries of
the Company (the "Subsidiary Guarantors"), other than certain 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.
Total interest expense on the senior subordinated notes for the years
ended December 31, 2000 and 1999, was approximately $10.7 million and $9.1
million, respectively.
9. CAPITAL STOCK AND STOCK OPTIONS:
In 1996, Group 1 adopted the 1996 Stock Incentive Plan (the "Plan"),
which provides for the granting or awarding of stock options, stock appreciation
rights and restricted stock to officers and other key employees and directors.
The number of shares authorized and reserved for issuance under the Plan is 4.5
million shares, of which 757,498 are available for future issuance as of
December 31, 2000. In general, the terms of the option awards (including vesting
schedules) are established by the Compensation Committee of the Company's Board
of Directors. All outstanding options are exercisable over a period not to
exceed 10 years and vest over three- to six-year periods.
The following table summarizes the Company's outstanding stock
options:
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE
---------------- --------------------
Options outstanding, December 31, 1997..................... 1,247,450 $7.88
Grants (exercise prices between $12.00 and $17.88 per
share)................................................ 780,850 16.16
Exercised............................................... (49,973) 3.13
Forfeited............................................... (99,648) 13.27
---------------- -------------------
Options outstanding, December 31, 1998..................... 1,878,679 11.15
Grants (exercise prices between $16.47 and $24.72 per
share)................................................ 1,015,850 19.64
Exercised............................................... (75,600) 3.09
Forfeited............................................... (76,425) 13.42
---------------- -------------------
Options outstanding, December 31, 1999..................... 2,742,504 14.45
Grants (exercise prices between $9.38 and $12.29 per
share)................................................ 1,137,050 11.00
Exercised............................................... (74,800) 3.24
Forfeited............................................... (262,625) 17.39
---------------- -------------------
Options outstanding, December 31, 2000..................... 3,542,129 $13.34
================ ===================
F-14
45
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 1999 and 1998, 799,111, 448,544 and 208,460
options, respectively, were exercisable at weighted average exercise prices of
$11.88, $9.86 and $7.35, respectively. The weighted average fair value per share
of options granted during the years ended December 31, 2000, 1999 and 1998 is
$7.34, $13.40 and $9.18, respectively. The fair value of options granted is
estimated on the date of grant using the Black-Scholes option pricing model. The
following table summarizes the weighted average information used in determining
the fair value of the options granted during the years ended December 31, 2000,
1999 and 1998:
2000 1999 1998
---- ---- ----
Weighted average risk-free interest rate.......... 6.3% 6.2% 5.5%
Weighted average expected life of options......... 10 years 10 years 10 years
Weighted average expected volatility.............. 46.4% 47.4% 42.8%
Weighted average expected dividends............... -- -- --
The following table summarizes information regarding stock options
outstanding as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------- ---------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/00 EXERCISE PRICE
- ---------------------- ------------------- ------------------- ----------------- ------------------ -----------------
$2.90 370,280 6.1 years $2.90 175,280 $2.90
$9.00 to $13.99 1,652,249 8.6 11.32 296,658 12.02
$14.00 to $19.99 1,284,350 8.2 16.90 327,173 16.55
$20.00 to $25.00 235,250 8.3 24.42 -- --
------------------- ------------------- ----------------- ------------------ -----------------
TOTAL 3,542,129 8.2 $13.34 799,111 $11.88
=================== =================== ================= ================== =================
In September 1997, Group 1 adopted the Group 1 Automotive, Inc. 1998
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan authorizes
the issuance of up to 1 million shares of Common Stock and provides that no
options may be granted under the Purchase Plan after June 30, 2007. The Purchase
Plan is available to all employees of the Company and its participating
subsidiaries and is a qualified plan as defined by Section 423 of the Internal
Revenue Code. At the end of each fiscal quarter (the "Option Period") during the
term of the Purchase Plan, the employee contributions are used to acquire shares
of Common Stock at 85% of the fair market value of the Common Stock on the first
or the last day of the Option Period, whichever is lower. During 2000, 1999 and
1998, the Company issued 338,204, 246,595 and 184,677 shares, respectively, of
Common Stock to employees participating in the Purchase Plan.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which, if fully adopted,
requires the Company to record stock-based compensation at fair value. The
Company has adopted the disclosure requirements of SFAS No. 123 and has elected
to record employee compensation expense in accordance with Accounting Principles
Board Opinion No. 25. Accordingly, compensation expense is recorded for stock
options based on the excess of the fair market value of the common stock on the
date the options were granted over the aggregate exercise price of the options.
As the exercise price of options granted under the Plan has been equal to or
greater than the market price of the Company's stock on the date of grant, no
compensation expense related to the Plan has been recorded. Additionally, no
compensation expense is recorded for shares issued pursuant to the Purchase Plan
as it is a qualified plan.
F-15
46
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had compensation expense for the Plan been determined based on the
provisions of SFAS No. 123, the impact on the Company's net income would have
been as follows:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998
---------------- -------------- -------------
(in thousands, except per share amounts)
Net income as reported.................................. $40,812 $33,515 $20,719
Pro forma net income under SFAS 123..................... 37,496 31,254 19,519
Pro forma basic earnings per share...................... 1.75 1.51 1.13
Pro forma diluted earnings per share.................... 1.73 1.45 1.09
10. OPERATING LEASES:
The Company leases various facilities and equipment under long-term
operating lease agreements, including leases with related parties. The
third-party and related-party leases expire on various dates through December
2030 and, in general, have renewal or cancellation options, at the Company's
option, at various times during the lease term.
Future minimum lease payments for operating leases are as follows:
YEAR ENDED DECEMBER 31, RELATED PARTIES THIRD PARTIES TOTAL
- --------------------------------------- ----------------- ------------------ ------------------
(in thousands)
2001................................. $6,553 $19,814 $26,367
2002................................. 6,553 19,431 25,984
2003................................. 6,553 19,351 25,904
2004................................. 6,541 19,004 25,545
2005................................. 6,413 17,966 24,379
Thereafter........................... 39,545 105,223 144,768
----------------- ------------------ -------------------
Total................................ $72,158 $200,789 $272,947
================= ================== ===================
Total rent expense under all operating leases, including operating
leases with related parties, was approximately $28.3, $19.9 and $11.1 million
for the years ended December 31, 2000, 1999 and 1998, respectively. Rental
expense on related-party leases, which is included in the above amounts, totaled
approximately $10.9, $9.6 and $8.3 million for the years ended December 31,
2000, 1999 and 1998, respectively.
11. INCOME TAXES:
Federal and state income taxes are as follows:
DECEMBER 31,
----------------------------------------------------------
2000 1999 1998
---------------- ---------------- ------------------
(in thousands)
Federal -
Current............ $17,731 $16,632 $15,478
Deferred........... 5,163 2,360 (3,465)
State -
Current............ 913 1,531 3,225
Deferred........... 1,207 1,651 (736)
---------------- ---------------- ------------------
Provision for income
taxes................ $25,014 $22,174 $14,502
================ ================ ==================
F-16
47
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35% in 2000, 1999 and
1998 to income before income taxes as follows:
DECEMBER 31,
-----------------------------------------------------------------
2000 1999 1998
-------------------- ------------------ --------------------
(in thousands)
Provision at the statutory rate........... $23,039 $19,491 $12,327
Increase (decrease) resulting from -
State income tax, net of benefit for
federal deduction.................... 1,326 2,506 1,618
Non-deductible portion of goodwill
amortization......................... 691 407 339
Other.................................. (42) (230) 218
-------------------- ------------------ --------------------
Provision for income taxes................ $25,014 $22,174 $14,502
==================== ================== ====================
Deferred income tax provisions result from temporary differences in
the recognition of income and expenses for financial reporting purposes and for
tax purposes. The tax effects of these temporary differences representing
deferred tax assets (liabilities) result principally from the following:
DECEMBER 31,
-----------------------------------------
2000 1999
------------------ -------------------
(in thousands)
Inventory (LIFO conversion)...................... $(2,950) $(5,401)
Reserves and accruals not deductible until paid.. 16,410 18,702
Goodwill amortization............................ (7,072) (3,311)
Depreciation expense............................. (3,285) (1,950)
Reinsurance operations........................... (2,122) --
Other............................................ (1,988) (2,638)
------------------ -------------------
Net deferred tax asset (liability)........... $(1,007) $5,402
================== ===================
The net deferred tax assets (liabilities) are comprised of the following:
DECEMBER 31,
----------------------------------------
2000 1999
------------------ -------------------
(in thousands)
Deferred tax assets -
Current...................................... $10,622 $12,956
Long-term.................................... 11,521 8,114
Deferred tax liabilities -
Current...................................... (2,961) (4,337)
Long-term.................................... (20,189) (11,331)
------------------ -------------------
Net deferred tax asset (liability)............ $(1,007) $5,402
================== ===================
F-17
48
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES:
Legal Proceedings
The Company is a defendant in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on the Company's financial
position or results of operations. For example, we have been named as one of
several defendants in a number of suits regarding deaths or injuries alleged to
be attributable to tread separation of Firestone tires on Ford vehicles. While
substantial damages have been sought in these suits, we believe that we have
meritorious defenses and that we are entitled to seek indemnity from Ford or
Bridgestone/Firestone, Inc. for any potential costs or liabilities associated
with these suits.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
QUARTER FULL
------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FIRST SECOND THIRD FOURTH YEAR
- ------------------------------ ---------------- ---------------- ---------------- ---------------- ---------------
(in thousands, except per share data)
2000
- ----
Total revenues................ $859,911 $930,137 $954,957 $841,141 $3,586,146
Gross profit.................. 125,350 135,697 138,985 127,405 527,437
Net income.................... 9,013 11,929 11,614 8,256 40,812
Basic earnings per share...... 0.40 0.55 0.54 0.41 1.91
Diluted earnings per share.... 0.40 0.54 0.54 0.41 1.88
1999
- ----
Total revenues................ $489,351 $625,399 $701,790 $691,784 $2,508,324
Gross profit.................. 76,194 93,657 105,095 101,411 376,357
Net income.................... 6,157 9,177 10,519 7,662 33,515
Basic earnings per share...... 0.33 0.44 0.49 0.36 1.62
Diluted earnings per share.... 0.31 0.42 0.48 0.35 1.55
F-18
49
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
3.2 -- Certificate of Designation of Series A Junior Participating Preferred
Stock (Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 Registration No. 333-29893).
3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the
Company's Registration Statement on Form S-1 Registration No. 333-29893).
4.1 -- Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
4.2 -- Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement on Form S-3 Registration No. 333-69693).
4.3 -- Form of Subordinated Debt Securities (included in Exhibit 4.2).
4.4 -- First Supplemental Indenture dated as of March 5, 1999 among Group 1 Automotive, Inc.,
the Subsidiary Guarantors named therein and IBJ Whitehall Bank & Trust Company
(Incorporated by reference to Exhibit 4.1 of the Company's current report of Form 8-K
dated March 5, 1999).
4.5 -- Form of 10 7/8% Senior Subordinated Note due March 1, 2009 (included in Exhibit 4.4).
10.1 -- Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997
(Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.2 -- Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997
(Incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K
for the year-ended December 31, 1997).
10.3 -- Consulting Agreement between the Company and Sterling B. McCall, Jr. dated November 4, 1999
(Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1999).
10.4 -- Employment Agreement between the Company and Charles M. Smith dated November 3, 1997
(Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.5 -- Employment Agreement between the Company and John T. Turner dated November 3, 1997
(Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.6 -- Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997
(Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.7 -- 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.8 -- First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8
of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.9 -- Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by
reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.10 -- Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.11 -- Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.12 -- Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate (Incorporated by
reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.13 -- Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.14 -- Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C.,
as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.15 -- 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.16 -- Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc. (Incorporated
by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1
Registration No. 333-29893).
50
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
10.17 -- Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service
Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement
on Form S-1 Registration No. 333-29893).
10.18 -- Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc.
dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
10.19 -- Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated
April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement
on Form S-1 Registration No. 333-29893).
10.20 -- Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc.
dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893.
10.21 -- Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by
reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.22 -- Fourth Amended and Restated Revolving Credit Agreement, dated as of October 15, 1999, and
Effective as of November 1, 1999 (Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated October 29, 1999).
10.23 -- Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated as of March 7, 2000.
10.24 -- Second Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated as of May 22, 2000.
10.25 -- Third Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated as of December 1, 2000.
10.26 -- Stock Pledge Agreement dated December 19, 1997 (Incorporated by reference to Exhibit 10.54 of the
Company's Annual Report on Form 10-K for the year-ended December 31, 1997).
10.27 -- First Amendment to Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998).
10.28 -- Employment Agreement between the Company and Johns S. Bishop dated October 7, 1998 (Incorporated
by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K for the year-ended
December 31, 1998).
10.29 -- Form of Ford Motor Company Sales and Service Agreement (Incorporated by reference to Exhibit 10.38
of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998).
10.30 -- Form of Chrysler Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.39
of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998).
10.31 -- Second Amendment to the 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K dated May 14, 1999).
10.32 -- Group 1 Automotive, Inc. Deferred Compensation Plan effective November 10, 1999 (Incorporated by
reference to Exhibit 10.31 of the Company's Annual Report on Form 10-K for the year-ended December
31, 1999).
11.1 -- Statement re: computation of earnings per share is included under Note 2 to the financial statements.
21.1 -- Group 1 Automotive, Inc. Subsidiary List.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.