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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
/A
(Amendment No. 1)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2004
or
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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)
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Delaware
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22-3086739 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
2555 Telegraph Road
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48302-0954 |
Bloomfield Hills, Michigan
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(Zip Code) |
(Address of principal executive offices) |
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Registrants telephone number, including area code (248) 648-2500
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
Voting Common Stock, par value $0.0001 per share
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Name of each Exchange on which registered
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes
þ No o
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange
Act.
Yeso
No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes þ No 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
The aggregate market value of the voting common stock held by non-affiliates as of June 30,
2004 was $598,414,686.
As of March 1, 2005, there were 46,534,033 shares of voting common stock outstanding.
Documents Incorporated by Reference
Certain portions, as expressly described in this report, of the registrants proxy statement
for the 2005 Annual Meeting of the Stockholders to be held April 14, 2005 are incorporated by
reference into Part III, Items 10-14.
Explanatory
Note
We
are filing this Form 10-K/A to change the presentation of certain
floor plan notes payable information. We finance substantially all
of our new and a portion of our used vehicle inventories under
revolving floor plan notes payable with various lenders. Consistent
with industry practice, we previously reported all cash flows arising
in connection with changes in floor plan notes payable as an
operating activity. In the third quarter of 2005, we restated
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, and
have restated related cash flows as a financing activity to
comply with guidance under SFAS No. 95, Statement of Cash
Flows.
The
changes in presentation have no effect on net income, earnings per
share, stockholders equity or our conclusion that our
disclosure controls and procedures were effective as of December 31,
2004 however, because we are restating the financial statements
included in our Form 10-K, we are also restating our financial statements for
entities which became discontinued operations during the nine months
ended September 30, 2005. Such changes affect Items 1, 7, 9A and 15 in this Form 10-K/A. All other information in this
amendment is as of the date of the original filing and does not
reflect any subsequent information or events occurring after the
date of the original filing.
PART I
Item 1. Business
We are the second largest automotive retailer in the United States as measured by total
revenues and have the highest concentration of revenues from foreign and luxury brands among the
publicly-traded automotive retailers. As of March 1, 2005, we owned and operated 152 franchises in
the United States and 101 franchises internationally, primarily in the United Kingdom. We offer a
full range of vehicle brands, with 86% of our revenues in 2004 generated from the combined sales of
foreign and luxury brands such as Toyota, Honda, BMW, Lexus and Mercedes with luxury brands
representing 55% of our revenues. In addition to selling new and used vehicles, we offer a full
range of maintenance and repair services, and we facilitate the sale of third-party finance and
insurance products, third-party extended service contracts and replacement and aftermarket
automotive products.
We benefit from our diversified revenue stream, which we believe helps to mitigate the
historical cyclicality found in some other automotive sectors. Revenues from higher margin service
and parts sales are typically less cyclical than retail vehicle sales, and constitute the largest
part of our gross profit. The following graphic shows the percentage of our revenues by product
area along with their respective contribution to our overall gross profit:
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Revenue Mix |
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Gross Profit Mix |
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Business Strategy
Our strategy is to sell and service the finest automotive brands in premium facilities. We
believe offering our customers superior customer service in a premium location fosters a long-term
relationship, which helps generate repeat and referral business, particularly in our higher-margin
service and parts business. We believe our focus on developing a loyal customer base has helped to
increase our profitability and generate additional service and parts sales. In addition, our
national dealership base and international presence allows us to achieve cost savings and implement
best practices, while also providing access to a broad base of potential acquisitions.
Offer Outstanding Brands in World Class Facilities
We have the highest concentration of revenues from foreign and luxury brands among the
publicly-traded automotive retailers. We believe our brand mix will allow us to continue to improve
same-store sales and gross profits, as we believe luxury and foreign brands will continue to
increase market share.
The following chart demonstrates our total revenue by brand:
We sell and service these brands in our world-class facilities. We believe offering these
outstanding brands in world-class facilities drives repeat and referral business, particularly in
our higher margin service and parts operations. Where advantageous, we attempt to aggregate our
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dealerships in order to build a destination location for our customers, which we believe helps to
drive increased customer traffic to each of our brands at the location. This strategy also offers
the potential of reduced personnel expenses, consolidated advertising and administrative expenses
and the leveraging of additional operating expenses over a larger base of dealerships.
The following is a list of our larger dealership campuses:
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Location |
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Square Feet |
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Franchises |
North Scottsdale, Arizona
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450,000 |
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Acura, Audi, BMW, Jaguar, Land Rover, Lincoln Mercury, MINI, Porsche, Volkswagen,
Volvo |
Scottsdale, Arizona
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132,085 |
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Aston Martin, Audi, Bentley, Ferrari, Jaguar, Land Rover, Lexus, Maserati, Rolls-Royce |
San Diego, California
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300,000 |
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BMW, Lexus, Maybach, Mercedes-Benz, Scion, Toyota, |
Fayetteville, Arkansas
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122,000 |
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Acura, Chevrolet, Honda, HUMMER, Scion, Toyota |
Tysons Corner, Virginia
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191,000 |
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Audi, Aston Martin, Maybach, Mercedes-Benz, Porsche |
Inskip, Rhode Island*
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319,000 |
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Acura, Audi, Bentley, BMW, Infiniti, Lexus, Maserati, Mercedes-Benz, Porsche, Volvo |
Turnersville, New Jersey*
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210,000 |
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Acura, BMW, Chevrolet, Honda, Hyundai, Maserati, Nissan, Scion, Toyota |
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Currently in process of renovation |
Our Scottsdale 101 Auto Mall, the nations largest premium luxury automobile shopping
destination, features ten separate showrooms and franchises with over 450,000 square feet of
facilities. Typically, customers may choose from an inventory of over 1,500 new and used vehicles,
and have access to approximately 250 service bays with service capacity of approximately 1,000
vehicles per day. It also features an on/off road test course where customers may experience the
uniqueness of the brands offered. We will continue to evaluate other opportunities to aggregate our
facilities to reap the benefits of a destination location.
Expand Revenues at Existing Locations and Grow Higher Margin Businesses.
We aim to grow our business through increasing same-store sales at existing dealerships and by
acquiring dealerships with high growth automotive brands in highly concentrated or rapidly growing
demographic areas. We also focus particularly on developing our higher margin businesses: finance,
insurance and other products, service and parts sales and collision repair.
Same-Store Sales. We believe our emphasis on improving customer service and upgrading our
facilities will result in continued increases in same-store sales. We generally offer premium
showrooms and displays and have recently added service bays and modernized many of our facilities.
We believe these factors have helped to generate 2004 same-store retail revenue increases of 5.1%
for new vehicles, 4.0% for used vehicles, 8.2% for finance and insurance and 12.6% for service and
parts.
Targeted Acquisitions. As of December 31, 2004, approximately 93% of the U.S. automotive
retail market remained unconsolidated. We believe that attractive acquisition opportunities exist
both in the U.S. and abroad for well-capitalized dealership groups with experience in identifying,
acquiring and integrating dealerships. We seek to acquire dealerships with strategic geographic
locations and significant earnings growth potential. We focus both on larger dealership operations
that will benefit from our management assistance, manufacturer relations and scale of operations,
as well as individual dealerships that can be effectively integrated into our existing operations.
Finance, Insurance and Other Aftermarket Products. Each sale of a vehicle provides us the
opportunity to assist in financing the sale, sell the customer a third party extended service
contract or insurance product and sell other aftermarket products, such as cellular phones, alarms
and protective coatings. In order to improve our finance and insurance business, we are focusing on
enhancing and standardizing our salesperson training program and increasing our product offerings.
Service and Parts and Collision Repair. In 2004, we added numerous service bays across our
dealerships in an effort to expand this higher-margin segment of our business. Unlike independent
service shops, our dealerships perform manufacturer warranty work which, because it is paid for by
the manufacturer, is a more dependable source of repeat business. To increase this business, our
dealerships track maintenance records of customers and contact them regarding dealership promotions
and maintenance schedules. Warranty work accounts for approximately 25% of our service and parts
revenue, with the balance being customer-pay work. We believe that our brand-mix, superior customer
service and world-class facilities each contribute to the high level of customer-pay work.
We also own 40 collision repair centers. As each of these is operated as an integral part of
our dealership operations, the repair centers benefit from the dealerships repeat and referral
business.
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Offer Outstanding Customer Service.
Our ability to generate and maintain repeat and referral business depends on our ability to
deliver superior customer service. We believe that customer satisfaction contributes directly to
significant increases in same-store sales. By offering outstanding brands in world class
facilities, and through one-stop shopping convenience, competitive pricing and our knowledgeable
sales staff, we aim to establish lasting relationships with our customers, which enhances our
reputation in the community and creates the opportunity for significant repeat and referral
business.
The quality of customer service provided by our dealerships sales and service departments is
measured by customer satisfaction index (CSI) scores, which are derived from data accumulated by
manufacturers through individual customer surveys. We rely on this data to track the performance of
dealership operations and use it as a factor in determining the compensation of general managers
and sales and service personnel in our dealerships. The majority of our dealerships exceeded
manufacturer CSI metrics in 2004.
Maintain Diversified Revenue Stream and Variable Cost Structure.
We believe that our diversified revenue mix may mitigate the historical cyclicality of new
vehicle sales. In addition, our variable cost structure affords us flexibility in responding to
economic cycles. We believe that demand for our higher margin service and parts businesses is less
affected by economic cycles than demand for new vehicles, as consumers are likely to continue to
purchase used vehicles and service their vehicles in spite of difficult economic times. Our
dealership operations are also diversified both in terms of the brands of vehicles they offer and
geographic location, including internationally, as we operate 101 dealerships abroad, predominately
in the United Kingdom.
A significant percentage of our operating expenses are variable, such as sales compensation,
floor plan interest expense (inventory-secured financing) and advertising, which we can adjust over
time to reflect economic trends. Variable expenses like these can be more easily managed in
difficult economic times. Currently, gross profit generated from our service and parts business
absorbs a substantial portion of our total operating expenses, excluding salespersons compensation
and advertising.
Leverage Scale and Implement Best Practices.
As one of the nations largest automotive retailers, we aim to eliminate redundant operating
costs, such as marketing, supply and administrative costs, and take advantage of our purchasing
power. Our scale also assists in managing inventory across dealerships. In addition, through our
brand managers, who facilitate our relationship with each manufacturer, we leverage our industry
relations to foster communication and cooperation between like brand dealerships throughout our
organization.
Our senior management and dealership management meet regularly to review the operating
performance of our dealerships, examine industry trends and, where appropriate, agree on specific
operating improvements. Key financial information is discussed and compared to other dealerships
across all markets. This frequent interaction facilitates implementation of successful strategies
throughout the organization so that each of our dealerships can benefit from the successes of our
other dealerships and the knowledge and experience of our senior management.
Industry Overview
With revenues of approximately $1 trillion per year, the automotive retail industry is the
largest retail trade sector in the United States. The majority of automotive retailing sales were
generated by the approximately 22,000 U.S. new franchised dealerships, producing revenues of
approximately $700 billion. This accounted for over 25% of the total U.S. retail sales. The
industry is highly fragmented and largely privately held, with the publicly held automotive retail
groups accounting for approximately 7% of the total industry revenue.
Of the close to $700 billion in U.S. franchised dealer aggregate annual sales, new vehicle
sales represent approximately 60% and used vehicle sales represent approximately 28%. In addition
to new and used vehicles, dealerships offer a wide range of higher-margin products and services,
including service and repair work, replacement parts, third party extended service contracts,
financing and credit insurance, which represent approximately 12% of total industry revenues.
According to industry data, the number of U.S. franchised dealerships has declined from
approximately 24,000 dealerships in 1990 to approximately 22,000 dealerships today. Although
significant consolidation has already taken place, the industry today remains highly fragmented,
with approximately 93% of the U.S. industrys market share remaining in the hands of smaller
regional and independent players. We believe that further consolidation in the industry is likely
due to increased capital requirements of dealerships, the limited number of viable alternative exit
strategies for dealership owners and the desire of certain manufacturers to strengthen their brand
identity by consolidating their franchised dealerships.
According to industry data, the United Kingdom represents one of the largest vehicle markets
in Europe with approximately $125 billion in aggregate annual new vehicle, used vehicle and service
and parts sales.
There were approximately 30,000 companies selling new vehicles in the U.K in 1999, which has
decreased to approximately 25,000 companies in 2003.
New vehicle unit sales are cyclical and, historically, fluctuations are influenced by factors
such as interest rates, fuel prices, unemployment, inflation, weather, the level of personal
discretionary spending, credit availability and consumer confidence. However, from a profitability
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perspective, automotive retailers have historically been less vulnerable than automobile
manufacturers to declines in new vehicle sales. We believe this may be due to the retailers more
flexible expense structure (a significant portion of the automotive retail industrys costs are
variable, relating to sales personnel, advertising and inventory finance cost) and more diversified
revenue stream. In addition, automobile manufacturers may increase dealer incentives when sales are
slow in part to meet production quotas which further increases the volatility in profitability for
automobile manufacturers and decreases the volatility for automotive retailers.
Acquisitions
We have completed a number of dealership acquisitions since January 2002. Our financial
statements include the results of operations of the acquired dealerships from the date of
acquisition.
In March 2002, we acquired Sytner Group plc, one of the leading retailers of luxury vehicles
in the United Kingdom. At that time, Sytner Group operated 62 franchises. Since March 2002, Sytner
Group has acquired or been awarded 25 additional franchises and now operates 87 franchises. As of
March 1, 2005, Sytners franchises include: Alpina, Audi, Bentley, BMW, Chrysler, Ferrari, Jaguar,
Jeep, Land Rover, Lexus, Maserati, Mercedes-Benz, MINI, Porsche, Rolls Royce, Saab, smart, Toyota,
Volkswagen and Volvo. Revenues attributable to Sytner Group for the years ended December 31, 2004
and 2003 were $2.6 billion and $1.7 billion, respectively.
The following table sets forth information with respect to our current domestic dealerships
acquired or opened since January 2002 and our international dealerships acquired since our purchase
of Sytner Group in March 2002:
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Date Opened |
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Dealership |
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or Acquired |
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Location |
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Franchises |
BMW of Austin
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7/02
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Austin, TX
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BMW |
Goodson Dodge North
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7/02
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Spring, TX
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Dodge |
Honda Bloomfield
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8/02
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Bloomfield Hills, MI
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Honda |
Landers Hummer
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9/02
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Benton, AR
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Hummer |
Landers Hummer North
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9/02
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Fayetteville, AR
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Hummer |
Cerritos Hummer
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9/02
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Cerritos, CA
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Hummer |
MINI North Scottsdale
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11/02
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Phoenix, AZ
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MINI |
Audi North Scottsdale
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11/02
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Phoenix, AZ
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Audi |
Jaguar North Scottsdale
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11/02
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Phoenix, AZ
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Jaguar |
Lincoln-Mercury North
Scottsdale
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11/02
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Phoenix, AZ
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Lincoln, Mercury |
Volkswagen North
Scottsdale
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11/02
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Phoenix, AZ
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Volkswagen |
Lincoln-Mercury Volvo
of Tulsa
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12/02
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Tulsa, OK
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Lincoln, Mercury, Volvo |
Aston Martin Tysons
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3/03
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Vienna, VA
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Aston Martin |
Pioneer Ford West
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4/03
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Goodyear, AZ
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Ford |
Inskip Auto Center
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4/03
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Warwick, RI
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Acura, Audi, Bentley,
BMW, Infiniti, Lexus,
Mercedes-Benz, Porsche
and Volvo |
Goodson Chrysler North
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7/03
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Spring, TX
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Chrysler |
Goodson Jeep North
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7/03
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Spring, TX
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Jeep |
Maserati of Warwick
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12/03
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Warwick, RI
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Maserati |
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Penske Cadillac South Bay
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1/04
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Torrance, CA
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Cadillac |
Maserati of Turnersville
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1/04
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Turnersville, NJ
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Maserati |
Maserati of Tulsa
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2/04
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Tulsa, OK
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Maserati |
Penske Hummer South Bay
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4/04
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Torrance, CA
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Hummer |
Mercedes-Benz of Chandler
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7/04
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Chandler AZ
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Mercedes-Benz |
Ferrari Maserati of Central New Jersey
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7/04
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Edison, NJ
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Ferrari, Maserati |
Capitol Honda
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8/04
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San Jose, CA
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Honda |
Honda North
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8/04
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Clovis, CA
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Honda |
Marin Honda
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8/04
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Corte Madera, CA
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Honda |
Los Gatos Acura
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8/04
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Los Gatos, CA
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Acura |
Sunnyvale Acura
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8/04
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Sunnyvale, CA
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Acura |
Maserati of Cleveland
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8/04
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Bedford, OH
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Maserati |
Hyundai of Waterford
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11/04
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Waterford, MI
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Hyundai |
Honda Mall of Georgia
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1/05
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Buford, GA
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Honda |
International |
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Mercedes-Benz of Cheltenham and Gloucester
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7/02
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Gloucester, England |
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Mercedes-Benz of Swindon
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7/02
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Wiltshire, England
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Mercedes-Benz |
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Date Opened |
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Dealership |
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or Acquired |
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Location |
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Franchises |
Mercedes-Benz of Bath
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7/02
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Bath, England
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Mercedes-Benz |
Tollbar Twickenham
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9/02
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Middlesex, England
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Volvo |
smart of Milton Keynes
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2/03
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Milton Keynes, England
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smart |
Sytner Rolls Royce Motor Cars
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5/03
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Cheshire, England
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Rolls Royce |
Porsche Centre Silverstone
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5/03
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Northamptonshire,
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Porsche |
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England |
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Lexus Birmingham
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6/03
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West Midlands, England
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Lexus |
Toyota World Weston-Super-Mare
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7/03
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Somerset, England
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Toyota |
Toyota World Bristol North
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7/03
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Bristol, England
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Toyota |
Toyota World Bristol Central
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7/03
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Bristol, England
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Toyota |
Lexus Bristol
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7/03
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Bristol, England
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Lexus |
Guy Salmon Land Rover Stockport
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7/03
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Cheshire, England
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Land Rover |
Sytner Harold Wood
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8/03
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Essex, England
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BMW |
Sytner Chigwell
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8/03
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Essex, England
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BMW |
Bentley Birmingham
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9/03
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Birmingham, England
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Bentley |
Mercedes-Benz of Northampton
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10/03
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Northampton, England
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Mercedes-Benz |
Mercedes-Benz of Bedford
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10/03
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Bedfordshire, England
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Mercedes-Benz |
Bradford Audi
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10/03
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Yorkshire, England
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Audi |
Toyota World Newport
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11/03
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Newport, Wales
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Toyota |
Toyota World Cardiff
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11/03
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Cardiff, Wales
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Toyota |
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Toyota World Bridgend
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11/03
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Bridgend, Wales
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Toyota |
Lexus Cardiff
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11/03
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Cardiff, Wales
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Lexus |
Kings Cheltenham &
Gloucester
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5/04
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Gloucester,
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Chrysler Jeep |
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England |
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West London Audi
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7/04
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Middlesex, England
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Audi |
Reading Audi
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7/04
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Berkshire, England
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Audi |
Porsche Centre Glasgow
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7/04
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Strathclyde, Scotland
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Porsche |
Porsche Centre Edinburgh
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7/04
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Lothian, Scotland
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Porsche |
Mayfair Audi
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7/04
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London, England
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Audi |
Guildford Audi
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7/04
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Surrey, England
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Audi |
Graypaul Edinburgh
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7/04
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Lothian, Scotland
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Ferrari, Maserati |
Bentley Edinburgh
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7/04
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Lothian, Scotland
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Bentley |
Aston Green Audi
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7/04
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Berkshire, England
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Audi |
Tamsen GmbH (Bremen)
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7/04
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Bremen, Germany
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Ferrari, Maserati, Aston Martin, Rolls Royce and Bentley |
Tamsen GmbH (Hamburg)
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7/04
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Hamburg, Germany
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Ferrari, Maserati, Aston Martin, Rolls Royce and Bentley |
Toyota World Tamworth
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10/04
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Staffordshire, England
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Toyota |
Harrogate Audi
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10/04
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Harrogate, England
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Audi |
In January 2005, we purchased the remaining 50% interest of Tulsa Auto Collection, a group of
dealerships in Tulsa, Oklahoma owned indirectly by Ford Motor Company consisting of six franchises
representing the Ford, Jaguar, Lincoln and Mercury brands. Since January 2002, we also have
divested 38 franchises. We expect to continue to pursue acquisitions and related transactions in
the future, although there can be no assurance that we will succeed in this strategy.
Dealership Operations
Franchises. The following charts reflect our franchises by location and our dealership mix by
franchise:
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|
|
|
|
|
Franchise Locations |
|
|
|
|
|
Franchises by Brand |
|
|
|
|
|
Location |
|
Franchises |
|
Franchise |
|
U.S. |
|
Intl. |
|
Total |
Arizona
|
|
|
21 |
|
|
Daimler Chrysler
|
|
|
23 |
|
|
|
17 |
|
|
|
40 |
|
Arkansas
|
|
|
15 |
|
|
Toyota/Lexus
|
|
|
19 |
|
|
|
15 |
|
|
|
34 |
|
California
|
|
|
16 |
|
|
Ford/PAG
|
|
|
22 |
|
|
|
18 |
|
|
|
40 |
|
Connecticut
|
|
|
4 |
|
|
BMW/MINI
|
|
|
9 |
|
|
|
18 |
|
|
|
27 |
|
Florida
|
|
|
7 |
|
|
General Motors
|
|
|
23 |
|
|
|
1 |
|
|
|
24 |
|
Georgia
|
|
|
5 |
|
|
Honda/Acura
|
|
|
23 |
|
|
|
1 |
|
|
|
24 |
|
Indiana
|
|
|
2 |
|
|
Nissan/Infiniti
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
Michigan
|
|
|
7 |
|
|
Audi
|
|
|
5 |
|
|
|
10 |
|
|
|
15 |
|
Mississippi
|
|
|
2 |
|
|
Porsche
|
|
|
4 |
|
|
|
4 |
|
|
|
8 |
|
New Jersey
|
|
|
16 |
|
|
Others
|
|
|
14 |
|
|
|
17 |
|
|
|
31 |
|
New York
|
|
|
3 |
|
|
Total
|
|
|
152 |
|
|
|
101 |
|
|
|
253 |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise Locations |
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
Franchises |
|
|
|
|
|
|
|
|
North Carolina
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oklahoma
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Carolina
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tennessee
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Domestic
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Worldwide
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management. Each dealership or group of dealerships has independent operational and financial
management responsible for day-to-day operations. We believe experienced local managers are better
qualified to make day-to-day decisions concerning the successful operation of a dealership and can
be more responsive to our customers needs. We seek local dealership management that not only has
experience in the automotive industry, but also is familiar with the local dealerships market. Our
regional management oversees operations at the individual dealerships and supports the dealerships
operationally and administratively.
New
Vehicle Sales. In 2004, we sold 168,842 new vehicles which generated 59% of our revenue
and 34% of our gross profit. As of March 1, 2005, we sold over forty brands of domestic and import
family, sports and luxury cars, light trucks and sport utility vehicles through 253 franchises in
20 states, Puerto Rico, the U.K., Germany and Brazil. As of March 1, 2005, we sold the following
brands: Acura, Alpina, Aston Martin, Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge,
Ferrari, Ford, GMC Truck, Honda, Hummer, Hyundai, Infiniti, Jaguar, Jeep, Land Rover, Lexus,
Lincoln-Mercury, Lotus, Maybach, Mazda, Maserati, Mercedes Benz, MINI, Nissan, Pontiac, Porsche,
Rolls Royce, Bentley, SAAB, Scion, smart, Suzuki, Toyota, Volvo and Volkswagen.
Our customers finance their purchases of new (and used) vehicles through both traditional
financing sources as well as through consumer automobile leasing companies. Lease transactions are
typically provided to consumers by short term financing sources. Leases also give us the
opportunity to obtain repeat business from customers on a more regular basis than traditional
purchase transactions.
Our new vehicles are acquired by our dealerships directly from the manufacturer. We strive to
maintain exemplary relations with the automotive manufacturers, which is assisted by our long term
presence in the automotive retail market, the reputation of our management team, our dedication to
building and maintaining positive relationships with our manufacturers, and our consistent high
sales volume from our dealerships. Our dealerships finance the purchase of new vehicles from the
manufacturers through floor plan financing provided by various manufacturers captive finance
companies.
Used
Vehicle Sales. In 2004, we sold 82,836 used vehicles which generated 29% of our revenue
and 12% of our gross profit. We generally acquire used vehicles from auctions open only to
authorized new vehicle dealers, public auctions, trade-ins in connection with new purchases and
lease expirations or terminations. Leased vehicles returned to the finance sources at the end of
the lease provide us a market of low mileage, late model vehicles for our used vehicle sales
operations. We clean, repair and recondition, as necessary, generally at our own service
facilities, all used vehicles we acquire for resale. Used vehicles account for a significant
portion of the revenues at each of our dealerships.
We believe growth opportunities relating to used vehicle sales exist due to decreased customer
concerns regarding used vehicles as more well respected dealerships are engaging in the sale of
high-quality, low-mileage, late model used vehicles, coupled with the proliferation of manufacturer
certification processes for these vehicles. To improve customer confidence in our used vehicle
inventory, each of our dealerships participates in all available manufacturer certification
processes for used vehicles. If certification is obtained, the used vehicle owner is typically
provided benefits and warranties similar to those offered to new vehicle owners by the applicable
manufacturer. Since warranty work can only be performed at franchised dealerships, we believe we
may benefit from the opportunity to retain these customers as service and parts customers. In
addition, we offer for sale third-party extended service contracts on all of our used vehicles.
Some vehicles acquired through trade-ins or originally intended for sale in our used vehicle
operations are instead sold via auction. Through our scale in many markets, we have implemented
closed-bid auctions that allow us to bring a large number of vehicles from different franchises to
a central market for other dealers or wholesalers to purchase. We believe this strategy has
resulted in greater operating efficiency and helped to reduce costs associated with maintaining
optimal inventories.
Vehicle Finance, Extended Service and Insurance Sales. Finance and insurance sales represented
2% of our revenue and 16% of our gross profit in 2004. At our customers option, our dealerships
arrange third party financing for our customers vehicle purchases. As compensation we receive a
portion of the cost of financing paid by the customer for each financed sale; however, we generally
are limited in the amount of revenue per transaction we may receive from certain finance products
by these finance companies. While these services are generally non-
recourse to us, we are subject to chargebacks in certain circumstances such as default under a
financing arrangement or other circumstances.
8
We provide training to our finance and insurance
personnel to help assure compliance with internal policies and procedures, as well as applicable
state regulations. We also offer for sale other aftermarket products, such as Sirius Satellite
Radio®, cellular phones, alarms and protective coatings.
We also offer our customers various vehicle warranty and extended protection products,
including extended warranties, maintenance programs, guaranteed auto protection (known as GAP,
this protection covers the shortfall between a customers loan balance and insurance payoff in the
event of a casualty), lease wear and tear insurance and theft protection products at competitive
prices. The vehicle warranty and extended protection products that our stores currently offer to
customers are underwritten and administered by independent third parties, including the vehicle
manufacturers captive finance subsidiaries. We may also be subject to chargebacks in connection
with sale of certain of these products.
Service and Parts Sales. Service and parts sales represented 10% of our revenue and 38% of our
gross profit in 2004. We generate service and parts sales at each of our dealerships, primarily
relating to the vehicle models sold at that dealership. We perform both warranty and non-warranty
work. Our service and parts revenues have increased each year, in large part due to our increased
service capacity, coupled with the increasingly complex technology used in vehicles, which makes it
difficult for independent repair facilities to maintain and repair todays automobiles. As part of
our agreements with our manufacturers, we obtain all equipment required by the manufacturer and
needed to service and maintain each make of vehicle sold at any particular dealership.
A goal of each of our dealerships is to make each vehicle purchaser a customer of our service
and parts department. Our dealerships keep detailed records of our customers maintenance and
service history and many dealerships send reminders to customers when vehicles are due for periodic
maintenance or service. Many of our dealerships also have extended evening and weekend service
hours to add convenience for our customers. We also operate 40 collision repair centers, each of
which is operated as an integral part of our dealership operations.
Internet Presence. In order to attract customers and enhance our customer service, each of our
dealerships maintains its own website, and our corporate website, www.unitedauto.com, provides a
link to each of our dealership websites allowing consumers to source information and communicate
directly with our dealerships locally. During 2004, we established a relationship with Reynolds Web
Services, a division of The Reynolds & Reynolds Company, to provide website design, hosting, and
consulting services for the majority of the companys websites. Reynolds Web Services will assist
us in the area of on-line automotive merchandising. Each of our U.S. dealership websites are
presented in common formats (except where otherwise required by manufacturers) which helps to
minimize costs and provide a consistent image across dealerships. In addition, many automotive
manufacturers websites provide links to our dealerships websites.
According to industry analysts, the majority of car buyers nationwide will consult the
Internet for new and pre-owned automotive information. The Internet is generating better-informed
consumers and improving the efficiency of the sales process. Using our dealership websites,
consumers can electronically search our inventory for vehicles that meet their model and feature
requirements and price range. Our websites provide detailed information for the entire purchase
process, including detailed information including, photos, prices, promotions, specifications,
reviews, tools to schedule service appointments and financial applications. We believe these
features make it easier for consumers to meet all of their automotive research needs. Customers can
contact dedicated Internet sales consultants on line via www.unitedauto.com or the
dealership websites.
We have also partnered with CarsDirect.com, a leading online car buying service that provides
consumers with a full menu of research features. Consumers can also use CarsDirect.com to either
buy a vehicle online or be sent to a network of dealerships in their market, including most of our
dealerships. Research features include detailed safety ratings and reviews, financing, extended
warranties, insurance quotes, anti-theft products and trade-in appraisals.
9
The following is a list of all of our dealerships:
U.S. DEALERSHIPS
ARIZONA
Acura North Scottsdale
Jaguar/ Aston Martin North Scottsdale
Audi North Scottsdale
BMW North Scottsdale & MINI
Jaguar Scottsdale
Land Rover North Scottsdale
Land Rover Scottsdale
Lincoln Mercury North Scottsdale
Mercedes-Benz of Chandler
Pioneer Ford
Pioneer Ford West
Porsche North Scottsdale
Rolls-Royce Motorcars Scottsdale
Bentley Scottsdale
Scottsdale Audi
Scottsdale Ferrari Maserati
Scottsdale Lexus
Tempe Honda
Volkswagen North Scottsdale
Volvo North Scottsdale
ARKANSAS
Landers Acura North
Landers Buick Pontiac HUMMER GMC Truck
Landers Chevrolet
Landers Chevrolet HUMMER North
Landers Chrysler Jeep Dodge
Landers Ford Little Rock
Landers Ford North
Landers Honda North
Landers Toyota-Scion North
CALIFORNIA
BMW of San Diego
Capitol Honda
Cerritos Buick Pontiac HUMMER GMC
Honda North
Kearny Mesa Toyota-Scion
Lexus Kearny Mesa
Los Gatos Acura
Marin Honda
Mercedes-Benz of San Diego (& Maybach)
Penske Cadillac HUMMER South Bay
Sunnyvale Acura
CONNECTICUT
Audi of Fairfield
Fair Honda
Mercedes-Benz of Fairfield
Porsche of Fairfield
FLORIDA
Central Florida Toyota-Scion Citrus Motors (Chrysler, Dodge, Jeep)
Palm Beach Mazda
Palm Beach Toyota-Scion
Palm Nissan
GEORGIA
Atlanta ToyotaScion
Honda Mall of Georgia
Peachtree Nissan
United BMW of Gwinnett
United BMW of Roswell
United Nissan
INDIANA
Penske Chevrolet
Penske Honda
MICHIGAN
Honda Bloomfield
Hyundai of Waterford
Rinke Cadillac
Rinke Pontiac GMC
Rinke ToyotaScion
Toyota-Scion of Bloomfield
MISSISSIPPI
Landers Dodge
Landers Nissan
NEW JERSEY
Acura of Turnersville
BMW of Turnersville
Chevrolet of Turnersville
DiFeo BMW
DiFeo Lexus
Ferrari Maserati of Central New Jersey
Gateway Toyota-Scion
Honda of Turnersville
Hudson Hyundai
Hudson Nissan
Hudson Toyota-Scion
Hyundai of Turnersville
Maserati of Turnersville
Nissan of Turnersville
Toyota-Scion of Turnersville
NEW YORK
Honda of Nanuet
Mercedes-Benz of Nanuet
Westbury Toyota-Scion
NORTH CAROLINA
Chevrolet Cadillac of Goldsboro
Reed-Lallier Chevrolet
OHIO
Honda of Mentor
Infiniti of Bedford
Infiniti of North Olmsted
Maserati of Cleveland
Mercedes-Benz of Bedford
Mercedes-Benz of North Olmsted
Nissan of North Olmsted
Toyota-Scion of Bedford
OKLAHOMA
United Ford Broken Arrow
United Ford North
United Ford South
Jaguar of Tulsa
Lincoln Mercury of Tulsa (9111 S Memorial)
Lincoln Mercury of Tulsa (9607 S Memorial)
Maserati of Tulsa
Volvo of Tulsa
RHODE ISLAND
Bentley Providence
Inskip Acura
Inskip Audi
Inskip Autocenter (Mercedes-Benz)
Inskip BMW
Inskip Infiniti
Inskip Lexus
Inskip Porsche
Inskip Volvo
Maserati of Warwick
SOUTH CAROLINA
Chevrolet of North Charleston
Michael Chevrolet
TENNESSEE
Covington Pike Dodge
Covington Pike Toyota-Scion
Landers Ford of Memphis
TEXAS
BMW of Austin
Goodson Chrysler Jeep Dodge North
Goodson Honda North
Goodson Honda West
VIRGINIA
Aston Mart in of Tysons Corner
Audi of Tysons Corner
Mercedes-Benz of Tysons Corner (& Maybach)
Porsche of Tysons Corner
10
INTERNATIONAL DEALERSHIPS
UNITED KINGDOM
Aston Green Audi (Slough)
Bentley Birmingham
Bentley Edinburgh
Bentley Manchester
Bradford Audi
Graypaul Edinburgh (Ferrari/ Maserati)
Graypaul Nottingham (Ferrari/ Maserati)
Guildford Audi
Guy Salmon Jaguar Coventry
Guy Salmon Jaguar Northampton
Guy Salmon Jaguar Oxford
Guy Salmon Jaguar Stratford-Upon- Avon
Guy Salmon Jaguar Thames Ditton
Guy Salmon Land Rover Coventry
Guy Salmon Land Rover Knutsford
Guy Salmon Land Rover Leeds
Guy Salmon Land Rover Sheffield
Guy Salmon Land Rover Stockport
Guy Salmon Land Rover Stratford- upon-Avon
Guy Salmon Land Rover Thames Ditton
Guy Salmon Land Rover Wakefield
Harrogate Audi
Kings Cheltenham & Gloucester (Chrysler Jeep)
Kings Liverpool (Chrysler Jeep)
Kings Stockport (Chrysler Jeep)
Leeds Audi
Lexus Birmingham
Lexus Bristol
Lexus Cardiff
Lexus Leicester
Lexus Oxford
Mayfair Audi
Mercedes-Benz of Bath
Mercedes-Benz of Bedford
Mercedes-Benz of Bristol
Mercedes-Benz/smart of Bristol (Cribbs Causeway)
Mercedes-Benz of Cheltenham and Gloucester
Mercedes-Benz of Kettering
Mercedes-Benz/smart of MiltonKeynes
Mercedes-Benz of Newbury (& smart)
Mercedes-Benz of Northampton
Mercedes-Benz/smart of Swindon
Mercedes-Benz of Weston-Super-Mare
Oxford Saab
Porsche Centre Edinburgh
Porsche Centre Glasgow
Porsche Centre Mid-Sussex
Porsche Centre Silverstone
Reading Audi
Sytner Chigwell (BMW/MINI)
Sytner City (BMW/MINI)
Sytner Gerrards Cross (BMW/MINI)
Sytner Harold Wood (BMW/MINI)
Sytner High Wycombe (BMW)
Sytner Leicester (BMW/MINI)
Sytner Nottingham (BMW/MINI)
Sytner Rolls Royce Motor Cars
Sytner Sheffield (BMW/MINI)
Sytner Solihull (BMW/MINI)
Tollbar Coventry (Volvo)
Tollbar Twickenham (Volvo)
Tollbar Warwick (Volvo)
Toyota World (Birmingham)
Toyota World (Bridgend)
Toyota World (Bristol Central)
Toyota World (Bristol North)
Toyota World (Cardiff)
Toyota World (Newport)
Toyota World (Tamworth)
Toyota World (Weston-Super-Mare)
Vantage VW (Leeds)
Varsity (Chrysler Jeep)
Wakefield Audi
West London Audi
BRAZIL
Andre Ribeiro Chevrolet
Andre Ribeiro Honda
Andre Ribeiro Toyota Lexus
GERMANY
Tamsen GmbH (Bremen)(Aston Martin, Bentley, Ferrari, Maserati, Rolls-Royce)
Tamsen GmbH (Hamburg)(Aston Martin, Ferrari, Lamborghini, Maserati, Rolls-Royce)
PUERTO RICO
Lexus de San Juan
Triangle Chrysler-Honda del Oeste
Triangle Chrysler Mazda de Ponce
Triangle Honda 65 de Infanteria
Triangle Honda-Suzuki de Ponce
Triangle Toyota-Scion San Juan
We also own approximately 50% of the following international dealerships:
|
|
|
GERMANY
|
|
MEXICO |
|
|
|
Autohaus Nix (Wachtersbach) (Toyota, Lexus)
|
|
Toyota de Aguascalientes |
Autohaus Nix (Offenbach) (Toyota, Lexus)
|
|
Toyota de Monterrey |
Autohaus Nix (Frankfurt)(Toyota, Lexus) |
|
|
Autohaus Reisacher (Memminger)(BMW, MINI) |
|
|
Autohaus Reisacher (Krumbach)(BMW) |
|
|
Autohaus Reisacher (Vohringer) (BMW) |
|
|
Management Information Systems
We consolidate financial, accounting and operational data received from our domestic dealers
through an exclusive private communications network. The data from these dealers is gathered and
processed through individual dealer management systems. All of our domestic dealerships use
management system hardware and software from ADP, Inc. or Reynolds and Reynolds however, we are
transitioning our dealerships to a sole-source Reynolds and Reynolds platform in an effort to
reduce costs. Each dealership is allowed to tailor the operational capabilities of that system
locally, but we require that they follow our standardized accounting procedures.
Our private communication network allows us to extract and aggregate information from the two
systems in a consistent format to generate consolidating financial and operational data. The system
also allows us to access detailed information for each dealership in the U.S. individually, as a
group, or on a consolidated basis. Information we can access includes, among other things,
inventory, cash, unit sales, the mix of new and used vehicle sales and sales of aftermarket
products and services. Our ability to access this data allows us to continually analyze these
dealerships operating results and financial position so as to identify areas for improvement. Our
technology also enables us to quickly integrate dealerships or dealership groups we acquire in the
U.S.
Our foreign dealership financial, accounting and operational data is processed through dealer
management systems provided by a number of local software providers. Financial and operational
information is aggregated following U.S. policies and accounting requirements and in our U.S.
reporting format to ensure consistency of results among our worldwide operations.
Marketing
We believe that our marketing programs have contributed to our sales growth. Our advertising
and marketing efforts are focused at the local market level, with the aim of building our retail
vehicle business, as well as repeat sales and service business. We utilize many different media for
our marketing activities, including newspapers, magazines, television, radio and the Internet. We
also assist our local management in running special marketing events to generate sales such as tent
sales or local product placement. Automobile manufacturers supplement our local and regional
advertising efforts by producing large advertising campaigns to support their brands, promote
attractive financing packages and draw traffic to local area dealerships. We believe that our scale
has enabled us to obtain favorable terms and other valuable concessions from suppliers and
advertising media and should enable us to realize continued cost savings in marketing. In an effort
to realize increased efficiencies, we are focusing on common marketing metrics and business
practices across our company, as well as negotiating enterprise
arrangements for many marketing resources.
11
Agreements with Vehicle Manufacturers
Each of our dealerships operates under separate franchise agreements with the manufacturers of
each brand of vehicle sold at that dealership. These agreements contain provisions and standards
governing almost every aspect of the operations of the dealership, including ownership, management,
personnel, training, maintenance of minimum working capital and in some cases net worth,
maintenance of minimum lines of credit, advertising and marketing, facilities, signs, products and
services, acquisitions of other dealerships (including restrictions on how many dealerships can be
acquired or operated in any given market), inventory, warranties offered to customers, maintenance
of minimum amounts of insurance, achievement of minimum customer service standards, information
systems and monthly financial reporting. Typically, the dealership principal and/or the owner of a
dealership may not be changed without the manufacturers consent.
In exchange for complying with these provisions and standards, we are granted the
non-exclusive right to sell the manufacturers brand of vehicles and related parts and services at
our dealerships. The agreements also grant us a non-exclusive license to use each manufacturers
trademarks, service marks and designs in connection with our sales and service of its brands at our
dealerships. Some of our franchise agreements expire after a specified period of time, ranging from
one to five years. The agreements also permit the manufacturer to terminate or not renew the
agreement for a variety of causes, including failure to adequately operate the dealership,
insolvency or bankruptcy, impairment of the dealers reputation or financial standing, changing the
dealerships management, owners or location without consent, sales of the dealerships assets
without consent, failure to maintain adequate working capital or floor plan financing, changes in
the dealerships financial or other condition, failure to submit information to the manufacturer on
a timely basis, failure to have any permit or license necessary to operate the dealership, and
material breaches of other provisions of the agreement. These termination rights are subject to
applicable state franchise laws that limit a manufacturers right to terminate a franchise. Many
agreements grant the manufacturer a security interest in the vehicles and/or parts sold by the
manufacturer to the dealership.
Our agreements with manufacturers usually give the manufacturers the right, in some
circumstances (including upon a merger, sale, or change of control of the Company, or in some cases
a material change in our business or capital structure), to acquire from us, at fair market value,
the dealerships that sell the manufacturers brands. In particular, our agreement with General
Motors Corporation provides that, upon a proposed sale of 20% or more of our voting stock to any
other person or entity (other than for passive investment) or another manufacturer, an
extraordinary corporate transaction (such as a merger, reorganization or sale of a material amount
of assets) or a change of control of our board of directors, General Motors has the right to
acquire at fair market value, all assets, properties and business of any General Motors dealership
owned by us. In addition, General Motors has a right of first refusal if we propose to sell any of
our General Motors dealerships to a third party. Some of our agreements with other major
manufacturers contain provisions similar to the General Motors provisions. Some of the agreements
also prohibit us from pledging, or impose significant limitations on our ability to pledge, the
capital stock of some of our subsidiaries to lenders.
Competition
For new vehicle sales, we compete primarily with other franchised dealers in each of our
marketing areas. We do not have any cost advantage in purchasing new vehicles from the
manufacturer, and typically we rely on our world-class facilities, advertising and merchandising,
management experience, sales expertise, service reputation and the location of our dealerships to
sell new vehicles. Each of our markets may include a number of well-capitalized competitors that
also have extensive automobile dealership managerial experience and strong retail locations and
facilities. We compete with dealers that sell the same brands of new vehicles that we sell and with
dealers that sell other brands of new vehicles that we do not represent in a particular market. Our
new vehicle dealership competitors have franchise agreements with the various vehicle manufacturers
and, as such, generally have access to new vehicles on the same terms as us. In recent years,
automotive dealers have also faced increased competition in the sale of new vehicles from on-line
purchasing services and warehouse clubs. Due to lower overhead and sales costs, these companies may
be capable of operating on smaller gross profit margins and offering lower sales prices than
franchised dealers.
For used vehicle sales, we compete with other franchised dealers, independent used vehicle
dealers, automobile rental agencies, on-line purchasing services, private parties and used vehicle
superstores for supply and resale of used vehicles.
We believe that the principal competitive factors in vehicle sales are the marketing campaigns
conducted by manufacturers, the ability of dealerships to offer a wide selection of the most
popular vehicles, the location of dealerships and the quality of customer service. Other
competitive factors include customer preference for particular brands of automobiles, pricing
(including manufacturer rebates and other special offers) and warranties. We believe that our
dealerships are competitive in all of these areas.
We compete with other franchised dealers to perform warranty repairs and with other automotive
dealers, franchised and unfranchised service center chains, and independent garages for
non-warranty repair and routine maintenance business. We compete with other automotive dealers,
service stores and auto parts retailers in our parts operations. We believe that the principal
competitive factors in parts and service sales are price, the use of factory-approved replacement
parts, facility location, the familiarity with a manufacturers brands and models and the quality
of customer service. A number of regional or national chains offer selected parts and services at
prices that may be lower than our prices.
According to various industry sources, the automotive retail industry is currently served by
approximately 22,000 franchised automotive
dealerships, over 50,000 independent used vehicle dealerships and individual consumers who sell
used vehicles in private transactions.
Several
12
other public companies have established national or
regional automotive retail chains. Additionally, vehicle manufacturers have historically engaged in
the retail sale and service of vehicles, either independently or in conjunction with their
franchised dealerships, and may do so on an expanded basis in the future, subject to various state
laws that restrict or prohibit manufacturer ownership of dealerships.
We believe that a growing number of consumers are utilizing the Internet, to differing
degrees, in connection with the purchase of vehicles. Accordingly, we may face increased pressures
from on-line automotive websites, including those developed by automobile manufacturers and other
dealership groups. Consumers use the Internet to compare prices for vehicles and related services,
which may result in reduced margins for new vehicles, used vehicles and related services.
Employees and Labor Relations
As of December 31, 2004, we employed approximately 13,000 people, approximately 340 of whom
are covered by collective bargaining agreements with labor unions. We consider our relations with
our employees to be satisfactory. Our policy is to motivate our key managers through, among other
things, variable compensation programs tied principally to dealership profitability and our equity
incentive compensation plans. Due to our reliance on vehicle manufacturers, we may be adversely
affected by labor strikes or work stoppages at the manufacturers facilities.
Regulation
We operate in a highly regulated industry. A number of regulations affect our business of
marketing, selling, financing and servicing automobiles. We actively make efforts to assure
compliance with these regulations. Under the laws of jurisdictions in which we currently operate or
into which we may expand, we typically must obtain a license in order to establish, operate or
relocate a dealership or operate an automotive repair service, including dealer, sales, finance and
insurance-related licenses issued by relevant authorities. These laws also regulate our conduct of
business, including our advertising, operating, financing, employment and sales practices. Other
laws and regulations include franchise laws and regulations, extensive laws and regulations
applicable to new and used motor vehicle dealers, as well as wage-hour, anti-discrimination and
other employment practices laws.
Our operations may also be subject to consumer protection laws known in the U.S. as Lemon
Laws. These laws typically require a manufacturer or dealer to replace a new vehicle or accept it
for a full refund within a period of time after initial purchase if the vehicle does not conform to
the manufacturers express warranties and the dealer or manufacturer, after a reasonable number of
attempts, is unable to correct or repair the defect. Various laws require various written
disclosures to be provided on new vehicles, including mileage and pricing information.
Imported automobiles may be subject to customs duties and, in the ordinary course of our
business, we may, from time to time, be subject to claims for duties, penalties, liquidated
damages, or other charges.
Our financing activities with customers are subject to federal truth-in-lending, consumer
leasing equal credit opportunity and similar regulations as well as motor vehicle finance laws,
installment finance laws, insurance laws, usury laws and other installment sales laws. Some
jurisdictions regulate finance fees that may be paid as a result of vehicle sales. In the past
several years, private plaintiffs and state attorney generals in the U.S. have increased their
scrutiny of advertising, sales, and finance and insurance activities in the sale and leasing of
motor vehicles.
In the U.S., we also benefit from the protection of numerous state dealer laws generally which
provide that a manufacturer may not terminate or refuse to renew a franchise agreement unless it
has first provided the dealer with written notice setting forth good cause and stating the grounds
for termination or non-renewal. Some state dealer laws allow dealers to file protests or petitions
or to attempt to comply with the manufacturers criteria within the notice period to avoid the
termination or non-renewal. Europe generally does not have these laws and, as a result, our
European operations operate without these protections.
Environmental Matters
We are subject to a wide range of environmental laws and regulations, including those
governing discharges into the air and water, the operation and removal of aboveground and
underground storage tanks, the use, handling, storage and disposal of hazardous substances and
other materials and the investigation and remediation of contamination. As with automotive
dealerships generally, and service, parts and body shop operations in particular, our business
involves the generation, use, handling and contracting for recycling or disposal of hazardous or
toxic substances or wastes, including environmentally sensitive materials such as motor oil, waste
motor oil and filters, transmission fluid, antifreeze, refrigerant, waste paint and lacquer
thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels. Similar to
many of our competitors, we have incurred and will continue to incur, capital and operating
expenditures and other costs in complying with such laws and regulations.
Our operations involving the management of hazardous and other environmentally sensitive
materials are subject to numerous requirements. Our business also involves the operation of storage
tanks containing such materials. Storage tanks are subject to periodic testing, containment,
upgrading and removal under applicable law. Furthermore, investigation or remediation may be
necessary in the event of leaks or other discharges from current or former underground or
aboveground storage tanks. In addition, water quality protection programs govern certain discharges
from some of our operations. Similarly, certain air emissions from our operations, such as auto
body painting, may be subject to
relevant laws. Various health and safety standards also apply to our operations.
13
We may also have liability in connection with materials that were sent to third-party
recycling, treatment, and/or disposal facilities under the U.S. Comprehensive Environmental
Response, Compensation and Liability Act, or CERCLA, and comparable statutes. These statutes impose
liability for investigation and remediation of contamination without regard to fault or the
legality of the conduct which contributed to the contamination. Responsible parties under these
statutes may include the owner or operator of the site where the contamination occurred and
companies that disposed or arranged for the disposal of the hazardous substances released at these
sites.
We believe that we do not have any material environmental liabilities and that compliance with
environmental laws and regulations will not, individually or in the aggregate, have a material
adverse effect on our results of operations, financial condition or cash flows. However, soil and
groundwater contamination is known to exist at certain of our current or former properties.
Further, environmental laws and regulations are complex and subject to change. In addition, in
connection with our acquisitions, it is possible that we will assume or become subject to new or
unforeseen environmental costs or liabilities, some of which may be material. Compliance with
current, amended, new or more stringent laws or regulations, stricter interpretations of existing
laws or the future discovery of environmental conditions could require additional expenditures by
us, and such expenditures could be material.
Insurance
Due to the nature of the automotive retail industry, automotive retail dealerships generally
require significant levels of insurance covering a broad variety of risks. The business is subject
to substantial risk of property loss due to the significant concentration of property values at
dealership locations, including vehicles and parts. Other potential liabilities arising out of our
operations involve claims by employees, customers or third parties for personal injury or property
damage and potential fines and penalties in connection with alleged violations of regulatory
requirements.
Accordingly, we have purchased liability and property insurance subject to specified
deductibles and loss retentions. We also purchase umbrella and excess insurance to provide
insurance in excess of our primary liability insurance. The level of risk we retain may change in
the future as insurance market conditions or other factors affecting the economics of purchasing
insurance change. Although we have, subject to limitations and exclusions, substantial insurance,
we may be exposed to uninsured or underinsured losses that could have a material adverse effect on
our results of operations, financial condition or cash flows.
Available Information
For selected financial information concerning our domestic and international sales and assets,
see note 15 to our consolidated financial statements included in Item 8 of this report. For a
discussion of the risk factors applicable to us, see exhibit 99.1 to this annual report on Form
10-K/A. Our internet website address is www.unitedauto.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge
through our website under the tab Investor Relations as soon as reasonably practicable after they
are electronically filed with, or furnished to, the Securities and Exchange Commission. We also
make available on our website under the tab Investor Relations copies of materials regarding our
corporate governance policies and practices, including our Corporate Governance Guidelines; our
Code of Business Ethics; and the charters relating to the committees of our Board of Directors. You
also may obtain a printed copy of the foregoing materials by sending a written request to: Investor
Relations, United Auto Group, Inc., 2555 Telegraph Road, Bloomfield Hills, MI 48302. The
information on or linked to our website is not part of this document. We are incorporated in the
State of Delaware and began dealership operations in October 1992. We submitted to the New York
Stock Exchange its required annual CEO certification in 2004 without qualification and have filed
all required certifications under section 302 of the Sarbanes-Oxley Act as exhibits to this annual
report on Form 10-K/A relating to 2004.
Item 2. Properties
We seek to structure our operations so as to minimize the ownership of real property. As a
result, we lease or sublease substantially all of our dealerships and other facilities. These
leases are generally for a period of between five and 20 years and are typically structured to
include renewal options for an additional five to ten years in our favor. We lease office space in
Bloomfield Hills, Michigan, Secaucus, New Jersey and Leicester, England for our administrative
headquarters and other corporate related activities. We believe that our facilities are sufficient
for our needs and are in good repair.
Item 3. Legal Proceedings
From time to time, we are involved in litigation relating to claims arising out of our
operations 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. We are not party to any legal proceedings, including class
action lawsuits to which we are a party 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.
14
Item 4. Submission of Matters to a Vote of Security-Holders
No matter was submitted to a vote of our security holders during the fourth quarter of the
year ended December 31, 2004.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol UAG. As of
February 22, 2005, there were 237 holders of record of our common stock.
The following table shows the high and low per share sales prices of our common stock as
reported on the New York Stock Exchange Composite Tape for each quarter of 2004 and 2003.
|
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High |
|
Low |
2004: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
32.05 |
|
|
$ |
25.95 |
|
Second Quarter |
|
|
32.85 |
|
|
|
26.62 |
|
Third Quarter |
|
|
30.83 |
|
|
|
22.90 |
|
Fourth Quarter |
|
|
30.35 |
|
|
|
25.08 |
|
2003: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
13.63 |
|
|
$ |
9.81 |
|
Second Quarter |
|
|
22.43 |
|
|
|
11.38 |
|
Third Quarter |
|
|
26.30 |
|
|
|
20.93 |
|
Fourth Quarter |
|
|
32.02 |
|
|
|
23.10 |
|
We paid our first cash dividend on our common stock on December 1, 2003 and paid additional
dividends on March 1, 2004, June 1, 2004 and September 1, 2004. These dividends were in the amount
of ten cents per share. We also paid a dividend of eleven cents per share on December 1, 2004.
Future quarterly or other cash dividends will depend upon our earnings, capital requirements,
financial condition, restrictions in any existing indebtedness and other factors considered
relevant by the Board of Directors.
Our credit agreement with DaimlerChrysler Services North America, LLC as agent, and the
indenture governing our 9 5 / 8 % senior subordinated notes each contain certain
limitations on our ability to pay dividends. See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital Resources. We are a holding
company whose assets consist primarily of the direct or indirect ownership of the capital stock of
our operating subsidiaries. Consequently, our ability to pay dividends is dependent upon the
earnings of our subsidiaries and their ability to distribute earnings and other advances and
payments to us. Also, pursuant to the automobile franchise agreements to which our dealerships are
subject, all dealerships are required to maintain a certain amount of working capital, which could
limit our subsidiaries ability to pay us dividends.
15
Item 6. Selected Financial Data
The following table sets forth our selected historical consolidated financial and other data
as of and for each of the five years in the period ended December 31, 2004, which has been derived
from our audited consolidated financial statements. During the periods presented, we made a number
of acquisitions, each of which has been accounted for using the purchase method of accounting.
Accordingly, our financial statements include the results of operations of the acquired dealerships
from the date of acquisition. As a result of the acquisitions, our period to period results of
operations vary depending on the dates of the acquisitions and this selected financial data is not
necessarily indicative of our future results. During 2004, 2003 and 2002, we sold certain
dealerships which have been treated as discontinued operations in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144. You should read this selected consolidated
financial data in conjunction with our audited consolidated financial statements and related
footnotes included elsewhere in this report.
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|
As of and for the Years Ended December 31, (1) |
|
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2004(2) |
|
2003(3) |
|
2002(4) |
|
2001(5) |
|
2000(5) |
|
|
(in millions, except per share data) |
Consolidated Statement of Income Data: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
9,384.7 |
|
|
$ |
7,968.6 |
|
|
$ |
6,499.6 |
|
|
$ |
4,926.1 |
|
|
$ |
3,735.8 |
|
Gross profit |
|
$ |
1,382.0 |
|
|
$ |
1,156.7 |
|
|
$ |
939.8 |
|
|
$ |
691.7 |
|
|
$ |
527.9 |
|
Income from continuing operations |
|
$ |
111.2 |
|
|
$ |
84.1 |
|
|
$ |
57.8 |
|
|
$ |
36.3 |
|
|
$ |
23.4 |
|
Net income |
|
$ |
111.7 |
|
|
$ |
82.9 |
|
|
$ |
62.2 |
|
|
$ |
44.7 |
|
|
$ |
30.0 |
|
Income from continuing operations per
diluted common share |
|
$ |
2.44 |
|
|
$ |
2.03 |
|
|
$ |
1.40 |
|
|
$ |
1.06 |
|
|
$ |
0.79 |
|
Net income per diluted common share |
|
$ |
2.45 |
|
|
$ |
2.00 |
|
|
$ |
1.51 |
|
|
$ |
1.31 |
|
|
$ |
1.02 |
|
Shares used in computing diluted
share data |
|
|
45.6 |
|
|
|
41.4 |
|
|
|
41.2 |
|
|
|
34.2 |
|
|
|
29.4 |
|
Balance Sheet Data: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,532.8 |
|
|
$ |
3,144.2 |
|
|
$ |
2,690.3 |
|
|
$ |
1,946.6 |
|
|
$ |
1,762.7 |
|
Floor plan
notes payable (including non-trade) |
|
$ |
1,197.5 |
|
|
$ |
1,051.2 |
|
|
$ |
789.0 |
|
|
$ |
492.4 |
|
|
$ |
537.4 |
|
Total debt (excluding floor plan
notes payable) |
|
$ |
586.3 |
|
|
$ |
651.7 |
|
|
$ |
665.8 |
|
|
$ |
555.4 |
|
|
$ |
418.1 |
|
Total stockholders equity |
|
$ |
1,075.0 |
|
|
$ |
828.4 |
|
|
$ |
704.4 |
|
|
$ |
515.7 |
|
|
$ |
461.7 |
|
|
|
|
(1) |
|
Certain prior period information has been revised to conform to the current years presentation. |
|
(2) |
|
Includes a $7.2 million (net of tax) gain from the sale of an investment. |
|
(3) |
|
Includes a $3.1 million (net of tax) cumulative effect of an accounting change related to the
adoption of Emerging Issues Task Force (EITF) No. 02-16. |
|
(4) |
|
Includes a $22.8 million charge, which includes the estimated cash costs to be paid relating to
employment contracts of certain employees terminated in connection with the streamlining of our
dealership operations in the western region of the U.S. and the cost of a non-compete agreement
with a former member of management that we determined no longer had a continuing economic
benefit. |
|
(5) |
|
In accordance with SFAS 142, we stopped recording amortization expense relating to indefinite
lived intangibles as of January 1, 2002. Amortization expense was $16.4 million and $12.1
million in 2001 and 2000, respectively. |
16
Item 7. 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.
Subsequent
to the issuance of the Companys December 31, 2004 financial statements, the
Companys management determined that certain information in the
Consolidated Balance Sheets and Consolidated Statements of Cash Flows
should be restated and reclassified for all periods presented to
comply with the guidance under Statement of Financial Accounting
Standards (SFAS) No. 95, Statement of Cash
Flows. 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, have been reclassified as
floor plan notes payable non-trade on the Consolidated Balance
Sheets, and related cash flows have been reclassified from operating
activities to financing activities on the Consolidated Statement of
Cash Flows. Consistent with industry practice, the Company previously
reported all cash flow information relating to floor plan notes
payable as operating cash flows. In addition, the Company has made
certain additional changes relating to cash flows from discontinued
operations and activity under the U.S. Credit Agreement to conform to
the presentation in its September 30, 2005 financial statements. This Managements Discussion and
Analysis of Financial Condition and Results of Operations has been
updated for the effects of the restatement and for the effects of
restating our financial statements for entities which became
discontinued operations during the nine months ended September 30,
2005.
Overview
We are the second largest automotive retailer in the United States as measured by total
revenues. As of March 1, 2005, we owned and operated 152 franchises in the United States and 101
franchises internationally, primarily in the United Kingdom. We offer a full range of vehicle
brands; however, 86% of our revenues in 2004 came from the combined sales of foreign and luxury
brands such as Toyota, Honda, BMW, Lexus and Mercedes. In 2004,
luxury brands represented 55% of
our revenues. 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 vehicle revenues include sales to retail customers and to leasing companies providing
consumer automobile leasing. Used vehicle revenues include amounts received for used vehicles sold
to retail customers, leasing companies providing consumer automobile leasing and other dealers. We
generate finance and insurance revenues from sales of third-party extended service contracts and
other third-party insurance policies, as well as from fees for facilitating the sale of third-party
finance and lease contracts and certain other products. Service and parts revenues include fees
paid for repair and maintenance service, the sale of replacement parts, the sale of aftermarket
accessories and collision repairs.
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. 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 that are earned ratably on an annual basis through January 2009. Two
million of these warrants were earned in 2004 and vested in the first quarter of 2005. We exercised
the warrants and sold the underlying stock we received upon vesting. The earning of these warrants
may accelerate based on us attaining specified subscription targets. 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 those warrants is being recognized ratably during each
annual period. We also received an additional ten million warrants to purchase Sirius common stock
at $2.392 per share which are earned upon our sale of certain units pertaining to specified brands.
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 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 those warrants is only 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. 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 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 indebtedness 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. Each of these
acquisitions has been accounted for using the purchase method of accounting. As a result, our
financial statements include the results of operations of the acquired dealerships from the date of
acquisition.
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, our ability to realize returns on our significant
capital investment in new and upgraded dealerships, and the success of our international
operations. See Forward-Looking Statements.
17
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 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.
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.
Revenue Recognition
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, 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 relevant terms of the contracts. The
revenue we record relating to commissions is net of an estimate of the ultimate amount of
chargebacks we will be required to pay. Such estimate of chargeback exposure is based on our
historical chargeback experience arising from 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
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 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; |
|
|
Our history shows that manufacturers have not terminated franchise agreements. |
Impairment Testing
Intangible assets are reviewed for impairment on at least an annual basis. Franchise value
impairment is assessed through a comparison of the net book value of our franchises with their
estimated fair value. If the carrying value of a franchise exceeds its estimated fair value, an
impairment loss is recognized in an amount equal to that excess. We also evaluate the remaining
useful life of our franchises in connection with the annual impairment testing to determine whether
events and circumstances continue to support an indefinite useful life. Goodwill impairment is
assessed at the reporting unit level. If the carrying amount of the goodwill attributable to a
reporting unit is determined to exceed its estimated fair value, an impairment loss is recognized
in an amount equal to that excess. The fair value of the goodwill attributable to our reporting
units 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 which result in a reduction
of our estimates of fair value, we may incur an impairment charge.
18
Investments
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 in our balance sheet with unrealized gains and losses included in other comprehensive
income, a separate component of stockholders equity. Declines in investment values that are deemed
to be other than temporary would 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.
Self-Insurance
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 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.
Income Taxes
Tax regulations may require items to be included in our tax return at different times than the
items are reflected in the financial statements. Some of these differences are permanent, such as
expenses which 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 for which we have already recorded the tax effect in our financial
statements. Deferred tax liabilities generally represent expenses recognized in our financial
statements for which payment has been deferred or deductions taken on our tax return which 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
The Financial Accounting Standards Board (FASB) issued SFAS No. 123R, Share-Based Payment,
which replaces SFAS No. 123 Accounting for Stock-Based Compensation, and supersedes Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R
focuses primarily on accounting for share-based payment transactions as it relates to employee
services, establishes accounting standards for equity instruments that an entity exchanges for
goods or services and addresses transactions where an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entitys equity instruments or that may
be settled by the issuance of those equity instruments. SFAS No. 123R will require us to expense
the grant-date fair value of equity compensation awards over their vesting period.
We currently account for equity compensation awards in accordance with APB No. 25, pursuant to
which the issuance of stock options generally resulted in the recognition of no compensation
expense, but required pro forma disclosure showing the effect on net income and earnings per share
as if we had recorded the fair value of the grants as compensation expenses.
Statement No. 123R is effective for us as of July 1, 2005. We are evaluating the adoption
criteria outlined in SFAS No. 123R, but we do not believe that its adoption will have a material
effect on our consolidated financial position, results of operations or cash flows.
19
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 entity during the entirety of both periods being
compared. As an example, if a dealership was acquired on January 15, 2004, the results of the
acquired entity would be included in quarterly same store comparisons beginning with the second
quarter of 2005 and in annual same store comparisons beginning with 2006.
(in millions, except unit and per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 vs. 2003 |
|
|
|
|
|
|
|
|
|
2003 vs. 2002 |
Total Retail Data |
|
2004 |
|
|
2003 |
|
|
Change |
|
|
% Change |
|
2003 |
|
2002 |
|
Change |
|
% Change |
Total retail unit sales |
|
|
251,678 |
|
|
|
235,406 |
|
|
|
16,272 |
|
|
|
6.9 |
% |
|
|
235,406 |
|
|
|
202,981 |
|
|
|
32,425 |
|
|
|
16.0 |
% |
Total same store retail unit sales |
|
|
221,593 |
|
|
|
224,232 |
|
|
|
(2,639 |
) |
|
|
(1.2 |
%) |
|
|
182,998 |
|
|
|
172,817 |
|
|
|
10,181 |
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail sales revenue |
|
$ |
8,627.7 |
|
|
$ |
7,399.3 |
|
|
$ |
1,228.5 |
|
|
|
16.6 |
% |
|
$ |
7,399.3 |
|
|
$ |
6,016.4 |
|
|
$ |
1,382.9 |
|
|
|
23.0 |
% |
Total same store retail sales revenue |
|
$ |
7,372.2 |
|
|
$ |
6,975.1 |
|
|
$ |
397.1 |
|
|
|
5.7 |
% |
|
$ |
5,281.4 |
|
|
$ |
4,891.4 |
|
|
$ |
389.9 |
|
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail gross profit |
|
$ |
1,381.8 |
|
|
$ |
1,155.5 |
|
|
$ |
226.2 |
|
|
|
19.6 |
% |
|
$ |
1,155.5 |
|
|
$ |
943.0 |
|
|
$ |
212.5 |
|
|
|
22.5 |
% |
Total same store retail gross profit |
|
$ |
1,182.5 |
|
|
$ |
1,088.9 |
|
|
$ |
93.6 |
|
|
|
8.6 |
% |
|
$ |
829.8 |
|
|
$ |
767.0 |
|
|
$ |
62.8 |
|
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail gross margin |
|
|
16.0 |
% |
|
|
15.6 |
% |
|
|
0.4 |
% |
|
|
2.6 |
% |
|
|
15.6 |
% |
|
|
15.7 |
% |
|
|
(0.1 |
%) |
|
|
(0.4 |
%) |
Total same store retail gross margin |
|
|
16.0 |
% |
|
|
15.6 |
% |
|
|
0.4 |
% |
|
|
2.6 |
% |
|
|
15.7 |
% |
|
|
15.7 |
% |
|
|
0.0 |
% |
|
|
0.2 |
% |
Units
Retail data includes new vehicle, used vehicle, finance and insurance and service and parts
transactions. Retail unit sales of vehicles increased by 16,272, or 6.9%, from 2003 to 2004 and
increased by 32,425, or 16.0%, from 2002 to 2003. The increase from 2003 to 2004 is due to an
18,911 unit increase from net dealership acquisitions during the year, partially offset by a 2,639,
or 1.2%, decrease in same store retail unit sales. The decrease in same store retail unit sales in
2004 is due primarily to decreased retail unit sales of used vehicles, which we believe is due to a
challenging used vehicle market in the U.S. during 2004 due to the relative affordability of new
vehicles and continued incentive spending by certain manufacturers. The increase from 2002 to 2003
is due to a 10,181, or 5.9%, increase in same store retail unit sales coupled with a 22,244 unit
increase from net dealership acquisitions during the year.
Revenues
Retail sales revenue increased $1,228.5 million, or 16.6%, from 2003 to 2004 and increased
$1,382.9 million, or 23.0%, from 2002 to 2003. The increase from 2003 to 2004 is due to a $397.1
million, or 5.7%, increase in same store revenues coupled with an $831.3 million increase from net
dealership acquisitions during the year. The same store revenue increase is due to: (1) a $1,376,
or 4.6%, increase in average new vehicle revenue per unit, which increased revenue by $206.6
million, (2) a $1,887, or 8.8%, increase in average used vehicle revenue per unit, which increased
revenue by $139.9 million, (3) a $77, or 9.5%, increase in average finance and insurance revenue
per unit, which increased revenue by $17.2 million, and (4) a $91.8 million, or 12.6%, increase in
service and parts revenues, all partially offset by the 1.2% decrease in retail unit sales, which
decreased revenue by $58.4 million. The increase from 2002 to 2003 is due to a $389.9 million, or
8.0%, increase in same store revenues coupled with a $992.9 million increase from net dealership
acquisitions during the year. The same store revenue increase is due to: (1) the 5.9% increase in
retail unit sales, which increased revenue by $245.8 million, (2) a $794, or 2.8%, increase in
average new vehicle revenue per unit, which increased revenue by $95.6 million, (3) a $53, or 6.8%,
increase in average finance and insurance revenue per unit, which increased revenue by $9.3
million, and (4) a $45.4 million, or 9.4%, increase in service and parts revenues, all partially
offset by a $109, or 0.6% decrease in average used vehicle revenue per unit, which decreased
revenue by $6.2 million.
Gross Profit
Retail gross profit increased $226.2 million, or 19.6%, from 2003 to 2004 and
increased $212.5 million, or 22.5%, from 2002 to 2003. The increase from 2003 to 2004 is due to a
$93.6 million, or 8.6%, increase in same store gross profit coupled with a $132.6 million increase
from net dealership acquisitions during the year. The same store gross profit increase is due to:
(1) a $107, or 4.3%, increase in average gross profit per new vehicle retailed, which increased
gross profit by $16.1 million, (2) a $230, or 11.9%, increase in average gross profit per used
vehicle retailed, which increased gross profit by $17.0 million, (3) a $77, or 9.5%, increase in
average finance and insurance revenue per unit, which increased gross profit by $17.2 million, and
(4) a $51.0 million, or 13.1%, increase in service and parts gross profit, all offset by the 1.2%
decrease in retail unit sales, which decreased gross profit by $7.7 million. The increase from 2002
to 2003 is due to a $62.8 million, or 8.2%, increase in same store gross profit coupled with a
$149.7 million increase from net dealership acquisitions during the year. The same store gross
profit increase is due to: (1) the 5.9%, increase in retail unit sales, which increased gross
profit by $29.9 million, (2) a $24, or 1.3%,
20
increase in average gross profit per used vehicle retailed, which increased gross profit by
$1.3 million, (3) a $53, or 6.8%, increase in average finance and insurance revenue per unit, which
increased gross profit by $9.3 million, and (4) a $27.3 million, or 10.8%, increase in service and
parts gross profit, all partially offset by a $40, or 1.7% decrease in average gross profit per new
vehicle retailed, which decreased gross profit by $5.0 million.
New Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 vs. 2003 |
|
|
|
|
|
|
|
|
|
2003 vs. 2002 |
|
|
2004 |
|
2003 |
|
Change |
|
% Change |
|
2003 |
|
2002 |
|
Change |
|
% Change |
New retail unit sales |
|
|
168,842 |
|
|
|
156,605 |
|
|
|
12,237 |
|
|
|
7.8 |
% |
|
|
156,605 |
|
|
|
138,578 |
|
|
|
18,027 |
|
|
|
13.0 |
% |
Same store new retail unit sales |
|
|
150,794 |
|
|
|
150,118 |
|
|
|
676 |
|
|
|
0.5 |
% |
|
|
125,696 |
|
|
|
120,398 |
|
|
|
5,298 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New retail sales revenue |
|
$ |
5,416.3 |
|
|
$ |
4,722.6 |
|
|
$ |
693.7 |
|
|
|
14.7 |
% |
|
$ |
4,722.6 |
|
|
$ |
3,948.9 |
|
|
$ |
773.7 |
|
|
|
19.6 |
% |
Same store new retail sales revenue |
|
$ |
4,708.5 |
|
|
$ |
4,480.8 |
|
|
$ |
227.7 |
|
|
|
5.1 |
% |
|
$ |
3,605.0 |
|
|
$ |
3,357.6 |
|
|
$ |
247.4 |
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New retail sales revenue per unit |
|
$ |
32,079 |
|
|
$ |
30,156 |
|
|
$ |
1,923 |
|
|
|
6.4 |
% |
|
$ |
30,156 |
|
|
$ |
28,496 |
|
|
$ |
1,660 |
|
|
|
5.8 |
% |
Same store new retail sales revenue per unit |
|
$ |
31,224 |
|
|
$ |
29,848 |
|
|
$ |
1,376 |
|
|
|
4.6 |
% |
|
$ |
28,681 |
|
|
$ |
27,887 |
|
|
$ |
794 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit new |
|
$ |
465.4 |
|
|
$ |
399.7 |
|
|
$ |
65.7 |
|
|
|
16.4 |
% |
|
$ |
399.7 |
|
|
$ |
339.2 |
|
|
$ |
60.5 |
|
|
|
17.8 |
% |
Same store gross profit new |
|
$ |
393.4 |
|
|
$ |
375.6 |
|
|
$ |
17.8 |
|
|
|
4.7 |
% |
|
$ |
289.8 |
|
|
$ |
282.5 |
|
|
$ |
7.3 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average gross profit per new vehicle retailed |
|
$ |
2,756 |
|
|
$ |
2,552 |
|
|
$ |
204 |
|
|
|
8.0 |
% |
|
$ |
2,552 |
|
|
$ |
2,448 |
|
|
$ |
104 |
|
|
|
4.2 |
% |
Same store average gross profit per new
vehicle retailed |
|
$ |
2,609 |
|
|
$ |
2,502 |
|
|
$ |
107 |
|
|
|
4.3 |
% |
|
$ |
2,306 |
|
|
$ |
2,346 |
|
|
$ |
(40 |
) |
|
|
(1.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin % new |
|
|
8.6 |
% |
|
|
8.5 |
% |
|
|
0.1 |
% |
|
|
1.2 |
% |
|
|
8.5 |
% |
|
|
8.6 |
% |
|
|
(0.1 |
%) |
|
|
(1.2 |
%) |
Same store gross margin % new |
|
|
8.4 |
% |
|
|
8.4 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
8.0 |
% |
|
|
8.4 |
% |
|
|
(0.4 |
%) |
|
|
(4.8 |
%) |
Units
Retail unit sales of new vehicles increased 12,237 units, or 7.8%, from 2003 to 2004 and
increased 18,027 units, or 13.0%, from 2002 to 2003. The increase from 2003 to 2004 is due to a 676
unit, or 0.5%, increase in same store retail unit sales coupled with an 11,561 unit increase from
net dealership acquisitions during the year. The increase from 2002 to 2003 is due to a 5,298 unit,
or 4.4%, increase in same store retail unit sales coupled with a 12,729 unit increase from net
dealership acquisitions during the year. We believe that the same store increases in 2003 and 2004
are due in part to our brand mix, which includes a concentration of foreign and premium nameplates,
offset by lower new unit sales at our domestic brand dealerships.
Revenues
New vehicle retail sales revenue increased $693.7 million, or 14.7%, from 2003 to 2004 and
increased $773.7 million, or 19.6%, from 2002 to 2003. The increase from 2003 to 2004 is due to a
$227.7 million, or 5.1%, increase in same store revenues coupled with a $466.0 million increase
from net dealership acquisitions during the year. The same store revenue increase is due to the
0.5% increase in retail unit sales, which increased revenue by $21.1 million, coupled with a
$1,376, or 4.6%, increase in comparative average selling price per unit, which increased revenue by
$206.6 million. The increase from 2002 to 2003 is due to a $247.4 million, or 7.4%, increase in
same store revenues coupled with a $526.3 million increase from net dealership acquisitions during
the year. The same store revenue increase is due to the 4.4% increase in retail unit sales, which
increased revenue by $151.8 million, coupled with an $794, or 2.8%, increase in comparative average
selling price per unit, which increased revenue by $95.6 million.
Gross Profit
Retail gross profit from new vehicle sales increased $65.7 million, or 16.4%, from 2003 to
2004 and increased $60.5 million, or 17.8%, from 2002 to 2003. The increase from 2003 to 2004 is
due to a $17.8 million, or 4.7%, increase in same store gross profit coupled with a $47.9 million
increase from net dealership acquisitions during the year. The same store retail gross profit
increase is due to the 0.5% increase in new retail unit sales, which increased gross profit by $1.8
million, coupled with a $107, or 4.3%, increase in average gross profit per new vehicle retailed,
which increased gross profit by $16.0 million. The increase from 2002 to 2003 is due to a $7.3
million, or 2.6%, increase in same store gross profit coupled with a $53.2 million increase from
net dealership acquisitions during the year. The same store retail gross profit increase is due to
the 4.4% increase in new retail unit sales, which increased gross profit by $12.2 million,
partially offset by a $40, or 1.7%, decrease in average gross profit per new vehicle retailed,
which decreased gross profit by $4.9 million.
21
Used Vehicle Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 vs. 2003 |
|
|
|
|
|
|
|
|
|
2003 vs. 2002 |
|
|
2004 |
|
2003 |
|
Change |
|
% Change |
|
2003 |
|
2002 |
|
Change |
|
% Change |
Used retail unit sales |
|
|
82,836 |
|
|
|
78,801 |
|
|
|
4,035 |
|
|
|
5.1 |
% |
|
|
78,801 |
|
|
|
64,403 |
|
|
|
14,398 |
|
|
|
22.4 |
% |
Same store used retail unit sales |
|
|
70,799 |
|
|
|
74,114 |
|
|
|
(3,315 |
) |
|
|
(4.5 |
%) |
|
|
57,302 |
|
|
|
52,419 |
|
|
|
4,883 |
|
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used retail sales revenue |
|
$ |
2,028.6 |
|
|
$ |
1,714.8 |
|
|
$ |
313.8 |
|
|
|
18.3 |
% |
|
$ |
1,714.8 |
|
|
$ |
1,301.4 |
|
|
$ |
413.4 |
|
|
|
31.8 |
% |
Same store used retail sales revenue |
|
$ |
1,648.6 |
|
|
$ |
1,585.9 |
|
|
$ |
62.7 |
|
|
|
4.0 |
% |
|
$ |
996.5 |
|
|
$ |
917.3 |
|
|
$ |
79.2 |
|
|
|
8.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used retail sales revenue per unit |
|
$ |
24,489 |
|
|
$ |
21,762 |
|
|
$ |
2,727 |
|
|
|
12.5 |
% |
|
$ |
21,762 |
|
|
$ |
20,207 |
|
|
$ |
1,555 |
|
|
|
7.7 |
% |
Same store used retail sales revenue per unit |
|
$ |
23,285 |
|
|
$ |
21,398 |
|
|
$ |
1,887 |
|
|
|
8.8 |
% |
|
$ |
17,391 |
|
|
$ |
17,500 |
|
|
$ |
(109 |
) |
|
|
(0.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit used |
|
$ |
175.9 |
|
|
$ |
152.6 |
|
|
$ |
23.3 |
|
|
|
15.3 |
% |
|
$ |
152.6 |
|
|
$ |
125.9 |
|
|
$ |
26.7 |
|
|
|
21.2 |
% |
Same store gross profit used |
|
$ |
152.6 |
|
|
$ |
142.7 |
|
|
$ |
9.9 |
|
|
|
6.9 |
% |
|
$ |
107.2 |
|
|
$ |
96.8 |
|
|
$ |
10.4 |
|
|
|
10.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average gross profit per used vehicle retailed |
|
$ |
2,124 |
|
|
$ |
1,936 |
|
|
$ |
188 |
|
|
|
9.7 |
% |
|
$ |
1,936 |
|
|
$ |
1,955 |
|
|
$ |
(19 |
) |
|
|
(1.0 |
%) |
Same store average gross profit per used
vehicle retailed |
|
$ |
2,156 |
|
|
$ |
1,926 |
|
|
$ |
230 |
|
|
|
11.9 |
% |
|
$ |
1,871 |
|
|
$ |
1,847 |
|
|
$ |
24 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin % used |
|
|
8.7 |
% |
|
|
8.9 |
% |
|
|
(0.2 |
%) |
|
|
(2.2 |
%) |
|
|
8.9 |
% |
|
|
9.7 |
% |
|
|
(0.8 |
%) |
|
|
(8.2 |
%) |
Same store gross margin % used |
|
|
9.3 |
% |
|
|
9.0 |
% |
|
|
0.3 |
% |
|
|
3.3 |
% |
|
|
10.8 |
% |
|
|
10.6 |
% |
|
|
0.2 |
% |
|
|
1.9 |
% |
Units
Retail unit sales of used vehicles increased 4,035 units, or 5.1%, from 2003 to 2004 and
increased 14,398 units, or 22.4%, from 2002 to 2003. The increase from 2003 to 2004 is due to a
7,350 unit increase from net dealership acquisitions during the year offset by a 3,315 unit, or
4.5%, decrease in same store used retail unit sales. We believe that the same store decrease is due
in part to the challenging used vehicle market in the U.S. during 2004. The increase from 2002 to
2003 is due to a 4,883 unit, or 9.3%, increase in same store used retail unit sales coupled with a
9,515 unit increase from net dealership acquisitions during the year.
Revenues
Used vehicle retail sales revenue increased $313.8 million, or 18.3%, from 2003 to 2004 and
increased $413.4 million, or 31.8%, from 2002 to 2003. The increase from 2003 to 2004 is due to a
$62.7 million, or 4.0%, increase in same store revenues coupled with a $251.1 million increase from
net dealership acquisitions during the year. The same store revenue increase is due to a $1,887, or
8.8%, increase in comparative average selling price per vehicle, which increased revenue by $139.9
million, partially offset by the 4.5% decrease in retail unit sales, which decreased revenue by
$77.2 million. The increase from 2002 to 2003 is due to a $79.2 million, or 8.6%, increase in same
store revenues coupled with a $334.2 million increase from net dealership acquisitions during the
year. The same store revenue increase is due to the 9.3% increase in retail unit sales, which
increased revenue by $85.4 million, offset by a $109, or 0.6%, decrease in comparative average
selling price per unit, which decreased revenue by $6.2 million.
Gross Profit
Retail gross profit from used vehicle sales increased $23.3 million, or 15.3%, from 2003 to
2004 and increased $26.7 million, or 21.2%, from 2002 to 2003. The increase from 2003 to 2004 is
due to a $9.9 million, or 6.9%, increase in same store gross profit coupled with a $13.4 million
increase from net dealership acquisitions during the year. The same store gross profit increase is
due to a $230, or 11.9%, increase in average gross profit per used vehicle retailed, which
increased gross profit by $17.0 million, offset by the 4.5% decrease in used retail unit sales,
which decreased gross profit by $7.1 million. The increase from 2002 to 2003 is due to a $10.4
million, or 10.7%, increase in same store gross profit coupled with a $16.3 million increase from
net dealership acquisitions during the year. The same store gross profit increase is due to the
9.3% increase in used retail unit sales, which increased gross profit by $9.1 million, coupled with
a $24, or 1.3%, increase in average gross profit per used vehicle retailed, which increased gross
profit by $1.3 million.
22
Finance and Insurance Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 vs. 2003 |
|
|
|
|
|
|
|
|
|
2003 vs. 2002 |
|
|
2004 |
|
2003 |
|
Change |
|
% Change |
|
2003 |
|
2002 |
|
Change |
|
% Change |
Total retail unit sales |
|
|
251,678 |
|
|
|
235,406 |
|
|
|
16,272 |
|
|
|
6.9 |
% |
|
|
235,406 |
|
|
|
202,981 |
|
|
|
32,425 |
|
|
|
16.0 |
% |
Total same store retail unit sales |
|
|
221,593 |
|
|
|
224,232 |
|
|
|
(2,639 |
) |
|
|
(1.2 |
%) |
|
|
182,998 |
|
|
|
172,817 |
|
|
|
10,181 |
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance and insurance revenue |
|
$ |
219.3 |
|
|
$ |
190.2 |
|
|
$ |
29.1 |
|
|
|
15.3 |
% |
|
$ |
190.2 |
|
|
$ |
154.2 |
|
|
$ |
36.0 |
|
|
|
23.3 |
% |
Same store finance and insurance revenue |
|
$ |
197.2 |
|
|
$ |
182.3 |
|
|
$ |
14.9 |
|
|
|
8.2 |
% |
|
$ |
153.4 |
|
|
$ |
135.6 |
|
|
$ |
17.8 |
|
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance and insurance revenue per unit |
|
$ |
871 |
|
|
$ |
808 |
|
|
$ |
63 |
|
|
|
7.8 |
% |
|
$ |
808 |
|
|
$ |
759 |
|
|
$ |
49 |
|
|
|
6.5 |
% |
Same store finance and insurance
revenue per unit |
|
$ |
890 |
|
|
$ |
813 |
|
|
$ |
77 |
|
|
|
9.5 |
% |
|
$ |
838 |
|
|
$ |
785 |
|
|
$ |
53 |
|
|
|
6.8 |
% |
Finance and insurance revenue increased $29.1 million, or 15.3%, from 2003 to 2004 and
increased $36.0 million, or 23.3%, from 2002 to 2003. The increase from 2003 to 2004 is due to a
$14.9 million, or 8.2%, increase in same store revenues coupled with a $14.2 million increase from
net dealership acquisitions during the year. The same store revenue increase is due to a $77, or
9.5%, increase in comparative average finance and insurance revenue per unit, which increased
revenue by $17.2 million, partially offset by the 1.2% decrease in retail unit sales, which
decreased revenue by $2.3 million. The $77 increase in finance and insurance revenue per unit was
due in part to our Sirius Satellite Radio promotion agreement, which was new in 2004. The increase
from 2002 to 2003 is due to a $17.8 million, or 13.1%, increase in same store revenues coupled with
an $18.2 million increase from net dealership acquisitions during the year. The same store revenue
increase is due to the 5.9% increase in retail unit sales, which increased revenue by $8.5 million
coupled with a $53, or 6.8%, increase in comparative average finance and insurance revenue per
unit, which increased revenue by $9.3 million.
Service and Parts Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 vs. 2003 |
|
|
|
|
|
|
|
|
|
2003 vs. 2002 |
|
|
2004 |
|
2003 |
|
Change |
|
% Change |
|
2003 |
|
2002 |
|
Change |
|
% Change |
Service and parts revenue |
|
$ |
963.6 |
|
|
$ |
771.7 |
|
|
$ |
191.9 |
|
|
|
24.9 |
% |
|
$ |
771.7 |
|
|
$ |
612.0 |
|
|
$ |
159.7 |
|
|
|
26.1 |
% |
Same store service and parts revenue |
|
$ |
818.0 |
|
|
$ |
726.2 |
|
|
$ |
91.8 |
|
|
|
12.6 |
% |
|
$ |
526.4 |
|
|
$ |
481.0 |
|
|
$ |
45.4 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
521.2 |
|
|
$ |
413.1 |
|
|
$ |
108.1 |
|
|
|
26.2 |
% |
|
$ |
413.1 |
|
|
$ |
323.7 |
|
|
$ |
89.4 |
|
|
|
27.6 |
% |
Same store gross profit |
|
$ |
439.3 |
|
|
$ |
388.3 |
|
|
$ |
51.0 |
|
|
|
13.1 |
% |
|
$ |
279.4 |
|
|
$ |
252.1 |
|
|
$ |
27.3 |
|
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
54.1 |
% |
|
|
53.5 |
% |
|
|
0.6 |
% |
|
|
1.1 |
% |
|
|
53.5 |
% |
|
|
52.9 |
% |
|
|
0.6 |
% |
|
|
1.1 |
% |
Same store gross margin |
|
|
53.7 |
% |
|
|
53.5 |
% |
|
|
0.2 |
% |
|
|
0.4 |
% |
|
|
53.1 |
% |
|
|
52.4 |
% |
|
|
0.7 |
% |
|
|
1.3 |
% |
Revenues
Service and parts revenue increased $191.9 million, or 24.9%, from 2003 to 2004 and increased
$159.7 million, or 26.1%, from 2002 to 2003. The increase from 2003 to 2004 is due to a $91.8
million, or 12.6%, increase in same store revenues coupled with a $100.1 million increase from net
dealership acquisitions during the year. The increase from 2002 to 2003 is due to a $45.4 million,
or 9.4%, increase in same store revenues coupled with a $114.3 million increase from net dealership
acquisitions during the year.
We believe that our service and parts business is being positively impacted by the growth in
total retail unit sales at our dealerships, enhancements of warranty programs offered by certain
manufacturers, and capacity increases in our service and parts operations resulting from our
facility improvement and expansion programs.
Gross Profit
Service and parts gross profit increased $108.1 million, or 26.2%, from 2003 to 2004 and
increased $89.4 million, or 27.6%, from 2002 to 2003. The increase from 2003 to 2004 is due to a
$51.0 million, or 13.1%, increase in same store gross profit coupled with a $57.1 million increase
from net dealership acquisitions during the year. The same store gross profit increase is due to
the $91.8 million, or 12.6%, increase in revenues, which increased gross profit by $49.3, and a
0.4% increase in gross margin, which increased gross profit by $1.7 million. The increase from 2002
to 2003 is due to a $27.3 million, or 10.8%, increase in same store gross profit coupled with a
$62.1 million increase from net dealership acquisitions during the year. The same store gross
profit increase is due to the $45.4 million, or 9.4%, increase in revenues, which increased gross
profit by $24.1, and a 1.3% increase in gross margin, which increased gross profit by $3.2 million.
Selling, General and Administrative
Selling, general and administrative SG&A expenses increased $181.9 million, or 20.2%, from
2003 to 2004 and increased $151.1 million, or 20.1%, from 2002 to 2003. The aggregate increase from
2003 to 2004 is primarily due to a $75.9 million, or 9.0%, increase in same store SG&A coupled with
a $106.0 million increase from net dealership acquisitions during the year. The aggregate increase
in SG&A from 2002 to 2003 is primarily due to a $32.5 million, or 5.4%, increase in same store
SG&A, coupled with a $118.6 million increase from net dealership
23
acquisitions
during the year. The
increase in same store SG&A expenses is due in large part to (1) increased variable selling
expenses, including increases in variable compensation, as a result of the 8.6% and 8.2% increase
in retail gross profit over the prior year in 2004 and 2003, respectively, (2) increased rent and
related costs in both years due in part to our facility improvement and expansion program, and (3)
increased advertising and promotion caused by the overall competitiveness of the retail vehicle
market. Such increases were offset in part in 2004 by a refund of U.K. consumption taxes and in
2003 by (1) reduced comparative legal and insurance expense and (2) the comparative effect of a
$22.8 million charge for estimated employment contract costs recorded in 2002.
Depreciation and Amortization
Depreciation and amortization increased $11.0 million, or 37.4%, from 2003 to 2004 and
increased $9.8 million, or 49.7%, from 2002 to
2003. The increase from 2003 to 2004 is due to a $9.0 million, or 31.7%, increase in same store
depreciation and amortization coupled with a $2.0 million increase from net dealership acquisitions
during the year. The same store increase is due in large part to our facility improvement and
expansion program certain costs related to the relocation of certain U.K. franchises. The increase
from 2002 to 2003 is due to a $7.1 million, or 46.2%, increase in same store depreciation and
amortization coupled with a $2.7 million increase from net dealership acquisitions during the year.
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 $6.2 million, or 15.1%, from 2003 to 2004 and increased
$8.8 million, or 27.3%, from 2002 to 2003. The increase from 2003 to 2004 is due to a $2.7 million,
or 6.7%, increase in same store floor plan interest expense coupled with a $3.5 million increase
from net dealership acquisitions during the year. The same store increase is primarily due to a net
increase in our weighted average borrowing rate during 2004 compared to 2003, offset by a decrease
in average floor plan notes outstanding. The increase from 2002 to 2003 is due to a $5.5 million,
or 20.0%, increase in same store floor plan interest expense coupled with a $3.3 million increase
from net dealership acquisitions during the year. The same store increase is primarily due to $6.0
million of incremental interest resulting from our March 2003 interest rate swap, pursuant to which
a notional amount of $350.0 million of our floating rate floor plan debt was exchanged for a 3.15%
fixed rate for a five year period, offset partially by a decrease in average floor plan notes
outstanding during 2003 compared to 2002.
Other Interest Expense
Other interest expense increased $0.1 million, or 0.3%, from 2003 to 2004 and increased $4.6
million, or 11.9%, from 2002 to 2003. The increase from 2003 to 2004 is due primarily to an
increase in our weighted average borrowing rate during 2004, offset in part by the reduction of
outstanding indebtedness with the proceeds of the March 2004 sale of our common stock. The increase
from 2002 to 2003 is due primarily to increased working capital advances and acquisition related
indebtedness, offset in part by a decrease in our weighted average borrowing rate.
Income Taxes
Income taxes increased $10.7 million, or 18.9%, from 2003 to 2004 and increased $16.1 million,
or 40.0%, from 2002 to 2003. The increase in both years is due primarily to an increase in pre-tax
income, offset by a reduction in our effective rate resulting primarily from an increase in the
relative proportion of our income from our U.K. operations, which are taxed at a lower 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 and the issuance of equity securities. As of
December 31, 2004, we had working capital of $113.7 million, including $15.2 million of cash,
available to fund the Companys operations and capital commitments. In addition, we had $310.7
million and £67.2 million ($129.0 million) available for borrowing under our U.S. credit agreement
and our U.K. credit agreement, respectively, which are each discussed below.
We paid cash dividends on our common stock on December 1, 2004 and March 1, 2005, each in the
amount of eleven cents per share. 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 our
cash flow from operating activities 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 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
24
equity offering could require the prior approval
of certain automobile manufacturers. In connection with such potential significant acquisitions,
there is no assurance that we would be able to access the capital markets or increase our borrowing
capabilities on terms acceptable to us, if at all.
Inventory Financing
We finance substantially all of our new and a portion of our used vehicle inventories under
revolving floor plan notes payable 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
the floor plan arrangements are payable on demand or have an original maturity of 90 days or less.
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 prime or LIBOR borrowing rates. The weighted average
interest rate on floor plan borrowings was 4.22%, 4.48% and 5.13% for the years ended December 31,
2004, 2003 and 2002, respectively. The Company receives non-refundable credits from certain of its
vehicle manufacturers, which are treated as a reduction of cost of goods sold as vehicles are sold.
Such credits amounted to $32.4 million, $30.0 million and $27.9 million during the years ended
December 31, 2004, 2003 and 2002, respectively.
U.S. Credit Agreement
We are party to a credit agreement with DaimlerChrysler Services North America LLC and Toyota
Motor Credit Corporation, as amended effective October 1, 2004 (the U.S. Credit Agreement), which
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, 2007. The revolving loans bear
interest between defined LIBOR plus 2.60% and defined LIBOR plus 3.75%.
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 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. As
of December 31, 2004, we were in compliance with all covenants under the U.S. Credit Agreement, and
management believes the Company will remain in compliance with such covenants for the foreseeable
future. In making such determination, management 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 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 December
31, 2004, outstanding borrowings and letters of credit under the U.S. Credit Agreement amounted to
$254.8 million and $34.5 million, respectively.
U.K. Credit Agreement
Our subsidiaries in the U.K. (the U.K. Subsidiaries) are party to a credit agreement with
the Royal Bank of Scotland dated February 28, 2003, as amended (the U.K. Credit Agreement), which
provides for up to £65.0 million in revolving and term loans to be used for acquisitions, working
capital, and general corporate purposes. 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. Term loan capacity under the U.K. Credit
Agreement was originally £10.0 million, which is reduced by £2.0 million every six months. As of
December 31, 2004, term loan capacity under the U.K. Credit Agreement amounted to £6.0 million. The
remaining £55.0 million of revolving loan capacity matures on March 31, 2007.
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. As
of
25
December 31, 2004, we were in compliance with all covenants under the U.K. Credit Agreement, and
management believes that the Company will remain in compliance with such covenants for the
foreseeable future. In making such determination, management 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.
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 December 31, 2004, outstanding borrowings under the U.K. Credit Agreement
amounted to approximately £8.8 million ($16.8 million).
Senior Subordinated Notes
We have outstanding $300.0 million aggregate principal amount of 9.625% Senior Subordinated
Notes due 2012 (the Notes). The Notes are unsecured senior subordinated notes and rank behind all
existing and future senior debt, including debt under our credit agreements and floor plan
indebtedness. The Notes are guaranteed by substantially all domestic subsidiaries on a senior
subordinated basis. We can redeem all or some of the Notes at our option beginning in 2007 at
specified redemption prices. Upon a change of control, each holder of Notes will be able to require
us to repurchase all or some of the Notes at a redemption price of 101% of the principal amount of
the Notes. The Notes also contain customary negative covenants and events of default. As of
December 31, 2004, we were in compliance with all negative covenants and there were no events of
default.
Interest Rate Swaps
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 the LIBOR based U.S. floor plan
borrowings. As of December 31, 2004, we expect approximately $4.0 million of interest associated
with the swap to be reclassified as a charge to income over the next twelve months.
Other Financing Arrangements
In the past, we have entered into 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. We
believe we will continue to utilize these types of transactions in the future. Such sales generate
proceeds which vary from period to period. Commitments under such leases are included in the table
of contractual payment obligations below.
Capital Transaction
On March 26, 2004, we sold an aggregate of 4,050,000 shares of our common stock to Mitsui &
Co., Ltd. and Mitsui & Co. (U.S.A.), Inc. for $119.4 million, or $29.49 per share. The proceeds of
the sale were used for general corporate purposes, which included reducing outstanding indebtedness
under our credit agreements.
Cash Flows
We finance substantially all of our new and a portion of our used vehicle inventories under
revolving floor plan notes payable with various lenders. Historically, we reported all cash flows
arising in connection with changes in floor plan notes payable as an operating activity. We have
restated and reclassified 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, and have reclassified related cash flows as a financing activity to
comply with the guidance under Statement of Financial Accounting Standards No. 95, Statement of
Cash Flows.
As a result, the Consolidated Statement of Cash
Flows has been restated, resulting in a $59.9 million increase in cash
flows from continuing operating activities and a corresponding
decrease in cash flows from continuing financing activities for the
year ended December 31, 2004, and a $150.7 million and $48.0 million
decrease in cash flows from continuing operating activities and a
corresponding increase in cash flows from continuing financing
activities for the year ended December 31, 2003 and 2002,
respectively.
Cash and cash equivalents increased by $1.3 million, $3.6 million and $6.4 million during the
years ended December 31, 2004, 2003 and 2002. The major components of these changes are discussed
below.
Cash Flows from Continuing Operating Activities
Cash
provided by operating activities was $247.4 million, $24.3 million and $39.3 million
during the years ended December 31, 2004, 2003 and 2002, respectively. Cash flows from operating
activities include net income adjusted for non-cash items and the effects of changes in working
capital.
26
We believe that changes in aggregate floor plan liabilities are directly 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 Consolidated Statement of Cash Flows as if all
changes in vehicle floor plan were classified as an operating activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Net cash from continuing operating activities as reported |
|
$ |
247,447 |
|
|
$ |
24,264 |
|
|
$ |
39,335 |
|
Floor plan notes payable non-trade as reported |
|
|
(59,901 |
) |
|
|
150,705 |
|
|
|
47,967 |
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing operating activities including all floor plan notes payable |
|
$ |
187,546 |
|
|
$ |
174,969 |
|
|
$ |
87,302 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Continuing Investing Activities
Cash used in investing activities was $237.4 million, $178.2 million and $291.3 million during
the years ended December 31, 2004, 2003 and 2002, respectively. Cash flows from investing
activities consist primarily of cash used for capital expenditures, proceeds from sale-leaseback
transactions and net expenditures for dealership acquisitions. Capital expenditures were $231.8
million, $198.2 million and $183.3 million during the years ended December 31, 2004, 2003 and 2002,
respectively. Capital expenditures relate primarily to improvements to our existing dealership
facilities and the construction of new facilities. Proceeds from sale-leaseback transactions were
$149.1 million, $133.4 million and $85.5 million during the years ended December 31, 2004, 2003 and
2002, respectively. Cash used in business acquisitions, net of cash acquired, was $168.2 million,
$113.4 million and $193.5 million during the years ended December 31, 2004, 2003 and 2002,
respectively. Cash flows from investing activities include $13.6 million of proceeds received from
the sale of an investment during the year ended December 31, 2004.
Cash Flows from Continuing Financing Activities
Cash used in financing activities was $27.2 million during the year ended December 31, 2004,
and cash provided by financing activities was $130.9 million and $237.5 million during the years
ended December 31, 2003 and 2002, respectively. Cash flows from financing activities include
borrowings and repayments of long-term debt, net borrowings or repayments of floor plan notes
payable non-trade, proceeds from the issuance of common stock, including proceeds from the exercise
of stock options, repurchases of common stock and dividends. We had net repayments of long-term
debt of $74.3 million and $25.6 million during the years ended December 31, 2004 and 2003,
respectively. We had net borrowings of long-term debt of $78.3 million during the year ended
December 31, 2002. We had net repayments of floor plan notes payable non-trade of $59.9 million
during the year ended December 31, 2004 and net borrowings of floor plan notes payable non-trade of
$150.7 million and $48.0 million during the years ended December 31, 2003 and 2002, respectively.
During the years ended December 31, 2004, 2003 and 2002 we received proceeds of $125.4 million,
$9.9 million and $135.3 million, respectively from the issuance of common stock. During the years
ended December 31, 2004 and 2003, we paid $18.4 million and $4.1 million, respectively, of cash
dividends to our stockholders. During the year ended December 31, 2002, we repurchased $16.0
million of our common stock and we paid $8.1 million of financing costs.
Contractual Payment Obligations
The table below sets forth our best estimates as to the amounts and timing of future payments
relating to our most significant contractual obligations as of December 31, 2004. The information
in the table reflects future unconditional payments and is based upon, among other things, the
terms of any relevant agreements. Future events, including acquisitions, divestitures, entering
into new operating lease agreements, the amount of borrowings under our credit agreements and floor
plan arrangements and purchases or refinancing of our securities, could cause actual payments to
differ significantly from these amounts. See Forward-Looking Statements.
27
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Payments due in |
|
|
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Total |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Thereafter |
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|
(in millions) |
|
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|
|
|
Floorplan
Notes Payable (including non-trade) (A) |
|
$ |
1,197.5 |
|
|
$ |
1,197.5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
U.S. Credit Agreement(B) |
|
$ |
254.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
254.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
U.K. Credit Agreement(B) |
|
$ |
16.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
16.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
9.625% Senior Subordinated Notes |
|
$ |
300.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
300.0 |
|
Other Debt |
|
$ |
14.7 |
|
|
$ |
11.4 |
|
|
$ |
2.0 |
|
|
$ |
0.5 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
0.4 |
|
Scheduled interest payments (C) |
|
$ |
232.2 |
|
|
$ |
29.8 |
|
|
$ |
29.0 |
|
|
$ |
28.9 |
|
|
$ |
28.9 |
|
|
$ |
28.9 |
|
|
$ |
86.7 |
|
Operating Lease Commitments |
|
$ |
1,520.4 |
|
|
$ |
123.3 |
|
|
$ |
119.9 |
|
|
$ |
115.8 |
|
|
$ |
112.8 |
|
|
$ |
109.4 |
|
|
$ |
939.2 |
|
Deferred Acquisition Payments |
|
$ |
24.5 |
|
|
$ |
24.5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Employment Contract Termination Costs |
|
$ |
8.4 |
|
|
$ |
8.4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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|
|
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|
|
|
|
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|
|
|
|
|
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|
|
$ |
3,569.3 |
|
|
$ |
1,394.9 |
|
|
$ |
150.9 |
|
|
$ |
416.8 |
|
|
$ |
141.9 |
|
|
$ |
138.5 |
|
|
$ |
1,326.3 |
|
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|
(A) |
|
Floor plan notes payable are revolving financing arrangements. Payments are generally made as
required pursuant to the floor plan borrowing agreements. |
|
(B) |
|
Commitments under letters of credit expire concurrently with the expiration of our credit agreements. |
|
(C) |
|
Estimates of future variable rate interest payments are excluded. |
We expect that the amounts above will be funded through cash flow from operations. In the case
of balloon payments at the end of the term
of our debt instruments, we expect to be able to refinance such instruments in the normal course of
business.
Commitments
In connection with an acquisition of dealerships completed in October 2000, we agreed to make
a contingent payment in cash to the extent 841,476 shares of common stock issued as consideration
for the acquisition are sold subsequent to the fifth anniversary of the transaction and have a
market value of less than $12.00 per share at the time of sale. We will be forever released from
this guarantee in the event the average daily closing price of our common stock for any 90 day
period subsequent to the fifth anniversary of the transaction exceeds $12.00 per share. In the
event we are required to make a payment relating to this guarantee, such payment would result in
the revaluation of the common stock issued in the transaction, resulting in a reduction of
additional paid-in-capital. We have further granted the seller a put option pursuant to which we
may be required to repurchase no more than 108,333 shares for $12.00 per share on each of the first
five anniversary dates of the transaction. To date, no payments have been made by us relating to
the put option. As of December 31, 2004, the maximum of future cumulative cash payments we may be
required to make in connection with the put option amounted to $1.3 million.
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
Stockholders Agreement
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 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.
28
Mitsui Transaction
On March 26, 2004, we sold an aggregate of 4,050,000 shares of common stock to Mitsui for
$119,435. Proceeds from the sale were used for general corporate purposes, which included reducing
outstanding indebtedness under our credit agreements.
Other Related Party Interests
James A. Hislop, one of our directors, is the President, Chief Executive Officer and a
managing member of Penske Capital Partners, a director of Penske Corporation and a managing
director of Transportation Resource Partners, an organization which undertakes investments in
transportation related industries. Roger S. Penske also is a managing member of Penske Capital
Partners and Transportation Resource Partners. Richard J. Peters, 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 board members, Mr. 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 Executive Vice President and General Counsel, 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.
Other Transactions
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 which
are subsequently leased by AGR to us. The sale of each parcel of property is valued at a price
which is independently confirmed by a third party appraiser. During 2004 and 2003, we paid $5.6 and
$5.9 million, respectively to AGR under these lease agreements. In addition, in 2004 and 2003 we
sold AGR real property and improvements for $30.8 and $19.3 million, respectively, which were
subsequently leased by AGR to us. There were no gains or losses associated with such sales.
We sometimes pay and/or receive fees to/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. Payments made relating to services rendered 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 are currently a tenant under a number of non-cancelable lease agreements with Samuel X.
DiFeo and members of his family. Mr. DiFeo is our President and Chief Operating Officer. We paid
$5.5 million during both 2004 and 2003 to Mr. DiFeo and his family under these lease agreements. We
believe that the terms of these transactions are 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 also
provide these subsidiaries with working capital and other debt financing at costs that are based on
our incremental borrowing rate. As of December 31, 2004 our joint venture relationships are as
follows:
|
|
|
|
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|
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|
|
|
|
Ownership |
Location |
|
Dealerships |
|
Interest |
Fairfield, Connecticut
|
|
Mercedes-Benz, Audi, Porsche
|
|
|
92.90 |
%(A) |
Edison, New Jersey
|
|
Ferrari
|
|
|
70.00 |
% |
Tysons Corner, Virginia
|
|
Mercedes-Benz, Maybach, Audi,
|
|
|
90.00 |
%(B) |
|
|
Porsche, Aston Martin, |
|
|
|
|
Mentor, Ohio
|
|
Honda
|
|
|
70.00 |
% |
Munich, Germany
|
|
BMW
|
|
|
50.00 |
% |
Frankfurt, Germany
|
|
Lexus, Toyota
|
|
|
50.00 |
% |
Mexico
|
|
Toyota
|
|
|
48.70 |
% |
Mexico
|
|
Toyota
|
|
|
45.00 |
% |
|
|
|
(A) |
|
An entity controlled by one of our directors, Lucio A. Noto (the
Investor), owns a 7.1% 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 |
29
|
|
|
|
|
the joint venture for specified amounts. |
|
(B) |
|
Roger S. Penske, Jr. owns a 10% interest in this joint venture. |
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 similar periods of decline and recession as 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, there can be no assurance that 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
annual report on Form 10-K/A 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:
|
|
our future financial performance; |
|
|
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; |
|
|
trends affecting our future financial condition or results of operations; and |
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 SEC. 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; |
|
|
if we are unable to complete additional acquisitions or successfully integrate acquisitions, we may not be able to achieve
desired results from our acquisition strategy; |
30
|
|
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 automotive dealerships are subject to foreign, federal, state and local 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; |
|
|
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 overseas operations 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 7A. 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 December 31, 2004, a 100 basis point change in interest rates would
result in an approximate $2.7 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, a 100 basis point change in interest rates would result in an approximate $9.0
million change to our annual interest expense.
Interest rate fluctuations affect the fair market value of our fixed rate debt, including the
Notes and certain seller financed promissory notes, but, with respect to such fixed rate
instruments, do not impact our earnings or cash flows.
Foreign Currency Exchange Rates. As of December 31, 2004, we have invested in franchised
dealership operations in the U.K., Germany, and Mexico. 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. In the event we
change our intent with respect to the
31
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 $263.3 million change
to our revenues for the year ended December 31, 2004.
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 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 8. Financial Statements and Supplementary Data
See the consolidated financial statements listed in the accompanying Index to Consolidated
Financial Statements for the information required by this item.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that both non-financial and
financial information required to be disclosed in our periodic reports is recorded, processed,
summarized and reported in a timely fashion. Based on the fourth quarter evaluation, the principal
executive officer and principal financial officer concluded that our disclosure controls and
procedures are effective as of December 31, 2004. In addition, we maintain internal controls
designed to provide us with the information it requires for accounting and financial reporting
purposes. There were no changes in our internal controls over financial reporting that occurred
during our fourth quarter of 2004 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. In addition,
we have considered the restatement of our Consolidated Balance Sheets and Consolidated
Statements of Cash Flows to comply with the guidance under Statement
of Financial Accounting Standards No. 95, Statement of
Cash Flows and
have concluded that such restatement does not represent a material
weakness in our internal control over financial reporting. The information set forth in Managements
Report on Internal Control Over Financial Reporting following the index to the Financial
Statements is incorporated herein by reference.
Item 9B. Other Information
Not applicable.
32
PART III
The information required by Items 10 through 14 is included in the Companys definitive proxy
statement under the caption Election of Directors, Executive Officers, Executive
Compensation, Security Ownership of Certain Beneficial Owners and Management, Related Party
Transactions, Other Matters and The Board of Directors and its Committees. Such information is
incorporated herein by reference. The following is a list of our executive officers and directors,
including their principal occupation.
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
|
Other Occupation |
Roger S. Penske
|
|
|
68 |
|
|
Chairman of the Board,
|
|
Chairman of the Board and |
|
|
|
|
|
|
Chief Executive Officer
|
|
CEO of Penske Corporation |
Samuel X. DiFeo
|
|
|
55 |
|
|
President, Chief Operating Officer |
|
|
James R. Davidson
|
|
|
59 |
|
|
Executive Vice President |
|
|
|
|
|
|
|
|
Finance |
|
|
Robert H. Kurnick, Jr.
|
|
|
43 |
|
|
Executive Vice President,
|
|
President of Penske Corporation |
|
|
|
|
|
|
General Counsel |
|
|
Paul F. Walters
|
|
|
61 |
|
|
Executive Vice President
|
|
Executive Vice President |
|
|
|
|
|
|
Human Resources
|
|
Administration of Penske Corporation |
John D. Barr
|
|
|
56 |
|
|
Director
|
|
Chairman, Performance Logistics Group |
Michael R. Eisenson
|
|
|
49 |
|
|
Director
|
|
Managing Director and CEO of Charlesbank Capital Partners, LLC |
James A. Hislop
|
|
|
47 |
|
|
Director
|
|
Managing Director, Transportation Resource Partners, LLC |
Hiroshi Ishikawa
|
|
|
42 |
|
|
Director
|
|
Executive Vice President United Auto Group, Inc. |
William J. Lovejoy
|
|
|
64 |
|
|
Director
|
|
Manager, Lovejoy & Associates, LLC |
Kimberly J. McWaters
|
|
|
40 |
|
|
Director
|
|
CEO, Universal Technical Institute, Inc. |
Eustace W. Mita
|
|
|
50 |
|
|
Director
|
|
Chairman, Achristavest, LLC |
Lucio A. Noto
|
|
|
66 |
|
|
Director
|
|
Retired Vice Chairman, ExxonMobil Corporation |
Richard J. Peters
|
|
|
57 |
|
|
Director
|
|
Managing Director, Transportation Resource Partners, LLC |
Ronald G. Steinhart
|
|
|
64 |
|
|
Director
|
|
Retired Chairman and CEO Commercial Banking Group, Bank One
Corporation |
H. Brian Thompson
|
|
|
66 |
|
|
Director
|
|
Chairman, Comsat International |
PART IV
Item 15. Exhibits and Financial Statement Schedules
(1) Financial Statements
The consolidated financial statements listed in the accompanying Index to Consolidated
Financial Statements are filed as part of this Annual Report on Form 10-K/A.
(2) Financial Statement Schedules Schedule II Valuation and Qualifying Accounts.
(3) Exhibits See the Index of Exhibits following this item.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on January 23, 2006.
United Auto Group, Inc.
|
|
|
By:
|
|
/s/ Roger S. Penske |
|
|
|
|
|
Roger S. Penske |
|
|
Chairman of the Board and |
|
|
Chief Executive Officer |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
this report has been signed by following persons on behalf of the registrant and in the capacities
and on the date indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
Chairman of the Board and
|
|
January 23, 2006 |
/s/
Roger S. Penske
|
|
Chief Executive Officer |
|
|
Roger S. Penske
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James R. Davidson
|
|
Executive Vice President
Finance
|
|
January 23, 2006 |
James R. Davidson
|
|
(Principal Financial Officer)
(Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/
John Barr |
|
|
|
|
John Barr
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/ Michael R.
Eisenson |
|
|
|
|
Michael R. Eisenson
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
James A. Hislop |
|
|
|
|
James A. Hislop
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
Hiroshi Ishikawa |
|
|
|
|
Hiroshi Ishikawa
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
William J. Lovejoy |
|
|
|
|
William J. Lovejoy
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/ Kimberly J.
McWaters |
|
|
|
|
Kimberly J. McWaters
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
Eustace W. Mita |
|
|
|
|
Eustace W. Mita
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
Lucio A. Noto |
|
|
|
|
Lucio A. Noto
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
Richard J. Peters |
|
|
|
|
Richard J. Peters
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
Ronald G. Steinhart |
|
|
|
|
Ronald G. Steinhart
|
|
Director
|
|
January 23, 2006 |
|
|
|
|
|
/s/
H. Brian Thompson |
|
|
|
|
H. Brian Thompson
|
|
Director
|
|
January 23, 2006 |
34
INDEX OF EXHIBITS
Each management contract or compensatory plan or arrangement is identified with an asterisk.
|
|
|
3.1
|
|
Certificate of Incorporation (incorporated by reference to exhibit 3.2 to our Form 10-Q filed on August 9, 2004). |
|
|
|
3.2
|
|
Bylaws (incorporated by reference to exhibit 3.4 to our Form 10-Q filed on August 9, 2004). |
|
|
|
4.1.1
|
|
Indenture dated as of March 18, 2002 among us, as Issuer, and certain of our domestic subsidiaries, as Guarantors, and
Bank One Trust Company, N.A., as Trustee (incorporated by reference to exhibit 4.3 to our registration statement on Form
S-4, registration no. 333-87452, filed May 2, 2002). |
|
|
|
4.1.2
|
|
First Supplemental Indenture dated as of December 19, 2003 among us, as Issuer, and certain of our domestic
subsidiaries, as Guarantors, and J.P. Morgan Trust Company, N.A. (as successor in interest to Bank One Trust Company,
N.A.), as Trustee (incorporated by reference to our 2003 Form 10-K filed March 15, 2004). |
|
|
|
4.1.3
|
|
Second Supplemental Indenture dated as of July 12, 2004 among us, as Issuer, and certain of our domestic subsidiaries,
as Guarantors, and J.P. Morgan Trust Company, N.A. (as successor in interest to Bank One Trust Company, N.A.), as
Trustee (incorporated by reference to our originally filed Form 10-K
filed March 14, 2005). |
|
|
|
4.1.4
|
|
Third Supplemental Indenture dated as of January 5, 2005 among us, as Issuer, and certain of our domestic subsidiaries,
as Guarantors, and J.P. Morgan Trust Company, N.A. (as successor in interest to Bank One Trust Company, N.A.), as
Trustee (incorporated by reference to our originally filed Form 10-K
filed March 14, 2005). |
|
|
|
4.2
|
|
Second Amended and Restated Credit Agreement, dated as of September 8, 2004, among us, DaimlerChrysler Services North
America, LLC and Toyota Motor Credit Corporation (incorporated by reference to our September 8, 2004 Form 8-K). |
|
|
|
4.3
|
|
Seconded Amended and Restated Security Agreement dated as of September 8, 2004 among United Auto Group, Inc.,
DaimlerChrysler Services North America LLC and Toyota Motor Credit Corporation (incorporated by reference to Exhibit
10.2 to our September 8, 2004 Form 8-K). |
|
|
|
4.4.1
|
|
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 10.2 to our Form 10-Q for the quarter ended March
31, 2003). |
|
|
|
4.4.2
|
|
Supplemental Agreement dated March 30, 2004 between The Royal Bank of Scotland plc acting as agent for National
Westminster Bank Plc and Sytner Group Limited (incorporated by reference to our form 10-Q filed August 9, 2004). |
|
|
|
4.4.3
|
|
Supplemental Agreement dated May 25, 2004 between The Royal Bank of Scotland plc acting as agent for National
Westminster Bank Plc and Sytner Group Limited (incorporated by reference to our form 10-Q filed August 9, 2004). |
|
|
|
10.1
|
|
Form of Dealer Agreement with Infiniti Division of Nissan North America, Inc. (incorporated by reference to exhibit
10.2.1 to our 2001 Form 10-K). |
35
|
|
|
10.2
|
|
Form of Dealer Agreement with Jaguar Cars, a division of Ford Motor Company (incorporated by reference to exhibit 10.2.2
to our 2001 Form 10-K). |
|
|
|
10.3
|
|
Form of Dealer Agreement With Honda Automobile Division, American Honda Motor Co. (incorporated by reference to exhibit
10.2.3 to our 2001 Form 10-K). |
|
|
|
10.4
|
|
Form of Dealer Agreement with Lexus, a division of Toyota Motor Sales, U.S.A., Inc. (incorporated by reference to
exhibit 10.2.4 to our 2001 Form 10-K). |
|
|
|
10.5
|
|
Form of Car Center Agreement with BMW of North America, Inc. (incorporated by reference to exhibit 10.2.5 to our 2001
Form 10-K) |
|
|
|
10.6
|
|
Form of SAV Center Agreement with BMW of North America, Inc. (incorporated by reference to exhibit 10.2.6 to our 2001
Form 10-K). |
|
|
|
10.7
|
|
Form of Dealer Agreement with Toyota Motor Company (incorporated by reference to exhibit 10.2.7 to our 2001 Form 10-K). |
|
|
|
10.8
|
|
Form of Dealer Agreement with General Motors Corporation (incorporated by reference to exhibit 10.2.8 to our 2001 Form
10-K). |
|
|
|
10.9
|
|
Form of Dealer Agreement with Nissan North America, Inc.
(incorporated by reference to exhibit 10.2.9 to our 2001 Form 10-K). |
|
|
|
10.10
|
|
Form of Sales and Service Agreement with Chrysler Corporation
(incorporated by reference to exhibit 10.2.10 to our 2001 Form
10-K). |
|
|
|
10.11
|
|
Form of Mercedes-Benz USA, Inc. Passenger and Car Retailer Agreement
(incorporated by reference to exhibit 10.2.11 to our Form 10-Q for
the quarter ended March 31, 2000). |
|
|
|
10.12
|
|
Form of Mercedes-Benz USA, Inc. Light Truck Retailer Agreement
(incorporated by reference to exhibit 10.2.12 to our Form 10-Q for
the quarter ended March 31, 2000). |
|
|
|
10.13
|
|
Form of Mercedes Benz USA, LLC Maybach Passenger Car Dealer
Agreement (incorporated by reference to exhibit 10.2 to our Form
10-Q for the quarter ended June 30, 2003). |
|
|
|
10.14
|
|
Form of Sales and Service Agreement with Ford Motor Company
(incorporated by reference to exhibit 10.2.13 to our 2001 Form
10-K). |
|
|
|
10.15
|
|
Form of Dealer Agreement with Audi of America, Inc., a division of
Volkswagen of America, Inc. (incorporated by reference to exhibit
10.2.14 to our 2001 Form 10-K). |
|
|
|
10.16
|
|
Form of Dealer Agreement with Acura Division, American Honda Motor
Co., Inc. (incorporated by reference to exhibit 10.2.15 to our 2001
Form 10-K). |
|
|
|
10.17
|
|
Form of Sales and Service Agreement with Porsche Cars North America
(incorporated by reference to exhibit 10.2.16 to our 2001 Form
10-K). |
|
|
|
10.18
|
|
Form of Dealer Agreement with Land Rover North America, Inc.
(incorporated by reference to exhibit 10.2.17 to our 2001 Form
10-K). |
|
|
|
*10.19
|
|
Letter Agreement dated August 3, 1999 between us and Samuel X. DiFeo
(incorporated by reference to our originally filed Form 10-K on
March 14, 2005). |
|
|
|
*10.20
|
|
Letter Agreement dated August 2, 2000 amending the Letter Agreement
dated August 3, 1999 between us and Samuel X. DiFeo (incorporated by reference to our originally filed Form 10-K on
March 14, 2005). |
|
|
|
36
|
|
|
*10.21
|
|
Stock Option Agreement, dated as of August 3, 1999, between us and
Roger S. Penske (incorporated by reference to exhibit 10.3 to our
Form 8-K filed August 13, 1999). |
|
|
|
*10.22
|
|
Quarterly Bonus Criteria for James
R. Davidson (incorporated by reference to our originally filed Form 10-K on
March 14, 2005). |
|
|
|
*10.23
|
|
United Auto Group, Inc. Amended and Restated Stock Option Plan dated
as of December 10, 2003. (incorporated by reference to our 2003 10-K
filed March 15, 2004). |
|
|
|
*10.24
|
|
Amended and Restated United Auto Group, Inc. 2002 Equity
Compensation Plan (incorporated by reference to our 2003 10-K filed
March 15, 2004). |
|
|
|
*10.25
|
|
Form of Restricted Stock Agreement (incorporated by reference to
exhibit 10.3 to our Form 10-Q for the quarter ended June 30, 2003). |
|
|
|
*10.26
|
|
Amended and Restated United Auto Group, Inc. Non-Employee Director
Compensation Plan (incorporated by reference to our 10-Q filed
August 9, 2004). |
|
|
|
*10.27
|
|
United Auto Group, Inc. Management Incentive Plan (effective July 1,
2003) (incorporated by reference to exhibit 10.1 to our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003). |
|
|
|
10.28
|
|
Limited Liability Company Agreement of UAG Mentor Acquisition, LLC
dated July 1, 2003 between us and YAG Acquisition, LLC dated July 1,
2003 between us and YAG Mentor Investors, LLC (incorporated by
reference to exhibit 10.2 to our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003). |
|
|
|
10.29.1
|
|
First Amended and Restated Limited Liability Company Agreement dated
April 1, 2003 between UAG Connecticut I, LLC and Noto Holdings, LLC
(incorporated by reference to exhibit 10.3 to our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2003). |
|
|
|
10.29.2
|
|
Letter Agreement dated April 1, 2003 among UAG Connecticut I, LLC,
Noto Holdings, LLC and the other parties named therein (incorporated
by reference to exhibit 10.4 to our Form 10-Q for the quarter ended
March 31, 2003. |
|
|
|
10.29.3
|
|
Letter Agreement dated April 1, 2003 between UAG Connecticut I, LLC
and Noto Holdings, LLC (incorporated by reference to exhibit 10.2 to
our Form 10-Q for the quarter ended March 31, 2003). |
|
|
|
10.30
|
|
CarsDirect.com, Inc. Series D Preferred Stock Purchase and Warrant Agreement (incorporated by reference to exhibit 10.24
to our Form 10-Q for the quarter ended June 30, 2000). |
|
|
|
10.31
|
|
Operating Agreement dated May 12, 2000 between us, Penske Automotive Group, Inc. and CarsDirect.com, Inc. (incorporated
by reference to exhibit 10.25 to our Form 10-Q for the quarter ended June 30, 2000). |
|
|
|
10.32
|
|
Registration Rights Agreement dated May 3, 1999 by and among us, International Motorcars Group I, L.L.C., and
International Motorcars Group II, L.L.C. (incorporated by reference to exhibit 10.20.7 to our Form 8-K filed on May 10,
1999). |
|
|
|
10.33
|
|
Registration Rights Agreement among us and Penske Automotive Holdings Corp. dated as of December 22, 2000 (incorporated
by reference to exhibit 10.26.1 to our Form 10-K for the year ended December 31, 2000). |
|
|
|
10.34
|
|
Second Amended and Restated Registration Rights Agreement among us, Mitsui & Co., Ltd. and Mitsui & Co. (U.S.A.), Inc.
dated as of March 26, 2004 (incorporated by reference to the exhibit 10.2 to our March 26, 2004 Form 8-K). |
|
|
|
10.35
|
|
Letter Agreement among Penske Corporation, Penske Capital Partners, L.L.C., Penske Automotive Holdings Corp.,
International Motor Cars Group I, L.L.C., Mitsui & Co., Ltd. and Mitsui & Co. (U.S.A.), Inc. dated April 4, 2003
(incorporated by reference to exhibit 5 to the Schedule 13D filed by Mitsui on April 10, 2003). |
|
|
|
10.36
|
|
Purchase Agreement by and between Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), Inc., International Motor Cars Group I,
L.L.C., International Motor Cars Group II, L.L.C., Penske Corporation, Penske Automotive Holdings Corp, and United Auto
Group, Inc. (incorporated by reference to exhibit 10.1 to our Form 8-K filed on February 17, 2004). |
|
|
|
10.37
|
|
HBL, LLC Limited Liability Company Agreement dated December 31, 2001, between H.B.L. Holdings, Inc. and Roger S. Penske,
Jr. (incorporated by reference to exhibit 10.28.1 to registration statement no. 333-82264 filed February 6, 2002). |
|
|
|
10.38
|
|
Operating Agreement of United Auto do Brasil, LTDA dated November 4, 1999 between UAG Holdings do Brasil, LTDA and RSP
Holdings do Brasil, LTDA (incorporated by reference to exhibit 10.29 to our Form 10-Q for the quarter ended June 30,
2001). |
|
|
|
10.39
|
|
Stockholders Agreement among International Motor Cars Group I,
L.L.C., International Motor Cars Group II, L.L.C., Penske Automotive
Holdings Corp., Penske Corporation and Mitsui & Co., Ltd. and Mitsui
& Co. (USA), Inc. dated as of March 26, 2004 (incorporated by
reference to exhibit 10.1 to our March 26, 2004 Form 8-K).
|
37
|
|
|
21
|
|
Subsidiary List (incorporated by reference to our originally filed Form 10-K on
March 14, 2005). |
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP. |
|
|
|
23.2
|
|
Consent of KPMG Audit Plc. |
|
|
|
31.1
|
|
Rule 13a-14(a)/15(d)-14(a) Certifications. |
|
|
|
32
|
|
Section 1350 Certifications. |
|
|
|
99.1
|
|
Risk Factors relating to United
Auto Group (incorporated by reference to our originally filed Form 10-K on
March 14, 2005). |
38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED AUTO GROUP, INC
As of December 31, 2004 and 2003 and for the years ended
December 31, 2004, 2003 and 2002
|
|
|
|
|
F-2 |
|
|
F-3 |
|
|
F-7 |
|
|
F-8 |
|
|
F-9 |
|
|
F-10 |
|
|
F-11 |
F-1
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of United Auto Group, Inc. (the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting. The Companys internal control
system was designed to provide reasonable assurance to the Companys management and board of
directors that the Companys internal control over financial reporting provides reasonable
assurance regarding the reliability of financial reporting and the preparation and presentation of
financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America.
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on our assessment we believe that, as of December 31, 2004, the
Companys internal control over financial reporting is effective based on those criteria.
The Companys independent auditors that audited the consolidated financial statements included
in the Companys Annual Report on Form 10-K/A have issued an audit report on our assessment of the
Companys internal control over financial reporting. This report appears on page F-4.
United Auto Group, Inc.
March 14, 2005
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of UAG UK Holdings Limited (the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting. The Companys internal control
system was designed to provide reasonable assurance to the Companys management and board of
directors that the Companys internal control over financial reporting provides reasonable
assurance regarding the reliability of financial reporting and the preparation and presentation of
financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America.
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated
Framework. Based on our assessment we believe that, as of December 31, 2004, the Companys internal
control over financial reporting is effective based on those criteria.
The Companys independent auditors that audited the consolidated financial statements of UAG
UK Holdings Limited have issued an audit report on our assessment of the Companys internal control
over financial reporting. This report appears on page F-6.
UAG UK Holdings Limited
March 14, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of United Auto Group, Inc.
Bloomfield Hills, Michigan
We have audited the accompanying consolidated balance sheets of United Auto Group, Inc. and
subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of income, stockholders equity and comprehensive income, and cash flows for each of the
three years in the period ended December 31, 2004. Our audits included the financial statement
schedule included in Item 15. These financial statements and financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits. We did not audit the
financial statements of UAG UK Holdings Limited (a consolidated subsidiary) for the years ended
December 31, 2004, 2003 and 2002, which statements reflect total
assets constituting 22% of the Companys consolidated total assets as of December 31, 2004 and 2003, and total
revenues constituting 27%, 22% and 17% of the Companys consolidated total revenues for the years
ended December 31, 2004, 2003 and 2002, respectively. Such financial statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for UAG UK Holdings Limited as of December 31, 2004 and 2003, and the years ended
December 31, 2004, 2003 and 2002 is based solely on the report of such other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such consolidated
financial statements present fairly, in all material respects, the financial position of the
Company and subsidiaries at December 31, 2004 and 2003, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2004 in conformity
with accounting principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects the information set
forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004, based on the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 14, 2005 expressed an unqualified opinion on managements assessment of
the effectiveness of the Companys internal control over financial reporting and an unqualified
opinion on the effectiveness of the Companys internal control over financial reporting based on
our audits and the report of other auditors.
As discussed in Note 1 to the consolidated financial statements, the Company changed its
method of accounting for cash consideration received from a vendor in 2003 to conform to Emerging
Issues Task Force Issue No. 02-16. Also as discussed in Note 1,
certain amounts in the accompanying consolidated financial statements have been restated.
/s/ Deloitte & Touche LLP
New York, New York
March 14,
2005 (January 23, 2006 as to the effects of the restatement and
discontinued operations discussed in Note 1)
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
United Auto Group, Inc.
Bloomfield Hills, Michigan
We have audited managements assessment, included in the accompanying Management Report on
Internal Control Over Financial Reporting, that United Auto Group, Inc. and Subsidiaries (the
Company) maintained effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit. We did not examine the effectiveness of
internal control over financial reporting of UAG UK Holdings Limited, a wholly owned subsidiary,
whose financial statements reflect total assets and revenues
constituting 22 and 27% percent,
respectively, of the related consolidated financial statement amounts as of and for the year ended
December 31, 2004. The effectiveness of UAG UK Holdings Limiteds internal control over financial
reporting was audited by other auditors whose report has been furnished to us, and our opinions,
insofar as they relate to the effectiveness of UAG UK Holdings Limiteds internal control over
financial reporting, are based solely on the report of the other auditors.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit and the report of the other
auditors provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, based on our audit and the report of the other auditors, managements
assessment that the Company maintained effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on the criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Also, in our opinion, based on our audit and the report of the other auditors,
the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year
ended December 31, 2004. Our report dated March
14, 2005 (January 23, 2006 as to the effects of the restatement and
discontinued operations discussed in Note 1) expressed an unqualified
opinion on those consolidated financial statements and financial statement schedule and included an
explanatory paragraph relating to certain amounts in the accompanying Consolidated
Financial Statements which have been restated based on our audit and
the report of other auditors.
/s/ Deloitte & Touche LLP
New York, NY
March 14, 2005
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
UAG UK Holdings Limited:
We have audited the consolidated balance sheets of UAG UK Holdings Limited and subsidiaries
(the Company) as of December 31, 2004 and 2003, and the related consolidated statements of
income, stockholders equity and cash flows for each of the years in the three-year period ended
December 31, 2004. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company and subsidiaries as of December 31, 2004
and 2003, and the results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of UAG UK Holdings Limiteds internal control
over financial reporting as of December 31, 2004, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 14, 2005 expressed an unqualified opinion on managements
assessment of, and the effective operation of, internal control over financial reporting.
As discussed in Note 1 of the consolidated financial statements, the
Company has restated the balance sheets as of December 31, 2004 and
2003 and the related consolidated statements of cash flows for each
of the years in the three-year period ended December 31, 2004.
The balance sheet restatement separates floor plan notes payable
into trade and non-trade components. The cash flows restatement
accounts for the non-trade component of floor plan notes payable
as a financing activity where it had previously been shown as an
operating activity.
/s/ KPMG Audit Plc
Birmingham, United Kingdom
March
14, 2005, except as to the restatement discussed in Note 1, which is
as of January 23, 2006
F-5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
UAG UK Holdings Limited:
We have audited managements assessment, included in the accompanying Management Report on
Internal Control Over Financial Reporting, that UAG UK Holdings Limited (the Company) maintained
effective internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control
over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based
on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company and subsidiaries as
of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders
equity and cash flows for each of the years in the three-year period ended December 31, 2004, and
our report dated March 14, 2005, except as to the restatement discussed
in Note 1, which is as of January 23, 2006, expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG Audit Plc
Birmingham, United Kingdom
March 14,
2005
F-6
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
(Restated)* |
|
|
(Restated)* |
|
|
|
(In thousands, except |
|
|
|
per share amounts) |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
15,187 |
|
|
$ |
13,901 |
|
Accounts receivable, net |
|
|
356,625 |
|
|
|
323,376 |
|
Inventories, net |
|
|
1,252,358 |
|
|
|
1,086,383 |
|
Other current assets |
|
|
44,315 |
|
|
|
42,868 |
|
Assets of discontinued operations |
|
|
148,921 |
|
|
|
172,737 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,817,406 |
|
|
|
1,639,265 |
|
Property and equipment, net |
|
|
406,783 |
|
|
|
358,516 |
|
Goodwill |
|
|
1,038,647 |
|
|
|
963,967 |
|
Franchise value |
|
|
183,084 |
|
|
|
93,720 |
|
Other assets |
|
|
86,881 |
|
|
|
88,730 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,532,801 |
|
|
$ |
3,144,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Floor plan notes payable |
|
$ |
876,758 |
|
|
$ |
670,519 |
|
Floor plan notes payable non-trade |
|
|
320,782 |
|
|
|
380,681 |
|
Accounts payable |
|
|
213,851 |
|
|
|
162,081 |
|
Accrued expenses |
|
|
188,381 |
|
|
|
181,026 |
|
Current portion of long-term debt |
|
|
11,367 |
|
|
|
8,540 |
|
Liabilities of discontinued operations |
|
|
92,553 |
|
|
|
102,314 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,703,692 |
|
|
|
1,505,161 |
|
Long-term debt |
|
|
574,970 |
|
|
|
643,145 |
|
Other long-term liabilities |
|
|
179,104 |
|
|
|
167,480 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,457,766 |
|
|
|
2,315,786 |
|
|
|
|
|
|
|
|
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;
48,636 shares issued, including 2,153 treasury shares, at
December 31, 2004; 43,875 shares issued, including 2,153
treasury shares, at December 31, 2003 |
|
|
5 |
|
|
|
4 |
|
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 |
|
|
716,273 |
|
|
|
582,104 |
|
Retained earnings |
|
|
305,881 |
|
|
|
212,605 |
|
Unearned compensation |
|
|
(4,587 |
) |
|
|
(2,616 |
) |
Accumulated other comprehensive income |
|
|
57,463 |
|
|
|
36,315 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,075,035 |
|
|
|
828,412 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
3,532,801 |
|
|
$ |
3,144,198 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-7
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(In thousands, except per share amounts) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
5,416,258 |
|
|
$ |
4,722,614 |
|
|
$ |
3,948,901 |
|
Used vehicle |
|
|
2,028,598 |
|
|
|
1,714,842 |
|
|
|
1,301,404 |
|
Finance and insurance, net |
|
|
219,262 |
|
|
|
190,166 |
|
|
|
154,153 |
|
Service and parts |
|
|
963,597 |
|
|
|
771,662 |
|
|
|
611,913 |
|
Fleet and wholesale |
|
|
757,026 |
|
|
|
569,325 |
|
|
|
483,205 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
9,384,741 |
|
|
|
7,968,609 |
|
|
|
6,499,576 |
|
|
|
|
|
|
|
|
|
|
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
4,950,855 |
|
|
|
4,322,909 |
|
|
|
3,609,654 |
|
Used vehicle |
|
|
1,852,666 |
|
|
|
1,562,271 |
|
|
|
1,175,503 |
|
Service and parts |
|
|
442,432 |
|
|
|
358,571 |
|
|
|
288,216 |
|
Fleet and wholesale |
|
|
756,776 |
|
|
|
568,112 |
|
|
|
486,367 |
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales |
|
|
8,002,729 |
|
|
|
6,811,863 |
|
|
|
5,559,740 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,382,012 |
|
|
|
1,156,746 |
|
|
|
939,836 |
|
Selling, general and administrative expenses |
|
|
1,082,558 |
|
|
|
900,650 |
|
|
|
749,636 |
|
Depreciation and amortization |
|
|
40,350 |
|
|
|
29,369 |
|
|
|
19,616 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
259,104 |
|
|
|
226,727 |
|
|
|
170,584 |
|
Floor plan interest expense |
|
|
(47,267 |
) |
|
|
(41,071 |
) |
|
|
(32,251 |
) |
Other interest expense |
|
|
(42,973 |
) |
|
|
(42,835 |
) |
|
|
(38,284 |
) |
Other income |
|
|
11,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
minority interests, income taxes and cumulative
effect of accounting change |
|
|
180,333 |
|
|
|
142,821 |
|
|
|
100,049 |
|
Minority interests |
|
|
(2,047 |
) |
|
|
(2,272 |
) |
|
|
(1,996 |
) |
Income taxes |
|
|
(67,078 |
) |
|
|
(56,421 |
) |
|
|
(40,293 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
cumulative effect of accounting change |
|
|
111,208 |
|
|
|
84,128 |
|
|
|
57,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
|
479 |
|
|
|
1,859 |
|
|
|
4,481 |
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect
of accounting change, net of tax |
|
$ |
111,687 |
|
|
$ |
85,987 |
|
|
$ |
62,241 |
|
Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
(3,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
111,687 |
|
|
$ |
82,929 |
|
|
$ |
62,241 |
|
Preferred dividends |
|
|
|
|
|
|
|
|
|
|
(6,293 |
) |
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
111,687 |
|
|
$ |
82,929 |
|
|
$ |
55,948 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
2.47 |
|
|
$ |
2.06 |
|
|
$ |
1.38 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
0.05 |
|
|
|
0.12 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
(0.07 |
) |
|
|
|
|
Net income |
|
|
2.48 |
|
|
|
2.03 |
|
|
|
1.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in determining basic earnings per share |
|
|
44,960 |
|
|
|
40,826 |
|
|
|
37,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
2.44 |
|
|
$ |
2.03 |
|
|
$ |
1.40 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
0.04 |
|
|
|
0.11 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
(0.07 |
) |
|
|
|
|
Net income |
|
|
2.45 |
|
|
|
2.00 |
|
|
|
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in determining diluted earnings per share |
|
|
45,613 |
|
|
|
41,434 |
|
|
|
41,161 |
|
See Notes to Consolidated Financial Statements.
F-8
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
Class B |
|
|
Voting and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible |
|
|
Convertible |
|
|
Non-voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
Total |
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Unearned |
|
|
Comprehensive |
|
|
Stockholders |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Compensation |
|
|
Income (Loss) |
|
|
Equity |
|
|
Income (Loss) |
|
|
|
(Dollars in thousands) |
|
Balances, December 31, 2001 |
|
|
8,794 |
|
|
|
|
|
|
|
649 |
|
|
|
|
|
|
|
23,540,231 |
|
|
|
2 |
|
|
|
445,311 |
|
|
|
78,750 |
|
|
|
|
|
|
|
(8,380 |
) |
|
|
515,683 |
|
|
|
36,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
(1,913 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,936,812 |
|
|
|
1 |
|
|
|
124,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,185 |
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441,407 |
|
|
|
|
|
|
|
7,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,682 |
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,009,463 |
) |
|
|
|
|
|
|
(16,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,000 |
) |
|
|
|
|
Payment in kind dividends |
|
|
152 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,267 |
|
|
|
(4,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to
common stock |
|
|
(7,033 |
) |
|
|
|
|
|
|
(652 |
) |
|
|
|
|
|
|
7,688,823 |
|
|
|
1 |
|
|
|
(835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(834 |
) |
|
|
|
|
Payment of preferred
stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,930 |
) |
|
|
|
|
|
|
|
|
|
|
(2,930 |
) |
|
|
|
|
Fair value of interest rate swap
agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,815 |
) |
|
|
(3,815 |
) |
|
|
(3,815 |
) |
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,230 |
|
|
|
18,230 |
|
|
|
18,230 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,241 |
|
|
|
|
|
|
|
|
|
|
|
62,241 |
|
|
|
62,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,597,810 |
|
|
|
4 |
|
|
|
564,609 |
|
|
|
133,794 |
|
|
|
|
|
|
|
6,035 |
|
|
|
704,442 |
|
|
|
76,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,195 |
|
|
|
|
|
|
|
4,111 |
|
|
|
|
|
|
|
(2,616 |
) |
|
|
|
|
|
|
1,495 |
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800,163 |
|
|
|
|
|
|
|
13,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,384 |
|
|
|
|
|
Unrealized appreciation of
investment, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,718 |
|
|
|
5,718 |
|
|
|
5,718 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,118 |
) |
|
|
|
|
|
|
|
|
|
|
(4,118 |
) |
|
|
|
|
Fair value of interest rate swap
agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,552 |
|
|
|
3,552 |
|
|
|
3,552 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,010 |
|
|
|
21,010 |
|
|
|
21,010 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,929 |
|
|
|
|
|
|
|
|
|
|
|
82,929 |
|
|
|
82,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,722,168 |
|
|
$ |
4 |
|
|
$ |
582,104 |
|
|
$ |
212,605 |
|
|
$ |
(2,616 |
) |
|
$ |
36,315 |
|
|
$ |
828,412 |
|
|
$ |
113,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,050,000 |
|
|
|
1 |
|
|
|
119,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,436 |
|
|
|
|
|
Issuance of restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,566 |
|
|
|
|
|
|
|
4,798 |
|
|
|
|
|
|
|
(1,971 |
) |
|
|
|
|
|
|
2,827 |
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557,870 |
|
|
|
|
|
|
|
9,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,936 |
|
|
|
|
|
Unrealized appreciation of
investment, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,718 |
) |
|
|
(5,718 |
) |
|
|
(5,718 |
) |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,411 |
) |
|
|
|
|
|
|
|
|
|
|
(18,411 |
) |
|
|
|
|
Fair value of interest rate swap
agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
582 |
|
|
|
582 |
|
|
|
582 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,284 |
|
|
|
26,284 |
|
|
|
26,284 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,687 |
|
|
|
|
|
|
|
|
|
|
|
111,687 |
|
|
|
111,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,482,604 |
|
|
|
5 |
|
|
$ |
716,273 |
|
|
$ |
305,881 |
|
|
$ |
(4,587 |
) |
|
$ |
57,463 |
|
|
$ |
1,075,035 |
|
|
$ |
132,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-9
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(Restated)* |
|
|
(Restated)* |
|
|
(Restated)* |
|
|
|
(In thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
111,687 |
|
|
|
82,929 |
|
|
|
62,241 |
|
Adjustments to reconcile net income to net cash from continuing operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
40,350 |
|
|
|
29,369 |
|
|
|
19,616 |
|
Amortization of unearned compensation |
|
|
2,828 |
|
|
|
1,495 |
|
|
|
|
|
Undistributed (earnings) loss of equity method investments |
|
|
(1,720 |
) |
|
|
(352 |
) |
|
|
410 |
|
Income from discontinued operations, net of tax |
|
|
(479 |
) |
|
|
(1,859 |
) |
|
|
(4,481 |
) |
Gain on sale of investment |
|
|
(11,469 |
) |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
27,368 |
|
|
|
26,614 |
|
|
|
12,878 |
|
Long-term contract settlement |
|
|
|
|
|
|
|
|
|
|
22,839 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
3,058 |
|
|
|
|
|
Minority interests |
|
|
2,047 |
|
|
|
2,272 |
|
|
|
1,996 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(22,571 |
) |
|
|
(46,099 |
) |
|
|
(23,229 |
) |
Inventories |
|
|
(91,813 |
) |
|
|
(222,339 |
) |
|
|
(161,226 |
) |
Floor plan notes payable |
|
|
163,012 |
|
|
|
86,876 |
|
|
|
108,853 |
|
Accounts payable and accrued expenses |
|
|
49,311 |
|
|
|
62,552 |
|
|
|
(26,642 |
) |
Other |
|
|
(21,104 |
) |
|
|
(252 |
) |
|
|
26,080 |
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing operating activities |
|
|
247,447 |
|
|
|
24,264 |
|
|
|
39,335 |
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment and improvements |
|
|
(231,824 |
) |
|
|
(198,235 |
) |
|
|
(183,295 |
) |
Proceeds from sale-leaseback transactions |
|
|
149,076 |
|
|
|
133,373 |
|
|
|
85,500 |
|
Dealership acquisitions, net |
|
|
(168,184 |
) |
|
|
(113,356 |
) |
|
|
(193,525 |
) |
Proceeds from sale of investment |
|
|
13,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing investing activities |
|
|
(237,366 |
) |
|
|
(178,218 |
) |
|
|
(291,320 |
) |
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under U.S. Credit Agreement |
|
|
303,800 |
|
|
|
261,500 |
|
|
|
384,800 |
|
Repayments under U.S. Credit Agreement |
|
|
(361,000 |
) |
|
|
(292,800 |
) |
|
|
(583,000 |
) |
Net borrowings (repayments) of other long-term debt |
|
|
(17,097 |
) |
|
|
5,700 |
|
|
|
(23,538 |
) |
|
Proceeds
from borrowings of Senior Subordinated Notes |
|
|
|
|
|
|
|
|
|
|
300,000 |
|
Net borrowings (repayments) of floor plan notes payable non-trade |
|
|
(59,901 |
) |
|
|
150,705 |
|
|
|
47,967 |
|
Proceeds from issuance of common stock |
|
|
125,433 |
|
|
|
9,907 |
|
|
|
135,295 |
|
Deferred financing costs |
|
|
|
|
|
|
|
|
|
|
(8,065 |
) |
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
(16,000 |
) |
Dividends |
|
|
(18,411 |
) |
|
|
(4,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing financing activities |
|
|
(27,176 |
) |
|
|
130,894 |
|
|
|
237,459 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from discontinued operating activities |
|
|
16,500 |
|
|
|
10,709 |
|
|
|
2,700 |
|
Net cash from discontinued investing activities |
|
|
3,791 |
|
|
|
20,414 |
|
|
|
22,137 |
|
Net cash from discontinued financing activities |
|
|
(1,910 |
) |
|
|
(4,421 |
) |
|
|
(3,864 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash from discontinued operations |
|
|
18,381 |
|
|
|
26,702 |
|
|
|
20,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
1,286 |
|
|
|
3,642 |
|
|
|
6,447 |
|
Cash and cash equivalents, beginning of period |
|
|
13,901 |
|
|
|
10,259 |
|
|
|
3,812 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
15,187 |
|
|
$ |
13,901 |
|
|
$ |
10,259 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
90,012 |
|
|
$ |
84,518 |
|
|
$ |
61,846 |
|
Income taxes |
|
|
19,398 |
|
|
|
17,703 |
|
|
|
18,049 |
|
Seller financed debt |
|
|
5,790 |
|
|
|
|
|
|
|
22,448 |
|
See Notes to Consolidated Financial Statements.
F-10
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies
Overview
United Auto Group, Inc. (UAG or the Company) is engaged in the sale of new and used motor
vehicles and related products and services, including vehicle service, parts, collision repair,
third-party finance and insurance products and other aftermarket products. The Company operates
dealerships under franchise agreements with a number of automotive manufacturers. In accordance
with individual franchise agreements, each dealership is subject to certain rights and restrictions
typical of the industry. The ability of the manufacturers to influence the operations of the
dealerships, or the loss of a franchise agreement, could have a negative impact on the Companys
operating results.
Basis of Presentation
The consolidated financial statements include all majority-owned subsidiaries. Investments in
affiliated companies, typically representing an ownership interest in the voting stock of the
affiliate of between 20% and 50%, are stated at cost of acquisition plus the Companys equity in
undistributed net income since acquisition. Investments representing less than a 20% ownership
interest in the voting stock of a company are stated at cost. All significant intercompany accounts
and transactions have been eliminated in consolidation. The
consolidated financial statements have been reclassified for entities
which became discontinued operations during the nine months ended
September 30, 2005.
The Companys parts and service departments provide preparation and reconditioning services
for its dealerships new and used vehicle departments, for which the new and used vehicle
departments are charged as if they were third parties. During 2004 the Company determined that
revenue and cost of sales had not been reduced by the intracompany charge for such work performed
by certain of the Companys dealerships. Revenue and cost of sales in 2004 have been reduced for
intracompany charges at the identified dealerships and previously reported amounts have been
revised to eliminate these intracompany charges. Service and parts revenue and cost of sales have
been reduced by $85,391 and $78,174 for the years ended December 31, 2003 and 2002, respectively.
The eliminations do not have a material impact on service and parts revenue, gross profit,
operating income, income from continuing operations, net income, earnings per share, cash flows, or
financial position for any period.
Balance Sheet and Cash Flows
Subsequent
to the issuance of the Companys December 31, 2004 financial statements, the
Companys management determined that certain information in the Consolidated Balance Sheets and Consolidated Statements of Cash
Flows should be restated and reclassified for all periods presented to comply with the guidance
under Statement of Financial Accounting Standards (SFAS) No. 95, Statement of Cash Flows. 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, have been reclassified as floor plan notes
payable non-trade on the Consolidated Balance Sheets, and related cash flows have been
reclassified from operating activities to financing activities on the Consolidated Statement of
Cash Flows. Consistent with industry practice, the Company previously reported all cash flow
information relating to floor plan notes payable as operating cash
flows. In addition, the Company has made certain additional changes relating
to cash flows from discontinued operations and activity under the
U.S. Credit Agreement to conform to the presentation in its
September 30, 2005 financial statements. A summary of the significant effects of the restatement are as follows:
F-11
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
Floor Plan notes payable as previously reported |
|
$ |
1,266,656 |
|
|
$ |
1,114,766 |
|
Discontinued operations |
|
|
(69,116 |
) |
|
|
(63,566 |
) |
Reclassification of floor plan notes payable non-trade |
|
|
(320,782 |
) |
|
|
(380,681 |
) |
|
|
|
|
|
|
|
Reported floor plan notes payable |
|
$ |
876,758 |
|
|
$ |
670,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor Plan notes payable non-trade as previously reported |
|
$ |
|
|
|
$ |
|
|
Reclassification of floor plan notes payable non-trade |
|
|
320,782 |
|
|
|
380,681 |
|
|
|
|
|
|
|
|
Reported floor plan notes payable non-trade |
|
$ |
320,782 |
|
|
$ |
380,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Net cash from continuing operating activities as previously reported |
|
$ |
191,769 |
|
|
$ |
178,126 |
|
|
$ |
83,960 |
|
Discontinued operations |
|
|
(4,223 |
) |
|
|
(3,157 |
) |
|
|
3,342 |
|
Reclassification of floor plan notes payable non-trade |
|
|
59,901 |
|
|
|
(150,705 |
) |
|
|
(47,967 |
) |
|
|
|
|
|
|
|
|
|
|
Reported net cash from continuing operating activities |
|
$ |
247,447 |
|
|
$ |
24,264 |
|
|
$ |
39,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from continuing financing activities as previously reported |
|
$ |
32,725 |
|
|
$ |
(19,819 |
) |
|
$ |
189,483 |
|
Discontinued operations |
|
|
|
|
|
|
8 |
|
|
|
9 |
|
Reclassification of floor plan notes payable non-trade |
|
|
(59,901 |
) |
|
|
150,705 |
|
|
|
47,967 |
|
|
|
|
|
|
|
|
|
|
|
Reported net cash from continuing financing activities |
|
$ |
(27,176 |
) |
|
$ |
130,894 |
|
|
$ |
237,459 |
|
|
|
|
|
|
|
|
|
|
|
Estimates
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.
Accounting Change
In March 2003, the Financial Accounting Standards Boards (FASB) Emerging Issues Task Force
(EITF) finalized Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor (EITF 02-16). EITF 02-16 addresses the accounting treatment
for vendor allowances and provides that cash consideration received from a vendor should be
presumed to be a reduction of the price of the vendors product and should therefore be shown as a
reduction in the purchase price of the merchandise. To the extent that the cash consideration
represents a reimbursement of a specific incremental and identifiable cost, then those vendor
allowances should be used to offset such costs. Historically, the company recorded non-refundable
floor plan credits and certain other non-refundable credits when received. As a result of EITF
02-16, these credits are now presumed to be reductions in the cost of purchased inventory and are
deferred until the related vehicle is sold. In accordance with EITF 02-16, the Company recorded a
cumulative effect of accounting change as of January 1, 2003, the date of adoption, that decreased
net income for the year ended December 31, 2003 by $3,058, net of tax, or $0.07 per diluted share.
F-12
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments that have an original maturity
of three months or less at the date of purchase.
Contracts in Transit
Contracts in transit represent customer finance contracts evidencing loan agreements or lease
agreements between the Company, as creditor, and the customer, as borrower, to acquire or lease a
vehicle whereby a third-party finance source has given the Company initial, non-binding approval to
assume the Companys position as creditor. Funding and final approval from the finance source is
provided upon the finance sources review of the loan or lease agreement and related documentation
executed by the customer at the dealership. These finance contracts are typically funded within ten
days of the initial approval of the finance transaction by the third-party finance source. Further,
the finance source is not contractually obligated to make the loan or lease to the customer until
it gives its final approval and funds the transaction. Until such final approval is given,
contracts in transit represent amounts due from the customer to the Company. Contracts in transit,
included in accounts receivable, net in the Companys Consolidated Balance Sheets, amounted to
$144,740 and $139,853 as of December 31, 2004 and 2003, respectively.
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost for new and used vehicle
inventories is determined using the specific identification method. Cost for parts, accessories and
other inventories are based on factory list prices.
Property and Equipment
Property and equipment are recorded at cost and depreciated over estimated useful lives using
the straight-line method. Useful lives for purposes of computing depreciation for assets, other
than equipment under capital lease and leasehold improvements, are between 5 and 15 years.
Leasehold improvements and equipment under capital lease are depreciated over the shorter of the
term of the lease or the estimated useful life of the asset.
Expenditures relating to recurring repair and maintenance are expensed as incurred.
Expenditures that increase the useful life or substantially increase the serviceability of an
existing asset are capitalized. When equipment is sold or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income.
Income Taxes
Tax regulations may require items to be included in the tax return at different times than the
items are reflected in the financial statements. Some of these differences are permanent, such as
expenses which are not deductible on the 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 the
tax return in future years for which the Company has already recorded the tax effect in its
financial statements. Deferred tax liabilities generally represent expenses recognized in the
Companys financial statements for which payment has been deferred or deductions taken on the tax
return which have not yet been recognized as expense in the Companys financial statements. The
Company establishes valuation allowances for deferred tax assets if the amount of expected future
taxable income is not likely to allow for the use of the deduction or credit.
Intangible Assets
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 Company believes the franchise value of its
dealerships have an indefinite 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; |
F-13
|
|
The Companys history shows that manufacturers have not terminated franchise agreements. |
Following is a summary of the changes in the carrying amount of goodwill and franchise value
for the year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise |
|
|
|
Goodwill |
|
|
Value |
|
Balance January 1, 2004 |
|
$ |
963,967 |
|
|
$ |
93,720 |
|
Additions during period |
|
|
58,938 |
|
|
|
83,546 |
|
Foreign currency translation |
|
|
15,742 |
|
|
|
5,818 |
|
|
|
|
|
|
|
|
Balance December 31, 2004 |
|
$ |
1,038,647 |
|
|
$ |
183,084 |
|
|
|
|
|
|
|
|
As
of December 31, 2004 and 2003, approximately $587,166 and $515,525, respectively, 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.
Impairment Testing
Intangible assets are reviewed for impairment on at least an annual basis. Franchise value
impairment is assessed through a comparison of an estimate of its fair value with its carrying
value. If the carrying value of a franchise exceeds its estimated fair value, an impairment loss is
recognized in an amount equal to that excess. The Company also evaluates the remaining useful lives
of franchises in connection with the annual impairment testing to determine whether events and
circumstances continue to support an indefinite useful life. Goodwill impairment is assessed at the
reporting unit level. If the carrying amount of the goodwill attributable to a reporting unit is
determined to exceed its estimated fair value, an impairment loss is recognized in an amount equal
to that excess. The fair value of the goodwill attributable to reporting units is determined using
a discounted cash flow approach, which includes assumptions regarding revenue and profitability
growth, residual values and the cost of capital. If future events and circumstances cause
significant changes in the underlying assumptions which result in a reduction of estimates of fair
value, the Company may incur an impairment charge.
Investments
Investments include marketable securities and investments in businesses accounted for under
the equity method and the cost method. Marketable securities include investments in debt and equity
securities. Marketable securities held by the Company are typically classified as available for
sale and are stated at fair value in the balance sheet with unrealized gains and losses included in
other comprehensive income, a separate component of stockholders equity. Declines in investment
values that are deemed to be other than temporary would result in an impairment charge reducing the
investments carrying value to fair value. A majority of the Companys investments are in joint
venture relationships. Such joint ventures relationships are accounted for under the equity method,
pursuant to which the Company records its proportionate share of the joint ventures income each
period. The Company has approximately $5,200 of investments accounted for under the cost method.
Foreign Currency Translation
For all significant foreign operations, the functional currency is the local currency. The
revenue and expense accounts of the Companys foreign operations are translated into U.S. dollars
using the average exchange rates that prevailed during the period. Assets and liabilities of
foreign operations are translated into U.S. dollars using period end exchange rates. Cumulative
translation adjustments relating to foreign functional currency assets and liabilities are recorded
in accumulated other comprehensive income, a separate component of stockholders equity.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts
payable, debt, including floor plan notes payable, and interest rate swaps used to hedge future
cash flows. Other than our subordinated notes and interest rate swaps, the carrying amount of all
significant financial instruments approximates fair value due either to length of maturity or the
existence of variable interest rates that approximate prevailing market rates. The fair value of
the subordinated notes and interest rate swap was approximately $334,500 and $19,112, respectively,
at December 31, 2004.
F-14
Revenue Recognition
Vehicle, Parts and Service Sales
The Company records 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 to sales at the time of sale. Rebates and other incentives offered directly to us by
manufacturers are recognized as earned.
Finance and Insurance Sales
The Company arranges financing for customers through various financial institutions and receives
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. The Company also receives 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.
The Company is not the obligor under any of these contracts. 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,
which are fully paid at purchase, and become eligible for refunds of unused premiums. In these circumstances, a portion
of the commissions the Company receives may be charged back based on the relevant terms of the contracts. The revenue
the Company records relating to commissions is net of an estimate of the ultimate amount of chargebacks the Company will
be required to pay. Such estimate of chargeback exposure is based on historical chargeback experience arising from
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.
Defined Contribution Plans
The Company sponsors a number of defined contribution plans covering a significant majority of the Companys
employees. Company contributions to such plans are discretionary and are typically based on the level of compensation
and contributions by plan participants. The Company incurred expense of $7,484, $7,729 and $3,811 relating to such plans
during the years ended December 31, 2004, 2003 and 2002, respectively.
Advertising
Advertising costs are expensed as incurred or when such advertising takes place. The Company incurred total
advertising costs of $77,768, $69,031 and $54,802 during the years ended December 31, 2004, 2003 and 2002, respectively.
Qualified advertising expenditures reimbursed by manufacturers, which are treated as a reduction of selling, general and
administrative expense, were $10,762, $10,164 and $10,230 during the years ended December 31, 2004, 2003 and 2002,
respectively.
Self Insurance
The Company retains risk relating to certain of its general liability insurance, workers compensation
insurance and employee medical benefits in the United States. As a result, the Company is likely to be responsible for a
majority of the claims and losses incurred under these programs. The amount of risk retained varies by program, but the
Company typically pays per occurrence deductibles and, for certain exposures, has pre-determined maximum exposure limits
for each insurance period. The majority of losses, if any, above the pre-determined exposure limits are typically paid by
third-party insurance carriers. The Companys estimate of future losses is prepared by management using the Companys
historical loss experience and industry based development factors.
Earnings Per Share
Basic earnings per share is computed using net income, as adjusted to reflect dividends relating to outstanding
preferred stock and the weighted average number of common shares outstanding. Diluted earnings per share is computed
using net income and the weighted average number of common shares outstanding, adjusted for the dilutive effect of stock
options, restricted stock, preferred stock and warrants. For the years ended December 31, 2003 and 2002, 487 and 505
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
F-15
the calculation of basic and diluted earnings per share for the years ended December 31, 2004,
2003 and 2002 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Weighted average number of common shares outstanding |
|
|
44,960 |
|
|
|
40,826 |
|
|
|
37,245 |
|
Effect of stock options |
|
|
445 |
|
|
|
479 |
|
|
|
925 |
|
Effect of restricted stock |
|
|
208 |
|
|
|
129 |
|
|
|
|
|
Effect of preferred stock |
|
|
|
|
|
|
|
|
|
|
2,778 |
|
Effect of warrants |
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
including effect of dilutive securities |
|
|
45,613 |
|
|
|
41,434 |
|
|
|
41,161 |
|
|
|
|
|
|
|
|
|
|
|
Hedging
Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended and interpreted (SFAS No. 133) establishes accounting and
reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. Under SFAS 133, all derivatives, whether designated
in hedging relationships or not, are required to be recorded on the balance sheet at fair value.
SFAS 133 defines requirements for designation and documentation of hedging relationships, as well
as ongoing effectiveness assessments, which must be met in order to qualify for hedge accounting.
For a derivative that does not qualify as a hedge, changes in fair value would be recorded in
earnings immediately. If the derivative is designated in a fair-value hedge, the changes in the
fair value of the derivative and the hedged item are recorded in earnings. If the derivative is
designated in a cash-flow hedge, effective changes in the fair value of the derivative are recorded
in other comprehensive income and recorded in the income statement when the hedged item affects
earnings. Changes in the fair value of the derivative attributable to hedge ineffectiveness are
recorded in earnings immediately.
Stock-Based Compensation
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 December 31, 2004, 1,773 shares of common stock were available for grant under the
Plan.
Pursuant to Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, the Company accounts for option grants using the intrinsic value method. All options
have been granted with a strike price at or above fair market value on the date of grant. As a
result, no compensation expense has been recorded in the financial statements with respect to
option grants. The Company has adopted the disclosure only provisions of SFAS 123, Accounting for
Stock Based Compensation, as amended and interpreted. Had the Company elected to recognize
compensation 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:
F-16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Net income (1) |
|
$ |
111,687 |
|
|
$ |
82,929 |
|
|
$ |
62,241 |
|
Fair value method compensation expense
attributable to stock-based compensation, net of tax |
|
|
1,232 |
|
|
|
1,591 |
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
110,455 |
|
|
$ |
81,338 |
|
|
$ |
59,941 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.48 |
|
|
$ |
2.03 |
|
|
$ |
1.50 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share |
|
$ |
2.46 |
|
|
$ |
1.99 |
|
|
$ |
1.44 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.45 |
|
|
$ |
2.00 |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share |
|
$ |
2.42 |
|
|
$ |
1.96 |
|
|
$ |
1.46 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted |
|
$ |
5.67 |
|
|
$ |
12.95 |
|
|
$ |
11.11 |
|
Expected dividend yield |
|
|
1.6 |
% |
|
|
0 |
% |
|
|
0 |
% |
Risk free interest rates |
|
|
3.50 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
Expected life |
|
5.0 years |
|
5.0 years |
|
5.0 years |
Expected volatility |
|
|
24.00 |
% |
|
|
61.00 |
% |
|
|
60.80 |
% |
|
|
|
(1) |
|
Includes approximately $1,767 and $904 of compensation expense, net of
tax, related to restricted stock grants, for the years ended December
31, 2004 and 2003, respectively. |
See footnote 12 for a detailed description of the Companys stock compensation plans.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement No. 123R, Share-Based
Payment, which replaces Statement No. 123 Accounting for Stock-Based Compensation, and
supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123R focuses primarily on accounting for share-based payment transactions as
it relates to employee services, establishes accounting standards for equity instruments that an
entity exchanges for goods or services and addresses transactions where an entity incurs
liabilities in exchange for goods or services that are based on the fair value of the entitys
equity instruments or that may be settled by the issuance of those equity instruments. SFAS No.
123R will require the Company to expense the grant-date fair value of equity compensation awards
over their vesting period.
The Company currently accounts for equity compensation awards in accordance with APB 25,
pursuant to which the issuance of stock options generally resulted in the recognition of no
compensation expense but required pro forma disclosure showing the effect on net income and
earnings per share as if the Company had recorded the fair value of the grants as compensation
expense.
Statement No. 123R is effective for the Company as of July 1, 2005. The Company is evaluating
the adoption criteria outlined in SFAS No. 123R, but does not believe that adoption will have a
material effect on the Companys consolidated financial position, results of operations or cash
flows.
2. Unusual Items
During 2002, the Company recorded a $22,839 ($13,589 after-tax) charge (the Charge). The
Charge related primarily ($20.3 million) to the accrual of an estimate of the costs associated with
the employment contracts of certain employees terminated in December 2002 in connection with a
streamlining of operations in the western region of the United States. Under the terms of the
separation agreements, the Company is required to continue to pay the terminated employees under
the terms of their employment agreements through October 2005. The Charge was included in selling,
general and administrative expense and payments will be made through October 2005; the unpaid
balance is approximately $8,386 as of December 31, 2004. The remainder of the charge included the
cost of a non-compete agreement with a former member of management which the Company determined no
longer had a continuing economic benefit.
F-17
3. Business Combinations
During each of the years presented, the Company completed a number of acquisitions. Each of
these acquisitions has been accounted for using the purchase method of accounting. As a result, the
Companys financial statements include the results of operations of the acquired dealerships from
the date of acquisition.
During 2004, the Company acquired 29 automobile dealership franchises. The aggregate
consideration paid in connection with such acquisitions amounted to approximately $168,184 in cash
and the assumption of approximately $5,790 of debt. The consolidated balance sheets include
preliminary allocations of the purchase price relating to such acquisitions, resulting in the
recognition of $58,938 of goodwill and $83,546 of franchise value. During 2003, the Company
acquired 26 automobile dealership franchises. The aggregate consideration paid in connection with
such acquisitions amounted to approximately $113,356 in cash. The consolidated balance sheets
include allocations of the purchase price relating to such acquisitions, resulting in the
recognition of $25,251 of goodwill and $47,935 of franchise value.
The following unaudited consolidated pro forma results of operations of the Company for the
years ended December 31, 2004 and 2003 give effect to acquisitions consummated during 2004 and 2003
as if they had occurred on January 1, 2003.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2004 |
|
2003 |
Revenues |
|
$ |
9,804,108 |
|
|
$ |
8,858,260 |
|
Income from continuing operations |
|
|
116,160 |
|
|
|
91,093 |
|
Net income |
|
|
116,639 |
|
|
|
89,894 |
|
Net income per diluted common share |
|
$ |
2.56 |
|
|
$ |
2.17 |
|
In July 2001, the Company invested in the Tulsa Auto Collection, a group of dealerships owned
indirectly by Ford Motor Company, in Tulsa, Oklahoma, which consists of dealerships representing
the Ford, Jaguar and Mazda brands. In January 2005, the Company acquired the remaining interest in
these dealerships for approximately $24,450.
4. Discontinued Operations
The Company periodically enters into transactions to sell or otherwise dispose of certain
dealerships, resulting in accounting for such dealerships as discontinued operations Combined
financial information regarding dealerships accounted for as discontinued operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2004 |
|
2003 |
|
2002 |
Revenues |
|
$ |
626,029 |
|
|
$ |
749,881 |
|
|
$ |
1,076,919 |
|
Pre-tax loss |
|
|
(2,033 |
) |
|
|
(1,090 |
) |
|
|
180 |
|
Gain on disposal |
|
|
2,795 |
|
|
|
4,163 |
|
|
|
7,326 |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
Inventories |
|
$ |
84,780 |
|
|
$ |
97,485 |
|
Other assets |
|
|
64,141 |
|
|
|
75,252 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
148,921 |
|
|
$ |
172,737 |
|
|
|
|
|
|
|
|
Floor plan notes payable |
|
$ |
78,178 |
|
|
$ |
87,276 |
|
Other liabilities |
|
|
14,375 |
|
|
|
15,038 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
$ |
92,553 |
|
|
$ |
102,314 |
|
|
|
|
|
|
|
|
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 the 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
F-18
operation if the Company believes that the cash flows generated by the disposed franchise will be
replaced by expanded operations of the remaining franchises.
5. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
New vehicles |
|
$ |
956,131 |
|
|
$ |
832,821 |
|
Used vehicles |
|
|
236,929 |
|
|
|
204,796 |
|
Parts, accessories and other |
|
|
59,298 |
|
|
|
48,766 |
|
|
|
|
|
|
|
|
Total net inventories |
|
$ |
1,252,358 |
|
|
$ |
1,086,383 |
|
|
|
|
|
|
|
|
The Company receives non-refundable credits from certain of its vehicle manufacturers that
reduce cost of sales when the vehicles are sold. Such credits amounted to $32,409, $29,993 and
$27,873 during the years ended December 31, 2004, 2003 and 2002, respectively.
6. Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
Buildings and leasehold improvements |
|
$ |
314,615 |
|
|
$ |
280,503 |
|
Furniture, fixtures and equipment |
|
|
192,881 |
|
|
|
148,247 |
|
|
|
|
|
|
|
|
Total |
|
|
507,496 |
|
|
|
428,750 |
|
Less: Accumulated depreciation and amortization |
|
|
100,713 |
|
|
|
70,234 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
406,783 |
|
|
$ |
358,516 |
|
|
|
|
|
|
|
|
As
of December 31, 2004 and 2003, approximately $708 and $694, respectively, of capitalized
interest is included in buildings and leasehold improvements and is being amortized over the useful
life of the related assets.
7. Floor Plan Notes Payable Trade and Non-trade
The Company finances substantially all of its new and a portion of its used vehicle
inventories under revolving floor plan notes payable 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.
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 prime or LIBOR borrowing rates. The weighted average
interest rate on floor plan borrowings was 4.22%, 4.48% and 5.13% for the years ended December 31,
2004, 2003 and 2002, respectively. 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 Balance Sheets.
8. Long-Term Debt
Long-term debt consisted of the following:
F-19
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
U.S. Credit Agreement |
|
$ |
254,800 |
|
|
$ |
312,000 |
|
U.K. Credit Agreement |
|
|
16,836 |
|
|
|
35,203 |
|
9.625% Senior Subordinated Notes due 2012 |
|
|
300,000 |
|
|
|
300,000 |
|
Other |
|
|
14,701 |
|
|
|
4,482 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
586,337 |
|
|
|
651,685 |
|
Less: Current portion |
|
|
11,367 |
|
|
|
8,540 |
|
|
|
|
|
|
|
|
Net long-term debt |
|
$ |
574,970 |
|
|
$ |
643,145 |
|
|
|
|
|
|
|
|
Scheduled maturities of long-term debt for each of the next five years and thereafter are as
follows:
|
|
|
|
|
2005 |
|
$ |
11,367 |
|
2006 |
|
|
1,961 |
|
2007 |
|
|
272,090 |
|
2008 |
|
|
198 |
|
2009 |
|
|
201 |
|
2010 and thereafter |
|
|
300,520 |
|
|
|
|
|
Total long-term debt |
|
$ |
586,337 |
|
|
|
|
|
U.S. Credit Agreement
The Company is party to a credit agreement with DaimlerChrysler Services North America LLC and
Toyota Motor Credit Corporation, as amended effective October 1, 2004 (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, 2007. The
revolving loans bear interest between defined LIBOR plus 2.60% and defined LIBOR plus 3.75%.
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 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. As of December 31, 2004, the Company was in compliance with all covenants under the
U.S. Credit Agreement, and management believes the Company will remain in compliance with such
covenants for the foreseeable future. In making such determination, management 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 December 31, 2004, outstanding borrowings and letters of credit under the U.S.
Credit Agreement amounted to $254,800 and $34,520, respectively.
U.K. Credit Agreement
The Companys subsidiaries in the U.K. (the U.K. Subsidiaries) are party to a credit
agreement with the Royal Bank of Scotland dated February 28, 2003, as amended (the U.K. Credit
Agreement), which provides for up to £65,000 in revolving and term loans to be used for
acquisitions, working capital, and general corporate purposes. 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. Term loan
capacity under the U.K. Credit Agreement was originally £10,000, which is reduced by £2,000 every
six months. As of December 31, 2004, term loan capacity under the U.K. Credit Agreement amounted to
£6,000. The remaining £55,000 of revolving loan capacity matures on March 31, 2007.
F-20
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. As
of December 31, 2004, the Company was in compliance with all covenants under the U.K. Credit
Agreement, and management believes that the Company will remain in compliance with such covenants
for the foreseeable future. In making such determination, management 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.
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 December 31, 2004, outstanding borrowings under the U.K. Credit Agreement
amounted to approximately £8,776 ($16,836).
|
Senior Subordinated Notes |
The Company has outstanding $300,000 aggregate principal amount of 9.625% Senior Subordinated
Notes due 2012 (the Notes). The Notes are unsecured senior subordinated notes and rank behind all
existing and future senior debt, including debt under our credit agreements and floor plan
indebtedness. The Notes are guaranteed by substantially all domestic subsidiaries on a senior
subordinated basis. The Company can redeem all or some of the Notes at its option beginning in 2007
at specified redemption prices. Upon a change of control, each holder of Notes will be able to
require the Company to repurchase all or some of the Notes at a redemption price of 101% of the
principal amount of the Notes. The Notes also contain customary negative covenants and events of
default. As of December 31, 2004, the Company was in compliance with all negative covenants and
there were no events of default.
9. Interest Rate Swaps
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 December 31, 2004, the Company expects approximately $3,950 of interest
associated with the swap to be reclassified as a charge to income over the next twelve months.
10. 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 December 31, 2004, 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 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.
In connection with an acquisition of dealerships completed in October 2000, the Company agreed
to make a contingent payment in cash to the extent 841,476 shares of common stock issued as
consideration for the acquisition are sold subsequent to the fifth anniversary of the transaction
and have a market value of less than $12.00 per share at the time of sale. The Company will be
forever released from this guarantee in the event the average daily closing price of its common
stock for any 90 day period subsequent to the fifth anniversary of the transaction exceeds $12.00
per share. In the event the Company is required to make a payment relating to this guarantee, such
payment would result in the revaluation of the common stock issued in the transaction, resulting in
a reduction of additional paid-in-capital. The Company has further granted the seller a put option
pursuant to which the Company may be required to repurchase no more than 108,333 shares for $12.00
per share on each of the first five anniversary dates of the transaction. To date, no payments have
been made relating to the put option. As of December 31, 2004, the maximum of future cumulative
cash payments that the Company may be required to make in connection with the put option amounted
to $1,300.
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.
F-21
The Company typically leases its dealership facilities and corporate offices under
non-cancelable operating lease agreements with expiration dates through 2035, including all option
periods available to the Company. The Companys lease arrangements typically allow for a base term
with options for extension in the Companys favor and include escalation clauses tied to the
Consumer Price Index.
Minimum future rental payments required under non-cancelable operating leases in effect as of
December 31, 2004 are as follows:
|
|
|
|
|
2005 |
|
$ |
121,129 |
|
2006 |
|
|
117,697 |
|
2007 |
|
|
113,678 |
|
2008 |
|
|
111,015 |
|
2009 |
|
|
107,771 |
|
2010 and thereafter |
|
|
934,009 |
|
|
|
|
|
|
|
$ |
1,505,299 |
|
|
|
|
|
Rent expense for the years ended December 31, 2004, 2003 and 2002 amounted to $94,206, $76,186
and $56,328, respectively. A number of the dealership leases are with former owners who continue to
operate the dealerships as employees of the Company or with other affiliated entities. Of the total
rental payments, $10,739, $11,384 and $19,124, respectively, were made to related parties during
2004, 2003, and 2002, respectively (See Note 11).
As of December 31, 2004, the Company has available unused letters of credit of approximately
$15,500 under its U.S. Credit Agreement.
11. Related Party Transactions
The Company currently is a tenant under a number of non-cancelable lease agreements with
Automotive Group Realty, LLC (AGR), a wholly-owned subsidiary of Penske Corporation. During the
years ended December 31 2004, 2003 and 2002, the Company paid $5,590, $5,884 and $10,228,
respectively, to AGR under these lease agreements. In addition, during the years ended December 31
2004, 2003 and 2002 the Company sold AGR real property and improvements for $30,800, $19,300 and
$50,000, respectively, which were subsequently leased by AGR to the Company. There were no gains or
losses associated with such sales. The sale of each parcel of property was valued at a price which
was either independently confirmed by a third party appraiser or at the price for which the Company
purchased the property from an independent third party. In addition, the Company sometimes pays
and/or receives fees from Penske Corporation and its affiliates for services rendered in the normal
course of business including the transactions with AGR, and reimbursements for payments made to
third parties by Penske Corporation on the Companys behalf. Payments made relating to services
rendered reflect the providers cost or an amount mutually agreed upon by both parties, which the
Company believes represent terms at least as favorable as those that could be obtained from an
unaffiliated third party negotiated on an arms length basis.
The Company is also currently a tenant under a number of non-cancelable lease agreements with
former owners who continue to operate the dealerships as employees of the Company or with other
affiliated entities. A number of the lease agreements are with Samuel X. DiFeo and members of his
family. Mr. DiFeo is the Companys President and Chief Operating Officer. During the years ended
December 31 2004, 2003 and 2002 the Company paid $5,500, $5,500 and $4,000, respectively, to Mr.
DiFeo and his family under these lease agreements. The Company believes that the terms of these
transactions are at least as favorable as those that could be obtained from an unaffiliated third
party negotiated on an arms length basis.
From time to time the Company enters into joint venture relationships in the ordinary course
of business, pursuant to which it acquires dealerships together with other investors. The Company
may also provide these ventures with working capital and other debt financing at costs that are
based on the Companys incremental borrowing rate. As of December 31, 2004, the Companys joint
venture relationships are as follows:
|
|
|
|
|
|
|
|
|
|
|
Ownership |
Location |
|
Dealerships |
|
Interest |
Fairfield, Connecticut |
|
Mercedes-Benz, Audi, Porsche |
|
|
92.90 |
%(A) |
Edison, New Jersey |
|
Ferrari |
|
|
70.00 |
% |
Tysons Corner, Virginia |
|
Mercedes-Benz, Maybach, Audi, Porsche, Aston Martin, |
|
|
90.00 |
%(B) |
Mentor, Ohio |
|
Honda |
|
|
70.00 |
% |
Munich, Germany |
|
BMW |
|
|
50.00 |
% |
Frankfurt, Germany |
|
Lexus, Toyota |
|
|
50.00 |
% |
Mexico |
|
Toyota |
|
|
48.70 |
% |
Mexico |
|
Toyota |
|
|
45.00 |
% |
F-22
|
|
|
(A) |
|
An entity controlled by one of the Companys directors, Lucio A. Noto
(the Investor), owns a 7.1% 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. |
12. Stock-Based Compensation
During 2004 and 2003, the Company granted 153 and 324 shares, respectively of restricted
common stock at no cost to participants under the Plan. The restricted stock entitles the
participants to vote their respective shares and receive dividends. However, the shares are subject
to forfeiture and are non-transferable, which restrictions lapse over a three to four year period
from the grant date. The grant date fair value of the restricted stock is amortized to expense over
the restriction period. The Company recognizes compensation expense for awards with graded vesting
under the accelerated expense attribution method. During 2004 and 2003, the Company recorded $5,092
and $4,111 of deferred compensation expense related to the restricted stock, of which $4,587
remained unamortized at December 31, 2004.
Presented below is a summary of the status of stock options held by eligible employees during
2004, 2003 and 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
Stock Options |
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Options outstanding at beginning of year |
|
|
1,506 |
|
|
$ |
14.29 |
|
|
|
1,862 |
|
|
$ |
14.22 |
|
|
|
1,816 |
|
|
$ |
11.82 |
|
Granted |
|
|
5 |
|
|
|
24.69 |
|
|
|
29 |
|
|
|
16.78 |
|
|
|
575 |
|
|
|
20.14 |
|
Exercised |
|
|
515 |
|
|
|
10.79 |
|
|
|
355 |
|
|
|
13.55 |
|
|
|
361 |
|
|
|
10.83 |
|
Forfeited |
|
|
54 |
|
|
|
14.18 |
|
|
|
30 |
|
|
|
12.11 |
|
|
|
168 |
|
|
|
15.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year |
|
|
942 |
|
|
$ |
16.34 |
|
|
|
1,506 |
|
|
$ |
14.29 |
|
|
|
1,862 |
|
|
$ |
14.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the status of stock options outstanding and exercisable at
January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Stock |
|
|
Average |
|
|
Average |
|
|
Stock |
|
|
Average |
|
|
|
Options |
|
|
Remaining |
|
|
Exercise |
|
|
Options |
|
|
Exercise |
|
Range of Exercise Prices |
|
Outstanding |
|
|
Contractual Life |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
$7 to $13 |
|
|
331 |
|
|
|
4.37 |
|
|
$ |
9.85 |
|
|
|
326 |
|
|
$ |
9.83 |
|
13 to 30 |
|
|
611 |
|
|
|
5.29 |
|
|
|
19.63 |
|
|
|
560 |
|
|
|
19.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
942 |
|
|
|
|
|
|
|
|
|
|
|
886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 1999, in connection with the Securities Purchase Agreement described in Note 13, the
Company issued 800 options to purchase Common Stock with an exercise price of $10.00 per share, the
then fair value. As of December 31, 2004, 400 of such options remain outstanding.
F-23
13. Stockholders Equity
Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
Accumulated |
|
|
|
|
|
|
|
Unrealized |
|
|
on Derivative |
|
|
Other |
|
|
|
Currency |
|
|
Appreciation |
|
|
Financial |
|
|
Comprehensive |
|
|
|
Translation |
|
|
of Investment |
|
|
Instruments |
|
|
Income (Loss) |
|
Balance at December 31, 2001 |
|
$ |
(1,175 |
) |
|
$ |
|
|
|
$ |
(7,205 |
) |
|
$ |
(8,380 |
) |
Change |
|
$ |
18,230 |
|
|
|
|
|
|
$ |
(3,815 |
) |
|
$ |
14,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002 |
|
$ |
17,055 |
|
|
$ |
|
|
|
$ |
(11,020 |
) |
|
$ |
6,035 |
|
Change |
|
$ |
21,010 |
|
|
$ |
5,718 |
|
|
$ |
3,552 |
|
|
$ |
30,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
$ |
38,065 |
|
|
$ |
5,718 |
|
|
$ |
(7,468 |
) |
|
$ |
36,315 |
|
Change |
|
$ |
26,284 |
|
|
$ |
(5,718 |
) |
|
$ |
582 |
|
|
$ |
21,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
$ |
64,349 |
|
|
$ |
|
|
|
$ |
(6,886 |
) |
|
$ |
57,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Transactions
On March 26, 2004, the Company sold an aggregate of 4,050 shares of common stock to Mitsui &
Co., Ltd. and Mitsui & Co. (U.S.A.), Inc. for $119,435, or $29.49 per share. The proceeds of the
sale were used for general corporate purposes, which included reducing outstanding indebtedness
under the Companys credit agreements.
In September 2002, the Company repurchased 1,009 shares of its common stock from Combined
Specialty Insurance Company, a wholly owned subsidiary of Aon Corporation, for $16,000. To date,
the Company has repurchased 1,397 shares of its common stock at an aggregate cost of $21,790 under
the terms of a repurchase program for up to three million shares that was authorized by the
Companys Board of Directors in September 2001. Treasury stock is accounted for by the cost method.
In March 2002, the Company completed the sale of 3,000 shares of voting common stock to the
public in an underwritten registered offering at $22.00 per share. Net proceeds to the Company
totaled approximately $60,873, which was used to repay indebtedness under the U.S. Credit
Agreement.
On April 12, 1999, the Company entered into a securities purchase agreement with International
Motor Cars Group I, L.L.C. and International Motor Cars Group II, L.L.C. (the Securities Purchase
Agreement), Delaware limited liability companies controlled by Penske Capital Partners, L.L.C.
(together, the PCP Entities), pursuant to which the PCP Entities purchased 7.903124 shares of the
Companys Series A convertible preferred stock, (2) 0.396876 shares of the Companys Series B
convertible preferred stock, and (3) warrants to purchase 3,899 shares of common stock and 1,101
shares of non-voting common stock, for $83,000. The Series A and Series B preferred stock entitled
the PCP Entities to dividends at a rate of 6.5% per year. The dividends were payable in kind for
the first two years after issuance, after which they were payable in cash. Actual cash dividends
paid relating to the preferred stock amounted to $2,930 during the year ended December 31, 2002.
The Series A preferred stock was converted into voting common stock in May 2002. The Series B
preferred stock was converted into non-voting common stock in August 2002.
The warrants held by the PCP Entities, as originally issued, were exercisable at a price of
$12.50 per share until February 3, 2002, and $15.50 per share thereafter until May 2, 2004.
Pursuant to the anti-dilution provisions of the warrants and as a result of a sale of equity to
Mitsui & Co. in 2001, (a) the number of warrants to purchase common stock was increased from 3,899
shares to 3,916 shares, (b) the number of warrants to purchase non-voting common stock was
increased from 1,101 shares to 1,106 shares, and (c) the warrant exercise price was lowered from
$12.50 to $12.45. The PCP Entities exercised their warrants in February 2002 for $62,500.
Accordingly, the Company issued 3,916 shares of voting common stock and 1,106 shares of non-voting
common stock. Proceeds from the exercise of the warrants were used to repay indebtedness under the
U.S. Credit Agreement
14. Income Taxes
The income tax provision relating to income from continuing operations consisted of the
following:
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
18,362 |
|
|
$ |
14,399 |
|
|
$ |
17,230 |
|
State and local |
|
|
4,651 |
|
|
|
5,383 |
|
|
|
4,920 |
|
Foreign |
|
|
16,697 |
|
|
|
10,025 |
|
|
|
5,265 |
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
39,710 |
|
|
|
29,807 |
|
|
|
27,415 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
19,988 |
|
|
|
20,203 |
|
|
|
9,406 |
|
State and local |
|
|
4,049 |
|
|
|
3,930 |
|
|
|
1,643 |
|
Foreign |
|
|
3,331 |
|
|
|
2,481 |
|
|
|
1,829 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
27,368 |
|
|
|
26,614 |
|
|
|
12,878 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision relating to continuing Operations |
|
$ |
67,078 |
|
|
$ |
56,421 |
|
|
$ |
40,293 |
|
|
|
|
|
|
|
|
|
|
|
The income tax provision relating to income from continuing operations varied from the U.S.
federal statutory income tax rate due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Income tax provision at the federal statutory rate of 35% |
|
$ |
63,163 |
|
|
$ |
50,002 |
|
|
$ |
34,992 |
|
State and local income taxes, net of federal benefit |
|
|
5,620 |
|
|
|
6,083 |
|
|
|
4,515 |
|
Other |
|
|
(1,705 |
) |
|
|
336 |
|
|
|
786 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision relating to continuing operations |
|
$ |
67,078 |
|
|
$ |
56,421 |
|
|
$ |
40,293 |
|
|
|
|
|
|
|
|
|
|
|
The components of deferred tax assets and liabilities at December 31, 2004 and 2003 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
Deferred Tax Assets |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
25,760 |
|
|
$ |
30,599 |
|
Interest rate swaps |
|
|
8,560 |
|
|
|
8,930 |
|
Net operating loss carryforwards |
|
|
3,524 |
|
|
|
2,494 |
|
Other |
|
|
218 |
|
|
|
574 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
38,062 |
|
|
|
42,597 |
|
Valuation allowance |
|
|
(1,080 |
) |
|
|
(2,662 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
36,982 |
|
|
|
39,935 |
|
|
|
|
|
|
|
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(105,062 |
) |
|
|
(79,249 |
) |
Partnership investments |
|
|
(16,416 |
) |
|
|
(20,758 |
) |
Other |
|
|
(29 |
) |
|
|
(3,629 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(121,507 |
) |
|
|
(103,636 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(84,525 |
) |
|
$ |
(63,701 |
) |
|
|
|
|
|
|
|
F-25
The Company does not provide for federal income taxes or tax benefits relating to the
undistributed earnings or losses of its international subsidiaries. It is managements belief that
such earnings will be indefinitely reinvested in the companies that produced them. At December 31,
2004, the Company had not provided federal income taxes on a total of $117,137 of earnings of
individual international subsidiaries. If these earnings were remitted as dividends, the Company
would be subject to U.S. income taxes and certain foreign withholding taxes.
At December 31, 2004, the Company has $72,661 of state net operating loss carryforwards that
expire at various dates through 2024. A valuation allowance of $1,080 has been recorded against
certain state net operating loss carryforwards.
15. Segment Information
The Company operates in one reportable segment. The Companys operations (i) have similar
economic characteristics (all are automobile dealerships), (ii) offer similar products and services
(all sell new and used vehicles, service, parts and third-party finance and insurance products),
(iii) have similar target markets and customers (generally individuals) and (iv) have similar
distribution and marketing practices (all distribute products and services through dealership
facilities that market to customers in similar fashions).The following table presents certain data
by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Sales to external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
6,799,166 |
|
|
$ |
6,237,309 |
|
|
$ |
5,416,892 |
|
International |
|
|
2,585,575 |
|
|
|
1,731,300 |
|
|
|
1,082,684 |
|
|
|
|
|
|
|
|
|
|
|
Total sales to external customers |
|
$ |
9,384,741 |
|
|
$ |
7,968,609 |
|
|
$ |
6,499,576 |
|
Long-lived assets, net: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
351,700 |
|
|
|
350,633 |
|
|
|
|
|
International |
|
|
141,964 |
|
|
|
96,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
493,664 |
|
|
$ |
447,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys international operations are predominantly based in the United Kingdom and
Germany.
16. Summary of Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
2004(1)(2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
2,199,862 |
|
|
$ |
2,286,326 |
|
|
$ |
2,525,024 |
|
|
$ |
2,373,529 |
|
Gross profit |
|
|
325,447 |
|
|
|
332,378 |
|
|
|
359,002 |
|
|
|
365,185 |
|
Net income |
|
|
20,204 |
|
|
|
33,003 |
|
|
|
32,365 |
|
|
|
26,115 |
|
Diluted earnings per share |
|
$ |
0.48 |
|
|
$ |
0.71 |
|
|
$ |
0.70 |
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
2003(1)(2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,757,580 |
|
|
$ |
2,041,049 |
|
|
$ |
2,177,147 |
|
|
$ |
1,992,833 |
|
Gross profit |
|
|
258,133 |
|
|
|
294,223 |
|
|
|
312,961 |
|
|
|
291,429 |
|
Income before cumulative effect of
accounting change |
|
|
16,791 |
|
|
|
23,864 |
|
|
|
25,255 |
|
|
|
20,077 |
|
Net income |
|
|
13,733 |
|
|
|
23,864 |
|
|
|
25,255 |
|
|
|
20,077 |
|
Diluted earnings per share |
|
$ |
0.34 |
|
|
$ |
0.58 |
|
|
$ |
0.61 |
|
|
$ |
0.48 |
|
|
|
|
(1) |
|
As discussed in Note 4, the Company has treated the operations of certain entities as
discontinued operations. The results for all periods have been restated to reflect such
treatment. |
|
(2) |
|
Per share amounts are calculated independently for each of the quarters presented. The sum of
the quarters may not equal the full year |
F-26
|
|
|
|
|
per share amounts due to rounding. |
|
(3) |
|
Certain prior period information has been revised to conform to the current years presentation. |
17. Condensed Consolidating Financial Information
The following tables include condensed consolidating financial information as of December 31,
2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002 for United Auto Group, Inc.
(as the issuer of the Notes), wholly-owned subsidiary guarantors, non-wholly owned subsidiary
guarantors, 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 and cash flows of these entities on a stand-alone basis.
F-27
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited)
December 31, 2004
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
(In Thousands) |
Cash and cash
equivalents |
|
$ |
15,187 |
|
|
$ |
|
|
|
$ |
13,638 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,424 |
|
|
$ |
125 |
|
|
$ |
|
|
|
$ |
|
|
Accounts receivable,
net |
|
|
356,625 |
|
|
|
(34,404 |
) |
|
|
34,404 |
|
|
|
240,005 |
|
|
|
10,463 |
|
|
|
5,441 |
|
|
|
2,505 |
|
|
|
588 |
|
|
|
97,623 |
|
Inventories, net |
|
|
1,252,358 |
|
|
|
|
|
|
|
|
|
|
|
745,643 |
|
|
|
26,085 |
|
|
|
31,523 |
|
|
|
5,085 |
|
|
|
2,996 |
|
|
|
441,026 |
|
Other current assets |
|
|
44,315 |
|
|
|
|
|
|
|
4,589 |
|
|
|
22,064 |
|
|
|
547 |
|
|
|
12 |
|
|
|
4 |
|
|
|
|
|
|
|
17,099 |
|
Assets of
discontinued operations |
|
|
148,921 |
|
|
|
|
|
|
|
|
|
|
|
139,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,817,406 |
|
|
|
(34,404 |
) |
|
|
52,631 |
|
|
|
1,147,356 |
|
|
|
37,095 |
|
|
|
38,400 |
|
|
|
7,719 |
|
|
|
3,584 |
|
|
|
565,025 |
|
Property and equipment,
net |
|
|
406,783 |
|
|
|
|
|
|
|
3,788 |
|
|
|
230,909 |
|
|
|
6,041 |
|
|
|
2,417 |
|
|
|
1,815 |
|
|
|
3,813 |
|
|
|
158,000 |
|
Intangible assets |
|
|
1,221,731 |
|
|
|
|
|
|
|
|
|
|
|
830,837 |
|
|
|
68,281 |
|
|
|
20,738 |
|
|
|
3,722 |
|
|
|
|
|
|
|
298,153 |
|
Other assets |
|
|
86,881 |
|
|
|
(984,847 |
) |
|
|
1,023,923 |
|
|
|
31,773 |
|
|
|
9 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
15,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,532,801 |
|
|
$ |
(1,019,251 |
) |
|
$ |
1,080,342 |
|
|
$ |
2,240,875 |
|
|
$ |
111,426 |
|
|
$ |
61,789 |
|
|
$ |
13,256 |
|
|
$ |
7,397 |
|
|
$ |
1,036,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan notes
payable |
|
$ |
876,758 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
542,331 |
|
|
$ |
9,867 |
|
|
$ |
14,423 |
|
|
$ |
4,779 |
|
|
$ |
|
|
|
$ |
305,358 |
|
Floor plan notes
payable non-trade |
|
|
320,782 |
|
|
|
|
|
|
|
|
|
|
|
221,852 |
|
|
|
12,461 |
|
|
|
13,816 |
|
|
|
|
|
|
|
2,495 |
|
|
|
70,158 |
|
Accounts payable |
|
|
213,851 |
|
|
|
|
|
|
|
5,186 |
|
|
|
90,852 |
|
|
|
6,873 |
|
|
|
1,819 |
|
|
|
321 |
|
|
|
1,430 |
|
|
|
107,370 |
|
Accrued expenses |
|
|
188,381 |
|
|
|
(34,404 |
) |
|
|
121 |
|
|
|
43,578 |
|
|
|
24,695 |
|
|
|
11,637 |
|
|
|
1,921 |
|
|
|
259 |
|
|
|
140,574 |
|
Current portion of
long-term debt |
|
|
11,367 |
|
|
|
|
|
|
|
|
|
|
|
938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,429 |
|
Liabilities of
discontinued operations |
|
|
92,553 |
|
|
|
|
|
|
|
|
|
|
|
86,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities |
|
|
1,703,692 |
|
|
|
(34,404 |
) |
|
|
5,307 |
|
|
|
986,261 |
|
|
|
53,896 |
|
|
|
41,695 |
|
|
|
7,021 |
|
|
|
4,184 |
|
|
|
639,732 |
|
Long-term debt |
|
|
574,970 |
|
|
|
|
|
|
|
|
|
|
|
327,042 |
|
|
|
63,151 |
|
|
|
21,361 |
|
|
|
3,842 |
|
|
|
3,021 |
|
|
|
156,553 |
|
Other long-term
liabilities |
|
|
179,104 |
|
|
|
|
|
|
|
|
|
|
|
163,315 |
|
|
|
10,946 |
|
|
|
1,028 |
|
|
|
3,386 |
|
|
|
58 |
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,457,766 |
|
|
|
(34,404 |
) |
|
|
5,307 |
|
|
|
1,476,618 |
|
|
|
127,993 |
|
|
|
64,084 |
|
|
|
14,249 |
|
|
|
7,263 |
|
|
|
796,656 |
|
Total stockholders
equity |
|
|
1,075,035 |
|
|
|
(984,847 |
) |
|
|
1,075,035 |
|
|
|
764,257 |
|
|
|
(16,567 |
) |
|
|
(2,295 |
) |
|
|
(993 |
) |
|
|
134 |
|
|
|
240,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders
Equity |
|
$ |
3,532,801 |
|
|
$ |
(1,019,251 |
) |
|
$ |
1,080,342 |
|
|
$ |
2,240,875 |
|
|
$ |
111,426 |
|
|
$ |
61,789 |
|
|
$ |
13,256 |
|
|
$ |
7,397 |
|
|
$ |
1,036,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited)
December 31, 2003
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG |
|
|
UAG Mentor |
|
|
Non- |
|
|
|
Total |
|
|
|
|
|
|
United Auto |
|
|
Guarantor |
|
|
HBL |
|
|
Connecticut I, |
|
|
Acquisition |
|
|
Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
LLC |
|
|
LLC |
|
|
LLC |
|
|
Subsidiaries |
|
|
|
(In Thousands) |
Cash and cash
equivalents |
|
$ |
13,901 |
|
|
$ |
|
|
|
$ |
6,571 |
|
|
$ |
1,099 |
|
|
$ |
1,246 |
|
|
$ |
644 |
|
|
$ |
85 |
|
|
$ |
4,256 |
|
Accounts receivable,
net |
|
|
323,376 |
|
|
|
(27,497 |
) |
|
|
27,497 |
|
|
|
219,167 |
|
|
|
11,460 |
|
|
|
5,821 |
|
|
|
1,538 |
|
|
|
85,390 |
|
Inventories, net |
|
|
1,086,383 |
|
|
|
|
|
|
|
|
|
|
|
712,136 |
|
|
|
26,360 |
|
|
|
25,331 |
|
|
|
6,320 |
|
|
|
316,236 |
|
Other current assets |
|
|
42,868 |
|
|
|
|
|
|
|
581 |
|
|
|
23,615 |
|
|
|
894 |
|
|
|
14 |
|
|
|
3 |
|
|
|
17,761 |
|
Assets from
discontinued operations |
|
|
172,737 |
|
|
|
|
|
|
|
|
|
|
|
166,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,639,265 |
|
|
|
(27,497 |
) |
|
|
34,649 |
|
|
|
1,122,272 |
|
|
|
39,960 |
|
|
|
31,810 |
|
|
|
7,946 |
|
|
|
430,125 |
|
Property and equipment,
net |
|
|
358,516 |
|
|
|
|
|
|
|
4,235 |
|
|
|
224,089 |
|
|
|
23,926 |
|
|
|
3,587 |
|
|
|
1,926 |
|
|
|
100,753 |
|
Intangible assets |
|
|
1,057,687 |
|
|
|
|
|
|
|
|
|
|
|
744,511 |
|
|
|
68,281 |
|
|
|
20,738 |
|
|
|
3,722 |
|
|
|
220,435 |
|
Other assets |
|
|
88,730 |
|
|
|
(749,215 |
) |
|
|
797,530 |
|
|
|
14,498 |
|
|
|
2 |
|
|
|
302 |
|
|
|
|
|
|
|
25,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,144,198 |
|
|
$ |
(776,712 |
) |
|
$ |
836,414 |
|
|
$ |
2,105,370 |
|
|
$ |
132,169 |
|
|
$ |
56,437 |
|
|
$ |
13,594 |
|
|
$ |
776,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan notes
payable |
|
$ |
670,519 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
431,033 |
|
|
$ |
9,912 |
|
|
$ |
11,565 |
|
|
$ |
|
|
|
$ |
218,009 |
|
Floor plan notes
payable non-trade |
|
|
380,681 |
|
|
|
|
|
|
|
|
|
|
|
272,987 |
|
|
|
19,140 |
|
|
|
12,364 |
|
|
|
5,926 |
|
|
|
70,264 |
|
Accounts payable |
|
|
162,081 |
|
|
|
|
|
|
|
5,036 |
|
|
|
66,631 |
|
|
|
3,635 |
|
|
|
1,946 |
|
|
|
211 |
|
|
|
84,622 |
|
Accrued expenses |
|
|
181,026 |
|
|
|
(27,497 |
) |
|
|
2,966 |
|
|
|
81,236 |
|
|
|
20,657 |
|
|
|
9,129 |
|
|
|
1,581 |
|
|
|
92,954 |
|
Current portion of
long-term debt |
|
|
8,540 |
|
|
|
|
|
|
|
|
|
|
|
1,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,114 |
|
Liabilities from
discontinued operations |
|
|
102,314 |
|
|
|
|
|
|
|
|
|
|
|
96,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities |
|
|
1,505,161 |
|
|
|
(27,497 |
) |
|
|
8,002 |
|
|
|
949,864 |
|
|
|
53,344 |
|
|
|
35,004 |
|
|
|
7,718 |
|
|
|
478,726 |
|
Long-term debt |
|
|
643,145 |
|
|
|
|
|
|
|
|
|
|
|
397,214 |
|
|
|
75,882 |
|
|
|
21,361 |
|
|
|
3,842 |
|
|
|
144,846 |
|
Other long-term
liabilities |
|
|
167,480 |
|
|
|
|
|
|
|
|
|
|
|
152,928 |
|
|
|
10,591 |
|
|
|
1,308 |
|
|
|
2,570 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,315,786 |
|
|
|
(27,497 |
) |
|
|
8,002 |
|
|
|
1,500,006 |
|
|
|
139,817 |
|
|
|
57,673 |
|
|
|
14,130 |
|
|
|
623,655 |
|
Total stockholders
equity |
|
|
828,412 |
|
|
|
(749,215 |
) |
|
|
828,412 |
|
|
|
605,364 |
|
|
|
(7,648 |
) |
|
|
(1,236 |
) |
|
|
(536 |
) |
|
|
153,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders
Equity |
|
$ |
3,144,198 |
|
|
$ |
(776,712 |
) |
|
$ |
836,414 |
|
|
$ |
2,105,370 |
|
|
$ |
132,169 |
|
|
$ |
56,437 |
|
|
$ |
13,594 |
|
|
$ |
776,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(Unaudited)
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
(In Thousands) |
Total revenues |
|
$ |
9,384,741 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,041,086 |
|
|
$ |
252,646 |
|
|
$ |
158,725 |
|
|
$ |
51,926 |
|
|
$ |
14,017 |
|
|
$ |
2,866,341 |
|
Total cost of sales |
|
|
8,002,729 |
|
|
|
|
|
|
|
|
|
|
|
5,145,247 |
|
|
|
208,882 |
|
|
|
134,072 |
|
|
|
45,566 |
|
|
|
12,173 |
|
|
|
2,456,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,382,012 |
|
|
|
|
|
|
|
|
|
|
|
895,839 |
|
|
|
43,764 |
|
|
|
24,653 |
|
|
|
6,360 |
|
|
|
1,844 |
|
|
|
409,552 |
|
Selling, general, and
administrative expenses |
|
|
1,082,558 |
|
|
|
|
|
|
|
12,640 |
|
|
|
698,769 |
|
|
|
34,270 |
|
|
|
19,163 |
|
|
|
5,373 |
|
|
|
1,423 |
|
|
|
310,920 |
|
Depreciation and
amortization |
|
|
40,350 |
|
|
|
|
|
|
|
818 |
|
|
|
22,354 |
|
|
|
1,740 |
|
|
|
483 |
|
|
|
203 |
|
|
|
86 |
|
|
|
14,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
259,104 |
|
|
|
|
|
|
|
(13,458 |
) |
|
|
174,716 |
|
|
|
7,754 |
|
|
|
5,007 |
|
|
|
784 |
|
|
|
335 |
|
|
|
83,966 |
|
Floor plan interest
expense |
|
|
(47,267 |
) |
|
|
|
|
|
|
|
|
|
|
(34,158 |
) |
|
|
(699 |
) |
|
|
(734 |
) |
|
|
(159 |
) |
|
|
(24 |
) |
|
|
(11,493 |
) |
Other interest expense |
|
|
(42,973 |
) |
|
|
|
|
|
|
|
|
|
|
(27,183 |
) |
|
|
(3,997 |
) |
|
|
(768 |
) |
|
|
(1,039 |
) |
|
|
(164 |
) |
|
|
(9,822 |
) |
Equity in earnings of
subsidiaries |
|
|
|
|
|
|
(202,177 |
) |
|
|
202,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
11,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before minority interests
and income taxes |
|
|
180,333 |
|
|
|
(202,177 |
) |
|
|
188,719 |
|
|
|
113,375 |
|
|
|
3,058 |
|
|
|
3,505 |
|
|
|
(414 |
) |
|
|
147 |
|
|
|
74,120 |
|
Minority interests |
|
|
(2,047 |
) |
|
|
|
|
|
|
|
|
|
|
(942 |
) |
|
|
(174 |
) |
|
|
(403 |
) |
|
|
|
|
|
|
(28 |
) |
|
|
(500 |
) |
Income taxes |
|
|
(67,078 |
) |
|
|
83,441 |
|
|
|
(78,500 |
) |
|
|
(45,578 |
) |
|
|
(1,322 |
) |
|
|
(1,490 |
) |
|
|
146 |
|
|
|
(55 |
) |
|
|
(23,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
|
111,208 |
|
|
|
(118,736 |
) |
|
|
110,219 |
|
|
|
66,855 |
|
|
|
1,562 |
|
|
|
1,612 |
|
|
|
(268 |
) |
|
|
64 |
|
|
|
49,900 |
|
Income (loss) from discontinued
operations, net of tax |
|
|
479 |
|
|
|
|
|
|
|
|
|
|
|
736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
111,687 |
|
|
$ |
(118,736 |
) |
|
$ |
110,219 |
|
|
$ |
67,591 |
|
|
$ |
1,562 |
|
|
$ |
1,612 |
|
|
$ |
(268 |
) |
|
$ |
64 |
|
|
$ |
49,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(Unaudited)
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG |
|
|
UAG Mentor |
|
|
Non- |
|
|
|
Total |
|
|
|
|
|
|
United Auto |
|
|
Guarantor |
|
|
HBL |
|
|
Connecticut I, |
|
|
Acquisition |
|
|
Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
LLC |
|
|
LLC |
|
|
LLC |
|
|
Subsidiaries |
|
|
|
(In Thousands) |
Total revenues |
|
$ |
7,968,609 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,560,540 |
|
|
$ |
233,173 |
|
|
$ |
159,226 |
|
|
$ |
52,235 |
|
|
$ |
1,963,435 |
|
Total cost of sales |
|
|
6,811,863 |
|
|
|
|
|
|
|
|
|
|
|
4,742,257 |
|
|
|
195,753 |
|
|
|
134,991 |
|
|
|
45,672 |
|
|
|
1,693,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,156,746 |
|
|
|
|
|
|
|
|
|
|
|
818,283 |
|
|
|
37,420 |
|
|
|
24,235 |
|
|
|
6,563 |
|
|
|
270,245 |
|
Selling, general, and
administrative expenses |
|
|
900,650 |
|
|
|
|
|
|
|
12,686 |
|
|
|
627,379 |
|
|
|
26,829 |
|
|
|
18,044 |
|
|
|
5,398 |
|
|
|
210,314 |
|
Depreciation and
amortization |
|
|
29,369 |
|
|
|
|
|
|
|
783 |
|
|
|
20,659 |
|
|
|
494 |
|
|
|
445 |
|
|
|
155 |
|
|
|
6,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
226,727 |
|
|
|
|
|
|
|
(13,469 |
) |
|
|
170,245 |
|
|
|
10,097 |
|
|
|
5,746 |
|
|
|
1,010 |
|
|
|
53,098 |
|
Floor plan interest
expense |
|
|
(41,071 |
) |
|
|
|
|
|
|
|
|
|
|
(32,599 |
) |
|
|
(545 |
) |
|
|
(650 |
) |
|
|
(131 |
) |
|
|
(7,146 |
) |
Other interest expense |
|
|
(42,835 |
) |
|
|
|
|
|
|
|
|
|
|
(29,535 |
) |
|
|
(2,392 |
) |
|
|
(708 |
) |
|
|
(562 |
) |
|
|
(9,638 |
) |
Equity in earnings of
subsidiaries |
|
|
|
|
|
|
(198,932 |
) |
|
|
198,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before minority interests,
income taxes and
cumulative effect of
accounting change |
|
|
142,821 |
|
|
|
(198,932 |
) |
|
|
185,463 |
|
|
|
108,111 |
|
|
|
7,160 |
|
|
|
4,388 |
|
|
|
317 |
|
|
|
36,314 |
|
Minority interests |
|
|
(2,272 |
) |
|
|
|
|
|
|
|
|
|
|
(1,353 |
) |
|
|
(413 |
) |
|
|
(506 |
) |
|
|
|
|
|
|
|
|
Income taxes |
|
|
(56,421 |
) |
|
|
84,148 |
|
|
|
(78,451 |
) |
|
|
(46,376 |
) |
|
|
(3,029 |
) |
|
|
(1,856 |
) |
|
|
(134 |
) |
|
|
(10,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before cumulative effect
of accounting change |
|
|
84,128 |
|
|
|
(114,784 |
) |
|
|
107,012 |
|
|
|
60,382 |
|
|
|
3,718 |
|
|
|
2,026 |
|
|
|
183 |
|
|
|
25,591 |
|
Income (loss) from
discontinued
operations, net of tax |
|
|
1,859 |
|
|
|
|
|
|
|
1,908 |
|
|
|
1,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
cumulative effect of
accounting change |
|
|
85,987 |
|
|
|
(114,784 |
) |
|
|
108,920 |
|
|
|
61,454 |
|
|
|
3,718 |
|
|
|
2,026 |
|
|
|
183 |
|
|
|
24,470 |
|
Cumulative effect of
accounting change, net
of tax |
|
|
(3,058 |
) |
|
|
|
|
|
|
|
|
|
|
(3,014 |
) |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
82,929 |
|
|
$ |
(114,784 |
) |
|
$ |
108,920 |
|
|
$ |
58,440 |
|
|
$ |
3,718 |
|
|
$ |
2,026 |
|
|
$ |
139 |
|
|
$ |
24,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(Unaudited)
Year Ended December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG |
|
|
UAG Mentor |
|
|
Non- |
|
|
|
Total |
|
|
|
|
|
|
United Auto |
|
|
Guarantor |
|
|
HBL |
|
|
Connecticut I, |
|
|
Acquisition |
|
|
Guarantor |
|
|
|
Company |
|
|
Eliminations |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
LLC |
|
|
LLC |
|
|
LLC |
|
|
Subsidiaries |
|
|
|
(In Thousands) |
|
Total revenues |
|
$ |
6,499,576 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,793,589 |
|
|
$ |
202,846 |
|
|
$ |
158,832 |
|
|
$ |
52,506 |
|
|
$ |
1,291,803 |
|
Total cost of sales |
|
|
5,559,740 |
|
|
|
|
|
|
|
|
|
|
|
4,091,116 |
|
|
|
172,848 |
|
|
|
135,917 |
|
|
|
45,599 |
|
|
|
1,114,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
939,836 |
|
|
|
|
|
|
|
|
|
|
|
702,473 |
|
|
|
29,998 |
|
|
|
22,915 |
|
|
|
6,907 |
|
|
|
177,543 |
|
Selling, general, and
administrative expenses |
|
|
749,636 |
|
|
|
|
|
|
|
12,989 |
|
|
|
552,296 |
|
|
|
21,575 |
|
|
|
17,159 |
|
|
|
5,192 |
|
|
|
140,425 |
|
Depreciation and
amortization |
|
|
19,616 |
|
|
|
|
|
|
|
927 |
|
|
|
13,201 |
|
|
|
153 |
|
|
|
336 |
|
|
|
81 |
|
|
|
4,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
170,584 |
|
|
|
|
|
|
|
(13,916 |
) |
|
|
136,976 |
|
|
|
8,270 |
|
|
|
5,420 |
|
|
|
1,634 |
|
|
|
32,200 |
|
Floor plan interest
expense |
|
|
(32,251 |
) |
|
|
|
|
|
|
|
|
|
|
(26,175 |
) |
|
|
(480 |
) |
|
|
(605 |
) |
|
|
(99 |
) |
|
|
(4,892 |
) |
Other interest expense |
|
|
(38,284 |
) |
|
|
|
|
|
|
|
|
|
|
(25,299 |
) |
|
|
(2,637 |
) |
|
|
(1,068 |
) |
|
|
(192 |
) |
|
|
(9,088 |
) |
Equity in earnings of
subsidiaries |
|
|
|
|
|
|
(175,443 |
) |
|
|
175,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before minority interests
and income taxes |
|
|
100,049 |
|
|
|
(175,443 |
) |
|
|
161,527 |
|
|
|
85,502 |
|
|
|
5,153 |
|
|
|
3,747 |
|
|
|
1,343 |
|
|
|
18,220 |
|
Minority interests |
|
|
(1,996 |
) |
|
|
|
|
|
|
|
|
|
|
(1,275 |
) |
|
|
(294 |
) |
|
|
(427 |
) |
|
|
|
|
|
|
|
|
Income taxes |
|
|
(40,293 |
) |
|
|
75,440 |
|
|
|
(69,457 |
) |
|
|
(37,216 |
) |
|
|
(2,215 |
) |
|
|
(1,611 |
) |
|
|
(578 |
) |
|
|
(4,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
|
57,760 |
|
|
|
(100,003 |
) |
|
|
92,070 |
|
|
|
47,011 |
|
|
|
2,644 |
|
|
|
1,709 |
|
|
|
765 |
|
|
|
13,564 |
|
Income from discontinued
operations, net of tax |
|
|
4,481 |
|
|
|
|
|
|
|
|
|
|
|
4,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
62,241 |
|
|
($ |
100,003 |
) |
|
$ |
92,070 |
|
|
$ |
51,370 |
|
|
$ |
2,644 |
|
|
$ |
1,709 |
|
|
$ |
765 |
|
|
$ |
13,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Year Ended December 31, 2004
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
(In Thousands) |
Net cash
from continuing operating
activities |
|
$ |
247,447 |
|
|
$ |
7,438 |
|
|
$ |
149,688 |
|
|
$ |
12,500 |
|
|
$ |
1,311 |
|
|
$ |
6,247 |
|
|
$ |
(1,687 |
) |
|
$ |
71,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
and improvements |
|
|
(231,824 |
) |
|
|
(371 |
) |
|
|
(100,647 |
) |
|
|
(21,009 |
) |
|
|
(2,280 |
) |
|
|
(92 |
) |
|
|
(3,899 |
) |
|
|
(103,526 |
) |
Proceeds
from sale
leaseback transactions |
|
|
149,076 |
|
|
|
|
|
|
|
65,893 |
|
|
|
37,154 |
|
|
|
2,967 |
|
|
|
|
|
|
|
|
|
|
|
43,062 |
|
Dealership acquisitions,
net |
|
|
(168,184 |
) |
|
|
|
|
|
|
(111,236 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,948 |
) |
Proceeds from sale of
investment |
|
|
13,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
from continuing investing activities |
|
|
(237,366 |
) |
|
|
(371 |
) |
|
|
(145,990 |
) |
|
|
16,145 |
|
|
|
687 |
|
|
|
(92 |
) |
|
|
(3,899 |
) |
|
|
(103,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings
(repayments) of
long-term debt |
|
|
(74,297 |
) |
|
|
(107,022 |
) |
|
|
69,020 |
|
|
|
(12,731 |
) |
|
|
|
|
|
|
|
|
|
|
3,021 |
|
|
|
(26,585 |
) |
Net borrowings
(repayments) of
floor plan notes
payable non-trade |
|
|
(59,901 |
) |
|
|
|
|
|
|
(51,137 |
) |
|
|
(6,679 |
) |
|
|
1,452 |
|
|
|
(5,926 |
) |
|
|
2,495 |
|
|
|
(106 |
) |
Proceeds from issuance
of common stock |
|
|
125,433 |
|
|
|
125,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from
(to) parent |
|
|
|
|
|
|
|
|
|
|
(43,776 |
) |
|
|
(10,481 |
) |
|
|
(2,670 |
) |
|
|
(189 |
) |
|
|
70 |
|
|
|
57,046 |
|
Dividends |
|
|
(18,411 |
) |
|
|
(18,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
from continuing financing activities |
|
|
(27,176 |
) |
|
|
|
|
|
|
(25,893 |
) |
|
|
(29,891 |
) |
|
|
(1,218 |
) |
|
|
(6,115 |
) |
|
|
5,586 |
|
|
|
30,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from
discontinued
operations |
|
|
18,381 |
|
|
|
|
|
|
|
21,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash
and cash equivalents |
|
|
1,286 |
|
|
|
7,067 |
|
|
|
(1,099 |
) |
|
|
(1,246 |
) |
|
|
780 |
|
|
|
40 |
|
|
|
|
|
|
|
(4,256 |
) |
Cash and cash
equivalents, beginning
of period |
|
|
13,901 |
|
|
|
6,571 |
|
|
|
1,099 |
|
|
|
1,246 |
|
|
|
644 |
|
|
|
85 |
|
|
|
|
|
|
|
4,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of
period |
|
$ |
15,187 |
|
|
$ |
13,638 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,424 |
|
|
$ |
125 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Year Ended December 31, 2003
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG |
|
|
UAG Mentor |
|
|
Non- |
|
|
|
Total |
|
|
United Auto |
|
|
Guarantor |
|
|
HBL |
|
|
Connecticut I, |
|
|
Acquisition |
|
|
Guarantor |
|
|
|
Company |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
LLC |
|
|
LLC |
|
|
LLC |
|
|
Subsidiaries |
|
|
|
(In Thousands) |
Net cash
from continuing operating
activities |
|
$ |
24,264 |
|
|
$ |
7,403 |
|
|
$ |
1,900 |
|
|
$ |
4,015 |
|
|
$ |
10,038 |
|
|
$ |
(1,125 |
) |
|
$ |
2,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
and improvements |
|
|
(198,235 |
) |
|
|
(832 |
) |
|
|
(118,542 |
) |
|
|
(18,004 |
) |
|
|
(1,110 |
) |
|
|
(1,491 |
) |
|
|
(58,256 |
) |
Proceeds from sale -
leaseback transactions |
|
|
133,373 |
|
|
|
|
|
|
|
99,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,800 |
|
Dealership acquisitions,
net |
|
|
(113,356 |
) |
|
|
|
|
|
|
(82,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
from continuing investing activities |
|
|
(178,218 |
) |
|
|
(832 |
) |
|
|
(100,973 |
) |
|
|
(18,004 |
) |
|
|
(1,110 |
) |
|
|
(1,491 |
) |
|
|
(55,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings
(repayments) of
long-term debt |
|
|
(25,600 |
) |
|
|
(5,789 |
) |
|
|
(61,891 |
) |
|
|
12,731 |
|
|
|
|
|
|
|
|
|
|
|
29,349 |
|
Net borrowings
(repayments) of
floor plan notes
payable non-trade |
|
|
150,705 |
|
|
|
|
|
|
|
117,773 |
|
|
|
9,145 |
|
|
|
(5,882 |
) |
|
|
2,766 |
|
|
|
26,903 |
|
Proceeds from issuance
of common stock |
|
|
9,907 |
|
|
|
9,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from
(to) parent |
|
|
|
|
|
|
|
|
|
|
10,762 |
|
|
|
(6,641 |
) |
|
|
(2,856 |
) |
|
|
(65 |
) |
|
|
(1,200 |
) |
Dividends |
|
|
(4,118 |
) |
|
|
(4,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
from continuing financing activities |
|
|
130,894 |
|
|
|
|
|
|
|
66,644 |
|
|
|
15,235 |
|
|
|
(8,738 |
) |
|
|
2,701 |
|
|
|
55,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from
discontinued
operations |
|
|
26,702 |
|
|
|
|
|
|
|
23,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash
and cash equivalents |
|
|
3,642 |
|
|
|
6,571 |
|
|
|
(8,706 |
) |
|
|
1,246 |
|
|
|
190 |
|
|
|
85 |
|
|
|
4,256 |
|
Cash and cash
equivalents, beginning
of period |
|
|
10,259 |
|
|
|
|
|
|
|
9,805 |
|
|
|
|
|
|
|
454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of
period |
|
$ |
13,901 |
|
|
$ |
6,571 |
|
|
$ |
1,099 |
|
|
$ |
1,246 |
|
|
$ |
644 |
|
|
$ |
85 |
|
|
$ |
4,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
UNITED AUTO GROUP, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Year Ended December 31, 2002
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Wholly Owned Guarantor Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAG |
|
|
UAG Mentor |
|
|
Non- |
|
|
|
Total |
|
|
United Auto |
|
|
Guarantor |
|
|
HBL |
|
|
Connecticut I, |
|
|
Acquisition |
|
|
Guarantor |
|
|
|
Company |
|
|
Group, Inc. |
|
|
Subsidiaries |
|
|
LLC |
|
|
LLC |
|
|
LLC |
|
|
Subsidiaries |
|
|
|
(In Thousands) |
Net cash
from continuing operating
activities |
|
$ |
39,335 |
|
|
$ |
11,268 |
|
|
$ |
(2,742 |
) |
|
$ |
13,349 |
|
|
$ |
1,642 |
|
|
$ |
835 |
|
|
$ |
14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
and improvements |
|
|
(183,295 |
) |
|
|
(3,620 |
) |
|
|
(93,096 |
) |
|
|
(5,816 |
) |
|
|
(21 |
) |
|
|
(338 |
) |
|
|
(80,404 |
) |
Proceeds from sale -
leaseback transactions |
|
|
85,500 |
|
|
|
|
|
|
|
85,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealership acquisitions,
net |
|
|
(193,525 |
) |
|
|
|
|
|
|
(43,321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
from continuing
investing activities |
|
|
(291,320 |
) |
|
|
(3,620 |
) |
|
|
(50,917 |
) |
|
|
(5,816 |
) |
|
|
(21 |
) |
|
|
(338 |
) |
|
|
(230,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings
(repayments) of
long-term debt |
|
|
78,262 |
|
|
|
(119,295 |
) |
|
|
92,006 |
|
|
|
(6,237 |
) |
|
|
|
|
|
|
|
|
|
|
111,788 |
|
Net borrowings
(repayments) of
floor plan notes
payable non-trade |
|
|
47,967 |
|
|
|
|
|
|
|
17,920 |
|
|
|
893 |
|
|
|
3,293 |
|
|
|
577 |
|
|
|
25,284 |
|
Proceeds from issuance
of common stock |
|
|
135,295 |
|
|
|
135,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs |
|
|
(8,065 |
) |
|
|
(8,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(16,000 |
) |
|
|
(16,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from
(to) parent |
|
|
|
|
|
|
|
|
|
|
(63,005 |
) |
|
|
(2,189 |
) |
|
|
(4,504 |
) |
|
|
(1,074 |
) |
|
|
70,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
from continuing
financing activities |
|
|
237,459 |
|
|
|
(8,065 |
) |
|
|
46,921 |
|
|
|
(7,533 |
) |
|
|
(1,211 |
) |
|
|
(497 |
) |
|
|
207,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from
discontinued
operations |
|
|
20,973 |
|
|
|
|
|
|
|
13,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash
and cash equivalents |
|
|
6,447 |
|
|
|
(417 |
) |
|
|
6,454 |
|
|
|
|
|
|
|
410 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning
of period |
|
|
3,812 |
|
|
|
417 |
|
|
|
3,351 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of
period |
|
$ |
10,259 |
|
|
$ |
|
|
|
$ |
9,805 |
|
|
$ |
|
|
|
$ |
454 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
Schedule II
UNITED AUTO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Deductions, |
|
|
Balance |
|
|
|
Beginning |
|
|
|
|
|
|
Recoveries |
|
|
at End |
|
Description |
|
of Year |
|
|
Additions |
|
|
& Other |
|
|
of Year |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
3,421 |
|
|
$ |
3,184 |
|
|
$ |
(2,733 |
) |
|
$ |
3,872 |
|
Allowance for chargebacks |
|
|
15,805 |
|
|
|
20,303 |
|
|
|
(20,089 |
) |
|
|
16,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,226 |
|
|
$ |
23,487 |
|
|
$ |
(22,822 |
) |
|
$ |
19,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
3,431 |
|
|
$ |
2,055 |
|
|
$ |
(2,065 |
) |
|
$ |
3,421 |
|
Allowance for chargebacks |
|
|
14,187 |
|
|
|
20,629 |
|
|
|
(19,011 |
) |
|
|
15,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,618 |
|
|
$ |
22,684 |
|
|
$ |
(21,076 |
) |
|
$ |
19,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
2,845 |
|
|
$ |
1,874 |
|
|
$ |
(1,288 |
) |
|
$ |
3,431 |
|
Allowance
for chargebacks |
|
|
13,049 |
|
|
|
18,548 |
|
|
|
(17,410 |
) |
|
|
14,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,894 |
|
|
$ |
20,422 |
|
|
$ |
(18,698 |
) |
|
$ |
17,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36