e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the quarterly period ended March 31, 2006 |
or |
o
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|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the transition period
from to |
Commission file number 1-12297
United Auto Group, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware |
|
22-3086739 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
2555 Telegraph Road,
Bloomfield Hills, Michigan |
|
48302-0954
(Zip Code) |
(Address of principal executive offices) |
|
|
Registrants telephone number, including area code:
(248) 648-2500
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a
non-accelerated filer.
See definition of accelerated filer and large accelerated
filer in
Rule 12b-2 of the
Exchange Act (check one)
Large Accelerated
Filer o Accelerated
Filer þ Non-accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange
Act). Yes o No þ
As of May 9, 2006, there were 47,211,728 shares of voting common
stock outstanding.
TABLE OF CONTENTS
2
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
|
(In thousands, except | |
|
|
per share amounts) | |
ASSETS |
Cash and cash equivalents
|
|
$ |
16,132 |
|
|
$ |
9,424 |
|
Accounts receivable, net
|
|
|
397,803 |
|
|
|
412,861 |
|
Inventories, net
|
|
|
1,370,251 |
|
|
|
1,224,443 |
|
Other current assets
|
|
|
72,039 |
|
|
|
51,142 |
|
Assets held for sale
|
|
|
162,555 |
|
|
|
180,692 |
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,018,780 |
|
|
|
1,878,562 |
|
Property and equipment, net
|
|
|
442,618 |
|
|
|
424,429 |
|
Goodwill
|
|
|
1,098,397 |
|
|
|
1,013,265 |
|
Franchise value
|
|
|
222,590 |
|
|
|
194,289 |
|
Other assets
|
|
|
100,652 |
|
|
|
83,628 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,883,037 |
|
|
$ |
3,594,173 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Floor plan notes payable
|
|
$ |
883,622 |
|
|
$ |
845,251 |
|
Floor plan notes payable non-trade
|
|
|
352,464 |
|
|
|
331,953 |
|
Accounts payable
|
|
|
298,560 |
|
|
|
211,943 |
|
Accrued expenses
|
|
|
198,442 |
|
|
|
174,796 |
|
Current portion of long-term debt
|
|
|
3,740 |
|
|
|
3,551 |
|
Liabilities held for sale
|
|
|
87,391 |
|
|
|
97,256 |
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,824,219 |
|
|
|
1,664,750 |
|
Long-term debt
|
|
|
684,734 |
|
|
|
576,690 |
|
Other long-term liabilities
|
|
|
210,719 |
|
|
|
207,001 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,719,672 |
|
|
|
2,448,441 |
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.0001 par value; 100 shares
authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common Stock, $0.0001 par value, 80,000 shares
authorized; 47,001 shares issued at March 31, 2006;
46,884 shares issued at December 31, 2005
|
|
|
5 |
|
|
|
5 |
|
Non-voting Common Stock, $0.0001 par value,
7,125 shares authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Class C Common Stock, $0.0001 par value,
20,000 shares authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in-capital
|
|
|
758,886 |
|
|
|
746,165 |
|
Retained earnings
|
|
|
422,579 |
|
|
|
404,010 |
|
Accumulated other comprehensive income
|
|
|
27,128 |
|
|
|
21,830 |
|
Treasury stock, at cost; 2,653 shares at March 31,
2006; 2,153 shares at December 31, 2005
|
|
|
(45,233 |
) |
|
|
(26,278 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,163,365 |
|
|
|
1,145,732 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
3,883,037 |
|
|
$ |
3,594,173 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements
3
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands, except per | |
|
|
share amounts) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
New vehicle
|
|
$ |
1,494,644 |
|
|
$ |
1,357,464 |
|
|
Used vehicle
|
|
|
587,897 |
|
|
|
526,584 |
|
|
Finance and insurance, net
|
|
|
59,822 |
|
|
|
54,148 |
|
|
Service and parts
|
|
|
308,937 |
|
|
|
265,866 |
|
|
Fleet and wholesale vehicle
|
|
|
221,644 |
|
|
|
191,677 |
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,672,944 |
|
|
|
2,395,739 |
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
New vehicle
|
|
|
1,363,861 |
|
|
|
1,238,036 |
|
|
Used vehicle
|
|
|
534,718 |
|
|
|
478,525 |
|
|
Service and parts
|
|
|
139,100 |
|
|
|
121,969 |
|
|
Fleet and wholesale vehicle
|
|
|
219,188 |
|
|
|
191,123 |
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
2,256,867 |
|
|
|
2,029,653 |
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
416,077 |
|
|
|
366,086 |
|
Selling, general and administrative expenses
|
|
|
336,631 |
|
|
|
294,811 |
|
Depreciation and amortization
|
|
|
10,632 |
|
|
|
9,579 |
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
68,814 |
|
|
|
61,696 |
|
Floor plan interest expense
|
|
|
(14,965 |
) |
|
|
(12,352 |
) |
Other interest expense
|
|
|
(12,072 |
) |
|
|
(11,481 |
) |
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interests
|
|
|
41,777 |
|
|
|
37,863 |
|
Income taxes
|
|
|
(15,192 |
) |
|
|
(13,972 |
) |
Minority interests
|
|
|
(422 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
26,163 |
|
|
|
23,748 |
|
Loss from discontinued operations, net of tax
|
|
|
(2,072 |
) |
|
|
(856 |
) |
|
|
|
|
|
|
|
Net income
|
|
$ |
24,091 |
|
|
$ |
22,892 |
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
0.56 |
|
|
$ |
0.51 |
|
|
Discontinued operations
|
|
|
(0.04 |
) |
|
|
(0.02 |
) |
|
Net income
|
|
|
0.52 |
|
|
|
0.50 |
|
|
Shares used in determining basic earnings per share
|
|
|
46,512 |
|
|
|
46,230 |
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
0.56 |
|
|
$ |
0.51 |
|
|
Discontinued operations
|
|
|
(0.04 |
) |
|
|
(0.02 |
) |
|
Net income
|
|
|
0.51 |
|
|
|
0.49 |
|
|
Shares used in determining diluted earnings per share
|
|
|
47,136 |
|
|
|
46,875 |
|
Cash dividends per share
|
|
$ |
0.12 |
|
|
$ |
0.11 |
|
See Notes to Consolidated Condensed Financial Statements
4
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
|
|
(Restated)* | |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
24,091 |
|
|
$ |
22,892 |
|
Adjustments to reconcile net income to net cash from continuing
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,632 |
|
|
|
9,579 |
|
|
Amortization of unearned compensation
|
|
|
852 |
|
|
|
600 |
|
|
Undistributed earnings of equity method investments
|
|
|
(1,107 |
) |
|
|
(444 |
) |
|
Loss from discontinued operations, net of tax
|
|
|
2,072 |
|
|
|
856 |
|
|
Deferred income taxes
|
|
|
3,961 |
|
|
|
7,511 |
|
|
Minority interests
|
|
|
422 |
|
|
|
143 |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
29,078 |
|
|
|
(10,699 |
) |
|
Inventories
|
|
|
(62,489 |
) |
|
|
(36,167 |
) |
|
Floor plan notes payable
|
|
|
38,371 |
|
|
|
52,396 |
|
|
Accounts payable and accrued expenses
|
|
|
90,749 |
|
|
|
26,635 |
|
|
Other
|
|
|
(23,349 |
) |
|
|
6,559 |
|
|
|
|
|
|
|
|
Net cash from continuing operating activities
|
|
|
113,283 |
|
|
|
79,861 |
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of equipment and improvements
|
|
|
(42,884 |
) |
|
|
(49,676 |
) |
Proceeds from sale-leaseback transactions
|
|
|
19,739 |
|
|
|
40,708 |
|
Dealership acquisitions net of cash received, including
repayment of sellers floorplan notes payable of $78,259
and $32,091 in 2006 and 2005, respectively
|
|
|
(188,049 |
) |
|
|
(63,106 |
) |
|
|
|
|
|
|
|
Net cash from continuing investing activities
|
|
|
(211,194 |
) |
|
|
(72,074 |
) |
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under U.S. Credit Agreement
|
|
|
132,000 |
|
|
|
75,000 |
|
Repayments under U.S. Credit Agreement
|
|
|
(396,000 |
) |
|
|
(31,800 |
) |
Issuance of convertible subordinated debt
|
|
|
375,000 |
|
|
|
|
|
Net repayments of other long-term debt
|
|
|
(2,784 |
) |
|
|
(16,161 |
) |
Net borrowings (repayments) of floor plan notes
payable non-trade
|
|
|
20,511 |
|
|
|
(14,525 |
) |
Payment of deferred financing costs
|
|
|
(11,513 |
) |
|
|
|
|
Proceeds from issuance of common stock
|
|
|
5,682 |
|
|
|
571 |
|
Repurchase of common stock
|
|
|
(18,955 |
) |
|
|
|
|
Dividends
|
|
|
(5,522 |
) |
|
|
(5,076 |
) |
|
|
|
|
|
|
|
Net cash from continuing financing activities
|
|
|
98,419 |
|
|
|
8,009 |
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
Net cash from discontinued operating activities
|
|
|
(9,585 |
) |
|
|
(13,694 |
) |
|
Net cash from discontinued investing activities
|
|
|
19,013 |
|
|
|
(447 |
) |
|
Net cash from discontinued financing activities
|
|
|
(3,228 |
) |
|
|
(1,005 |
) |
|
|
|
|
|
|
|
Net cash from discontinued operations
|
|
|
6,200 |
|
|
|
(15,146 |
) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
6,708 |
|
|
|
650 |
|
Cash and cash equivalents, beginning of period
|
|
|
9,424 |
|
|
|
23,547 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
16,132 |
|
|
$ |
24,197 |
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
34,659 |
|
|
$ |
30,308 |
|
|
Income taxes
|
|
|
2,815 |
|
|
|
4,285 |
|
Seller financed debt
|
|
|
|
|
|
|
5,300 |
|
See Notes to Consolidated Condensed Financial Statements
5
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS
EQUITY
AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
| |
|
Additional | |
|
|
|
Other | |
|
|
|
Total | |
|
|
|
|
Issued | |
|
|
|
Paid-in | |
|
Retained | |
|
Comprehensive | |
|
Treasury | |
|
Stockholders | |
|
Comprehensive | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Income (Loss) | |
|
Stock | |
|
Equity | |
|
Income (loss) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(Dollars in thousands) | |
Balances, January 1, 2006
|
|
|
46,883,734 |
|
|
$ |
5 |
|
|
$ |
746,165 |
|
|
$ |
404,010 |
|
|
$ |
21,830 |
|
|
$ |
(26,278 |
) |
|
$ |
1,145,732 |
|
|
|
|
|
Restricted stock
|
|
|
115,937 |
|
|
|
|
|
|
|
807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
807 |
|
|
|
|
|
Exercise of options, including tax benefit of $6,232
|
|
|
501,424 |
|
|
|
|
|
|
|
11,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,914 |
|
|
|
|
|
Repurchase of common stock
|
|
|
(500,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,955 |
) |
|
|
(18,955 |
) |
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,522 |
) |
|
|
|
|
|
|
|
|
|
|
(5,522 |
) |
|
|
|
|
Fair value of interest rate swap agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,305 |
|
|
|
|
|
|
|
1,305 |
|
|
$ |
1,305 |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,993 |
|
|
|
|
|
|
|
3,993 |
|
|
|
3,993 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,091 |
|
|
|
|
|
|
|
|
|
|
|
24,091 |
|
|
|
24,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2006
|
|
|
47,001,095 |
|
|
$ |
5 |
|
|
$ |
758,886 |
|
|
$ |
422,579 |
|
|
$ |
27,128 |
|
|
$ |
(45,233 |
) |
|
$ |
1,163,365 |
|
|
$ |
29,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements
6
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
|
|
1. |
Interim Financial Statements |
The following unaudited consolidated condensed financial
statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission
(SEC). Certain information and disclosures normally
included in the Companys annual financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC
rules and regulations. The information presented as of
March 31, 2006 and December 31, 2005 and for the three
month periods ended March 31, 2006 and 2005 is unaudited,
but includes all adjustments which the management of United Auto
Group, Inc. (the Company) believes to be necessary
for the fair presentation of results for the periods presented.
The prior period consolidated condensed financial statements
have been reclassified for entities which have been treated as
discontinued operations through March 31, 2006. The results
for the interim periods are not necessarily indicative of
results to be expected for the year. These consolidated
condensed financial statements should be read in conjunction
with the Companys audited financial statements for the
year ended December 31, 2005, which were included as part
of the Companys Annual Report on
Form 10-K.
The Company restated its 2005 consolidated condensed statement
of cash flows to reflect the repayment of floor plan obligations
in connection with acquisitions and dispositions as cash
transactions to comply with guidance under Statement of
Financial Accounting Standards (SFAS) No. 95,
Statement of Cash Flows. More specifically, with
respect to acquisitions, the Company restated the consolidated
condensed statement of cash flows to reflect the repayment of
seller floor plan notes payable by its floor plan lenders as
additional cost of dealership acquisitions with corresponding
borrowings of floor plan notes payable-non trade. Similarly,
with respect to dispositions, the Company restated the
consolidated statements of cash flows to reflect the repayment
of the Companys floor plan notes payable by the
purchasers floor plan lender as additional transaction
proceeds with corresponding repayments of floor plan notes
payable trade or non-trade, as appropriate. Previously, all such
activity was treated as a non-cash acquisition or disposition of
inventory and floor plan notes payable. A summary of the
significant effects of the restatement is as follows:
|
|
|
|
|
|
|
Three Months | |
|
|
Ended | |
|
|
March 31, | |
|
|
2005 | |
|
|
| |
Net cash from continuing operating activities as previously
reported
|
|
$ |
47,305 |
|
Discontinued operations
|
|
|
465 |
|
Recognition of floorplan balances as cash transactions
|
|
|
32,091 |
|
|
|
|
|
Reported net cash from continuing operating activities
|
|
$ |
79,861 |
|
|
|
|
|
Net cash from continuing investing activities as previously
reported
|
|
$ |
(39,367 |
) |
Discontinued operations
|
|
|
(616 |
) |
Recognition of floorplan balances as cash transactions
|
|
|
(32,091 |
) |
|
|
|
|
Reported net cash from continuing investing activities
|
|
$ |
(72,074 |
) |
|
|
|
|
Net cash from continuing financing activities as previously
reported
|
|
$ |
7,438 |
|
Discontinued operations
|
|
|
571 |
|
Recognition of floorplan balances as cash transactions
|
|
|
|
|
|
|
|
|
Reported net cash from continuing financing activities
|
|
$ |
8,009 |
|
|
|
|
|
7
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
The Company accounts for dispositions as discontinued operations
when it is evident that the operations and cash flows of a
franchise being disposed of will be eliminated from on-going
operations and that the Company will not have any significant
continuing involvement in its operations. In reaching the
determination as to whether the cash flows of a dealership will
be eliminated from ongoing operations, the Company considers
whether it is likely that customers will migrate to similar
franchises that it owns in the same geographic market. The
Companys consideration includes an evaluation of the
brands sold at other dealerships it operates in the market and
their proximity to the disposed dealership. When the Company
disposes of franchises, it typically does not have continuing
brand representation in that market. If the franchise being
disposed of is located in a complex of Company dealerships, the
Company does not treat the disposition as a discontinued
operation if the Company believes that the cash flows generated
by the disposed franchise will be replaced by expanded
operations of the remaining franchises. Combined financial
information regarding dealerships accounted for as discontinued
operations follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Revenues
|
|
$ |
108,017 |
|
|
$ |
261,299 |
|
Pre-tax loss
|
|
|
(1,396 |
) |
|
|
(1,353 |
) |
Loss on disposal
|
|
|
(2,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Inventories
|
|
$ |
80,483 |
|
|
$ |
88,042 |
|
Other assets
|
|
|
82,072 |
|
|
|
92,650 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
162,555 |
|
|
$ |
180,692 |
|
|
|
|
|
|
|
|
Floor plan notes payable
|
|
$ |
73,702 |
|
|
$ |
85,363 |
|
Other liabilities
|
|
|
13,689 |
|
|
|
11,893 |
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$ |
87,391 |
|
|
$ |
97,256 |
|
|
|
|
|
|
|
|
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
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. Actual results could
differ from those estimates. The accounts requiring the use of
significant estimates include accounts receivable, inventories,
income taxes, intangible assets and certain reserves.
The Companys principal intangible assets relate to its
franchise agreements with vehicle manufacturers, which represent
the estimated value of franchises acquired in business
combinations, and goodwill, which represents the excess of cost
over the fair value of tangible and identified intangible assets
acquired in connection with business combinations. Intangible
assets are amortized over their estimated useful lives. The
8
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Company believes the franchise value of its dealerships has an
indefinite useful life based on the following facts:
|
|
|
|
|
Automotive retailing is a mature industry and is based on
franchise agreements with the vehicle manufacturers; |
|
|
|
There are no known changes or events that would alter the
automotive retailing franchise environment; |
|
|
|
Certain franchise agreement terms are indefinite; |
|
|
|
Franchise agreements that have limited terms have historically
been renewed without substantial cost; and |
|
|
|
The Companys history shows that manufacturers have not
terminated franchise agreements. |
The following is a summary of the changes in the carrying amount
of goodwill and franchise value for the three months ended
March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise | |
|
|
Goodwill | |
|
Value | |
|
|
| |
|
| |
Balance January 1, 2006
|
|
$ |
1,013,265 |
|
|
$ |
194,289 |
|
Additions during period
|
|
|
83,414 |
|
|
|
27,482 |
|
Foreign currency translation
|
|
|
1,718 |
|
|
|
819 |
|
|
|
|
|
|
|
|
Balance March 31, 2006
|
|
$ |
1,098,397 |
|
|
$ |
222,590 |
|
|
|
|
|
|
|
|
As of March 31, 2006, approximately $628,288 of the
Companys goodwill is deductible for tax purposes. The
Company has established deferred tax liabilities related to the
temporary differences arising from such tax deductible goodwill.
Key employees, outside directors, consultants and advisors of
the Company are eligible to receive stock based compensation
pursuant to the terms of the Companys 2002 Equity
Compensation Plan (the Plan). The Plan originally
allowed for the issuance of 2,100 shares for stock options,
stock appreciation rights, restricted stock, restricted stock
units, performance shares and other awards. As of March 31,
2006, 1,490 shares of common stock were available for grant
under the Plan.
The Company elected to adopt SFAS No. 123(R),
Share-Based Payment, as interpreted by the
Securities and Exchange Commissions Staff Accounting
Bulletin No. 107, effective July 1, 2005. The
Company utilized the modified prospective method approach
pursuant to which the Company has recorded compensation expense
for all awards granted after July 1, 2005 based on their
fair value. The Companys share-based payments have
generally been in the form of non-vested shares
which are measured at their fair value as if they were vested
and issued on the grant date.
Prior to July 1, 2005, the Company accounted for
stock-based compensation using the intrinsic value method
pursuant to Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. All
options granted pursuant to the Plan had a strike price equal to
fair market value on the date of grant. As a result, no
compensation expense was recorded with respect to option grants.
During that time, the Company followed the disclosure only
provisions of SFAS No. 123, Accounting for Stock
Based Compensation, as amended by SFAS No. 148,
Accounting for Stock Based Compensation
Transition and Disclosure, an Amendment of
SFAS No. 123. Had the Company elected to
recognize compensation
9
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
expense for option grants using the fair value method, pro forma
net income and pro forma basic and diluted earnings per share
would have been as follows:
|
|
|
|
|
|
|
Three Months | |
|
|
Ended | |
|
|
March 31, 2005 | |
|
|
| |
Net income(1)
|
|
$ |
22,892 |
|
Fair value method compensation expense attributable to
stock-based compensation, net of tax
|
|
|
194 |
|
|
|
|
|
Pro forma net income
|
|
$ |
22,698 |
|
|
|
|
|
Basic earnings per share
|
|
$ |
0.50 |
|
|
|
|
|
Pro forma basic earnings per share
|
|
$ |
0.49 |
|
|
|
|
|
Diluted earnings per share
|
|
$ |
0.49 |
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$ |
0.48 |
|
|
|
|
|
Weighted average fair value of options granted
|
|
$ |
8.61 |
|
Expected dividend yield
|
|
|
1.6 |
% |
Risk free interest rates
|
|
|
4.00 |
% |
Expected life
|
|
|
5.0 |
years |
Expected volatility
|
|
|
30.28 |
% |
|
|
(1) |
Includes approximately $382 of compensation expense, net of tax,
related to restricted stock grants. |
|
|
|
New Accounting Pronouncements |
SFAS No. 151, Inventory Costs requires
abnormal amounts of inventory costs related to idle facility,
freight, handling and wasted materials to be recognized as
current period expenses. SFAS 151 was effective for the
Company on January 1, 2006. This pronouncement did not have
a material effect on consolidated operating results, financial
position or cash flows.
SFAS No. 154, Accounting Changes and Error
Corrections A Replacement of Accounting Principles
Board (APB) Opinion No. 20 and FASB Statement
No. 3 requires all direct financial statement effects
caused by a voluntary change in accounting principle to be
applied retrospectively to prior period financial statements as
if the new principle had always been applied, unless it is
impracticable to determine either the period-specific effects or
the cumulative effect of the change in principle. APB Opinion
No. 20 and SFAS No. 3 previously required that a
voluntary change in accounting principle be recognized as a
cumulative effect in the period of change.
SFAS No. 154 was effective for the Company on
January 1, 2006.
Financial Accounting Standards Board (FASB) Staff
Position FAS 13-1,
Accounting for Rental Costs Incurred During a Construction
Period (FSP
FAS 13-1)
requires companies to expense real estate rental costs under
operating leases during periods of construction and was
effective for the Company on January 1, 2006. FSP
FAS 13-1 does not
require retroactive application. This pronouncement did not have
a material effect on consolidated operating results, financial
position or cash flows.
FASB Interpretation (FIN) No. 47,
Accounting for Conditional Asset Retirement
Obligations an Interpretation of FASB Statement
No. 143 clarifies the timing of liability recognition
for legal obligations associated with an asset retirement when
the timing and (or) method of settling obligations are
conditional on a future event that may or may not be within the
control of the entity. FIN No. 47 was effective on
December 31, 2005. The adoption of FIN No. 47 did
not have a material effect on consolidated operating results,
financial position or cash flows.
10
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
New vehicles
|
|
$ |
994,569 |
|
|
$ |
914,278 |
|
Used vehicles
|
|
|
304,604 |
|
|
|
243,049 |
|
Parts, accessories and other
|
|
|
71,078 |
|
|
|
67,116 |
|
|
|
|
|
|
|
|
Total inventories
|
|
$ |
1,370,251 |
|
|
$ |
1,224,443 |
|
|
|
|
|
|
|
|
The Company receives non-refundable credits from certain vehicle
manufacturers, which are treated as a reduction of cost of goods
sold when the vehicles are sold. Such credits amounted to $7,214
and $5,813 during the three months ended March 31, 2006 and
2005, respectively.
During each of the periods presented, the Company completed a
number of acquisitions. The Companys financial statements
include the results of operations of the acquired dealerships
from the date of acquisition. Purchase price allocations may be
subject to final adjustment. A summary of the aggregate purchase
price allocations for the three months ended March 31, 2006
follows:
|
|
|
|
|
Accounts receivable
|
|
$ |
14,020 |
|
Inventories
|
|
|
83,319 |
|
Other current assets
|
|
|
4,436 |
|
Property and equipment
|
|
|
4,278 |
|
Goodwill
|
|
|
83,414 |
|
Franchise value
|
|
|
27,482 |
|
Other assets
|
|
|
2,448 |
|
Current liabilities
|
|
|
(20,819 |
) |
Long term liabilities
|
|
|
(10,529 |
) |
|
|
|
|
Cash used in dealership acquisitions, including repayment of
sellers floorplan notes payable of $78,259 during the
three months ended March 31, 2006
|
|
$ |
188,049 |
|
|
|
|
|
The following unaudited consolidated pro forma results of
operations of the Company for the three months ended
March 31, 2006 and 2005 give effect to acquisitions
consummated during 2006 and 2005 as if they had occurred on
January 1, 2005.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Revenues
|
|
$ |
2,698,101 |
|
|
$ |
2,606,240 |
|
Income from continuing operations
|
|
|
26,225 |
|
|
|
25,493 |
|
Net income
|
|
|
24,153 |
|
|
|
24,637 |
|
Income from continuing operations per diluted common share
|
|
|
0.56 |
|
|
|
0.54 |
|
Net income per diluted common share
|
|
$ |
0.51 |
|
|
$ |
0.53 |
|
11
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
4. |
Floor Plan Notes Payable Trade and
Non-trade |
The Company finances the majority of its new and a portion of
its used vehicle inventories under revolving floor plan
arrangements with various lenders. In the U.S., the floor plan
arrangements are due on demand; however, the Company is
generally not required to make loan principal repayments prior
to the sale of the vehicles financed. The Company typically
makes monthly interest payments on the amount financed. In the
U.K., substantially all of the floor plan arrangements are
payable on demand or have an original maturity of 90 days
or less and the Company is generally required to repay floor
plan advances at the earlier of the sale of the vehicles
financed or the stated maturity. The floor plan agreements grant
a security interest in substantially all of the assets of the
Companys dealership subsidiaries. Interest rates under the
floor plan arrangements are variable and increase or decrease
based on changes in the prime rate or defined LIBOR. The Company
classifies floor plan notes payable to a party other than the
manufacturer of a particular new vehicle, and all floor plan
notes payable relating to pre-owned vehicles as floor plan notes
payable non-trade on its consolidated condensed
balance sheets and classifies related cash flows as a financing
activity on its consolidated condensed statements of cash flows.
Basic earnings per share is computed using net income and
weighted average shares outstanding. Diluted earnings per share
is computed using net income and the weighted average shares
outstanding, adjusted for the dilutive effect of stock options
and restricted stock. As of March 31, 2005, approximately
two thousand shares attributable to outstanding common stock
equivalents were excluded from the calculation of diluted
earnings per share because the effect of such securities was
antidilutive. A reconciliation of the number of shares used in
the calculation of basic and diluted earnings per share for the
three months ended March 31, 2006 and 2005 follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Weighted average shares outstanding
|
|
|
46,512 |
|
|
|
46,230 |
|
Effect of stock options
|
|
|
382 |
|
|
|
427 |
|
Effect of restricted stock
|
|
|
242 |
|
|
|
218 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including effect of
dilutive securities
|
|
|
47,136 |
|
|
|
46,875 |
|
|
|
|
|
|
|
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
U.S. Credit Agreement
|
|
$ |
8,000 |
|
|
$ |
272,000 |
|
U.K. Credit Agreement
|
|
|
|
|
|
|
|
|
9.625% Senior Subordinated Notes due 2012
|
|
|
300,000 |
|
|
|
300,000 |
|
3.5% Senior Subordinated Notes due 2026
|
|
|
375,000 |
|
|
|
|
|
Other
|
|
|
5,474 |
|
|
|
8,241 |
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
688,474 |
|
|
|
580,241 |
|
Less: Current portion
|
|
|
(3,740 |
) |
|
|
(3,551 |
) |
|
|
|
|
|
|
|
Net long-term debt
|
|
$ |
684,734 |
|
|
$ |
576,690 |
|
|
|
|
|
|
|
|
12
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
The Company is party to a credit agreement with DaimlerChrysler
Services Americas LLC and Toyota Motor Credit Corporation, as
amended (the U.S. Credit Agreement), which
provides for up to $600,000 in revolving loans for working
capital, acquisitions, capital expenditures, investments and for
other general corporate purposes, and for an additional $50,000
of availability for letters of credit, through
September 30, 2008. The revolving loans bear interest
between defined LIBOR plus 2.50% and defined LIBOR plus 3.50%.
The U.S. Credit Agreement is fully and unconditionally
guaranteed on a joint and several basis by the Companys
domestic subsidiaries and contains a number of significant
covenants that, among other things, restrict the Companys
ability to dispose of assets, incur additional indebtedness,
repay other indebtedness, create liens on assets, make
investments or acquisitions and engage in mergers or
consolidations. The Company is also required to comply with
specified financial and other tests and ratios, each as defined
in the U.S. Credit Agreement, including: a ratio of current
assets to current liabilities, a fixed charge coverage ratio, a
ratio of debt to stockholders equity, a ratio of debt to
earnings before interest, taxes, depreciation and amortization
(EBITDA), a ratio of domestic debt to domestic
EBITDA, and a measurement of stockholders equity. A breach
of these requirements would give rise to certain remedies under
the agreement, the most severe of which is the termination of
the agreement and acceleration of the amounts owed. The Company
is in compliance with all covenants under the U.S. Credit
Agreement, and the Company believes it will remain in compliance
with such covenants for the foreseeable future. In making such
determination, the Company has considered the current margin of
compliance with the covenants and the expected future results of
operations, working capital requirements, acquisitions, capital
expenditures and investments in the U.S.
The U.S. Credit Agreement also contains typical events of
default, including change of control, non-payment of obligations
and cross-defaults to the Companys other material
indebtedness. Substantially all of the Companys domestic
assets not pledged as security under floor plan arrangements are
subject to security interests granted to lenders under the
U.S. Credit Agreement. As of March 31, 2006,
outstanding borrowings and letters of credit under the
U.S. Credit Agreement amounted to $8,000 and $12,600,
respectively.
The Companys subsidiaries in the U.K. (the U.K.
Subsidiaries) are party to a credit agreement with the
Royal Bank of Scotland, as amended (the U.K. Credit
Agreement), which provides for up to £55,000 in
revolving loans to be used for acquisitions, working capital,
and general corporate purposes through March 31, 2008.
Revolving loans under the U.K. Credit Agreement have an original
maturity of 90 days or less and bear interest between
defined LIBOR plus 0.85% and defined LIBOR plus 1.25%. The U.K.
Credit Agreement also provides for an additional seasonally
adjusted overdraft line of credit up to a maximum of
£15,000.
The U.K. Credit Agreement is fully and unconditionally
guaranteed on a joint and several basis by the U.K.
Subsidiaries, and contains a number of significant covenants
that, among other things, restrict the ability of the U.K.
Subsidiaries to pay dividends, dispose of assets, incur
additional indebtedness, repay other indebtedness, create liens
on assets, make investments or acquisitions and engage in
mergers or consolidations. In addition, the U.K. Subsidiaries
are required to comply with specified ratios and tests, each as
defined in the U.K. Credit Agreement, including: a measurement
of net worth, a debt to capital ratio, an EBITDA to interest
expense ratio, a measurement of maximum capital expenditures, a
debt to EBITDA ratio, and a fixed charge coverage ratio. A
breach of these requirements would give rise to certain remedies
under the agreement, the most severe of which is the termination
of the agreement and acceleration of the amounts owed. The
Company is in compliance with all covenants under the U.K.
Credit Agreement, and the Company believes that it will remain
in compliance with such covenants for the foreseeable future. In
making such determination, the Company has considered the
current margin of compliance with the covenants and the expected
future results of operations, working capital requirements,
acquisitions, capital expenditures and investments in the U.K.
13
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
The U.K. Credit Agreement also contains typical events of
default, including change of control and non-payment of
obligations. Substantially all of the U.K. Subsidiaries
assets not pledged as security under floor plan arrangements are
subject to security interests granted to lenders under the U.K.
Credit Agreement. The U.K. Credit Agreement also has
cross-default provisions that trigger a default in the event of
an uncured default under other material indebtedness of the U.K.
Subsidiaries. As of March 31, 2006, there were no
outstanding borrowings under the U.K. Credit Agreement.
|
|
|
Senior Subordinated Notes |
The Company has outstanding $300,000 aggregate principal amount
of 9.625% Senior Subordinated Notes due 2012 (the
9.625% Notes). The 9.625% Notes are
unsecured senior subordinated notes and are subordinate to all
existing and future senior debt, including debt under the
Companys credit agreements and floor plan indebtedness.
The 9.625% Notes are guaranteed by substantially all
domestic subsidiaries on a senior subordinated basis. The
Company can redeem all or some of the 9.625% Notes at its
option beginning in 2007 at specified redemption prices. Upon a
change of control, each holder of 9.625% Notes will be able
to require the Company to repurchase all or some of the Notes at
a redemption price of 101% of their principal amount. The
9.625% Notes also contain customary negative covenants and
events of default. The Company is in compliance with all
negative covenants and there are no events of default.
|
|
|
Senior Subordinated Convertible Notes |
On January 31, 2006, the Company issued $375,000 of
3.50% senior subordinated convertible notes due 2026 (the
Convertible Notes) in a private offering (the
Offering) to qualified institutional buyers under
Rule 144A of the Securities Act of 1933. Interest is
payable semiannually on April 1 and October 1 of each
year, beginning on October 1, 2006. The Convertible Notes
mature on April 1, 2026, unless earlier converted, redeemed
or purchased by the Company. The Convertible Notes are unsecured
senior subordinated obligations and are guaranteed on an
unsecured senior subordinated basis by the Companys wholly
owned domestic subsidiaries. The Convertible Notes also contain
customary negative covenants and events of default. The Company
is in compliance with all negative covenants and there are no
events of default.
Holders may convert based on a conversion rate of
21.1026 shares of common stock per $1,000 principal amount
of the Convertible Notes (which is equal to an initial
conversion price of approximately $47.39 per share),
subject to adjustment, only under the following circumstances:
(1) if the closing price of the common stock reaches, or
the trading price of the Convertible Notes falls below, specific
thresholds, (2) if the Convertible Notes are called for
redemption, (3) if specified distributions to holders of
common stock are made or specified corporate transactions occur,
(4) if a fundamental change occurs, or (5) during the
ten trading days prior to, but excluding, the maturity date.
Upon conversion of the Convertible Notes, in lieu of shares of
common stock, for each $1,000 principal amount of the
Convertible Notes, a holder will receive an amount in cash equal
to the lesser of (i) $1,000 or (ii) the conversion
value, determined in the manner set forth in the related
indenture (the Indenture), of the number of shares
of common stock equal to the conversion rate. If the conversion
value exceeds $1,000, the Company will also deliver, at its
election, cash or common stock or a combination of cash and
common stock with respect to the remaining value deliverable
upon conversion. If a holder elects to convert its Convertible
Notes in connection with certain events that constitute a change
of control on or before April 6, 2011, the Company will
pay, to the extent described in the Indenture, a make-whole
premium by increasing the conversion rate applicable to such
Convertible Notes.
In addition, the Company will pay contingent interest in cash
with respect to any six-month period from April 1 to
September 30 and from October 1 to March 31,
commencing with the six-month period beginning on April 1,
2011, if the average trading price of a Convertible Note for the
five trading days ending on the third trading day immediately
preceding the first day of the relevant six-month period equals
120% or more of the principal amount of the Convertible Note. On
or after April 6, 2011, the Company may redeem the
14
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Convertible Notes, in whole at any time or in part from time to
time, for cash at a redemption price of 100% of the principal
amount of the Convertible Notes to be redeemed, plus any accrued
and unpaid interest to the applicable redemption date. Holders
of the Convertible Notes may require the Company to purchase all
or a portion of their Securities for cash on each of
April 1, 2011, April 1, 2016 and April 1, 2021 at
a purchase price equal to 100% of the principal amount of the
Convertible Notes to be purchased, plus accrued and unpaid
interest, if any, to, the applicable purchase date. In addition,
if the Company experiences certain fundamental change events
specified in the Indenture, holders of the Convertible Notes
will have the option to require the Company to purchase for cash
all or a portion of their Convertible Notes, subject to
specified exceptions, at a price equal to 100% of the principal
amount of the Convertible Notes, plus accrued and unpaid
interest, if any, to the fundamental change purchase date.
The Company has agreed to file a shelf registration statement
(the Shelf Registration Statement) to register
resales of the Convertible Notes and the shares of common stock
issuable upon conversion of the Convertible Notes with the
Securities and Exchange Commission within 120 days after
the date of original issuance of the Convertible Notes. The
Company will use its commercially reasonable efforts to
(i) cause such Shelf Registration Statement to become
effective within 210 days after the original issuance of
the Convertible Notes and (ii) to keep the Shelf
Registration Statement effective until the earlier of
(1) two years from the date the Shelf Registration
Statement is declared effective by the SEC, (2) the sale
pursuant to the Shelf Registration Statement of the Convertible
Notes and all of the shares of common stock issuable upon
conversion of the Convertible Notes, and (3) the date when
the holders, other than the holders that are
affiliates, of the Securities and the common stock
issuable upon conversion of the Convertible Notes are able to
sell or transfer all such securities immediately without
restriction pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act. If the Company fails to
comply with its obligations to register the Convertible Notes
and the common stock issuable upon conversion of the Convertible
Notes, the registration statement does not become effective
within the specified time period, or the shelf registration
statement ceases to be effective or fails to be usable for
certain periods of time, in each case subject to certain
exceptions provided in the registration rights agreement, the
Company will be required to pay additional interest, subject to
some limitations, to the holders of the Convertible Notes.
In connection with the Offering, the Company repurchased
500,000 shares of its outstanding common stock on
January 26, 2006 for $18,955, or $37.91 per share.
The Company is party to an interest rate swap agreement through
January 2008 pursuant to which a notional $200,000 of its
U.S. floating rate debt was exchanged for fixed rate debt.
The swap was designated as a cash flow hedge of future interest
payments of the LIBOR based U.S. floor plan borrowings. As
of March 31, 2006, the Company expects approximately $571
associated with the swap to be recognized as a reduction of
interest expense over the next twelve months.
|
|
9. |
Commitments and Contingent Liabilities |
From time to time, the Company is involved in litigation
relating to claims arising in the normal course of business.
Such issues may relate to litigation with customers, employment
related lawsuits, class action lawsuits, purported class action
lawsuits, and actions brought by governmental authorities. As of
March 31, 2006, the Company is not party to any legal
proceedings, including class action lawsuits to which it is a
party, that, individually or in the aggregate, are reasonably
expected to have a material adverse effect on the Companys
results of operations, financial condition or cash flows.
However, the results of these matters
15
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
cannot be predicted with certainty, and an unfavorable
resolution of one or more of these matters could have a material
adverse effect on the Companys results of operations,
financial condition or cash flows.
The Company has entered into an agreement with a third-party to
jointly acquire and manage dealerships in Indiana, Illinois,
Ohio, North Carolina and South Carolina. With respect to any
joint venture relationship established pursuant to this
agreement, the Company is required to repurchase its
partners interest at the end of the five-year period
following the date of formation of the joint venture
relationship. Pursuant to this arrangement, the Company has
entered into a joint venture agreement with respect to the Honda
of Mentor dealership. The Company is required to repurchase its
partners interest in this joint venture relationship in
July 2008. The Company expects this payment to be approximately
$2,700.
The Company leases the majority of its dealership facilities and
corporate offices under non-cancelable operating lease
agreements with terms from three to thirty years. Such leases
typically include escalation clauses tied to an inflation index
such as the Consumer Price Index and additional option periods
of up to thirty years that are available to the Company.
16
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
10. |
Consolidating Condensed Financial Information |
The following tables include consolidating condensed financial
information as of March 31, 2006 and December 31, 2005
and for the three month periods ended March 31, 2006 and
2005 for United Auto Group, Inc.s wholly-owned subsidiary
guarantors, non-wholly owned subsidiaries (which are guarantors
of the 9.625% Notes but not the Convertible Notes), and
non-guarantor subsidiaries (primarily representing foreign
entities). The condensed consolidating financial information
includes certain allocations of balance sheet, income statement
and cash flow items which are not necessarily indicative of the
financial position, results of operations or cash flows of these
entities on a stand-alone basis.
Consolidating Condensed Balance Sheet
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries* | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG | |
|
UAG Mentor | |
|
UAG | |
|
Non- | |
|
|
Total | |
|
|
|
United Auto | |
|
Guarantor | |
|
HBL | |
|
Connecticut I, | |
|
Acquisition | |
|
Central NJ, | |
|
Guarantor | |
|
|
Company | |
|
Eliminations | |
|
Group, Inc. | |
|
Subsidiaries | |
|
LLC | |
|
LLC | |
|
LLC | |
|
LLC | |
|
Subsidiaries | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Cash and cash equivalents
|
|
$ |
16,132 |
|
|
$ |
|
|
|
$ |
6,055 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43 |
|
|
$ |
396 |
|
|
$ |
2,067 |
|
|
$ |
7,571 |
|
Accounts receivable, net
|
|
|
397,803 |
|
|
|
(44,916 |
) |
|
|
44,916 |
|
|
|
243,111 |
|
|
|
8,494 |
|
|
|
8,069 |
|
|
|
2,290 |
|
|
|
808 |
|
|
|
135,031 |
|
Inventories, net
|
|
|
1,370,251 |
|
|
|
|
|
|
|
|
|
|
|
848,106 |
|
|
|
35,659 |
|
|
|
18,952 |
|
|
|
6,460 |
|
|
|
1,805 |
|
|
|
459,269 |
|
Other current assets
|
|
|
72,039 |
|
|
|
|
|
|
|
9,246 |
|
|
|
20,939 |
|
|
|
640 |
|
|
|
35 |
|
|
|
1 |
|
|
|
17 |
|
|
|
41,161 |
|
Assets held for sale
|
|
|
162,555 |
|
|
|
|
|
|
|
|
|
|
|
150,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,018,780 |
|
|
|
(44,916 |
) |
|
|
60,217 |
|
|
|
1,262,503 |
|
|
|
44,793 |
|
|
|
27,099 |
|
|
|
9,147 |
|
|
|
4,697 |
|
|
|
655,240 |
|
Property and equipment, net
|
|
|
442,618 |
|
|
|
|
|
|
|
4,075 |
|
|
|
252,071 |
|
|
|
5,820 |
|
|
|
3,507 |
|
|
|
1,838 |
|
|
|
3,595 |
|
|
|
171,712 |
|
Intangible assets
|
|
|
1,320,987 |
|
|
|
|
|
|
|
|
|
|
|
928,471 |
|
|
|
68,281 |
|
|
|
20,738 |
|
|
|
3,722 |
|
|
|
|
|
|
|
299,775 |
|
Other assets
|
|
|
100,652 |
|
|
|
(1,087,907 |
) |
|
|
1,101,568 |
|
|
|
42,377 |
|
|
|
81 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
44,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,883,037 |
|
|
$ |
(1,132,823 |
) |
|
$ |
1,165,860 |
|
|
$ |
2,485,422 |
|
|
$ |
118,975 |
|
|
$ |
51,345 |
|
|
$ |
14,709 |
|
|
$ |
8,292 |
|
|
$ |
1,171,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan notes payable
|
|
$ |
883,622 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
565,441 |
|
|
$ |
10,176 |
|
|
$ |
7,659 |
|
|
$ |
6,347 |
|
|
$ |
|
|
|
$ |
293,999 |
|
Floor plan notes payable non-trade
|
|
|
352,464 |
|
|
|
|
|
|
|
|
|
|
|
222,851 |
|
|
|
17,712 |
|
|
|
9,597 |
|
|
|
|
|
|
|
1,457 |
|
|
|
100,847 |
|
Accounts payable
|
|
|
298,560 |
|
|
|
|
|
|
|
1,650 |
|
|
|
109,045 |
|
|
|
6,726 |
|
|
|
2,142 |
|
|
|
305 |
|
|
|
2,431 |
|
|
|
176,261 |
|
Accrued expenses
|
|
|
198,442 |
|
|
|
(44,916 |
) |
|
|
845 |
|
|
|
(7,576 |
) |
|
|
32,051 |
|
|
|
14,522 |
|
|
|
1,917 |
|
|
|
698 |
|
|
|
200,901 |
|
Current portion of long-term debt
|
|
|
3,740 |
|
|
|
|
|
|
|
|
|
|
|
3,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale
|
|
|
87,391 |
|
|
|
|
|
|
|
|
|
|
|
73,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,824,219 |
|
|
|
(44,916 |
) |
|
|
2,495 |
|
|
|
967,297 |
|
|
|
66,665 |
|
|
|
33,920 |
|
|
|
8,569 |
|
|
|
4,586 |
|
|
|
785,603 |
|
Long-term debt
|
|
|
684,734 |
|
|
|
|
|
|
|
|
|
|
|
448,462 |
|
|
|
63,151 |
|
|
|
21,361 |
|
|
|
3,842 |
|
|
|
3,084 |
|
|
|
144,834 |
|
Other long-term liabilities
|
|
|
210,719 |
|
|
|
|
|
|
|
|
|
|
|
194,545 |
|
|
|
10,595 |
|
|
|
548 |
|
|
|
4,258 |
|
|
|
187 |
|
|
|
586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,719,672 |
|
|
|
(44,916 |
) |
|
|
2,495 |
|
|
|
1,610,304 |
|
|
|
140,411 |
|
|
|
55,829 |
|
|
|
16,669 |
|
|
|
7,857 |
|
|
|
931,023 |
|
Total stockholders equity
|
|
|
1,163,365 |
|
|
|
(1,087,907 |
) |
|
|
1,163,365 |
|
|
|
875,118 |
|
|
|
(21,436 |
) |
|
|
(4,484 |
) |
|
|
(1,960 |
) |
|
|
435 |
|
|
|
240,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
3,883,037 |
|
|
$ |
(1,132,823 |
) |
|
$ |
1,165,860 |
|
|
$ |
2,485,422 |
|
|
$ |
118,975 |
|
|
$ |
51,345 |
|
|
$ |
14,709 |
|
|
$ |
8,292 |
|
|
$ |
1,171,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Guarantors of the 9.625% notes; non-guarantors of the
Convertible Notes |
17
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Consolidating Condensed Balance Sheet
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries* | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG | |
|
UAG Mentor | |
|
UAG | |
|
Non- | |
|
|
Total | |
|
|
|
United Auto | |
|
Guarantor | |
|
HBL | |
|
Connecticut I, | |
|
Acquisition | |
|
Central NJ, | |
|
Guarantor | |
|
|
Company | |
|
Eliminations | |
|
Group, Inc. | |
|
Subsidiaries | |
|
LLC | |
|
LLC | |
|
LLC | |
|
LLC | |
|
Subsidiaries | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Cash and cash equivalents
|
|
$ |
9,424 |
|
|
$ |
|
|
|
$ |
4,832 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,127 |
|
|
$ |
394 |
|
|
$ |
2,540 |
|
|
$ |
531 |
|
Accounts receivable, net
|
|
|
412,861 |
|
|
|
(42,810 |
) |
|
|
42,810 |
|
|
|
279,333 |
|
|
|
11,489 |
|
|
|
7,117 |
|
|
|
2,852 |
|
|
|
1,032 |
|
|
|
111,038 |
|
Inventories, net
|
|
|
1,224,443 |
|
|
|
|
|
|
|
|
|
|
|
743,243 |
|
|
|
33,029 |
|
|
|
19,941 |
|
|
|
6,272 |
|
|
|
2,184 |
|
|
|
419,774 |
|
Other current assets
|
|
|
51,142 |
|
|
|
|
|
|
|
5,118 |
|
|
|
21,786 |
|
|
|
467 |
|
|
|
42 |
|
|
|
6 |
|
|
|
|
|
|
|
23,723 |
|
Assets held for sale
|
|
|
180,692 |
|
|
|
|
|
|
|
|
|
|
|
180,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,878,562 |
|
|
|
(42,810 |
) |
|
|
52,760 |
|
|
|
1,225,054 |
|
|
|
44,985 |
|
|
|
28,227 |
|
|
|
9,524 |
|
|
|
5,756 |
|
|
|
555,066 |
|
Property and equipment, net
|
|
|
424,429 |
|
|
|
|
|
|
|
4,297 |
|
|
|
249,435 |
|
|
|
5,929 |
|
|
|
2,932 |
|
|
|
1,859 |
|
|
|
3,660 |
|
|
|
156,317 |
|
Intangible assets
|
|
|
1,207,554 |
|
|
|
|
|
|
|
|
|
|
|
855,920 |
|
|
|
68,281 |
|
|
|
20,738 |
|
|
|
3,722 |
|
|
|
|
|
|
|
258,893 |
|
Other assets
|
|
|
83,628 |
|
|
|
(1,065,886 |
) |
|
|
1,093,055 |
|
|
|
11,685 |
|
|
|
83 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
44,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,594,173 |
|
|
$ |
(1,108,696 |
) |
|
$ |
1,150,112 |
|
|
$ |
2,342,094 |
|
|
$ |
119,278 |
|
|
$ |
51,898 |
|
|
$ |
15,105 |
|
|
$ |
9,416 |
|
|
$ |
1,014,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan notes payable
|
|
$ |
845,251 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
527,151 |
|
|
$ |
14,045 |
|
|
$ |
6,725 |
|
|
$ |
6,156 |
|
|
$ |
|
|
|
$ |
291,174 |
|
Floor plan notes payable non-trade
|
|
|
331,953 |
|
|
|
|
|
|
|
|
|
|
|
230,315 |
|
|
|
15,154 |
|
|
|
12,000 |
|
|
|
|
|
|
|
2,486 |
|
|
|
71,998 |
|
Accounts payable
|
|
|
211,943 |
|
|
|
|
|
|
|
3,874 |
|
|
|
87,457 |
|
|
|
6,941 |
|
|
|
1,393 |
|
|
|
676 |
|
|
|
2,532 |
|
|
|
109,070 |
|
Accrued expenses
|
|
|
174,796 |
|
|
|
(42,810 |
) |
|
|
506 |
|
|
|
1,502 |
|
|
|
29,933 |
|
|
|
13,952 |
|
|
|
2,040 |
|
|
|
715 |
|
|
|
168,958 |
|
Current portion of long-term debt
|
|
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale
|
|
|
97,256 |
|
|
|
|
|
|
|
|
|
|
|
97,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,664,750 |
|
|
|
(42,810 |
) |
|
|
4,380 |
|
|
|
947,232 |
|
|
|
66,073 |
|
|
|
34,070 |
|
|
|
8,872 |
|
|
|
5,733 |
|
|
|
641,200 |
|
Long-term debt
|
|
|
576,690 |
|
|
|
|
|
|
|
|
|
|
|
336,881 |
|
|
|
63,151 |
|
|
|
21,361 |
|
|
|
3,842 |
|
|
|
3,096 |
|
|
|
148,359 |
|
Other long-term liabilities
|
|
|
207,001 |
|
|
|
|
|
|
|
|
|
|
|
191,047 |
|
|
|
10,638 |
|
|
|
548 |
|
|
|
4,059 |
|
|
|
176 |
|
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,448,441 |
|
|
|
(42,810 |
) |
|
|
4,380 |
|
|
|
1,475,160 |
|
|
|
139,862 |
|
|
|
55,979 |
|
|
|
16,773 |
|
|
|
9,005 |
|
|
|
790,092 |
|
Total stockholders equity
|
|
|
1,145,732 |
|
|
|
(1,065,886 |
) |
|
|
1,145,732 |
|
|
|
866,934 |
|
|
|
(20,584 |
) |
|
|
(4,081 |
) |
|
|
(1,668 |
) |
|
|
411 |
|
|
|
224,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
3,594,173 |
|
|
$ |
(1,108,696 |
) |
|
$ |
1,150,112 |
|
|
$ |
2,342,094 |
|
|
$ |
119,278 |
|
|
$ |
51,898 |
|
|
$ |
15,105 |
|
|
$ |
9,416 |
|
|
$ |
1,014,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Guarantors of the 9.625% notes; non-guarantors of the
Convertible Notes |
18
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Consolidating Condensed Statement of Income
Three Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries* | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG | |
|
UAG Mentor | |
|
UAG | |
|
Non- | |
|
|
Total | |
|
|
|
United Auto | |
|
Guarantor | |
|
HBL | |
|
Connecticut I, | |
|
Acquisition | |
|
Central NJ, | |
|
Guarantor | |
|
|
Company | |
|
Eliminations | |
|
Group, Inc. | |
|
Subsidiaries | |
|
LLC | |
|
LLC | |
|
LLC | |
|
LLC | |
|
Subsidiaries | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Total revenue
|
|
$ |
2,672,944 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,640,757 |
|
|
$ |
60,688 |
|
|
$ |
41,963 |
|
|
$ |
11,157 |
|
|
$ |
8,616 |
|
|
$ |
909,763 |
|
Cost of sales
|
|
|
2,256,867 |
|
|
|
|
|
|
|
|
|
|
|
1,380,386 |
|
|
|
48,306 |
|
|
|
34,722 |
|
|
|
9,832 |
|
|
|
7,476 |
|
|
|
776,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
416,077 |
|
|
|
|
|
|
|
|
|
|
|
260,371 |
|
|
|
12,382 |
|
|
|
7,241 |
|
|
|
1,325 |
|
|
|
1,140 |
|
|
|
133,618 |
|
Selling, general, and administrative
expenses
|
|
|
336,631 |
|
|
|
|
|
|
|
3,699 |
|
|
|
214,397 |
|
|
|
9,968 |
|
|
|
5,821 |
|
|
|
1,374 |
|
|
|
863 |
|
|
|
100,509 |
|
Depreciation and amortization
|
|
|
10,632 |
|
|
|
|
|
|
|
341 |
|
|
|
6,281 |
|
|
|
239 |
|
|
|
137 |
|
|
|
56 |
|
|
|
69 |
|
|
|
3,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
68,814 |
|
|
|
|
|
|
|
(4,040 |
) |
|
|
39,693 |
|
|
|
2,175 |
|
|
|
1,283 |
|
|
|
(105 |
) |
|
|
208 |
|
|
|
29,600 |
|
Floor plan interest expense
|
|
|
(14,965 |
) |
|
|
|
|
|
|
|
|
|
|
(10,317 |
) |
|
|
(390 |
) |
|
|
(240 |
) |
|
|
(80 |
) |
|
|
(27 |
) |
|
|
(3,911 |
) |
Other interest expense
|
|
|
(12,072 |
) |
|
|
|
|
|
|
|
|
|
|
(7,634 |
) |
|
|
(1,132 |
) |
|
|
(383 |
) |
|
|
(294 |
) |
|
|
(119 |
) |
|
|
(2,510 |
) |
Equity in earnings of subsidiaries
|
|
|
|
|
|
|
(47,771 |
) |
|
|
47,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and
minority interests
|
|
|
41,777 |
|
|
|
(47,771 |
) |
|
|
43,731 |
|
|
|
21,742 |
|
|
|
653 |
|
|
|
660 |
|
|
|
(479 |
) |
|
|
62 |
|
|
|
23,179 |
|
Income taxes
|
|
|
(15,192 |
) |
|
|
20,833 |
|
|
|
(19,071 |
) |
|
|
(9,458 |
) |
|
|
(285 |
) |
|
|
(288 |
) |
|
|
209 |
|
|
|
(27 |
) |
|
|
(7,105 |
) |
Minority interests
|
|
|
(422 |
) |
|
|
|
|
|
|
|
|
|
|
(300 |
) |
|
|
(37 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
26,163 |
|
|
|
(26,938 |
) |
|
|
24,660 |
|
|
|
11,984 |
|
|
|
331 |
|
|
|
298 |
|
|
|
(270 |
) |
|
|
24 |
|
|
|
16,074 |
|
Income (loss) from discontinued operations,
net of tax
|
|
|
(2,072 |
) |
|
|
|
|
|
|
|
|
|
|
(2,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
24,091 |
|
|
$ |
(26,938 |
) |
|
$ |
24,660 |
|
|
$ |
9,975 |
|
|
$ |
331 |
|
|
$ |
298 |
|
|
$ |
(270 |
) |
|
$ |
24 |
|
|
$ |
16,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Guarantors of the 9.625% notes; non-guarantors of the
Convertible Notes |
19
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Consolidating Condensed Statement of Income
Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries* | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG | |
|
UAG Mentor | |
|
UAG | |
|
Non- | |
|
|
Total | |
|
|
|
United Auto | |
|
Guarantor | |
|
HBL | |
|
Connecticut I, | |
|
Acquisition | |
|
Central NJ, | |
|
Guarantor | |
|
|
Company | |
|
Eliminations | |
|
Group, Inc. | |
|
Subsidiaries | |
|
LLC | |
|
LLC | |
|
LLC | |
|
LLC | |
|
Subsidiaries | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Total revenues
|
|
$ |
2,395,739 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,431,963 |
|
|
$ |
52,016 |
|
|
$ |
34,407 |
|
|
$ |
12,231 |
|
|
$ |
5,634 |
|
|
$ |
859,488 |
|
Cost of sales
|
|
|
2,029,653 |
|
|
|
|
|
|
|
|
|
|
|
1,208,975 |
|
|
|
41,217 |
|
|
|
28,441 |
|
|
|
10,610 |
|
|
|
4,989 |
|
|
|
735,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
366,086 |
|
|
|
|
|
|
|
|
|
|
|
222,988 |
|
|
|
10,799 |
|
|
|
5,966 |
|
|
|
1,621 |
|
|
|
645 |
|
|
|
124,067 |
|
Selling, general, and administrative expenses
|
|
|
294,811 |
|
|
|
|
|
|
|
3,196 |
|
|
|
182,490 |
|
|
|
9,364 |
|
|
|
5,062 |
|
|
|
1,320 |
|
|
|
679 |
|
|
|
92,700 |
|
Depreciation and amortization
|
|
|
9,579 |
|
|
|
|
|
|
|
255 |
|
|
|
5,504 |
|
|
|
228 |
|
|
|
108 |
|
|
|
49 |
|
|
|
67 |
|
|
|
3,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
61,696 |
|
|
|
|
|
|
|
(3,451 |
) |
|
|
34,994 |
|
|
|
1,207 |
|
|
|
796 |
|
|
|
252 |
|
|
|
(101 |
) |
|
|
27,999 |
|
Floor plan
interest expense
|
|
|
(12,352 |
) |
|
|
|
|
|
|
|
|
|
|
(7,762 |
) |
|
|
(222 |
) |
|
|
(278 |
) |
|
|
(49 |
) |
|
|
(23 |
) |
|
|
(4,018 |
) |
Other interest expense
|
|
|
(11,481 |
) |
|
|
|
|
|
|
|
|
|
|
(7,117 |
) |
|
|
(911 |
) |
|
|
(297 |
) |
|
|
(278 |
) |
|
|
(113 |
) |
|
|
(2,765 |
) |
Equity in earnings of subsidiaries
|
|
|
|
|
|
|
(55,844 |
) |
|
|
55,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and
minority interests
|
|
|
37,863 |
|
|
|
(55,844 |
) |
|
|
52,393 |
|
|
|
20,115 |
|
|
|
74 |
|
|
|
221 |
|
|
|
(75 |
) |
|
|
(237 |
) |
|
|
21,216 |
|
Income taxes
|
|
|
(13,972 |
) |
|
|
24,588 |
|
|
|
(23,069 |
) |
|
|
(8,736 |
) |
|
|
(33 |
) |
|
|
(97 |
) |
|
|
33 |
|
|
|
104 |
|
|
|
(6,762 |
) |
Minority interests
|
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
(154 |
) |
|
|
(4 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
23,748 |
|
|
|
(31,256 |
) |
|
|
29,324 |
|
|
|
11,225 |
|
|
|
37 |
|
|
|
99 |
|
|
|
(42 |
) |
|
|
(93 |
) |
|
|
14,454 |
|
Loss from discontinued operations, net of tax
|
|
|
(856 |
) |
|
|
|
|
|
|
|
|
|
|
(724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
22,892 |
|
|
$ |
(31,256 |
) |
|
$ |
29,324 |
|
|
$ |
10,501 |
|
|
$ |
37 |
|
|
$ |
99 |
|
|
$ |
(42 |
) |
|
$ |
(93 |
) |
|
$ |
14,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Guarantors of the 9.625% notes; non-guarantors of the
Convertible Notes |
20
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Consolidating Condensed Statement of Cash Flows
Three Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries* | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
UAG | |
|
UAG Mentor | |
|
UAG | |
|
Non- | |
|
|
Total | |
|
United Auto | |
|
Guarantor | |
|
HBL | |
|
Connecticut I, | |
|
Acquisition | |
|
Central NJ, | |
|
Guarantor | |
|
|
Company | |
|
Group, Inc. | |
|
Subsidiaries | |
|
LLC | |
|
LLC | |
|
LLC | |
|
LLC | |
|
Subsidiaries | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Net cash from continuing operating activities
|
|
$ |
113,283 |
|
|
$ |
1,342 |
|
|
$ |
32,259 |
|
|
$ |
(1,236 |
) |
|
$ |
2,342 |
|
|
$ |
59 |
|
|
$ |
572 |
|
|
$ |
77,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment and improvements
|
|
|
(42,884 |
) |
|
|
(119 |
) |
|
|
(21,431 |
) |
|
|
(130 |
) |
|
|
(712 |
) |
|
|
(35 |
) |
|
|
(4 |
) |
|
|
(20,453 |
) |
Proceeds from sale leaseback transactions
|
|
|
19,739 |
|
|
|
|
|
|
|
16,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,947 |
|
Dealership acquisitions, net
|
|
|
(188,049 |
) |
|
|
|
|
|
|
(102,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing investing activities
|
|
|
(211,194 |
) |
|
|
(119 |
) |
|
|
(107,098 |
) |
|
|
(130 |
) |
|
|
(712 |
) |
|
|
(35 |
) |
|
|
(4 |
) |
|
|
(103,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) of long-term debt
|
|
|
108,216 |
|
|
|
30,308 |
|
|
|
82,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
(4,964 |
) |
Floor plan notes payable non-trade
|
|
|
20,511 |
|
|
|
|
|
|
|
(14,383 |
) |
|
|
2,558 |
|
|
|
(2,403 |
) |
|
|
|
|
|
|
(1,029 |
) |
|
|
35,768 |
|
Deferred financing costs
|
|
|
(11,513 |
) |
|
|
(11,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
5,682 |
|
|
|
5,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(18,955 |
) |
|
|
(18,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from (to) parent
|
|
|
|
|
|
|
|
|
|
|
1,525 |
|
|
|
(1,192 |
) |
|
|
(311 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
Dividends
|
|
|
(5,522 |
) |
|
|
(5,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing financing activities
|
|
|
98,419 |
|
|
|
|
|
|
|
70,026 |
|
|
|
1,366 |
|
|
|
(2,714 |
) |
|
|
(22 |
) |
|
|
(1,041 |
) |
|
|
30,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from discontinued operations
|
|
|
6,200 |
|
|
|
|
|
|
|
4,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
6,708 |
|
|
|
1,223 |
|
|
|
|
|
|
|
|
|
|
|
(1,084 |
) |
|
|
2 |
|
|
|
(473 |
) |
|
|
7,040 |
|
Cash and cash equivalents, beginning of period
|
|
|
9,424 |
|
|
|
4,832 |
|
|
|
|
|
|
|
|
|
|
|
1,127 |
|
|
|
394 |
|
|
|
2,540 |
|
|
|
531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
16,132 |
|
|
$ |
6,055 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43 |
|
|
$ |
396 |
|
|
$ |
2,067 |
|
|
$ |
7,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Guarantors of the 9.625% notes; non-guarantors of the
Convertible Notes |
21
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (Continued)
Consolidating Condensed Statement of Cash Flows
Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries* | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
UAG | |
|
UAG Mentor | |
|
UAG | |
|
Non- | |
|
|
Total | |
|
United Auto | |
|
Guarantor | |
|
HBL | |
|
Connecticut I, | |
|
Acquisition | |
|
Central NJ, | |
|
Guarantor | |
|
|
Company | |
|
Group, Inc. | |
|
Subsidiaries | |
|
LLC | |
|
LLC | |
|
LLC | |
|
LLC | |
|
Subsidiaries | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Net cash from continuing operating activities
|
|
$ |
79,861 |
|
|
$ |
(4,119 |
) |
|
$ |
85,264 |
|
|
$ |
1,121 |
|
|
$ |
407 |
|
|
$ |
(34 |
) |
|
$ |
583 |
|
|
$ |
(3,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment and improvements
|
|
|
(49,676 |
) |
|
|
(591 |
) |
|
|
(27,816 |
) |
|
|
(538 |
) |
|
|
(2,916 |
) |
|
|
(52 |
) |
|
|
(63 |
) |
|
|
(17,700 |
) |
Proceeds from sale leaseback transactions
|
|
|
40,708 |
|
|
|
|
|
|
|
19,064 |
|
|
|
|
|
|
|
1,876 |
|
|
|
|
|
|
|
|
|
|
|
19,768 |
|
Dealership acquisitions, net
|
|
|
(63,106 |
) |
|
|
|
|
|
|
(60,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing investing activities
|
|
|
(72,074 |
) |
|
|
(591 |
) |
|
|
(69,398 |
) |
|
|
(538 |
) |
|
|
(1,040 |
) |
|
|
(52 |
) |
|
|
(63 |
) |
|
|
(392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) of long-term debt
|
|
|
27,039 |
|
|
|
4,505 |
|
|
|
36,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
(13,907 |
) |
Floor plan notes payable non-trade
|
|
|
(14,525 |
) |
|
|
|
|
|
|
(29,983 |
) |
|
|
(374 |
) |
|
|
619 |
|
|
|
|
|
|
|
183 |
|
|
|
15,030 |
|
Proceeds from issuance of common stock, net
|
|
|
571 |
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from (to) parent
|
|
|
|
|
|
|
|
|
|
|
511 |
|
|
|
(209 |
) |
|
|
(263 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
Dividends
|
|
|
(5,076 |
) |
|
|
(5,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing financing activities
|
|
|
8,009 |
|
|
|
|
|
|
|
6,860 |
|
|
|
(583 |
) |
|
|
356 |
|
|
|
(39 |
) |
|
|
292 |
|
|
|
1,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from discontinued operations
|
|
|
(15,146 |
) |
|
|
|
|
|
|
(25,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
650 |
|
|
|
(4,710 |
) |
|
|
(2,311 |
) |
|
|
|
|
|
|
(277 |
) |
|
|
(125 |
) |
|
|
812 |
|
|
|
7,261 |
|
Cash and cash equivalents, beginning of period
|
|
|
23,547 |
|
|
|
13,638 |
|
|
|
8,360 |
|
|
|
|
|
|
|
1,424 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
24,197 |
|
|
$ |
8,928 |
|
|
$ |
6,049 |
|
|
$ |
|
|
|
$ |
1,147 |
|
|
$ |
|
|
|
$ |
812 |
|
|
$ |
7,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Guarantors of the 9.625% notes; non-guarantors of the
Convertible Notes |
22
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
This Managements Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. Our actual
results may differ materially from those discussed in the
forward-looking statements as a result of various factors. See
Forward Looking Statements. This Managements
Discussion and Analysis of Financial Condition and Results of
Operations has been updated for the effects of the restatement
of our 2005 consolidated statement of cash flows to reflect the
repayment of floor plan obligations in connection with
acquisitions and dispositions as cash transactions, and also for
the effects of restating our financial statements for entities
which have been treated as discontinued operations through
March 31, 2006.
Overview
We are the second largest automotive retailer in the United
States as measured by total revenues. As of March 31, 2006,
we owned and operated 171 franchises in the United States and
123 franchises outside of the U.S., primarily in the United
Kingdom. We offer a full range of vehicle brands. In addition to
selling new and used vehicles, we generate higher-margin revenue
at each of our dealerships through maintenance and repair
services and the sale and placement of higher-margin products,
such as third party finance and insurance products, third-party
extended service contracts and replacement and aftermarket
automotive products.
New and used vehicle revenues include sales to retail customers
and to leasing companies providing consumer automobile leasing.
We generate finance and insurance revenues from sales of
third-party extended service contracts, sales of other
third-party insurance policies, fees for facilitating the sale
of third-party finance and lease contracts and the sale of
certain other products. Service and parts revenues include fees
paid for repair, maintenance and collision services, the sale of
replacement parts and the sale of aftermarket accessories.
We and Sirius Satellite Radio Inc. (Sirius) have
agreed to jointly promote Sirius Satellite Radio service.
Pursuant to the terms of our arrangement with Sirius, our
domestic dealerships endeavor to order a significant percentage
of eligible vehicles with a factory installed Sirius radio. We
and Sirius have also agreed to jointly market the Sirius service
under a best efforts arrangement through January 4, 2009.
Our costs relating to such marketing initiatives are expensed as
incurred. As compensation for our efforts, we received warrants
to purchase ten million shares of Sirius common stock at
$2.392 per share in 2004 that are earned ratably on an
annual basis through January 2009. Two million of these warrants
were earned in each of 2004 and 2005 and vested in the first
quarter of 2005 and 2006, respectively. We exercised the
warrants and sold the underlying stock we received upon vesting.
The earning of these warrants may be accelerated based on us
attaining specified subscription targets. We measure the fair
value of the warrants earned ratably on the date they are earned
as there are no significant disincentives for non-performance.
Since we can reasonably estimate the number of warrants that
will be earned pursuant to the ratable schedule, the estimated
fair value (based on current fair value) of these warrants is
being recognized ratably during each annual period.
We also have received twelve million additional warrants to
purchase Sirius common stock at $2.392 per share which are
earned upon our sale of certain units pertaining to specified
brands through December 31, 2007. We earned 522,400 of
these warrants during the year ended December 31, 2005 and
332,500 of these warrants during the first quarter of 2006. We
exercised the warrants we earned in 2005 and sold the underlying
stock we received upon vesting. Since we cannot reasonably
estimate the number of warrants that will be earned subject to
the sale of certain units pertaining to specified brands, the
fair value of these warrants is being recognized when they are
earned.
The value of Sirius stock has been and is expected to be subject
to significant fluctuations, which may result in variability in
the amount we earn under this arrangement. The warrants may be
cancelled if certain performance targets are not met or upon the
termination of our arrangement in January 2009. We may not be
able to achieve any of the performance targets outlined in the
warrants.
Our gross profit tends to vary with the mix of revenues we
derive from the sale of new vehicles, used vehicles, finance and
insurance products, and service and parts. Our gross profit
generally varies across product
23
lines, with vehicle sales usually resulting in lower gross
profit margins and our other revenues resulting in higher gross
profit margins. Factors such as seasonality, weather,
cyclicality and manufacturers advertising and incentives
may impact the mix of our revenues, and therefore influence our
gross profit margin.
Our selling expenses consist of advertising and compensation for
sales personnel, including commissions and related bonuses.
General and administrative expenses include compensation for
administration, finance, legal and general management personnel,
rent, insurance, utilities and other outside services. A
significant portion of our selling expenses are variable, and a
significant portion of our general and administrative expenses
are subject to our control, allowing us to adjust them over time
to reflect economic trends.
Floor plan interest expense relates to obligations incurred in
connection with the acquisition of new and used vehicle
inventories. Other interest expense consists of interest charges
on all of our interest-bearing debt, other than interest
relating to floor plan financing.
We have acquired a number of dealerships each year since our
inception. Our financial statements include the results of
operations of the acquired dealerships from the date of
acquisition. We have also disposed of certain dealerships which
have been treated as discontinued operations in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment of Long-Lived Assets.
The future success of our business will likely be dependent on,
among other things, our ability to consummate and integrate
acquisitions, our ability to increase sales of higher margin
products, especially service and parts services, and our ability
to realize returns on our significant capital investment in new
and upgraded dealerships. See Forward-Looking
Statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America requires the application of accounting policies that
often involve making estimates and employing judgments. Such
judgments influence the assets, liabilities, revenues and
expenses recognized in our financial statements. Management, on
an ongoing basis, reviews these estimates and assumptions.
Management may determine that modifications in assumptions and
estimates are required, which may result in a material change in
our results of operations or financial position.
The following are the accounting policies applied in the
preparation of our financial statements that management believes
are most dependent upon the use of estimates and assumptions.
|
|
|
Vehicle, Parts and Service Sales |
We record revenue when vehicles are delivered and title has
passed to the customer, when vehicle service or repair work is
performed and when parts are delivered to our customers. Sales
promotions that we offer to customers are accounted for as a
reduction of sales at the time of sale. Rebates and other
incentives offered directly to us by manufacturers are
recognized as earned.
|
|
|
Finance and Insurance Sales |
We arrange financing for customers through various financial
institutions and receive a commission from the lender equal to
either the difference between the interest rates charged to
customers and the interest rates set by the financing
institution or a flat fee. We also receive commissions for
facilitating the sale of various third-party insurance products
to customers, including credit and life insurance policies and
extended service contracts. These commissions are recorded as
revenue at the time the customer enters into the contract. In
the case of finance contracts, a customer may prepay or fail to
pay their contract, thereby terminating the contract. Customers
may also terminate extended service contracts and other
insurance products, which are fully paid at purchase, and become
eligible for refunds of unused premiums. In these circumstances,
a portion of the commissions we receive may be charged back to
us based on the terms of the contracts. The revenue we record
relating to commissions is net of an estimate of the amount of
chargebacks we will be required to pay.
24
Such estimate of chargeback exposure is based on our historical
experience with similar contracts, including the impact of
refinance and default rates on retail finance contracts and
cancellation rates on extended service contracts and other
insurance products.
|
|
|
Intangible Assets and Impairment Testing |
Our principal intangible assets relate to our franchise
agreements with vehicle manufacturers, which represent the
estimated value of franchises acquired in business combinations,
and goodwill, which represents the excess of cost over the fair
value of tangible and identified intangible assets acquired in
connection with business combinations. Intangible assets other
than goodwill are required to be amortized over their estimated
useful lives. We believe the franchise values of our dealerships
have an indefinite useful life based on the following facts:
|
|
|
|
|
Automotive retailing is a mature industry and is based on
franchise agreements with the vehicle manufacturers; |
|
|
|
There are no known changes or events that would alter the
automotive retailing franchise environment; |
|
|
|
Certain franchise agreement terms are indefinite; |
|
|
|
Franchise agreements that have limited terms have historically
been renewed without substantial cost; and |
|
|
|
Our history shows that manufacturers have not terminated
franchise agreements. |
Intangible assets are reviewed for impairment on at least an
annual basis. Franchise value impairment is assessed through a
comparison of the net book values of our franchises with their
estimated fair values. An indicator of impairment exists if the
carrying value of a franchise exceeds its estimated fair value
and an impairment loss may be recognized. We also evaluate the
remaining useful lives of our franchises in connection with the
annual impairment testing to determine whether events and
circumstances continue to support indefinite useful lives.
Goodwill impairment is assessed at the reporting unit level. An
indicator of impairment exists if the carrying amount of the
goodwill attributable to a reporting unit is determined to
exceed its estimated fair value and an impairment loss may be
recognized. The fair value of the goodwill attributable to the
reporting unit is determined using a discounted cash flow
approach, which includes assumptions regarding revenue and
profitability growth, residual values and our cost of capital.
If future events and circumstances cause significant changes in
the underlying assumptions and result in a reduction of our
estimates of fair value, we may incur an impairment charge.
Investments include marketable securities and investments in
businesses accounted for under the equity method. Marketable
securities include investments in debt and equity securities.
Marketable securities held by us are typically classified as
available for sale and are stated at fair value on our balance
sheet with unrealized gains and losses included in other
comprehensive income (loss), a separate component of
stockholders equity. Declines in investment values that
are deemed to be other than temporary would be an indicator of
impairment and may result in an impairment charge reducing the
investments carrying value to fair value. A majority of
our investments are in joint venture relationships that are more
fully described in Joint Venture Relationships
below. Such joint venture relationships are accounted for under
the equity method, pursuant to which we record our proportionate
share of the joint ventures income each period.
We retain risk relating to certain of our general liability
insurance, workers compensation insurance and employee
medical benefits in the United States. As a result, we are
likely to be responsible for a majority of the claims and losses
incurred under these programs. The amount of risk we retain
varies by program, and, for
25
certain exposures, we have pre-determined maximum exposure
limits for certain insurance periods. The majority of losses, if
any, above the pre-determined exposure limits are paid by
third-party insurance carriers. Our estimate of future losses is
prepared by management using our historical loss experience and
industry-based development factors.
Tax regulations may require items to be included in our tax
return at different times than the items are reflected in our
financial statements. Some of these differences are permanent,
such as expenses that are not deductible on our tax return, and
some are timing differences, such as the timing of depreciation
expense. Timing differences create deferred tax assets and
liabilities. Deferred tax assets generally represent items that
can be used as a tax deduction or credit in our tax return in
future years which we have already recorded in our financial
statements. Deferred tax liabilities generally represent
deductions taken on our tax return that have not yet been
recognized as expense in our financial statements. We establish
valuation allowances for our deferred tax assets if the amount
of expected future taxable income is not likely to allow for the
use of the deduction or credit.
New Accounting Pronouncements
SFAS No. 151, Inventory Costs requires
abnormal amounts of inventory costs related to idle facility,
freight, handling and wasted materials to be recognized as
current period expenses. SFAS 151 was effective for us on
January 1, 2006. This pronouncement did not have a material
effect on consolidated operating results, financial position or
cash flows.
SFAS No. 154, Accounting Changes and Error
Corrections A Replacement of Accounting Principles
Board (APB) Opinion No. 20 and
SFAS No. 3 requires all direct financial
statement effects caused by a voluntary change in accounting
principle to be applied retrospectively to prior period
financial statements as if the new principle had always been
applied, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change
in principle. APB Opinion No. 20 and SFAS No. 3
previously required that a voluntary change in accounting
principle be recognized as a cumulative effect in the period of
change. SFAS No. 154 was effective for us on
January 1, 2006.
Financial Accounting Standards Board (FASB) Staff
Position FAS 13-1,
Accounting for Rental Costs Incurred During a Construction
Period (FSP
FAS 13-1)
requires companies to expense real estate rental costs under
operating leases during periods of construction and was
effective for us on January 1, 2006. FSP
FAS 13-1 does not
require retroactive application. This pronouncement did not have
a material effect on consolidated operating results, financial
position or cash flows.
FASB Interpretation (FIN) No. 47,
Accounting for Conditional Asset Retirement
Obligations an Interpretation of FASB Statement
No. 143 clarifies the timing of liability recognition
for legal obligations associated with an asset retirement when
the timing and (or) method of settling obligations are
conditional on a future event that may or may not be within the
control of the entity. FIN No. 47 was effective on
December 31, 2005. The adoption of FIN No. 47 did
not have a material effect on consolidated operating results,
financial position or cash flows.
Results of Operations
The following tables present comparative financial data relating
to our operating performance in the aggregate and on a
same store basis. Dealership results are only
included in same store comparisons when we have consolidated the
acquired entity during the entirety of both periods being
compared. As an example, if
26
a dealership was acquired on January 15, 2004, the results
of the acquired entity would be included in same store
comparisons beginning with 2006 versus 2005.
|
|
|
Three Months Ended March 31, 2006 Compared to Three
Months Ended March 31, 2005 (dollars in millions, except
per unit amounts) |
Total Retail Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. 2005 | |
|
|
|
|
|
|
| |
|
|
2006 | |
|
2005 | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Total retail unit sales
|
|
|
65,799 |
|
|
|
61,426 |
|
|
|
4,373 |
|
|
|
7.1 |
% |
Total same store retail unit sales
|
|
|
60,683 |
|
|
|
60,475 |
|
|
|
208 |
|
|
|
0.3 |
% |
Total retail sales revenue
|
|
$ |
2,451.3 |
|
|
$ |
2,204.1 |
|
|
$ |
247.2 |
|
|
|
11.2 |
% |
Total same store retail sales revenue
|
|
$ |
2,269.2 |
|
|
$ |
2,178.7 |
|
|
$ |
90.5 |
|
|
|
4.2 |
% |
Total retail gross profit
|
|
$ |
413.6 |
|
|
$ |
365.5 |
|
|
$ |
48.1 |
|
|
|
13.2 |
% |
Total same store retail gross profit
|
|
$ |
382.8 |
|
|
$ |
361.3 |
|
|
$ |
21.5 |
|
|
|
5.9 |
% |
Total retail gross margin
|
|
|
16.9 |
% |
|
|
16.6 |
% |
|
|
0.3 |
% |
|
|
1.8 |
% |
Total same store retail gross margin
|
|
|
16.9 |
% |
|
|
16.6 |
% |
|
|
0.3 |
% |
|
|
1.8 |
% |
Retail data includes retail new vehicle, retail used vehicle,
finance and insurance and service and parts transactions. Retail
unit sales of vehicles increased by 4,373 units, or 7.1%,
from 2005 to 2006. The increase is due to a 4,165 unit
increase from net dealership acquisitions during the period,
coupled with a 208 unit, or 0.3%, increase in same store
retail unit sales. The increase in same store retail unit sales
in 2006 is due primarily to an increase in retail unit sales of
our premium brands, offset by a decrease in retail unit sales of
our volume foreign and domestic brands.
Retail sales revenue increased $247.2 million, or 11.2%,
from 2005 to 2006. The increase is due to a $156.7 million
increase from net dealership acquisitions during the period,
coupled with a $90.5 million, or 4.2%, increase in same
store revenues. The same store revenue increase is due to
(1) the 0.3% increase in retail unit sales which increased
revenue by $7.3 million, (2) a $744, or 2.3%, increase
in average new vehicle revenue per unit, which increased revenue
by $30.2 million, (3) a $1,460, or 5.6%, increase in
average used vehicle revenue per unit, which increased revenue
by $29.0 million, (4) a $41, or 4.6%, increase in
average finance and insurance revenue per unit, which increased
revenue by $2.5 million , and (5) a
$21.5 million, or 8.2%, increase in service and parts
revenues.
Retail gross profit increased $48.1 million, or 13.2%, from
2005 to 2006. The increase is due to a $26.6 million
increase from net dealership acquisitions during the period
coupled with a $21.5 million, or 5.9%, increase in same
store retail gross profit. The same store retail gross profit
increase is due to (1) the 0.3% increase in retail unit
sales which increased retail gross profit by $0.8 million,
(2) a $45, or 1.5%, increase in average gross profit per
new vehicle retailed, which increased retail gross profit by
$1.8 million, (3) a $99, or 4.2%, increase in average
gross profit per used vehicle retailed, which increased retail
gross profit by $2.0 million, (4) a $41, or 4.6%,
increase in average finance and insurance revenue per unit which
increased retail gross profit by $2.5 million, and
(5) a $14.4 million, or 10.1%, increase in service and
parts gross profit.
27
New Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. 2005 | |
|
|
|
|
|
|
| |
|
|
2006 | |
|
2005 | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
New retail unit sales
|
|
|
44,378 |
|
|
|
41,169 |
|
|
|
3,209 |
|
|
|
7.8 |
% |
Same store new retail unit sales
|
|
|
40,848 |
|
|
|
40,635 |
|
|
|
213 |
|
|
|
0.5 |
% |
New retail sales revenue
|
|
$ |
1,494.6 |
|
|
$ |
1,357.5 |
|
|
$ |
137.1 |
|
|
|
10.1 |
% |
Same store new retail sales revenue
|
|
$ |
1,380.7 |
|
|
$ |
1,343.3 |
|
|
$ |
37.4 |
|
|
|
2.8 |
% |
New retail sales revenue per unit
|
|
$ |
33,680 |
|
|
$ |
32,973 |
|
|
$ |
707 |
|
|
|
2.1 |
% |
Same store new retail sales revenue per unit
|
|
$ |
33,801 |
|
|
$ |
33,057 |
|
|
$ |
744 |
|
|
|
2.3 |
% |
Gross profit new
|
|
$ |
130.8 |
|
|
$ |
119.4 |
|
|
$ |
11.4 |
|
|
|
9.5 |
% |
Same store gross profit new
|
|
$ |
120.6 |
|
|
$ |
118.2 |
|
|
$ |
2.4 |
|
|
|
2.0 |
% |
Average gross profit per new vehicle retailed
|
|
$ |
2,947 |
|
|
$ |
2,901 |
|
|
$ |
46 |
|
|
|
1.6 |
% |
Same store average gross profit per new vehicle retailed
|
|
$ |
2,953 |
|
|
$ |
2,908 |
|
|
$ |
45 |
|
|
|
1.5 |
% |
Gross margin % new
|
|
|
8.7 |
% |
|
|
8.8 |
% |
|
|
(0.1 |
)% |
|
|
(1.1 |
%) |
Same store gross margin % new
|
|
|
8.7 |
% |
|
|
8.8 |
% |
|
|
(0.1 |
)% |
|
|
(1.1 |
%) |
Retail unit sales of new vehicles increased 3,209 units, or
7.8%, from 2005 to 2006. The increase is due to a
2,996 unit increase from net dealership acquisitions during
the period, coupled with a 213 unit, or 0.5%, increase in
same store retail unit sales. The increase in same store retail
unit sales in 2006 is due primarily to an increase in retail
unit sales of our premium brands, offset by a decrease in retail
unit sales of our volume foreign and domestic brands.
New vehicle retail sales revenue increased $137.1 million,
or 10.1%, from 2005 to 2006. The increase is due to a
$99.7 million increase from net dealership acquisitions
during the period coupled with a $37.4 million, or 2.8%,
increase in same store revenues. The same store revenue increase
is due to the 0.5% increase in retail unit sales, which
increased revenue by $7.2 million, coupled with a $744, or
2.3%, increase in comparative average selling prices per unit,
which increased revenue by $30.2 million.
Retail gross profit from new vehicle sales increased
$11.4 million, or 9.5%, from 2005 to 2006. The increase is
due to a $9.0 million increase from net dealership
acquisitions during the period, coupled with a
$2.4 million, or 2.0%, increase in same store gross profit.
The same store increase is due to the 0.5% increase in new
retail unit sales, which increased gross profit by
$0.6 million, coupled with a $45, or 1.5%, increase in
average gross profit per new vehicle retailed, which increased
gross profit by $1.8 million.
28
Used Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. 2005 | |
|
|
|
|
|
|
| |
|
|
2006 | |
|
2005 | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Used retail unit sales
|
|
|
21,421 |
|
|
|
20,257 |
|
|
|
1,164 |
|
|
|
5.7 |
% |
Same store used retail unit sales
|
|
|
19,835 |
|
|
|
19,840 |
|
|
|
(5 |
) |
|
|
0.0 |
% |
Used retail sales revenue
|
|
$ |
587.9 |
|
|
$ |
526.6 |
|
|
$ |
61.3 |
|
|
|
11.6 |
% |
Same store used retail sales revenue
|
|
$ |
547.4 |
|
|
$ |
518.6 |
|
|
$ |
28.8 |
|
|
|
5.6 |
% |
Used retail sales revenue per unit
|
|
$ |
27,445 |
|
|
$ |
25,995 |
|
|
$ |
1,450 |
|
|
|
5.6 |
% |
Same store used retail sales revenue per unit
|
|
$ |
27,598 |
|
|
$ |
26,138 |
|
|
$ |
1,460 |
|
|
|
5.6 |
% |
Gross profit used
|
|
$ |
53.2 |
|
|
$ |
48.1 |
|
|
$ |
5.1 |
|
|
|
10.6 |
% |
Same store gross profit used
|
|
$ |
49.2 |
|
|
$ |
47.3 |
|
|
$ |
1.9 |
|
|
|
4.0 |
% |
Average gross profit per used vehicle retailed
|
|
$ |
2,482 |
|
|
$ |
2,373 |
|
|
$ |
109 |
|
|
|
4.6 |
% |
Same store average gross profit per used vehicle retailed
|
|
$ |
2,481 |
|
|
$ |
2,382 |
|
|
$ |
99 |
|
|
|
4.2 |
% |
Gross margin % used
|
|
|
9.0 |
% |
|
|
9.1 |
% |
|
|
(0.1 |
)% |
|
|
(1.1 |
%) |
Same store gross margin % used
|
|
|
9.0 |
% |
|
|
9.1 |
% |
|
|
(0.1 |
)% |
|
|
(1.1 |
%) |
Retail unit sales of used vehicles increased 1,164 units,
or 5.7%, from 2005 to 2006. The increase is due primarily to a
1,169 unit increase from net dealership acquisitions during
the period. Same store retail unit sales were consistent from
2005 to 2006 but included an increase in retail unit sales of
our premium brands, offset by a decrease in retail unit sales of
our volume foreign and domestic brands.
Used vehicle retail sales revenue increased $61.3 million,
or 11.6%, from 2005 to 2006. The increase is due to a
$32.5 million increase from net dealership acquisitions
during the period, coupled with a $28.8 million, or 5.6%,
increase in same store revenues. The same store revenue increase
is due primarily to a $1,460, or 5.6%, increase in comparative
average selling prices per vehicle which increased revenue by
$29.0 million, offset by the decrease in retail unit sales,
which decreased revenue by $0.2 million.
Retail gross profit from used vehicle sales increased
$5.1 million, or 10.6%, from 2005 to 2006. The increase is
due to a $3.2 million increase from net dealership
acquisitions during the period, coupled with a
$1.9 million, or 4.0%, increase in same store gross profit.
The increase in same store gross profit is due primarily to a
$99, or 4.2%, increase in average gross profit per used vehicle
retailed.
Finance and Insurance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. 2005 | |
|
|
|
|
|
|
| |
|
|
2006 | |
|
2005 | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Finance and insurance revenue
|
|
$ |
59.8 |
|
|
$ |
54.1 |
|
|
$ |
5.7 |
|
|
|
10.5 |
% |
Same store finance and insurance revenue
|
|
$ |
56.2 |
|
|
$ |
53.6 |
|
|
$ |
2.6 |
|
|
|
5.0 |
% |
Finance and insurance revenue per unit
|
|
$ |
909 |
|
|
$ |
882 |
|
|
$ |
27 |
|
|
|
3.1 |
% |
Same store finance and insurance revenue per unit
|
|
$ |
927 |
|
|
$ |
886 |
|
|
$ |
41 |
|
|
|
4.6 |
% |
Finance and insurance revenue increased $5.7 million, or
10.5%, from 2005 to 2006. The increase is due to a
$3.1 million increase from net dealership acquisitions
during the period, coupled with a $2.6 million, or 5.0%,
increase in same store revenues. The same store revenue increase
is due to a $41, or 4.6%, increase in
29
comparative average finance and insurance revenue per unit,
which increased revenue by $2.5 million, coupled with the
0.3% increase in retail unit sales, which increased revenue by
$0.1 million.
Service and Parts Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. 2005 | |
|
|
|
|
|
|
| |
|
|
2006 | |
|
2005 | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Service and parts revenue
|
|
$ |
308.9 |
|
|
$ |
265.9 |
|
|
$ |
43.0 |
|
|
|
16.2 |
% |
Same store service and parts revenue
|
|
$ |
284.8 |
|
|
$ |
263.3 |
|
|
$ |
21.5 |
|
|
|
8.2 |
% |
Gross profit
|
|
$ |
169.8 |
|
|
$ |
143.9 |
|
|
$ |
25.9 |
|
|
|
18.0 |
% |
Same store gross profit
|
|
$ |
156.7 |
|
|
$ |
142.3 |
|
|
$ |
14.4 |
|
|
|
10.1 |
% |
Gross margin
|
|
|
55.0 |
% |
|
|
54.1 |
% |
|
|
0.9 |
% |
|
|
1.7 |
% |
Same store gross margin
|
|
|
55.0 |
% |
|
|
54.1 |
% |
|
|
0.9 |
% |
|
|
1.7 |
% |
Service and parts revenue increased $43.0 million, or
16.2%, from 2005 to 2006. The increase is due to a
$21.5 million increase from net dealership acquisitions
during the period coupled with a $21.5 million, or 8.2%,
increase in same store revenues. We believe that our service and
parts business is being positively impacted by the growth in
total retail unit sales at our dealerships in recent years,
enhancements of maintenance programs and certified pre-owned
programs offered by certain manufacturers, and capacity
increases in our service and parts operations resulting from our
facility improvement and expansion programs.
Service and parts gross profit increased $25.9 million, or
18.0%, from 2005 to 2006. The increase is due to an
$11.5 million increase from net dealership acquisitions
during the period coupled with a $14.4 million, or 10.1%,
increase in same store gross profit. The same store gross profit
increase is due to the $21.5 million, or 8.2%, increase in
same store revenues, which increased gross profit by
$11.8 million, and a 90 basis point increase in gross
margin, which increased gross profit by $2.6 million.
Selling, General and Administrative
Selling, general and administrative expenses
SG&A increased $41.8 million, or 14.2%,
from $294.8 million to $336.6 million. The aggregate
increase is primarily due to a $21.2 million increase from
net dealership acquisitions during the period, coupled with a
$20.6 million, or 7.1%, increase in same store SG&A.
The increase in same store SG&A is due in large part to a
net increase in variable selling expenses, including increases
in variable compensation as a result of the 5.9% increase in
same store retail gross profit over the prior year, coupled with
increased rent and other costs relating to our facility
improvement and expansion programs. SG&A expenses increased
as a percentage of total revenue from 12.3% to 12.6% and
increased as a percentage of gross profit from 80.5% to 80.9%.
Depreciation and Amortization
Depreciation and amortization increased $1.0 million, or
11.0%, from $9.6 million to $10.6 million. The
increase is due to a $0.3 million increase from net
dealership acquisitions during the period coupled with a
$0.7 million, or 7.3% increase in same store depreciation
and amortization. The same store increase is due in large part
to our facility improvement and expansion program.
Floor Plan Interest Expense
Floor plan interest expense increased $2.6 million, or
21.2%, from $12.4 million to $15.0 million. The
increase is due to a $0.8 million increase from net
dealership acquisitions during the period, coupled with a
$1.8 million, or 15.5%, increase in same store floor plan
interest expense. The same store increase is due primarily to a
net increase in our weighted average borrowing rate during 2006
compared to 2005.
30
Other Interest Expense
Other interest expense increased $0.6 million, or 5.2%,
from $11.5 million to $12.1 million. The increase is
due primarily to an increase in our outstanding acquisition
indebtedness in 2006 versus 2005, offset by a decrease in our
weighted average borrowing rate during 2006 versus 2005, as a
result of the issuance of $375.0 million of
3.5% Convertible Senior Subordinated Notes on
January 31, 2006.
Income Taxes
Income taxes increased $1.2 million, or 8.7%, from
$14.0 million to $15.2 million. The increase from 2005
to 2006 is due primarily to our increase in pre-tax income
versus the prior year, offset in part by a reduction in our
overall effective income tax rate.
Liquidity and Capital Resources
Our cash requirements are primarily for working capital,
inventory financing, the acquisition of new dealerships, the
improvement and expansion of existing facilities, the
construction of new facilities and dividends. Historically,
these cash requirements have been met through cash flow from
operations, borrowings under our credit agreements and floor
plan arrangements, the issuance of debt securities,
sale-leaseback transactions or the issuance of equity
securities. As of March 31, 2006, we had working capital of
$194.6 million, including $16.1 million of cash
available to fund our operations and capital commitments. In
addition, we had $578.5 million and £55.0 million
($95.5 million) available for borrowing under our
U.S. credit agreement and our U.K. credit agreement,
respectively, each of which are discussed below.
We paid dividends of eleven cents per share on March 1,
2005, June 1, 2005 and August 1, 2005 and twelve cents
per share on December 1, 2005 and March 1, 2006. We
declared a dividend equivalent to fourteen cents per share
payable on June 1, 2006 to shareholders of record on
May 11, 2006. Future quarterly or other cash dividends will
depend upon our earnings, capital requirements, financial
condition, restrictions on any then existing indebtedness and
other factors considered relevant by our Board of Directors.
We have grown primarily through the acquisition of automotive
dealerships. We believe that cash flow from operations and our
existing capital resources, including the liquidity provided by
our credit agreements and floor plan financing arrangements,
will be sufficient to fund our operations and commitments for at
least the next twelve months. To the extent we pursue additional
significant acquisitions, we may need to raise additional
capital either through the public or private issuance of equity
or debt securities or through additional bank borrowings. We may
not have sufficient availability under our credit agreements to
finance significant additional acquisitions. In certain
circumstances, a public equity offering could require the prior
approval of certain automobile manufacturers. In connection with
any potential significant acquisitions, we may be unable to
access the capital markets or increase our borrowing
capabilities on terms acceptable to us, if at all.
We finance substantially all of our new and a portion of our
used vehicle inventories under revolving floor plan arrangements
with various lenders. In the U.S., the floor plan arrangements
are due on demand; however, we are generally not required to
make loan principal repayments prior to the sale of the vehicles
financed. We typically make monthly interest payments on the
amount financed. In the U.K., substantially all of our floor
plan arrangements are payable on demand or have an original
maturity of 90 days or less and we are generally required
to repay floor plan advances at the earlier of the sale of the
vehicles financed or the stated maturity. The floor plan
agreements grant a security interest in substantially all of the
assets of our dealership subsidiaries. Interest rates under the
floor plan arrangements are variable and increase or decrease
based on changes in the prime rate or defined LIBOR. We receive
non-refundable credits from certain of our vehicle
manufacturers, which are treated as a reduction of cost of goods
sold as vehicles are sold.
31
Our credit agreement with DaimlerChrysler Services Americas LLC
and Toyota Motor Credit Corporation, as amended, provides for up
to $600.0 million in revolving loans for working capital,
acquisitions, capital expenditures, investments and for other
general corporate purposes, and for an additional
$50.0 million of availability for letters of credit,
through September 30, 2008. The revolving loans bear
interest between defined LIBOR plus 2.50% and defined LIBOR plus
3.50%.
The U.S. credit agreement is fully and unconditionally
guaranteed on a joint and several basis by our domestic
subsidiaries and contains a number of significant covenants
that, among other things, restrict our ability to dispose of
assets, incur additional indebtedness, repay other indebtedness,
create liens on assets, make investments or acquisitions and
engage in mergers or consolidations. We are also required to
comply with specified financial and other tests and ratios, each
as defined in the U.S. credit agreement, including: a ratio
of current assets to current liabilities, a fixed charge
coverage ratio, a ratio of debt to stockholders equity, a
ratio of debt to earnings before income taxes, depreciation and
amortization, or EBITDA, a ratio of domestic debt to domestic
EBITDA, and a measurement of stockholders equity. A breach
of these requirements would give rise to certain remedies under
the agreement, the most severe of which is the termination of
the agreement and acceleration of the amounts owed. We are in
compliance with all covenants under the U.S. credit
agreement, and we believe we will remain in compliance with such
covenants for the foreseeable future. In making such
determination, we have considered our current margin of
compliance with the covenants and expected future results of
operations, working capital requirements, acquisitions, capital
expenditures and investments in the U.S. See Forward
Looking Statements.
The U.S. credit agreement also contains typical events of
default, including change of control, non-payment of obligations
and cross-defaults to our other material indebtedness.
Substantially all of our domestic assets not pledged as security
under floor plan arrangements are subject to security interests
granted to lenders under the U.S. credit agreement. As of
March 31, 2006, outstanding borrowings and letters of
credit under the U.S. credit agreement amounted to
$8.0 million and $12.6 million, respectively.
Our subsidiaries in the U.K., referred to as our U.K.
Subsidiaries, are party to a credit agreement with the Royal
Bank of Scotland, as amended, which provides for up to
£55.0 million in revolving loans to be used for
acquisitions, working capital, and general corporate purposes
through March 31, 2008. Revolving loans under the U.K.
credit agreement have an original maturity of 90 days or
less and bear interest between defined LIBOR plus 0.85% and
defined LIBOR plus 1.25%. The U.K. credit agreement also
provides for an additional seasonally adjusted overdraft line of
credit up to a maximum of £15.0 million.
The U.K. credit agreement is fully and unconditionally
guaranteed on a joint and several basis by our U.K.
Subsidiaries, and contains a number of significant covenants
that, among other things, restrict the ability of our U.K.
Subsidiaries to pay dividends, dispose of assets, incur
additional indebtedness, repay other indebtedness, create liens
on assets, make investments or acquisitions and engage in
mergers or consolidations. In addition, our U.K. Subsidiaries
are required to comply with specified ratios and tests, each as
defined in the U.K. credit agreement, including: a measurement
of net worth, a debt to capital ratio, an EBITDA to interest
expense ratio, a measurement of maximum capital expenditures, a
debt to EBITDA ratio, and a fixed charge coverage ratio. A
breach of these requirements would give rise to certain remedies
under the agreement, the most severe of which is the termination
of the agreement and acceleration of the amounts owed. We are in
compliance with all covenants under the U.K. credit agreement,
and we believe that we will remain in compliance with such
covenants for the foreseeable future. In making such
determination, we have considered the current margin of
compliance with the covenants and the expected future results of
operations, working capital requirements, acquisitions, capital
expenditures and investments in the U.K.
The U.K. credit agreement also contains typical events of
default, including change of control and non-payment of
obligations. Substantially all of our U.K. Subsidiaries
assets not pledged as security under floor plan arrangements are
subject to security interests granted to lenders under the U.K.
credit agreement. The U.K. credit agreement also has
cross-default provisions that trigger a default in the event of
an uncured default
32
under other material indebtedness of our U.K. Subsidiaries. As
of March 31, 2006, there were no outstanding borrowings
under the U.K. credit agreement.
|
|
|
Senior Subordinated Notes |
We have outstanding $300.0 million aggregate principal
amount of 9.625% senior subordinated notes due 2012,
referred to as the 9.625% Notes. The 9.625% Notes are
unsecured senior subordinated notes and are subordinate to all
existing and future senior debt, including debt under our credit
agreements and obligations under our floor plan arrangements.
The 9.625% Notes are guaranteed by substantially all
domestic subsidiaries on a senior subordinated basis. We can
redeem all or some of the 9.625% Notes at our option
beginning in 2007 at specified redemption prices. Upon a change
of control, each holder of 9.625% Notes will be able to
require us to repurchase all or some of the 9.625% Notes at
a redemption price of 101% of their principal amount. The
9.625% Notes also contain customary negative covenants and
events of default. We are in compliance with all negative
covenants and there are no events of default.
|
|
|
Senior Subordinated Convertible Notes |
On January 31, 2006, we issued $375.0 million of
3.50% senior subordinated convertible notes due 2026,
referred to as the Convertible Notes in a private offering,
referred to as the Offering, to qualified institutional buyers
under Rule 144A of the Securities Act of 1933. Interest is
payable semiannually on April 1 and October 1 of each
year, beginning on October 1, 2006. The Convertible Notes
mature on April 1, 2026, unless earlier converted, redeemed
or purchased by us. The Convertible Notes are our unsecured
senior subordinated obligations and are guaranteed on an
unsecured senior subordinated basis by our wholly owned domestic
subsidiaries. The Convertible Notes also contain customary
negative covenants and events of default. We are in compliance
with all negative covenants and there are no events of default.
Holders may convert based on a conversion rate of
21.1026 shares of our common stock per $1,000 principal
amount of the Convertible Notes (which is equal to an initial
conversion price of approximately $47.39 per share),
subject to adjustment, only under the following circumstances:
(1) if the closing price of our common stock reaches, or
the trading price of the Convertible Notes falls below, specific
thresholds, (2) if the Convertible Notes are called for
redemption, (3) if specified distributions to holders of
our common stock are made or specified corporate transactions
occur, (4) if a fundamental change occurs, or
(5) during the ten trading days prior to, but excluding,
the maturity date. Upon conversion of the Convertible Notes, in
lieu of shares of our common stock, for each $1,000 principal
amount of the Convertible Notes, a holder will receive an amount
in cash equal to the lesser of (i) $1,000 or (ii) the
conversion value, determined in the manner set forth in the
Indenture, of the number of shares of our common stock equal to
the conversion rate. If the conversion value exceeds $1,000, we
will also deliver, at our election, cash or common stock or a
combination of cash and common stock with respect to the
remaining value deliverable upon conversion. If a holder elects
to convert its Convertible Notes in connection with certain
events that constitute a change of control on or before
April 6, 2011, we will pay, to the extent described in the
related indenture, a make-whole premium by increasing the
conversion rate applicable to such Convertible Notes.
In addition, we will pay contingent interest in cash with
respect to any six-month period from April 1 to
September 30 and from October 1 to March 31,
commencing with the six-month period beginning on April 1,
2011, if the average trading price of a Convertible Note for the
five trading days ending on the third trading day immediately
preceding the first day of the relevant six-month period equals
120% or more of the principal amount of the Convertible Note. On
or after April 6, 2011, we may redeem the Convertible
Notes, in whole at any time or in part from time to time, for
cash at a redemption price of 100% of the principal amount of
the Convertible Notes to be redeemed, plus any accrued and
unpaid interest to the applicable redemption date. Holders of
the Convertible Notes may require us to purchase all or a
portion of their Convertible Notes for cash on each of
April 1, 2011, April 1, 2016 and April 1, 2021 at
a purchase price equal to 100% of the principal amount of the
Convertible Notes to be purchased, plus accrued and unpaid
interest, if any, to, the applicable purchase date. In addition,
if we experience certain fundamental change events specified in
the related indenture, holders of the Convertible Notes will
have the option to require us to purchase for cash all or a
portion of their Convertible Notes, subject to specified
exceptions, at a price equal to 100% of the
33
principal amount of the Convertible Notes, plus accrued and
unpaid interest, if any, to the fundamental change purchase date.
We agreed to file a shelf registration statement to register
resales of the Convertible Notes and the shares of common stock
issuable upon conversion of the Convertible Notes with the
Securities and Exchange Commission within 120 days after
the date of original issuance of the Convertible Notes. We will
use commercially reasonable efforts to (i) cause such shelf
registration statement to become effective within 210 days
after the original issuance of the Convertible Notes and
(ii) to keep the shelf registration statement effective
until the earlier of (1) two years from the date the shelf
registration statement is declared effective by the SEC,
(2) the sale pursuant to the shelf registration statement
of the Convertible Notes and all of the shares of common stock
issuable upon conversion of the Convertible Notes, and
(3) the date when the holders, other than the holders that
are our affiliates, of the Convertible Notes and the
common stock issuable upon conversion of the Convertible Notes
are able to sell or transfer all such securities immediately
without restriction pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act. If we fail to
comply with our obligations to register the Convertible Notes
and the common stock issuable upon conversion of the Convertible
Notes, the registration statement does not become effective
within the specified time period, or the shelf registration
statement ceases to be effective or fails to be usable for
certain periods of time, in each case subject to certain
exceptions provided in the registration rights agreement, we
will be required to pay additional interest, subject to some
limitations, to the holders of the Convertible Notes.
In connection with the Offering we repurchased
500,000 shares of our outstanding common stock on
January 26, 2006 for $18.96 million, or
$37.91 per share.
We are party to an interest rate swap agreement through January
2008 pursuant to which a notional $200.0 million of our
U.S. floating rate debt was exchanged for fixed rate debt.
The swap was designated as a cash flow hedge of future interest
payments of LIBOR based U.S. floor plan borrowings. As of
March 31, 2006, we expect approximately $0.6 million
associated with the swap to be recognized as a reduction of
interest expense over the next twelve months.
|
|
|
Other Financing Arrangements |
We have in the past and expect in the future to enter into
significant sale-leaseback transactions to finance certain
property acquisitions and capital expenditures, pursuant to
which we sell property and/or leasehold improvements to a
third-party and agree to lease those assets back for a certain
period of time. Such sales generate proceeds which vary from
period to period.
|
|
|
Off-Balance Sheet Arrangements |
We are not party to any off-balance sheet arrangements.
Cash Flows
We restated our 2005 consolidated condensed statement of cash
flows to reflect the repayment of floor plan obligations in
connection with acquisitions and dispositions as cash
transactions to comply with guidance under
SFAS No. 95, Statement of Cash Flows. More
specifically, with respect to acquisitions, we restated our
consolidated statements of cash flows to reflect the repayment
of seller floor plan notes payable obligations by our floor plan
lender as additional cost of dealership acquisitions with
corresponding borrowings of floor plan notes payable-non-trade.
Similarly, with respect to dispositions, we restated our
consolidated statements of cash flows to reflect the repayment
of our floor plan notes payable by the purchasers floor
plan lender as additional transaction proceeds with
corresponding repayments of floor plan notes payable trade or
non-trade
34
as appropriate. Previously, all such activity was treated as a
non-cash acquisition or disposition of inventory and floor plan
notes payable. A summary of the significant effects of the
restatement is as follows:
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
|
| |
Net cash from continuing operating activities as previously
reported
|
|
$ |
47,305 |
|
Discontinued operations
|
|
|
465 |
|
Recognition of floorplan balances as cash transactions
|
|
|
32,091 |
|
|
|
|
|
Reported net cash from continuing operating activities
|
|
$ |
79,861 |
|
|
|
|
|
Net cash from continuing investing activities as previously
reported
|
|
$ |
(39,367 |
) |
Discontinued operations
|
|
|
(616 |
) |
Recognition of floorplan balances as cash transactions
|
|
|
(32,091 |
) |
|
|
|
|
Reported net cash from continuing investing activities
|
|
$ |
(72,074 |
) |
|
|
|
|
Net cash from continuing financing activities as previously
reported
|
|
$ |
7,438 |
|
Discontinued operations
|
|
|
571 |
|
Recognition of floorplan balances as cash transactions
|
|
|
|
|
|
|
|
|
Reported net cash from continuing financing activities
|
|
$ |
8,009 |
|
|
|
|
|
Cash and cash equivalents increased by $6.7 million and
$0.7 million during the three months ended March 31,
2006 and 2005, respectively. The major components of these
changes are discussed below.
|
|
|
Cash Flows from Continuing Operating Activities |
Cash provided by continuing operating activities was
$113.3 million and $79.9 million during the three
months ended March 31, 2006 and 2005, respectively. Cash
flows from operating activities include net income adjusted for
non-cash items and the effects of changes in working capital.
We finance substantially all of our new and a portion of our
used vehicle inventories under revolving floor plan arrangements
with various lenders. We report all cash flows arising in
connection with floor plan arrangements with the manufacturer of
a particular new vehicle as an operating activity and all cash
flows arising in connection with floor plan arrangements with a
party other than the manufacturer of a particular new vehicle
and all floor plan notes payable relating to pre-owned vehicles
as a financing activity.
We believe that changes in aggregate floor plan liabilities are
linked to changes in vehicle inventory and, therefore, are an
integral part of understanding changes in our working capital
and operating cash flow. Consequently, we have provided below a
reconciliation of cash flow from operating activities as
reported in our condensed consolidated statement of cash flows
as if all changes in vehicle floor plan were classified as an
operating activity:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Net cash from operating activities as reported
|
|
$ |
113,283 |
|
|
$ |
79,861 |
|
Floor plan notes payable non-trade as reported
|
|
|
20,511 |
|
|
|
(14,525 |
) |
|
|
|
|
|
|
|
Net cash from operating activities including all floor plan
notes payable
|
|
$ |
133,794 |
|
|
$ |
65,336 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Continuing Investing Activities |
Cash used in continuing investing activities was
$211.0 million and $72.1 million during the three
months ended March 31, 2006 and 2005, respectively. Cash
flows from investing activities consist primarily of cash used
for capital expenditures, proceeds from sale-leaseback
transactions and net expenditures for dealership
35
acquisitions. Capital expenditures were $42.9 million and
$49.7 million during the three months ended March 31,
2006 and 2005, respectively. Capital expenditures relate
primarily to improvements to our existing dealership facilities
and the construction of new facilities. Proceeds from
sale-leaseback transactions were $19.7 million and
$40.7 million during the three months ended March 31,
2006 and 2005, respectively. Cash used in business acquisitions,
net of cash acquired, was $188.0 million and
$63.1 million during the three months ended March 31,
2006 and 2005, respectively, and included cash used to repay
sellers floorplan liabilities in such business acquisitions of
$78.3 million and $32.1 million during the three
months ended March 31, 2006 and 2005, respectively.
|
|
|
Cash Flows from Continuing Financing Activities |
Cash provided by continuing financing activities was
$98.4 million and $8.0 million during the three months
ended March 31, 2006 and 2005, respectively. Cash flows
from financing activities include net borrowings or repayments
of long-term debt, net borrowings or repayments of floor plan
notes payable non-trade, payments of deferred financing costs,
proceeds from the issuance of common stock, including proceeds
from the exercise of stock options, repurchases of common stock
and dividends. We had net borrowings of long-term debt of
$108.2 million and $27.0 million during the three
months ended March 31, 2006 and 2005, respectively. We had
net borrowings of floor plan notes payable non-trade of
$20.5 million during the three months ended March 31,
2006 and net repayments of floor plan notes payable non-trade of
$14.5 million during the three months ended March 31,
2005. During the three months ended March 31, 2006, we paid
$11.5 million of deferred financing costs related to our
issuance of the Convertible Notes. During the three months ended
March 31, 2006 and 2005 we received proceeds of
$5.7 million and $0.6 million, respectively from the
issuance of common stock. In connection with the issuance of the
Convertible Notes, we repurchased 500,000 shares of our
outstanding common stock on January 26, 2006 for
$19.0 million. During the three months ended March 31,
2006 and 2005, we paid $5.5 million and $5.1 million,
respectively, of cash dividends to our stockholders.
We have entered into an agreement with a third-party to jointly
acquire and manage dealerships in Indiana, Illinois, Ohio, North
Carolina and South Carolina. With respect to any joint venture
relationship established pursuant to this agreement, we are
required to repurchase our partners interest at the end of
the five-year period following the date of formation of the
joint venture relationship. Pursuant to this arrangement, we
entered into a joint venture agreement with respect to our Honda
of Mentor dealership in Ohio. We are required to repurchase our
partners interest in this joint venture in July 2008. We
expect this payment to be approximately $2.7 million.
Related Party Transactions
Roger S. Penske, our Chairman of the Board and Chief Executive
Officer, is also Chairman of the Board and Chief Executive
Officer of Penske Corporation, and through entities affiliated
with Penske Corporation, our largest stockholder owning
approximately 41% of our outstanding common stock.
Mitsui & Co., Ltd. and Mitsui & Co. (USA),
Inc. (collectively, Mitsui) own approximately 15% of
our outstanding common stock. Mitsui, Penske Corporation and
certain other affiliates of Penske Corporation are parties to a
stockholders agreement pursuant to which the Penske affiliated
companies agreed to vote their shares for one director who is a
representative of Mitsui. In turn, Mitsui agreed to vote their
shares for up to fourteen directors voted for by the Penske
affiliated companies. This agreement terminates in March 2014,
upon the mutual consent of the parties or when either party no
longer owns any of our common stock.
|
|
|
Other Related Party Interests |
Roger S. Penske is also a managing member of Penske Capital
Partners and Transportation Resource Partners, each
organizations that undertake investments in
transportation-related industries. Richard J. Peters,
36
one of our directors, is a director of Penske Corporation and a
managing director of Transportation Resource Partners. Eustace
W. Mita and Lucio A. Noto (two of our directors) are investors
in Transportation Resource Partners. One of our directors,
Hiroshi Ishikawa, serves as our Executive Vice
President International Business Development and
serves in a similar capacity for Penske Corporation. Robert H.
Kurnick, Jr., our Vice Chairman, is also the President and
a director of Penske Corporation and Paul F. Walters, our
Executive Vice President Human Resources serves in a
similar human resources capacity for Penske Corporation.
We are currently a tenant under a number of non-cancelable lease
agreements with Automotive Group Realty, LLC and its
subsidiaries (together AGR), which are subsidiaries
of Penske Corporation. From time to time, we may sell AGR real
property and improvements that are subsequently leased by AGR to
us. The sale of each parcel of property is valued at a price
that is independently confirmed by a third party appraiser.
During the three months ended March 31, 2006, we sold AGR
real property and improvements for $0.5 million, which were
subsequently leased by AGR to us. There were no gains or losses
associated with these sales.
We sometimes pay to and/or receive fees from Penske Corporation
and its affiliates for services rendered in the normal course of
business, or to reimburse payments made to third parties on each
others behalf. These transactions are reviewed
periodically by our Audit Committee and reflect the
providers cost or an amount mutually agreed upon by both
parties, which we believe represent terms at least as favorable
as those that could be obtained from an unaffiliated third party
negotiated on an arms length basis.
We have entered into joint ventures with certain related parties
as more fully discussed below.
Joint Venture Relationships
From time to time, we enter into joint venture relationships in
the ordinary course of business, pursuant to which we acquire
dealerships together with other investors. We may provide these
dealerships with working capital and other debt financing at
costs that are based on our incremental borrowing rate. As of
March 31, 2006, our joint venture relationships were as
follows:
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|
Ownership | |
Location |
|
Dealerships | |
|
Interest | |
|
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| |
|
| |
Fairfield, Connecticut
|
|
|
Mercedes-Benz, Audi, Porsche |
|
|
|
92.90%(A |
)(C) |
Edison, New Jersey
|
|
|
Ferrari |
|
|
|
70.00%(C |
) |
Tysons Corner, Virginia
|
|
|
Mercedes-Benz, Maybach, |
|
|
|
90.00%(B |
)(C) |
|
|
|
Audi, Porsche, Aston Martin |
|
|
|
|
|
Las Vegas, Nevada
|
|
|
Ferrari, Maserati |
|
|
|
50.00%(D |
) |
Mentor, Ohio
|
|
|
Honda |
|
|
|
75.00%(C |
) |
Munich, Germany
|
|
|
BMW, MINI |
|
|
|
50.00%(D |
) |
Frankfurt, Germany
|
|
|
Lexus, Toyota |
|
|
|
50.00%(D |
) |
Achen, Germany
|
|
|
Audi, Volkswagen, Lexus, Toyota |
|
|
|
50.00%(D |
) |
Mexico
|
|
|
Toyota |
|
|
|
48.70%(D |
) |
Mexico
|
|
|
Toyota |
|
|
|
45.00%(D |
) |
|
|
|
(A) |
|
An entity controlled by one of our directors, Lucio A. Noto (the
Investor), owns a 7.8% interest in this joint
venture which entitles the Investor to 20% of the operating
profits of the joint venture. In addition, the Investor has an
option to purchase up to a 20% interest in the joint venture for
specified amounts |
|
(B) |
|
Roger S. Penske, Jr. owns a 10% interest in this joint
venture |
|
(C) |
|
Entity is consolidated in our financial statements |
|
(D) |
|
Entity is accounted for under the equity method of accounting |
37
Cyclicality
Unit sales of motor vehicles, particularly new vehicles,
historically have been cyclical, fluctuating with general
economic cycles. During economic downturns, the automotive
retailing industry tends to experience periods of decline and
recession similar to those experienced by the general economy.
We believe that the industry is influenced by general economic
conditions and particularly by consumer confidence, the level of
personal discretionary spending, fuel prices, interest rates and
credit availability.
Seasonality
Our business is modestly seasonal overall. Our
U.S. operations generally experience higher volumes of
vehicle sales in the second and third quarters of each year due
in part to consumer buying trends and the introduction of new
vehicle models. Also, demand for cars and light trucks is
generally lower during the winter months than in other seasons,
particularly in regions of the United States where dealerships
may be subject to severe winters. The greatest
U.S. seasonality exists at the dealerships we operate in
northeastern and upper mid-western states, for which the second
and third quarters are the strongest with respect to
vehicle-related sales. Our U.K. operations generally experience
higher volumes of vehicle sales in the first and third quarters
of each year, due primarily to vehicle registration practices in
the U.K. The service and parts business at all dealerships
experiences relatively modest seasonal fluctuations.
Effects of Inflation
We believe that inflation rates over the last few years have not
had a significant impact on revenues or profitability. We do not
expect inflation to have any near-term material effects on the
sale of our products and services, however, we cannot be sure
there will be no such effect in the future.
We finance substantially all of our inventory through various
revolving floor plan arrangements with interest rates that vary
based on the prime rate or LIBOR. Such rates have historically
increased during periods of increasing inflation.
Forward Looking Statements
This quarterly report on
Form 10-Q contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements generally can be identified
by the use of terms such as may, will,
should, expect, anticipate,
believe, intend, plan,
estimate, predict,
potential, forecast,
continue or variations of such terms, or the use of
these terms in the negative. Forward-looking statements include
statements regarding our current plans, forecasts, estimates,
beliefs or expectations, including, without limitation,
statements with respect to:
|
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|
|
our future financial performance; |
|
|
|
future acquisitions; |
|
|
|
future capital expenditures; |
|
|
|
our ability to obtain cost savings and synergies; |
|
|
|
our ability to respond to economic cycles; |
|
|
|
trends in the automotive retail industry and in the general
economy in the various countries in which we operate dealerships; |
|
|
|
our ability to access the remaining availability under our
credit agreements; |
|
|
|
our liquidity; |
|
|
|
interest rates; |
38
|
|
|
|
|
trends affecting our future financial condition or results of
operations; and |
|
|
|
our business strategy. |
Forward-looking statements involve known and unknown risks and
uncertainties and are not assurances of future performance.
Actual results may differ materially from anticipated results
due to a variety of factors, including the factors identified in
our filings with the Securities and Exchange Commission.
Important factors that could cause actual results to differ
materially from our expectations include the following:
|
|
|
|
|
the ability of automobile manufacturers to exercise significant
control over our operations, since we depend on them in order to
operate our business; |
|
|
|
because we depend on the success and popularity of the brands we
sell, adverse conditions affecting one or more automobile
manufacturers may negatively impact our revenues and
profitability; |
|
|
|
we may not be able to satisfy our capital requirements for
making acquisitions, dealership renovation projects or financing
the purchase of our inventory; |
|
|
|
our failure to meet a manufacturers consumer satisfaction
requirements may adversely affect our ability to acquire new
dealerships, our ability to obtain incentive payments from
manufacturers and our profitability; |
|
|
|
automobile manufacturers may impose limits on our ability to
issue additional equity and on the ownership of our common stock
by third parties, which may hamper our ability to meet our
financing needs; |
|
|
|
our business and the automotive retail industry in general are
susceptible to adverse economic conditions, including changes in
interest rates, consumer confidence, fuel prices and credit
availability; |
|
|
|
substantial competition in automotive sales and services may
adversely affect our profitability; |
|
|
|
if we lose key personnel, especially our Chief Executive
Officer, or are unable to attract additional qualified
personnel, our business could be adversely affected; |
|
|
|
our quarterly operating results may fluctuate due to seasonality
in the automotive retail business and other factors; |
|
|
|
because most customers finance the cost of purchasing a vehicle,
increased interest rates may adversely affect our vehicle sales; |
|
|
|
our business may be adversely affected by import product
restrictions and foreign trade risks that may impair our ability
to sell foreign vehicles profitably; |
|
|
|
our automobile dealerships are subject to substantial regulation
which may adversely affect our profitability; |
|
|
|
if state dealer laws in the United States are repealed or
weakened, our automotive dealerships may be subject to increased
competition and may be more susceptible to termination,
non-renewal or renegotiation of their franchise agreements; |
|
|
|
our U.K. dealerships are not afforded the same legal franchise
protections as those in the U.S. so we could be subject to
addition competition from other local dealerships in the U.K.; |
|
|
|
our automotive dealerships are subject to environmental
regulations that may result in claims and liabilities; |
|
|
|
our dealership operations may be affected by severe weather or
other periodic business interruptions; |
|
|
|
our principal stockholders have substantial influence over us
and may make decisions with which other stockholders may
disagree; |
|
|
|
some of our directors and officers may have conflicts of
interest with respect to certain related party transactions and
other business interests; |
39
|
|
|
|
|
our level of indebtedness may limit our ability to obtain
financing for acquisitions and may require that a significant
portion of our cash flow be used for debt service; |
|
|
|
due to the nature of the automotive retailing business, we may
be involved in legal proceedings that could have a material
adverse effect on our business; |
|
|
|
our operations outside of the United States subject our
profitability to fluctuations relating to changes in foreign
currency valuations; and |
|
|
|
we are a holding company and as a result rely on the receipt of
payments from our subsidiaries in order to meet our cash needs
and service our indebtedness. Furthermore, |
|
|
|
the price of our common stock is subject to substantial
fluctuation, which may be unrelated to our performance; and |
|
|
|
shares eligible for future sale may cause the market price of
our common stock to drop significantly, even if our business is
doing well. |
We urge you to carefully consider these risk factors in
evaluating all forward-looking statements regarding our
business. Readers of this report are cautioned not to place
undue reliance on the forward-looking statements contained in
this report. All forward-looking statements attributable to us
are qualified in their entirety by this cautionary statement.
Except to the extent required by the federal securities laws and
Securities and Exchange Commission rules and regulations, we
have no intention or obligation to update publicly any
forward-looking statements whether as a result of new
information, future events or otherwise.
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market
Risk |
Interest Rates. We are exposed to market risk from
changes in the interest rates on a significant portion of our
outstanding indebtedness. Outstanding balances under our U.S.
and U.K. credit agreements bear interest at a variable rate
based on a margin over defined LIBOR. Based on the amount
outstanding as of March 31, 2006, a 100 basis point
change in interest rates would result in an approximate
$0.1 million change to our annual interest expense.
Similarly, amounts outstanding under floor plan financing
arrangements bear interest at a variable rate based on a margin
over defined LIBOR or prime rates. We continually evaluate our
exposure to interest rate fluctuations and follow established
policies and procedures to implement strategies designed to
manage the amount of variable rate indebtedness outstanding at
any point in time in an effort to mitigate the effect of
interest rate fluctuations on our earnings and cash flows. We
are currently party to a swap agreement pursuant to which a
notional $200.0 million of our floating rate floor plan
debt was exchanged for fixed rate debt through January 2008.
Based on an average of the aggregate amounts outstanding under
our floor plan financing arrangements subject to variable
interest payments during the three months ended March 31,
2006, a 100 basis point change in interest rates would
result in an approximate $10.2 million change to our annual
interest expense.
Interest rate fluctuations affect the fair market value of our
swaps and fixed rate debt, including the 9.625% Notes and the
Convertible Notes and certain seller financed promissory notes,
but, with respect to such fixed rate debt instruments, do not
impact our earnings or cash flows.
Foreign Currency Exchange Rates. As of March 31,
2006, we have dealership operations in the U.K. and Germany. In
each of these markets, the local currency is the functional
currency. Due to the Companys intent to remain permanently
invested in these foreign markets, we do not hedge against
foreign currency fluctuations. Other than the U.K., the
Companys foreign operations are not significant. In the
event we change our intent with respect to the investment in any
of our international operations, we would expect to implement
strategies designed to manage those risks in an effort to
mitigate the effect of foreign currency fluctuations on our
earnings and cash flows. A ten percent change in average
exchange rates versus the U.S. Dollar would have resulted
in an approximate $84.7 million change to our revenues for
the three months ended March 31, 2006.
In common with other automotive retailers, we purchase certain
of our new vehicle and parts inventories from foreign
manufacturers. Although we purchase the majority of our
inventories in the local functional
40
currency, our business is subject to certain risks, including,
but not limited to, differing economic conditions, changes in
political climate, differing tax structures, other regulations
and restrictions and foreign exchange rate volatility which may
influence such manufacturers ability to provide their
products at competitive prices in the local jurisdictions. Our
future results could be materially and adversely impacted by
changes in these or other factors.
|
|
Item 4. |
Controls and Procedures |
Under the supervision and with the participation of our
management, including the principal executive and financial
officers, we conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e)
and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange
Act)), as of March 31, 2006. Our disclosure controls
and procedures are designed to ensure that information required
to be disclosed by us in the reports we file under the Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms, and
that such information is accumulated and communicated to
management, including our principal executive and financial
officers, to allow timely discussions regarding required
disclosure.
Based upon this evaluation, the Companys principal
executive and financial officers concluded that our disclosure
controls and procedures were effective as of March 31,
2006. In addition, we maintain internal controls designed to
provide us with the information required for accounting and
financial reporting purposes. There were no changes in our
internal control over financial reporting that occurred during
our first quarter of 2006 that materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
PART II OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings |
From time to time, we are involved in litigation relating to
claims arising in the normal course of business. Such claims may
relate to litigation with customers, employment related
lawsuits, class action lawsuits, purported class action lawsuits
and actions brought by governmental authorities. As of
March 31, 2006, we are not a party to any legal
proceedings, including class action lawsuits, that, individually
or in the aggregate, are reasonably expected to have a material
adverse effect on our results of operations, financial condition
or cash flows. However, the results of these matters cannot be
predicted with certainty, and an unfavorable resolution of one
or more of these matters could have a material adverse effect on
our results of operations, financial condition or cash flows.
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of
Proceeds |
Unregistered equity securities. On January 31, 2006,
we issued $375 million of 3.50% senior subordinated
convertible notes due 2026 in a private offering to qualified
institutional buyers under Rule 144A of the Securities Act
of 1933. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources for
further discussion of these securities.
Share Repurchase. On January 26, 2006, we
repurchased 500,000 shares of our outstanding common stock
for an aggregate amount of $19.0 million, or
$37.91 per share.
41
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of | |
|
|
|
|
|
|
|
|
Shares Purchased as | |
|
|
|
|
|
|
Average | |
|
Part of Publicly | |
|
Maximum Number of Shares | |
|
|
Total Number of | |
|
Price Paid | |
|
Announced Plans or | |
|
That May yet be Purchased | |
Period |
|
Shares Purchased | |
|
per Share | |
|
Programs | |
|
Under the Plans or Programs | |
|
|
| |
|
| |
|
| |
|
| |
January 1, 2006 March 31, 2006
|
|
|
500,000 |
(1) |
|
$ |
37.91 |
|
|
|
500,000 |
(2) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
500,000 |
|
|
$ |
37.91 |
|
|
|
500,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
These securities were purchased from the initial purchasers of
our 3.50% senior subordinated convertible notes due 2026. |
|
(2) |
We announced our intention to repurchase these shares on
January 23, 2006 in connection with the offering of our
3.50% senior subordinated convertible notes, which was
described in our
Form 8-K filed
February 2, 2006. |
|
|
|
|
|
|
3 |
.1 |
|
Amendment dated May 3, 2006 to the Companys
Certificate of Incorporation |
|
3 |
.2 |
|
Certificate of Incorporation dated May 3, 2006 (composite
copy) |
|
4 |
.1 |
|
First Amendment dated April 18, 2006 to the Second Amended
and Restated Credit Agreement dated September 8, 2004 by
and among, United Auto Group, Inc., DaimlerChrysler Financial
Services Americas LLC and Toyota Motor Credit Corporation
(incorporated by reference from exhibit 4.1 to our 8-K
filed April 18, 2006) |
|
4 |
.2 |
|
Amended and Restated Supplemental Indenture regarding
95/8
% Senior Subordinated Notes due 2012 dated as of
May 5, 2006, among us, as Issuer, and certain of our
domestic subsidiaries, as Guarantors, and J.P. Morgan Trust
Company, National Association, as Trustee |
|
4 |
.3 |
|
Supplemental Indenture regarding 3.50% Senior Subordinated
Convertible Notes due 2026 dated as of May 5, 2006, among
us, as Issuer, and certain of our domestic subsidiaries, as
Guarantors, and J.P. Morgan Trust Company, National
Association, as trustee |
|
4 |
.4 |
|
Second Amendment dated May 9, 2006 to the Second Amended
and Restated Credit Agreement dated September 8, 2004 by
and among United Auto Group, Inc., DaimlerChrysler Financial
Services Americas LLC and Toyota Motor Credit Corporation |
|
4 |
.5 |
|
Supplemental Agreement dated May 8, 2006 to the Credit
Agreement dated February 28, 2003 between Sytner Group
Limited and The Royal Bank of Scotland plc, as agent for
National Westminster Bank plc (incorporated by reference to
exhibit 4.1 to our Form 8-K filed May 8, 2006) |
|
31 |
|
|
Rule 13a-14(a)/15(d)-14(a) Certifications |
|
32 |
|
|
Section 1350 Certifications |
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
Roger S. Penske |
|
Chief Executive Officer |
Date: May 10, 2006
|
|
|
|
By: |
/s/ James R. Davidson |
|
|
|
|
|
James R. Davidson |
|
Executive Vice President Finance |
|
(Principal Financial Officer) |
Date: May 10, 2006
43
EXHIBIT INDEX
|
|
|
|
|
Exhibits |
|
|
Number: |
|
Description |
|
|
|
|
3 |
.1 |
|
Amendment dated May 3, 2006 to the Companys
Certificate of Incorporation |
|
3 |
.2 |
|
Certificate of Incorporation dated May 3, 2006 (composite
copy) |
|
4 |
.1 |
|
First Amendment dated April 18, 2006 to the Second Amended
and Restated Credit Agreement dated September 8, 2004 by
and among, United Auto Group, Inc., DaimlerChrysler Financial
Services Americas LLC and Toyota Motor Credit Corporation
(incorporated by reference from exhibit 4.1 to our 8-K
filed April 18, 2006) |
|
4 |
.2 |
|
Amended and Restated Supplemental Indenture regarding
95/8
% Senior Subordinated Notes due 2012 dated as of
May 5, 2006, among us, as Issuer, and certain of our
domestic subsidiaries, as Guarantors, and J.P. Morgan Trust
Company, National Association, as Trustee |
|
4 |
.3 |
|
Supplemental Indenture regarding 3.50% Senior Subordinated
Convertible Notes due 2026 dated as of May 5, 2006, among
us, as Issuer, and certain of our domestic subsidiaries, as
Guarantors, and J.P. Morgan Trust Company, National
Association, as trustee |
|
4 |
.4 |
|
Second Amendment dated May 9, 2006 to the Second Amended
and Restated Credit Agreement dated September 8, 2004 by
and among United Auto Group, Inc., DaimlerChrysler Financial
Services Americas LLC and Toyota Motor Credit Corporation |
|
4 |
.5 |
|
Supplemental Agreement dated May 8, 2006 to the Credit
Agreement dated February 28, 2003 between Sytner Group
Limited and The Royal Bank of Scotland PLC, as agent for
National Westminster Bank plc (incorporated by reference to
exhibit 4.1 to our Form 8-K filed May 8, 2006) |
|
31 |
|
|
Rule 13a-14(a)/15(d)-14(a) Certifications |
|
32 |
|
|
Section 1350 Certifications |