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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] 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 ______
UNITED AUTO GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3086739
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
375 PARK AVENUE, NEW YORK, NEW YORK 10152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 223-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
VOTING COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE
$0.0001 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
AT MARCH 7, 1997, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES WAS $196,548,360.
1
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON
STOCK AS OF MARCH 7, 1997:
VOTING COMMON STOCK, $0.0001 PAR VALUE 16,639,946
NON-VOTING COMMON STOCK, $0.0001 PAR VALUE 605,454
DOCUMENTS INCORPORATED BY REFERENCE
(1) PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 18,
1997, ISSUED IN CONNECTION WITH THE ANNUAL MEETING OF SHAREHOLDERS
PRESENTLY SCHEDULED TO BE HELD ON APRIL 17, 1997 ARE INCORPORATED BY
REFERENCE IN PART III OF THIS FORM 10-K.
2
TABLE OF CONTENTS
PART I
PAGE
1. Business............................................................... 4
2. Properties............................................................. 11
3. Legal Proceedings...................................................... 13
4. Submission of Matters to a Vote of Securityholders..................... 13
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.. 13
6. Selected Consolidated Financial Data................................... 14
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 18
8. Financial Statements and Supplementary Data............................ 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 24
PART III
10. Directors and Executive Officers of the Registrant..................... 24
11. Executive Compensation................................................. 24
12. Security Ownership of Certain Beneficial Owners and Management......... 24
13. Certain Relationships and Related Transactions......................... 24
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 25
3
PART I
ITEM 1. BUSINESS
OVERVIEW
United Auto Group, Inc. was incorporated in the State of Delaware in December
1990 and commenced dealership operations in October 1992. Unless the context
otherwise requires, references herein to "UAG" or the "Company" refer to United
Auto Group, Inc. and its subsidiaries, and references herein to the "Common
Stock" refers to the Company's Voting Common Stock, par value $0.0001 per
share.
UAG is a leading acquirer, consolidator and operator of franchised automobile
and light truck dealerships and related businesses. The Company believes that
it is the second largest publicly-traded retailer of new motor vehicles in the
United States. At the end of 1996, the Company operated 37 franchises located
in Arizona, Arkansas, Connecticut, Georgia, New Jersey, New York, and
Tennessee. These franchises represent 22 American, Asian and European brands.
As an integral part of its dealership operations, UAG sells used vehicles. In
addition, the Company operates eight stand-alone used car retail centers. All
of UAG's dealerships include integrated service and parts operations, which are
an important source of recurring revenues. The Company also owns Atlantic Auto
Finance Corporation ("Atlantic Finance"), an automobile finance company engaged
in the purchase, sale and servicing of prime credit quality automobile loans
originated by both UAG and third-party dealerships. In addition, UAG
dealerships market a complete line of aftermarket automotive products and
services through United AutoCare, an aftermarket products and services
subsidiary. In 1996, on a pro forma basis, UAG had revenues of approximately
$1.6 billion and retailed 41,916 new and 22,946 used vehicles.
The Company was formed to capitalize on consolidation opportunities within the
highly fragmented $660 billion automotive retailing industry by acquiring,
consolidating, and operating large automobile retailers and related businesses.
As capital requirements to operate dealerships continue to increase and many
owners who were granted franchises in the 1950s and 1960s approach retirement
age, many individual dealers are seeking exit opportunities. These conditions
present attractive consolidation opportunities for larger automobile retailers
such as UAG.
The following table sets forth information with respect to each dealership
owned by the Company at December 31, 1996:
DATE
ACQUIREE ACQUIRED LOCATIONS FRANCHISES PRESENTLY HELD
-------- -------- --------- -------------------------
DiFeo Automotive Group 10/92 Danbury, CT Chevrolet-Geo, Hyundai, Isuzu, Suzuki
Bound Brook, NJ Lexus
Jersey City, NJ Hyundai, Jeep-Eagle, Oldsmobile, Toyota
Tenafly, NJ BMW
Nyack, NY Mitsubishi, Toyota
DiFeo Nissan 11/92 Jersey City, NJ Nissan
DiFeo Chrysler-Plymouth 12/92 Jersey City, NJ Chrysler-Plymouth
4
continued
DATE
ACQUIREE ACQUIRED LOCATIONS FRANCHISES PRESENTLY HELD
-------- -------- --------- -------------------------
DiFeo Chevrolet-Geo 12/92 Jersey City, NJ Chevrolet-Geo
Fair Honda 1/93 Danbury, CT Honda
Fair Dodge 2/93 Danbury, CT Dodge
Gateway 8/93 Toms River, NJ Mitsubishi, Toyota
Landers Auto 8/95 Benton, AK Chrysler-Plymouth, Dodge, GMC Truck, Jeep-Eagle,
Oldsmobile
Atlanta Toyota 1/96 Duluth, GA Toyota
United Nissan (GA) 5/96 Morrow, GA Nissan
Peachtree Nissan 7/96 Chamblee, GA Nissan
Sun Group 10/96 Phoenix, AZ BMW, Land Rover
Scottsdale, AZ Acura, Audi, Land Rover, Lexus, Porsche
United BMW 10/96 Duluth, GA BMW
Conyers Nissan 10/96 Conyers, GA Nissan
United Nissan (TN) 10/96 Chattanooga, TN Nissan
Management believes that UAG is well-positioned to continue capitalizing on the
consolidation trend in the automotive retailing industry due to its proven
acquisition history, diverse geographic presence, substantial size and
financial resources. Since December 31, 1996, the Company has reached
agreements to purchase Hanna Nissan in Las Vegas, a group of three dealerships
in Atlanta and Chattanooga and a group of nine dealerships located in the New
York metropolitan area and Florida. The Company also completed its previously
announced acquisition of the Crown dealerships in Houston during the first
quarter of 1997.
The following table sets forth, on a pro forma basis for 1996, certain
information relating to new vehicles sold at retail by the Company:
----------------------------------------------------
NUMBER OF NEW % OF NEW VEHICLES
MANUFACTURER VEHICLES SOLD AT RETAIL SOLD AT RETAIL
- ------------ ----------------------- --------------
Toyota 15,204 36.4%
Nissan 8,308 19.8
Chrysler 7,774 18.5
General Motors 3,489 8.3
BMW 2,316 5.5
Honda 1,793 4.3
Mitsubishi 1,234 2.9
Hyundai 811 1.9
Land Rover 407 1.0
Isuzu 216 0.5
Audi 140 0.3
Porsche 119 0.3
Suzuki 105 0.3
------ -----
Total 41,916 100.0%
====== =====
On a pro forma basis, the retail sale of these new vehicles generated $933.3
million in revenues or 58.4% of total automobile dealership revenues.
5
UAG purchases substantially all of its new car inventory directly from
manufacturers. Each of the Company's dealerships operates pursuant to a
franchise agreement between the applicable manufacturer and the subsidiary of
the Company that operates such dealership. In accordance with the individual
franchise agreements, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of manufacturers to influence
the operations of a dealership, or the loss of a franchise agreement, could
have a negative impact on the Company's operating results.
Manufacturers allocate inventory based on the size and location of dealerships,
but actual shipments result from negotiations with individual dealers. The
Company believes that larger dealers, such as UAG, are better positioned to
secure favorable inventory shipments and optimize manufacturers' allocations.
UAG finances its inventory purchases through revolving credit arrangements
known in the industry as floor plan facilities.
New vehicle retail sales are made to individual customers and to leasing
companies providing consumer leasing. Industry wide, the percentage of new
vehicle retail sales that are leasing transactions has increased from 13.5% in
1990 to 33.0% in 1996. Manufacturers have encouraged this trend through their
captive finance companies by supporting residual values in such a way so as to
reduce consumers' monthly lease payments, particularly for shorter-term leases.
This method has attracted consumers to shorter-term leases, which has the
effect of bringing the consumer back to the market sooner than if the purchase
were debt financed and providing new car dealerships with a steady source of
late-model, off-lease vehicles for their used car inventory. In addition,
because the vehicle usually remains under factory warranty for the term of the
lease, the dealership has the opportunity to provide repair service to the
lessee.
GROWTH STRATEGY
UAG seeks to be a leader in the consolidation of the automotive retailing
industry and to increase stockholder value through a growth strategy focused on
(i) acquiring profitable dealership operations, (ii) leveraging its new car
franchises to grow higher-margin businesses and (iii) generating incremental
revenue from its automobile finance business.
Acquire Profitable Dealership Operations
UAG seeks to capitalize on continuing consolidation in the U.S. automotive
retailing industry by selectively acquiring profitable dealerships. The Company
targets dealerships or dealership groups with established records of
profitability and customer satisfaction as well as experienced management
willing to remain in place. The Company focuses on opportunities in geographic
markets with above-average projected population and job growth. Of the
approximately 22,000 dealerships in the United States, the Company believes
that at least 2,000 dealerships, some of which are members of dealership
groups, meet its acquisition criteria.
Grow Higher-Margin Businesses
UAG is leveraging its new car franchises and applying its financial resources
to grow higher-margin businesses such as the retail sale of used vehicles,
aftermarket products and service
6
and parts.
Used Vehicles. On a pro forma basis, in 1996, UAG sold at retail 22,946 used
vehicles and used vehicle operations generated $322.6 million in revenues, or
20.2% of total auto dealership revenues. Used vehicle sales by franchised
dealers, with average prices approximating 60% of new vehicle prices, typically
generate higher gross margins than new car sales because of limited
comparability among used vehicles and the somewhat subjective nature of their
valuation. Consumer acceptance of used vehicle purchasing has grown due
principally to the following factors: (i) the availability of late-model,
low-mileage used automobiles has increased due to the large supply of cars
coming off short-term leases and from rental company fleets; (ii) the quality
of motor vehicles has generally improved; and (iii) the prices of new cars have
risen. The Company has taken advantage of this trend by recently opening
additional stand-alone used vehicle operations.
Profits from used car sales are dependent primarily on the ability to source a
low-cost, high-quality supply and effectively manage inventory. UAG's
dealerships acquire their used cars through trade-ins, lease expirations and
auctions. Off-lease vehicles are regarded as the highest quality in their age
class due to their low mileage and good condition relative to fleet and rental
vehicles. When a leasing customer declines to purchase the vehicle upon
expiration of the lease, industry practice is to offer it to the dealer that
originated the transaction before it is offered to other dealers or sold at
auction. In addition, UAG purchases a significant portion of its used car
inventory at "closed" auctions, which offer off-lease, rental and fleet
vehicles. Such auctions can be attended only by new car dealers. The balance of
its used car inventory is purchased at "open" auctions, which offer repossessed
cars and cars offered by other dealers.
The Company has taken several initiatives to enhance customer confidence in
used cars, including offering extended warranties, stocking higher-quality,
late-model used cars and participating in manufacturer certification programs.
Under such certification programs, which are available exclusively to new car
dealers, manufacturers support used vehicles with extended factory warranties
and attractive financing options. The Company performs the rigorous inspections
and reconditioning required for certification. Management believes that its
size is an advantage over smaller new car dealers, who may not receive a
sufficient supply to justify dedicating resources to the certification process.
Aftermarket Products. On a pro forma basis, in 1996, UAG's sales of aftermarket
products generated $51.7 million in revenues, or 3.2% of total auto dealership
revenues. Each sale of a new or used vehicle provides the opportunity for the
Company to sell aftermarket products. Aftermarket products include accessories
such as radios, cellular phones, alarms, custom wheels, paint sealants and
fabric protectors, as well as extended service contracts and credit insurance
policies. In addition, the Company receives fees for placing financing and
lease contracts. In order to meet customers' needs and help create a
"one-stop" shopping experience, management continues to expand aftermarket
product offerings.
7
Service and Parts. On a pro forma basis, in 1996, UAG's service and parts
operations generated $126.1 million in revenues, or 7.9% of total auto
dealership revenues. Each of UAG's new vehicle dealerships offers a fully
integrated service and parts department. The service and parts business
provides an important recurring revenue stream to the Company's dealerships,
which may help to mitigate the effects of downturns in the automobile sales
cycle. Unlike independent service shops or used car dealerships with service
operations, UAG is qualified to perform work covered by manufacturer
warranties. Since warranty service work is paid for by the manufacturer,
consumers are motivated to service their vehicles at a dealership for the
warranty period. In recent years, manufacturers have generally lengthened
standard warranty coverage on new cars to three years or 36,000 miles and
introduced warranty coverage on used cars, further enhancing customer retention
opportunities in the service area. To grow their service and parts businesses,
UAG dealerships track maintenance records of customers and contact them
regarding dealership promotions and maintenance schedules. In addition, the
Company actively markets warranty-covered services to potential customers such
as municipalities and corporations with large fleets of automobiles located
near certain of its dealerships. The Company is able to offer repair services
to such customers on a more efficient and less costly basis than such customers
generally can perform themselves. The Company believes that its market share
will grow at the expense of independent mechanics' shops, which may be unable
to address the increased mechanical and electronic sophistication of today's
motor vehicles and the increased expenses of compliance with more stringent
environmental regulations.
Generate Incremental Revenue from Automobile Finance Business
In 1996, industry wide, approximately 73% of new and used automobile retail
purchases (exclusive of private sales) were financed. To capitalize on this
market, the Company established Atlantic Finance, its own automobile finance
subsidiary. Atlantic Finance purchases, sells and services motor vehicle
installment contracts originated by both UAG and third-party dealerships.
Atlantic Finance commenced loan operations in January 1995 and currently serves
approximately 150 dealerships in Arkansas, Connecticut, Georgia, New Jersey and
New York. Atlantic Finance derives its revenues from three primary areas (i)
finance charges on its automobile contracts, (ii) gains in connection with the
sale or securitization of pools of automobile contract receivables and (iii)
service fees, late charges and other related income.
OPERATING STRATEGY
Emphasize Customer Service
Central to UAG's overall philosophy is customer-oriented service designed to
meet the needs of an increasingly sophisticated and demanding automotive
consumer through "one-stop" shopping convenience, competitive pricing and a
sales staff that is knowledgeable about product offerings and responsive to a
customer's particular needs. The Company's goal is to establish lasting
relationships with its customers, which it believes enhances its reputation in
the community and creates the opportunity for significant repeat and referral
business.
The quality of customer service provided by dealerships' sales and service
departments is measured
8
by customer satisfaction index ("CSI") scores, which are derived from data
accumulated by manufacturers through individual customer surveys. UAG relies on
this data to improve dealership operations and uses it as a factor in
determining the compensation of general managers and sales and service
personnel in all its dealerships. The Company's most recent CSI scores indicate
that a majority of its dealerships' CSI scores were at or above the average CSI
scores for the applicable regions.
COMPETITION
Automobile Dealerships
The automotive retailing industry is extremely competitive. In large
metropolitan areas, consumers have a number of choices in deciding where to
purchase a new or used vehicle and where to have their vehicles serviced.
For new vehicle sales, the Company competes with other franchised dealers in
each of its marketing areas. The Company does not have any cost advantage in
purchasing new vehicles and typically relies on advertising and merchandising,
sales expertise, service reputation and the location of its dealerships to sell
new vehicles. In recent years, automobile dealers have also faced increased
competition in the sale of new vehicles from independent leasing companies and
on-line purchasing services and warehouse clubs. Due to lower overhead and
sales costs, these companies may be capable of operating on smaller gross
margins and offering lower sales prices than franchised dealers.
For used cars, the Company competes with other franchised dealers, independent
used car dealers, automobile rental agencies, private parties and used car
"superstores" for the supply and resale of used vehicles. UAG believes that by
virtue of its new vehicle franchises it enjoys significant advantages over both
independent and chain used-car companies in its sources of used vehicles.
Specifically, the Company has access to (i) a steady supply of quality
off-lease vehicles that were originally leased through the new vehicle
franchise, (ii) used car auctions open only to new car dealers and (iii) a
supply of used cars accepted as trade-ins for new vehicle purchases. In
addition, only new car franchises are able to sell used cars certified by the
automobile manufacturer under newly introduced programs in which the
manufacturer supports specific high-quality used cars with extended warranties
and attractive financing options.
The Company believes 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. The Company believes that its dealerships are competitive in all of
these areas.
The Company competes against other franchised dealers to perform warranty
repairs and against other automobile dealers, franchised and unfranchised
service center chains, and independent garages for non-warranty repair and
routine maintenance business. The Company competes with
9
other automobile dealers, service stores and auto parts retailers in its parts
operations. The Company believes that the principal competitive factors in
parts and service sales are price, the use of factory-approved replacement
parts, familiarity with a manufacturer's 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 the Company's prices.
Atlantic Finance
Atlantic Finance faces competition from a variety of lenders in the fragmented
auto finance market, including captive finance companies, banking institutions
and independent finance companies. Captive finance companies such as General
Motors Acceptance Corporation, Ford Motor Credit Company and Chrysler Financial
Corporation primarily focus on increasing dealer sales volume by offering
low-yield rates when promoting certain products. In general, captive finance
companies provide standardized products and fixed market rates and are not as
flexible in the marketplace. Captive finance companies also provide automobile
dealers with floor plan financing. Independent auto finance companies focus on
unconventional segments of the market with some lending to lower credit
borrowers in exchange for higher yields. The Company believes that the
principal competitive factors in offering financing are convenience, interest
rates and contract term-lengths.
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. The Company believes that the
industry is influenced by general economic conditions and particularly by
consumer confidence, the level of personal discretionary spending, interest
rates and credit availability.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1996, UAG employed approximately 2,100 people, approximately
100 of whom are covered by collective bargaining agreements with labor unions.
Relations with employees are considered by the Company to be satisfactory.
ENVIRONMENTAL MATTERS
As with automobile dealerships generally, and service parts and body shop
operations in particular, the Company's business involves the 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. The Company's business also involves the past and
current operation and/or removal of aboveground and underground storage tanks
containing such substances or wastes. Accordingly, the Company is subject to
regulation by federal, state and local authorities establishing health and
environmental quality standards, and liability related thereto, and providing
penalties for violations of those
10
standards. The Company is also subject to laws, ordinances and regulations
governing remediation of contamination at facilities it operates or to which it
sends hazardous or toxic substances or wastes for treatment, recycling or
disposal.
The Company believes that it does not have any material environmental
liabilities and that compliance with environmental laws, ordinances and
regulations will not, individually or in the aggregate, have a material adverse
effect on the Company's results of operations or financial condition. However,
soil and groundwater contamination has been known to exist at certain
properties leased by the Company. Furthermore, environmental laws and
regulations are complex and subject to frequent change. There can be no
assurance that compliance with amended, new or more stringent laws or
regulations, stricter interpretations of existing laws or the future discovery
of environmental conditions will not require additional expenditures by the
Company, or that such expenditures would not be material.
ITEM 2. PROPERTIES
The Company leases or subleases its facilities and seeks to structure its
acquisitions in a way to avoid the ownership of real property. Set forth in the
table below is certain information relating to the Company's leases and
subleases.
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- ----------
DIFEO GROUP
Fair Chevrolet-Geo 102 Federal Road New and used car sales; general September 30, 2010
Danbury, CT office; service
Fair Hyundai/ 100 Federal Road New and used car sales; service Month-to-month
Isuzu/Suzuki Danbury, CT
DiFeo Lexus 1550 Route 22 East New and used car sales; service September 30, 2010
Bound Brook, NJ
DiFeo Chevrolet-Geo 599 Route 440W New and used car sales; service September 30, 2010
and J&F Oldsmobile Jersey City, NJ
DiFeo Chrysler- Hudson Mall on Route 440 New and used car sales; service September 30, 2010
Plymouth/Jeep- Jersey City, NJ
Eagle/Hyundai
Hudson Toyota 585 Route 440W New and used car sales; service; September 30, 2010
Jersey City, NJ general office
DiFeo BMW (a) 301 County Road New and used car sales January 5, 2002, renewable to
Tenafly, NJ 2012
(b) 64 North Summit Street Service July 1, 2016, renewable to
Tenafly, NJ 2036
Rockland Mitsubishi 75 N. Highland Avenue New and used car sales; service September 30, 2010
Nyack, NY
Rockland Toyota 115 Route 59 New and used car sales; service September 30, 2002,
Nyack, NY renewable to 2012
DiFeo Nissan (a) 977 Communipaw Avenue New and used car sales September 30, 2010
Jersey City, NJ
(b) 909-921 Communipaw Ave. Service September 30, 2010
Jersey City, NJ
11
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- ----------
DIFEO GROUP
Fair Honda 102 Federal Road New and used car sales; service September 30, 2010
Danbury, CT
Fair Dodge 100B Federal Road New and used car sales; service March 27, 2000, renewable to
Danbury, CT 2008
Gateway Mitsubishi Route 37 & Batchelor St. New car sales; service September 30, 2010
Toms River, NJ
Gateway Toyota Route 37 & Batchelor St. New and used car sales; service September 30, 2010
Toms River, NJ
LANDERS AUTO
Landers (a) 7800 Alcoa Road New car sales; service July 31, 2015, renewable to
Jeep-Eagle/Chrysler Benton,AR 2025
-Plymouth/Dodge
(b) 7800 Alcoa Road Used car sales
Benton, AR
Landers Oldsmobile-GMC 17821 I-30 New and used car sales; service July 31, 2015, renewable to
Truck Benton, AR 2025
Landers United AutoMart 20570 I-30 Used car sales April 30, 2002, renewable to
Benton, AR 2012
Landers West 1719 Merrell Drive Used car sales December 31, 1998, renewable
Little Rock, AR to 2001
Landers North 6055 Landers Road Used car sales May 31, 1999
North Little Rock, AR
Landers United Auto- 4445 Central Avenue Used car sales March 31, 2003
Mart - Hot Springs Hot Springs, AR
ATLANTA TOYOTA 2345 Pleasant Hill Road New and used car sales; service January 31, 2016
Duluth, GA
UNITED NISSAN (GA) 6889 Jonesboro Road New and used car sales; service April 30, 2016, renewable to
Morrow, GA 2026
PEACHTREE NISSAN (a) 5211 and 5214 New and used car sales; service June 30, 2016, renewable to
Peachtree Industrial 2026
Boulevard
Chamblee, GA
(b) 3393 Malone Drive Storage facility June 30, 2016, renewable to
Chamblee, GA 2026
SUN GROUP
Scottsdale Lexus 6905 E. McDowell New and used car sales; service December 31, 2005, renewable
Scottsdale, AZ to 2010(1)
Land Rover Scottsdale 6925 E. McDowell New and used car sales; service August 10, 2005, renewable to
Scottsdale, AZ 2025
Scottsdale Paint & Body 1111 N. Miller Auto painting; auto repairs December 15, 1998, renewable
Shop Scottdale, AZ to 2013
Camelback BMW 1144 E. Camelback New and used car sales; service February 26, 2005
Scottsdale, AZ
Land Rover Phoenix 1127 E. Camelback New and used car sales; service June 30, 2005, renewable to
Phoenix, AZ 2010
UNITED BMW 3264 Commerce Ave. New and used car sales; service April 28, 1998(2)
Duluth, GA
CONYERS NISSAN 1420 Iris Drive New and used car sales; service April 28, 1998(3)
Conyers, GA
12
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- ----------
UNITED NISSAN (TN) 2121 Chapman Road New and used car sales; service October 31, 2016, renewable to
Chattanooga, TN 2026
UAG 375 Park Avenue Headquarters June 29, 2000
New York, NY
ATLANTIC FINANCE 800 Perinton Hills Office Offices August 31, 1999
Park
Fairport, NY
- ------------------------------------
(1) The owner of the property has the right to require the tenant to purchase
the property at any time after December 31, 1997 at a purchase price equal to
one hundred times the monthly rental payment at the time of such purchase.
(2) The Company has entered into a purchase agreement to acquire the property
at any time prior to the expiration date for $7.5 million (with a discount if
purchased earlier). The Company expects to designate an unaffiliated third
party to purchase the property prior to such date and simultaneously enter into
a 20-year lease with the Company.
(3) The Company has entered into a purchase agreement to acquire the property
prior to the expiration date for $2.9 million. The Company expects to designate
an unaffiliated third party to purchase the property prior to such date and
simultaneously enter into a 20-year lease with the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in litigation that has arisen in
the ordinary course of business. None of these matters, either individually or
in the aggregate, are expected to have a material adverse effect on the
Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On October 10, 1996, the Company requested the written consent of the
stockholders holding 93.2% of its voting capital stock to amend its Certificate
of Incorporation in connection with its initial public offering of common stock
on October 28, 1996. On that date, the Company also requested the written
consent of the stockholders holding 89.7% of its then outstanding Class A
Preferred Stock to approve the Company's Non-employees Director Compensation
Plan and to take certain actions in connection with its initial public
offering. All such stockholders granted their consent.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "UAG." There were 80 holders of record of theVoting Common Stock and 1
holder of record of the Non-voting Common Stock as of March 7, 1997. There is
no established market for the Company's Non-voting Common Stock, but such stock
is convertible into an equal number of
13
shares of Voting Common Stock at any time, subject to certain conditions, for
no cost at the option of the holder thereof.
Since the Company's Common Stock began trading on the NYSE after its initial
public offering in October 1996, the high, low and end of year closing sales
prices per share have been $34 7/8, $21 1/2, and $25 3/4, respectively through
December 31, 1996.
The Company has never declared or paid dividends on its Common Stock. The
Company intends to retain future earnings, if any, to finance the development
and expansion of its business and, therefore, does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. The decision
whether to pay dividends will be made by the Board of Directors of the Company
in light of conditions then existing, including the Company's results of
operations, financial condition and requirements, business conditions and other
factors.
Pursuant to support agreements by the Company in favor of subsidiaries of
Atlantic Finance that were entered into in connection with securitization
transactions or sales of automobile loan receivables, the Company is prohibited
from paying dividends in excess of 50% of its cumulative net income measured
over specified periods.
Pursuant to financing agreements with floor plan lenders, many of the Company's
dealerships are required to maintain a certain minimum working capital and a
certain aggregate net worth and/or are prohibited from making substantial
disbursements outside the ordinary course of business. In addition, pursuant to
the automobile franchise agreements to which the Company's dealerships are
subject, all dealerships are required to maintain a certain minimum working
capital, and some dealerships are also required to maintain a certain minimum
net worth. These requirements may restrict the ability of the Company's
operating subsidiaries to make dividend payments, which in turn may restrict
the Company's ability to make dividend payments.
On October 28, 1996, the Company issued an aggregate 1,113,841 shares of Common
Stock in exchange for the outstanding minority interests in certain of its
subsidiaries. On such date, the Company also issued an aggregate 1,109,491
shares of Common Stock to institutional investors upon the cashless exercise of
outstanding warrants to purchase 1,109,846 shares. Such issuances were effected
in reliance on Section 4(2) of the Securities Act of 1933, as amended, as
transactions not involving any public offering. No additional sales fees were
paid in connection therewith.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial and
other data of the Company as of and for the three months ended December 31,
1992, and as of and for each of the four years in the period ended December 31,
1996 and of the Predecessor Company for the nine months ended September 30,
1992. The historical balance sheet data as of December 31, 1993, 1994, 1995,
and 1996 and the historical statements of operations data for the years then
ended have been derived from the financial statements of the Company which have
been audited by Coopers &
14
Lybrand L.L.P., the Company's independent accountants. The selected historical
consolidated financial data set forth below for the Predecessor Company and for
the Company for the three months ended December 31, 1992 have been derived from
unaudited financial statements but have been prepared on the same basis as the
audited consolidated financial statements and contain all adjustments,
consisting of only normal recurring accruals, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements and
related notes of the Company.
The Company made a number of acquisitions in 1995 and 1996. Each of these
acquisitions has been accounted for using the purchase method of accounting and
as a result, the Company's financial statements include the results of
operations of the acquired dealerships only from the date of acquisition.
Therefore, the Company's period to period results of operations vary depending
on the dates of such acquisitions.
In addition to the selected historical consolidated financial and other data,
the following table presents selected pro forma consolidated statements of
operations and other auto dealership data for the year ended December 31, 1996.
This unaudited selected pro forma consolidated statements operations and other
auto dealership data gives effect to the following: (i) the acquisitions of
Steve Rayman Nissan (May 1, 1996), Hickman Nissan (July 1, 1996), and the Sun
Automotive Group, the Evans Group and Standefer Motor Sales (October 28,1996);
(ii) the acquisition of outstanding minority interests in certain subsidiaries
in exchange for Common Stock plus certain other consideration; (iii) the
Company's initial public sale of Common Stock; (iv) the repayment of $35.0
million aggregate principal amount of Senior Notes and $5.0 million of loans
outstanding under a credit agreement; and (v) the Preferred Stock Conversion.
The unaudited selected pro forma consolidated operations and auto dealership
data assumes these events occurred on January 1, 1996. This unaudited selected
pro forma consolidated operations and auto dealership data should be read in
conjunction with the historical financial statements and related notes thereto.
The historical and pro forma financial information included herein may not
necessarily reflect the results of operations, financial position and cash
flows of Company in the future or what the results of operations, financial
position and cash flows would have been had the acquisitions actually occurred
during the period presented in the financial statements.
15
SELECTED CONSOLIDATED FINANCIAL DATA
---------------------------------------------------------------------------------------------------------------------------------
THE COMPANY
-----------
(Dollars in thousands, PREDECESSOR COMPANY(1)
except per share data) ---------------------- THREE MONTHS YEARS ENDED DECEMBER 31,
- ---------------------- NINE MONTHS ENDED ENDED ------------------------
SEPTEMBER 30, DECEMBER 31, HISTORICAL PRO FORMA
----------
1992 1992 1993 1994 1995(2) 1996(3) 1996(4)
---- ---- ---- ---- ----- ----- -----
STATEMENTS OF OPERATIONS
DATA:
Auto Dealerships
Total revenues $297,010 $ 98,040 $606,091 $731,629 $805,621 $1,302,031 $1,599,226
Cost of sales, including
floor plan interest 257,845 85,712 537,688 647,643 720,344 1,157,368 1,415,731
Gross profit 39,165 12,328 68,403 83,986 85,277 144,663 183,495
Selling, general and
administrative expenses 40,873 12,929 66,910 80,415 90,586 124,244 149,633
Operating income (loss) (1,708) (601) 1,493 3,571 (5,309) 20,419 33,862
Other income (expense) -- -- 1,233 860 1,438 (4,398) (969)
Auto Finance
Loss before income taxes -- -- -- (616) (1,382) (1,490) (1,490)
Total Company
Minority interests -- 152 (117) (887) 366 (3,306) (37)
Provision (benefit) for
income taxes 197 -- 47 -- (2,089) 6,270 12,524
Income (loss) before
extraordinary item $ (1,905) $ (449) $ 96 $ (1,691) $ (3,466) $ 7,461 $ 18,842
Income (loss) before
extraordinary item per
common share $ -- $ -- $ 0.05 $ (0.44) $ (0.63) $ 0.69 $ 1.05
OTHER AUTO DEALERSHIP DATA
Gross profit margin 13.2% 12.6% 11.3% 11.5% 10.6% 11.1% 11.5%
Operating margin (0.6)% (0.6)% 0.2% 0.5% (0.7)% 1.6% 2.1%
New cars sold at retail 11,677 4,150 18,608 22,464 25,138 36,802 41,916
Used cars sold at retail 3,335 1,535 7,891 8,340 8,953 18,344 22,946
1 Predecessor Company represents the combined historical results of the
DiFeo Group acquired by the Company on October 1, 1992.
2 Includes the results of Landers Auto from August 1, 1995.
3 Includes the results of Atlanta Toyota from January 1, 1996 and of Steve
Rayman Nissan from May 1, 1996, Hickman Nissan from July 1, 1996, and of
The Sun Group, The Evans Group, and Standefer Motor Sales from October
29, 1996.
4 The 1996 pro forma operations data does not reflect a reduction of cost
of sales related to reduced interest on floor plan notes payable
resulting from the application of as yet unused proceeds from the
Company's initial public sale of Common Stock. If the reduction of the
floor plan interest expense were reflected, then pro forma income (and
income per share) before extraordinary item would have been $21,168
($1.18 per share) for the year ended December 31, 1996.
16
SELECTED CONSOLIDATED FINANCIAL DATA
-------------------------------------------------------------------------
(Dollars in THE COMPANY
thousands) -----------
AS OF DECEMBER 31,
------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Auto Dealerships
Current assets $70,045 $120,061 $118,534 $141,649 299,571
Current liabilities 75,127 117,494 125,825 139,447 221,455
Property and equipment, net 5,598 8,845 12,072 12,146 22,341
Intangible assets, net 20,665 22,832 23,018 48,774 177,194
Long-term debt 3,092 4,122 6,735 24,073 11,121
Auto Finance
Net assets - - 291 3,501 14,552
Total Company
Total assets 100,794 154,218 170,342 236,027 522,950
Minority interests subject
to repurchase 7,024 7,338 7,962 13,608 -
Stock purchase warrants - - - 1,020 -
Total stockholders' equity 15,551 25,264 28,785 49,240 281,468
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company retails new and used automobiles and light trucks, operates
service and parts departments and sells various aftermarket products,
including finance and insurance contracts. In 1996 UAG had revenues of
approximately $1.3 billion and retailed 36,802 new and 18,344 used vehicles.
Vehicle sales represented 89.4% of the Company's revenues in 1996; service and
parts accounted for 7.2% of revenues, with finance and insurance representing
the remaining 3.3%.
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 leasing, other dealers and wholesalers. Finance and
insurance revenues are generated from sales of accessories such as radios,
cellular phones, alarms, custom wheels, paint sealants and fabric protectors,
as well as amounts received as fees for placing extended service contracts,
credit insurance policies, and financing and lease contracts. Service and
parts revenues include fees paid by consumers for repair and maintenance
service and the sale of replacement parts.
Through its automobile finance subsidiary, Atlantic Finance, the Company
derives revenues from the purchase, sale and servicing of motor vehicle
installment contracts originated by both UAG and third-party dealerships.
The Company's selling expenses consist of advertising and compensation for
sales department personnel, including commissions and related bonuses. General
and administrative expenses include compensation for administration, finance
and general management personnel, rent, insurance and utilities. Interest
expense consists of interest charges on all of the Company's interest-bearing
debt other than floor plan inventory financing. Interest expense on floor plan
debt is included in cost of sales.
The Company made a number of acquisitions in 1995 and 1996. Each of these
acquisitions has been accounted for using the purchase method of accounting
and as a result, the Company's financial statements include the results of
operations of the acquired dealerships only from the date of acquisition.
Therefore, the Company's period to period results of operations vary depending
on the dates of such acquisitions. The financial information included herein
may not necessarily reflect the results of operations, financial position and
cash flows of Company in the future or what the results of operations,
financial position and cash flows would have been had the acquisitions
occurred during the period presented in the financial statements.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's consolidated
historical results of operations for 1994, 1995, and 1996.
18
1996 COMPARED TO 1995
Auto Dealerships
DiFeo Restructuring. The Company undertook a broad restructuring of its DiFeo
Group in 1995 (the "DiFeo Restructuring"). The restructuring included (i) the
elimination of 17 unprofitable franchises, (ii) a significant reduction in
personnel and (iii) the liquidation of outdated inventory. Costs associated
with the DiFeo Restructuring were approximately $0.7 million and $0.5 million
for the years ended December 31, 1995 and 1996, respectively, primarily
related to severance.
Revenues. Revenues increased by $496.4 million, or 61.6%, from $805.6 million
to $1,302.0 million due to the full year contribution of Landers Auto, which
was acquired in August 1995, and the acquisitions made in 1996. Revenues at
Landers Auto were $323.2 million in 1996. Revenues at the continuing
franchises of the DiFeo Group increased by $82.9 million, or 13.8%, from
$598.7 million to $681.6 million. That increase was more than offset by a
decrease of $90.6 million in revenues due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring.
Sales of new and used vehicles increased by $448.2 million, or 62.6%, from
$716.4 million to $1,164.6 million. Dealerships acquired in 1996 contributed
$266.5 million to that increase. New and used vehicle sales at the continuing
franchises of the DiFeo Group increased by $66.2 million, or 12.5%, from
$529.0 million to $595.2 million. That increase was more than offset by a
decrease of $78.2 million in sales due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring. Unit retail sales of new and
used vehicles increased by 46.4% and 104.9%, respectively, due principally to
the 1996 acquisitions and the full year contribution of Landers Auto. During
1996, the Company sold 36,802 new vehicles (66.7% of total vehicle sales) and
18,344 used vehicles (33.3% of total vehicle sales). During 1995, the Company
sold 25,138 new vehicles (73.7% of total vehicle sales) and 8,953 used
vehicles (26.3% of total vehicle sales). The increase in the relative
proportion of used vehicle sales to new vehicle sales was due principally to
the expansion of existing used car facilities and the establishment of
stand-alone retail used car centers in response to the increased popularity of
used cars. New vehicle selling prices increased by an average of 5.4% due
primarily to changes in the mix of models sold and changes in manufacturer
pricing. Used vehicle selling prices increased by an average of 13.7% due to
changes in market conditions which resulted in a change in the mix of used
vehicles sold.
Finance and insurance revenues (aftermarket product sales) increased by $13.8
million, or 46.3%, from $29.8 million to $43.6 million due to the full year
contribution of Landers Auto and the acquisitions made in 1996. Sales of such
products increased by $6.3 million, or 24.5%, from $25.7 million to $32.0
million at the continuing franchises of the DiFeo Group, offsetting the $2.0
million decrease in sales due to the elimination of unprofitable franchises as
part of the DiFeo Restructuring.
Service and parts revenues increased by $34.5 million, or 58.1%, from $59.4
million to $93.9 million due to the full year contribution of Landers Auto and
the acquisitions made in 1996.
19
Gross Profit. Gross profit increased by $59.4 million, or 69.6%, from $85.3
million to $144.7 million. The full year contribution of Landers Auto accounts
for $16.2 million of the increase and the remaining $37.5 million increase is
due to the 1996 acquisitions. Gross profit at the continuing franchises of the
DiFeo Group increased by $13.4 million, or 20.0%, from $66.9 million to $80.3
million. Gross profit as a percentage of revenues increased 4.7% from 10.6% to
11.1%. Included in the above gross profit figures is gross profit from finance
and insurance activities, which increased by $8.9 million, or 38.2%, from
$23.4 million to $32.3 million due principally to the full year contribution
of Landers Auto and the 1996 acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $33.6 million, or 37.1%, from $90.6
million to $124.2 million due principally to the full year ownership of
Landers Auto and the 1996 acquisitions. Such expenses as a percentage of
revenues decreased from 11.2% to 9.5%.
Other Interest Expense. Interest expense other than floor plan increased by
$3.0 million, or 214.3%, from $1.4 million to $4.4 million as a result of
increased borrowings to finance the acquisitions made in 1995 and 1996
Auto Finance
Loss before Income Taxes. The pretax loss from operations at Atlantic Finance
increased by $0.1 million from a loss of $1.4 million to $1.5 million.
Total Company
Provision for Income Taxes. The 1996 provision for income taxes is $6.3
million, compared to an income tax credit of $2.1 million recorded in 1995.
The credit for 1995 was taken as the Company determined in the fourth quarter
that it was more likely than not that future taxable income from operations
would be sufficient to fully realize the tax benefits of net operating losses
incurred in prior years.
Extraordinary Item, Net of Income Tax Benefits. The extraordinary item, net of
income tax benefits, of $5.0 million represents a loss on the retirement of
long-term debt resulting from a prepayment premium and a write-off of
associated debt issuance costs.
1995 COMPARED TO 1994
Auto Dealerships
Revenues. Revenues increased by $74.0 million, or 10.1%, from $731.6 million
to $805.6 million due to the acquisition of Landers Auto in August 1995.
Revenues at Landers Auto contributed $116.3 million. Revenues at the
continuing franchises of the DiFeo Group increased by $6.2 million, or 1.0%,
from $592.5 million to $598.7 million. That increase was more than offset by a
decrease of $48.5 million in revenues due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring.
20
Sales of new and used vehicles increased by $72.0 million, or 11.2%, from
$644.4 million to $716.4 million. The acquisition of Landers Auto contributed
$109.2 million to that increase. While revenues at the continuing franchises
of the DiFeo Group increased by $5.0 million, or 0.9%, from $524.0 million to
$529.0 million, that increase was more than offset by a decrease of $42.3
million in sales due to the elimination of unprofitable franchises as part of
the DiFeo Restructuring. Unit sales of new and used vehicles increased by
11.9% and 7.4%, respectively, due principally to the acquisition of Landers
Auto. Sales of new vehicles increased by 5.6% and sales of used vehicles
decreased by 10.3% at the continuing franchises of the DiFeo Group, offset by
the elimination of unprofitable franchises as part of the DiFeo Restructuring.
During 1995, the Company sold 25,138 new vehicles (73.7% of total vehicle
sales) and 8,953 used vehicles (26.3% of total vehicle sales). During 1994,
the Company sold 22,464 new vehicles (72.9% of total vehicle sales) and 8,340
used vehicles (27.1% of total vehicle sales). The decrease in the relative
proportion of used vehicle sales to new vehicle sales was due principally to
stronger demand for new vehicles as opposed to used vehicles at the DiFeo
Group operations offset by the acquisition of Landers Auto, which sells a
higher proportion of used vehicles to new vehicles than the DiFeo Group. New
vehicle selling prices increased by 4.4% due primarily to changes in
manufacturer pricing. Used vehicle selling prices increased by 17.2% due to
changes in market conditions which resulted in a change in the mix of used
vehicles sold.
Sales of finance and insurance products increased by $2.3 million, or 8.3%,
from $27.5 million to $29.8 million due to the acquisition of Landers Auto.
Sales of such products increased by $2.5 million, or 10.8%, from $23.2 million
to $25.7 million at the continuing franchises of the DiFeo Group, offsetting
in part the $2.3 million decrease in sales due to the elimination of
unprofitable franchises as part of the DiFeo Restructuring.
Service and parts revenues decreased by $0.3 million, or 0.5%, from $59.7
million to $59.4 million due to the DiFeo Restructuring, offset by increased
service and parts revenues attributable to Landers Auto.
Gross Profit. Gross profit increased by $1.3 million, or 1.5% , from $84.0
million to $85.3 million. The acquisition of Landers Auto added $10.6 million
during the five months the Company owned it. Gross profit at the continuing
franchises of the DiFeo Group decreased by $3.3 million, or 4.7%, from $70.2
million to $66.9 million. Gross profit as a percentage of revenues decreased
7.8% from 11.5% to 10.6% as the Company implemented the DiFeo Restructuring.
Included in the above gross profit figures is gross profit from finance and
insurance activities, which decreased by $1.1 million, or 4.5%, from $24.5
million to $23.4 million due principally to the DiFeo Restructuring offset by
the acquisition of Landers Auto. Gross profit from finance and insurance
activities at the continuing franchises of the DiFeo Group decreased by $0.9
million, or 4.2%, from $21.4 million to $20.5 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $10.2 million, or 12.7%, from $80.4
million to $90.6 million due principally to the acquisition of Landers Auto.
Such expenses as a percentage of revenues increased from 11.0% to 11.2% of
revenues. Selling, general and administrative expenses at the continuing
franchises of the
21
DiFeo Group increased by $3.9 million from $66.1 million to $70.0 million.
Related Party Interest Income. Related party interest income was $3.0 million
in 1995. There was no such income in 1994.
Other Interest Expense. Interest expense other than floor plan increased by
$0.5 million, or 55.6%, from $0.9 million to $1.4 million as a result of
increased borrowings to finance the acquisitions of Landers Auto and Atlanta
Toyota and the issuance of certain promissory notes as part of the
consideration paid for Landers Auto, offset in part by a reduction in other
interest-bearing debt.
Equity in Loss of Uncombined Investees. Equity in loss of uncombined investees
decreased by $2.1 million, or 72.4%, from $2.9 million to $0.8 million due to
improved performance of certain dealerships in which the Company retained a
minority interest.
Loss before Income Taxes. The pretax loss from dealership operations increased
from $0.2 million to $4.5 million, including the costs incurred in connection
with the DiFeo Restructuring. The deterioration in the performance of the
DiFeo Group during the first quarter of 1995 led management to undertake the
DiFeo Restructuring.
Auto Finance
Loss before Income Taxes. The pretax loss from operations at Atlantic Finance
increased by $0.8 million from $0.6 million to $1.4 million, reflecting the
early stage of its operations. Atlantic Finance was formed in the first
quarter of 1994.
Total Company
Minority Interests. Minority interests changed by $1.3 million from a charge
of $0.9 million to a credit of $0.4 million as a result of the factors
described above.
Provision for Income Taxes. An income tax credit of $2.1 million was recorded
in 1995. The credit was taken as the Company determined in the fourth quarter
that it was more likely than not that, due to the DiFeo Restructuring, future
taxable income from operations would be sufficient to fully recognize a net
deferred tax asset at December 31, 1995. This net deferred tax asset stems
from tax basis operating losses sustained in 1994 and 1995.
Net Income (Loss). Net income decreased by $1.8 million from a loss of $1.7
million to a loss of $3.5 million due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND LIQUIDITY REQUIREMENTS
The cash requirements of the Company are primarily for acquisition of new
dealerships, working capital and expansion of existing facilities.
Historically, these cash requirements have been met
22
through issuances of equity and borrowings under various credit agreements. At
December 31, 1996, the Company had working capital of $78.1 million.
During 1996, operating activities resulted in net cash provided by dealership
operations of $23.2 million.
Net cash provided by dealership financing activities during 1996 totaled
$160.5 million, including net cash proceeds of $24.6 from private placements
of capital stock and net proceeds of $170.8 million from the initial public
sale of Common Stock. In 1996, the Company sought and obtained waivers of
non-compliance with, and amendments to, certain covenants under its Securities
Purchase Agreements with certain institutional investors and Credit Agreement
with Morgan Guaranty Trust Company, including covenants regarding fixed charge
coverage ratios and delivery of certain collateral to secure the indebtedness
thereunder.
The Company finances substantially all of its new and used vehicle inventory
under revolving floor plan financing arrangements with various lenders. The
floor plan lenders pay the manufacturer directly with respect to new vehicles.
The Company makes monthly interest payments on the amount financed but is not
required to make loan principal repayments prior to the sale of new and used
vehicles. Substantially all of the assets of the Company's dealerships are
subject to security interests granted to their floor plan lending sources.
At December 31, 1996, the Company had approximately $69.0 million of cash
available to fund operations and future acquisitions. In addition, the Company
has received commitments from Morgan Guaranty Trust Company and The Bank of
Nova Scotia for an acquisition loan facility in the amount of $50 million. The
Company's principal source of growth has come, and is expected to continue to
come, from acquisitions of automobile dealerships. The Company believes that
its existing capital resources will be sufficient to fund operations and to
meet anticipated cash requirements for acquisition agreements reached in the
first quarter of 1997. To the extent the Company pursues other significant
acquisitions, it will need to raise additional capital either through the
public or private issuance of equity or debt securities or through bank
borrowings. A public offering would require the prior approval of certain
automobile manufacturers.
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. The Company believes
that the industry is influenced by general economic conditions and
particularly by consumer confidence, the level of personal discretionary
spending, interest rates and credit availability.
SEASONALITY
The Company's combined business is modestly seasonal overall. The greatest
seasonalities exist with the dealerships in the New York metropolitan area,
for which the second and third quarters are the strongest with respect to
vehicle related sales. The service and parts business at all dealerships
23
experiences relatively modest seasonal fluctuations.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rates of inflation over the
last few years have not had a significant impact on revenue or profitability.
The Company does not expect inflation to have any near-term material effects
on the sale of its products and services. However, there can be no assurance
that there will be no such effect in the future.
The Company finances substantially all of its 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. The Company does not believe that it would be placed at
a competitive disadvantage should interest rates increase due to increased
inflation since most other automobile dealers have similar floating rate
borrowing arrangements.
NEW ACCOUNTING PRONOUNCEMENT
In June 1996, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
SFAS 125 establishes financial and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
Statement is effective for transactions occurring after December 31, 1996. The
Company does not believe that adoption of this standard will have a material
impact on its financial position and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements for the information required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by Items 10 through 13 is included in the Company's
definitive proxy statement dated March 18, 1997, under the captions "The Board
of Directors and its Committees," "Election of Directors," "Executive
Officers," "Security Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions." Such information is
incorporated herein by reference, pursuant to General Instruction G(3).
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on Form
10-K.
(b) Reports on Form 8-K.
On December 24, 1996, the Company filed a Current Report on Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
(c) Exhibits
3.1 Third Restated Certificate of Incorporation.
*3.2 Restated Bylaws.
*4.1 Specimen Common Stock certificate.
*10.1.1.1 Registration Rights Agreement, dated as of October 15, 1993,
among the Company and the investors listed therein.
*10.1.1.2 Amendment to Registration Rights Agreement, dated as of July
31, 1996, among the Company and the investors listed therein.
*10.1.2 Waiver, Consent and Modification Agreement, dated as of
September 22, 1995, among the Company and its stockholders.
*10.1.3 Letter Agreement, dated September 22, 1996, between the Company
and J.P. Morgan Capital Corporation.
*10.1.4 Form of Warrant.
*10.1.5 Form of Additional Warrant.
*10.1.6 Employment Agreement, dated as of June 21, 1996, between the
Company and Carl Spielvogel.
*10.1.7 Severance Agreement, dated April 5, 1996, among the Company,
Trace and Ezra P. Mager.
*10.1.8 Stock Option Plan of the Company.
*10.1.9 Registration Rights Agreement, dated as of August 1, 1995,
among the company and the parties listed on Schedule I
thereto.
*10.1.10 Sublease, dated August 1994, between Overseas Partners, Inc.
and the Company.
*10.1.11 Letter, dated July 24, 1996, from Chrysler Corporation to the
Company.
*10.1.12 Agreement, dated July 24, 1996, between the Company and Toyota
Motor Sales U.S.A., Inc.
*10.1.13 Non-employee Director Compensation Plan of the Company.
*10.1.14 Form of Agreement among the Company, certain of its affiliates
and American Honda Motor Co., Inc.
*10.1.15 Form of Option Certificate of the Company in favor of Samuel X.
DiFeo and
25
Joseph C. DiFeo.
*10.1.16 Form of Registration Rights Agreement among the Company and the
parties listed on Schedule U thereto.
*10.2.1.1 Honda Automobile Dealer Sales and Service Agreement, dated
October 5, 1995, between American Honda Motor Co. Inc. and
Danbury Auto Partnership.
*10.2.1.2 American Honda Motor Co. Standard Provisions.
*10.2.2.1 Lexus Dealer Agreement, dated October 5, 1992, between Lexus,
a division of Toyota Motor Sales, U.S.A., Inc, and Somerset
Motors Partnership.
*10.2.2.2 Lexus Dealer Agreement Standard Provisions.
*10.2.3.1 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service
Agreement, dated August 29, 1994, between Mitsubishi Motor Sales
of America, Inc. and Rockland Motors Partnership, as amended
August 20, 1996.
*10.2.3.2 Mitsubishi Motor Sales of America, Inc. Dealer Sales and
Service Agreement Standard Provisions.
*10.2.4.1 BMW of North America, Inc. Dealer Agreement, dated
January 1, 1994, between BMW of North America, Inc. and DiFeo
BMW Partnership, as amended October 21, 1996.
*10.2.4.2 BMW of North America, Inc. Dealer Standard Provisions Applicable
to Dealer Agreement.
*10.2.5.1 Term Dealer Sales and Service Agreement, dated July 3, 1996,
between American Suzuki Motor Corporation and Fair Hyundai
Partnership, as amended September 6, 1996.
*10.2.5.2 Suzuki Dealer Sales and Service Agreement Standard Provisions.
*10.2.6.1 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor
Distributors, Inc. and Hudson Motors Partnership.
*10.2.6.2 Toyota Dealer Agreement Standard Provisions.
*10.2.7.1 Oldsmobile Division Dealer Sales and Service Agreement, dated
October 2, 1992, between General Motors Corporation, Oldsmobile
Division and J&F Oldsmobile-Isuzu Partnership, as amended
December 20, 1993 and July 23, 1996.
*10.2.7.2 General Motors Dealer Sales and Service Agreement Standard
Provisions.
*10.2.8.1 Chevrolet-Geo Dealer Sales and Service Agreement, dated
November 1, 1995, between General Motors Corporation,
Chevrolet Motor Division and Fair Chevrolet-Geo Partnership.
*10.2.9.1 Nissan Dealer Term Sales and Service Agreement, between the
Nissan Division of Nissan Motor Corporation in U.S.A. and DiFeo
Nissan Partnership.
*10.2.9.2 Nissan Dealer Sales and Service Agreement Standard Provisions.
*10.2.10.1 Chrysler Corporation Term Sales and Service Agreement, dated
August 16, 1995, between Fair Chrysler Plymouth Partnership and
Chrysler Corporation.
*10.2.10.2 Chrysler Corporation Sales and Service agreement Additional
Terms and Provisions.
*10.2.11 Chrysler Corporation Eagle Sales and Service Agreement, dated
October 8, 1992, between DiFeo Jeep-Eagle Partnership and
Chrysler Corporation.
*10.2.12 Chrysler Corporation Chrysler Sales and Service Agreement,
dated August 16, 1995, between DiFeo Chrysler Plymouth Jeep
Eagle Partnership and Chrysler.
*10.2.13 Chrysler Corporation Plymouth Sales and Service Agreement,
dated November 13,
26
1992, between DiFeo Chrysler Plymouth Jeep Eagle Partnership
and Chrysler Corporation.
*10.2.14 Toyota Dealer Agreement, dated May 5, 1995, between Toyota
Motor Distributors, Inc. and County
Auto Group Partnership.
*10.2.15.1 Hyundai Motor America Dealer Sales and Service Agreement,
dated October 12, 1992, between Hyundai Motor America and Fair
Hyundai Partnership as amended November 22, 1993, October 12,
1995, March 14, 1996 and September 18, 1996.
*10.2.15.2 Hyundai Motor America Dealer Sales and Service Agreement
Standard Provisions.
*10.2.16 Hyundai Motor America Dealer Sales and Service Agreement,
dated November 22, 1993, as amended April 1, 1994, and
November 3, 1995, between Hyundai Motor America and DiFeo
Hyundai Partnership.
*10.2.17 Toyota Dealer Agreement, dated August 23, 1995, between Toyota
Motor Distributors, Inc. and OCT Partnership.
*10.2.18 Mitsubishi Motor Sales of America, Inc. Sales and Service
Agreement, dated June 30, 1994, between Mitsubishi Motor Sales
of America, Inc. and OCM Partnership.
*10.2.19 Chrysler Corporation Jeep Sales and Service Agreement, dated
October 8, 1992, between DiFeo Jeep-Eagle Partnership and
Chrysler Corporation.
*10.2.20 Chevrolet-Geo Dealer Sales and Service Agreement, dated
November 1, 1995 between General Motors Corporation, Chevrolet
Motor Division and DiFeo Chevrolet-Geo Partnership.
*10.2.21 Isuzu Dealer Sales and Service Agreement, dated as of September
16, 1996 between American Isuzu Motors, Inc. and Fair
Cadillac-Oldsmobile-Isuzu Partnership.
*10.2.22 Isuzu Dealer Sales and Service Agreement Additional Provisions.
*10.2.23 Loan and Security Agreement, dated as of October 1, 1992,
between General Motors Acceptance Corporation and Hudson
Motors Partnership, as amended April 7, 1993.
*10.2.24 Unconditional, Continuing Guaranty of Payment of the Company
and its affilates named therein, dated as of October 1, 1992,
in favor of General Motors Acceptance Corporation, as amended
April 7, 1993.
*10.2.25 Term Loan and Borrowing Base Credit Line Loan Agreement, dated
as of April 7, 1993, between General Motors Acceptance
Corporation and DiFeo-EMCO Management Partnership.
*10.2.26 Settlement Agreement, dated as of October 3, 1996, among the
Company and certain of tis affiliates, on the one hand, and
Samuel X. DiFeo, Joseph C. DiFeo and certain of their
affiliates, on the other hand.
*10.2.27 Form of Agreement and Plan of Merger used in the Minority
Exchange of the DiFeo Group.
*10.2.28 Form of Lease of certain facilities in the DiFeo Group.
*10.2.29 Lease Agreement, dated September 27, 1990, between J&F Associates
and TJGHCC Associates.
*10.2.30 Lease Agreement, dated October 1, 1992, between Manly Chevrolet,
Inc. and County Toyota, Inc.
*10.2.31 Sublease, dated October 1, 1992, between DiFeo BMW, Inc. and
DiFeo BMW Partnership.
*10.3.1 Receivables Purchase Agreement, dated as of June 28, 1995,
between Atlantic Auto
27
Funding Corporation and Atlantic Auto Finance Corporation.
*10.3.2 Loan and Security Agreement, dated as of June 28, 1995, among
Atlantic Auto Funding Corporation, Atlantic Auto Finance
Corporation and Citibank, N.A.
*10.3.3 Support Agreement of the Company, dated as of June 28, 1995,
in favor of Atlantic Auto Funding Corporation.
*10.3.4 Purchase Agreement, dated as of June 14, 1996, between Atlantic
Auto Finance Corporation and Atlantic Auto Second Funding
Corporation.
*10.3.5 Transfer and Administration Agreement, dated as of June 14, 1996,
among Atlantic Auto Second Funding Corporation, Atlantic Auto
Finance Corporation and Morgan Guaranty Trust Company of New York.
*10.3.6 Support Agreement of the Company, dated as of June 18, 1996,
in favor of Atlantic Auto Second Funding Corporation.
*10.3.7 Pooling and Servicing Agreement relating to Atlantic Auto
Grantor Trust 1996-A, dated as of June 20, 1996, among
Atlantic Auto Third Funding Corporation, Atlantic Auto Finance
Corporation and The Chase Manhattan Bank.
*10.3.8 Insurance and Indemnity Agreement, dated as of June 20, 1996,
among Financial Security Assurance Inc., Atlantic Auto Third
Funding Corporation and Atlantic Auto Finance Corporation.
*10.3.9 Master Spread Account Agreement, dated as of June 20, 1996,
among Atlantic Auto Third Funding Corporation, Financial
Security Assurance Inc. and The Chase Manhattan Bank.
*10.3.10 Lease Agreement, dated as of March 18, 1994, between Perinton
Hills and the Company, including guaranty of lease of Atlantic
Auto Finance Corporation.
*10.4.1 Amended and Restated Stock Purchase Agreement, dated as of
July 1, 1995, among the Company, Landers Auto Sales, Inc.,
Steve Landers, John Landers and Bob Landers.
*10.4.2 Promissory Note of the Company, dated August 1, 1995, in favor
of Steve Landers and John Landers.
*10.4.3 Promissory Note of the Company, dated August 1, 1995, in favor
of Steve Landers and John Landers.
*10.4.4 Guarantee of the Company, dated as of August 1, 1995, in favor
of Steve Landers and John Landers.
*10.4.5 Employment Agreement, dated as of August 1, 1995, between
Landers Auto Sales, Inc. and Steve Landers.
*10.4.6 Lease, dated as of August 1, 1995, among Steve Landers, John
Landers, Bob Landers and Landers Auto Sales, Inc., regarding
Jeep-Eagle premises.
*10.4.7 Lease, dated as of August 1, 1995, among Steve Landers, John
Landers, Bob Landers and Landers Auto Sales, Inc., regarding
Oldsmobile-GMC premises.
*10.4.8 Shareholders' Agreement, dated as of August 1, 1995, among the
Company, United Landers, Inc., Landers Auto Sales, Inc., Steve
Landers and John Landers.
*10.4.9 Chrysler Corporation Eagle Sales and Service Agreement, dated
August 16, 1995, between United Landers Auto Sales, Inc. and
Chrysler Corporation.
*10.4.10 Chrysler Corporation Jeep Sales and Service Agreement,
dated August 16, 1995, between United Landers Auto Sales, Inc.
and Chrysler Corporation.
*10.4.11 Chrysler Corporation Dodge Sales and Service Agreement,
dated August 16, 1995,
28
between United Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.12 Chrysler Corporation Plymouth Sales and Service Agreement,
dated August 16, 1995, between United
Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.13 Chrysler Corporation Chrysler Sales and Service Agreement,
dated August 16, 1995, between United Landers Auto Sales, Inc.
and Chrysler Corporation.
*10.4.14 Oldsmobile Division Dealer Sales and Service Agreement, dated
November 1, 1995, between General Motors Corporation,
Oldsmobile Division and United Landers Auto Sales, Inc..
*10.4.15 GMC Truck Division Dealer Sales and Service Agreement, dated
November 1, 1995, between General Motors Corporation, GMC
Truck Division and United Landers Auto Sales, Inc..
*10.4.16 Security Agreement and Master Credit Agreement, dated October
25, 1993, between Landers Oldsmobile-GMC Inc. and Chrysler
Credit Corporation.
*10.4.17 Security Agreement and Master Credit Agreement, dated May 17,
1989, between Landers Jeep-Eagle, Inc. and Chrysler Credit
Corporation.
*10.4.18 Continuing Guaranty of United Landers, Inc., dated August 15,
1994, in favor of Chrysler Credit Corporation.
*10.4.19 Commercial Loan Agreement, dated December 5, 1994, between
Landers Oldsmobile-GMC, Inc. and The Benton State Bank.
*10.4.20 Commercial Security Agreement, dated December 5, 1994, between
Landers Oldsmobile-GMC, Inc. and The Benton State Bank.
*10.4.21 Agreement, dated July 31, 1995, between the Company and
General Motors Corporation, Oldsmobile Division.
*10.5.1 Stock Purchase Agreement, dated as of November 17, 1995, among
the Company, UAG Atlanta, Inc., Atlanta Toyota, Inc, and
Carl H. Westcott.
*10.5.2 Promissory Note of UAG Atlanta, Inc., dated January 16, 1996,
in favor of Carl H. Westcott.
*10.5.3 Guaranty of the Company, dated as of January 16, 1996, in favor
of Carl H. Westcott.
*10.5.4 Promissory Note of Atlanta Toyota, Inc., dated January 16, 1996,
in favor of First Extended Service Corporation.
*10.5.5 Guaranty of the Company, dated as of January 16, 1996, in favor
of Carl H. Westcott.
*10.5.61 Lease Agreement, dated as of January 3, 1996, between Carl
Westcott and Atlanta Toyota, Inc.
*10.5.7 Lease Guaranty of the Company, dated as of January 16, 1995,
in favor of Carl Westcott.
*10.5.8 Toyota Dealer Agreement, dated January 16, 1996, between
Southeast Toyota Motor Distributors, Inc. and Atlanta Toyota, Inc.
*10.5.9 Wholesale Floor Plan Se;curity Agreement, dated May 24, 1996,
between World Omni Financial Corp. and Atlanta Toyota, Inc.
*10.5.10 Continuing Guaranty of the Company in favor of World Omni
Financial Corp. and certain affiliates.
*10.5.11 Inventory Financing Payment Agreement, dated May 24, 1996,
among Atlanta Toyota, Inc., Fidelity Warranty Services, Inc. and
World Omni Financial Corp.
29
*10.5.12 Shareholders' Agreement, dated as of July 31, 1996, among the
Company, UAG Atlanta, Inc., Atlanta Toyota and John Smith.
*10.5.13 Employment Agreement, dated a of January 16, 1996, among the
Company, UAG Atlanta, Inc. and John Smith.
*10.6.1 Stock Purchase Agreement, dated as of March 1, 1996, among the
Company, UAG Atlanta II, Inc., Steve Raymen Nissan, Inc.,
Steven L. Rayman and Richard W. Keffer, Jr.
*10.6.2 Employment Agreement, dated as of May 1, 1996, among the Company,
UAG Atlanta II, In., Steve Rayman Nissan, Inc. and Bruce G. Dunker.
*10.6.3 Lease Agreement, dated as of May 1, 1996, among Steven L. Rayman,
Richard W. Keffer, Jr. and Steve Rayman Nissan, Inc.
*10.6.4 Nissan Dealer Term Sales and Service Agreement, between the
Nissan Division of Nissan Motor Corporation in U.S.A. and United
Nissan, Inc.
*10.6.5 Wholesale Floor Plan Security Agreement, dated April 29, 1996,
between World Omni Financial Corp. and United Nissan, Inc.
*10.6.6 Continuing Guaranty of the Company, dated April 29, 1996, in
favor of World Omni Financial Corp. and certain affiliates.
*10.7.1 Stock Purchase Agreement, dated as of June 7, 1996, among the
Company, UAG Atlanta III, Inc. Hickman Nissan, Inc., Lynda
Jane Hickman and Lynda Jane Hickman as Executrix under the
will of James Franklin Hickman, Jr., deceased.
*10.7.2 Nissan Dealer Term Sales and Service Agreement, between the
Nissan Division of Nissan Motor Corporation in U.S.A. and
Peachtree Nissan, Inc.
*10.7.3 Automotive Wholesale Financing and Security Agreement, dated
July 12, 1996, between Nissan Motor Acceptance Corporation and
Peachtree Nissan, Inc.
*10.7.4 Guaranty of the Company and UAG Atlanta III, Inc., dated July
12, 1996, in favor of Nissan Motor Acceptance Corporation.
*10.7.5 Promissory Note of UAG Atlanta III, Inc., dated July 12, 996,
in favor of Lynda Jane Hickman, as Executrix under the will of
James Franklin Hickman, Jr.
*10.7.6 Guaranty of Note of Hickman Nissan, Inc., dated July 12, 1996,
in favor of Lynda Jane Hickman, as Executrix under the will of
James Franklin Hickman, Jr.
*10.7.7 Guaranty of Note of the Company, dated July 12, 1996, in favor
of Lynda Jane Hickman, as Executrix under the will of James
Franklin Hickman, Jr.
*10.7.8 Lease Agreement, dated July 12, 1996, between Lynda Jane
Hickman, as Executrix under the will of James Franklin
Hickman, Jr., and Hickman Nissan, Inc.
*10.7.9 Lease Agreement, dated July 12, 1996, between Argonne
Enterprises, Inc. and Hickman Nissan, Inc.
*10.7.10 Guaranty of Lease of the Company, dated July 12, 1996, in favor
of Lynda Jane Hickman, Jr.
*10.7.11 Guaranty of Lease of the Company, dated July 12, 1996, in favor
of Argonne Enterprises, Inc.
*10.8.1 Stock Purchase Agreement, dated as of June 6, 1996, among the
Company, UAG West, Inc., Scottsdale Jaguar, LTD., SA Automotive,
LTD., SL Automotive, LTD., SPA Automotive, LTD., LRP, LTD.,
Sun BMW, LTD., Scottsdale Management Group, LTD., 6725 Dealership
LTD., Steven Knappenberger Revocable Trust Dated April 15, 1983,
as amended, Brochick 6725 Trust dated December 29, 1992,
30
Beskind 6725 Trust dated December 29, 1992, Steven Knappenberger,
Jay P. Beskind December 29, 1992, Knappenberger 6725 Trust dated
and George W. Brochick, as amended on October 21, 1996 by
Amendment No. 1, Amendment No. 2 and Amendment No. 3.
*10.8.2 Purchase and Sale Agreement, 6905 E. McDowell Road, dated
June 6, 1996, among Steven Knappenberger, as Trustee of the
Steven Knappenberger Revocable Trust II, Bruce Knappenberger, as
Trustee of the Bruce Knappenberger Trust and UAG West, Inc.
and Steven Knappenberger.
*10.8.3 Form of Employment Agreement between the Company, UAG West,
Inc., and Steven Knappenberger.
*10.8.4 Form of Broker's Agreement between UAG West, Inc. and KBB, Inc.
*10.8.5.1 Form of Audi Dealer Agreement.
*10.8.5.2 Audi Standard Provisions.
*10.8.6.1 Form of Acura Automobile Dealer Sales and Service Agreement.
*10.8.6.2 Acura Standard Provisions.
*10.8.7.1 Form of BMW of North America Dealer Agreement.
*10.8.8.1 Form of Porsche Sales and Service Agreement.
*10.8.8.2 Form of Addendum to Porsche Sales and Service Agreement.
*10.8.9.1 Form of Land Rover North America, Inc. Dealer Agreement.
*10.8.9.2 Land Rover Standard Provisions.
*10.8.10 Sublease, dated June 7, 1988, between Max of Switzerland and
Scottsdale Porsche & Audi, Ltd.
*10.8.11 Lease, dated October 1990, between Lisa B. Zelinsky and R.J.
Morgan Corporation of America and Scottsdale Hyundai, Ltd.
*10.8.12 Sublease, dated July 1, 1995, between Camelback Automotive, Inc.
and LRP Ltd.
*10.8.13 Lease, dated February 27, 1995, between Lee S. Maas and Sun BMW Ltd.
*10.8.14 Form of Shareholders' Agreement among UAG West, Inc., SK Motors,
Ltd., and the Knappenberger Revocable Trust.
*10.8.15 Form of Management Agreement among the Company, UAG West, Inc.
and Scottsdale Jaguar, Ltd.
*10.8.16 Form of Lease Agreement between 6725 Agent and Scottsdale Jaguar,
Ltd.
*10.8.17 Form of Indemnification Agreement among the Company, UAG West,
Inc., Scottsdale Jaguar, Ltd., Steven Knappenberger, and certain
other individuals and trusts.
*10.8.18 Form of Real Estate Loan and Security Agreement, made by SA
Automotive, Ltd. for the benefit of Chrysler Financial Corporation.
*10.8.19 Form of Security Agreement and Master Credit Agreement of Chrysler
Credit Corporation.
*10.8.20 Form of Continuing Guaranty of each of the Company and UAG West,
Inc. in favor of Chrysler Credit Corporation.
*10.9.1 Stock Purchase Agreement, dated August 5, 1996, among the
Company, UAG Atlanta IV, Inc., Charles Evans BMW, Inc. and Charles
F. Evans.
*10.9.2 Stock Purchase Agreement, dated August 5, 1996, among the Company,
UAG Atlanta IV, Inc., Charles Evans Nissan, Inc. and Charles F.
Evans.
*10.9.3 Form of Dealer Agreement between BMW North America, Inc. and Charles
Evans
31
BMW Inc.
*10.9.4 Form of Nissan Dealer Term Sales and Service Agreement between
Nissan Motor Corporation in U.S.A. and Charles Evans Nissan, Inc.
*10.9.5 Form of Lease Agreement between Charles F. Evans and Charles Evans
BMW, Inc.
*10.9.6 Form of Lease Guaranty of the Company in favor of Charles F. Evans.
*10.9.7 Form of Lease Agreement between Charles F. Evans and Charles Evans
Nissan, Inc.
*10.9.8 Form of Lease Guaranty of the Company in favor of Charles F. Evans.
*10.9.9 Form of Purchase and Sale Agreement for Charles Evans BMW Property
between Charles F. Evans and the Company.
*10.9.10 Form of Purchase and Sale Agreement for Charles Evans Nissan
Property between Charles F. Evans and the Company.
*10.9.11 Form of Inventory Financing and Security Agreement between BMW
Financial Services NA, Inc. and UAG Atlanta IV Motors Inc.
*10.9.12 Form of Guaranty of the Company in favor of BMW Financial Services
NA, Inc.
*10.9.13 Form of Inventory Financing and Security Agreement between BMW
Financial Services NA, Inc. and Conyers Nissan, Inc.
*10.9.14 Form of Guaranty of the Company in favor of BMW Financial Services
NA, Inc.
*10.10.1 Stock Purchase Agreement, dated September 5, 1996, among the
Company, UAC Tennessee, Inc., Standefer MotorSales, Inc.,
Charles A. Standefer and Charles A. Standefer and Karen S. Nicely,
trustees uner the Irrevocable Trust Agreement of Charles B.
Standefer for the primary benefit of children, dated
December 21, 1992.
*10.10.2 Form of Nissan Dealer Term Sales and Service Agreement between
Nissan Motor Corporation in U.S.A. and Conyers Nissan, Inc.
*10.10.3 Form of Lease Agreement between Standefer Investment Company and
Standefer Motor Sales, Inc.
*10.10.4 Form of Lease Guaranty of the Company in favor of Standefer
Investment Company.
*10.10.5 Form of Security Agreement and Master Credit Agreement between
Chrysler Credit Corporation and Standefer Motor Sales, Inc.
*10.10.6 Form of Continuing Guaranty of each of the Company and UAG
Tennessee, Inc. in favor of Chrysler Credit Corporation.
**10.11.1 Agreement and Plan of Merger, dated December 16, 1996, among
Crown Jeep Eagle, Inc., Berylson, Inc., Shannon Automotive, Ltd.,
Kevin J. Coffey, Paul J. Rhodes, the Company, UAG Texas, Inc. and
UAG Texas II, Inc.
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
- ------------------------
* Incorporated herein by reference to the identically numbered exhibit to
the Company's Registration Statement on Form S-1, Registration No.
333-09429.
** Incorporated herein by reference to the identically numbered exhibit to
the Company's Current Report on Form 8-K filed on December 24, 1996 (File
No. 1-2297).
32
(d) Schedules - No Financial Statement Schedules are required to be filed as
part of this Annual Report on Form 10-K.
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.
UNITED AUTO GROUP, INC.
By: /s/ Carl Spielvogel
-------------------
Carl Spielvogel
Chairman of the Board and
Chief Executive Officer
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on its behalf by
the registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Carl Spielvogel Chairman of the Board, March 14, 1997
- ----------------------- Chief Executive Officer
Carl Spielvogel and Director
(Principal Executive Officer)
/s/ Robert H. Nelson Executive Vice President, March 14, 1997
- ----------------------- Chief Financial Officer
Robert H. Nelson and Director
(Principal Financial Officer)
/s/ Robert W. Thompson Vice President - Finance March 14, 1997
- ----------------------- (Principal Accounting Officer)
Robert W. Thompson
/s/ Marshal S. Cogan Vice Chairman of the March 14, 1997
- ----------------------- Board and Chairman of
Marshall S. Cogan the Executive and
Compensation Committee
/s/ Michael R. Eisenson Director March 14, 1997
- -----------------------
Michael R. Eisenson
/s/ John J. Hannan Director March 14, 1997
- ------------------------
John J. Hannan
/s/ Jules B. Kroll Director March 14, 1997
- ------------------------
Jules B. Kroll
/s/ John M. Salley Director March 14, 1997
- ------------------------
John M. Salley
/s/ Richard Sinkfield Director March 14, 1997
- ------------------------
Richard Sinkfield
34
INDEX TO FINANCIAL STATEMENTS
UNITED AUTO GROUP, INC.
Report of Independent Accountants..................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994................................... F-5
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1995 and 1996............................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994................................................ F-7
Notes to Consolidated Financial Statements............................ F-9
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of United Auto Group, Inc.:
We have audited the consolidated financial statements of United Auto Group,
Inc. (the "Company") listed in Item 14 of this Form 10-K. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position
of the Company as of December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
February 25, 1997
F-2
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS DECEMBER 31,
------------
1996 1995
---- ----
AUTO DEALERSHIPS
Cash and cash equivalents $66,875 $4,697
Accounts receivable 52,018 27,349
Inventories 168,855 101,556
Other current assets 11,823 8,047
----------------------------
Total current assets 299,571 141,649
Property and equipment, net 22,341 12,146
Intangible assets, net 177,194 48,774
Due from related parties - 14,578
Other assets 6,587 10,128
----------------------------
TOTAL AUTO DEALERSHIP ASSETS 505,693 227,275
----------------------------
AUTO FINANCE
Cash and cash equivalents 2,688 531
Finance assets, net 9,723 7,555
Other assets 4,846 666
----------------------------
TOTAL AUTO FINANCE ASSETS 17,257 8,752
----------------------------
TOTAL ASSETS $522,950 $236,027
============================
See Notes to Consolidated Financial Statements.
F-3
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31,
1996 1995
---- ----
AUTO DEALERSHIPS
Floor plan notes payable $170,170 $97,823
Short-term debt 6,069 16,187
Accounts payable 22,187 12,393
Accrued expenses 17,585 9,875
Current portion of long-term debt 5,444 3,169
-----------------------
Total current liabilities 221,455 139,447
Long-term debt 11,121 24,073
Due to related party 1,334 1,109
Deferred income taxes 4,867 2,279
-----------------------
TOTAL AUTO DEALERSHIP LIABILITIES 238,777 166,908
-----------------------
AUTO FINANCE
Short-term debt 1,001 4,661
Accounts payable and other liabilities 1,704 590
-----------------------
TOTAL AUTO FINANCE LIABILITIES 2,705 5,251
-----------------------
Minority interests - 13,608
-----------------------
Stock purchase warrants - 1,020
-----------------------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Class A Convertible Preferred Stock - 1
Voting Common Stock 2 1
Additional paid-in-capital 284,502 54,748
Retained earnings (accumulated deficit) (3,036) (5,510)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 281,468 49,240
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $522,950 $236,027
=======================
See Notes to Consolidated Financial Statements.
F-4
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
AUTO DEALERSHIPS
Vehicle sales $1,164,569 $716,394 $644,380
Finance and insurance 43,574 29,806 27,518
Service and parts 93,888 59,421 59,731
--------------------------------------
Total revenues 1,302,031 805,621 731,629
Cost of sales, including floor plan interest 1,157,368 720,344 647,643
--------------------------------------
Gross profit 144,663 85,277 83,986
Selling, general and administrative expenses 124,244 90,586 80,415
--------------------------------------
Operating income (loss) 20,419 (5,309) 3,571
Related party interest income 2,580 3,039 -
Other income (expense) (4,398) (1,438) (860)
Equity in loss of uncombined investees (74) (831) (2,899)
--------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES - AUTO DEALERSHIPS 18,527 (4,539) (188)
--------------------------------------
AUTO FINANCE
Revenues 1,798 530 2
Interest expense (421) (174) -
Operating and other expenses (2,867) (1,738) (618)
--------------------------------------
LOSS BEFORE INCOME TAXES - AUTO FINANCE (1,490) (1,382) (616)
--------------------------------------
TOTAL COMPANY
Income (loss) before minority interests, provision
for income taxes and extraordinary item 17,037 (5,921) (804)
Minority interests (3,306) 366 (887)
Benefit (provision) for income taxes (6,270) 2,089 -
--------------------------------------
Income (loss) before extraordinary item 7,461 (3,466) (1,691)
Extraordinary item (net of income tax benefits of $2,685) (4,987) - -
--------------------------------------
Net income (loss) $2,474 $(3,466) $(1,691)
======================================
Income (loss) before extraordinary item per common share $0.69 $(0.63) $(0.44)
======================================
Net income (loss) per common share $0.23 $(0.63) $(0.44)
======================================
Shares used in computing net income (loss) per common share 10,851 5,482 3,873
======================================
See Notes to Consolidated Financial Statements.
F-5
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
CLASS A
CONVERTIBLE PREFERRED VOTING AND
--------------------- NON-VOTING
STOCK COMMON STOCK
----- ------------
RETAINED
ADDITIONAL EARNINGS TOTAL
ISSUED ISSUED PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------ ------ ------ ------ ------- -------- ------
Balances, December 31, 1993 1,570,000 $1 1,343,750 $1 $25,615 $(353) $25,264
Issuance of stock for cash 401,611 - 185,486 - 5,212 - 5,212
Net loss for 1994 - - - - - (1,691) (1,691)
---------------------------------------------------------------------------------------
Balances, December 31, 1994 1,971,611 1 1,529,236 1 30,827 (2,044) 28,785
Issuance of stock for cash 1,679,118 - 1,053,549 - 23,921 - 23,921
Net loss for 1995 - - - - - (3,466) (3,466)
---------------------------------------------------------------------------------------
Balances, December 31, 1995 3,650,729 1 2,582,785 1 54,748 (5,510) 49,240
Issuance of stock, primarily for
acquisitions 1,576,617 - 1,010,965 - 22,854 - 22,854
Preferred stock conversion (5,227,346) (1) 5,227,346 - 1 - -
Issuance of common stock in minority
exchanges - - 1,113,841 - 34,015 - 34,015
Issuance of stock in initial public
offering - - 6,250,000 1 170,410 - 170,411
Issuance of stock on exercise of warrants - - 1,109,491 - 2,769 - 2,769
Issuance of stock on exercise of stock
options - - 46,500 - 884 - 884
Repurchase of common stock - - (46,000) - (1,179) - (1,179)
Net income for 1996 - - - - - 2,474 2,474
---------------------------------------------------------------------------------------
Balances, December 31, 1996 - $- 17,294,928 $2 $284,502 $(3,036) $281,468
=======================================================================================
See Notes to Consolidated Financial Statements.
F-6
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- ------- ----------- ------- ----------- -------
OPERATING ACTIVITIES:
Net income (loss) $3,964