As filed with the Securities and Exchange Commission on July 31, 2001
Registration No. 333-65998
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ASBURY AUTOMOTIVE GROUP, INC.*
(Exact name of registrant as specified in its charter)
DELAWARE 5511 58-2241119
State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
3 LANDMARK SQUARE
SUITE 500
STAMFORD, CONNECTICUT 06901
(203) 356-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
BRIAN E. KENDRICK
CHIEF EXECUTIVE OFFICER
ASBURY AUTOMOTIVE GROUP, INC.
3 LANDMARK SQUARE
SUITE 500
STAMFORD, CONNECTICUT 06901
(203) 356-4400
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
ROBERT ROSENMAN, ESQ. ANDREW D. SOUSSLOFF, ESQ.
CRAVATH, SWAINE & MOORE SULLIVAN & CROMWELL
WORLDWIDE PLAZA 125 BROAD STREET
825 EIGHTH AVENUE NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10019 (212) 558-4000
(212) 474-1000 FAX: (212) 558-3588
FAX: (212) 474-3700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [_]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
* Currently a Delaware limited liability company named Asbury Automotive Group
L.L.C., which on or prior to the effective date of this registration statement
will be converted into a Delaware corporation through either a conversion into
a corporation or by a merger with an entity or a subsidiary of an entity that
has no other business.
EXPLANATORY NOTE
----------------
THE PURPOSE OF THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT IS SOLELY TO FILE THE FINANCIAL STATEMENTS.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this preliminary prospectus is not complete and may be +
+ changed. These securities may not be sold until the registration statement +
+ filed with the Securities and Exchange Commission is effective. This +
+ preliminary prospectus is not an offer to sell nor does it seek an offer to +
+ buy these securities in any jurisdiction where the offer or sale is not +
+ permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated July 31, 2001.
[ ] Shares
ASBURY AUTOMOTIVE GROUP, INC.
Common Stock
----------------------
This is an initial public offering of shares of common stock of Asbury
Automotive Group, Inc.
Asbury is offering [ ] of the shares to be sold in the offering. The
selling stockholders identified in this prospectus are offering an additional
[ ] shares. Asbury will not receive any of the proceeds from the sale of the
shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ [ ] and $ [ ]. Asbury intends to list the common stock
on the New York Stock Exchange under the symbol "[ ]."
See "Risk Factors" on page 7 to read about factors you should consider
before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------
Per Share Total
Initial public offering price $ $
Underwriting discount $ $
Proceeds, before expenses, to Asbury $ $
Proceeds, before expenses, to the selling stockholders $ $
To the extent that the underwriters sell more than [ ] shares of common
stock, the underwriters have the option to purchase up to an additional [ ]
shares from Asbury and [ ] shares from the selling stockholders at the initial
public offering price less the underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York, New
York on [ ], 2001.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
----------------------
Prospectus dated [ ], 2001.
[MAP OF THE U.S. WITH ASBURY STORES]
[PHOTOS OF CERTAIN ASBURY STORES]
[LOGOS OF PLATFORMS]
No manufacturer or distributor has been involved, directly or indirectly, in
the preparation of this prospectus or in the offering being made hereby. No
manufacturer or distributor has been authorized to make any statements or
representations in connection with the offering, and no manufacturer or
distributor has any responsibility for the accuracy or completeness of this
prospectus or for the offering.
PROSPECTUS SUMMARY
The following is a summary of some of the information contained in this
prospectus. It may not contain all the information that is important to you.
To understand this offering fully, you should read carefully the entire
prospectus, including the risk factors and the financial statements.
In this prospectus the terms "Asbury," "we," "us" and "our" refer to
Asbury Automotive Group, Inc., unless the context otherwise requires, and its
subsidiaries and their respective predecessors in interest. This prospectus
assumes the conversion of Asbury Automotive Group L.L.C. from a limited
liability company into a corporation named Asbury Automotive Group, Inc.
immediately prior to the offering by either a conversion in accordance with
Delaware General Corporation Law or through a merger with an entity or a
subsidiary of an entity which has no other business. Per share numbers assume
that membership interests in the limited liability company outstanding
immediately prior to the conversion or merger will be exchanged for shares of
common stock in the new corporation on the basis of [ ] membership interests
for each share of common stock.
This prospectus includes statistical data regarding the automotive
retailing industry. Unless otherwise indicated, such data is taken or derived
from information published by:
o The Industry Analysis Division of the National Automobile Dealers
Association, also known as "NADA," NADA Data 2000.
o Automotive News 2001 Market Data Book.
o Automotive News Data Center.
o CNW Marketing/Research.
o Sales & Marketing Management 2000 Survey of Buying Power and Media
Markets.
BUSINESS
OUR COMPANY
We are one of the largest automotive retailers in the United States,
currently operating 126 franchises at 86 dealership locations in nine states.
We offer our customers an extensive range of automotive products and services,
including new and used vehicle sales and related financing and insurance,
vehicle maintenance and repair services, replacement parts and service
contracts. Our franchises include a diverse portfolio of 36 American, European
and Asian brands, and a majority of our dealerships are either luxury
franchises (such as BMW, Lexus and Mercedes-Benz) or mid-line import brands
(such as Honda, Toyota and Nissan). We have grown rapidly in recent years,
primarily through acquisition, with annual sales of $3.0 billion in 1999 and
$4.0 billion in 2000, which represented a 34% increase in annual sales from
1999. We sold a total of 154,422 new and used retail units in 2000, which
represented a 32% increase over the 116,790 retail units sold in 1999. In
addition, our 2000 results included over $434 million in parts, service and
collision repair revenues.
Our retail network is organized into nine regional dealership groups,
which we refer to as "platforms," located in 15 market areas that we believe
represent attractive opportunities, generally due to their high rates of
population and income growth. Each platform originally operated as an
independent business before being integrated into our operations, and each
continues to enjoy strong local brand name recognition. We believe that many
of our platforms rank first or second in market share in their local markets.
We compete in a large and highly fragmented industry comprised of
approximately 22,000 franchised dealerships. The U.S. automotive retailing
industry is estimated to have annual sales of approximately $1 trillion, with
the 100 largest dealer groups generating less than 10% of total sales revenue.
OUR STRENGTHS
We believe our strengths are as follows:
o EXPERIENCED AND INCENTIVIZED MANAGEMENT. We have a highly experienced
management team. After joining us, the former principal owners of our
nine platforms, who have an average of 36 years of
2
experience in the automotive retailing industry, continued to manage
our operations at the platform level and played a significant role in
implementing our operating and acquisition strategies. The former
owners and their management teams collectively own approximately 40%
of our outstanding equity and will continue to own approximately [ ]%
of our outstanding equity after the offering. In addition, each of our
top three corporate executives has more than 20 years of experience in
either retail sales or the automotive retailing industry.
o ADVANTAGEOUS BRAND MIX. Our current brand mix includes a higher
proportion of luxury and mid-line import franchises to total franchises
than most public automotive retailers. Luxury and mid-line imports
together accounted for approximately 63% of our 2000 new retail vehicle
revenues and comprise over half of our total franchises. Luxury and
mid-line imports generate above average gross margins on new vehicles,
parts, service and collision repair and have greater customer loyalty
and repeat purchases than mid-line domestic and value automobiles. We
also believe luxury vehicle sales are less susceptible to
economic cycles.
o MARKET LEADERSHIP AND STRONG BRANDING OF OUR PLATFORMS. Each of our
platforms is comprised of between eight and 22 franchises and
generated average pro forma revenues of approximately $500 million in
2000. We believe that we are among the top three market share leaders
in 11 of our markets, including five in which we rank first. Our
regional market share and strong brand recognition allow our platforms
to realize significant regional economies of scale.
o DIVERSIFIED REVENUE STREAMS/VARIABLE COST STRUCTURE. We have a
diversified revenue base that we believe mitigates the impact of
slower new vehicle sales. Used vehicle sales and parts, service and
collision repair, which represented 37% of our total 2000 revenue,
generate higher profit margins than new vehicle sales and tend to
fluctuate less with economic cycles. In addition, our variable cost
structure helps us manage expenses in an economic downturn, as a large
part of our operating expenses consists of incentive-based
compensation, vehicle carrying costs and advertising.
OUR STRATEGY
Our objective is to be the most profitable automotive retailer in select
markets in the United States. To achieve this objective, we intend to follow
the outlined strategy:
o CONTINUED GROWTH THROUGH TARGETED ACQUISITIONS. We will seek to
establish platforms in new markets through acquisitions of large,
profitable and well-managed dealership groups. In addition, we will
pursue additional dealerships within our established markets, which we
refer to as "tuck-in acquisitions," to complement the related platform
by increasing brand diversity, market coverage and services.
o FOCUS ON HIGHER MARGIN PRODUCTS AND SERVICES. While new vehicle sales
are critical to drawing customers to our dealerships, used vehicle
retail sales, finance and insurance and parts, service and collision
repair provide significantly higher margin revenue streams. We
currently derive in excess of 68% of our total gross profit from these
areas. In addition, we have discipline-specific executives at both the
corporate and platform level who focus on both increasing the
penetration of current services and expanding the breadth of our
offerings to customers.
o DECENTRALIZED DEALERSHIP OPERATIONS. We believe that decentralized
dealership operations on a platform basis empower our retail network
to provide timely market-specific responses to sales, service,
marketing and inventory requirements. These operations are
complemented by centralized technology and financial controls as well
as sharing of best practices and market intelligence throughout the
organization.
o CUSTOMER RELATIONSHIP MANAGEMENT. We have begun to implement a CRM
initiative to increase customer loyalty and satisfaction and reduce
marketing costs by redirecting expenditures from mass media to
targeted communications. We expect to create a differentiated customer
experience, allowing us to capture a greater percentage of our targeted
households' automotive spending.
--------------------
3
Our principal executive offices are located at 3 Landmark Square,
Stamford, Connecticut 06901. Our telephone number is (203) 356-4400. Our World
Wide Web site address is http://www.asburyauto.com. Information contained on
our website or that can be accessed through our website is not incorporated by
reference in this prospectus. You should not consider information contained on
our website or that can be accessed through our website to be part of this
prospectus.
THE OFFERING
Common stock offered by us ___ shares (1)
Common stock offered by selling stockholders ___ shares (1)
Total common stock offered ___ shares (1)
Common stock outstanding after the offering ___ shares (2)
Use of Proceeds We intend to use the net proceeds from the sale of the common stock
offered by us for repayment of outstanding indebtedness and general corporate
purposes, including working capital and possible acquisitions. We will not
receive any proceeds from the sale of shares by the selling stockholders.
Proposed NYSE Symbol [ ].
Risk Factors See "Risk Factors" beginning on page 7 of this prospectus for a discussion of
factors that you should carefully consider before deciding to invest in shares
of our common stock.
- ---------------
(1) Does not include shares of common stock that may be sold by us and shares
of common stock that may be sold by the selling stockholders if the
underwriters choose to exercise their over-allotment option.
(2) Does not include (a) options issued under our 1999 Option Plan for [ ]
shares of common stock with a weighted average exercise price of $[ ] per
share, and (b) [ ] shares of common stock reserved for issuance under our
2001 Stock Option Plan, under which options for [ ] shares of common
stock will be issued on the date of this prospectus at the offering price
set forth on the cover page.
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary below presents our consolidated financial information and
should be read in conjunction with the consolidated financial statements and
related notes appearing elsewhere in this prospectus. The pro forma as
adjusted columns reflect our recently completed and probable acquisitions, our
change in tax status and the method of valuing certain of our inventories that
will occur simultaneously with our becoming a corporation, the conversion of
certain executives' carried interests (that is, interests in an increase in
our value) into options for our common stock, and this offering of our common
stock and our use of a portion of the proceeds to us to pay down debt.
4
Year Ended Three Months Ended
December 31, March 31,
-------------------------------------------- --------------------------------
2000 2001
---------------------- ---------------------
Pro Forma Pro Forma
1998 1999 Actual As Adjusted 2000 Actual As Adjusted
--------- ---------- ---------- ---------- -------- --------- ----------
($ in thousands, except per share data)
Income statement data:
Revenues:
New vehicles $687,850 $1,820,393 $2,439,729 $2,786,916 $562,490 $579,115 $624,487
Used vehicles 221,828 787,029 1,064,102 1,223,054 243,070 285,954 308,987
Parts, service and collision repair 156,037 341,506 434,478 482,124 98,746 118,243 125,471
Finance and insurance, net 19,149 63,206 89,481 97,093 19,732 23,554 24,373
--------- ---------- ---------- ---------- -------- --------- ---------
Total revenues 1,084,864 3,012,134 4,027,790 4,589,187 924,038 1,006,866 1,083,318
Gross profit 155,291 441,168 597,539 670,152 136,780 156,540 165,963
Income from operations 21,236 81,564 121,885 143,361 29,493 30,231 33,145
Income before minority interest and
extraordinary loss 18,118 37,420 37,954 32,994 11,101 7,615 6,422
Net income 3,081 16,148 28,927 32,994 3,896 6,182 5,562
Income (loss) per common share- n/a n/a n/a n/a n/a
basic
Other data:
Gross profit margin 14.3% 14.6% 14.8% 14.6% 14.8% 15.5% 15.3%
Operating income margin 2.0% 2.7% 3.0% 3.1% 3.2% 3.0% 3.1%
New vehicle retail units sold 27,734 71,604 96,614 108,142 21,679 21,854 23,234
Used vehicle retail units sold 15,205 45,186 57,808 65,956 13,676 14,963 16,200
As of March 31, 2001
-----------------------
Pro Forma
-----------
Actual As Adjusted
---------- -----------
($ in thousands)
Balance sheet data:
Inventories $532,319 $577,143
Total current assets 762,815 837,818
Property and equipment, net 220,329 226,805
Total assets 1,408,378 1,527,220
Floor plan notes payable 486,223 518,443
Total current liabilities 606,315 639,429
Total long-term debt, including current portion 469,268 440,727
Total equity 326,261 427,226
5
RISK FACTORS
You should carefully consider the following risks and other information
in this prospectus before deciding to invest in shares of our common stock. If
any of the following risks and uncertainties actually occur, our business'
financial condition or operating results could be materially and adversely
affected. In this event, the trading price of our common stock could decline,
and you could lose part or all of your investment.
RISKS RELATED TO OUR DEPENDENCE ON VEHICLE MANUFACTURERS
IF WE FAIL TO OBTAIN RENEWALS OF ONE OR MORE OF OUR FRANCHISE AGREEMENTS FROM
VEHICLE MANUFACTURERS ON FAVORABLE TERMS, OR IF ONE OR MORE OF OUR FRANCHISE
AGREEMENTS ARE TERMINATED, OUR OPERATIONS COULD BE SIGNIFICANTLY COMPROMISED.
Each of our dealerships operates under the terms of a franchise agreement
with the manufacturer (or manufacturer-authorized distributor) of each of its
vehicle brands. Our dealerships may obtain new vehicles from manufacturers,
sell new vehicles and display vehicle manufacturers' trademarks only to the
extent permitted under franchise agreements. As a result of our dependence on
these franchise rights, manufacturers exercise a great deal of control over
our day-to-day operations, and the terms of our franchise agreements implicate
key aspects of our operations, acquisition strategy and capital spending.
Each of our franchise agreements provides the manufacturer with the right
to terminate the agreement or refuse to renew it after the expiration of the
term of the agreement under specified circumstances. We cannot assure you we
will be able to renew any of our existing franchise agreements or that we will
be able to obtain renewals on favorable terms. Specifically, many of our
franchise agreements provide that the manufacturer may terminate the
agreement, or direct us to divest the subject dealerships, if the dealership
undergoes a change of control. Provisions such as these may provide
manufacturers with superior bargaining positions in the event that they seek
to terminate our franchise agreements or renegotiate the agreements on terms
that are disadvantageous to us. Some of our franchise agreements also provide
the manufacturer with the right to purchase from us any franchise we seek to
sell. Our results of operations could be materially and adversely affected to
the extent that our franchise rights become compromised or our operations
restricted due to the terms of our franchise agreements.
MANUFACTURERS' STOCK OWNERSHIP RESTRICTIONS LIMIT OUR ABILITY TO ISSUE
ADDITIONAL EQUITY, WHICH COULD HAMPER OUR ABILITY TO MEET OUR FINANCING NEEDS.
Some of our automobile franchise agreements prohibit transfers of any
ownership interests of a dealership or, in some cases, its parent. The most
prohibitive restriction, which has been imposed by various manufacturers,
provides that, under certain circumstances, we may lose a franchise if a
person or entity acquires an ownership interest in us above a specified level
(ranging from 20% to 50% depending on the particular manufacturer's
restrictions) without the approval of the applicable manufacturer. This
trigger level can fall to as low as 5% if another vehicle manufacturer is the
entity acquiring the ownership interest.
Violations by our stockholders or prospective stockholders (including
vehicle manufacturers) of these restrictions are generally outside of our
control and may result in the termination or non-renewal of one or more
franchises, which could have a material adverse effect on us. We cannot assure
you that manufacturers will grant the approvals required for such
acquisitions. Moreover, if we are unable to obtain the requisite approval in a
timely manner we may not be able to issue additional equity in the time
necessary to take advantage of a market opportunity dependent on ready
financing or an equity issuance. These restrictions may also prevent or deter
prospective acquirers from acquiring control of us and, therefore, may
adversely impact the value of our common stock.
MANUFACTURERS' RESTRICTIONS ON ACQUISITIONS COULD LIMIT OUR FUTURE GROWTH.
We are required to obtain the consent of the applicable manufacturer
before we can acquire any additional dealership franchises. We cannot assure
you that manufacturers will consent to future acquisitions which could deter
us from being able to take advantage of a market opportunity. Obtaining
manufacturer consent for acquisitions could also take a significant amount of
time which could negatively affect our ability to acquire as attractive
target. In addition, under an applicable franchise
6
agreement or under state law, a manufacturer may have a right of first refusal
to acquire a dealership that we seek to acquire.
Many vehicle manufacturers place limits on the total number of franchises
that any group of affiliated dealerships may obtain. A manufacturer may place
generic limits on the number of franchises or share of total franchises or
vehicle sales maintained by an affiliated dealership group on a national,
regional or local basis. Manufacturers may also tailor these types of
restrictions to particular dealership groups. Our current franchise mix has
caused us to reach the present franchise ceiling, set by agreement or
corporate policy, with Acura, and we are close to our franchise ceiling with
Toyota and Jaguar. We may have difficulty, or it may be impossible, for us to
obtain additional franchises from manufacturers once we reach their franchise
ceilings.
As a condition to granting their consent to our acquisitions, a number of
manufacturers may impose additional restrictions on us. Manufacturers'
restrictions typically prohibit:
o material changes in our company or extraordinary corporate
transactions such as a merger, sale of a substantial amount of assets
or any change in our board of directors or management that could have a
material adverse effect on the manufacturer's image or reputation or
could be materially incompatible with the manufacturer's interests;
o the removal of a dealership general manager without the consent of the
manufacturer; and
o the use of dealership facilities to sell or service new vehicles of
other manufacturers.
THE RESULTS OF OUR NEW VEHICLE SALES OPERATIONS ARE RELIANT ON THE OVERALL
PERFORMANCE OF MANUFACTURERS' PRODUCTS.
The success of our dealerships depends in large part on the overall
success of the vehicle lines they carry. New vehicle sales generate the
majority of our gross revenue and lead to sales of higher-margin products and
services such as finance and insurance products and repair and maintenance
services. Although we have sought to limit our dependence on any one vehicle
brand, we have focused our new vehicle sales operations in mid-line import and
luxury brands. Further, in 2000, Honda, Ford, Toyota and Nissan accounted for
17%, 13%, 10% and 8% of our revenues from new vehicle sales, respectively. No
other franchise accounted for more than 5% of our total new vehicle retail
sales revenue in 2000. If one or more vehicle lines that separately or
collectively account for a significant percentage of our new vehicle sales
suffer from decreasing consumer demand, our results of operations could be
materially and adversely affected.
IF WE FAIL TO OBTAIN A DESIRABLE MIX OF POPULAR NEW VEHICLES FROM
MANUFACTURERS, OUR PROFITABILITY WILL BE NEGATIVELY IMPACTED.
We depend on manufacturers to provide us with a desirable mix of popular
new vehicles. Typically, popular vehicles produce the highest profit margins
but tend to be the most difficult to obtain from manufacturers. Manufacturers
generally allocate their vehicles among their franchised dealerships based on
the sales history of each dealership.
IF AUTOMOBILE MANUFACTURERS DISCONTINUE INCENTIVE PROGRAMS, OUR SALES VOLUME
AND/OR PROFIT MARGIN ON EACH SALE MAY BE MATERIALLY AND ADVERSELY AFFECTED.
Our dealerships depend on manufacturers for certain sales incentives,
warranties and other programs that are intended to promote and support new
vehicle sales. Manufacturers often make many changes to their incentive
programs during each year. Some key incentive programs include:
o customer rebates on new vehicles;
o dealer incentives on new vehicles;
o special financing or leasing terms;
o warranties on new and used vehicles; and
7
o sponsorship of used vehicle sales by authorized new vehicle dealers.
A reduction or discontinuation of key manufacturers' incentive programs
may materially and adversely affect our profitability.
ADVERSE CONDITIONS AFFECTING ONE OR MORE MANUFACTURERS MAY NEGATIVELY IMPACT
OUR PROFITABILITY.
The success of each of our dealerships depends to a great extent on
vehicle manufacturers':
o financial condition;
o marketing efforts;
o vehicle design;
o production capabilities;
o reputation;
o management; and
o labor relations.
Adverse conditions affecting these and other important aspects of
manufacturers' operations and public relations could materially and adversely
effect our results of operations.
OUR FAILURE TO MEET A MANUFACTURER'S CONSUMER SATISFACTION AND FINANCIAL AND
SALES PERFORMANCE REQUIREMENTS MAY ADVERSELY AFFECT OUR ABILITY TO ACQUIRE NEW
DEALERSHIPS AND OUR PROFITABILITY.
Many manufacturers attempt to measure customers' satisfaction with their
sales and warranty service experiences through rating systems which are
generally known as consumer satisfaction indexes, or CSI, which augment
manufacturers' monitoring of dealerships' financial and sales performance.
Manufacturers may use these performance indicators as a factor in evaluating
applications for additional acquisitions. The components of these performance
indicators have been modified by various manufacturers from time to time in
the past, and we cannot assure you that these components will not be further
modified or replaced by different systems in the future. Some of our
dealerships have had difficulty from time to time meeting these standards. We
cannot assure you that we will be able to comply with these standards in the
future. A manufacturer may refuse to consent to an acquisition of one of its
franchises if it determines our dealerships do not comply with the
manufacturer's performance standards. This could materially and adversely
affect our acquisition strategy. In addition, we receive payments from the
manufacturers based, in part, on CSI scores, and future payments could be
materially reduced or eliminated if our CSI scores decline.
IF STATE DEALER LAWS ARE REPEALED OR WEAKENED, OUR DEALERSHIPS WILL BE MORE
SUSCEPTIBLE TO TERMINATION, NON-RENEWAL OR RE-NEGOTIATION OF THEIR FRANCHISE
AGREEMENTS.
Manufacturers' lobbying efforts may lead to the repeal or revision of
state dealer laws to our detriment. If dealer laws are repealed in
the states in which we operate, manufacturers may be able to terminate our
franchises without providing advance notice, an opportunity to cure or a
showing of good cause. Without the protection of state dealer laws, it may
also be more difficult for our dealerships to renew their franchise agreements
upon expiration.
RISKS RELATED TO OUR ACQUISITION STRATEGY
RISKS ASSOCIATED WITH ACQUISITIONS MAY HINDER OUR ABILITY TO INCREASE REVENUES
AND EARNINGS.
The automobile retailing industry is considered a mature industry in
which minimal growth is expected in industry unit sales. Accordingly, our
future growth depends in large part on our ability to acquire additional
dealerships, as well as on our ability to manage expansion, control costs in
our operations and consolidate both completed and anticipated tuck-in
acquisitions into existing operations. In pursing a
8
strategy of acquiring other dealerships, we face risks commonly encountered
with growth through acquisitions. These risks include, but are not limited to:
o incurring significantly higher capital expenditures and operating
expenses;
o failing to integrate the operations and personnel of the acquired
dealerships;
o entering new markets with which we are unfamiliar;
o incurring undiscovered liabilities at acquired dealerships;
o disrupting our ongoing business;
o diverting our management resources;
o failing to maintain uniform standards controls and policies;
o impairing relationships with employees, manufacturers and customers as
a result of changes in management;
o causing increased expenses for accounting and computer systems;
o failing to obtain manufacturers' consents to acquisitions of
additional franchises; and
o incorrectly valuing acquired entities.
We may not adequately anticipate all the demands that our growth will
impose on our systems, procedures and structures, including our financial and
reporting control systems, data processing systems and management structure.
Moreover, our failure to retain qualified management personnel at any acquired
dealership may increase the risk associated with integrating the acquired
dealership. If we cannot adequately anticipate and respond to these demands,
our business could be materially and adversely affected.
THERE ARE LIMITATIONS ON OUR FINANCIAL RESOURCES AVAILABLE FOR ACQUISITIONS.
We intend to finance our acquisitions by issuing shares of common stock
as full or partial consideration for acquired dealerships. The extent to which
we will be able or willing to issue common stock for acquisitions will depend
on the market value of the common stock from time to time and the willingness
of potential acquisition candidates to accept common stock as part of the
consideration for the sale of their businesses. Since we may focus on large
platform acquisitions, it is possible that we will issue a significant number
of additional shares of common stock in connection with such acquisitions in
the near future. The additional shares of common stock could be as much as, or
more than, the number of outstanding shares of common stock available
immediately after the offering. Moreover, manufacturer consent is required
before we can acquire additional dealerships and, in some cases, to issue
additional equity. See "Risk Factors -- Manufacturers' restrictions on
acquisitions could limit our future growth," and "Risk Factors -- Manufacturers'
stock ownership restrictions limit our ability to issue additional equity,
which could hamper our ability to meet our financing needs." We may be
required to use available cash or other sources of debt or equity financing.
We cannot assure you that we will be able to obtain additional financing by
issuing stock or debt securities, and using cash to complete acquisitions
could substantially limit our operating or financial flexibility. If we are
unable to obtain financing on acceptable terms, we may be required to reduce
the scope of our presently anticipated expansion, which could materially and
adversely affect our growth strategy.
We are dependent to a significant extent on our ability to finance our
inventory. Automotive retail inventory financing involves borrowing
significant sums of money in the form of "floor plan" financing. Floor plan
financing is how a dealership finances its purchase of new vehicles from a
manufacturer. The dealership borrows money to buy a particular vehicle from
the manufacturer and pays off the loan when it sells that particular vehicle,
paying interest during the interim period. We must obtain new floor plan
financing or obtain consents to assume such financing in connection with our
acquisition of dealerships. Our pledging of substantially all our inventory
and other assets to obtain this financing could impede our ability to borrow
from other sources.
9
OUR SUBSTANTIAL INDEBTEDNESS COULD LIMIT OUR ABILITY TO OBTAIN FINANCING FOR
ACQUISITIONS AND WILL REQUIRE THAT A SIGNIFICANT PORTION OF OUR CASH FLOW BE
USED FOR DEBT SERVICE.
We have substantial indebtedness and, as a result, significant debt
service obligations. As of March 31, 2001, we had approximately $969.6 million
of total indebtedness outstanding. Of this amount, $486.2 represents floor
plan financing. Our total indebtedness outstanding (excluding floor plan
financing) is equal to approximately 60% of our total capitalization plus
short-term debt. As of March 31, 2001, after giving pro forma effect to this
offering and the application of the net proceeds to us, our total indebtedness
would have been approximately [ ] million ([ ] million, excluding floor plan
financing), representing approximately [ ]% of total capitalization. We could
incur substantial additional indebtedness in the future. We will have
substantial debt service obligations, consisting of cash payments of principal
and interest for the foreseeable future.
The terms of our borrowing facilities also place restrictions on our
ability to engage in specific corporate transactions. In particular, the
facilities prohibit us from paying dividends, undergoing a change of control
and disposing of significant assets or subsidiaries.
The degree of our financial leverage and, as a result, significant debt
service obligations, could have a significant impact on our financial results
and operations, including:
o limiting our ability to obtain additional financing to fund our growth
strategy, working capital requirements, capital expenditures,
acquisitions, debt service requirements or other general corporate
requirements;
o limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of those funds
to fund debt service obligations; and
o increasing our vulnerability to adverse economic and industry
conditions.
OUR ACQUISITION STRATEGY MAY BE MATERIALLY AND ADVERSELY IMPACTED BY
ESCALATING ACQUISITION COSTS.
We believe that the U.S. automotive retailing market is fragmented and
offers many potential acquisition candidates that meet our targeting criteria.
However, we compete with several other national dealer groups, some of which
may have greater financial and other resources, and competition with existing
dealer groups and dealer groups formed in the future for attractive
acquisition targets could result in fewer acquisition opportunities and
increased acquisition costs. We will have to forego acquisition opportunities
to the extent that we cannot negotiate acquisitions on acceptable terms.
RISKS RELATED TO COMPETITION
THE LOSS OF KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES COULD
ADVERSELY AFFECT OUR OPERATIONS AND GROWTH.
Our success depends to a significant degree upon the continued
contributions of our management team, particularly our senior management, and
service and sales personnel. Additionally, manufacturer franchise agreements
may require the prior approval of the applicable manufacturer before any
change is made in dealership general managers. We do not have employment
agreements with most of our dealership managers and other key dealership
personnel. Consequently, the loss of the services of one or more of these key
employees could materially and adversely affect our results of operations.
In addition, we may need to hire additional managers as we expand. The
market for qualified employees in the industry and in the regions in which we
operate, particularly for general managers and sales and service personnel, is
highly competitive and may subject us to increased labor costs during periods
of low unemployment. The loss of the services of key employees or the
inability to attract additional qualified managers could materially and
adversely affect our results of operations.
SUBSTANTIAL COMPETITION IN AUTOMOBILE SALES MAY ADVERSELY AFFECT OUR
PROFITABILITY.
10
The automotive retailing and servicing industry is highly competitive
with respect to price, service, location and selection. Our competition
includes:
o franchised automobile dealerships selling the same or similar new and
used vehicles that we offer in our markets;
o other national or regional affiliated groups of franchised
dealerships;
o privately negotiated sales of used vehicles;
o service center chain stores; and
o independent service and repair shops.
We do not have any cost advantage in purchasing new vehicles from
manufacturers. We typically rely on advertising, merchandising, sales
expertise, service reputation and dealership location to sell new and used
vehicles. Our franchise agreements do not grant us the exclusive right to sell
a manufacturer's product within a given geographic area. Our revenues or
profitability could be materially and adversely affected if any of the
manufacturers that supply vehicles to our dealerships award franchises to
competing dealerships in the same markets where we operate. A similar adverse
effect could occur if existing competing franchised dealers increase their
market share in our markets. Our gross margins may decline over time as we
expand into markets where we do not have a leading position. These and other
competitive pressures could materially and adversely affect the results of our
operations.
RISKS RELATED TO THE AUTOMOTIVE INDUSTRY
THE CYCLICAL AND LOCAL NATURE OF VEHICLE SALES MAY ADVERSELY AFFECT OUR
PROFITABILITY.
Retail vehicle sales are cyclical and historically have experienced
periodic downturns characterized by oversupply and weak demand. Many factors
affect the industry, including general economic conditions and consumer
confidence, the level of discretionary personal income and credit
availability. Future recessions may have a material adverse effect on our
business, particularly sales of new and used automobiles, sales of trucks and
bulk sales of vehicles to corporate customers. Furthermore, higher gasoline
prices may lead to a reduction in automobile purchases or a shift in buying
patterns from luxury/SUV models (which typically provide high profit margins
to retailers) to smaller, more economical vehicles (which typically have lower
margins).
Our performance is also subject to local economic, competitive and other
conditions prevailing in our platforms' particular geographic areas. Our
dealerships currently are located primarily in the Atlanta, Austin, Chapel
Hill, Dallas-Fort Worth, Greensboro, Houston, Jackson, Jacksonville, Little
Rock, Orlando, Raleigh, Richmond, Portland, St. Louis and Tampa markets.
Although we intend to pursue acquisitions outside of these markets, our
current operations are based in these areas. As a consequence, our results of
operations depend substantially on general economic conditions and consumer
spending levels in the Southeast and Texas, and to a lesser extent in the
Northwest and Midwest.
THE SEASONALITY OF THE AUTOMOBILE RETAIL BUSINESS GENERALLY REDUCES OUR FIRST
AND FOURTH QUARTER REVENUES.
The automobile industry is subject to seasonal variations in revenues.
Demand for automobiles is generally lower during the first and fourth quarters
of each year. Accordingly, we expect our revenues and operating results
generally to be lower in our first and fourth quarters than in our second and
third quarters.
IMPORT PRODUCT RESTRICTIONS AND FOREIGN TRADE RISKS MAY IMPAIR OUR ABILITY TO
SELL FOREIGN VEHICLES PROFITABLY.
A significant portion of our new vehicle business will involve the sale
of vehicles, parts or vehicles composed of parts that are manufactured outside
the United States. As a result, our operations will be
11
subject to customary risks of importing merchandise, including fluctuations in
the relative values of currencies, import duties, exchange controls, trade
restrictions, work stoppages and general political and socio-economic
conditions in foreign countries. The United States or the countries from which
our products are imported may, from time to time, impose new quotas, duties,
tariffs or other restrictions, or adjust presently prevailing quotas, duties
or tariffs, which could affect our operations and our ability to purchase
imported vehicles and/or parts.
OUR CAPITAL COSTS AND RESULT OF OPERATIONS MAY BE MATERIALLY AND ADVERSELY
AFFECTED BY A RISING INTEREST RATE ENVIRONMENT.
We finance our purchases of new and, to a lesser extent, used vehicle
inventory under a floor plan borrowing arrangement under which we are charged
interest at floating rates. We obtain capital for acquisitions and for some
working capital purposes under a similar arrangement. As a result, our debt
service expenses could rise with increases in interest rates. Rising interest
rates may also have the effect of depressing demand in the interest rate
sensitive aspects of our business, particularly new and used vehicle sales,
because many of our customers finance their vehicle purchases. As a result,
rising interest rates could have the effect of simultaneously increasing our
costs and reducing our revenues.
GENERAL RISKS RELATED TO INVESTING IN OUR STOCK
WE WILL BE CONTROLLED BY RIPPLEWOOD HOLDINGS L.L.C., WHICH MAY HAVE INTERESTS
DIFFERENT FROM YOUR INTERESTS.
After the completion of the offering, Asbury Automotive Holdings L.L.C.,
a controlled affiliate of Ripplewood Holdings L.L.C., will own [ ]% of our
common stock, and certain platform principals, consisting of the former owners
of our platforms and members of their management teams, will collectively own
[ ]% of our common stock, assuming no exercise of the underwriters'
over-allotment option. We do not know Asbury Automotive Holdings' future plans
as to its holdings of our common stock and cannot give you any assurances that
its actions will not negatively affect our common stock in the future. For
example, Asbury Automotive Holdings has from time to time had discussions with
competitors regarding potential business combinations.
Pursuant to a stockholders agreement among us, Asbury Automotive Holdings
and the platform principals, the platform principals are required to vote their
shares in accordance with Asbury Automotive Holdings' instructions with respect
to:
o persons nominated by Asbury Automotive Holdings to our board of
directors (and persons nominated against Asbury Automotive Holdings'
nominees); and
o any matter to be voted on by the holders of our common stock, whether
or not the matter was initiated by Asbury Automotive Holdings.
Asbury Automotive Holdings' level ownership of our stock could negatively
affect our stock price due to the perception of "market overhang," that is,
the perception that large blocks of shares are available for prompt disposal,
or in the event that it disposes of all or a substantial portion of its common
stock at any time or from time to time.
CONCENTRATION OF VOTING POWER AND ANTI-TAKEOVER PROVISIONS OF OUR CHARTER,
BYLAWS, DELAWARE LAW AND OUR FRANCHISE AGREEMENTS MAY REDUCE THE LIKELIHOOD OF
ANY POTENTIAL CHANGE OF CONTROL.
When this offering is completed, Ripplewood, through its control of
Asbury Automotive Holdings, will control [ ]% of our common stock.
Further, under the stockholders agreement, Ripplewood will have the power to
cause the platform principals (who, together with Ripplewood will collectively
hold [ ]% of our common stock after this offering is completed, assuming no
exercise of the underwriters' over-allotment option) in favor of Ripplewood's
nominees to our board of directors.
Provisions of our charter and bylaws may have the effect of discouraging,
delaying or preventing a change in control of us or unsolicited acquisition
proposals that a stockholder might consider favorable. These include
provisions:
o permitting the removal of a director from office only for cause;
o vesting the board of directors with sole power to set the number of
directors;
12
o limiting the persons who may call special stockholders' meetings;
o limiting stockholder action by written consent; and
o requiring formal advance notice for nominations for election to our
board of directors or for proposing matters that can be acted upon at
stockholders' meetings.
In addition, Delaware law makes it difficult for stockholders who have
recently acquired a large interest in a corporation to cause the merger or
acquisition of the corporation against the directors' wishes. Furthermore, our
board of directors has the authority to issue shares of preferred stock in one
or more series and to fix the rights and preferences of the shares of any such
series without stockholder approval. Any series of preferred stock is likely
to be senior to the common stock with respect to dividends, liquidation rights
and, possibly, voting rights. Our board's ability to issue preferred stock
could also have the effect of discouraging unsolicited acquisition proposals,
thus adversely affecting the market price of the common stock. Finally,
restrictions imposed by some of our dealer agreements may impede or prevent
any potential takeover bid.
Under the terms of the options granted under our 2001 option plan, many
option grants will fully vest and become immediately exercisable upon a change
in control of us, which, together with severance arrangements and other change
of control provisions contained in several of our employment agreements with
our executives, may further deter a potential acquisition bid.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL REGULATION COMPLIANCE COSTS MAY
ADVERSELY AFFECT OUR PROFITABILITY.
We are subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements, consumer protection laws
and environmental requirements governing, among other things, discharges into
the air and water, above ground and underground storage of petroleum
substances and chemicals, handling and disposal of wastes, and remediation of
contamination arising from spills and releases. If we or our properties
violate these laws and regulations, we could be subject to civil and criminal
penalties, or a cease and desist order may be issued against our operations
that are not in compliance. Our future acquisitions may also be subject to
governmental regulation, including antitrust reviews. We believe that all of
our platforms, the first of which we acquired in 1996, comply in all material
respects with all applicable laws and regulations relating to our business,
but future laws and regulations may be more stringent and require us to incur
significant additional costs.
SHARES ELIGIBLE FOR FUTURE SALE MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
Sales of substantial amounts of common stock in the public market
subsequent to the offering could adversely affect the market price of the
common stock. After the offering is concluded, we will have [ ] shares of
common stock outstanding ([ ] shares if the underwriters' over-allotment
option is exercised in full). Of these shares, the [ ] shares of common stock
offered hereby ([ ] shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, except for shares held by persons
deemed to be "affiliates" of us or acting as "underwriters," as those terms
are defined in the Securities Act and related rules. The remaining [ ] shares
of common stock outstanding will be "restricted securities" within the meaning
of Rule 144 under the Securities Act and will be eligible for resale subject
to the volume, manner of sale, holding period and other limitations of Rule
144. Currently, [ ] shares of our common stock are issuable under existing
stock options granted to certain executive officers and employees. An
additional [ ] shares of common stock are reserved for issuance to employees
under our 2001 Stock Option Plan, and options for [ ] shares of common stock
will be granted pursuant to that plan at the time of the offering. See "Shares
Eligible for Future Sale."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on
current expectations, estimates, forecasts and projections about the industry
in which we operate, management's beliefs and assumptions made by management.
Such statements include, in particular, statements about our plans, strategies
and prospects under the headings "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Shares Eligible for Future Sale" and "Underwriting."
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward looking statements. These statements are not
guarantees of future performance and involve risks, uncertainties and
assumptions which are difficult to predict. Therefore, actual outcomes and
results
13
may differ materially from what is expressed or forecasted in such
forward-looking statements. Except as required under the federal securities
laws and the rules and regulations of the Securities and Exchange Commission,
we do not have any intention or obligation to update publicly any
forward-looking statements after we distribute this prospectus, whether as a
result of new information, future events or otherwise.
USE OF PROCEEDS
We estimate that our proceeds from the sale of [ ] shares of common stock
in this offering (at an assumed offering price of $[ ] per share), after
deducting underwriting discounts and commissions and estimated offering
expenses payable by us, will be approximately $[ ] million, or $[ ] million if
the underwriters exercise their over-allotment option in full. We will not
receive any proceeds from the sale of [ ] shares of common stock by the
selling stockholders ([ ] shares if the underwriters exercise their
over-allotment option in full). We are required to apply a minimum of 80% of
the net proceeds to us to repay part of the debt we incurred under our $550
million credit facility, which we use to fund acquisitions, from Ford Motor
Credit Company, Chrysler Financial Company, L.L.C. and General Motors
Acceptance Corporation, in accordance with the terms of that facility. Upon
repayment of the credit facility, additional funds will be available for
re-borrowing in accordance with the terms of the credit facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Credit Facilities" on page 29. We will use the remaining net
proceeds to us for working capital, possible acquisitions and general
corporate purposes.
DIVIDEND POLICY
We intend to retain all our earnings to finance the growth and
development of our business, including future acquisitions. Our acquisition
financing credit facility prohibits us from declaring or paying cash dividends
or other distributions to our stockholders. We do not anticipate paying any
cash dividends on our common stock in the foreseeable future. Any future
change in our dividend policy will be made at the discretion of our board of
directors and will depend on the then applicable contractual restrictions on
us contained in our financing credit facilities and other agreements, our
results of operations, earnings, capital requirements and other factors
considered relevant by our board of directors.
DILUTION
Our pro forma net tangible book value as of March 31, 2001, was $[ ]
per share of common stock. Pro forma net tangible book value per share
represents our pro forma tangible net worth (pro forma tangible assets less
pro forma total liabilities), divided by the total number of shares of our
common stock outstanding.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale by us of [ ] shares of common stock at an assumed initial public offering
price of $[ ] per share, and after deducting the underwriting discounts and
estimated offering expenses payable by us, our pro forma net tangible book
value as of March 31, 2001, as adjusted would have been approximately $[ ], or
$[ ] per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $[ ] per share to existing stockholders and
immediate dilution of $[ ] per share to new investors purchasing common stock
in this offering. If all outstanding stock options were exercised, pro forma
tangible net book value would be further diluted by $[ ] per share to $[ ] per
share.
The following table illustrates the pro forma per share dilution:
Assumed initial public offering price per share $-
Pro forma net tangible book value per share before giving effect to the $-
offering and the related expenses
Increase in pro forma net tangible book value per share attributable to $-
new investors
Pro forma net tangible book value per share after giving effect to the $-
offering
Dilution per share to new investors $-
14
The following table summarizes as of March 31, 2001 on a pro forma basis, the
following:
o the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by
existing stockholders; and
o the number of shares to be purchased and the total consideration to be
paid by new investors purchasing shares of common stock from us in
this offering (before deducting estimated underwriting discounts and
offering expenses).
Shares Purchased Total Consideration Average
--------------------- ------------------- Price
Number Percent Amount Percent Per Share
- -------------------------------------------------------------------------------------------------------------------
Existing stockholders _____ _____% $_____ _____% $_____
New investors _____ _____% _____ _____% _____
Total $ 100.0% $ 100.0% $
===== ===== ===== =====
The preceding table assumes that the underwriters will not exercise their
over-allotment option and does not reflect (a) options issued under our 1999
Option Plan for [ ] shares of common stock with a weighted average exercise
price of [ ] per share and (b) [ ] shares of common stock reserved for
issuance under our 2001 Stock Option Plan, under which options for [ ] shares
of common stock will be issued on the date hereof at the offering price set
forth on the cover page hereof.
CAPITALIZATION
The following table sets forth, as of March 31, 2001, (a) our historical
capitalization as a limited liability company, (b) our pro forma
capitalization which gives effect to our completed and currently probable
acquisitions after March 31, 2001, (c) our pro forma as adjusted
capitalization which gives effect to our conversion to a corporation and our
issuance and sale of [ ] shares of common stock offered hereby (at an
assumed initial public offering price of $[ ] per share, the midpoint of
the range of the initial public offering price set forth on the cover page of
this prospectus, and after deducting the underwriting discount and estimated
expenses of the offering) and (d) the application of the net proceeds of this
offering as described under the heading "Use of Proceeds."
As of March 31, 2001
-----------------------------------------------------
Pro Forma As
Historical Pro Forma Adjusted
----------------- ----------------- -----------------
($ in thousands)
Short-term debt (including current portion of long-term debt)
(1) $29,342 $29,342 $29,342
======== ======== ========
Long-term debt $454,081 $500,540 $425,540
Equity
Contributed capital 303,245 308,245 -
15
Preferred stock, par value $.01 per share, [ ]
shares authorized; no shares issued or outstanding -- -- --
Common stock, par value $.01 per share, [ ]
shares authorized; [ ] shares issued and
outstanding, pro forma; [ ] shares issued and
outstanding, pro forma as adjusted (2) -- -- [ ]
Additional paid-in capital -- -- [ ]
Retained earnings 23,016 23,016 28,981
-------- -------- -------
Total equity 326,261 331,261 [ ]
-------- -------- -------
Total capitalization $780,342 $831,801 $ [ ]
======== ======== ========
- ---------------------
(1) Does not include floor plan notes payable of $486,223, $518,443 and
$518,443, respectively, relating to inventory financing.
(2) Does not include (a) options issued under our 1999 Option Plan for [ ]
shares of common stock with a weighted average exercise price of [ ] per
share, and (b) [ ] shares of common stock reserved for issuance under our
2001 Stock Option Plan, under which options for [ ] shares of common stock
will be issued on the date hereof at the offering price set forth on the
cover page hereof.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our historical selected consolidated data
for the periods indicated. The data from the years ended December 31, 1997,
1998, 1999 and 2000 are derived from our audited financial statements, some of
which are included elsewhere in this prospectus. The financial statements for
the years ended 1997, 1998, 1999 and 2000 were audited by Arthur Andersen LLP,
independent public accountants. The data for the three months ended March 31,
2000, and 2001 are derived from unaudited financial statements included
elsewhere in this prospectus, which in management's opinion, include all
adjustments, consisting of only normally recurring adjustments, necessary for
a fair presentation.
We consider the Nalley (Atlanta) platform, our first platform, which we
acquired on February 20, 1997, to be our predecessor. The results of the
Nalley franchise for the period between January 1, 1996, to February 20, 1997,
are set forth in footnote 1 and were audited by Dixon Odom P.L.L.C. The
historical selected financial information may not be indicative of our future
performance. The information should be read in conjunction with, and is
qualified in its entirety by reference to, our consolidated financial
statements, the unaudited interim consolidated financial statements and the
related notes included elsewhere in this prospectus.
Three Months Ended
Year Ended December 31, March 31,
Income Statement Data: 1997(1) 1998 1999 2000 2000 2001
------- ---- ---- ---- ---- ----
Revenues:
New vehicles $298,967 $687,850 $1,820,393 $2,439,729 $562,490 $579,115
Used vehicles 91,933 221,828 787,029 1,064,102 243,070 285,954
Parts, service and collision
repair 69,425 156,037 341,506 434,478 98,746 118,243
Finance and insurance, net 4,304 19,149 63,206 89,481 19,732 23,554
-------- --------- ---------- ---------- -------- ---------
Total revenues 464,629 1,084,864 3,012,134 4,027,790 924,038 1,006,866
Cost of sales (2)
411,739 929,573 2,570,966 3,430,251 787,258 850,326
-------- --------- ---------- ---------- -------- ---------
Gross profit 52,890 155,291 441,168 597,539 136,780 156,540
16
Depreciation and amortization 1,118 6,303 16,161 24,249 4,967 7,007
Selling, general and
administrative expenses 45,432 127,752 343,443 451,405 102,320 119,302
-------- --------- ---------- ---------- -------- ---------
Income from operations 6,340 21,236 81,564 121,885 29,493 30,231
-------- --------- ---------- ---------- -------- ---------
Floor plan interest expense (4,160) (7,730) (22,982) (36,968) (7,678) (9,489)
Other interest expense (698) (7,104) (24,703) (42,009) (7,817) (12,489)
Equity investment losses, net -- -- (616) (6,066) (3,587) (1,000)
Gain (loss) on sale of assets 54 9,307 2,365 (1,533) 7 16
Other income, net 787 2,409 3,571 6,156 1,704 1,514
-------- --------- ---------- ---------- -------- ---------
Total other expense, net (4,017) (3,118) (42,365) (80,420) (17,371) (21,448)
-------- --------- ---------- ---------- -------- ---------
Income before income taxes,
minority interest and
extraordinary loss 2,323 18,118 39,199 41,465 12,122 8,783
Income taxes (3) -- -- 1,779 3,511 1,021 1,168
Minority interest in subsidiary
earnings (4) 801 14,303 20,520 9,027 7,205 --
-------- --------- ---------- ---------- -------- ---------
Income before extraordinary loss 1,522 3,815 16,900 28,927 3,896 7,615
Extraordinary loss on early
extinguishment of debt -- (734) (752) -- -- (1,433)
-------- --------- ---------- ---------- -------- ---------
Net income $1,522 $3,081 $16,148 $28,927 $3,896 $6,182
======== ========= ========== ========== ======== =========
As of March
As of December 31,
Balance Sheet Data: 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
($ in thousands)
Inventories (2) $6,428 $73,303 $255,878 $434,234 $554,141 $532,319
Total current assets 11,285 108,494 391,151 616,060 776,943 762,815
Property and equipment, net 436 29,907 125,410 141,786 215,149 220,329
Total assets 17,988 162,835 709,457 1,034,606 1,404,200 1,408,378
Floor plan notes payable 7,263 66,305 232,297 385,263 499,332 486,223
Total current liabilities 8,972 85,503 323,061 497,376 625,574 606,315
Total long-term debt, including
current portion 1,568 22,798 223,523 307,648 455,374 469,268
Total equity 7,448 36,957 127,380 198,113 321,882 326,261
(1) Selected financial data for the Nalley platform predecessor, exclusive of
the results from October 1, 1996, of a single Nalley Jeep dealership we
acquired on September 30, 1996, is as follows:
Period from
Year Ended January 1, 1997
December 31, 1996 February 20, 1997
Total revenues $343,333 $43,092
Income from operations 5,801 1,138
Total assets 79,708
Long-term debt 11,443
(2) When we convert from a limited liability company to a corporation, we
will change our method of valuation of certain of our inventories from
"last-in, first-out," or LIFO, to "first-in, first-out," or FIFO.
(3) Prior to this offering, we consisted primarily of a group of limited
liability companies and partnerships (with Asbury Automotive Group L.L.C.
as the parent) which were treated as one partnership for tax purposes.
Under this structure, such companies and partnerships were not subject to
income taxes, but instead, our owners were taxed on their respective
distributive shares of Asbury Automotive Group L.L.C.'s taxable income.
Therefore, no provision for federal or state income taxes has been
included in the historical financial statements of the limited liability
companies and partnerships. Immediately prior to the offering, we changed
our tax status to corporation status, and now provide for income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
(4) On April 30, 2000, the then parent company and the minority owners of our
subsidiaries reached an agreement whereby their respective equity
interests were transferred into escrow and subsequently into Asbury
Automotive Oregon L.L.C. in exchange for equity interests in Asbury
Automotive Oregon, which we refer to as the "minority member
transaction." Following the minority member transaction, the then parent
company changed its name to Asbury Automotive Holdings L.L.C. and Asbury
Automotive Oregon L.L.C. changed its name to Asbury Automotive Group
L.L.C. Substantially all minority interests were eliminated effective
April 30, 2000, in connection with the minority member transaction.
17
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to
(a) our acquisition of the Hutchinson Automotive Group as if it was
completed on January 1, 2000, (b) the minority member transaction (as
described in Note 3 of our Notes to Consolidated Financial Statements) as if
it was consummated as of January 1, 2000, (c) all of our individually
insignificant 2000 and 2001 acquisitions including all currently probable
acquisitions, all as if they were consummated on January 1, 2000, (d) the
change in our valuation of certain of our inventories from "last-in,
first-out" or LIFO to "first-in, first-out" or FIFO, upon conversion to a
corporation, (e) the change in our tax status resulting from our conversion to
a corporation, (f) the conversion of certain executives' carried interests
into options for our common stock and (g) the offering, including the use of a
portion of the net proceeds to us (assuming net proceeds to us of $90 million)
to reduce debt outstanding as required by our acquisition financing credit
facility, which is used to fund acquisitions, in accordance with the terms of
that facility. The information, other than the individually insignificant
acquisitions, is based upon our historical financial statements and should be
read in conjunction with our historical financial statements, the historical
financial statements of Hutchinson Automotive Group, the related notes, and
other information contained elsewhere in this prospectus.
The unaudited pro forma financial information is not necessarily
indicative of what our actual financial position or results of operations
would have been had all of the previously mentioned acquisitions and this
offering occurred on the dates previously mentioned, nor does it give effect
to (a) any pending transactions other than the previously mentioned
acquisitions or this offering and (b) our results of operations since March
31, 2001, or (c) the results of final valuations of all assets and liabilities
of the aforementioned acquisitions and the minority member transaction. We may
revise the allocation of the purchase price of these acquisitions when
additional information becomes available in accordance with Accounting
Principles Board Opinion No. 16. Accordingly, the pro forma financial
information is not intended to be indicative of the financial position or
results of operations as of today's date, as of the offering, or any period
ending at the offering, or as of or for any other future date or period.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2001
($ IN THOUSANDS)
2001
Individually
Insignificant Pro Forma Other Pro
Acquisitions Adjustments Pro Forma Forma Pro Forma As
Asbury (1) (2) Combined Adjustments Adjusted
---------- ------------- ----------- ---------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $122,347 $1,125 $1,009 $124,481 $15,000 (3) $139,481
Accounts receivable 86,943 2,788 89,731 89,731
Inventories 532,319 36,313 568,632 8,511 (4) 577,143
Prepaid and other current assets 21,206 200 21,406 10,057 (5) 31,463
---------- ------- -------- ---------- ------- ----------
Total current assets 762,815 40,226 1,209 804,250 33,568 837,818
PROPERTY AND EQUIPMENT, net 220,329 6,476 226,805 226,805
GOODWILL, net 362,799 36,956 399,755 399,755
OTHER ASSETS 62,435 127 280 62,842 62,842
---------- ------- -------- ---------- ------- ----------
Total assets $1,408,378 $46,829 $38,445 $1,493,652 $33,568 $1,527,220
========== ======= ======== ========== ======= ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Floor plan notes payable $486,223 $33,213 $(993) $518,443 $518,443
Short-term debt 14,155 14,155 14,155
Current maturities long-term 15,187 15,187 15,187
debt
Accounts payable 41,309 133 41,442 41,442
Accrued liabilities 49,441 761 50,202 50,202
---------- ------- ------- ------- ----------
Total current liabilities 606,315 34,107 (993) 639,429 639,429
LONG-TERM DEBT 454,081 46,459 500,540 $(75,000)(3) 425,540
OTHER LIABILITIES 21,721 701 22,422 12,603 (5) 35,025
EQUITY
Contributed capital 303,245 12,021 (7,021) 308,245 (308,245)(6) -
Common Stock
18
Additional paid-in capital 90,000 (3) 398,245
308,245 (6)
Retained earnings 23,016 23,016 8,511 (4) 28,981
(2,546)(5)
---------- ----------- -------- ---------- ------- ----------
Total equity 326,261 12,021 (7,021) 331,261 95,965 427,226
---------- ----------- -------- ---------- ------- ----------
Total liabilities and equity $1,408,378 $46,829 $38,445 $1,493,652 $33,568 $1,527,220
========== =========== ======== ========== ======= ==========
UNAUDITED PRO FORMA FINANCIAL STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
($ IN THOUSANDS EXCEPT PER SHARE DATA)
2000 and
2001
Individually Pro
Hutchinson Insignificant Forma Pro Other Pro
Automotive Acquisitions Adjustments Forma Forma Pro Forma
Asbury Group (7) (8) Combined Adjustments As Adjusted
---------- ---------- ------------- ------------ ---------- ----------- -------------
REVENUES
New vehicles $2,439,729 $58,061 $289,126 $2,786,916 $2,786,916
Used vehicles 1,064,102 35,903 123,049 1,223,054 1,223,054
Parts, services and 434,478 8,285 39,361 482,124 482,124
collision repair
Finance and insurance,
net 89,481 1,713 5,899 97,093 97,093
---------- ------- -------- ------- ---------- -------- ----------
Total revenues 4,027,790 103,962 457,435 4,589,187 4,589,187
COST OF SALES 3,430,251 89,362 401,522 3,921,135 $ (2,100)(4) 3,919,035
---------- ------- -------- ------- ---------- -------- ----------
Gross profit 597,539 14,600 55,913 668,052 2,100 670,152
OPERATING EXPENSES:
Selling, general and 451,405 10,705 37,526 499,636 499,636
administrative
Depreciation and 24,249 260 699 $ 1,947 27,155 27,155
amortization ---------- ------- -------- ------- ---------- -------- ----------
Income from operations 121,885 3,635 17,688 (1,947) 141,261 2,100 143,361
OTHER INCOME (EXPENSE):
Floor plan interest (36,968) (635) (5,215) (42,818) (42,818)
expense
Other interest expense (42,009) (177) (7,941) (50,127) 7,500 (3) (42,627)
Equity investment losses, net (6,066) (6,066) (6,066)
Gain (loss) on sale of (1,533) 8 (1,525) (1,525)
assets
Other income, net 6,156 58 280 6,494 6,494
---------- ------- -------- ------- ---------- -------- ----------
Total other expense, (80,420) (577) (5,104) (7,941) (94,042) 7,500 (86,542)
net ---------- ------- -------- ------- ---------- -------- ----------
Income before income 41,465 3,058 12,584 (9,888) 47,219 9,600 56,819
taxes and minority
interest
INCOME TAX EXPENSE 3,511 45 3,556 20,269 (5) 23,825
MINORITY INTEREST IN
SUBSIDIARY EARNINGS 9,027 (9,027) (9) --
---------- ------- -------- ------ ---------- -------- ----------
Net income $28,927 $3,058 $ 12,539 $ (861) $ 43,663 $(10,669) $ 32,994
========== ======= ======== ====== ========== ======== ==========
Earnings per common share -
Basic:
Weighted average shares
outstanding
Net income
UNAUDITED PRO FORMA FINANCIAL STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001
($ IN THOUSANDS EXCEPT PER SHARE DATA)
2001
Individually
Insignificant Pro Forma Other Pro
Acquisitions Adjustments Pro Forma Forma Pro Forma
Asbury (1) (2) Combined Adjustments As Adjusted
---------- -------------- ----------- --------- ------------ -----------
REVENUES
New vehicles $579,115 $45,372 $624,487 $624,487
19
Used vehicles 285,954 23,033 308,987 308,987
Parts, services and collision 118,243 7,228 125,471 125,471
repair
Finance and insurance, net 23,554 819 24,373 24,373
---------- ------- ---------- ----------
Total revenues 1,006,866 76,452 1,083,318 1,083,318
COST OF SALES 850,326 67,529 917,855 $ (500) (4) 917,355
---------- ------- ---------- ------- ----------
Gross profit 156,540 8,923 165,463 500 165,963
OPERATING EXPENSES:
Selling, general and 119,302 6,206 125,508 (10) 125,508
administrative
Depreciation and amortization 7,007 84 $219 7,310 7,310
---------- ------- ------- ---------- ------- ----------
Income from operations 30,231 2,633 (219) 32,645 500 33,145
OTHER INCOME (EXPENSE):
Floor plan interest expense (9,489) (919) (10,408) (10,408)
Other interest expense (12,489) (19) (1,191) (13,699) 1,875 (13) (11,824)
Equity investment losses (1,000) (1,000) (1,000)
Gain (loss) on sale of assets 16 16 16
Other income, net 1,514 7 1,521 1,521
---------- ------- ------- ---------- ------- ----------
Total other expense, net (21,448) (931) (1,191) (23,570) 1,875 (21,695)
---------- ------- ------- ---------- ------- ----------
Income before income taxes
and extraordinary loss 8,783 1,702 (1,410) 9,075 2,375 11,450
INCOME TAX EXPENSE 1,168 -- -- 1,168 3,860 (5) 5,028
---------- ------- ------- ---------- ------- ----------
Income before extraordinary loss 7,615 1,702 (1,410) 7,907 (1,485) 6,422
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, NET OF
TAX BENEFIT (1,433) -- -- (1,433) 573 (5) (860)
---------- ------- ------- ---------- ------- ----------
Net Income $6,182 $1,702 $(1,410) $6,474 $(912) $5,562
========== ======= ======= ========== ======= ==========
Earnings per common share - Basic:
Weighted average shares outstanding
Net income
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) Reflects the impact of all acquisitions currently probable after April 1,
2001, as if these acquisitions were consummated on January 1, 2001 or as
of March 31, 2001.
(2) Reflects the fair value adjustments to the 2001 individually
insignificant acquisitions. The results of final valuations of all assets
and liabilities of these acquisitions have not yet been completed. We may
revise the allocation of the purchase price when additional information
becomes available.
(3) Adjustment to reflect the proceeds received by us from this offering (net
of estimated fees and expenses of $10 million). Assumes a portion of our
estimated net proceeds are used to reduce a portion of our borrowings as
contractually required under our acquisition financing credit facility.
(4) Reflects adjustment to change the company's method of valuation of
certain of its inventories from the "last-in, first-out", or LIFO
method to the "first-in, first-out", or FIFO method upon conversion
from a limited liability company to a corporation.
(5) Reflects an adjustment to change our tax status to corporation status and,
accordingly provides for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". We currently consist primarily of a group of limited liability
companies and partnerships (with us as parent), which are treated as one
partnership for tax purposes. Under this structure, such companies and
partnerships are not subject to income taxes but instead our members are
taxed on their respective distributive shares of our taxable income.
(6) Reflects an adjustment to reclassify members' equity to common stock and
additional paid-in capital due to the conversion from a limited liability
company to a corporation.
(7) Reflects the impact of all acquisitions closed after January 1, 2000 and
all acquisitions currently probable, other than the Hutchinson Automotive
Group, as if all these acquisitions were completed on January 1, 2000.
(8) Reflects the fair value adjustments (a) to the historical financial
statements of the Hutchinson Automotive Group and the 2000 and 2001
individually insignificant acquisitions and (b) for the minority member
transaction. The results of final valuations of all assets and
liabilities of the aforementioned acquisitions and the minority member
transaction have not yet been completed. We may revise the allocation of
the purchase price when additional information becomes available.
20
(9) Represents the elimination of minority interest effective January 1,
2000, in connection with the minority member transaction (see Note 3 of
the Company's Notes to Consolidated Financial Statements).
(10) The pro forma consolidated statements of income include a non-recurring
charge for compensation of $[ ] related to an arrangement whereby due to
the offering, some of our senior executives participate in the increase
in our value. See "Management--Employment Agreements" on page 50.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This management's discussion and analysis of financial condition and
results of operations contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including but not limited to those described under "Risk Factors" beginning on
page 7, and included in other portions of this prospectus.
OVERVIEW
We are a national automotive retailer, currently operating 126 franchises
at 86 dealership locations in nine states and 15 markets in the U.S. We also
operate 23 collision repair centers that serve our markets.
Our revenues are derived from sales of new and used cars, light trucks
and replacement parts, providing vehicle maintenance, warranty, paint and
repair services and arranging vehicle finance, insurance and service contracts
for our automotive customers and the sale of heavy trucks.
Since inception, we have grown through the acquisition of nine large
platforms and additional tuck-in acquisitions. All acquisitions were accounted
for using the purchase method of accounting and as a result, the operations of
the acquired dealerships are included in the consolidated statements of income
commencing on the date acquired.
Prior to the completion of this offering, we consisted primarily of a
group of limited liability companies and partnerships (with us as the parent),
which were treated as one partnership for our tax purposes. Under this
structure, our owners were taxed on their respective distributive shares of
taxable income; however, neither we nor our limited liability companies and
partnership subsidiaries were subject to income tax. The balance of our
subsidiaries were "C" corporations under the provisions of the Internal
Revenue Code and, accordingly provided for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes." Under the provisions of our limited liability company agreement, we
had distributed cash to each owner equal to 50% of the owner's respective
distributive share of taxable income to cover the owner's tax liabilities.
Immediately prior to the offering, we changed our tax status to corporation
status and will provide for federal and state income taxes for the entire
company going forward. As a result of this change in our tax status, Asbury
Automotive Group, Inc. will succeed to the historic tax basis of the assets
held by Asbury Automotive Group L.L.C. (except as increased to reflect any
gain recognized by our owners), but this basis will be substantially less than
the fair market value of our assets.
Sales of motor vehicles (particularly new vehicles) have historically
fluctuated with general macroeconomic conditions such as general business
cycles, consumer confidence, availability of consumer credit, fuel prices and
interest rates. Although these factors may impact our business, we believe
that any future negative trends due to the above factors may be mitigated by
revenues from our parts, service and collision repair operations, variable
cost structure, regional diversity and advantageous franchise mix.
21
Our operations are subject to modest seasonal variations that are
somewhat offset by our regional diversity. We typically generate more revenue
and operating income in the second and third quarters than in the first and
fourth quarters. Seasonality is based upon, among other things, weather
conditions, manufacturer incentive programs, model changeovers and consumer
buying patterns.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001, COMPARED TO MARCH 31, 2000
REVENUES - Our revenues for the first quarter of 2001 increased $82.8
million or 9.0% over the first quarter of 2000. The increase was primarily due
to $161.7 million of revenues from tuck-in acquisitions completed after
January 1, 2000, partially offset by a decrease in revenues at dealerships
owned prior to January 1, 2000 (same store), of $78.9 million or 9.1%. Same
store revenue increases at three of our platforms (Texas, St. Louis and
Jacksonville) were offset by significant same store decreases at (a) our
Oregon platform (down $44.5 million) primarily due to changes in our business
practices and restrictions in our sales policies, declining Ford sales related
to the Firestone tire recall and the effect on employment and consumer
spending in the Pacific Northwest from the technology downturn, (b) our
Arkansas platform (down $14.4 million) due to declining demand in the local
market, increased competition, and declining Ford sales related to the Firestone
recall and (c) the Atlanta platform's heavy truck business (down $17.1
million) due to a cyclical downturn resulting from macroeconomic factors such
as higher interest rates and fuel prices.
Same store revenues from vehicle sales were off 10.7% primarily due to
the conditions noted above in Oregon, Arkansas and Atlanta. Overall, sales
were impacted by declining demand in the automotive industry as the average
seasonally adjusted annual rate of new vehicles sold in the U.S. declined from
18.3 million units in the first three months of 2000 to 17.2 million units for
the comparable period in 2001. Despite this national decline, our Texas
platform continued its strong performance with an $8.7 million or 9.9%
increase in vehicle sales revenues over the prior year quarter. Finance and
insurance revenues per vehicle retailed were $599 for the three months ended
March 31, 2001, a 17% increase over the three months ended March 31, 2000.
Parts, service and collision repair revenues on a same store basis were
up 4.6% in the first quarter of 2001 over the first quarter of 2000 due to a
continued emphasis on those products. Seven of the eight platforms in our
organization in 2000 generated an increase in the current quarter over the
same quarter last year.
GROSS PROFIT - Total gross profit as a percentage of revenues for the
three months ended March 31, 2001 was 15.5% as compared to 14.8% for the three
months ended March 31, 2000. This increase is primarily attributable to a
shift in product mix to higher margin parts, service and collision repair
services and finance and insurance.
OPERATING EXPENSES - Selling, general and administrative expenses, or
SG&A, as a percentage of revenues increased to 11.8% of revenues in the first
quarter of 2001, from 11.1% in the first quarter of 2000. Contributing to this
increase were increased variable compensation costs related to higher gross
profit, higher advertising and insurance costs, and expense control
initiatives in Oregon lagging behind revenue declines. The increase in
depreciation and amortization is principally attributable to acquisitions
completed after January 1, 2000.
OTHER INCOME (EXPENSE) - Floor plan interest expense increased to $9.5
million for the three months ended March 31, 2001, from $7.7 million for the
three months ended March 31, 2000, primarily due to acquisitions completed
after January 1, 2000, and a greater number of vehicles in inventory,
partially offset by a slight decline in interest rates. Other interest expense
increased by $4.7 million over the prior quarter principally due to increased
borrowings used to fund acquisitions completed after January 1, 2000. Equity
investment losses in the three months ended March 31, 2001, represent our
share of losses in an automotive finance company while losses in the three
months ended March 31, 2000, primarily reflect our share of losses in our
investment in Greenlight.com, which was fully written off as of December 31,
2000. Other income, net primarily comprised of interest income was $1.5
million for the quarter ended March 31, 2001, as compared to $1.7 million for
the quarter ended March 31, 2000.
YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999
22
REVENUES - Our revenues for the year ended December 31, 2000, increased
$1.02 billion or 33.7% over the year ended December 31, 1999. The increase was
primarily due to $982.6 million of revenues generated by our Arkansas
platform, which we acquired in February 1999, tuck-in acquisitions made
subsequent to January 1, 1999 and an increase in revenues at dealerships
owned prior to January 1, 1999 (same store), of $33.1 million or 1.4%.
Same store revenues from vehicle sales increased $21.1 million, or 1.0%,
as strong year-over-year increases at five of our platforms were offset by
declines in our Oregon platform (down $86.9 million), primarily due to changes
in our business practices and restrictions in our sales policies, declining
demand in the local market, declining Ford sales related to the Firestone tire
recall and reduced sales in Atlanta's heavy truck franchises (down $11.6
million). Finance and insurance revenues per vehicle sold were $540 for the
twelve months ended December 31, 2000, a 10.8% increase over the twelve months
ended December 31, 1999.
Parts, service and collision repair revenues on a same store basis, were
up 4.3% in fiscal 2000 versus fiscal 1999 principally due to a focus on this
high margin product line. Six of our seven platforms posted year over year
revenue increases.
GROSS PROFIT - Total gross profit as a percentage of revenues for the
year ended December 31, 2000, was 14.8% as compared to 14.6% for the year
ended December 31, 1999. This increase was primarily attributable to increased
finance and insurance revenues per vehicle sold, improved margins on new
vehicles due to a shift away from lower margin fleet sales, and increased
margins on used vehicles due to lower wholesale losses.
OPERATING EXPENSES - SG&A expenses as a percentage of revenues decreased
to 11.2% in 2000 from 11.4% in 1999 principally due to containment of variable
and fixed compensation costs. Depreciation and amortization increased $8.1
million to $24.2 million principally due to a significant number of
acquisitions completed after January 1, 1999.
23
OTHER INCOME (EXPENSE) - Floor plan interest expense increased to $37.0
million for the year ended December 31, 2000, from $23.0 million for the year
ended December 31, 1999, primarily due to acquisitions completed after January
1, 1999, higher interest rates throughout 2000 as compared to 1999, and a
greater number of vehicles in inventory. Other interest expense increased by
$17.3 million over the prior year principally due to increased borrowings used
to fund acquisitions completed after January 1, 1999, and to a lesser extent
higher interest rates. Equity investment losses for the years ended December
31, 2000, and December 31, 1999, primarily reflect our share of losses in our
investment in Greenlight.com of $6.9 million and $0.8 million, respectively.
The increase in other income, net of $2.6 million as compared to the prior
year, principally comprises higher interest income.
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES - Our revenues for the year ended December 31, 1999, increased
$1.93 billion or 177.7% over the year ended December 31, 1998. The increase
was primarily due to $1.87 billion of revenue from six platform acquisitions
made subsequent to January 1, 1998, along with an increase in revenues at
platforms owned prior to January 1, 1998 (Atlanta and St. Louis) (same store),
of $53.6 million or 7.8%. Same store revenues from vehicle sales increased
$44.4 million or 7.7% in 1999 as compared to 1998 due to a strong year over
year increase at our St. Louis platform. Parts, service and collision repair
center revenues on a same store basis, increased 8.5% in fiscal 1999 from
fiscal 1998 as the Atlanta and St. Louis platforms both posted significant year
over year increases in these services.
GROSS PROFIT - Total gross profit as a percentage of revenues for the
year ended December 31, 1999, was 14.6% as compared to 14.3% for the year
ended December 31, 1998. This increase is primarily attributable to a slight
shift in product mix to finance and insurance revenue.
OPERATING EXPENSES - SG&A expenses as a percentage of sales declined to
11.4% during the year ended 1999 from 11.8% during the year ended 1998 mostly
due to containment of fixed operating expenses. Depreciation and amortization
increased $9.9 million to $16.2 million principally due to a significant
number of acquisitions completed after January 1, 1998.
OTHER INCOME (EXPENSE) - Floor plan interest expense increased $15.3
million for the year ended December 31, 1999, from $7.7 million for the year
ended December 31, 1998, primarily due to acquisitions completed after January
1, 1998. Other interest expense increased by $17.6 million over the prior year
principally due to increased borrowings used to fund acquisitions completed
after January 1, 1998. The increase in other income, net of $1.2 million as
compared to the prior year, is primarily due to higher interest income.
LIQUIDITY AND CAPITAL RESOURCES
We require cash to fund working capital needs, finance acquisitions of
new dealerships and fund capital expenditures. These requirements are met
principally from cash flow from operations, borrowings under our credit
facilities and floor plan financing below, mortgage notes and issuances of
equity interests. As of March 31, 2001, we had cash and cash equivalents of
$122.3 million, including contracts-in-transit of $72.3 million.
CREDIT FACILITIES
On January 17, 2001, we entered into two financing agreements with Ford
Motor Credit Company, Chrysler Financial Company, L.L.C. and General Motors
Acceptance Corporation establishing an aggregate line of credit totaling $1.3
billion. One facility provides for $550 million in committed acquisition
financing and general corporate purpose loans and the other facility
establishes a framework for obtaining up to $750 million in floor plan
financing.
At the date of the closing, we borrowed $330.6 million under the
acquisition financing credit facility to repay certain existing term notes and
pay certain fees and expenses of the closing. In addition, we refinanced
substantially all of our existing floor plan debt under the floor plan
financing facility.
Borrowings under the acquisition credit facility bear interest at LIBOR
plus a specified percentage (4% as of March 31, 2001) depending on our
attainment of certain leverage ratios and the outstanding balance under this
credit facility. This credit facility is guaranteed by substantially all of
our subsidiaries and contains covenants that, among other things, place
restrictions on our ability to incur additional debt, encumber our property
and other assets, repay other debt, dispose of assets, invest capital and to
permit our subsidiaries to issue equity securities. This credit facility also
imposes minimum requirements which the terms of transactions to acquire
prospective targets much meet before we can borrow funds to finance the
transactions. In addition, we are required on an ongoing basis to meet certain
financial ratios, including a current ratio, a fixed charge coverage ratio and
a leverage ratio. This credit facility also contains provisions for default
upon, among other things, a change of control, a material adverse change and
the non-payment of obligations. Substantially all of our assets not subject to
security interests granted to floor plan lenders are subject to security
interests to lenders under the floor plan financing and acquisition credit
facilities. The acquisition credit facility provides for an indefinite series
of one-year extensions at our request if approved by the lenders and the floor
plan financing credit facility has an indefinite duration. Conversely, we can
terminate the acquisition financing credit facility by repaying all of the
outstanding balances under the acquisition line plus a termination fee. The
fee, currently equal to 3% of $550 million, the amount committed under the
acquisition credit facility, declines one percentage point on each of the
first, second and third anniversaries of the facility. As of March 31, 2001,
$219.4 million remained available to us for additional borrowings under the
acquisition financing facility.
In addition, we have $25 million available through other revolving credit
facilities, which are secured by certain notes receivable for finance
contracts. The borrowings are repayable on the lenders' demand, and accrue
interest at variable rates. These facilities are subject to certain financial
and other covenants. As of March 31, 2001, we had $14.2 million outstanding
under these facilities.
FLOOR PLAN FINANCING
We finance substantially all of our new vehicle inventory and a portion
of our used vehicle inventory under the floor plan financing credit facility,
but also use other revolving floor plan arrangements. We are required to make
monthly interest payments on the amount financed, but are not required to
repay the principal prior to the sale of the vehicle. These floor plan
arrangements grant a security interest in the financed vehicles as well as the
related sales proceeds. Amounts financed under the floor plan financing
24
bear interest at variable rates, which are typically tied to LIBOR or a prime
rate. As of March 31, 2001, we had $486.2 million outstanding under all of our
floor plan financing agreements.
CASH FLOW
Cash flow from operations totaled $16.5 million for the three months
ended March 31, 2001, as a reduction in inventories of $24.3 million more than
offset a reduction in floor plan notes payable of $13.1 million due to our
decision to finance a greater percentage of our vehicles. Net cash flow used
in investing activities was $13.3 million, principally related to capital
expenditures of $10.3 million, additional funds for prior year acquisitions of
$2.2 million, and a strategic investment in CarsDirect.com of $1.2 million.
Net cash flow used in financing activities was $4.7 million due to a net
reduction in borrowings of $2.9 million and $1.8 million to pay member
distributions. In addition, new borrowings under the acquisition line of
$330.6 million were used to repay existing debt and finance certain fees and
expenses of the closing of the credit facilities.
Cash flow from operations was $82.6 million for the year ended December
31, 2000, an increase of $33.5 million over the prior year. This was primarily
due to an increase in net income plus non-cash items of $17.7 million and an
increase in floor plan notes payable of $38.2 million which more than offset
an increase in inventories of $22.9 million due to our decision to finance a
greater percentage of vehicles. Cash flow was used in investing activities to
fund acquisitions of $179.5 million and capital expenditures $36.1 million,
offset by the proceeds from the sale of certain dealerships of $6.1 million.
Cash flow from financing was comprised of $159.4 million of proceeds from new
borrowings and $20.7 million of member contributions, principally to fund
acquisitions, offset by repayment of existing debt of $14.6 million and member
distributions of $13.4 million.
CAPITAL EXPENDITURES
Capital spending for the three months ended March 31, 2001, and for the
year ended December 31, 2000, was $10.3 million and $36.1 million,
respectively. Capital spending other than from acquisitions is estimated to be
approximately $60 million for the year ended December 31, 2001, primarily
related to an increase in manufacturer-required spending related to the
upgrade of existing dealership facilities.
Subsequent to March 31, 2000, we acquired four dealerships (operating
seven franchises) for consideration in the form of cash and equity in us equal
to $39.0 million. The cash component of the consideration we paid for the
acquisitions was funded through the proceeds of borrowings on our acquisition
financing credit facility.
Our future growth is dependent on our ability to acquire additional
dealerships and successfully operate existing dealerships. We believe that
cash flow generated from operations, working capital availability under the
acquisition line, availability under our floor plan arrangements as well as
mortgage financings, will be sufficient to fund debt service, working capital
requirements and capital spending. Future acquisitions will be funded from
cash flow from operations, capital available under our acquisition financing
credit facility and through the public or private issuance of equity or debt
securities.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments
at fair value. If certain conditions are met, a derivative instrument may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted transaction
or (c) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign currency-denominated forecasted transaction. The
accounting for changes in the fair value of a derivative (gains or losses)
depends on the intended use of the derivative and the resulting designation.
SFAS No. 137 amended the effective date to all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 138, issued in June 2000, addressed a
limited number of issues that were causing implementation difficulties for
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numerous entities applying SFAS No. 133. We have determined that the adoption
of SFAS No. 133 will not have a material impact on our results of operations,
financial position, liquidity or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition". SAB 101 was effective for
years beginning after December 31, 1999, and provides clarification related to
recognizing revenue in certain circumstances. The adoption of SAB 101 did not
have a material impact on the Company's revenue recognition policies.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK - We are exposed to market risk from changes in
interest rates on substantially all outstanding indebtedness. Outstanding
balances under the acquisition line bear interest at a variable rate based on
a margin over the benchmark LIBOR rate. Given amounts outstanding at March 31,
2001, a 1% change in interest rate would result in a change of approximately
$4.7 million to our annual non-floor plan interest expense. Similarly, amounts
outstanding under floor plan financing arrangements (including the floor plan
line) bear interest at variable rates based on a margin over LIBOR or prime.
Based on floor plan amounts outstanding at March 31, 2001, a 1% change in
interest rates would result in a $4.9 million change to annual floor plan
interest expense.
INTEREST RATE SWAPS - During 1998, we caused a subsidiary to enter into
swap arrangements with a bank in an aggregate initial notional principal
amount of $31 million in order to fix a portion of our interest expense and
reduce our exposure to floating interest rates. These swaps required the
subsidiary to pay fixed rates ranging from 4.7% to 5.2% on the notional
principal amounts, and receive in return payments calculated at LIBOR. In
December 2000, we terminated our swap arrangements resulting in a gain of $0.4
million which was recognized in the quarter ended March 31, 2001, in
connection with our refinancing of certain existing debt utilizing our credit
facilities. Management continually monitors interest rates and trends in rates
and will from time to time reevaluate the advisability of entering into
derivative transactions to hedge our interest rate risk, and may consider
restructuring our debt from floating to fixed rate.
FOREIGN CURRENCY EXCHANGE RISK - All our business is conducted in the
U.S. where all of our revenues and expenses are conducted in U.S. dollars. As
a result, our operations are not subject to foreign exchange risk.
BUSINESS
COMPANY
We are one of the largest automotive retailers in the United States,
currently operating 126 franchises at 86 dealership locations in nine states.
We offer our customers an extensive range of automotive products and services,
including new and used vehicle sales and related financing and insurance,
vehicle maintenance and repair services, replacement parts and service
contracts. Our franchises include a diverse portfolio of 36 American, European
and Asian brands, and a majority of our dealerships are either luxury
franchises (such as BMW, Lexus and Mercedes-Benz) or mid-line import brands
(such as Honda, Toyota and Nissan). We have grown rapidly in recent years,
primarily through acquisition, with annual sales of $3.0 billion in 1999 and
$4.0 billion in 2000, which represented a 34% increase in annual sales from
1999. We sold an aggregate of 154,422 new and used retail units in 2000, which
represented a 32% increase over the 116,790 retail units sold in 1999. In
addition, our 2000 results included over $434 million in parts, service and
collision repair revenues in 2000.
Our retail network is organized into nine regional dealership groups, or
"platforms," which are groups of dealerships operating under a distinct brand.
Our platforms are located in markets or clusters of markets that we believe
represent attractive opportunities, generally due to the presence of
relatively few dealerships and high rates of population and income growth. The
following is a detailed breakdown of our existing platforms:
Platform-Regional Date of Initial
Brands Acquisition Platform Markets Franchises
Atlanta September 1996 Atlanta Acura, Audi, Chevrolet, Dodge, Hino, Honda,
Nalley Automotive Group Infiniti, Isuzu, Jaguar, Jeep, Lexus (2),
Navistar, Peterbilt
St. Louis December 1997 St. Louis Audi, BMW, Cadillac, Infiniti,
Plaza Motor Company Land Rover (a), Lexus, Mercedes-Benz, Porsche
Texas April 1998 Dallas/Fort Worth Acura, Buick, GMC, Honda, Lincoln, Mercury,
26
David McDavid Automotive Pontiac, Suzuki
Group Houston Honda, Kia, Nissan
Austin Acura
Tampa September 1998 Tampa Chrysler, GMC, Hyundai, Infiniti, Isuzu, Jeep,
Courtesy Dealership Group Kia, Lincoln, Mazda (2), Mercedes-Benz, Mercury,
Mitsubishi, Nissan, Pontiac, Toyota
Jacksonville October 1998 Jacksonville Chevrolet, GMC, Honda (2), Kia, Mazda,
Coggin Automotive Group Nissan (2), Pontiac, Toyota
Orlando Buick, Chevrolet, GMC, Ford, Honda(2), Lincoln,
Mercury, Pontiac
Fort Pierce BMW, Honda, Mercedes-Benz
Oregon December 1998 Portland Ford (2), Honda, Hyundai (2),
Thomason Auto Group Mazda, Nissan, Subaru, Suzuki, Toyota
North Carolina December 1998 Greensboro Acura, Audi, BMW, Dodge, GMC, Honda, Kia,
Crown Automotive Company Mitsubishi, Nissan, Pontiac, Volvo
Chapel Hill/Raleigh GMC, Honda, Isuzu, Pontiac, Volvo
Fayetteville Ford
Richmond, VA Acura, BMW, BMW (b), Porsche (b)
Arkansas February 1999 Little Rock BMW, Ford, Lincoln (2), Mazda, Mercury (2),
North Point Nissan, Toyota, Volkswagen, Volvo
(previously known as Hope Ford
McLarty Companies) Texarkana, TX Chrysler, Dodge, Ford
Mississippi April 2000 Jackson Chrysler (b), Daewoo, Ford, Hyundai, Isuzu,
Gray-Daniels Jeep (b), Lincoln (b), Mazda, Mercury (b),
Mitsubishi, Nissan (2), Suzuki, Toyota
(a) Minority owned and operated by us. See "Related Party Transactions"
on page 56 for a description of our ownership interest in this
franchise.
(b) Pending acquisitions.
Each platform originally operated as an independent business before being
acquired and integrated into our operations, and each continues to enjoy high
local brand name recognition and market share. We believe that many of our
platforms are ranked first or second in market share in their local markets.
COMPANY HISTORY
We were formed in 1995 by management and Ripplewood Holdings L.L.C. In
1997 Freeman Spogli & Co. acquired a significant interest in us. The group
identified an opportunity to aggregate a number of the nation's top retail
automotive dealers into one cohesive organization. We acquired eight of our
platforms between 1997 and 1999, and combined them on February 1, 2000. In the
consolidation, dealers holding ownership interests in their respective
platforms transferred their interests to the Oregon platform in exchange for
ownership interests in the Oregon platform. Dealers who held interests in the
Oregon platform did not exchange their interests, but had their holdings
adjusted to reflect their overall ownership interest in the consolidated
company. The Oregon platform then changed its name to Asbury Automotive Group
L.L.C. and became the parent company to our platforms and other companies.
Since the consolidation of the eight platforms as of February 1, 2000, a ninth
platform, the Mississippi platform, was formed on July 2, 2001, following our
acquisition of five franchises in the Jackson market, which we added to five
franchises that we previously acquired in this market.
OUR STRENGTHS
We believe our competitive strengths are as follows:
EXPERIENCED AND INCENTIVIZED MANAGEMENT
o RETAIL MANAGEMENT EXPERIENCE. We have a management team with extensive
experience and expertise in the retail sector. Brian E. Kendrick, our
president and chief executive officer, has over 20 years of experience
in the retailing industry, having served in various senior management
capacities, including vice chairman and chief operating officer of
Saks Holdings, Inc., the holding company of the Saks Fifth Avenue
luxury retail chain. Thomas R. Gibson, our co-founder and chairman of
our board of directors, spent most of his 28-year automotive career
working with automobile retail dealers throughout the U.S., including
serving as president and chief operating officer of Subaru of America.
Thomas F. Gilman, our vice president and chief financial officer,
27
served for 25 years at DaimlerChrysler where his knowledge of the
dealer network allowed him to play a key role assisting Daimler
Chrysler dealerships during the recession of the automotive industry
in the early 1990s. See "Management." In addition, after joining us,
the CEOs of our nine platforms, who have an average of 36 years of
experience in the automotive retailing industry, continued to manage
many of our operations at the platform level and played a significant
role in implementing our operating and acquisition strategies.
o INCENTIVIZATION AT EVERY LEVEL. We tie compensation to performance by
relying upon an incentive based pay system at both the platform and
dealership levels. At the platform level all our senior management are
compensated on an incentive-based pay system while 71% of the senior
management at our nine platforms have a stake in our performance based
upon their ownership of approximately 40% of our outstanding common
stock, and will continue to own [ ]% after giving effect to this
offering. We also create incentives at the dealership level. Each
dealership is managed as a separate profit center by a trained and
experienced general manager who has primary responsibility for
decisions relating to inventory, advertising, pricing and personnel.
We compensate our general managers based on dealership profitability,
and the compensation of department managers is similarly based upon
departmental profitability. Approximately 80% of compensation earned
by our dealerships' general managers and sales forces in 2000 was
earned through commissions and performance-based bonuses.
ADVANTAGEOUS BRAND MIX
We classify our primary franchise sales lines into luxury, mid-line
import, mid-line domestic and value. Our current brand mix includes a
higher proportion of luxury and mid-line import franchises to total
franchises than most public automotive retailers. Luxury and mid-line
imports together accounted for approximately 63% of our year 2000 new
retail vehicle revenues and comprise over half of our total franchises.
Luxury and mid-line imports generate above average gross margins on
sales, parts, service and collision repair, and have greater customer
loyalty and repeat purchases than mid-line domestic and value
automobiles. We also believe luxury vehicle sales are less susceptible to
economic cycles.
The following is a list of franchises currently owned and franchises
expected to be acquired through pending acquisitions:
% of Total % of 2000 New
Class/Franchise Current Pending Franchises Vehicle Retail
- --------------- ------- ------- ---------- ---------------
Luxury
Acura 5
Audi 3
BMW 5 1
Cadillac 1
Infiniti 3
Jaguar 1
Land Rover (a) 1
Lexus 3
Lincoln 5 1
Mercedes Benz 3
Porsche 1 1
Volvo 3
--- ---
Total Luxury 34 3 28% 25%
Mid-line Import
Honda 11
Mazda 6
Mitsubishi 3
Nissan 9
Subaru 1
Toyota 5
Volkswagen 1
---
Total Mid-line Import 36 27% 38%
28
Mid-line Domestic
Buick 2
Chevrolet 3
Chrysler 2 1
Dodge 3
Ford 8
GMC 6
Jeep 2 1
Mercury 5 1
Pontiac 6
---
Total Mid-line Domestic 37 3 38% 28%
Value
Daewoo 1
Hyundai 4
Isuzu 3
Kia 4
Suzuki 3
---
Total Value 15 11% 4%
Heavy Trucks
Hino 1
Isuzu 1
Navistar 1
Peterbilt 1
---
Total Heavy Trucks 4 3% 5%
--- --- ---
Total 126 6 100% 100%
=== === === ===
(a) Minority owned and operated by us. See "Related Party Transactions" on
page 56 for a description of our ownership interest in this franchise.
MARKET LEADERSHIP AND STRONG BRANDING OF OUR PLATFORMS
o MARKET LEADERSHIP. Each of our platforms is comprised of between eight
and 22 franchises and generated average pro forma annual revenues of
approximately $500 million in 2000. We believe that we
are among the top three market share leaders in 11 of our markets,
including five in which we rank first, based on the assessment of our
platforms' CEOs (who have an average of 30 years experience in
automotive retailing within their local markets). Our regional market
share and strong brand recognition allow our platforms to realize
significant regional economies of scale.
o BRANDING. Each of our platforms maintains a strong regional brand. We
believe that our cultivation of strong regional brands can be
beneficial because:
o platforms enjoy strong local brand recognition from their long
presence and regional advertising;
o consumers may prefer to interact with a locally recognized brand;
o placing our franchises in one region under a single brand allows us
to generate significant advertising savings; and
o our platforms can retain customers even as they purchase and service
different automobile brands.
DIVERSIFIED REVENUE STREAMS/VARIABLE COST STRUCTURE
Our operations provide a diversified revenue base that we believe
mitigates the impact of slower new car sales volumes. Used car sales and
parts, service and collision repair, which represented 37% of our total
2000 revenue, generate higher profit margins than new car sales and tend
to fluctuate less with economic cycles. In addition, our variable cost
structure helps us manage expenses in an economic downturn, as a large
part of our operating expenses consist of incentive-based compensation,
vehicle carrying costs and advertising.
29
o NEW VEHICLES. Our franchises include a diverse portfolio of 36
American, European and Asian brands. We believe that our diverse
brand, product and price mix enables us to reduce our exposure to
specific product supply shortages and changing customer preferences.
New vehicle sales were approximately 61% of our total revenues and 32%
of total gross profit in 2000.
o USED VEHICLES. We sell used vehicles at virtually all our franchised
dealerships. Retail sales of used vehicles has become an increasingly
significant source of profit for us, making up approximately 26% of
our total revenues and 16% of total gross profit in 2000. We obtain
used vehicles through customer trade-ins, auctions restricted to new
vehicle dealers (offering off-lease, rental and fleet vehicles) and
"open" auctions which offer repossessed vehicles and vehicles sold by
other dealers. We sell our used vehicles to retail customers when
possible. We dispose of used vehicles that are not purchased by retail
customers through sales to other dealers and at auction.
o FINANCE AND INSURANCE. We arranged customer financing on over 70% of
the vehicles we sold in 2000. These transactions result in commissions
being paid to us by the indirect lenders, including
manufacturer-captive finance arms. In addition to the finance
commissions, each of these transactions creates other highly
profitable sales opportunities, including extended service contracts
and various insurance-related products for the consumer. Our size and
sales volume motivate vendors to provide these products to us at
substantially reduced fees compared to industry norms which result in
competitive advantages as well as acquisition synergies. Furthermore,
many of the insurance products we sell result in additional
underwriting profits and investment income yields based on portfolio
performances. Profits from finance and insurance generated approximately
2% of our total revenues and 15% of our total gross profit in 2000.
o PARTS, SERVICE AND COLLISION REPAIR. We sell parts and provide
maintenance and repair service at all our franchised dealerships. In
addition, we have 23 free-standing collision repair centers in close
proximity to dealerships in substantially all our platforms. Our
dealerships and collision repair centers collectively operate
approximately 1,600 service bays. Profits from parts, service and
collision repair centers were approximately 11% of our total
revenues and 37% of our total gross profit in 2000.
OUR STRATEGY
Our objective is to be the most profitable automotive retailer in select
markets in the United States. To achieve this objective, we intend to grow
through targeted acquisitions, expand our higher margin businesses, emphasize
decentralized dealership operations and enhance our customer relationship
management.
CONTINUED GROWTH THROUGH TARGETED ACQUISITIONS
We intend to continue to grow through acquisitions. We will seek to
establish platforms in new markets through acquisitions of large,
profitable and well-managed dealership groups. In addition, we will pursue
tuck-in acquisitions to complement the related platform by increasing
brand diversity, market coverage and services.
o PLATFORM ACQUISITIONS. We will seek to establish platforms in new
geographic markets through acquisitions of large, profitable and
well-managed dealership groups in metropolitan and high-growth suburban
markets in which we are not currently present. We will target those
platforms with superior operational and financial management
personnel. We believe that the retention of existing high quality
management who understand the local market will enable acquired
platforms to continue to operate efficiently, while allowing us to
source future acquisitions more effectively and expand our operations
without having to employ and train untested new personnel. Moreover,
we believe we are well-positioned to pursue larger, established
acquisition candidates as a result of the reputation of the original
owners of our nine platforms as leaders in the automotive retailing
industry.
30
o TUCK-IN ACQUISITIONS. One of our goals is to become the market leader
in every region in which we operate a platform. We plan to acquire
additional dealerships in each of the markets in which we operate,
including acquisitions that increase the brands, products and services
offered in that market. Since 1995 we have made 14 tuck-in
acquisitions to add additional strength and brand diversity to our
platforms. We believe that these acquisitions in the past and in the
future will facilitate our regional operating efficiencies and cost
savings in areas such as advertising and facility and personnel
utilization. We have recently entered into definitive agreements to
acquire six franchises consisting of BMW, Chrysler, Jeep, Lincoln,
Mercury and Porsche franchises in Jackson, Mississippi and Richmond,
Virginia for a total cash consideration of $11.8 million.
o FOCUS ON ACQUISITIONS PROVIDING GEOGRAPHIC AND BRAND DIVERSITY. By
focusing on geographic and brand diversity, we seek to manage economic
risk and drive growth and profitability. By having a presence in all
major brands and by avoiding concentration with one manufacturer, we
are well positioned to reduce our exposure to specific product supply
shortages and changing customer preferences. At the same time, we will
seek to continue to increase the proportion of our dealerships that
are in markets with favorable demographic characteristics or that are
franchises of fast-growing, high margin brands. In particular, we will
focus on luxury dealerships (such as BMW, Lexus and Mercedes-Benz) and
mid-line import dealerships (such as Honda, Toyota and Nissan). On an
ongoing basis we will continue to evaluate the performance of our
dealerships to determine if the sale of a particular dealership is
advisable.
FOCUS ON HIGHER MARGIN PRODUCTS AND SERVICES
While new vehicle sales are critical to drawing customers to our
dealerships, used vehicle retail sales, parts, service and collision
repair and finance and insurance provide significantly higher margin
revenue streams. We currently derive in excess of 68% of our total gross
profit from these areas. In addition, we have discipline-specific
executives at both the corporate and platform level who focus on both
increasing the penetration of current services and expanding the breadth
of our offerings to customers. While each of our platforms operates
independently in a manner consistent with its specific market's
characteristics, each platform will pursue an integrated strategy to grow
these higher margin businesses to enhance profitability and stimulate
internal growth.
o FINANCE AND INSURANCE. We intend to continue to bolster our finance
and insurance revenues by offering a broad range of conventional
finance and lease alternatives to fund the purchase of new and used
vehicles. In addition to financing vehicle sales, we intend to expand
our already broad offering of customer products like credit insurance,
extended service contracts, maintenance programs and a host of other
niche products to meet all of our customer needs on a "one stop"
shopping basis. Furthermore, based on size and scale, we believe we
will be able to continue negotiating with lending institutions and
product providers to increase commissions on each of the products and
services we sell. Moreover, continued in-depth sales training efforts
and innovative computer technologies will serve as important tools in
enhancing our finance and insurance profitability.
o PARTS, SERVICE AND COLLISION REPAIR. Each of our platforms offers
parts and performs vehicle service work and substantially all of our
platforms operate collision repair centers, all of which provide an
important source of recurring higher margin revenues. Currently, gross
profit generated from these businesses absorbs 60% of our operating
expenses, excluding salespersons' compensation. Expanding this
absorption rate through focused marketing and customer relationship
management represents a major opportunity for growth.
DECENTRALIZED DEALERSHIP OPERATIONS
We believe that decentralized dealership operations on a platform
basis empower our retail network to provide market-specific responses to
sales, service, marketing and inventory requirements. These operations are
complemented by centralized technology and financial controls, as well as
sharing of best practices and market intelligence throughout the
organization.
While our administrative headquarters is located in Stamford,
Connecticut, the day-to-day responsibility for the dealerships rests with
each regional management team. Each of our platforms has a management
structure that is intended to promote and reward entrepreneurial spirit
and the achievement of team goals.
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The chart below depicts our typical platform management structure:
AVERAGE EXPERIENCE OF PLATFORM MANAGEMENT
PLATFORM CEO/COO
36 YEARS IN AUTOMOTIVE INDUSTRY
30 YEARS IN THE LOCAL MARKET
PLATFORM CFO DIRECTOR OF DIRECTOR OF
13 years in automotive NEW & USED VEHICLE SALES PARTS, SERVICE AND COLLISION
industry 21 years in automotive REPAIR
12 years in the local industry 30 years in automotive
market 12 years in the local industry
market 17 years in the local market
DIRECTOR OF DIRECTOR OF
INTERNET SALES FINANCE AND INSURANCE
Each of our dealerships is managed by a general manager who has
authority over day-to-day operations. The general manager of each
dealership is supported by a management team consisting, in most
circumstances, of a new vehicle sales manager, a used vehicle sales
manager, a finance and insurance manager and parts and service managers.
Our dealerships are operated as distinct profit centers, in which the
general managers are given significant autonomy. The general managers are
responsible for the operations, personnel and financial performance of
their dealerships.
We employ professional management practices in all aspects of our
operations, including information technology and employee training. A peer
review process is also in place, in which the platform managers address
best practices, operational challenges and successes, and formulate goals
for other platforms. Platforms utilize computer-based management
information systems to monitor each dealership's sales, profitability and
inventory on a daily basis. We believe the application of professional
management practices provides us with a competitive advantage over many
dealerships. In addition, platform management teams' thorough
understanding of the local market enables them to effectively run
day-to-day operations, recruit new employees and gauge acquisition
opportunities in their market area.
CUSTOMER RELATIONSHIP MANAGEMENT
We are implementing a CRM initiative to increase customer loyalty and
satisfaction and reduce marketing costs by redirecting expenditures from
mass media to targeted communications. We expect to create a
differentiated customer experience, allowing us to capture a greater
percentage of our targeted households' automotive spending. Our CRM
initiative includes engaging McKinsey & Company, a leading management
consulting firm, to help develop the program and pilot it in Little Rock
and St. Louis. We are also investing in a CRM software solution to provide
the necessary technological tools.
We believe the retail auto industry is ripe for CRM given high
customer (household) lifetime value, coupled with the industry's historic
focus on short-term transactions as opposed to long-term customer
retention. In addition to driving incremental new and used purchases over
a multi-year
32
period for a given household, we can benefit from incremental finance and
insurance purchases and greater service expenditures, particularly post
warranty. We also know that profitability varies dramatically by customer
segment, as it does in most retail sectors; thus, we expect to benefit
from initiatives that successfully target high value segments.
SALES AND MARKETING
NEW VEHICLE SALES. Our new vehicle retail sales include new vehicle
retail lease transactions and other similar agreements, which are arranged
by our individual dealerships. New vehicle leases generally have short
terms, which cause customers to return to the dealership more frequently
than in the case of financed purchases. In addition, leases provide us
with a steady source of late-model, off-lease vehicles for our used
vehicle inventory. Generally, leased vehicles remain under factory
warranty for the term of the lease, allowing dealerships to provide repair
service to the lessee throughout the lease term. Approximately 1.8% of our
new vehicle sales revenue is derived from fleet sales, which are generally
conducted on a commission basis.
We design our dealership service to meet the needs of our customers
and establish relationships that will result in both repeat business and
additional business through customer referrals. Our dealerships employ
varying sales techniques to address changes in consumer preference.
We incentivize our dealership managers to employ more efficient
selling approaches, engage in extensive follow-up to develop long-term
relationships with customers and extensively train sales staffs to be able
to meet customer needs. We continually evaluate innovative ways to improve
the buying experience for our customers and believe that our ability to
share best practices across our dealerships gives us an advantage over
other dealerships.
We acquire substantially all our new vehicle inventory from
manufacturers. Manufacturers allocate limited inventory among their
franchised dealers based primarily on sales volume and input from dealers.
We finance our inventory purchases through revolving credit arrangements
known in the industry as floor plan facilities.
USED VEHICLE SALES. Used vehicle sales typically generate higher gross
margins than new vehicle sales. We intend to grow our used vehicle sales
by maintaining a high quality inventory, providing competitive prices and
extended service contracts and continuing to enhance our marketing
initiatives.
Profits from sales of used vehicles are dependent primarily on the
ability of our dealerships to obtain a high quality supply of used
vehicles and effectively manage inventory. New vehicle operations provide
our used vehicle operations with a large supply of high quality trade-ins
and off-lease vehicles, which we believe are the best sources of
attractive used vehicle inventory. We supplement our used inventory with
vehicles purchased at auctions.
Used vehicles are generally offered at our dealerships for 45 to 60
days on average, after which, if they have not been sold to a retail
buyer, they are either sold to an outside dealer or offered at auction.
During 2000, approximately 77% of used vehicles sales were made to retail
buyers. We may transfer used vehicles among dealerships to provide
balanced inventories of used vehicles at each of our dealerships. We
believe that acquisitions of additional dealerships will expand the
internal market for transfer of used vehicles among our dealerships and,
therefore, increase the ability of each dealership to offer a balanced mix
of used vehicles. We developed integrated computer inventory systems
allowing us to coordinate vehicle transfers among our dealerships,
primarily on a regional basis.
Several steps have been taken towards building client confidence in
our used vehicle inventory, one of which includes participation in the
manufacturers' certification processes which are available only to new
vehicle franchises. This process makes certain used vehicles eligible for
new vehicle benefits such as new vehicle finance rates and extended
manufacturer warranties. In addition, each dealership offers extended
warranties on our used car sales.
FINANCE AND INSURANCE. We arranged customer financing on over 70% of
the vehicles we sold in 2000, approximately 99% of which was
non-recourse to us. These transactions generate commission revenue from
indirect lenders, including manufacturer captive finance arms. In addition
to finance commissions, each of these transactions creates other
opportunities for more profitable sales, such as extended service
contracts and various insurance-related products for the consumer. Our
size and volume capabilities
33
motivate vendors to provide these products at substantially reduced fees
compared to the industry average which result in competitive advantages as
well as acquisition synergies. Furthermore, many of the insurance products
we sell result in additional underwriting profits and investment income
yields based on portfolio performances.
PARTS, SERVICE AND COLLISION REPAIR. Historically, the automotive
repair industry has been highly fragmented. However, we believe that the
increased use of advanced technology in vehicles has made it difficult for
independent repair shops to achieve the expertise required to perform
major or technical repairs. Additionally, manufacturers permit warranty
work to be performed only at franchised dealerships. As a result, unlike
independent service stations or independent and superstore used car
dealerships with service operations, our franchised dealerships are
qualified to perform work covered by manufacturer warranties. Given the
increasing technological complexity of motor vehicles and the trend toward
extended manufacturer and dealer warranty periods for new vehicles, we
believe that an increasing percentage of repair work will be performed at
franchised dealerships.
Our profitability in parts and service can be attributed to our
comprehensive management system, including the use of variable rate
pricing structures, cultivation of strong client relationships through an
emphasis on preventive maintenance and the efficient management of parts
inventory.
We use variable rate structures designed to reflect the difficulty and
sophistication of different types of repairs to compensate employees
working in parts and service. The percentage mark-ups on parts are
also variably priced based on market conditions for different parts. We
believe that variable rate pricing helps us to achieve overall gross
margins in parts and service superior to those of certain competitors who
rely on fixed labor rates and percentage markups.
One of our major goals is to retain each vehicle purchaser as a
long-term customer of our parts and service department. Currently, only
30% of customers return to our dealerships for other services after the
vehicle warranty expires. Significant opportunity for growth exists in the
auxiliary services part of our business. Each dealership has systems in
place to track customer maintenance records and notify owners of vehicles
purchased at the dealerships when their vehicles are due for periodic
services. Service and repair activities are an integral part of our
overall approach to customer service.
ADVERTISING. Our largest advertising medium is local newspapers,
followed by radio, television, direct mail and the yellow pages. The
retail automotive industry has traditionally used locally produced,
largely unprofessional materials, often developed under the direction of
each dealership's general manager. Each of our platforms has created
common marketing materials for their dealerships using professional
advertising agencies. Our corporate chief marketing officer helps oversee
and share creative materials and general marketing best practices across
platforms. Our total company marketing expense for 2000 was $42.2 million
which translates into an average of $273 per retail vehicle. Historically,
approximately 75% of the total amount spent on new car advertising in our
markets has been paid by manufacturers.
COMMITMENT TO CUSTOMER SERVICE. We are focused on providing a high level
of customer service to meet the needs of an increasingly sophisticated and
demanding automotive consumer. We strive to cultivate lasting
relationships with our customers, which we believe enhances the
opportunity for significant repeat and referral business. For example, our
platforms regard service and repair activities as an integral part of the
overall approach to customer service, providing an opportunity to foster
ongoing relationships with customers and deepen loyalty.
INTERNET AND E-COMMERCE. We believe that the growth of the Internet and
e-commerce represents a new opportunity to build our platforms' brands and
expand the geographic borders of their markets. We are applying e-commerce
to our strategy of executing professionally developed best practices under
the supervision of discipline-specific central management throughout our
autonomous platforms. We believe that our e-commerce strategy constitutes
a coherent, cost-effective and sustainable approach to the growth of the
Internet that favorably compares to the limited efforts undertaken to date
by many independent dealerships.
At the corporate level, information technology-e-commerce executives
set the parameters of our overall e-commerce strategy. Our strategy
mandates that each platform establish a website that incorporates a
professional design to reinforce the platform's unique brand and advanced
functionalities to ensure that the website can hold the attention of
customers and perform the informational and interactive functions for
which the Internet is uniquely suited. We have a
34
relationship with CarsDirect that provides us with an important source of
Internet sales referrals and, to a lesser extent, prepackaged retail
transactions, reducing our need to rely on referrals from less reliable or
more costly sources. Manufacturer website links also provide our platforms
with key sources of referrals.
Our commitment to e-commerce flows through to the platform level. Each
platform maintains an e-commerce department, staffed with dedicated
personnel, to promote the platform's brand over the World Wide Web and
capitalize on Internet-originated sales leads. Many platforms use the
Internet to communicate with customers both prior to vehicle purchase and
after purchase to coordinate and market maintenance and repair services.
Finally, each platform utilizes the Internet as an integral part of its
overall branding and advertising efforts by ensuring that its website is
aggressively promoted and periodically upgraded.
MANAGEMENT INFORMATION SYSTEM. We consolidate financial, accounting and
operational data received from our dealers nationwide through an exclusive
private communication network.
The data from the dealers is gathered and processed through their
individual dealer management system. All our dealers use software from
ADP, Inc., Reynolds & Reynolds, Co. or UCS, Inc. as their dealer
management system. Our systems strategy allows for our platforms to choose
the dealer management system that best fits their daily operational needs.
We aggregate the information from the three disparate systems at our
corporate headquarters to create one single view of the business, using
the Hyperion financial systems.
Our information technology allows us to quickly integrate and
aggregate the information from a new acquisition. By creating a connection
over our private network between the dealer management system and
corporate Hyperion financial systems, corporate management can quickly
view the financial, accounting and operational data of the newly acquired
dealer. In that way we can efficiently integrate the acquired dealer into
our operational strategy.
COMPETITION
In new vehicle sales, our platforms compete with other franchised
dealerships in their regions. We do not have any cost advantage in purchasing
new vehicles from the manufacturers. Instead, we rely on advertising and
merchandising, sales expertise, service reputation and location of our
dealerships to sell new vehicles. In recent years, automobile dealers have
also faced increased competition in the sale or lease of new vehicles from
independent leasing companies, on-line purchasing services and warehouse
clubs. Our used vehicle operations compete with other franchised dealers,
independent used car dealers, automobile rental agencies and private parties
for supply and resale of used vehicles. See "Risk Factors -- Substantial
competition in automobile sales may adversely affect our profitability."
In our vehicle financing business, we compete with direct consumer
lending institutions such as local banks, savings and loans and credit unions,
including through the internet. Our ability to offer manufacturer-subsidized
financing terms as part of an incentive-based sales strategy can place us at a
competitive advantage relative to independent financing companies. We also
compete in this area based on:
o interest rates; and
o convenience of "one stop shopping," which we offer by arranging vehicle
financing at the point of purchase.
We seek to reduce our cost of funds, and as a result, the interest rates we
charge, through leveraging our volume of business to obtain discounted terms.
We compete against other franchised dealers to perform warranty repairs
and against other automobile dealers, franchised and independent service
centers for non-warranty repair and routine maintenance business. We compete
with other automobile dealers, service stores and auto parts retailers in our
parts operations. We believe that the principal competitive factors in parts
and service sales are the use of factory-approved replacement parts, price,
the familiarity with a manufacturer's brands and models and the quality of
customer service. A number of regional and national chains offer selected parts
and services at prices that may be lower than our prices.
FACILITIES
We have 126 franchises situated in 86 dealership locations throughout
nine states. We lease 49 of these locations and own the remainder. In
addition, we operate 23 collision repair centers.
Dealerships Collision Repair Centers
Owned Leased Owned Leased
Arkansas 0 6 1 1
Atlanta 7 4 1 3
Jacksonville 13 2 5 1
Mississippi 5 2 0 0
North Carolina 7 4 1 0
35
Oregon 0 10 0 2
St. Louis 5 0 1 0
Tampa 0 12 0 2
Texas 0 9 0 5
-- -- -- --
Total 37 49 9 14
== == == ==
We lease our corporate headquarters, which is located at 3 Landmark
Square, Suite 500 in Stamford, Connecticut.
FRANCHISE AGREEMENTS
Each of our dealerships operates pursuant to franchise agreements between
the applicable manufacturer and the dealership. The typical automotive
franchise agreement specifies the locations at which the dealer has the right
and obligation to sell the manufacturer's automobiles and related parts and
products and to perform certain approved services. The franchise agreement
grants the dealer the non-exclusive right to use and display the
manufacturer's trademarks, service marks and designs in the form and manner
approved by the manufacturer.
The allocation of new vehicles among dealerships is subject to the
discretion of the manufacturer, which generally does not guarantee
exclusivity. A franchise agreement may impose requirements on the dealer
concerning such matters as the showrooms, the facilities and equipment for
servicing vehicles, the maintenance of inventories of vehicles and parts, the
maintenance of minimum net working capital, achieving certain minimum
standards on customer service and satisfaction surveys, and the training of
personnel. Compliance with these requirements is closely monitored by the
manufacturer. In addition, many manufacturers require each dealership to
submit monthly and annual financial statements.
We are subject to additional provisions contained in supplemental
agreements, framework agreements or franchise addenda, which we collectively
refer to as "franchise framework agreements." Many of our dealerships are also
subject to these agreements. Franchise framework agreements impose
requirements similar to those discussed above, as well as limitations on
changes in our ownership or management and limitations on the number of a
particular manufacturer's franchises we may own. In addition, we are party
to an agreement with General Motors Corporation under which we have divested
ourselves of and agreed not to acquire Saturn franchises.
PROVISIONS FOR TERMINATION OR NON-RENEWAL OF FRANCHISE AGREEMENTS. Most
franchise agreements expire after a specified period of time, ranging
from one to five years, and we expect to renew expiring agreements in the
ordinary course of business. Typical franchise agreements provide for
termination or non-renewal by the manufacturer under certain
circumstances, including insolvency or bankruptcy of the dealership,
failure to adequately operate the dealership, failure to maintain any
license, permit or authorization required for the conduct of business, or
material breach of other provisions of the franchise agreement. Some of
our franchise agreements and franchise framework agreements provide that
the manufacturer may acquire our dealerships or terminate the franchise
agreement if a person or entity acquires an equity interest above a
specified level (ranging from 20% to 50% depending on the particular
manufacturer's restriction) in us without the approval of the applicable
manufacturer. This trigger can fall to as low as 5% if the entity
acquiring the equity interest in us is another automobile manufacturer or
a felon whose conviction stems from fraudulent sales practices or
violations of state or federal consumer protection laws. Some
manufacturers also restrict changes in the membership of our board of
directors. Although our franchise agreements may not be renewed or may be
terminated prior to the conclusion of their terms, manufacturers have
rarely chosen to take such action. Further, as discussed below, state
dealer laws substantially limit the ability of manufacturers to terminate
or fail to renew franchise agreements. See "Risk Factors -- If we fail to
obtain renewals of one or more of our franchise agreements from vehicle
manufacturers on favorable terms, or if one or more of our franchise
agreements are terminated, our operations could be significantly
compromised."
MANUFACTURERS' LIMITATIONS ON ACQUISITIONS. We are required to obtain the
consent of the applicable manufacturer before we can acquire any
additional dealership franchises. Six of our manufacturers impose limits
on the number of dealerships we are permitted to own at the metropolitan,
regional and national levels. These limits vary according to the
agreements we have with each of the manufacturers but
36
are generally based on fixed numerical limits or on a fixed percentage of
the aggregate sales of the manufacturer. We currently own the maximum
number of dealerships allowed under our franchise agreement with Acura
and have only one more dealership available for Jaguar. We are also
approaching the ownership limits allocated under our framework
franchise agreement with Toyota. Unless we renegotiate these franchise
agreements or receive the consent of the manufacturers, we may be
prevented from making further acquisitions upon reaching the limits
provided for in these framework franchise agreements.
STATE DEALER LAWS. We operate in states that have state dealer laws
limiting manufacturers' ability to terminate dealer franchise agreements.
We are basing the following discussion of state dealer laws on our
understanding of these laws and therefore, the description may not be
accurate. State dealer laws generally provide that it is a violation for
manufacturers to terminate or refuse to renew franchise agreements unless
they provide written notice to the dealers setting forth good cause and
stating the grounds for termination or nonrenewal. State dealer laws
typically require 60 to 90 days advance notice to dealers prior to
termination or nonrenewal of a franchise agreement. Some state dealer
laws allow dealers to file protests or petitions within the notice period
and allow dealers an opportunity to comply with the manufacturers'
criteria. These statutes also provide that manufacturers are prohibited
from unreasonably withholding approval for a proposed change in ownership
of the dealership. Acceptable grounds for disapproval include material
reasons relating to the character, financial ability or business
experience of the proposed transferee. See "Risk Factors -- If state
dealer laws are repealed or weakened, our dealerships will be more
susceptible to termination, non-renewal or re-negotiation of their
franchise agreements."
GOVERNMENTAL REGULATIONS
A number of federal, state and local regulations affect our marketing,
selling, financing and servicing of automobiles. The nine platforms also are
subject to state laws and regulations relating to business corporations
generally.
Under various state laws, each of our dealerships must obtain a license
in order to establish, operate or relocate a dealership or provide certain
automotive repair services. These laws also regulate conduct of our
businesses, including advertising and sales practices. Other states into which
we may expand our operations in the future are likely to have similar
requirements.
Our financing activities with our customers are subject to federal truth-
in-lending, consumer leasing and equal credit opportunity regulations as well
as state and local motor vehicle finance laws, installment finance laws,
insurance laws, usury laws and other installment sales laws. Some states
regulate finance fees that may be paid as a result of vehicle sales. Penalties
for violation of any of these laws or regulations may include revocation of
necessary licenses, assessment of criminal and civil fines and penalties, and
in certain instances, create a private cause of action for individuals. We
believe that we comply substantially with all laws and regulations affecting
our business and do not have any material liabilities under such laws and
regulations and that compliance with all such laws and regulations will not,
individually or in the aggregate, have a material adverse effect on our
capital expenditures, earnings, or competitive position, and we do not
anticipate that such compliance will have a material effect on us in the
future. See "Risk factors -- Governmental regulations and environmental
regulation compliance costs may adversely affect our profitability."
ENVIRONMENTAL MATTERS
We are subject to a wide range of environmental laws and regulations,
including those governing discharges into the air and water, the storage of
petroleum substances and chemicals, the handling and disposal of wastes and
the remediation of contamination. As with automobile dealerships generally,
and service and parts and collision repair center operations in particular,
our business involves the generation, use, handling and disposal of hazardous
or toxic substances and wastes. Operations involving the management of wastes
are subject to requirements of the Federal Resource Conservation and Recovery
Act and comparable state statutes. Pursuant to these laws, federal and state
environmental agencies have established approved methods for handling,
storage, treatment, transportation and disposal of regulated substances and
wastes with which we must comply.
Our business also involves the use of above ground and underground
storage tanks. Under applicable laws and regulations, we are responsible for
the proper use, maintenance and abandonment of our regulated storage tanks and
for remediation of subsurface soils and groundwater impacted by releases
37
from existing or abandoned storage tanks. In addition to these regulated
tanks, we own, operate, or have otherwise closed in place other underground
and above ground devices or containers (such as automotive lifts and service
pits) that may not be classified as regulated tanks, but which could or may
have released stored materials into the environment, thereby potentially
obligating us to clean up any soils or groundwater resulting from such
releases.
We are also subject to laws and regulations governing remediation of
contamination at or from our facilities or to which we send hazardous or toxic
substances or wastes for treatment, recycling or disposal. The Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, also known
as the "Superfund" law, imposes liability, without regard to fault or the
legality of the original conduct, on those that are considered to have
contributed to the release of a "hazardous substance". Responsible parties
include the owner or operator of the site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances released at such sites. These responsible parties may be subject to
joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources. It is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances.
Further, the Federal Clean Water Act, and comparable state statutes
prohibit discharges of pollutants into regulated waters without the necessary
permits, require containment of potential discharges of oil or hazardous
substances and require preparation of spill contingency plans. We believe that
we are in material compliance with those wastewater discharge requirements as
well as requirements for the containment of potential discharges and spill
contingency planning.
Environmental laws and regulations are very complex and it has become
difficult for businesses that routinely handle hazardous and non-hazardous
wastes to achieve and maintain full compliance with all applicable
environmental laws. From time to time we experience incidents and encounter
conditions that will not be in compliance with environmental laws and
regulations. However, none of our dealerships have been subject to any
material environmental liabilities in the past and we do not anticipate that
any material environmental liabilities will be incurred in the future.
Nevertheless, environmental laws and regulations and their interpretation and
enforcement are changed frequently and we believe that the trend of more
expansive and stricter environmental legislation and regulations is likely to
continue. Hence, there can be no assurance that compliance with environmental
laws or regulations or the future discovery of unknown environmental
conditions will not require additional expenditures by us, or that such
expenditures would not be material. See "Risk Factors -- Governmental
regulations and environmental regulation compliance costs may adversely affect
our profitability."
EMPLOYEES
As of June 30, 2001, we employed approximately 7,030 people, of whom
approximately 590 were employed in managerial positions, approximately 1,800
were employed in non-managerial sales positions, approximately 3,800 were
employed in non-managerial parts and service positions, approximately 650 were
employed in administrative support positions and approximately 200 were
employed in non-managerial finance and insurance positions. We intend, upon
completion of the offering, to provide certain executive officers and managers
with options to purchase common stock and believe this equity incentive will
be attractive to our existing and prospective employees. See "Management --
2001 Stock Option Plan".
We believe our relationship with our employees is favorable. None of our
employees are represented by a labor union. Because of our dependence on
vehicle manufacturers, however, we may be affected by labor strikes, work
slowdowns and walkouts at vehicle manufacturers' production facilities.
LEGAL PROCEEDINGS AND INSURANCE
From time to time, we and our nine platforms are named in claims
involving the manufacture of automobiles, contractual disputes and other
matters arising in the ordinary course of our business. Currently, no legal
proceedings are pending against us or the nine platforms that, in management's
opinion, could be expected to have a material adverse effect on our business,
financial condition or results of operations.
38
Because of their vehicle inventory and nature of business, automobile
retail dealerships generally require significant levels of insurance covering
a broad variety of risks. Our insurance program includes two umbrella policies
with a total per occurrence and aggregate limit of $100 million. We also have
insurance on our real property, comprehensive coverage for our vehicle
inventory, garage liability and general liability insurance, employee
dishonesty insurance and errors and omissions insurance in connection with our
vehicle sales and financing activities.
INDUSTRY OVERVIEW
Automotive retailing, with 2000 industry sales of approximately $1
trillion, is the largest consumer retail market in the U.S., representing
approximately 9% of gross domestic product according to figures provided by
the Bureau of Economic Analysis. Since 1996, retail new vehicle unit sales
have grown at a 3.5% compound annual rate. Over the same period, retail used
vehicle units have grown at a 1.4% compound annual rate. Retail sales of new
vehicles, which are conducted exclusively through new vehicle dealers, were
approximately $386 billion in 2000. In addition, used vehicle sales in 2000
were estimated at $367 billion, with approximately $306 billion in sales by
franchised and independent dealers and the balance in privately negotiated
transactions.
Of the approximately 17.4 million new vehicles sold in the United States
in 2000, approximately 28.3% were manufactured by General Motors Corporation,
24.1% by Ford Motor Company, 15.7% by Daimler Chrysler Corporation, 9.3% by
Toyota Motor Corp., 6.7% by Honda Motor Co., Ltd., 4.3% by Nissan Motor Co.,
Ltd. and 11.6% by other manufacturers. Sales of used vehicles have increased
over the past five years, primarily as a result of the greater availability of
newer used vehicles due to the increased popularity of short-term leases.
Approximately 44 million used vehicles were sold in 2000. Franchised dealers
accounted for 16.2 million, or 37% of all used vehicle units sold. Independent
lots accounted for 31% with the balance accounted for in privately negotiated
transactions.
INDUSTRY CONSOLIDATION. Franchised dealerships were originally
established by automobile manufacturers for the distribution of new
vehicles. In return for granting dealers exclusive distribution rights
within specified territories, manufacturers exerted significant influence
over their dealers by limiting the transferability of ownership in
dealerships, designating the dealership's location, and managing the
supply and composition of the dealership's inventory. These arrangements
resulted in the proliferation of small, single-owner operations that, at
their peak in the late 1940's, totaled almost 50,000. As a result of
competitive, economic and political pressures during the 1970's and
1980's, significant changes and consolidation occurred in the automotive
retail industry. One of the most significant changes was the increased
penetration by foreign manufacturers and the resulting loss of market
share by domestic manufacturers, which forced many dealerships to
close or sell to better capitalized dealership groups. According to
industry data, the number of franchised dealerships has declined from
approximately 28,750 in 1978 to approximately 22,000 in 2000. Although
significant consolidation has taken place since the automotive retailing
industry's inception, the industry today remains highly fragmented, with
the largest 100 dealer groups generating less than 10% of total sales
revenues and controlling less than 8% of all franchised dealerships.
We believe that further consolidation is likely due to increased
capital requirements of dealerships, the limited number of viable
alternative exit strategies for dealership owners, and the desire of
certain manufacturers to strengthen their brand identity by consolidating
their franchised dealerships. We also believe that an opportunity exists
for dealership groups with significant equity capital and experience in
identifying, acquiring and professionally managing dealerships, to
acquire additional dealerships for cash, stock, debt or a combination
thereof. Publicly-owned dealer groups, such as ours, are able to offer
prospective sellers tax advantaged transactions through the use of
publicly traded stock which may, in certain circumstances, make them more
attractive to prospective sellers.
INDUSTRY OPPORTUNITIES. In addition to new and used vehicles, dealerships
offer a wide range of other products and services, including repair and
warranty work, replacement parts, extended warranty coverage, financing
and insurance. In 2000, the typical dealership's revenue consisted of 60%
new vehicle sales, 29% used vehicle sales, and 11% parts and services.
Sales of used vehicles by franchised dealers have increased over the past
five years, primarily as a result of the substantial increase in new
vehicle prices and the greater availability of newer used vehicles due to
the increased popularity of short-term leases. Franchised dealers
retailed 16.2 million used vehicles in 2000, amounting to only 37% of all
used vehicles sold in the U.S. Independent used vehicle dealers and private
transactions accounted for the rest of the 43.9 million used vehicles
sold in 2000.
39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names of our executive officers and directors,
together with their ages and positions.
Name Age Position
Thomas R. Gibson 58 Chairman of the Board
Brian E. Kendrick 47 President and Chief Executive Officer
Thomas F. "Mack" McLarty, III 55 Vice Chairman of the Company
Thomas F. Gilman 50 Vice President and Chief Financial Officer
Thomas G. McCollum 45 Vice President - Finance and Insurance
Phillip R. Johnson 52 Vice President - Human Resources
Donna M. Colorito 49 Vice President - I.T. and E-Commerce
Allen T. Levenson 38 Vice President - Marketing and Customer Experience
Timothy C. Collins 44 Director
Ian K. Snow 32 Director
John M. Roth 43 Director
C.V. "Jim" Nalley 58 Director
B. David McDavid 59 Director
Charles B. Tomm 55 Director
Set forth below is a brief description of our directors' and executive
officers' business experience.
THOMAS R. GIBSON is the chairman of our board of directors. He is one of
our founders and has served as chairman of our board since the board's
creation in 1995. Mr. Gibson has over 30 years experience in the automotive
retailing industry. Prior to joining us, he served as president and chief
operating officer of Subaru of America. Mr. Gibson was part of Lee Iacocca's
management team at Chrysler from 1980 to 1982, where he served as director of
marketing operations and general manager of import operations. He began his
career in 1967 with the Ford Motor Company and held key marketing and field
management positions in both the Lincoln-Mercury and Ford divisions. Mr.
Gibson is a graduate of DePauw University and holds a master's in business
administration from Harvard University.
BRIAN E. KENDRICK is our president and chief executive officer, and has
served in this capacity since February 2000. Before he joined us, Mr. Kendrick
served as president and chief executive officer of DFS Limited, a San
Francisco-based leading distributor of luxury goods, which is majority owned
by LMH Moet Hennessy Louis Vuitton. From 1991 to 1998, Mr. Kendrick served as
vice chairman and chief operating officer of Saks Holdings, Inc., the holding
company of the Saks Fifth Avenue luxury retail chain. For 12 years, Mr.
Kendrick served as chief financial officer in the large regional department
store chain, Maison Blanche. He also served as the Commissioner of
Administration (chief operating officer) of the State of Louisiana in 1986 and
1987. Mr. Kendrick graduated from Louisiana State University and is a
certified public accountant.
THOMAS F. "MACK" McLARTY, III has served as our vice chairman since May
2000. Mr. McLarty is also the president and chief executive officer of our
Arkansas platform. Mr. McLarty began his 32-year career in the automotive
retailing industry by building McLarty Leasing Systems, the platform his
grandfather founded, into one of America's largest transportation companies.
Mr. McLarty also serves as vice chairman of Kissinger McLarty & Associates, an
international consulting firm formed in 1999 by the merger of Mr. McLarty's
and Dr. Henry Kissinger's consulting operations. Mr. McLarty joined Arkla Gas
Company's board of directors in 1976, and from 1983 to 1992 he was Arkla
Inc.'s chairman and chief executive officer. Between 1992 and 1998, Mr. McLarty
served as White House Chief of Staff, Special Envoy of the Americas and
Counselor to President Bill Clinton. He also was appointed to the National
Petroleum Council by President George H. W. Bush and served on the St. Louis
Federal Reserve Board from 1989 until joining the White House in 1992.
Mr. McLarty graduated summa cum laude from the University of Arkansas.
THOMAS F. GILMAN has served as our vice president and chief financial
officer since April 2001. Prior to joining us, Mr. Gilman spent 25 years with
Chrysler Corporation in various positions where he accumulated broad finance
experience in all areas of the company. From 1990 to 1994, he was responsible
for Chrysler Corporation's credit operations, extending financial assistance
to automotive retail dealers and distributors worldwide. In 1995, Mr. Gilman
headed the finance organization at Chrysler Financial Company, L.L.C. where he
became chief financial officer of the captive finance company. Mr. Gilman
graduated from Villanova University with a bachelor's degree in finance.
40
THOMAS G. McCOLLUM has been our vice president of finance and insurance
since April of 2001. Mr. McCollum has over 25 years of experience in finance
and insurance. Before he joined us, Mr. McCollum served nine years as
executive vice president for Aon's Resource Group (formally Pat Ryan &
Associates). He joined Aon in 1981 where he employed innovative, customer
focused finance and insurance programs to improve same store results. Mr.
McCollum holds a bachelor's degree in business from Sam Houston University.
PHILLIP R. JOHNSON has been our vice president of human resources since
June of 2000. Mr. Johnson has held top human resources positions in large
national and regional retail companies for the past 22 years. From 1994 to
1998 he served as senior vice president of human resources at Entex
Information Services, a national personal computer systems integrator. Mr.
Johnson served as executive vice president of human resources at Macy's East
from 1993 to 1994, and as senior vice president of human resources at Saks
Fifth Avenue from 1991 to 1993. He has also held senior human resources
positions at Marshall Fields and Gimbels. Mr. Johnson holds a bachelor's
degree and master's in business administration from the University of Florida.
DONNA M. COLORITO has served as our vice president of information
technology and e-commerce since June of 2000. Ms. Colorito has 16 years
experience in the automotive retailing industry. Ms. Colorito joined Volvo
Cars of North America in 1985, where she served in various capacities. From
1997 to 2000, she served as Volvo's dealer systems and e-commerce manager,
where she was responsible for implementing Volvo's proprietary dealer system
in all of its 400 North American dealerships. Ms. Colorito began her career in
1982 at Lederle Laboratories as a systems analyst. Ms. Colorito holds a
master's of business administration in information systems from Pace
University and a bachelor's degree from the State University of New York at
Albany.
ALLEN T. LEVENSON has served as vice president of customer experience and
chief marketing officer for Asbury Automotive Group since March 2001. In 1999,
Mr. Levenson co-founded a business-to-consumer E-commerce company,
Gazelle.com. From 1998 to 1999, he served as Vice President of Marketing for
United Rentals, the market leader and consolidator in the equipment rental
industry. From 1996 to 1998, he served as vice president of sales and
marketing for Petroleum Heat & Power, and he also served as Vice President of
Marketing for The Great Atlantic & Pacific Tea Company from 1993 to 1996. Mr.
Levenson began his career in 1985 with two leading strategy consulting firms,
McKinsey & Company and Bain & Company. He received his undergraduate degree
from Tufts University and a master's in business administration from the
Wharton School at the University of Pennsylvania.
TIMOTHY C. COLLINS has served as a member of our board of directors since
1996. Mr. Collins founded Ripplewood Holdings L.L.C. in 1995 and currently
serves as its Chief Executive Officer. In addition, he is co-head of RHJ
Industrial Partners, an affiliate of Ripplewood Holdings L.L.C.. From 1991 to
1995, Mr. Collins managed the New York office of Onex Corporation, a leveraged
buy-out group headquartered in Canada. Previously, Mr. Collins was a vice
president at Lazard Freres & Company and held various positions at Booz, Allen
& Hamilton and Cummins Engine Company. He also currently serves on the board
of directors of Ripplewood Holdings L.L.C., The Strong Schafer Value Fund,
Shinsei Bank, Ltd. (formerly The Long-Term Credit Bank of Japan, Limited),
Western Multiplex Corporation, Kraton Polymers L.L.C. and various other
privately held Ripplewood portfolio companies. Mr. Collins received a master's
in business administration from Yale University's School of Organization and
Management and a bachelor's degree in philosophy from DePauw University.
IAN K. SNOW has served as a member of our board of directors since 1996,
and a member of our compensation committee since 1996. He is a managing
director at Ripplewood Holdings L.L.C.. Prior to joining Ripplewood in 1995,
Mr. Snow was a financial analyst in the Media Group at Salomon Brothers Inc.,
where he focused on strategic advisory and capital raising assignments for
clients in the media
41
industry. He also currently serves on the board of directors of Kraton
Polymers L.L.C., a privately held Ripplewood portfolio company. Mr. Snow
received a bachelor's degree in history from Georgetown University.
JOHN M. ROTH has been a member of our board of directors since our board
was established in 1996. Mr. Roth joined Freeman Spogli in 1988, and became a
general partner in 1993. Mr. Roth served in Kidder, Peabody & Company, Inc.'s
mergers and acquisitions group from 1984 to 1988. He is also a member of the
board of directors of Advance Stores Incorporated, AFC Enterprises, Inc.,
Galyan's Trading Company, Inc. and a number of privately held corporations.
Mr. Roth holds a bachelor's degree and master's in business administration from
the Wharton School at the University of Pennsylvania.
CLARENCE V. "JIM" NALLEY has served as a director since 2000. He is the
president and chief executive officer of our Atlanta platform. Mr. Nalley has
over 30 years of automotive retailing experience. His platform consisted of
nine franchises when he joined us. He formerly served as the President of the
Metro Atlanta Chevrolet Dealers Association and as Chairman of the PACCAR
National Distributors Council. Mr. Nalley holds a bachelor's degree from the
University of Georgia.
B. DAVID McDAVID has been a member of our board of directors since 2000.
He is the president and chief executive officer of our Texas platform. Mr.
McDavid has operated domestic auto dealerships for 38 years and import
dealerships for 29 years. He established his first dealership, a General
Motors dealership in Weatherford, Texas, in 1962, and owned 12 franchises in
four Texas markets before joining us. He graduated from the General Motors
Institute Dealership Management Program in Flint, Michigan. Mr. McDavid has
served on numerous dealer advisory councils for Acura, Honda and General
Motors franchises.
CHARLES B. TOMM has been a member of our board of directors since 2000.
Mr. Tomm is president and chief operating officer of our Jacksonville
platform. Mr. Tomm joined the platform in 1994, before it was acquired by us,
as its vice president, chief financial officer and general counsel. He became
our executive vice president in January of 1996, and assumed his present
responsibilities in 1997. Mr. Tomm has a broad and varied business background.
He has held executive positions with publicly-held companies including
Schlumberger Ltd. and Arkansas Best Corporation. Mr. Tomm is a member of the
board of trustees of Washington & Lee University and Jacksonville's Museum of
Science and History. Mr. Tomm holds a bachelor's degree and law degree from
Washington & Lee University and an L.L.M. in taxation from New York
University. He is admitted to practice law in Florida, Georgia, New York and
North Carolina.
BOARD OF DIRECTORS
Our board of directors currently consists of Messrs. Timothy C. Collins,
Ian K. Snow, John M. Roth, C.V. Nalley, Thomas R. Gibson, B. David McDavid,
Brian E. Kendrick and Charles B. Tomm. We will appoint three independent
directors to serve on our board in addition to these directors within 90 days
after this offering.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. We have an audit committee consisting of Messrs. Ian K.
Snow and John M. Roth. The audit committee has responsibility for, among
other things:
o recommending to the board of directors the selection of our
independent auditors,
o reviewing and approving the scope of the independent auditors'
audit activity and extent of non-audit services,
o reviewing with management and the independent accountants the adequacy
of our basic accounting systems and the effectiveness of our internal
audit plan and activities,
o reviewing with management and the independent accountants our
financial statements and exercising general oversight of our financial
reporting process and
o reviewing litigation and other legal matters that may affect our
financial condition and monitoring compliance with our business ethics
and other policies.
The current members of our audit committee will be replaced by the three
independent directors we will appoint within 90 days after this offering.
42
COMPENSATION COMMITTEE. The compensation committee consists of Messrs.
Timothy C. Collins, Ian K. Snow and John M. Roth. This committee has
general supervisory power over, and the power to grant awards under, the
1999 option plan and the 2001 stock option plan. The compensation
committee has responsibility for, among other things, reviewing the
recommendations of the chief executive officer as to the appropriate
compensation of our principal executive officers and certain other key
personnel, periodically examining the general compensation structure and
supervising our welfare, pension and compensation plans.
DIRECTORS' COMPENSATION
Directors who are full-time employees of ours will not receive a retainer
or fees for service on our board of directors or on committees of our board.
Members of the board of directors who are not our full-time employees will
receive annual fees for attendance at each meeting of the board of directors.
Directors also receive the use of one demonstrator vehicle or the economic
equivalent.
EXECUTIVE COMPENSATION, EMPLOYMENT AGREEMENTS
The following table sets forth certain summary information concerning the
compensation provided by us in 2000 to our executive management team.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Common Stock
Underlying Other Annual
Name and Position Year Salary Bonus Options Compensation
----------------- ---- ------ ----- ------- ------------
Brian E. Kendrick, President & Chief Executive 2000 $750,000 $750,000 [ ] $ 99,061 (1)
Officer
Thomas R. Gibson, Chairman 2000 525,000 0 [ ] 109,192 (2)
Thomas F. "Mack" McLarty, III, Vice Chairman 2000 300,000 0 [ ]
Phillip R. Johnson, Vice President-Human 2000 133,846 56,000 [ ] 5,457 (3)
Resources
Donna M. Colorito, Vice President I.T. and 2000 94,231 30,000 [ ] 5,240 (4)
E-Commerce
(1) $38,146 represents a tax gross-up of income.
(2) $47,805 represents a tax gross-up of income.
(3) $5,365 represents payments for automobile use.
(4) $5,180 represents payments for automobile use.
EMPLOYMENT AGREEMENTS
Several of our executive officers are entitled to compensation under
the terms of employment agreements with us and under the terms of our
Third Amended and Restated Limited Liability Company Agreement, dated
February 1, 2000, which we refer to in this section of the prospectus as
our "L.L.C. agreement". Both our L.L.C. agreement and the employment
agreements described below are included as exhibits to the registration
statement of which this prospectus forms a part, and the following summary
of these agreements is qualified in its entirety by reference to these
exhibits.
BRIAN E. KENDRICK. Mr. Kendrick has an employment agreement with us to
serve as President and Chief Executive Officer. The agreement is for a
term starting December, 2000, and ending on December 31, 2002. Prior
to beginning his employment with us, Mr. Kendrick received a signing bonus
in November 1999 for $1,500,000. His agreement provides for an annual base
salary of $750,000 and incentive compensation of up to two times the base
salary based upon objectives set by the board of directors. Mr. Kendrick
has the option to receive compensation in the form of equity interests
in us.
43
Under our L.L.C. agreement, we issued to Mr. Kendrick carried
interests in us. These carried interests, which are interests in an increase
in our value, will be converted into options for the purchase of our
common stock upon the completion of this offering.
In addition to the of options Mr. Kendrick received in exchange for his
carried interest, he will receive a combination of cash and options equal
to 2% of our shares of common stock outstanding after the completion of
this offering. The strike price of these options will be the sum of (i) two
times our book value as of January 1, 2000, plus (ii) any increase in our
net book value after January 1, 2000 through the date of this prospectus,
divided by the number of shares of our common stock outstanding
immediately after the completion of this offering.
If Mr. Kendrick's employment is terminated for any reason other than
voluntary resignation, cause, death or disability, he is entitled to two
times the present value of his base salary and target bonus. The target
bonus for 2001 will be equal to $750,000, and the target bonus for 2002
will be equal to the average of Mr. Kendrick's 2001 bonus and $750,000.
During Mr. Kendrick's employment term and for the next two years, he is
subject to non-compete and non-solicitation provisions.
THOMAS R. GIBSON. Mr. Gibson has an employment agreement with us to
serve as chairman of our board of directors for a term that may be
extended by us. During the term of his agreement, Mr. Gibson will receive
an annual salary as follows: (i) for the period January 1, 2001, through
March 16, 2001, a prorated salary based upon the rate of $525,000 per year
and (ii) for the period beginning March 17, 2001 to the termination of his
employment with us, a prorated salary based upon the rate of $250,000 per
year. In April 2001, we paid Mr. Gibson $2,250,000 in cash in exchange for
his carried interest. Mr. Gibson was issued the carried interest under our
L.L.C. agreement.
If we terminate Mr. Gibson without cause or if he leaves for good
reason, we will pay him his base salary for the balance of his employment
term under the contract. During the term of Mr. Gibson's employment and for
one year after the termination of his contract, he is subject to a
non-compete provision. During the term of Mr. Gibson's employment and for
three years after the termination of his contract, he is subject to a
non-solicitation provision.
THOMAS F. "MACK" MCLARTY. Mr. McLarty entered into an employment
agreement with us to provide management and consulting services for a term
of three years beginning February 23, 1999. Under this employment
agreement Mr. McLarty received an annual base salary of $175,000 and was
entitled to a discretionary performance-based bonus. On May
15, 2000, Mr. McLarty's employment contract was amended upon his
appointment to our vice chairmanships. Under his amended employment
contract his compensation increased to an annual rate of $375,000 and
provides for a discretionary performance-based bonus.
If Mr. McLarty terminates his contract for good reason or is
terminated by us without cause, he will receive the present value of the
remaining payments due on his employment agreement. During the term of Mr.
McLarty's employment, he is subject to a non-compete provision. During the
term of Mr. McLarty's employment and through the later of February 23,
2004, or two years after the termination of his contract, he is subject to
a non-solicitation provision.
PHILLIP R. JOHNSON. Mr. Johnson entered into an employment agreement
with us beginning April 3, 2001, providing for one year of base salary and
benefits continuation if he is terminated. These benefits will not be
extended in the event of death, disability, retirement, voluntary
resignation, or cause. Mr. Johnson may trigger severance payments if his
office is relocated by more than 50 miles, reduction of base salary, or
diminution of duties. Mr. Johnson is restricted by non-solicitation and
non-compete restrictions for one year following termination.
1999 OPTION PLAN
In January 1999, we adopted a non-qualified option plan for the issuance
of options granting the right to purchase from us limited liability company
interests in us. Under our 1999 option plan, we granted options to certain of
our directors, officers, employees and consultants for terms and at exercise
prices and vesting schedules set by the compensation committee of our board of
directors. The options granted under our 1999 plan that have not vested prior
to a change in control of us will vest and become exercisable upon a change of
control. We are no longer issuing options under our 1999 option plan.
The following table provides certain information regarding options
granted during 2000 under our 1999 option plan:
44
Option Grants in Last Fiscal Year
Potential
Realizable Value at
Assumed Annual
Percent of Rates of Stock
Number of Total Options Price Appreciation
Securities Granted to for Option Term (1)
Underlying Employees in Exercise or Base Option Term (1)
Name Options Granted Fiscal Year Price ($/SH) Expiration Date 5% ($) 10% ($)
- ---- --------------- ----------- ------------ --------------- ------- -------
Phillip R. Johnson
Donna M. Colorito
- ----------------
(1) Amounts represent hypothetical values that could be achieved for the
respective options if exercised at the end of the option term. These
values are based on assumed rates of stock price appreciation of 5% and
10% compounded annually from the date the respective options were granted
to their expiration date based on the market price of the underlying
securities on the date of the grant. These assumptions are not intended
to forecast future appreciation of our stock price. The potential
realizable value computation does not take into account federal or state
income tax consequences of option exercises or sales of appreciated
stock.
The options vest annually with respect to 33.33% of the shares covered by the
options.
2001 STOCK OPTION PLAN
In connection with this offering, we intend to provide certain senior
employees a grant of options, under the 2001 stock option plan, to purchase
shares of common stock with respect to an aggregate of [ ] shares. A primary
purpose of the 2001 stock option plan is to attract and retain exceptional
officers and other key employees.
The following is a description of the material terms of the 2001 stock
option plan. You should, however, refer to the exhibits that are a part of the
registration statement, of which this prospectus forms a part, for a copy of
the stock option plan. See "Where You Can Find More Information".
TYPE OF AWARDS. The 2001 stock option plan provides for grants of
nonqualified stock options.
SHARES SUBJECT TO THE STOCK OPTION PLAN; OTHER LIMITATIONS ON AWARDS.
Subject to adjustment as described below, the maximum number of our shares
of common stock that may be issued under our 2001 stock option plan may
not exceed [ ], and the total number of shares that may be granted to any
participant in any fiscal year may not exceed [ ]. These shares may be
authorized but unissued common stock or authorized and issued common stock
held in our treasury. If any option is forfeited, expires or is otherwise
terminated or canceled, other than by reason of exercise or vesting, then
the shares covered by that option will again become available under the
2001 stock option plan.
Our compensation committee has the authority to adjust the terms and
conditions of, and the criteria included in, any outstanding options in
order to prevent dilution or enlargement of the benefits intended to be
made available under the plan as a result of any unusual or nonrecurring
events (including any dividend or other distribution, whether in the form
of cash, shares of our common stock, other securities or other property,
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase,
exchange of shares of our common stock or our other securities or other
similar corporate transaction or event) affecting us, our affiliates, our
financial statements or the financial statements of any of our affiliates,
or any changes in applicable laws, regulations or accounting principles.
In such events, the compensation committee may provide for a cash payment
to the option holder in return for the cancelation of the option in an
amount equal to the excess, if any, of the fair market value of our shares
of common stock over the aggregate exercise price of the option.
ELIGIBILITY. Awards may be made to any officer or other key employee
of us or any of our subsidiaries, including any prospective officer or
key employee, selected by the compensation committee.
ADMINISTRATION. The compensation committee administers the 2001 stock
option plan. The compensation committee has the authority to construe,
interpret and implement the 2001 stock option plan, and prescribe, amend
and rescind rules and regulations relating to the plan. The determination
of
45
the compensation committee on all matters relating to the 2001 stock
option plan or any award agreement is final and binding.
STOCK OPTIONS. The compensation committee may grant nonqualified stock
options to purchase shares of common stock from us (at the price set forth
in the award agreement), subject to such terms and conditions as the
compensation committee may determine. Payment of the option's exercise
price may be made in cash, with other shares of our common stock, by
irrevocable instructions for sales by a broker, by promissory note (with
the consent of the compensation committee) or by a combination of those
methods. No grantee of an option will have any of the rights of one of our
stockholders with respect to shares subject to their award until the
issuance of the shares.
Except as the compensation committee may otherwise establish in an
option agreement at the time of grant, the exercise price of each option
granted under the 2001 stock option plan prior to the initial public
offering of shares of our common stock will be the initial public offering
price per share of our common stock and the exercise price of each option
granted under the plan after the initial public offering will be equal to
the fair market value of a share of our common stock on the date of grant.
Except as the compensation committee may otherwise establish in an
option agreement, options that are granted under the 2001 stock option
plan effective as of the initial public offering of shares of Asbury
common stock will become vested and exercisable with respect to 50% of the
shares subject to those options on each of the first two anniversaries of
the date of grant, and the other 50% of the shares subject to those
options will become vested and exercisable with respect to one-third of
such shares on each of the first three anniversaries of the date of grant.
Except as the compensation committee may otherwise establish in an option
agreement, options granted after this offering will become vested and
exercisable with respect to one-third of the shares subject to those
options on each of the first three anniversaries of the date of grant.
Except as the compensation committee may otherwise establish in an
option agreement, options granted under the 2001 stock option plan will
expire without any payment upon the earlier of the tenth anniversary of
the option's date of grant and the date the optionee ceases to be employed
by us or one of our subsidiaries.
CHANGE OF CONTROL. In the event of a change in control of us, options that
are outstanding and unexercisable or unvested at the time of the change of
control will vest and become exercisable immediately prior to
the change of control.
NONASSIGNABILITY. Except to the extent otherwise provided in the option
agreement, no option granted to any person under the 2001 stock option
plan is assignable or transferable other than by will or by the laws of
descent and distribution, and all options are exercisable during the life
of the grantee only by the grantee or the grantee's legal representative.
AMENDMENT AND TERMINATION. The 2001 stock option plan is scheduled to
terminate December 31, 2011. Our board of directors may at any time amend,
alter, suspend, discontinue or terminate the 2001 stock option plan and,
unless otherwise expressly provided in an option agreement, the
compensation committee may waive any conditions under, or amend the terms
of, any outstanding option. However, stockholder approval of any of those
actions must be obtained if such approval is necessary to comply with any
tax or regulatory requirement applicable to the 2001 stock option plan,
and any of those actions that would impair the rights of any option holder
with respect to options granted prior to those actions will not be
effective without the consent of the affected option holder.
EMPLOYEE STOCK PURCHASE PLAN
The following is a description of the material terms of our employee
stock purchase plan, pursuant to which shares of our common stock will be made
available, beginning in 2002, for purchase by our eligible employees.
GENERAL. The purpose of the plan is to promote our success and enhance our
value by providing our eligible employees with the opportunity to purchase
our common stock, in order to increase
46
employee interest in our success and encourage them to remain in our
employ. The plan is intended to qualify as an employee stock purchase plan
under section 423 of the Internal Revenue Code.
The plan authorizes the purchase of up to [ ] shares of our common
stock by eligible employees. However, the number of shares available for
purchase under the plan will be adjusted for stock dividends, stock
splits, reclassifications and other changes affecting such shares. The
shares available for purchase under the plan may, in the discretion of our
board of directors, be authorized but unissued shares of common stock,
shares purchased on the open market, or shares from any other proper
source.
ADMINISTRATION. The plan will be administered by our board of directors or
a committee appointed by the board of directors. Subject to the terms of
the plan, the administrator has authority to interpret the plan, make,
amend and rescind all rules and regulations for the operation of the plan,
take any other actions and make all other determinations necessary or
desirable to administer and operate the plan.
ELIGIBILITY TO PARTICIPATE. All our employees are eligible to participate
in the plan, subject to such further eligibility requirements as may be
specified by the administrator consistent with section 423 of the Code.
However, any employee that owns, directly or indirectly, 5% or more of the
total combined voting power or value of our stock is not eligible.
PURCHASES OF COMMON STOCK UNDER THE PLAN. Eligible employees receive
options to purchase our common stock pursuant to the plan. The options are
to be granted to each eligible employee on the first day of each calendar
year in which the New York Stock Exchange is open for trading, or any
other date specified by the administrator. Options remain outstanding for
a period determined by the administrator not to exceed 27 months. Unless
the administrator determines otherwise, consecutive option periods of
equal duration will be established.
An individual must be employed as an eligible employee by us on the
first trading day of an option period in order to be granted an option for
that option period. In the case of an individual who first becomes an
eligible employee after the first trading day of an option period, the
administrator may designate a subsequent day within the option period upon
which the employee will be granted an option that will have a duration
equal to the balance of that option period.
Each option provides the employee the right to purchase, on the last
day of the option period or on one or more trading days within the option
period designated by the administrator, up to a maximum number of shares
of common stock specified by the administrator. However, no employee may
purchase in one calendar year shares of common stock having an aggregate
fair market value in excess of $25,000. The purchase price for each share
of common stock under an option will be determined by the administrator,
in its discretion, prior to the beginning of the applicable option period.
However, the purchase price will never be less than 85% of the fair market
value of the common stock on the first day of the option period or the day
of purchase, whichever is lower, and will never be less than the par value
of the common stock. All eligible employees granted options under the plan
for an option period will have the same rights and privileges with respect
to such options.
To facilitate payment of the purchase price of options, the
administrator, in its discretion, may permit eligible employees to
authorize payroll deductions to be made on each payday during an option
period, in addition to contributions of cash or cash-equivalents to us, up
to a maximum amount determined by the administrator. We will maintain
bookkeeping accounts for all employees who authorize payroll deduction or
make cash contributions. Interest will not be paid on any employee
accounts, unless the administrator determines otherwise. The administrator
will establish rules and procedures regarding elections to authorize
payroll deductions, changes in such elections, timing and manner of cash
contributions, and withdrawals from employee accounts.
Amounts credited to employee accounts on the last trading day of an
option period or on one or more trading days within the option period
designated by the administrator will be applied to the payment of the
purchase price of outstanding options. Options will be exercised on the
close of business on the last trading day of an option period or on one or
more trading days within the option period designated by the
administrator, however, options of any participant who terminates
employment for any reason before
47
such date, or who is no longer an eligible employee on such date, will
terminate unexercised. Options will be exercised only to the extent the
purchase price is paid with respect to whole shares of common stock. Any
balance remaining in an employee's account at the end of an option period
will be carried forward automatically for the next option period. If an
employee is not an eligible employee with respect to the next option
period, any remaining balance will be promptly refunded without interest.
No purchases will be made under the plan prior to approval of the plan by
the stockholders.
AMENDMENT AND TERMINATION. The board of directors may amend the plan at
any time for any reason, except that (1) if the approval of any such
amendment by our stockholders is required by section 423 of the Internal
Revenue Code, such amendment will not be effected without such approval,
and (2) no amendment may be made that would cause the plan to fail to
comply with section 423 of the Internal Revenue Code unless expressly so
provided by the board of directors.
The board of directors, in its sole discretion, may terminate the plan
at any time and for any reason. In the event the plan is terminated, all
outstanding options shall immediately terminate and all amounts in an
eligible employee's account under the plan shall be promptly refunded
without interest.
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
Certain of our directors, beneficial owners and their affiliates, have
engaged in transaction with us. Transactions with three of our directors, Mr.
Thomas F. McLarty, Mr. David McDavid, Sr. and Mr. C.V. Nalley and one of our
beneficial owners, Mr. Luther Coggin, are described below. We believe these
transactions involve terms comparable to, or more favorable to us than, terms
that would be obtained from an unaffiliated third party.
We lease the following properties used by the Arkansas platform for
dealership lots and offices from Mr. McLarty, his immediate family members and
his affiliates:
o property leased from NPF Holdings L.L.C., a limited liability company
in which Mr. McLarty has a 58.5% ownership interest for a monthly
rental fee of $61,926;
o property leased from MHC Properties G.P., a partnership in which Mr.
McLarty has an 85.5% ownership interest, for a monthly rental fee of
$13,801;
o property leased from Prestige Properties, GP, a partnership in which
MHC Properties GP, of which Mr. McLarty owns 85.5%, holds a 68%
ownership interest, for a monthly rental fee of $38,572;
o property leased from Hope Auto Company, corporation in which Mr.
McLarty has an 86% ownership interest, for a monthly rental fee of
$118,300;
o property leased from Summerhill Partnership, L.P., a limited
partnership in which Mr. McLarty has a 49.88% ownership interest, for
a monthly rental fee of $30,000; and
We lease the following properties used by the Texas platform for
dealership lots and offices from Mr. McDavid, his immediate family members and
his affiliates:
o properties leased from Mr. McDavid with an aggregate monthly rental
fee of $189,000;
o properties leased from David McDavid Family Properties, a partnership
in which Mr. McDavid and his immediate family have a 100% ownership
interest, for aggregate monthly rental fees of $90,000;
o property leased from BroMac Inc., an S-corporation in which Mr.
McDavid and his immediate family have a 100% ownership interest, for a
monthly rental fee of $1,500;
o properties leased from Sterling Real Estate Partnership, a partnership
in which Mr. McDavid and his immediate family have a 100% ownership
interest, for aggregate monthly rental fees of $70,000;
48
o property leased from Texas Coastal Properties, a partnership in which
Mr. McDavid and his immediate family have a 100% ownership interest,
for a monthly rental fee of $4,000;
o property leased from McCreek Partners L.L.C., a limited liability
corporation which is wholly owned by McCreek, Ltd., a partnership in
which Mr. McDavid and his immediate family hold a 100% ownership
interest, for a monthly rental fee of $4,900; and
o property leased from D.Q. Automobiles Inc., a corporation in which Mr.
McDavid has a 100% ownership interest, for a monthly rental fee of
$14,700.
In the near future, we expect to enter into agreements to purchase or
lease certain additional properties from Mr. McDavid or his affiliates for use
by the Texas platform with the following general business terms:
o purchase approximately four acres of land in Plano, Texas for the
construction of a new body shop. Purchase price is the appraised value
of $1,700,000.
o lease approximately four acres of land in Frisco, Texas, and a
1,000-space parking structure which Mr. McDavid will build on the land
at his cost, for total rent of $50,000 per month. Mr. McDavid further
will construct a new dealership facility at his expense, at which time
we will increase monthly rent by 1% of the construction cost,
representing a 12% annual capitalization rate.
o purchase two acres of land adjacent to our Honda dealership facility
in Houston, Texas for $2,000,000. The existing Honda facility will
become the new home for our Nissan dealership, and we will construct
an additional facility on it for Nissan dealership expansion. The
purchase price for the land is approximately $800,000 more than the
appraised value, which will be offset by the "free rent" in the
following transaction.
o lease ten acres of land adjacent to our current Nissan dealership in
Houston, Texas for four years, rent-free. We will renovate the
facility and it will become the new home for our Honda dealership. We
estimate fair market rent over the four-year term (i.e., our savings
to offset the above-market purchase price above) to be $814,000.
We lease property used by the Atlanta platform for dealership lots and
offices from Mr. Nalley, his immediate family and his affiliates:
o properties owned by C.V. Nalley for an aggregate monthly rental fee of
$50,500;
o properties owned by Chevrolet Metro Realty, Inc., a corporation in
which Mr. Nalley has a 100% ownership interest, for aggregate monthly
rental fees of $45,900;
o property owned by Heavy Duty Trucks Realty, Inc., a corporation in
which Mr. Nalley has a 100% ownership interest, for a monthly rental
fee of $36,000;
o property owned by Union City Honda Auto Realty, Inc., a corporation in
which Mr. Nalley has a 100% ownership interest, for a monthly rental
fee of $45,000; and
o property owned by Marietta Lexus Auto Realty, Inc., a corporation in
which Mr. Nalley has a 100% ownership interest, for a monthly rental
fee of $45,100.
We lease property used by the Jacksonville platform for dealership lots
and offices from Coggin Management Company, a corporation in which Mr. Coggin
has a 100% ownership interest, for a monthly rental fee of $10,500.
OTHER RELATED PARTY TRANSACTIONS
Loomis Advertising, a corporation in which Mr. McDavid and his immediate
family hold a 21% ownership interest, has entered into various agreements to
provide advertising services to the Texas
49
platform for an aggregate value of $700,000 since January 1, 2000. Loomis
Advertising also provides advertising services to the Jacksonville platform
for a fee of $52,000 a month.
Mr. Nalley leased his private aircraft to us during part of 2000, and
currently charges us for employees who use the aircraft to fly on business
trips. The total amount paid to Mr. Nalley since January 1, 2000, for use of
his private jet is $106,000.
Currently, we own a 10% interest in a Land Rover franchise operated under
the St. Louis platform, Asbury Automotive Holdings L.L.C. owns a 40% interest
in this franchise and John R. Capps owns the remaining 50% interest. We have
entered into a binding assignment and assumption agreement whereby Mr. Capps
has agreed to sell his 50% interest to us. This agreement is held in escrow at
the Bank of New York pending manufacturer consent to the transaction.
In February 2001, Mr. McLarty purchased a number of used vehicles from us
after fire damage to our Hope, Arkansas dealership. The total purchase price
paid by Mr. McLarty to us was $378,000.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL
Our authorized capital stock consists of [________] shares of common
stock, par value $.01 per share, and [ ] shares of preferred stock, par value
$.01 per share. After giving effect to the offering, we will have outstanding
[______] shares of common stock and no shares of preferred stock. Upon
completion of the offering, we will have outstanding [______] shares of common
stock ([________] shares if the underwriters' over-allotment option is
exercised in full) and no shares of preferred stock.
COMMON STOCK
Subject to the rights of any then outstanding shares of preferred stock,
the holders of the common stock are entitled to such dividends as may be
declared in the discretion of our board of directors out of funds legally
available therefor. Holders of common stock are entitled to share ratably in
our net assets upon liquidation after payment or provision for all liabilities
and any preferential liquidation rights of any preferred stock then
outstanding. The holders of common stock have no preemptive rights to purchase
shares of our stock. Shares of our common stock are not subject to any
redemption provisions and are not convertible into any other of our
securities. All outstanding shares of common stock are, and the shares of
common stock to be issued pursuant to the offering will be upon payment
therefor, fully paid and non-assessable.
PREFERRED STOCK
Preferred stock may be issued from time to time by the board of directors
in one or more series. Subject to the provisions of our charter and
limitations prescribed by law, the board of directors is expressly authorized
to adopt resolutions to issue the shares, to fix the number of shares and to
change the number of shares constituting any series and to provide for or
change the voting powers, designations, preferences and relative
participating, optional or other special rights, qualifications, limitations
or restrictions thereof, including dividend rights (including whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), redemption prices, conversion rights and liquidation
preferences of the shares constituting any series of the preferred stock, in
each case without any further action or vote by the stockholders. One of the
effects of undesignated preferred stock may be to enable the board of
directors to render more difficult or to discourage an attempt to obtain
control of us by means of a tender offer, proxy contest, merger or otherwise,
and thereby to protect the continuity of our management. The issuance of
shares of the preferred stock pursuant to the board of directors' authority
described above may adversely affect the rights of the holders of common
stock. For example, preferred stock issued by us may rank prior to the common
stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
the common stock or may otherwise adversely affect the market price of the
common stock.
50
CERTAIN ANTI-TAKEOVER AND OTHER PROVISIONS OF THE CHARTER AND BYLAWS
LIMITATIONS ON REMOVAL OF DIRECTORS
Stockholders may remove a director only for cause upon the affirmative
vote of holders of at least 80% of the voting power of the outstanding shares
of common stock. In general, the board of directors, and not our stockholders,
will have the right to appoint persons to fill vacancies on our board of
directors.
OUR STOCKHOLDERS MAY NOT ACT BY WRITTEN CONSENT
Our corporate charter provides that any action required or permitted to
be taken by our stockholders must be taken at a duly called annual or special
stockholders' meeting. In addition, special meetings of the stockholders may
be called only by our board of directors.
BUSINESS COMBINATIONS UNDER DELAWARE LAW
We are a Delaware corporation and are subject to section 203 of the
Delaware General Corporation Law. In general, section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
our outstanding voting stock) from engaging in a merger, acquisition or other
"business combination" (as defined in section 203) with us for three years
following the date that person becomes an interested stockholder unless:
o before that person became an interested stockholder, our board of
directors approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination;
o upon completion of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock outstanding at the
time the transaction commenced (excluding stock held by our directors
who are also officers and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange
offer); or
o following the transaction in which that person became an interested
stockholder, the business combination is approved by our board of
directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Under section 203, these restrictions also do not apply to specified
types of business combinations proposed by an interested stockholder if:
o the proposal follows the announcement or notification of one of
certain extraordinary transactions involving us and a person who was
not an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of
our directors; and
o the extraordinary transaction is approved or not opposed by a majority
of the directors who were directors before any person became an
interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a
majority of such directors then in office.
STOCKHOLDERS AGREEMENT
We entered into a stockholders agreement with Asbury Automotive Holdings
L.L.C. and certain platform prinicpals, consisting of the former owners of our
platforms and members of their management teams. After the completion of this
offering, Asbury Automotive Holdings will own [ ]% of our common stock ([ ]%
if the underwriters exercise their over-allotment option in full), and the
platform principals will collectively own [ ]% of our common stock ([ ]% if
the underwriters exercise their over-allotment option in full). Under the
stockholders agreement, the platform principals are required to vote their
shares in accordance with Asbury Automotive Holdings' instructions with
respect to:
o persons nominated by Asbury Automotive Holdings to our board of
directors (and persons nominated against Asbury Automotive Holdings'
nominees); and
o any matter to be voted on by the holders of our common stock,
whether or not the matter was initiated by Asbury Automotive Holdings.
51
The platform principals have the right to cause Asbury Automotive
Holdings to vote for at least one platform principal nominee to the board of
directors if the total number of directors (excluding directors that are our
employees) on the board of directors is six or less and at least two platform
principal nominees if such number of directors is more than six.
The stockholders agreement will terminate on the first to occur of:
o the fifth anniversary of the date of this offering;
o two years after the first date on which Asbury Automotive Holdings'
share of the ownership of our outstanding common stock falls below
20%; and
o the first date on which Asbury Automotive Holdings' share of the
ownership of our outstanding common stock falls below 5%.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS -- INDEMNIFICATION
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duties of
care. The duty of care requires that, when acting on behalf of the
corporation, officers and directors must exercise an informed business
judgment based on all material information reasonably available to them.
Absent the limitations authorized by Delaware law, officers and directors are
accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The charter limits the liability of
our officers and directors to us or our stockholders to the fullest extent
permitted by Delaware law. Specifically, our officers and directors will not
be personally liable for monetary damages for breach of an officer's or
director's fiduciary duty in such capacity, except for liability (i) for any
breach of the officer's or director's duty of loyalty to us or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the officer and director derived an improper personal
benefit.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the common stock is [ ].
SECURITY OWNERSHIP OF BENEFICIAL OWNERS,
MANAGEMENT AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of [ ], 2001, as adjusted to
reflect the sale of shares in this offering by us and by the selling
stockholders (without giving effect to the underwriters' over-allotment
option), by our directors, executive officers, and directors and officers as a
group and each person known by us to beneficially own more than 5% of our
outstanding voting securities. Percentages are based on total amounts of
common stock outstanding on [ ] 2001.
Common Stock(1)
Percentage of Voting Power
Percent of Class Outstanding
Number of Before the After the After
Name Shares Offering Offering Before Offering Offering
- ------------------------------------------------
Ripplewood Holdings L.L.C. (2)
One Rockefeller Plaza
32nd Floor
New York, NY 10020
52
Freeman Spogli & Co.(3).........................
Luther Coggin...................................
CURRENT DIRECTORS
Timothy C. Collins(4)...........................
Ian K. Snow (4).................................
John M. Roth(5).................................
C.V. Nalley.....................................
Thomas R. Gibson................................
B. David McDavid................................
Brian E. Kendrick...............................
Charles B. Tomm.................................
NAMED OFFICERS WHO ARE NOT DIRECTORS
Thomas F. McLarty, III .........................
Thomas F. Gilman................................
Phillip R. Johnson..............................
Donna M. Colorito...............................
Allen T. Levenson...............................
Thomas G. McCollum..............................
Directors and executive officers of Asbury as a
group (14 persons).........................
SELLING STOCKHOLDERS WHO ARE NOT DIRECTORS AND NOT 5% HOLDERS OF OUR VOTING
SECURITIES
Royce Reynolds..................................
* Less than 1%.
(1) Unless otherwise indicated, each beneficial owner listed above has
represented that he, she or it possesses sole voting and sole investment power
with respect to the shares beneficially owned by such person, entity or group
and includes all options currently exercisable or exercisable within 60 days
of [ ], 2001. The percentages of beneficial ownership as to each person,
entity or group assume the exercise or conversion of all options held by such
person, entity or group.
(2) Represents shares owned by Asbury Automotive Holdings L.L.C. Ripplewood
Holdings L.L.C. is the owner of approximately 51% of the membership interests
of Asbury Automotive Holdings and is deemed to be a member of a group that
owns the shares of Asbury Automotive Holdings.
(3) Represents shares owned by Asbury Automotive Holdings L.L.C. FS Equity
Partners III, L.P., FS Equity Partners International L.P. and FS Equity
Partners IV, L.P are collectively the owners of approximately 49% of the
membership interests of Asbury Automotive Holdings and are deemed to be
members of a group that own the shares of Asbury Automotive Holdings. The
business address of Freeman Spogli & Co., FS Equity Partners III, FS Equity
Partners IV is 11100 Santa Monica Boulevard, Suite 1900, Los Angeles,
California 90025. The business address of FS Equity Partners International
L.P. is c/o Paget-Brown & Company, Ltd., West Winds Building, Third Floor,
Grand Cayman, Cayman Islands, British West Indies.
(4) Does not include [ ] shares of common stock hold of record by Abury
Automotive Holdings L.L.C. an entity in which Ripplewood Holdings L.L.C. holds
approximately a 51% ownership interest. Mr. Collins and Mr. Snow are directors
and executive officers of Ripplewood Holdings. Both Mr. Collins and Mr. Snow
expressly disclaim beneficial ownership of any shares held by Ripplewood
Holdings L.L.C. except to the extent of their pecuniary interests in them.
(5) Does not include [ ] shares of common stock held of record by Asbury
Automotive Holdings L.L.C., an entity in which investment funds affiliated
with Freeman Spogli, as described in footnote three, hold approximately a 49%
ownership interest. Mr. Roth is a director, member, partner or executive
officer of each of these investment funds. Mr. Roth expressly disclaims
beneficial ownership of any shares held by such investment funds except to the
extent of his pecuniary interest in them.
53
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. We
cannot predict the effect, if any, that market sales of shares of our common
stock or the availability of shares or our common stock for sale will have on
the market price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and impair
our future ability to raise capital through the sale of our equity securities.
Upon completion of this offering, we will have [ ] shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option, and [ ] shares if the underwriters'
over-allotment option is exercised in full. We have reserved [ ] shares of
common stock for issuance upon exercise of options granted or to be granted
under our 1999 Option Plan, 2001 Stock Option Plan and Employee Stock Purchase
Plan, of which [ ] options are currently outstanding and [up to [ ] additional
options are expected to be granted simultaneously with this offering. All of
the [ ] shares sold in this offering] ([ ] shares if the underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act unless the shares
are purchased by our "affiliates", as that term is defined in Rule 144 under
the Securities Act. None of the remaining [ ] outstanding shares of our
common stock have been registered under the Securities Act, which means that
they are "restricted securities" under the Securities Act, and may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act,
including the exemption provided by Rule 144 under the Securities Act.
We summarize Rule 144, as it relates to sales of our shares, below.
RULE 144
Under Rule 144, [ ] shares of common stock will be tradable 90 days after
the effective date of the registration statement of which this prospectus
forms a part, subject to the restrictions described below. Sales of some of
these shares will be subject to the restrictions included in lock-up
agreements between certain of our stockholders and the underwriters, as
described under "Lock-Up Agreements" below. In general, under Rule 144,
beginning 90 days after the date on which the registration statement of which
this prospectus is a part becomes effective, a person who has owned shares of
our common stock for at least one year would be entitled to sell within any
three month period a number of shares that does not exceed the greater of:
o 1% of the number of shares of our common stock then outstanding, which
will equal approximately [ ] shares immediately after the completion
of this offering ([ ] shares if the underwriters' over-allotment
option is exercised in full); or
o the average weekly trading volume of the common stock on the New York
Stock Exchange during the four calendar weeks preceding the filing of
a notice on Form 144 providing notification of the sale.
Sales under Rule 144 are also governed by manner of sale requirements and
may only be made if current public information about us is available.
54
REGISTRATION RIGHTS
Under a stockholders agreement between us and certain of our stockholders
entered into simultaneously with or prior to this offering, we have granted
Asbury Automotive Holdings L.L.C. and certain other of our stockholders the
right to require us to register sales of their shares of our common stock
under the Securities Act. These stockholders collectively, own [ ] shares of
our common stock as of the date of this offering, representing [ ]% of our
total common shares outstanding ([ ]% if the underwriters exercise their
over-allotment option in full). Under the stockholders agreement, at any time
following the completion of this offering, Asbury Automotive Holdings or
stockholders holding among them a majority of the total number of shares held
by the stockholders, other than Asbury Automotive Holdings, that are parties
to the stockholders agreement, may demand that we file a registration
statement with the Securities and Exchange Commission registering the sale of
all or part of their stockholdings within 45 days, subject to our ability to
defer a registration demand for 15 to 45 days under specified circumstances.
Our obligation to effect registrations is subject to the following volume
restrictions:
o Any proposed offering must be for at least 1% of the total number of
our shares of common stock then outstanding;
o In the case of the first registration demand, we are not required to
register the sale of more than 50% of the total holdings of any
stockholder, other than Asbury Automotive Holdings; and
o In the case of the first registration demand of the stockholders,
other than Asbury Automotive Holdings, we are not required to register
for sale a number of shares greater than 20% of the total holdings of
the stockholders who are parties to the stockholders agreement.
Under the stockholders agreement, Asbury Automotive Holdings has been
granted five registration demands, and the remaining stockholders have been
granted, collectively, two registration demands. We are not required to
register the sale of any shares during the period that such shares are subject
to a lock-up agreement. In addition, other than in the case of a request made
by Asbury Automotive Holdings, we are not required to register more than one
sale of shares during any one year period in response to a registration
demand.
We have also granted Asbury Automotive Holdings and the other
stockholders who are parties to the stockholders agreement "piggy-back"
registration rights, meaning that we have agreed to notify the parties to the
stockholders agreement in the event that we undertake to register a sale of
our shares (whether in response to a registration demand or otherwise) and
will permit those stockholders who request to join in the registered offering.
All registration rights granted under the stockholders agreement are
subject to the right of the managing underwriter of the registered offering to
reduce the number of shares included in the registration statement if the
underwriter determines that the success of the offering would be materially
adversely affected by the size of the registered offering. In general, we are
responsible for paying the expenses of registration (other than underwriting
discounts and commissions on the sale of shares), including the fees and
expenses of counsel to the selling stockholders.
LOCK-UP AGREEMENTS
As of the date of this prospectus, the following groups of persons, who
collectively hold [ ] shares of our common stock, have entered into lock-up
agreements with the underwriters:
o Asbury Automotive Holdings L.L.C.;
o our officers and directors; and
o those of our platform chief executive officers, chief operating
financial officers and dealership general managers who received equity
in us in connection with our acquisition of the related platforms.
The lock-up agreements provide that these persons will not offer, sell,
contract to sell, grant any option to purchase, hedge or otherwise dispose of
shares of our common stock or any securities that are convertible into or
exercisable for our common stock for a period of 180 days after the date of
this
55
prospectus (or two years in the case of those platform and dealership
officials, other than certain of the selling stockholders, who received equity
in us in connection with our acquisitions of the related platform) without the
prior written consent of Goldman, Sachs & Co. Goldman, Sachs & Co. has advised
us that it has no present intention to release any of the shares subject to
the lock-up agreements prior to the expiration of the applicable lock-up
period.
SHARES HELD BY RIPPLEWOOD HOLDINGS L.L.C.
After completion of the offering, Ripplewood Holdings L.L.C. will
continue to own [_]% of our outstanding common stock ([ ]% if the underwriters
exercise their over-allotment option in full) through Asbury Automotive
Holdings L.L.C., a controlled affiliate of Ripplewood. Ripplewood's ownership
of our stock could negatively affect our stock price:
o Due to the perception of "market overhang", that is that large blocks
of shares are readily available for sale, or
o In the event that Ripplewood disposed of all or a substantial portion
of this common stock at any one time or from time to time.
In addition, if Ripplewood continues to retain a substantial portion of
our common shares, the liquidity of our common stock could be adversely
affected.
We do not know Ripplewood's future plans as to its holdings of our common
stock, and Ripplewood is not under any obligation to inform us of its
intentions as to our common stock. We can not give you any assurances that
Ripplewood's actions will not negatively affect the price or liquidity of our
common stock in the future. See "Risk Factors -- We will be controlled by
Ripplewood Holdings L.L.C., which may have interests different from your
interests."
UNDERWRITING
Asbury, the selling stockholders and the underwriters for the offering
named below have entered into an underwriting agreement with respect to the
shares being offered. Goldman, Sachs & Co., Merrill, Lynch, Pierce, Fenner &
Smith Incorporated and Salomon Smith Barney Inc. are the representatives of
the underwriters. Subject to conditions set forth in the underwriting
agreement, each underwriter has severally agreed to purchase the number of
shares indicated in the following table.
Underwriters Number of Shares
- ------------ ----------------
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Salomon Smith Barney Inc.
----------------
Total
If the underwriters sell more shares than the total number set forth in
the table above, the underwriters have an option to buy up to an additional
[ ] shares from Asbury and [ ] shares from the selling stockholders
to cover such sales. They may exercise that option for 30 days. If any shares
are purchased pursuant to this option, the underwriters will severally purchase
shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions Asbury will pay to the underwriters. The amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
Paid by Asbury Paid by the Selling Stockholders
No Exercise Full Exercise No Exercise Full Exercise
Per Share $ $ $ $
56
Total
Shares sold by the underwriters to the public will initially be offered
at the initial public offering price set forth on the cover of this
prospectus. Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to $[ ] per share from the initial public offering
price. Any such securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to $[ ]
per share from the initial public offering price. If all the shares are not
sold at the initial offering price, the representatives may change the
offering price and the other selling terms.
Asbury, its directors and executive officers, Asbury Automotive Holdings
L.L.C. and certain of the selling stockholders have agreed with the
underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180
days after the date of this prospectus, except with the prior written consent
of the representatives. In addition, the former owners of our platforms (other
than certain of the selling stockholders) and those platform chief executive
officers, chief operating officers, chief financial officers and those
dealership general managers who received equity in Asbury in connection with
the acquisition by Asbury of the related platforms have agreed to such
restrictions on disposal and hedging of their common stock for a period of two
years after the date of this prospectus. These agreements do not apply to any
grants under existing employee benefit plans. See "Shares Available for Future
Sale" for a discussion of transfer restrictions.
Prior to this offering, there has been no public market for the shares.
The initial public offering price will be negotiated among Asbury and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Asbury's historical performance, estimates of Asbury's
business potential and earnings prospects of Asbury, an assessment of Asbury's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Asbury's common stock will be listed on the New York Stock Exchange under
the symbol "[ ]". In order to meet one of the requirements for listing the
common stock on the New York Stock Exchange, the underwriters have undertaken
to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from Asbury or the selling stockholder in
the offering. The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or purchasing
shares in the open market. In determining the source of shares to close out
the covered short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
overallotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common stock in the open market after pricing that could
adversely affect investors who purchase in the offering. Stabilizing
transactions consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the completion of the offering.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of the underwriter in
stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
common stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the common stock.
As a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued by the underwriters at any time. These
57
transactions may be effected on the New York Stock Exchange, in the
over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Asbury and the selling stockholders estimate that their shares of the
total expenses of the offering, excluding underwriting discounts and
commissions, will be approximately $[ ] and $[ ], respectively.
Asbury and the selling stockholders have agreed to indemnify the
underwriters identified in the table above against specific liabilities,
including liabilities under the Securities Act.
VALIDITY OF SHARES
The validity of the shares of our common stock offered hereby will be
passed upon for us by Cravath, Swaine & Moore, New York, New York, and for the
underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
Our financial statements included in this prospectus and elsewhere in the
registration statement to the extent and for the periods indicated in their
report have been audited by Arthur Andersen LLP and Dixon Odom P.L.L.C, each
of which are independent public accountants, as indicated in their respective
reports with respect thereto, and are included in the prospectus in reliance
upon the authority of these firms as experts in giving these reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to this offering of our common stock. This
prospectus does not contain all the information contained in the registration
statement and the exhibits and schedules to the registration statement. For
further information with respect to us and our common stock, we refer you to
the registration statement and the exhibits and schedules filed as part of the
registration statement. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. You may read and copy any document we file at the SEC's public
reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. The SEC maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities and Exchange
Act and will file periodic reports and other information, including proxy
statements, with the SEC. These periodic reports and other information will be
available for inspection and copying at the SEC's public reference room and
the web site of the SEC referred to above.
58
Index to Financial Statements
Page
----
Asbury Automotive Group L.L.C.
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1999 and 2000
and March 31, 2001 (unaudited) F-2
Consolidated Statements of Income for the years ended
December 31, 1998, 1999 and 2000 and for the three
months ended March 31, 2000 (unaudited) and 2001 (unaudited) F-3
Consolidated Statements of Members' Equity for the years
ended December 31, 1998, 1999, and 2000 and for the three
months ended March 31, 2001 (unaudited) F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 and for the three months
ended March 31, 2000 (unaudited) and 2001 (unaudited) F-5
Notes to Consolidated Financial Statements F-6 - F-21
Business Acquired by Asbury Automotive Group L.L.C. (Hutchinson
Automotive Group)
Report of Independent Public Accountants F-22
Combined Balance Sheet as of December 31, 1999 F-23
Combined Statements of Income for the years ended
December 31, 1998 and 1999 and for the
period from January 1, 2000 through June 30, 2000 F-24
Combined Statements of Shareholders' Equity for the years
ended December 31, 1998 and 1999 and for the period
from January 1, 2000 through June 30, 2000 F-25
Combined Statements of Cash Flows for the years ended
December 31, 1998 and 1999 and for the period from
January 1, 2000 through June 30, 2000 F-26
Notes to Combined Financial Statements F-27 - F-33
Business Acquired by Asbury Automotive Oregon L.L.C.
(Thomason Auto Group)
Report of Independent Public Accountants F-34
Combined Statements of Income for the year ended
December 31, 1998 and for the period from
January 1, 1999 through December 9, 1999 F-35
Combined Statements of Shareholders' Equity for the year ended
December 31, 1998 and for the
period from January 1, 1999 through December 9, 1999 F-36
Combined Statements of Cash Flows for the years ended
December 31, 1998 and for the period
from January 1, 1999 through December 9, 1999 F-37
Notes to Combined Financial Statements F-38 - F-43
Page
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Business Acquired by Asbury Automotive Arkansas L.L.C.
(McLarty Combined Entities)
Report of Independent Public Accountants F-44
Combined Statements of Income for the year ended
December 31, 1998 and for the period from
January 1, 1999 through November 17, 1999 F-45
Combined Statements of Shareholders' Equity for the years
ended December 31, 1998 and for the
period from January 1, 1999 through November 17, 1999 F-46
Combined Statements of Cash Flows for the years ended
December 31, 1998, and for the period from
January 1, 1999 through November 17, 1999 F-47
Notes to Combined Financial Statements F-48 - F-52
Business Acquired by Asbury Automotive North Carolina L.L.C.
(Crown Automotive Group)
Report of Independent Public Accountants F-53
Combined Statements of Income for the year ended
December 31, 1998 and for the period from
January 1, 1999 through April 6, 1999 F-54
Combined Statements of Shareholders' Equity for the years ended
December 31, 1998 and for the period from
January 1, 1999 through April 6, 1999 F-55
Combined Statements of Cash Flows for the years ended
December 31, 1998, and for the period
from January 1, 1999 through April 6, 1999 F-56
Notes to Combined Financial Statements F-57 - F-60
Coggin Automotive Corp. and Affiliates
Report of Independent Certified Public Accountants F-61
Combined Statement of Income for the period from
January 1, 1998 through October 31, 1998 F-62
Combined Statement of Shareholders' Equity for the period
from January 1, 1998 through October 31, 1998 F-63
Combined Statement of Cash Flows for the period from
January 1, 1998 through October 31, 1998 F-64
Notes to Combined Financial Statements F-65 - F-69
Page
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J.I.W. Enterprises, Inc.
Report of Independent Public Accountants F-70
Combined Statement of Income for the period from
January 1, 1998 through September 17, 1998 F-71
Combined Statement of Shareholders' Equity for the period
from January 1, 1998 through September 17, 1998 F-72
Combined Statement of Cash Flows for the period from
January 1, 1998 through September 17, 1998 F-73
Notes to Combined Financial Statements F-74 - F-77
David McDavid Auto Group
Report of Independent Public Accountants F-78
Combined Statement of Income for the period from
January 1, 1998 through April 30, 1998 F-79
Combined Statement of Shareholders' Equity for the period
from January 1, 1998 through April 30, 1998 F-80
Combined Statement of Cash Flows for the period from
January 1, 1998 through April 30, 1998 F-81
Notes to Combined Financial Statements F-82 - F-85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying consolidated balance sheets of Asbury
Automotive Group L.L.C. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, members' equity and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Asbury Automotive Group
L.L.C. and subsidiaries as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
Stamford, Connecticut
March 23, 2001 (except with respect to
matters discussed in Note 17, as to which
the date is July 2, 2001)
F-1
ASBURY AUTOMOTIVE GROUP L.L.C.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
---------------------- --------
ASSETS 1999 2000 2001
------ --------- --------- ---------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents (including contracts-in-transit
of $52,620, $76,554, and $72,343) $ 97,442 $ 123,795 $ 122,347
Current portion of restricted marketable securities 1,245 1,304 1,304
Accounts receivable (net of allowance of $2,284, $2,396 and
$2,365) 65,455 76,168 86,943
Inventories 434,234 554,141 532,319
Prepaid and other current assets 17,684 21,535 19,902
---------- --------- ---------
Total current assets 616,060 776,943 762,815
PROPERTY AND EQUIPMENT, net 141,786 215,149 220,329
GOODWILL, net 226,321 364,164 362,799
RESTRICTED MARKETABLE SECURITIES 9,280 7,798 7,230
OTHER ASSETS 41,159 40,146 55,205
---------- ---------- ----------
Total assets $1,034,606 $1,404,200 $1,408,378
========== ========== ==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $ 385,263 $ 499,332 $ 486,223
Short-term debt 16,612 16,290 14,155
Current maturities of long-term debt 10,841 19,495 15,187
Accounts payable 29,733 36,823 41,309
Accrued liabilities 54,927 53,634 49,441
--------- --------- ----------
Total current liabilities 497,376 625,574 606,315
LONG-TERM DEBT 296,807 435,879 454,081
OTHER LIABILITIES 9,227 20,865 21,721
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 33,083 -- --
MEMBERS' EQUITY:
Contributed capital 195,039 303,245 303,245
Retained earnings 3,074 18,637 23,016
--------- --------- ----------
Total members' equity 198,113 321,882 326,261
Total liabilities and members' equity $1,034,606 $1,404,200 $1,408,378
------------------------------------- ========== ========== ==========
See Notes to Consolidated Financial Statements.
F-2
ASBURY AUTOMOTIVE GROUP L.L.C.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
For the Three Months Ended
For the Years Ended December 31, March 31,
-------------------------------- --------------------------
1998 1999 2000 2000 2001
---- ---- ---- ---- ----
(unaudited)
REVENUES:
New vehicles $ 687,850 $1,820,393 $2,439,729 $ 562,490 $ 579,115
Used vehicles 221,828 787,029 1,064,102 243,070 285,954
Parts, service and collision repair 156,037 341,506 434,478 98,746 118,243
Finance and insurance, net 19,149 63,206 89,481 19,732 23,554
---------- --------- --------- ------- ----------
Total revenues 1,084,864 3,012,134 4,027,790 924,038 1,006,866
---------- --------- --------- ------- ---------
COST OF SALES:
New vehicles 635,956 1,678,256 2,246,903 519,020 532,612
Used vehicles 201,068 719,638 970,752 219,288 260,534
Parts, service and collision repair 92,549 173,072 212,596 48,950 57,180
---------- ---------- --------- --------- ---------
Total cost of sales 929,573 2,570,966 3,430,251 787,258 850,326
---------- ---------- --------- --------- ---------
GROSS PROFIT 155,291 441,168 597,539 136,780 156,540
OPERATING EXPENSES:
Selling, general and administrative 127,752 343,443 451,405 102,320 119,302
Depreciation and amortization 6,303 16,161 24,249 4,967 7,007
---------- ---------- --------- -------- --------
Income from operations 21,236 81,564 121,885 29,493 30,231
---------- ---------- --------- -------- --------
OTHER INCOME (EXPENSE):
Floor plan interest expense (7,730) (22,982) (36,968) (7,678) (9,489)
Other interest expense (7,104) (24,703) (42,009) (7,817) (12,489)
Equity investment losses, net - (616) (6,066) (3,587) (1,000)
Gain (loss) on sale of assets 9,307 2,365 (1,533) 7 16
Other income, net 2,409 3,571 6,156 1,704 1,514
---------- ---------- --------- -------- --------
Total other expense, net (3,118) (42,365) (80,420) (17,371) (21,448)
Income before income taxes, minority
interest and extraordinary loss 18,118 39,199 41,465 12,122 8,783
INCOME TAX EXPENSE - 1,779 3,511 1,021 1,168
MINORITY INTEREST IN SUBSIDIARY EARNINGS 14,303 20,520 9,027 7,205 -
---------- ---------- --------- -------- --------
Income before extraordinary loss 3,815 16,900 28,927 3,896 7,615
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT (734) (752) - - (1,433)
--------- ---------- --------- -------- --------
Net income $ 3,081 $ 16,148 $ 28,927 $ 3,896 6,182
========= ========== ===========
PRO FORMA TAX ADJUSTMENT (net of effect on
minority interest) 10,417 2,206
--------- -----------
Tax affected pro forma net income $ 18,510 $ 3,976
========= ===========
See Notes to Consolidated Financial Statements.
F-3
ASBURY AUTOMOTIVE GROUP L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
(in thousands)
Retained
Contributed Earnings
Capital (Deficit) Total
----------- --------- ---------
BALANCE AS OF DECEMBER 31, 1997 $ 36,552 $ 405 $ 36,957
Contributions 120,387 - 120,387
Distributions - (6,686) (6,686)
Net income - 3,081 3,081
Issuance of interests to minority members of subsidiaries before
predecessor cost adjustment 57,495 - 57,495
Predecessor cost adjustment (90,705) - (90,705)
Effect of minority members' share of subsidiary income, net of
distributions 6,851 - 6,851
-------- ------- --------
BALANCE AS OF DECEMBER 31, 1998 130,580 (3,200) 127,380
Contributions 38,100 - 38,100
Distributions - (9,874) (9,874)
Net income - 16,148 16,148
Reclassification of minority member deficits 26,359 - 26,359
-------- -------- --------
BALANCE AS OF DECEMBER 31, 1999 195,039 3,074 198,113
Contributions 20,650 - 20,650
Contribution of equity interest by minority members 87,556 - 87,556
Distributions - (13,364) (13,364)
Net income - 28,927 28,927
-------- --------- --------
BALANCE AS OF DECEMBER 31, 2000 303,245 18,637 321,882
Distributions (unaudited) - (1,803) (1,803)
Net income (unaudited) - 6,182 6,182
--------- --------- --------
BALANCE AS OF MARCH 31, 2001 (unaudited) $303,245 $ 23,016 $326,261
========= ========= ========
See Notes to Consolidated Financial Statements.
F-4
ASBURY AUTOMOTIVE GROUP L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months
For the Years Ended December 31, Ended March 31,
-------------------------------- ----------------------
1998 1999 2000 2000 2001
------- ------- -------- ------- ---------
(unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 3,081 $ 16,148 $ 28,927 $ 3,896 $ 6,182
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 6,303 16,161 24,249 4,967 7,007
(Gain) loss on sale of assets (9,307) (2,365) 1,533 (7) (16)
Minority interest in subsidiary earnings 14,303 20,520 9,027 7,205 -
Extraordinary loss on early extinguishment of debt 734 752 - - 1,433
Loss on equity investments, net - 616 6,066 3,587 1,000
Other non-cash charges 1,155 753 505 (104) 891
Change in operating assets and liabilities, net of
effects from acquisitions and divestiture of assets-
Accounts receivable, net (17,174) 5,007 2,367 (20,984) (10,775)
Inventories (30,561) (50,611) (22,911) (3,763) 24,286
Floor plan notes payable 31,190 36,402 38,200 9,680 (13,109)
Accounts payable and accrued liabilities 6,024 (1,032) (8,335) 294 2,728
Other 3,743 6,785 3,016 2,803 (3,144)
-------- -------- -------- ------ ---------
Net cash provided by operating activities 9,491 49,136 82,644 7,574 16,483
-------- -------- -------- ------ --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (11,356) (22,327) (36,062) (5,629) (10,326)
Proceeds from the sale of assets 38,350 15,803 6,054 250 484
Acquisitions (net of cash and cash equivalents acquired of
$33,427, $27,448, $17,079 and $6,913 in 1998, 1999, 2000
and for the three months ended March 31, 2000,
respectively) (260,063) (92,149) (179,538) (47,587) (2,224)
Equity investments - (7,500) - - (1,200)
Proceeds from restricted marketable securities - 1,253 1,423 460 568
Purchases of restricted marketable securities (11,778) - - - -
Net receipt (issuance) of finance contracts 990 (6,250) (480) (88) (571)
Other investing activities (135) (183) - - -
-------- -------- -------- -------- ---------
Net cash used in investing activities (243,992) (111,353) (208,603) (52,594) (13,269)
-------- -------- -------- -------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to members (6,686) (9,874) (13,364) (181) (1,803)
Contributions from members 120,387 38,100 20,650 20,650 -
Repayments of debt (32,344) (34,565) (14,597) (625) (326,318)
Proceeds from borrowings 201,062 112,930 159,411 27,597 335,650
Payment of debt issuance costs - - - - (12,191)
Net of cash contributions to (distributions from)
minority members of subsidiaries (2,247) (8,622) 212 1,587 -
-------- -------- -------- ------- -------
Net cash provided by (used in) financing 280,172 97,969 152,312 49,028 (4,662)
activities
------- -------- -------- ------ --------
Net increase (decrease) in cash and cash 45,671 35,752 26,353 4,008 (1,448)
equivalents
CASH AND CASH EQUIVALENTS, beginning of period 16,019 61,690 97,442 97,442 123,795
--------- --------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 61,690 $ 97,442 $123,795 $101,450 $122,347
========= ========= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 12,911 $ 42,758 $ 77,322 $ 15,465 $ 20,371
========= ========= ======== ========= =========
Income taxes $ 2,761 $ 1,364 $ 3,302 $ 887 $ 1,903
========= ========= ======== ========= =========
See Note 3 for supplemental non-cash investing activities.
See Notes to Consolidated Financial Statements.
F-5
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
1. DESCRIPTION OF BUSINESS
-----------------------
Asbury Automotive Group L.L.C. ("Asbury" or the "Company") is a national
automotive retailer, operating 84 new and used car dealerships (including 119
franchises) and 23 collision repair centers in 12 metropolitan areas of the
Southeastern, Midwestern, Southwestern and Northwestern United States as of
March 31, 2001. Asbury sells new and used vehicles, light trucks and
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges vehicle finance, insurance and service contracts for its
automotive customers. Asbury offers, collectively, 34 domestic and foreign
brands of new vehicles. In addition, one dealership sells four brands of
commercial motor trucks.
The Company was formed in June 1996 and is controlled by Ripplewood Holdings,
L.L.C.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
- ---------------------
The financial statements reflect the consolidated accounts of Asbury and its
wholly-owned subsidiaries. The equity method of accounting is used for
investments in which the Company has significant influence. Generally, this
represents common stock ownership or partnership equity of at least 20% but
not more than 50%. All intercompany transactions have been eliminated in
consolidation.
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title, signing of the sales contract and approval of financing.
Revenue from the sale of parts and services is recognized upon delivery of
parts to the customer or when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenues from financing fees and commissions
are recorded at the time of the sale of the vehicles and a reserve for future
chargebacks is established based on historical operating results and the
termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenues, net of estimated chargebacks, are included
in finance and insurance revenue in the accompanying consolidated statements
of income.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include contracts-in-transit and highly liquid
investments that have an original maturity of three months or less at the date
of purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
F-6
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
Inventories
- -----------
Inventories are stated at the lower of cost or market. The Company uses the
"last-in, first-out" method ("LIFO") to account for approximately 65%, 64%,
and 61% of its inventories, the specific identification method to account for
31%, 33% and 35% of its inventories, and the "first-in, first-out" method
("FIFO") to account for 4%, 3% and 4% of its inventories at December 31, 1999
and 2000 and March 31, 2001, respectively. If the FIFO method had been used to
determine cost for inventories valued using the LIFO method, net income would
have been increased (decreased) by $(221), $2,139 and $2,097 for the years
ended December 31, 1998, 1999 and 2000 and $525 and $500 for the three-month
periods ended March 31, 2000 and 2001, respectively.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are capitalized and amortized over the lesser of the life of the lease or the
useful life of the related asset. The range of estimated useful lives is as
follows (in years)-
Buildings and leasehold improvements 5 - 35
Machinery and equipment 3 - 10
Furniture and fixtures 3 - 10
Company vehicles 3 - 5
Expenditures for major additions or improvements, which extend the useful
lives of assets, are capitalized. Minor replacements, maintenance and repairs,
which do not improve or extend the lives of such assets, are charged to
operations as incurred.
Goodwill
- --------
Goodwill represents the excess of purchase price over the fair value of the
net tangible and other intangible assets acquired at the date of acquisition.
Goodwill is amortized on a straight-line basis over 40 years. Amortization
expense charged to operations totaled $1,523, $4,960 and $8,330, for the years
ended December 31, 1998, 1999 and 2000, respectively, and $1,478 and $2,528
for the three-month periods ended March 31, 2000 and 2001, respectively.
Accumulated amortization totaled $6,770, $15,041 and $17,569 as of December
31, 1999 and 2000, and March 31, 2001, respectively.
Impairment of Long-Lived Assets
- -------------------------------
The recoverability of the Company's long-lived assets, including goodwill and
other intangibles, is assessed by comparing the carrying amounts of such
assets to the estimated undiscounted cash flows relating to those assets. The
Company does not believe its long-lived assets are impaired at March 31, 2001.
Equity-based Compensation
- -------------------------
The Company accounts for equity-based compensation issued to employees in
accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company, as permitted by
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock - Based Compensation," has chosen to account for equity options at their
intrinsic value. Accordingly, no compensation expense has been recorded for
its option plan.
F-7
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
Tax Status
- ----------
The Company consists primarily of a group of limited liability companies and
partnerships (with the Company as the parent), which are treated as one
partnership for tax purposes. Under this structure, such companies and
partnerships are not subject to income taxes but instead the members of the
Company are taxed on their respective distributive shares of the Company's
taxable income. Therefore, no provision for federal or state income taxes has
been included in the financial statements for the limited liability companies
and partnerships.
The Company has nine subsidiaries which for income tax purposes are C
corporations under the provisions of the U. S. Internal Revenue Code and,
accordingly, follow the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes are recorded based upon differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that are assumed to be in effect when the underlying
assets are realized and liabilities are settled. A valuation allowance reduces
deferred tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized.
Advertising
- -----------
The Company expenses production and other costs of advertising as incurred.
Advertising expense totaled $9,367, $29,622 and $42,233 for the years ended
December 31, 1998, 1999 and 2000, and $8,555 and $10,503 and for the
three-month periods ended March 31, 2000 and 2001, respectively. For the years
ended December 31, 1999 and 2000, approximately $4,000 and $5,200 and for the
three months ended March 31, 2000 and 2001, approximately $1,275 and $290,
respectively, was paid to two separate entities in which two members of the
Company had substantial interests.
Use of Estimates
- ----------------
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Statements of Cash Flows
- ------------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying consolidated statements of cash flows.
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist primarily of restricted marketable
securities, floor plan notes payable and long-term debt. The carrying amounts
of its financial instruments approximate their fair values at December 31,
1999 and 2000 and March 31, 2001 due to their relatively short duration and
variable interest rates.
F-8
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash deposits. The Company maintains
cash balances in financial institutions with strong credit ratings. At times,
amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base.
Comprehensive Income
- --------------------
The Company follows the provisions of SFAS No. 130 "Reporting Comprehensive
Income." Based on the definitions contained therein, the Company has no
components of other comprehensive income for the periods presented.
Segment Reporting
- -----------------
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Based upon definitions
contained in SFAS No. 131, the Company has determined that it operates in one
segment and has no international operations.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a)
a hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of
the derivative and the resulting designation. SFAS No. 137 amended the
effective date to all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS No. 138, issued in June 2000, addressed a limited number of issues
that were causing implementation difficulties for numerous entities applying
SFAS No. 133. The Company has determined that the adoption of SFAS No.133 will
not have a material impact on its results of operations, financial position,
liquidity or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 was
effective for years beginning after December 31, 1999, and provides
clarification related to recognizing revenue in certain circumstances.
Adoption of SAB No. 101 did not have a material impact on the Company's revenue
recognition policies.
F-9
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
Interim Financial Statements
- ----------------------------
The accompanying unaudited financial statements for the three-month periods
ended March 31, 2000 and 2001 have been prepared on substantially the same
basis as the audited financial statements, and include all adjustments,
consisting only of normal recurring adjustments, which management believes are
necessary for a fair presentation of the financial information set forth
therein.
3. ACQUISITIONS
------------
Overview
- --------
The Company has consummated eight major platform acquisitions ("platforms"),
which were effected through its subsidiaries in which the sellers received, in
addition to cash consideration, an interest in the platform subsidiary
established to effect the related acquisition. Minority ownership interests
related to such transactions ranged from 20% to 49%. Prior to the Minority
Member Transaction (discussed below), such acquisitions were accounted for
using the purchase method of accounting; however, as also discussed below,
certain of these acquisitions were effected through leveraged buyout
transactions. In such cases, carryover basis was used to measure the portion
of assets acquired and liabilities assumed attributed to such minority members
of the subsidiaries. In connection with the Minority Member Transaction, the
minority interests in the subsidiaries were acquired using the purchase method
of accounting.
The Company has consummated additional acquisitions through its subsidiaries
and certain of these acquisitions resulted in the issuance of minority
interests.
The operations of the acquired dealerships are included in the consolidated
statements of income commencing on the date acquired.
Minority Member Transaction
- ---------------------------
On April 30, 2000, Asbury, the then parent company, and the minority members
of Asbury's subsidiaries reached an agreement whereby their respective equity
interests were transferred into escrow and subsequently into Asbury Automotive
Oregon L.L.C. ("Asbury Oregon") in exchange for equity interests in Asbury
Oregon (the "Minority Member Transaction"). The exchanges of the minority
members' interests were accounted for using the purchase method of accounting
whereby the value of the minority interests transferred into Asbury Oregon
were recorded at their estimated fair values, approximately $93,710. The
accompanying consolidated balance sheets include the preliminary allocations
of the purchase price to tangible and intangible net assets transferred ,
which is subject to final adjustment. This allocation resulted in recording
approximately $23,679 of goodwill. Following the Minority Member Transaction,
the then parent company, Asbury, changed its name to Asbury Automotive
Holdings L.L.C. ("Asbury Holdings") and Asbury Oregon changed its name to
Asbury Automotive Group L.L.C. Subsequent to the Minority Member Transaction,
Asbury Holdings owns approximately 59% of the member interest of the Company
with the remaining member interest being held by the former minority members
of the Company's subsidiaries.
1998
- ----
During 1998, the Company acquired five platforms (consisting of 37
dealerships) and an equity interest in an individual dealership for an
aggregate purchase price of $294,077, including the proceeds from $193,900 in
F-10
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
borrowings ($20,700 of which was retained in the businesses) and the issuance
of minority interests to certain of the previous controlling shareholders.
The accompanying financial statements include the results of operations of
acquisitions acquired in 1998 from the date of acquisition. The following
unaudited pro forma financial data reflects the 1998 acquisitions as if they
occurred on January 1, 1998 (unaudited).
Revenues $ 2,462,717
Income before income taxes and minority interest 23,059
1999
- ----
During 1999, the Company acquired one platform (consisting of 6 dealerships),
and 9 other dealerships as well as the remaining interest of a dealership
partially purchased in 1998 for an aggregate purchase price of $119,597,
including the proceeds from $73,784 in borrowings and the issuance of minority
interests to certain of the previous controlling shareholders.
The accompanying financial statements include the results of operations of
acquisitions acquired in 1998 and 1999 subsequent to the date of the
respective acquisitions. The following unaudited pro forma financial data
reflects the 1998 and 1999 acquisitions as if they occurred on January 1, 1998
and 1999, respectively.
1998 1999
---------- ----------
(unaudited)
Revenues $3,180,092 $3,455,256
Income before income taxes
and minority interest 23,122 44,208
2000
- ----
During 2000, the Company acquired 18 dealerships for an aggregate purchase
price of $197,648, including the proceeds from $140,820 in borrowings and the
issuance of member equity interests to certain of the previous controlling
shareholders.
The accompanying financial statements include the results of operations of
acquisitions acquired in 1999 and 2000 subsequent to the date of the
respective acquisitions. The following unaudited pro forma financial data
reflects the 1999 and 2000 acquisitions and the effect of the Minority Member
Transaction as if they occurred on January 1, 1999 and 2000, respectively.
1999 2000
----------- -----------
(unaudited)
Revenues $4,274,277 $4,293,554
Income before income taxes
and minority interest 52,287 44,810
The unaudited pro forma selected financial data does not purport to represent
what the Company's results of operations would have actually been had the
transactions in fact occurred as of an earlier date or project the results for
any future period. Pro forma adjustments included in the amounts above relate
primarily to: (a) pro forma amortization expense; (b) adjustments to
compensation expense and management fees to the
F-11
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
post acquisition contracted amounts and; (c) increases in interest expense
resulting from the net cash borrowings used to complete the related
acquisitions.
The foregoing acquisitions were all accounted for under the purchase method of
accounting. Except as discussed below, the historical book values of the
assets and liabilities were recorded at their fair value as of the acquisition
dates. Certain of these acquisitions were affected through leveraged buyout
transactions. Prior to the Minority Member Transaction, the accompanying
consolidated financial statements reflected the use of carryover basis (i.e.,
the historical values of the predecessor company prior to the acquisition) in
order to measure the portion of assets acquired and liabilities assumed
attributed to certain minority members of the subsidiaries.
In certain of these transactions, just prior to the leveraged buyout of the
related controlling interest, the net book value attributable to the minority
interests was increased to reflect its fair value. This amount along with the
historical carrying amount of the net assets acquired was the basis for
determining the amount of carryover basis used to record the leveraged buyout
of the acquisition.
The following table summarizes the Company's acquisitions:
Acquisitions consummated in:
--------------------------------
1998 1999 2000
-------- -------- -----
Cash paid for businesses acquired $294,077 $119,597 $197,648
Notes payable issued (included in purchase price) 10,188 - -
Issuance of minority equity interest, including $57,495 reflected as
contributed capital in 1998 75,540 27,190 13,050
Less: Predecessor cost adjustment (90,705) (18,828) (9,582)
Goodwill (125,933) (87,754) (129,557)
-------- --------- ---------
Estimated fair value of net tangible and other intangible
assets acquired $163,167 $ 40,205 $ 71,559
======== ========= =========
The allocation of purchase price to assets acquired and liabilities assumed
has been based on preliminary estimates of fair value and may be revised as
additional information concerning valuation of such assets and liabilities
becomes available. As a result of the Minority Member Transaction, $82,783 of
predecessor cost adjustment has been eliminated as part of the purchase
accounting applied.
Minority Interests
- ------------------
The use of carryover basis accounting for those acquisitions effected through
leveraged buyout transactions combined with the impact of distributing to the
sellers a portion of the borrowings used to consummate such acquisitions
resulted in minority shareholder deficits in those subsidiaries. In 1998, such
deficits were recorded as a reduction of members' equity. In 1999, the Company
determined that the minority portion of those shareholder deficits were
realizable. Accordingly, these amounts were reclassified to and offset against
other minority interest amounts. All minority interests were eliminated as a
result of the Minority Member Transaction.
F-12
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
4. INVESTMENTS IN PARTIALLY OWNED EQUITY AFFILIATES
------------------------------------------------
In the fourth quarter of 1999, the Company made a $7,500 investment in
Greenlight.com ("Greenlight"), a startup Internet company engaged in the
retail sale of new vehicles. The investment was accounted for under the equity
method whereby the Company recorded pre-tax losses of $764 and $6,938 in 1999
and 2000, respectively, related to its investment in and expenses paid on the
behalf of Greenlight. As of December 31, 2000, the Company's investment was
fully written-off through equity investment losses. In 2001, the Company
invested an additional $1,200 into Greenlight. Following the Company's
additional investment, Greenlight was merged into CarsDirect.com
("CarsDirect") a company also engaged in the retail sale of new vehicles over
the Internet. The Company's investment in CarsDirect totaled approximately 3%
of CarsDirect's total equity after the merger. The Company accounts for its
investment in CarsDirect using the cost method.
5. DIVESTITURES
------------
During 1998, the Company completed the sale of certain dealership assets for
net cash proceeds of $38,135. The $9,307 gain on the sale of such assets,
reflected in the accompanying consolidated statements of income, is attributed
to the use of carryover basis in valuing the minority interest in the related
assets. In addition, the Company sold $215 of fixed assets for book value in
1998.
During 1999, the Company completed the sale of certain real estate assets for
net cash proceeds of $13,016. The difference of $3,459 between the recorded
book value as of the date of the sale and the net cash proceeds is attributed
to the use of carryover basis in valuing the minority interest in the related
assets. Of that difference, $1,067 relates to the sale of an asset back to one
of the Company's minority members within the purchase price allocation period
and was therefore accounted for as an adjustment to the related purchase
price. In addition, the Company sold other fixed assets for cash proceeds of
$2,787, recognizing a $27 loss.
During 2000, the Company sold three dealerships and certain fixed assets for
net cash proceeds of $6,054 and recorded a net loss on sale of these assets of
$1,533. The loss was comprised of $1,650 of losses from the sale of
dealerships which was offset by $117 of gains from the sale of fixed assets.
The above mentioned gains in both 1998 and 1999, which resulted from the use
of carryover basis to value the minority interest in the related assets, are
also reflected in minority interest in subsidiary income on the respective
consolidated statements of income.
F-13
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998
AND MARCH 31, 2001 AND 2000 (information at March 31, 2001 and for the three
months ended March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
6. INVENTORIES AND RELATED FLOOR PLAN NOTES PAYABLE
------------------------------------------------
Inventories consist of the following:
December 31, March 31,
----------------------- ---------
1999 2000 2001
--------- --------- ---------
(unaudited)
New vehicles $340,857 $444,688 $417,165
Used vehicles 65,849 74,529 81,742
Parts and accessories 29,974 38,281 37,269
LIFO reserve (2,446) (3,357) (3,857)
--------- ---------- ---------
Total inventories $434,234 $554,141 $532,319
========= ========== =========
The inventory balance is reduced by manufacturers' purchase discounts; such
reduction is not reflected in related floor plan liability.
Floor plan notes payable reflect amounts payable for purchases of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on LIBOR or prime. For the years ended December 31,
1999 and 2000 and the three months ended March 31, 2001, the weighted average
interest rates on floor plan notes payable outstanding was 8.3%, 8.7% and
8.4%, respectively. Floor plan arrangements permit borrowings based upon new
and used vehicle inventory levels. Vehicle payments on notes are due when the
related vehicles are sold. The notes are collateralized by substantially all
vehicle inventories of the respective subsidiary and are subject to certain
financial and other covenants.
7. NOTES RECEIVABLE - FINANCE CONTRACTS
------------------------------------
Notes receivable for finance contracts, included in prepaid and other current
assets and other assets on the accompanying consolidated balance sheets, have
initial terms ranging from 12 to 54 months bearing interest at rates ranging
from 11.0% to 29.9% and are collateralized by the related vehicles. Notes
receivable - finance contracts consists of the following:
December 31, March 31,
------------------- ---------
1999 2000 2001
------ -------- ---------
(unaudited)
Gross contract amounts due $ 35,381 $ 35,108 $35,245
Less- Allowance for credit losses (5,745) (4,760) (4,326)
-------- -------- -------
29,636 30,348 30,919
Current maturities, net (11,512) (15,235) (12,562)
-------- -------- -------
Notes receivable, net of current portion $ 18,124 $ 15,113 $18,357
======== ======== =======
F-14
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
Contractual maturities of gross notes receivable - finance contracts at
December 31, 2000 are as follows:
2001 $ 16,407
2002 10,547
2003 5,265
2004 2,889
-----------
$ 35,108
===========
8. PROPERTY AND EQUIPMENT, NET
---------------------------
Property and equipment, net consist of the following:
December 31,
---------------------- March 31,
1999 2000 2001
-------- ------- ----------
(unaudited)
Land $ 38,886 $ 60,031 $ 60,677
Buildings and leasehold improvements 72,709 121,809 127,583
Machinery and equipment 18,639 27,966 28,330
Furniture and fixtures 15,428 19,641 20,492
Company vehicles 13,134 16,158 17,430
--------- -------- --------
Total 158,796 245,605 254,512
Less- Accumulated depreciation (17,010) (30,456) (34,183)
--------- --------- ---------
Property and equipment, net $ 141,786 $ 215,149 $ 220,329
========= ========= =========
9. SHORT-TERM DEBT
---------------
One of the Company's subsidiaries has $25,000 available through certain
revolving credit facilities, of which $16,612, $13,667 and $14,155 was
outstanding at December 31, 1999 and 2000 and March 31, 2001, respectively.
The credit facilities are secured by the notes receivable of the respective
subsidiary. Such amounts are payable on demand, and accrue interest at
variable rates (the weighted average interest rates were 8.3% and 10.0% for
the years ended December 31, 1999 and 2000, and 9.4% for the three-month
period ended March 31, 2001). In addition, another one of the Company's
subsidiaries had $2,623 outstanding on a revolving credit facility as of
December 31, 2000, representing the full amount available under the facility.
Such amount was repaid in January 2001.
The credit facilities mentioned above are subject to certain financial and other
covenants.
F-15
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
10. LONG-TERM DEBT
--------------
Long-term debt consists of the following at:
December 31, March 31,
--------------------------
1999 2000 2001
------------ ----------- -------------
(unaudited)
Term notes payable to banks (including the Acquisition Line of the Credit
Facility, both as defined below) bearing interest at fixed and variable
rates (the weighted average interest rates were 8.9% and 10.1% for the
years-ended December 31, 1999 and 2000 and 9.9% for the three-month
period ending March 31, 2001), maturing at various dates from
2002 to 2007, secured by the assets of the related subsidiary companies $217,624 $318,582 $331,852
Mortgage notes payable to banks bearing interest at fixed and variable rates
(the weighted average interest rates were 8.6% and 9.3% for the years
ended December 31, 1999 and 2000 and 9.3% for the three-month period
ended March 31, 2001), maturing at various dates from 2001 to 2007.
These obligations are secured by property, plant and equipment of the
related subsidiary companies which had an approximate net book value
of $136,400 at December 31, 2000 68,727 114,646 115,664
Non-interest bearing note payable to former shareholders of one of the
Company's subsidiaries, net of unamortized discount of $2,226, $1,886,
and $1,350 as of December 31, 1999 and 2000 and March 31, 2001,
respectively, determined at an effective interest rate of 6.4%, payable
in semiannual installments of approximately $913, due January 2006,
secured by marketable securities 9,676 8,453 7,814
Notes payable to financing institutions secured by rental/loaner vehicles
bearing interest at variable rates (the weighted average interest rates
were 8.4% and 8.7% for the years ended December 31, 1999 and 2000 and
8.7% for the three-month period ended March 31, 2001), maturing at
various dates from 2001 to 2004 6,132 7,269 7,901
Capital lease obligations 3,220 4,058 3,808
Other notes payable 2,269 2,366 2,229
-------- -------- --------
307,648 455,374 469,268
Less - current portion (10,841) (19,495) (15,187)
-------- ------- -------
Long-term portion $296,807 $435,879 $454,081
======== ======== ========
F-16
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
The aggregate maturities of long-term debt at December 31, 2000, are as follows:
2001 $ 19,495
2002 35,703
2003 57,465
2004 102,558
2005 116,025
Thereafter 124,128
--------
$455,374
========
Prior to the January 17, 2001 Credit Facility (as note below), the Company had
variable rate notes, primarily based on LIBOR which were subject to normal
lending terms and contained covenants which limited the Company's ability to
incur additional debt and transfer cash outside the related subsidiary (such
restrictions include transferring funds upstream to the Company). In addition,
the various debt agreements required the related subsidiary to maintain
certain financial ratios.
On January 17, 2001, the Company entered into a 3 year financing agreement
(the "Credit Facility") with Ford Motor Credit Company, General Motors
Acceptance Corporation and Chrysler Financial Company, L.L.C. with total
availability of $1,300,000. The facility provides for $550,000 in acquisition
financing and working capital (the "Acquisition Line") and $750,000 in floor
plan financing (the "Floor Plan Line"). At the date of closing, the Company
utilized $330,599 of the Acquisition Line to repay existing term notes and pay
certain fees and expenses of the closing. In addition, the Company refinanced
substantially all of its existing floor plan debt under the Floor Plan Line.
The borrowings under the Credit Facility bear interest at variable rates based
on LIBOR or prime.
At December 31, 1999 and 2000 and March 31, 2001, the Company held investments
in restricted marketable securities (U.S. Treasury Strips), which serve as
collateral for a non-interest-bearing note payable due to former shareholders
of one of the Company's subsidiaries. These marketable securities are
classified as held to maturity and accordingly stated at cost. The principal
on the non-interest-bearing note is repaid from the proceeds of the maturity
of such securities.
During 1998, the Company entered into swap agreements with a bank in an
aggregate initial notional principal amount of $31,000 in order to fix a
portion of its interest expense and reduce its exposure to floating interest
rates. These swaps required the subsidiary to pay fixed rates ranging from
4.7% to 5.2% and receive LIBOR. In December 2000, the Company terminated its
swap agreement resulting in a gain of $375 which was deferred and recorded to
income in the first quarter of 2001 when the related debt was extinguished.
Deferred financing fees aggregated approximately $2,215, $1,711 and $11,328 as
of December 31, 1999, December 31, 2000 and March 31, 2001, net of accumulated
amortization of $564, $1,068 and $863, respectively, and are included in other
assets.
11. INCOME TAXES
------------
For those subsidiaries subject to income tax, provisions have been made for
deferred taxes based on differences between financial statement and tax basis
of assets and liabilities using currently enacted tax rates and regulations.
Deferred taxes include $2,414, $325 and $325 included in current assets, and
$4,073,
F-17
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
$4,091 and $3,891 included in non-current liabilities, primarily related to
investments in partnerships as of December 31, 1999 and 2000 and March 31,
2001, respectively.
The pro forma provision for income taxes reflects the income tax expense that
would have been reported if the Company had been a C corporation. The
components of unaudited pro forma income taxes for the year ended December 31,
2000 and the three months ended March 31, 2001 are as follows:
December 31, 2000 March 31, 2001
---------------- --------------
Pro forma income taxes:
Current-
Federal $15,054 $2,976
State 2,150 425
Less: minority portion (3,995) -
------- -------
Total current 13,209 3,401
------- -------
Deferred:
Federal 819 (24)
State 117 (3)
Less: minority portion (217) -
------- -------
Total deferred 719 (27)
------- -------
Total pro forma income taxes $13,928 $3,374
======= =======
The following tabulation reconciles the expected corporate federal income tax
expense for the year ended December 31, 2000 and the three months ended March
31, 2001 to the Company's unaudited pro forma income tax expense as of these
dates:
December 31, 2000 March 31, 2001
----------------- --------------
Expected pro forma income tax expense 35.0% 35.0%
State income tax, net of federal tax effect 5.0 5.0
Non-deductible goodwill and other intangibles 3.0 4.3
Other, net 0.8 1.6
----- -----
43.8% 45.9%
===== =====
12. RELATED-PARTY TRANSACTIONS
--------------------------
In connection with its acquisitions, the Company paid $6,170 and $1,000 during
1998 and 1999, respectively, to certain of its members for transaction related
services.
In addition to the advertising expenses (Note 2) and operating leases (Note
13), the Company paid $180, $180 and $105 for the years ended December 31,
1998, 1999 and 2000, to an entity owned by one of its members for the use of a
plane. Such amounts are included in selling, general and administrative
expense on the accompanying consolidated income statements.
In January 2001 the Company sold $378 of inventory to one of its members.
F-18
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
13. OPERATING LEASES
----------------
The Company leases various facilities and equipment under long-term operating
lease agreements, including leases with its members or entities controlled by
the Company's members. Rent expense amounted to $7,820, $16,943 and $22,616 for
the three years ended December 31, 1998, 1999 and 2000, and $5,346 and $5,957
for the three-month periods ended March 31, 2000 and 2001, respectively. Of
these amounts, $5,805, $10,405, $14,103, $2,997 and $3,063, respectively, were
paid to entities controlled by its members.
Future minimum payments under long-term, non-cancelable operating leases as of
December 31, 2000, are as follows:
Related Third
Parties Parties Total
-------- -------- ------
2001 $13,124 $9,684 $22,808
2002 13,082 9,293 22,375
2003 12,813 9,110 21,923
2004 11,865 8,348 20,213
2005 11,195 7,869 19,064
Thereafter 49,316 33,524 82,840
-------- ------- --------
Total $111,395 $77,828 $189,223
======== ======= ========
14. COMMITMENTS AND CONTINGENCIES
-----------------------------
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims,
the sellers have indemnified the Company. In the opinion of management of the
Company, the amount of ultimate liability with respect to these actions will
not materially affect the financial condition, liquidity or the results of
operations of the Company.
The dealerships operated by the Company hold franchise agreements with a
number of automotive manufacturers. In accordance with the individual
franchise agreements, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of the manufacturers to
influence the operations of the dealerships or the loss of a franchise
agreement could have a negative impact on the Company's operating results.
The Company has guaranteed two loans made by a bank to two management
employees of the Company's subsidiaries which total $2,000.
At December 31, 1999 and 2000, and March 31, 2001, a subsidiary of the Company
guaranteed $500, $1,100, and $2,731, respectively, in consumer installment
loans. These loans were issued by finance
F-19
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
companies pursuant to vehicle sales by the Company. Under the guaranty, upon
repossession of the vehicle collateralizing the loan by the finance company,
the Company is liable for all or a part of the underlying loan balance.
Accrued liabilities include management's estimate of future losses related to
this guaranty.
15. EQUITY BASED ARRANGEMENTS
-------------------------
In 1999, the Company adopted an equity option plan for certain management
employees (the "Option Plan") that provides for the grant of equity interests
not to exceed $2,000. The grants are stated at a dollar amount based on the
Company's entity value. The Option Plan also requires that the exercise price
of the grant be equal to the fair market value (as defined) of the grant on
the grant date. Equity interests in the Company purchased by employees
pursuant to the Option Plan are callable by the Company under certain
circumstances at their fair value (as defined) and vest over a period of three
years. The following tables summarize information about option activity and
amounts:
Membership Interest
-------------------
Percentage
----------
Options outstanding December 31, 1998 -
Granted .029%
------
Options outstanding December 31, 1999 .029
------
Granted .004
Cancelled (.029)
------
Options outstanding December 31, 2000 .004%
======
As of December 31, 2000, the weighted average remaining contractual life was
9.07 years. The number of options exercisable as of December 31, 2000, was
.001%.
Had the fair value method of accounting been applied to the Company's stock
option plan, the impact on the Company's net income would have been as follows
for the years ended December 31, 1999 and 2000:
1999 2000
---- ----
Net income as reported $16,148 $28,927
Pro forma net income 16,086 28,752
In the first quarter of 2001, the Company's Board of Directors authorized the
Option Plan to grant an additional $800 of equity interests.
The Company has an arrangement whereby, under certain circumstances, certain
senior executives will participate in the increase in the value of the Company.
The executives would be eligible to receive a portion of the remaining
distributable cash after deducting the sum of the capital contributions by the
members on a cumulative basis, plus an additional amount equal to an 8%
compounded annual rate of return on such capital contributions. No circumstances
have occurred which would cause such participation and, accordingly, no
compensation expense has been recorded for the three years ended 1998, 1999 or
2000 or for the three-month period ended March 31, 2001.
F-20
Asbury Automotive Group L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998 AND MARCH 31, 2001 AND 2000
(information at March 31, 2001 and for the three months ended
March 31, 2001 and 2000 is unaudited)
(dollars in thousands)
16. RETIREMENT PLANS
----------------
The Company and several of the subsidiaries have existing 401(k) salary
deferral/savings plans for the benefit of substantially all such employees.
Employees electing to participate in the plans may contribute up to 15% of
their annual compensation limited to the maximum amount that can be deducted for
income tax purposes each year. Vesting varies at each respective subsidiary.
Certain subsidiaries match a portion of the employee's contributions dependent
upon reaching certain operating goals. Expenses related to subsidiary matching
totaled $506, $873 and $1,920 for the years ended December
31, 1998, 1999 and 2000, respectively, and aggregated approximately $304 and
$607 for the three-month periods ended March 31, 2000 and 2001, respectively.
In 2001, the Company consolidated substantially all of its existing 401(k)
salary deferral/savings plans into one plan.
17. SUBSEQUENT EVENT
---------------
Subsequent to December 31, 2000, the Company acquired 4 dealerships (7
franchises) for an aggregate purchase price of $38,982. The acquisitions were
funded through the proceeds of borrowings on the acquisition line of the
Company's credit facility and the issuance of an equity interest in the
Company to one of the sellers.
F-21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined balance sheet of the Business
Acquired by Asbury Automotive Group L.L.C. (Hutchinson Automotive Group) as of
December 31, 1999, and the related combined statements of income,
shareholders' equity and cash flows for the period from January 1, 2000
through June 30, 2000, and for each of the two years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Business Acquired by
Asbury Automotive Group L.L.C. as of December 31, 1999, and the results of its
operations and its cash flows for the period from January 1, 2000, through
June 30, 2000 and for each of the two years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the
United States.
Stamford, Connecticut
June 15, 2001
F-22
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
COMBINED BALANCE SHEET
(in thousands)
As of
December 31,
1999
--------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents (including contracts-in-transit of $3,770) $11,373
Accounts receivable 3,852
Inventories 28,120
Prepaid and other current assets 595
--------
Total current assets 43,940
PROPERTY AND EQUIPMENT, net 14,945
GOODWILL, net 4,010
OTHER ASSETS 10
---------
Total assets $62,905
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Floor plan notes payable $22,675
Current maturities of long-term debt 75
Accounts payable 1,505
Accrued liabilities 3,673
---------
Total current liabilities 27,928
OTHER LIABILITIES 318
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock and additional paid-in-capital 24,601
Retained earnings 10,058
---------
Total shareholders' equity 34,659
---------
Total liabilities and shareholders' equity $62,905
=========
See Notes to Combined Financial Statements.
F-23
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF INCOME
(in thousands)
For the Years Ended For the Period
December 31, January 1, 2000
---------------------- through
1998 1999 June 30, 2000
---------- ---------- --------------
REVENUE:
New vehicles $162,411 $197,556 $ 58,061
Used vehicles 90,455 112,109 35,903
Parts, service and collision repair 22,457 25,744 8,285
Finance and insurance, net 5,165 7,123 1,713
---------- ---------- -----------
Total revenue 280,488 342,532 103,962
COST OF SALES:
New vehicles 146,335 179,016 52,784
Used vehicles 81,352 100,648 31,875
Parts, service and collision repair 13,078 14,486 4,703
---------- ---------- -----------
Total cost of sales 240,765 294,150 89,362
---------- ---------- -----------
GROSS PROFIT 39,723 48,382 14,600
OPERATING EXPENSES:
Selling, general and administrative 27,895 31,696 10,705
Depreciation and amortization 888 1,018 260
---------- ---------- -----------
Income from operations 10,940 15,668 3,635
---------- ---------- -----------
OTHER INCOME (EXPENSE):
Floor plan interest expense (1,622) (1,675) (635)
Other income, net 336 225 58
---------- ---------- -----------
Total other expense, net (1,286) (1,450) (577)
---------- ---------- -----------
Net income $ 9,654 $ 14,218 $ 3,058
========== ========== ===========
See Notes to Combined Financial Statements.
F-24
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock and Retained
Additional Earnings
Paid-in-Capital (Deficit) Total
--------------- --------- ---------
BALANCE AS OF DECEMBER 31, 1997 $13,251 $ 6,877 $ 20,128
Contributions 11,350 - 11,350
Distributions - (6,894) (6,894)
Net income - 9,654 9,654
--------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1998 24,601 9,637 34,238
Distributions - (13,797) (13,797)
Net income - 14,218 14,218
--------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1999 24,601 10,058 34,659
Distributions - (36,068) (36,068)
Net income - 3,058 3,058
--------- ---------- ----------
BALANCE AS OF JUNE 30, 2000 $24,601 ($22,952) $ 1,649
========= ========== ==========
See Notes to Combined Financial Statements.
F-25
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended For the Period
December 31, January 1, 2000
-------------------- through
1998 1999 June 30, 2000
--------- --------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 9,654 $14,218 $ 3,058
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 888 1,018 260
Change in operating assets and liabilities, net of effects from
acquisitions and divestiture of assets-
Accounts receivable (241) (711) 376
Inventories 251 (1,727) 1,444
Floor plan notes payable (3,002) 6,941 220
Accounts payable and accrued liabilities 1,251 463 (357)
Other 55 (158) (424)
---------- --------- -----------
Net cash provided by operating activities 8,856 20,044 4,577
---------- --------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (307) (949) (48)
Proceeds from the sale of assets 16 7 3
Cash and cash equivalents associated with the sale to Asbury - - (3,822)
Acquisitions (11,350) - -
---------- --------- -----------
(11,641) (942) (3,867)
Net cash used in investing activities ---------- --------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions (6,894) (13,797) (11,225)
Contributions 11,350 - -
Repayments of debt (134) (676) -
Proceeds from borrowings 500 - -
---------- --------- -----------
Net cash provided by (used in) financing activities 4,822 (14,473) (11,225)
---------- --------- -----------
Net increase (decrease) in cash and cash equivalents 2,037 4,629 (10,515)
CASH AND CASH EQUIVALENTS, beginning of period 4,707 6,744 11,373
---------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 6,744 $11,373 $ 858
========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,593 $ 1,665 $ 605
========== ========= ===========
Non-cash distributions (net assets of the business sold to
Asbury on April 14, 2000) $ - $ - $ 24,843
========== ========= ===========
See Notes to Combined Financial Statements.
F-26
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. DESCRIPTION OF BUSINESS
-----------------------
Asbury Automotive Jacksonville L.P. ("Asbury Jacksonville") acquired the
operations of Buddy Hutchinson Cars, Inc. ("Toyota") and Buddy Hutchinson
Chevrolet, Inc. ("Chevrolet") on April 14, 2000 and the operations of Buddy
Hutchinson Imports, Inc. ("Imports") on July 1, 2000 for $57,266 including the
issuance of a $5,000 equity interest in Asbury Jacksonville to the majority
shareholder of the selling entities. Asbury Automotive Arkansas L.L.C.
("Asbury Arkansas") acquired the operations of Regency Toyota Inc.
("Regency"), Mark Escude Nissan, Inc. ("Nissan"), Mark Escude Nissan North,
Inc. ("Nissan North"), Mark Escude Motors, Inc. ("Mitsubishi") and Mark Escude
Daewoo, Inc. ("Daewoo") on April 14, 2000 for $32,976 including the issuance
of a $2,500 equity interest in Asbury Arkansas to the dealer operator of those
entities. The companies mentioned above will from hereafter be referred to as
the "Company" or "Hutchinson Automotive Group." Asbury Jacksonville and Asbury
Arkansas are subsidiaries of Asbury Automotive Group L.L.C. ("Asbury").
The Company is engaged in the sale of new and used vehicles, light trucks and
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges vehicle finance, insurance and service contracts for its
automotive customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
- ---------------------
The financial statements reflect the combined accounts of Toyota, Regency,
Nissan, Nissan North and Mitsubishi for the years ended December 31, 1998 and
1999, and for the period from January 1, 2000 through April 13, 2000, the
accounts of Chevrolet for the period from April 6, 1998 through December 31,
1998, the year ended December 31, 1999, and for the period from January 1,
2000 through April 13, 2000, the accounts of Daewoo for the period from August
1, 1999 through December 31, 1999, and for the period from January 1, 2000
through April 13, 2000, and the accounts of Imports for the years ended
December 31, 1998 and 1999, and for the period from January 1, 2000 through
June 30, 2000.
All intercompany transactions have been eliminated during the period of common
ownership.
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or
when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenue from financing fees and commissions is
recorded at the time of the sale of the vehicles and a reserve for future
chargebacks is established based on historical operating results and the
termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated
F-27
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
chargebacks, is included in finance and insurance revenue in the accompanying
combined statements of income.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include contracts-in-transit and highly liquid
investments that have an original maturity of three months or less at the date
of purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
Inventories
- -----------
Inventories are stated at the lower of cost or market. The Company uses the
"last-in, first-out" method ("LIFO") to account for the new vehicle
inventories of all its dealerships except for the Daewoo and the parts
inventories of Regency and Nissan South, the specific identification method to
account for the used vehicle inventories of all its dealerships, and the
"first-in, first-out" method ("FIFO") to account for the new vehicle inventory
of Daewoo and the parts inventories of all its dealerships, except for Regency
and Nissan South. Had the FIFO method been used to determine the cost of
inventories valued using the LIFO method, net income would have increased
(decreased) by ($114), ($62) and $299 for the years ended December 31, 1998
and 1999 and for the period from January 1, 2000 through June 30, 2000,
respectively.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are capitalized and amortized over the lesser of the life of the lease or the
useful life of the related asset. The range of estimated useful lives is as
follows (in years)-
Buildings and leasehold improvements 5 - 35
Machinery and equipment 5 - 7
Furniture and fixtures 5 - 7
Company vehicles 3 - 5
Expenditures for major additions or improvements, which extend the useful
lives of assets, are capitalized. Minor replacements, maintenance and repairs,
which do not improve or extend the lives of such assets, are charged to
operations as incurred.
Goodwill
- --------
Goodwill represents the excess of purchase price over the fair value of the
net assets acquired at date of acquisition. Goodwill is amortized on a
straight-line basis over 40 years. Amortization expense charged to operations
totaled $83, $106 and $53 for the years ended December 31, 1998 and 1999, and
for the period from January 1, 2000 through June 30, 2000, respectively.
Accumulated amortization totaled $240 as of December 31, 1999.
Impairment of Long-Lived Assets
- -------------------------------
The recoverability of the Company's long-lived assets, including goodwill and
other intangibles, is assessed by comparing the carrying amounts of such
assets to the estimated undiscounted cash flows relating to those assets. The
Company does not believe its long-lived assets are impaired at December 31,
1999.
F-28
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Tax Status
- ----------
The Company's shareholders have elected to be taxed as S corporations as
defined by the Internal Revenue Code. The shareholders of the Company are
taxed on their share of the Company's taxable income. Therefore, no provision
for federal or state income taxes has been included in the financial
statements.
Advertising
- -----------
The Company expenses production and other costs of advertising as incurred.
Advertising expense for the years ended December 31, 1998 and 1999, and for
the period from January 1, 2000 through June 30, 2000, totaled $5,405, $5,499
and $1,668, respectively.
Use of Estimates
- ----------------
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Statements of Cash Flows
- ------------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statements of cash flows.
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist primarily of floor plan notes
payable and long-term debt. The carrying amounts of its financial instruments
approximate their fair values at December 31, 1999 due to their relatively
short duration and variable interest rates.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash deposits. The Company maintains cash
balances in financial institutions with strong credit ratings. At times, amounts
invested with financial institutions may be in excess of FDIC insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base.
Segment Reporting
- -----------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no
international operations.
F-29
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a)
a hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of
the derivative and the resulting designation. SFAS No. 137 amended the
effective date to all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS No. 138, issued in June 2000, addressed a limited number of issues
that were causing implementation difficulties for numerous entities applying
SFAS No. 133. The Company has determined that the adoption of SFAS No.133 will
not have a material impact on its results of operations, financial position,
liquidity or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 was
effective for years beginning after December 31, 1999, and provides
clarification related to recognizing revenue in certain circumstances.
Adoption of SAB No. 101 did not have a material impact on the Company's revenue
recognition policies.
3. ACQUISITIONS
------------
On April 6, 1998, the Company acquired Chevrolet's operations and the related
land and building for $11,100 in cash and the assumption of floor plan
liability. The allocation of purchase price, including $5,100 allocated to the
real estate, resulted in $3,750 of goodwill.
Supplemental Pro Forma Information
- ----------------------------------
The accompanying financial statements include the results of operations of
Chevrolet, acquired in 1998 subsequent to the date of the acquisition. The
following unaudited pro forma financial data reflects the 1998 acquisition as
if it occurred on January 1, 1998. The unaudited pro forma selected financial
data does not purport to represent what the Company's results of operations
would have actually been had the transaction in fact occurred as of an earlier
date or project the results for any future period.
Revenues $291,551
Net income 9,877
Pro forma adjustments included in the amounts above relate primarily to: (a)
pro forma goodwill amortization expense amortized over an estimated useful
life of 40 years; and (b) adjustments to compensation expense and management
fees to the post acquisition contracted amounts.
F-30
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
4. INVENTORIES AND RELATED FLOOR PLAN NOTES PAYABLE
------------------------------------------------
Inventories consist of the following as of December 31, 1999:
New vehicles $23,839
Used vehicles 5,428
Parts and accessories 1,487
LIFO reserve (2,634)
-------
Total inventories $28,120
=======
The inventory balance is reduced by manufacturer's purchase discounts, such
reduction is not reflected in related floor plan liability.
Floor plan notes payable reflect amounts payable for purchases of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. During 1999, the weighted average interest
on floor plan notes payable outstanding was 8.25%. Floor plan arrangements
permit borrowings based upon new and used vehicle inventory levels. Vehicle
payments on notes are due when the related vehicles are sold. The notes are
collateralized by substantially all vehicle inventories of the Company and are
subject to certain financial and other covenants.
5. PROPERTY AND EQUIPMENT, NET
---------------------------
Property and equipment, net consist of the following at December 31, 1999:
Land $ 3,127
Buildings and leasehold improvements 12,625
Machinery and equipment 1,263
Furniture and fixtures 1,917
Company vehicles 172
-------
Total 19,104
Less- Accumulated depreciation (4,159)
--------
Property and equipment, net $14,945
=======
F-31
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
6. LONG-TERM DEBT
--------------
Long-term debt consists of the following as of December 31, 1999:
Mortgage note payable to a bank bearing interest
based on prime (the weighted average interest
rate was 7.80% for the year ended December 31, 1999)
maturing August 13, 2000. The note is secured by
the real estate property of Nissan North which had
an approximate net book value of $927 at
December 31, 1999 $ 75
Less - current portion (75)
-----
Long-term portion $ -
=====
7. RELATED-PARTY TRANSACTIONS
--------------------------
At December 31, 1998, the Company had a note payable to the majority
shareholder for $500 which was included in accrued liabilities. Such amount
was repaid in 1999.
8. OPERATING LEASES
----------------
The Company leases various facilities and equipment under long-term operating
lease agreements. Rent expense for the years ended December 31, 1998 and 1999
and for the period from January 1, 2000 through June 30, 2000, totaled to
$184, $174 and $57, respectively.
Future minimum payments under long-term, non-cancelable operating leases as of
December 31, 1999, are as follows:
2000 $ 94
2001 82
2002 81
2003 77
2004 77
Thereafter 1,045
------
Total $1,456
======
9. COMMITMENTS AND CONTINGENCIES
-----------------------------
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims,
the Company has indemnified Asbury. In the opinion of
F-32
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
management of the Company, the amount of ultimate liability with respect to
these actions will not materially affect the financial position or the results
of operations of the Company.
10. RETIREMENT PLAN
---------------
The Company maintains a 401(k) salary deferral/savings plan for the benefit of
all of its employees over the age of 21 who have completed one year of
service. Employees electing to participate in the plan may contribute a
percentage of annual compensation limited to the maximum amount that can be
deducted for income tax purposes each year. Participants vest in their
employer matching contributions over a seven-year period. The Company matches
25% of the first 4% of the employee's salary contributed. Expenses related to
Company matching totaled $53, $56 and $17 for the years ended
December 31, 1998 and 1999, and for the period from January 1, 2000 through
June 30, 2000, respectively.
F-33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined statements of income, shareholders'
equity and cash flows of the Business Acquired by Asbury Automotive Oregon
L.L.C. (Thomason Auto Group) for the period from January 1, 1999, through
December 9, 1999, and for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the
Business Acquired by Asbury Automotive Oregon L.L.C. for the period from
January 1, 1999 through December 9, 1999, and for the year ended December 31,
1998, in conformity with accounting principles generally accepted in the
United States.
New York, New York
April 26, 2001
F-34
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
COMBINED STATEMENTS OF INCOME
(in thousands)
For the Period from
January 1, 1999
For the Year Ended through
December 31, 1998 December 9, 1999
-------------------- ---------------------
REVENUES:
New vehicles $303,520 $ 86,120
Used vehicles 159,242 60,084
Parts, service and collision repair 26,507 8,610
Finance and insurance, net 15,715 4,142
---------- -----------
Total revenues 504,984 158,956
---------- -----------
COST OF SALES:
New vehicles 285,140 80,892
Used vehicles 135,369 54,930
Parts, service and collision repair 16,787 4,362
---------- -----------
Total cost of sales 437,296 140,184
---------- -----------
67,688 18,772
GROSS PROFIT
OPERATING EXPENSES:
Selling, general and administrative 60,266 15,471
Depreciation and amortization 1,097 371
---------- -----------
Income from operations 6,325 2,930
---------- -----------
OTHER INCOME (EXPENSE):
Floor plan interest expense (5,271) (800)
Other interest expense (494) (83)
Loss on sale of assets - (25)
Other income, net 39 204
---------- -----------
Total other expense, net (5,726) (704)
---------- -----------
Income before income taxes 599 2,226
INCOME TAX EXPENSE 267 -
---------- -----------
Net income $ 332 $ 2,226
========== ===========
See Notes to Combined Financial Statements.
F-35
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock Retained
and Additional Earnings
Paid-in Capital (Deficit) Total
--------------- --------- ---------
BALANCE AS OF DECEMBER 31, 1997 $1,767 $ 5,020 $ 6,787
Distributions - (10,260) (10,260)
Net income - 332 332
-------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1998 1,767 (4,908) (3,141)
Contributions - 1,375 1,375
Net income - 2,226 2,226
-------- ---------- ----------
BALANCE AS OF DECEMBER 9, 1999 $1,767 ($ 1,307) $ 460
======== ========== ==========
See Notes to Combined Financial Statements.
F-36
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For the Period from
January 1, 1999
For the Year Ended through
December 31, 1998 December 9, 1999
------------------ --------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 332 $ 2,226
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 1,097 371
Loss on sale of assets - 25
Change in operating assets and liabilities, net of effects from
divestiture of assets-
Accounts receivable, net 1,501 192
Due from related parties (3,570) -
Inventories (2,038) 3,022
Floor plan notes payable 1,305 754
Accounts payable and accrued liabilities 7,769 (3,339)
Other (335) (505)
---------- ----------
Net cash provided by operating activities 6,061 2,746
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (3,234) (158)
Proceeds from the sale of assets 1,404 -
Cash and cash equivalents associated with the business acquired (5,818) -
by Asbury
Net issuance of finance contracts (398) -
---------- ----------
Net cash used in investing activities (8,046) (158)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to shareholders (1,626) -
Contributions - 1,375
Repayments of debt (1,580) (291)
Proceeds from borrowings 537 -
---------- ----------
Net cash provided by (used in) financing activities (2,669) 1,084
---------- ----------
Net increase (decrease) in cash and cash equivalents (4,654) 3,672
CASH AND CASH EQUIVALENTS, beginning of period 7,937 3,283
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 3,283 $ 6,955
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 5,781 $ 883
========== ==========
Income taxes $ 197 $ -
========== ==========
Non-cash distributions (net assets of the business sold to
Asbury on December 4, 1998) $ 8,634 $ -
========== ==========
See Notes to Combined Financial Statements.
F-37
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. DESCRIPTION OF BUSINESS
-----------------------
Asbury Automotive Oregon L.L.C. ("Asbury") acquired its dealership operations
through the December 4, 1998 acquisition of Thomason Auto Group, Inc. ("TAG"),
Dee Thomason Ford, Inc. ("Ford"), Thomason Imports, Inc. ("Imports"), Thomason
Nissan ("Nissan"), Thomason Auto Credit Northwest, Inc. ("TACN") and Thomason
on Canyon, L.L.C. ("Canyon") and the December 10, 1999, acquisition of
Thomason Toyota, Inc. ("Toyota"). The combined accounts of the companies
mentioned above will from hereafter be referred to collectively as (the
"Company" or "Thomason Auto Group").
On December 4, 1998, the operations of TAG, Ford, Imports, Nissan, TACN and
Canyon were acquired by Asbury for $49,075 in cash and the issuance of a
minority interest to the majority shareholder the Company. On December 10,
1999, Asbury acquired the operations of Toyota for $18,875 in cash and the
issuance of a minority interest to the same shareholder.
The purchase agreements dated December 4, 1998, and December 10, 1999, between
the shareholders of the Company and Asbury included an adjustment to the
purchase price based on the tangible net worth of the respective assets of the
Company on the related closing dates as well as indemnities for certain
pre-closing contingencies which included certain sales and employment
practices. On April 26, 2001, the shareholders of the Company agreed to pay
Asbury $2,800 in cash and forfeited a portion of their interest in Asbury valued
at $2,500 as final settlement of the purchase agreement.
The accompanying combined statement of income for the year ended December 31,
1998, includes $1,500 of selling, general and administrative expense related
to certain selling practices. Such amount was paid in 1999. The majority
shareholder of the Company contributed $1,375 in 1999 to cover such costs.
The Company is engaged in the sale of new and used vehicles, light trucks and
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges vehicle finance, insurance and service contracts for its
automotive customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
- ---------------------
The accompanying financial statements include the results of TAG, Ford,
Imports, Nissan, TACN and Canyon for the period from January 1, 1998 through
December 3, 1998, and the results of Toyota for the year ended December 31,
1998 and for the period from January 1, 1999 through December 9, 1999.
All intercompany transactions have been eliminated during the period of common
ownership.
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or
when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
F-38
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenue from financing fees and commissions is
recorded at the time of the sale of the vehicles and a reserve for future
chargebacks is established based on historical operating results and the
termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated chargebacks, is included in
finance and insurance revenue in the accompanying combined statements of
income.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include contracts-in-transit and highly liquid
investments that have an original maturity of three months or less at the date
of purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
Inventories
- -----------
Inventories are stated at the lower of cost or market. The Company uses the
"last-in, first-out" method ("LIFO") to account for all new vehicle
inventories, the specific identification method to account for used vehicle
inventories, and the "first-in, first-out" method ("FIFO") to account for
parts inventories. Had the FIFO method been used to cost inventories valued
using the LIFO method, net income would have increased by $452 and $66 for the
year ended December 31, 1998 and for the period from January 1, 1999 through
December 9, 1999, respectively.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are capitalized and amortized over the lesser of the life of the lease or the
useful life of the related asset.
Expenditures for major additions or improvements, which extend the useful
lives of assets, are capitalized. Minor replacements, maintenance and repairs,
which do not improve or extend the lives of such assets, are charged to
operations as incurred.
Tax Status
- ----------
The shareholders of the Company's subsidiaries, with the exception of TACN,
have elected to be treated as S corporations. The shareholders of the S
corporations are taxed on their share of those companies' taxable income.
Therefore, no provision for federal or state income taxes has been included in
the financial statements for the S corporations.
TACN is a C corporation under the provisions of the U.S. Internal Revenue Code
and, accordingly, follows the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." Under this method, deferred income taxes
are recorded based upon differences between the financial reporting and tax
basis of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets are realized and
liabilities are settled. A valuation allowance reduces deferred tax assets
when it is more likely than not that some or all of the deferred tax assets
will not be realized.
F-39
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Advertising
- ------------
The Company expenses production and other costs of advertising as incurred.
Advertising expense for the year ended December 31, 1998 and for the period
from January 1, 1999 through December 9, 1999, totaled $5,304 and $2,483,
respectively, of which $3,155 and $989, respectively, was paid to an entity in
which the majority shareholder had a substantial interest.
Use of Estimates
- ----------------
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Statements of Cash Flows
- ------------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statements of cash flows.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash deposits. The Company maintains
cash balances in financial institutions with strong credit ratings. At times,
amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base.
Segment Reporting
- -----------------
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Based upon definitions
contained in SFAS No. 131, the Company has determined that it operates in one
segment and has no international operations.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a)
a hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of
the derivative and the resulting designation. SFAS No. 137 amended the
effective date to all fiscal quarters of fiscal years
F-40
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
beginning after June 15, 2000. SFAS No. 138, issued in June 2000, addressed a
limited number of issues that were causing implementation difficulties for
numerous entities applying SFAS No. 133. The Company has determined that the
adoption of SFAS No.133 will not have a material impact on its results of
operations, financial position, liquidity or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 was
effective for years beginning after December 31, 1999, and provides
clarification related to recognizing revenue in certain circumstances.
Adoption of SAB No. 101 did not have a material impact on the Company's revenue
recognition policies.
3. INTEREST EXPENSE
----------------
Floor plan notes payable reflect amounts payable for purchases of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. For the year ended December 31, 1998, the
weighted average interest rate on floor plan notes payable outstanding was
6.87%. Floor plan arrangements permit borrowings based upon new and used
vehicle inventory levels. Vehicle payments on notes are due when the related
vehicles are sold. The notes are collateralized by substantially all vehicle
inventories of the Company and are subject to certain financial and other
covenants.
The Company's notes payable are due to financing institutions and are secured
by rental vehicles bearing interest at variable rates (the weighted average
interest rate was 8.5% for the year ended December 31, 1998) and mature at
various dates all in 1999.
4. OPERATING LEASES
----------------
The Company leases various facilities and equipment under long-term operating
lease agreements, including leases with its majority shareholder or entities
controlled by its majority shareholder. Rent expense for the year ended
December 31, 1998, and for the period from January 1, 1999 through December 9,
1999, totaled $2,683 and $1,078, respectively. Of these amounts, $1,506 and
$887, respectively, were paid to entities controlled by its shareholders.
Future minimum payments under long-term, non-cancelable operating leases as of
December 31, 1998, are as follows:
Related Third
Parties Parties Total
--------- --------- -------
1999 $ 876 $ 186 $ 1,062
2000 840 187 1,027
2001 840 160 1,000
2002 840 146 986
2003 840 113 953
Thereafter 15,540 445 15,985
-------- -------- --------
Total $ 19,776 $ 1,237 $21,013
======== ======== =======
F-41
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
5. INCOME TAXES
------------
A schedule of TACN's provision for income tax purposes for the period from
January 1, 1998 through December 3, 1998 is as follows:
Current:
Federal $196
State 41
-------
237
Deferred:
Federal 25
State 5
-------
30
-------
Total $267
=======
Deferred income tax provision results from temporary differences in the
recognition of income and expense for financial statement reporting and tax
purposes. These temporary differences relate to different revenue recognition
policies for financial statement reporting as compared to tax reporting and
are not material.
A reconciliation of the TACN's actual provision for income taxes with the
provision computed at federal statutory rates for the period from January 1,
1998 through December 3, 1998, is as follows:
Statutory rate 34.0%
State income taxes 6.6
Other 0.9
-------
Effective income tax rate 41.5%
=======
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims,
the Company has indemnified Asbury. In the opinion of management of the
Company, the amount of ultimate liability with respect to these actions will
not materially affect the financial position or the results of operations of
the Company.
Prior to the sale of the business, the Company was in the practice of
guaranteeing consumer installment loans on a limited recourse basis.
Substantially all of these loans were issued to one finance company pursuant
to vehicle sales by the Company. Under the guarantee, upon reposession of the
vehicle collateralizing the loans by the finance company, the Company was liable
for all or part of the loan balance. As of December 31, 1998, $27,250 of these
loans were guaranteed collectively by Asbury and the Company, $5,700 of which
was guaranteed by
F-42
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
the Company with the remainder guaranteed by Asbury. The accompanying combined
financial statements include a provision for repossession losses of $6,359 and
$619 and are included in selling, general and administrative expenses, for the
year ended December 31, 1998, and the period from January 1, 1999 through
December 9, 1999, respectively.
In December 1999, prior to the sale of Toyota to Asbury, the Company and
Asbury collectively agreed to transfer all remaining recourse liability back
to the finance company initially issuing the paper. The transaction resulted
in a $223 gain in the period from January 1, 1999, through December 9, 1999.
7. RETIREMENT PLANS
----------------
The Company maintains a 401(k) salary deferral/savings plan for the benefit of
all its employees upon reaching one year of service with the Company.
Employees electing to participate in the plan may contribute up to 15% of
their annual compensation limited to the maximum amount that can be deducted
for income tax purposes each year. Participants vest upon the completion of
seven years of service. The Company matches a portion of the employee's
contributions dependent upon reaching certain operating goals. Expenses
related to Company matching totaled $101 and $25 for the year ended December
31, 1998, and for the period from January 1, 1999 through December 9, 1999,
respectively.
8. RELATED-PARTY TRANSACTIONS
--------------------------
The Company had $829 and $15,162 of vehicle sales to Asbury and $408 and
$5,516 of vehicle purchases from Asbury for the period from December 4, 1999
through December 31, 1998, and the period from January 1, 1999 through
December 9, 1999, respectively.
The Company paid management fees of $596 during the period from January 1,
1999 through December 9, 1999, to Asbury.
F-43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined statements of income, shareholders'
equity and cash flows of the Business Acquired by Asbury Automotive Arkansas
L.L.C. referred to as "the McLarty Combined Entities" (see Note 1) for the
period from January 1, 1999 through November 17, 1999, and for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the McLarty
Combined Entities for the period from January 1, 1999 through November 17,
1999, and for the year ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States.
Little Rock, Arkansas
July 18, 2001
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McLARTY COMBINED ENTITIES)
COMBINED STATEMENTS OF INCOME
(in thousands)
For the Period from
January 1, 1999
For the Year Ended through
December 31, 1998 November 17, 1999
-------------------- --------------------
REVENUE:
New vehicles $218,017 $ 78,076
Used vehicles 101,614 32,368
Parts, service and collision repair 28,514 6,663
Finance and insurance, net 5,687 1,968
---------- -----------
Total revenue 353,832 119,075
---------- -----------
COST OF SALES:
New vehicles 205,873 71,924
Used vehicles 91,226 30,028
Parts, service and collision repair 17,026 3,739
---------- -----------
Total cost of sales 314,125 105,691
---------- -----------
GROSS PROFIT 39,707 13,384
OPERATING EXPENSES:
Selling, general and administrative 29,493 10,072
Depreciation and amortization 530 110
---------- -----------
Income from operations 9,684 3,202
---------- -----------
OTHER INCOME (EXPENSE):
Floor plan interest expense (2,630) (1,030)
Other interest expense (1,629) (13)
Other income, net 791 152
---------- -----------
Total other expense (3,468) (891)
---------- -----------
NET INCOME $ 6,216 $ 2,311
========== ===========
See Notes to Combined Financial Statements.
F-45
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McLARTY COMBINED ENTITIES)
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock
and Additional Retained
Paid-In Capital Earnings Total
--------------- -------- -------
BALANCE AS OF DECEMBER 31, 1997 $4,477 $ 3,750 $ 8,227
Net income - 6,216 6,216
Distributions - (6,293) (6,293)
-------- --------- ----------
BALANCE AS OF DECEMBER 31, 1998 4,477 3,673 8,150
Net income - 2,311 2,311
Distributions - (2,224) (2,224)
Contributions 1,989 - 1,989
-------- --------- ----------
BALANCE AS OF NOVEMBER 17, 1999 $6,466 $ 3,760 $10,226
======== ========= ==========
See Notes to Combined Financial Statements.
F-46
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McLARTY COMBINED ENTITIES)
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year For the Period from
Ended January 1, 1999
December 31, through
1998 November 17, 1999
--------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 6,216 $ 2,311
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 530 110
Gain on sale of assets - (63)
Change in operating assets and liabilities, net of effects from
acquisitions and divestiture of assets-
Accounts receivable, net 635 (734)
Inventories (6,495) 3,723
Prepaid expenses and other current assets (70) (8)
Other assets 7 308
Floor plan notes payable 4,323 14,099
Accounts payable and accrued liabilities (1,018) 1,156
Other long-term liabilities (136) (237)
--------- ----------
Net cash provided by operating activities 3,992 20,665
--------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (817) (266)
Proceeds from the sale of assets 40 80
Cash and cash equivalents contributed to Asbury Arkansas
under Exchange Agreement - (7,023)
Other (32) 588
--------- ----------
Net cash used in investing activities (809) (6,621)
--------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions (6,603) (2,224)
Contributions - 1,989
Repayment of debt (480) (1,174)
Proceeds from debt 241 -
Net advances from (repayments to) related parties 3,022 (17,791)
--------- ----------
Net cash used in financing activities (3,820) (19,200)
--------- ----------
Net decrease in cash and cash equivalents (637) (5,156)
CASH AND CASH EQUIVALENTS, beginning of period 5,802 5,165
--------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 5,165 $ 9
========= ==========
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 4,270 $ 1,008
========= ==========
See Notes to Combined Financial Statements.
F-47
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------------
The McLarty Combined Entities (the "Company") represents the combined
dealership operations of North Point Ford, Inc., North Point Mazda, Inc.,
Premier Autoplaza, Inc., Hope Auto Company, McLarty Auto Mall, Inc.
(collectively referred to as the "First Dealerships"), and Prestige, Inc.
("Prestige").
On February 23, 1999, pursuant to an exchange agreement (the "Exchange
Agreement") among Asbury Arkansas L.L.C. ("Asbury Arkansas"), the Company and
Asbury Automotive Group, L.L.C. ("AAG"), the operations of the First
Dealerships were transferred to Asbury Arkansas in exchange for cash and a 49%
interest in Asbury Arkansas. Concurrently, AAG contributed $13,995 in cash in
exchange for a 51% interest in Asbury Arkansas. On November 18, 1999, the
operations of Prestige were transferred to Asbury Arkansas in consummation of
the Exchange Agreement.
The accompanying 1999 combined statements of income, shareholders' equity and
cash flows reflect the activities of the First Dealerships from January 1,
1999 through February 22, 1999, which represents the date of closing of the
exchange transactions involving the First Dealerships, and the activities of
Prestige from January 1, 1999 through November 17, 1999.
The Company operates six automobile dealerships in the central and
southwestern regions of the State of Arkansas. The dealerships are engaged in
the sale of new and used motor vehicles and related products and services,
including vehicle service and parts, finance and insurance products and other
after-market products.
The business combination described above was accounted for under the purchase
method of accounting on the financial statements of Asbury Arkansas. The
accompanying financial statements do not include the effect of any adjustments
resulting from the ultimate allocation of the purchase price by Asbury
Arkansas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Combination
- -------------------------
The financial statements for each of these entities are presented on a
combined basis as they have substantially common ownership. All significant
intercompany transactions and balances have been eliminated in combination.
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or
when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenue from financing fees and commissions is
recorded at the time of the sale of the vehicles and a reserve for future
chargebacks is established based on historical operating results and the
termination provisions of the
F-48
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
applicable contracts. Finance, insurance and vehicle service contract revenue,
net of estimated chargebacks, is included in finance and insurance revenue in
the accompanying combined statements of income.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include contracts in-transit and highly liquid
investments that have an original maturity of three months or less at date of
purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
Inventories
- -----------
The majority of the Company's inventories are accounted for using the
"first-in, first-out" method ("FIFO") and are valued using the lower of cost
or market. The Company's parts inventories are stated at replacement cost in
accordance with industry practice. The Company valued certain inventories
using the "last-in, first-out" method ("LIFO"). Approximately 18.6% of the
Company's inventories were valued at LIFO at December 31, 1998. If the FIFO
method had been used to determine the cost of inventories, net income would
have been lower by $149 for the year ended December 31, 1998 and greater by
$56 for the period from January 1, 1999 through November 17, 1999.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided utilizing the straight-line method over the estimated useful lives of
the assets.
Goodwill
- --------
Goodwill represents the excess of purchase price over the face value of the
net tangible and other intangible assets acquired at the date of acquisition
net of accumulated amortization. Goodwill is amortized on a straight-line
basis over 40 years.
Finance Receivables and Advances
- --------------------------------
The Company has an arrangement with a finance company, whereby the finance
company extends credit to certain of the Company's customers in connection
with vehicle sales. Under the arrangement, the Company originates installment
contracts, which are assigned to the finance company without recourse, along
with security interests in the related vehicles. The finance company advances
the Company a portion of the payments due under the contracts, groups the
contracts into pools and services the contracts. The finance company retains a
servicing fee equal to 20% of contractual payments due on a pool-by-pool
basis. In the event of customer default, the Company has no obligation to
repay any advanced amounts or other fees to the finance company.
Tax Status
- ----------
The entities comprising the Company are Subchapter S Corporations, as defined
in the Internal Revenue Code of 1986, and thus the taxable income or losses of
the Company are included in the individual tax returns of the stockholders for
federal and state income tax purposes. Therefore, no provisions for taxes have
been included in the accompanying combined financial statements.
F-49
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McCLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Advertising
- -----------
The Company expenses production and other costs of advertising as incurred or
when such advertising initially takes place. The Company's combined statements
of income include advertising expense of $3,711 and $1,444 for the year ended
December 31, 1998 and the period from January 1, 1999 through November 17,
1999, respectively.
Use of Estimates
- ----------------
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Statements of Cash Flows
- ------------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the statements of cash flows.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash deposits. The Company maintains
cash balances in financial institutions with strong credit ratings. At times,
amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base.
Segment Reporting
- -----------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no
international operations.
Major Suppliers and Dealership Agreements
- -----------------------------------------
The Company enters into agreements with the automakers that supply new
vehicles and parts to its dealerships. The Company's overall sales could be
impacted by the automakers' ability or unwillingness to supply the dealerships
with a supply of new vehicles. Dealership agreements generally limit location
of dealerships and retain automaker approval rights over changes in dealership
management and ownership. Each automaker is entitled to terminate the
dealership agreement if the dealership is in material breach of its terms.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
F-50
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
derivative instruments embedded in other contracts (collectively referred to
as derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted transaction
or (c) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign currency-denominated forecasted transaction. The
accounting for changes in the fair value of a derivative (gains or losses)
depends on the intended use of the derivative and the resulting designation.
SFAS No. 137 amended the effective date of SFAS No. 133 to all fiscal quarters
of fiscal years beginning after June 15, 2000. SFAS No. 138, issued in June
2000, addressed a limited number of issues that were causing implementation
difficulties for numerous entities applying SFAS No. 133. The Company has
determined that the adoption of SFAS No. 133 will not have a material impact
on its results of operations, financial position, liquidity or cash flows.
3. INTEREST EXPENSE
----------------
Floor plan notes payable reflect amounts payable for purchase of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. The interest rates related to floor plan
notes payable ranged from 7.75% to 8.75%. Floor plan arrangements permit
borrowings based upon new and used vehicle inventory levels. Vehicle payments
on notes are due when the related vehicles are sold. The notes are
collateralized by substantially all vehicle inventories of the Company
and are subject to certain financial and other covenants.
Long-term debt consists of various notes payable to banks and corporations,
bearing interest at both fixed and variable rates and secured by certain of
the Company's assets. Interest rates ranged from 7.75% to 8.75%.
4. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases various facilities and equipment under non-cancelable
operating lease agreements, including leases with related parties. Rent
expense for each of the periods presented in the accompanying combined
statements of income is shown below:
For the Period from
January 1, 1999
For the Year Ended through
December 31, 1998 November 17, 1999
------------------ -------------------
Related parties $1,302 $529
Third parties 678 127
------ ----
Total $1,980 $656
====== ====
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
F-51
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(McLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business. In the opinion of management of the Company,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or the results of operations of the
Company.
5. RELATED-PARTY TRANSACTIONS
--------------------------
The Company had amounts payable to related parties that consisted primarily of
advances made to the Company by certain shareholders and officers. These
balances accrued interest at rates corresponding to interest rates charged by
certain floor plan institutions (8.75% at December 31, 1998). During 1998, the
Company paid interest on amounts owed to these stockholders and officers
totaling $1,521.
The Company paid management fees to an entity that is owned by certain Company
shareholders totaling approximately $310 during the year ended December 31,
1998 and approximately $52 during the period from January 1, 1999 through
November 17, 1999.
The entities included in the Company had various levels of ownership interest
in the Sunlight Mesa Insurance Company ("Mesa"), which aggregate to 100%. Mesa
operates as a reinsurer of credit life, accident and health insurance and has
no direct policies in force. As Mesa's results of operations and financial
position were not material, they have not been combined into the accompanying
financial statements. Instead, the Company has recorded their interest in Mesa
using the cost method of accounting for investments. Commission income
recorded by the Company on insurance contracts related to policies reinsured
with Mesa was approximately $260 during 1998. The Company's investment in Mesa
was not contributed to Asbury Arkansas as a part of the business combination
discussed in Note 1.
6. RETIREMENT PLANS
----------------
The Company maintains 401(k) plans (the "Plans") at each of the dealerships,
which cover substantially all employees. The Company makes matching
contributions to the Plans of up to 2% of participating employees' salaries.
The Company's combined statements of income include contributions of $81 and
$16 for the year ended December 31, 1998 and the period from January 1, 1999
through November 17, 1999, respectively.
F-52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined statements of income, shareholders'
equity and cash flows of the Business Acquired by Asbury Automotive North
Carolina L.L.C. (Crown Automotive Group) for the period from January 1, 1999
through April 6, 1999, and for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the
Business Acquired by Asbury Automotive North Carolina L.L.C. for the period
from January 1, 1999 through April 6, 1999, and for the year ended December
31, 1998, in conformity with accounting principles generally accepted in the
United States.
New York, New York
July 18, 2001
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF INCOME
(in thousands)
For the Period from
For the Year Ended January 1, 1999
December 31,1998 through April 6, 1999
------------------ ---------------------
REVENUE:
New vehicles $170,808 $ 14,424
Used vehicles 129,447 13,148
Parts, service and collision repair 44,614 4,815
Finance and insurance, net 9,626 555
---------- -----------
Total revenue 354,495 32,942
---------- -----------
COST OF SALES:
New vehicles 157,675 13,413
Used vehicles 125,053 12,341
Parts, service and collision repair 22,536 2,556
---------- -----------
Total cost of sales 305,264 28,310
---------- -----------
GROSS PROFIT 49,231 4,632
OPERATING EXPENSES:
Selling, general and administrative 42,010 3,579
Depreciation and amortization 374 18
---------- -----------
Income from operations 6,847 1,035
---------- -----------
OTHER INCOME (EXPENSE):
Floor plan interest expense (1,848) (93)
Other Interest expense - (48)
Other income, net 871 687
---------- -----------
Net income $ 5,870 $ 1,581
========== ===========
See Notes to Combined Financial Statements.
F-54
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock Retained
and Additional Earnings
Paid-in Capital (Deficit) Total
---------------- ----------- -------
BALANCE AS OF DECEMBER 31, 1997 $10,573 $ 6,460 $17,033
Contributions 489 - 489
Distributions (7,638) (13,043) (20,681)
Net income - 5,870 5,870
--------- ---------- --------
BALANCE AS OF DECEMBER 31, 1998 3,424 (713) 2,711
Distributions - (340) (340)
Net income - 1,581 1,581
--------- ---------- --------
BALANCE AS OF APRIL 6, 1999 $3,424 $ 528 $ 3,952
========= ========== ========
See Notes to Combined Financial Statements.
F-55
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For the Period from
January 1, 1999
For the Year Ended through
December 31, 1998 April 6, 1999
------------------ -------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 5,870 $ 1,581
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 374 18
Change in operating assets and liabilities, net of effects
from acquisitions and divestiture of assets-
Accounts receivable, net (493) (1,450)
Inventories (665) (743)
Prepaid and other (759) 3
Floor plan notes payable 1,722 (428)
Accounts payable and accrued liabilities 2,910 2,074
--------- -----------
Net cash provided by operating activities 8,959 1,055
--------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (1,240) (15)
Net issuance of notes receivable 5,388 -
Cash and cash equivalents associated with the sale to Asbury (8,394) -
--------- -----------
Net cash used in investing activities (4,246) (15)
--------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Contributions 489 -
Repayments of notes payable (5,071) -
Distributions (12,008) (340)
--------- -----------
Net cash used in financing activities (16,590) (340)
--------- -----------
Net increase (decrease) in cash and cash equivalents (11,877) 700
CASH AND CASH EQUIVALENTS, beginning of period 13,942 2,065
--------- -----------
CASH AND CASH EQUIVALENTS, end of period $2,065 $ 2,765
--------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,847 $ 76
========= ===========
Non-cash distributions (net assets of the business sold to
Asbury on December 11, 1998) $ 8,673 $ -
========= ===========
See Notes to Combined Financial Statements.
F-56
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------------
Asbury Automotive North Carolina L.L.C. ("Asbury") acquired its dealership
operations through the December 11, 1998, acquisition of the non-Honda/Acura
operations of CAC Automotive, Inc. ("CAC"), CAR Automotive, Inc. ("CAR"), CFC
Finance, Inc. ("CFC"), and CAM Automotive, Inc. ("CAM") and the April 7, 1999,
acquisition of the Honda/Acura dealerships of the above-mentioned entities.
The combined accounts of the entities mentioned above will from hereafter be
referred to collectively as "the Company" or "Crown Automotive Group." These
combined statements do not include the real estate entities in which the
Company conducts its dealership operations. As a result, rent expense is
included in the accompanying combined statements of income as discussed
in Note 3.
On December 11, 1998, the non-Honda/Acura operations of CAC, CAR, CFC, CAM and
the real estate assets of Asbury North Carolina Real Estate Holdings L.L.C.
were acquired by Asbury for $80,828 in cash and the issuance of a 49% equity
interest to certain of the former shareholders of the Company.
On April 7, 1999, the Honda/Acura dealerships operations were acquired by
Asbury for $10,073 in cash and the issuance of a 49% equity interest to the
same shareholders.
The Company is engaged in the sale of new and used vehicles, light trucks and
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges vehicle finance, insurance and service contracts for its
automotive customers located in Greensboro, Chapel Hill and Raleigh, North
Carolina, and Richmond, Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
- ---------------------
The accompanying combined financial statements reflect the combined accounts
of the non-Honda/Acura operations of CAC, CAR, CFC and CAM for the period from
January 1, 1998 through December 10, 1998 and the combined accounts of the
Honda/Acura operations for the year ended December 31, 1998 and for the period
from January 1, 1999 through April 6, 1999.
All significant intercompany transactions have been eliminated during the
period of common ownership.
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or
when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenue from financing fees and commissions is
recorded at the time of the sale of the vehicles and a reserve for future
chargebacks is established based on historical operating results and the
termination provisions of the
F-57
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
applicable contracts. Finance, insurance and vehicle service contract revenue,
net of estimated chargebacks, is included in finance and insurance revenue in
the accompanying combined statements of income.
Cash and Cash Equivalents
- ------------------------
Cash and cash equivalents include contracts in-transit and highly liquid
investments that have an original maturity of three months or less at date of
purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
Inventories
- -----------
New and used vehicle inventories are valued at the lower of cost or market
utilizing the "last-in, first-out" (LIFO) method. Parts inventories are valued
at the lower of cost or market utilizing the "first-in, first-out" (FIFO)
method. If the FIFO method had been used to determine cost for inventories
valued using the LIFO method, net income would have increased by $2,153 and $10
for the year ended December 31, 1998 and for the period from January 1, 1999
through April 6, 1999, respectively.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided for utilizing the straight-line method over the estimated useful life
of the asset.
Tax Status
- ----------
The Company's shareholders have elected to be taxed as S corporations as
defined by the Internal Revenue Code. The shareholders of the Company are
taxed on their share of the Company's taxable income. Therefore, no provision
for federal or state income taxes has been included in the financial
statements.
Advertising
- -----------
The Company expenses production and other costs of advertising as incurred or
when such advertising initially takes place. Advertising costs aggregated
approximately $2,467 and $250 for the year ended December 31, 1998, and for
the period from January 1, 1999, through April 6, 1999, respectively.
Use of Estimates
- ----------------
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Statements of Cash Flows
- ------------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statements of cash flows.
F-58
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash deposits. The Company maintains
cash balances in financial institutions with strong credit ratings. At times,
amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base.
Segment Reporting
- -----------------
The Company follows the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no
international operations.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a)
a hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of
the derivative and the resulting designation. SFAS No. 137 amended the
effective date to all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS No. 138, issued in June 2000, addressed a limited number of issues
that were causing implementation difficulties for numerous entities applying
SFAS No. 133. The Company has determined that the adoption of SFAS No. 133
will not have a material impact on its results of operations, financial
position, liquidity or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." SAB No. 101 was
effective for years beginning after December 31, 1999, and provides
clarification related to recognizing revenue in certain circumstances.
Adoption of SAB No. 101 did not have a material impact on the Company's revenue
recognition policies.
3. RELATED-PARTY TRANSACTIONS
--------------------------
Asbury acquired the real estate used in the dealership operations of the
entities included in these financial statements in the December 10, 1998
acquisition. Prior to the acquisition, the real estate was owned by the
majority shareholder of the Company or owned through entities in which the
majority shareholder of the Company held a controlling interest. Rent expense
included in the accompanying statements of income paid to those real estate
entities totaled $4,750 and $497 for the year ended December 31, 1998 and for
the period from January 1, 1999 through April 6, 1999, respectively. The
related real estate had a fair market value of $56,200 at the date of
acquisition by Asbury.
F-59
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
4. OPERATING LEASES
----------------
The Company held various lease agreements for land expiring through 2005.
In addition to the related party real estate leases mentioned above, the
Company is party to various equipment operating leases with remaining terms in
excess of one year. Expense related to these leases approximated $455 and $45
for the year ended December 31, 1998 and for the period from January 1, 1999
through April 6, 1999, respectively.
The leases, which contain rental escalation clauses based on the consumer price
index, require the following minimum payments as of December 31, 1998:
Related Party Third Parties
--------------- ---------------
1999 $3,827 $110
2000 3,903 110
2001 3,982 110
2002 4,061 110
2003 4,143 110
Thereafter 8,535 64
-------- ------
$28,451 $614
======== ======
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims,
the Company has indemnified Asbury. In the opinion of management of the
Company, the amount of ultimate liability with respect to these actions will
not materially affect the financial condition, liquidity or the results of
operations of the Company.
Included in other income, net is $683 of income from the settlement of a class
action lawsuit with a certain vehicle manufacturer.
6. RETIREMENT PLAN
---------------
The Company participates in a retirement program administered by the National
Automobile Dealers and Associates Retirement Plan (the "Plan"). The Plan is a
multi-employer defined contribution 401(k) plan. Each regular full-time
employee who is at least 21 years of age, but not over 56, and who has been
continuously employed by the Company for one year or more is eligible to
participate in the Plan. The Plan requires that the Company match the
employees' voluntary contributions to the extent of 2% of the compensation of
participants. Contributions to the Plan made by the Company amounted to
approximately $115 and $260 for the year ended December 31, 1998, and for the
period from January 1, 1999 through April 6, 1999, respectively.
F-60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Coggin Automotive Corp and Affiliates:
We have audited the accompanying combined statements of income, shareholders'
equity and cash flows of Coggin Automotive Corp and Affiliates for the period
from January 1, 1998 through October 30, 1998. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Coggin Automotive Corp and
Affiliates, and their cash flows for the period from January 1, 1998 through
October 30, 1998 in conformity with generally accepted accounting principles.
Jacksonville, Florida
January 29, 1999
F-61
COGGIN AUTOMOTIVE CORP AND AFFILIATES
COMBINED STATEMENT OF INCOME
(in thousands)
For the Period from
January 1, 1998
through
October 30, 1998
---------------------
REVENUE:
New vehicles $115,542
Used vehicles 67,299
Parts, services and collision repair 22,725
Finance and insurance, net 5,803
---------
Total revenue 211,369
---------
COST OF SALES:
New vehicles 104,632
Used vehicles 60,164
Parts, services and collision repair 10,347
---------
Total cost of sales 175,143
---------
GROSS PROFIT 36,226
OPERATING EXPENSES:
Selling, general and administrative 26,577
Depreciation and amortization 1,035
---------
Income from operations 8,614
---------
OTHER INCOME (EXPENSE):
Floor plan interest expense (1,289)
Interest expense (686)
Interest income 252
Gain on sale of assets 1,909
Other 513
---------
INCOME BEFORE PROVISION FOR INCOME TAXES 9,313
PROVISION FOR INCOME TAXES 1,686
---------
NET INCOME $ 7,627
=========
See Notes to Combined Financial Statements.
F-62
COGGIN AUTOMOTIVE CORP AND AFFILIATES
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock
and Additional Retained
Paid-In Capital Earnings Total
--------------- --------- -------
BALANCE AS OF DECEMBER 31, 1998 $ 14,397 $ 5,308 $19,705
Net income - 7,627 7,627
Distributions (24,172) (253) (24,425)
Contributions 10,287 - 10,287
---------- ---------- ----------
BALANCE AS OF OCTOBER 30, 1998 $ 512 $12,682 $13,194
========== ========== ==========
See Notes to Combined Financial Statements.
F-63
COGGIN AUTOMOTIVE CORP AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
For the period from
January 1, 1998
through
October 30, 1998
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,627
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,035
Gain on sale of assets (1,909)
Other noncash 556
Changes in operating assets and liabilities:
Accounts receivable 740
Inventories (910)
Floor plan notes payable 6,314
Accounts payable and accrued expenses 3,284
Other (425)
-----------
Net cash provided by operating activities 16,312
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,037)
Net proceeds from sale of assets 100
Sale of notes receivable--finance contracts 2,238
Net issuance of finance contracts 1,152
-----------
Net cash provided by investing activities 453
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable $ (6,495)
Partner contributions 10,287
Partner distributions (22,060)
-----------
Net cash used in financing activities (18,268)
-----------
Net decrease in cash and cash equivalents (1,503)
CASH AND CASH EQUIVALENTS, beginning of period 16,436
-----------
CASH AND CASH EQUIVALENTS, end of period $ 14,933
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 2,000
===========
Income taxes $ 90
===========
Distribution of notes receivable $ 2,365
===========
See Notes to Combined Financial Statements.
F-64
COGGIN AUTOMOTIVE CORP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------------
The combined financial statements of Coggin Automotive Corp and Affiliates
(the "Company") include the accounts of the following limited partnerships:
CP-GMC Motors, Ltd., CH Motors, Ltd., CN Motors, Ltd., CFP Motors, Ltd.,
Avenue Motors, Ltd., d.b.a. Coggin Nissan of the Avenues and C&O Properties,
Ltd. The combined financial statements also include CA Funding 1, Ltd., CLC
Inc., Coggin Management Company, Inc., Bayway Financial Services, Inc., ANL
Associates, Inc., CA Funding 2, Ltd., CA Funding, Inc., CF Motor Corp., and
COPROP Corporation.
The combined financial statements of the Company also include investments in
Landcom Co., Ltd.; Coggin Andrews Partnership, d.b.a. Coggin Andrews Honda;
and CA Motors, Ltd., d.b.a. Coggin Acura. These investments are accounted for
under the equity method, as the Company did not own a controlling partnership
interest in these entities.
The combined financial statements of the Company include 100% of C&O
Properties, Ltd., which was owned 37% by the majority stockholder of the
Company. This 37% was not treated as a minority interest as the Company had
effective control of C&O Properties, Ltd.
The Company is engaged in the sale and servicing of new automobiles and the
retailing and wholesaling of replacement parts and used vehicles. The Company
operates from locations in North, Central and South Florida.
On October 31, 1998, Asbury Automotive Jacksonville, L.P. ("Asbury
Jacksonville"), a 51% owned subsidiary of Asbury Automotive Group L.L.C.
("AAG"), purchased substantially all of the operating assets and assumed
certain liabilities of the Company. The total purchase price was approximately
$40,761. Asbury Jacksonville issued a 49% equity interest in Asbury
Jacksonville to the former shareholders of the Company (the "Minority
Members"). In addition, Asbury Jacksonville granted the Minority Members a put
option. This option gives the Minority Members the right to require Asbury
Jacksonville to purchase all of the minority interest of the largest minority
shareholder upon termination of employment or at any time requested by this
shareholder after the third anniversary of the acquisition date and all the
minority interest of the other Minority Members upon termination of employment
and the passage of three years from the acquisition date.
All significant intercompany transactions and balances have been eliminated in
combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or
when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenue from financing fees and commissions is
recorded at the time of the sale of the vehicles and a reserve for future
F-65
COGGIN AUTOMOTIVE CORP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
chargebacks is established based on historical operating results and the
termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated chargebacks, is included in
finance and insurance revenue in the accompanying combined statements of income.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include contracts in-transit and highly liquid
investments that have an original maturity of three months or less at date of
purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
Inventories
- -----------
Inventories are stated at the lower of cost or market. The cost of new
vehicles is determined on a "last-in, first-out" ("LIFO") method. The cost of
used vehicles is determined using the specific identification method. The cost
of parts, accessories, and other inventories is determined on a "first-in,
first-out" ("FIFO") method. The effect of utilizing the LIFO method had an
immaterial effect on the accompanying combined statement of income for the
period from January 1, 1998 through October 30, 1998.
Property and Equipment
- ----------------------
Property and equipment is stated at cost. Depreciation and amortization are
calculated using the straight-line method over estimated useful lives of the
related assets.
Tax Status
- ----------
Except as discussed in Note 4, the Company's shareholders have elected to be
taxed as partnerships and S corporations as defined by the Internal Revenue
Code. The shareholders of the Company are taxed on their share of the
Company's taxable income. Therefore, no provision or federal or state income
taxes has been included in the financial statements for the partnerships and S
corporations.
Advertising
- -----------
The Company expenses production and other costs of advertising as incurred or
when such advertising initially takes place. Advertising costs totaled
$3,056 for the period from January 1, 1998 through October 30,
1998.
Use of Estimates
- ----------------
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the financial statements and reported
amounts of revenues and expenses during the periods presented. Actual results
could differ from those estimates.
Statement of Cash Flows
- -----------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the statement of cash flows.
F-66
COGGIN AUTOMOTIVE CORP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash deposits. The Company maintains
cash balances in financial institutions with strong credit ratings. At times,
amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base. Bayway Financial Services, L.P. extends credit to its customers
based on an evaluation of the customer's financial condition and credit
history.
Segment Reporting
- -----------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no
international operations.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a)
a hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of
the derivative and the resulting designation. The Company has determined that
the adoption of SFAS No. 133 will not have a material impact on its results of
operations, financial condition, liquidity or cash flows.
3. SALE OF ASSETS
--------------
On July 1, 1998, the Company sold its 1% general and 49% limited partnership
interest in Coggin Acura for a promissory note of approximately $2,365. The
Company recognized a gain of approximately $1,909, which was included in the
accompanying combined statement of income for the period from January 1, 1998
through October 30, 1998.
4. INCOME TAXES
------------
Corporations that elect S corporation status after December 31, 1986 may be
subject to a corporate-level tax on the net unrealized built-in gain at the
date of conversion that is realized during the ten-year period after
conversion. Prior to December 31, 1997, the Company recorded a liability for
the tax effect of the excess of the fair value of the investments in
partnerships, primarily hotel investments, over the aggregate adjusted tax
bases in the amount of $1,413.
F-67
COGGIN AUTOMOTIVE CORP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
The Company is currently under audit by the Internal Revenue Service ("IRS")
for the period from June 1, 1992 through December 31, 1993. As the result of a
reorganization that occurred in June 1993, the assets of various C
corporations were transferred to limited partnerships. Shortly thereafter, the
C corporations were liquidated into their common parent corporation, and the
parent corporation elected S corporation status. The IRS has asserted that the
S corporation election triggered recapture of the LIFO reserve related to the
inventory transferred to the limited partnerships. In connection with the
acquisition by Asbury Jacksonville as of October 30, 1998, the Company
recorded a tax liability of approximately $1,686 for the net recognized
built-in gain, pursuant to Section 1374 of the Internal Revenue Code.
5. OPERATING LEASES
----------------
The Company leases certain land, facilities, and computer equipment under
operating leases with various expiration dates through 2008. Rental expense
under such agreements totaled $175 for the period from January 1, 1998
through October 30, 1998.
Minimum future lease payments under these operating leases are as follows:
1998 $ 214
1999 214
2000 214
2001 208
2002 217
Thereafter 768
------
$1,835
======
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business. In the opinion of management of the Company,
the amount of ultimate liability with respect to these actions will not
materially affect the financial condition, liquidity or the results of
operations of the Company.
The dealerships operated by the Company hold franchise agreements with a
number of automotive manufacturers. In accordance with the individual
franchise agreements, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of the manufacturers to
influence the operations of the dealerships or the loss of a franchise
agreement could have a negative impact on the Company's operating results.
As discussed in Note 1, Asbury Jacksonville granted the selling shareholders
of the Company a put option that gives them the right to require Asbury
Jacksonville to purchase their minority interests upon certain circumstances.
Asbury Jacksonville signed a letter of intent to acquire the remaining 50%
interest for approximately $7,000 in a dealership which is 50%-owned by AAG
and the shareholders of the Company.
F-68
COGGIN AUTOMOTIVE CORP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
7. RETIREMENT PLAN
---------------
The Company participates in a salary deferral 401(k) plan (the "Plan"), which
is administered by the National Automobile Dealers Association. All full-time
employees of the Company who are more than 21 years of age and have more than
one year of service are eligible to participate in the Plan. The Company
matches employee contributions up to 2% of an employee's annual compensation,
with the matching portion vesting over a period of seven years.
The Company's expense under the Plan totaled $207 for the period
from January 1, 1998 through October 30, 1998.
F-69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To J.I.W. Enterprises, Inc.:
We have audited the accompanying combined statements of income, shareholders'
equity and cash flows of J.I.W. Enterprises, Inc. for the period from January
1, 1998 through September 17, 1998. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of J.I.W.
Enterprises, Inc. for the period from January 1, 1998 through September 17,
1998 in conformity with generally accepted accounting principles.
Roseland, New Jersey
April 14, 1999
F-70
J.I.W. ENTERPRISES, INC.
COMBINED STATEMENT OF INCOME
(in thousands)
For the period from
January 1, 1998
through
September 17, 1998
-------------------
REVENUE:
New vehicle $107,655
Used vehicle 48,334
Parts, service and collision repair 25,202
Finance and insurance, net 2,978
----------
Total revenue 184,169
----------
COST OF SALES:
New vehicle 100,296
Used vehicle 43,986
Parts, service and collision repair 15,771
----------
Total cost of sales 160,053
----------
GROSS PROFIT 24,116
OPERATING EXPENSES:
Selling, general and administrative 18,384
Depreciation and amortization 402
----------
Income from operations 5,330
OTHER INCOME (EXPENSES):
Floor plan interest expense (1,352)
Interest income 46
----------
Net income $ 4,024
==========
See Notes to Combined Financial Statements.
F-71
J.I.W. ENTERPRISES, INC.
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock Retained
and Additional Earnings Total
Paid-In Capital (Deficit) Equity
--------------- --------- ------
BALANCE AS OF DECEMBER 31, 1997 $5,722 $ 371 $ 6,093
Distributions - (4,597) (4,597)
Net income - 4,024 4,024
-------- ---------- ---------
BALANCE AS OF SEPTEMBER 17, 1998 $5,722 $ (202) $ 5,520
======== ========== =========
See Notes to Combined Financial Statements.
F-72
J.I.W. ENTERPRISES, INC.
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
For the period from
January 1, 1998
through
September 17, 1998
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,024
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 402
Change in operating assets and liabilities -
Accounts receivable, net (1,994)
Inventories 4,238
Prepaid expenses (193)
Other assets 204
Floor plan notes payable (2,635)
Accounts payable and accrued expenses 973
---------
Net cash provided by operating activities 5,019
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (333)
---------
Net cash used in investing activities (333)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (4,597)
Net advances from minority partner 795
---------
Net cash used in financing activities (3,802)
---------
Net increase in cash and cash equivalents 884
CASH AND CASH EQUIVALENTS, beginning of period 5,085
---------
CASH AND CASH EQUIVALENTS, end of period $ 5,969
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,357
=========
See Notes to Combined Financial Statements.
F-73
J.I.W. ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------------
The financial statements reflect the combined operations of J.I.W.
Enterprises, Inc., Courtesy Toyota of Brandon, Inc., Gulf Auto Holdings, Inc.
and Courtesy Imports of Tampa, Inc. (collectively the "Company"). The Company
is engaged in the sale and servicing of new automobiles and the retailing and
wholesaling of replacement parts and used vehicles. The Company operates from
two locations in the greater Tampa, Florida metropolitan area.
The Company's dealership operations were sold to Asbury Automotive Tampa L.P.
("Asbury Tampa") on September 18, 1998 for $37,257, including transaction
costs, and the issuance of a 49% interest in Asbury Tampa to the shareholders
of the Company.
All significant intercompany transactions have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or
when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenue from financing fees and commissions is
recorded at the time of the sale of the vehicles and a reserve for future
chargebacks is established based on historical operating results and the
termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated chargebacks, is included in
finance and insurance revenue in the accompanying combined statement of
income.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include contracts in-transit and highly liquid
investments that have an original maturity of three months or less at date of
purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
F-74
J.I.W. ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Inventories
- -----------
Inventories are valued at the lower of cost or market utilizing the "last-in,
first-out" (LIFO) method. If the "first-in, first-out" (FIFO) method had been
used to determine the cost of inventories valued using the LIFO method net
income would have been increased by approximately $82 for the period from
January 1, 1998 through September 17, 1998.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided for utilizing the straight-line method over the estimated useful life
of the asset.
Tax Status
- ----------
The Company's shareholders have elected to be taxed as S corporations as
defined by the Internal Revenue Code. The shareholders of the Company are
taxed on their share of the Company's taxable income. Therefore, no provision
for federal or state income taxes has been included in the financial
statements.
Advertising
- -----------
The Company expenses the costs of advertising as incurred or when such
advertising initially takes place. Advertising costs aggregated approximately
$2,158 for the period from January 1, 1998 through September 17, 1998.
Use of Estimates
- ----------------
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the financial statements and reported
amounts of revenues and expenses during the period presented. Actual results
could differ from those estimates.
Statement of Cash Flows
- -----------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statement of cash flows.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash deposits. The Company maintains
cash balances in financial institutions with strong credit ratings. At times,
amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base. However, they are concentrated in the Company's market area in
west central Florida.
Segment Reporting
- -----------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no
international operations.
F-75
J.I.W. ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a)
a hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of
the derivative and the resulting designation. The Company has determined that
the adoption of SFAS No. 133 will not have a material impact on its results of
operations, financial condition, liquidity or cash flows.
3. INTEREST EXPENSE
----------------
Floor plan notes payable reflect amounts payable for purchase of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. In 1998, the interest rates related to floor
plan notes payable were based on the London Interbank Offered Rate ("LIBOR")
plus 130 basis points. Floor plan arrangements permit borrowings based upon
new and used vehicle inventory levels. Vehicle payments on notes are due when
the related vehicles are sold. The notes are collateralized by substantially
all vehicle inventories of the Company and are subject to
certain financial and other covenants.
4. OPERATING LEASES
----------------
The Company leases certain land and buildings from its majority shareholder.
Rental expense under these leases for the period from January 1, 1998 through
September 17, 1998 was $1,156. Annual minimal non-cancelable lease payments
under these leases amount to $1,510 through September 16, 2008.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims,
the Company has indemnified Asbury. In the opinion of management of the
Company, the amount of ultimate liability with respect to these actions will
not materially affect the financial position, liquidity or the results of
operations of the Company.
F-76
J.I.W. ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
6. RETIREMENT PLAN
---------------
The Company maintains a 401(k) plan covering substantially all of its
employees. Individuals, eighteen years of age and older, are eligible to
participate in the plan upon attaining one year of service with the Company.
The Company matches a portion of the employee's contributions dependent on
reaching specified operating goals. Expenses related to the Company's matching
contribution were $27 for the period from January 1, 1998 through September
17, 1998.
F-77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To David McDavid Auto Group:
We have audited the accompanying combined statements of income, shareholders'
equity and cash flows of David McDavid Auto Group for the period from January
1, 1998 through April 30, 1998. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of David
McDavid Auto Group for the period from January 1, 1998 through April 30, 1998
in conformity with generally accepted accounting principles.
Roseland, New Jersey
March 19, 1999
F-78
DAVID McDAVID AUTO GROUP
COMBINED STATEMENT OF INCOME
(in thousands)
For the period from
January 1, 1998
through
April 30, 1998
--------------------
REVENUE:
New vehicle $ 78,558
Used vehicle 21,577
Parts, service and collision repair 18,951
Finance and insurance, net 3,750
-----------
Total revenue 122,836
-----------
COST OF SALES:
New vehicle 74,616
Used vehicle 19,837
Parts, service and collision repair 11,292
-----------
Total cost of sales 105,745
-----------
GROSS PROFIT 17,091
OPERATING EXPENSES:
Selling, general and administrative 14,253
Depreciation and amortization 257
-----------
Income from operations 2,581
OTHER EXPENSE:
Floor plan interest expense (1,286)
Other interest expense (107)
-----------
Net income $ 1,188
===========
See Notes to Combined Financial Statements.
F-79
DAVID McDAVID AUTO GROUP
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock and
Additional Retained Total
Paid-In Capital Earnings Equity
----------------- -------- -------
BALANCE AS OF DECEMBER 31, 1997 $2,040 $12,355 $14,395
Distributions - (1,560) (1,560)
Net income - 1,188 1,188
-------- --------- ---------
BALANCE AS OF APRIL 30, 1998 $2,040 $11,983 $14,023
======== ========= =========
See Notes to Combined Financial Statements.
F-80
DAVID McDAVID AUTO GROUP
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
For the period from
January 1, 1998
through
April 30, 1998
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,188
Adjustments to reconcile net income to net cash used in
operating activities-
Depreciation and amortization 257
Changes in operating assets and liabilities-
Accounts receivable (898)
Inventories (708)
Prepaid expense and other assets (441)
Floor plan payable (1,998)
Accounts payable and accrued liabilities (1,177)
----------
Net cash used in operating activities (3,777)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (45)
----------
Net cash used in investing activities (45)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation (46)
Repayment of long-term borrowings (315)
Proceeds from long-term debt 10,552
Distributions (1,560)
----------
Net cash provided by financing activities 8,631
----------
Net increase in cash and cash equivalents 4,809
CASH AND CASH EQUIVALENTS, beginning of period 14,665
----------
CASH AND CASH EQUIVALENTS, end of period $ 19,474
==========
SUPPLEMENTAL INFORMATION OF CASH FLOW INFORMATION-
Cash paid for interest $ 1,027
==========
See Notes to Combined Financial Statements.
F-81
DAVID McDAVID AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------------
The financial statements reflect the combined operations of the following
entities: David McDavid Pontiac, Inc., David McDavid Luxury Imports, Inc.,
David McDavid Nissan, Inc., D.Q. Automobiles, Inc., Autovest, Inc., Texas Auto
Outfitters, Inc., David McDavid Wireless Communications, Inc., McAdvertising,
Inc., and Papa Grande Mgmt. Co., (collectively the "Company"). The Company is
engaged in the sale and servicing of new automobiles and the retailing and
wholesaling of replacement parts and used vehicles throughout the Dallas,
Houston and Austin, Texas metropolitan areas.
The Company was sold to Asbury Automotive Texas L.L.C. ("Asbury Texas") on
April 30, 1998 for $90,331 (including transaction costs) and the issuance of a
25.8% interest in Asbury Texas to the shareholders of the Company.
All significant intercompany transactions have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Revenue Recognition
- -------------------
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or
when vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to
customers over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees, insurance
or vehicle service contract commissions in the event of early termination of
the contracts by customers. The revenue from financing fees and commissions is
recorded at the time of the sale of the vehicles and a reserve for future
chargebacks is established based on historical operating results and the
termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated chargebacks, is included in
finance and insurance revenue in the accompanying combined statement of
income.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include contracts in-transit and highly liquid
investments that have an original maturity of three months or less at date of
purchase. Contracts-in-transit represent receivables from finance companies
for the portion of the vehicle purchase price financed by customers through
sources arranged by the Company.
Inventories
- -----------
Inventories are valued at the lower of cost or market utilizing the "first-in,
first-out" (FIFO) method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is provided for
utilizing the straight-line method over the estimated useful life of the
asset.
F-82
DAVID McDAVID AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Tax Status
- ----------
Except for Autovest, Inc., the Company's shareholders have elected to be taxed
as S corporations as defined by the Internal Revenue Code. The shareholders of
the Company are taxed on their share of the Company's taxable income.
Therefore, no provision for federal or state income taxes has been included in
the financial statements. Autovest, Inc. is a C corporation; federal income
taxes related to this entity are not material to the combined results of
operations.
Advertising
- -----------
The Company expenses the costs of advertising as incurred or when such
advertising initially takes place. Advertising costs totaled $1,097 for the
period from January 1, 1998 through April 30, 1998.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Statement of Cash Flows
- -----------------------
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statement of cash flows.
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist primarily of floor plan notes
payable and long-term debt. The carrying amounts of its financial instruments
approximate their fair values due to their relatively short duration and
variable interest rates.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of cash deposits. The Company maintains
cash balances in financial institutions with strong credit ratings. At times,
amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base.
Segment Reporting
- ------------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no
international operations.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
F-83
DAVID McDAVID AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
derivative instruments embedded in other contracts (collectively referred to
as derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted transaction
or (c) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign currency-denominated forecasted transaction. The
accounting for changes in the fair value of a derivative (gains or losses)
depends on the intended use of the derivative and the resulting designation.
The Company has determined that the adoption of SFAS No. 133 will not have a
material impact on its results of operations, financial condition, liquidity
or cash flows.
3. INTEREST EXPENSE
----------------
Floor plan notes payable reflect amounts payable for purchase of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. In 1998, the interest rates related to floor
plan notes payable were based on the London Interbank Offered Rate ("LIBOR")
plus 2.25%. Floor plan arrangements permit borrowings based upon new and used
vehicle inventory levels. Vehicle payments on notes are due when the related
vehicles are sold. The notes are collateralized by substantially all vehicle
inventories of the Company and are subject to certain financial
and other covenants.
Long-term debt outstanding during 1998 consists of various notes payable to
banks and corporations, bearing interest at both fixed and variable rates and
secured by certain of the Company's assets. Interest rates were based on LIBOR
plus 2.50% or the prime rate, ranging from 7.5% to 10.0%.
4. RELATED-PARTY TRANSACTIONS
--------------------------
The Company leases certain land and buildings from its majority shareholder.
Annual minimum non-cancelable lease payments under these leases amount to
approximately $4,808 through May 1, 2013. Rent expense for the period from
January 1, 1998 through April 30, 1998 was $1,608.
From January 1, 1998 through April 30, 1998, approximately $645 of commission
income was derived from the sale of credit life and disability insurance
policies and warranty contracts from insurance companies which are owned by
the majority shareholder. In addition, from January 1, 1998 through April 30,
1998, commission income of approximately $520 was derived from a finance
company in which the Company has a small ownership interest. Included in
finance and insurance, net is approximately $378 of investment earnings from
such finance company.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have, any material effect upon the capital
expenditures, net earnings, financial condition, liquidity or competitive
position of the Company. Management believes that its current practices and
procedures for the control and disposition of such materials comply with
applicable federal, state and local requirements.
The Company has guaranteed 30% of loans made by a bank in an aggregate amount
of $2 million, the proceeds of which were used by two management employees who
had no ownership interest in the Company to acquire a 3.6% interest in Asbury
Texas.
F-84
DAVID McDAVID AUTO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
The Company has been named in a class action lawsuit alleging that more than
600 automobile dealerships, including the Company, have improperly charged
consumers a vehicle inventory tax in addition to the purchase price of the
vehicle. The Texas Automobile Dealers Association has assumed defense of the
case. There is no allegation as to the amount of damages claimed and no
determination has been made as to the potential liability. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not materially affect the financial position or results of operations of
the Company.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims
the Company has indemnified Asbury Texas. In the opinion of management of the
Company, the amount of ultimate liability with respect to these actions will
not materially affect the financial position, liquidity or the results
of operations of the Company.
F-85
======================================================== ========================================================
[ ] Shares
No dealer, salesperson or other person is authorized
to give any information or to represent anything not ASBURY AUTOMOTIVE GROUP, INC.
contained in this prospectus. You must not rely on any
unauthorized information or representations. This COMMON STOCK
prospectus is an offer to sell only the shares offered
hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. ---------------------------
TABLE OF CONTENTS [LOGO]
Page
Prospectus Summary.............................. 2 ---------------------------
The Offering.................................... 5
Summary Historical And Pro Forma Consolidated
Financial Data................................ 6
Risk Factors.................................... 7
Forward-Looking Statements...................... 15 GOLDMAN, SACHS & Co.
Use Of Proceeds................................. 16
Dividend Policy................................. 16 MERRILL LYNCH & Co.
Dilution........................................ 16
Capitalization.................................. 18 SALOMON SMITH BARNEY INC.
Selected Consolidated Financial Data............ 19
Unaudited Pro Forma Financial Information....... 21
Management's Discussion And Analysis
Of Financial Condition And Results Representatives of the Underwriters
Of Operations................................. 26
Business........................................ 32
Management...................................... 47
Certain Transactions............................ 56
Description Of Capital Stock.................... 58
Security Ownership Of The Beneficial
Owners, Management And Selling
Stockholders.................................. 61
Shares Eligible For Future Sale................. 63
Underwriting.................................... 66
Validity Of Shares.............................. 67
Experts......................................... 67
Where You Can Find More Information............. 68
Index To Financial Statements................... F-1
Through and including [ ] , 2001 (the 25th day
after the date of this prospectus), all dealers effecting
transactions in these securities, whether or not
participating in this offering, may be required to
deliver a prospectus. This is in addition to a
dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect
to an unsold allotment or subscription.
======================================================== ========================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with this offering. All
such amounts (except the SEC registration fee and the NASD filing fee) are
estimated.
SEC registration fee $37,500
NYSE listing fee *
NASD filing fee *
Blue Sky fees and expenses *
Printing and engraving costs *
Legal fees and expenses *
Accounting fees and expenses *
Transfer Agent and Registrar fees and expenses *
Miscellaneous *
Total $ *
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our By-Laws provide that we shall, subject to the limitations contained
in the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
Section [ ] of the Underwriting Agreement, to be filed as Exhibit 1.1,
provides that the Underwriters named therein will indemnify us and hold us
harmless and each of our directors, officers or controlling persons from and
against certain liabilities, including liabilities under the Securities Act.
Section [ ] of the Underwriting Agreement also provides that such Underwriters
will contribute to certain liabilities of such persons under the Securities
Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No shares of our common stock have been issued prior to this offering.
The only membership interests issued by us in the last three years have been
made under the exemption provided in Section 4(2) of the Securities Act of
1933, in connection with our acquisitions of dealerships.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit
Number Description
------- -----------
1.1 Form of Underwriting Agreement*
3.1 Form of Certificate of Incorporation of Asbury
Automotive Group, Inc.*
3.3 Form of By-laws of Asbury Automotive Group, Inc.*
- --------------------
* To be filed by amendment.
II-1
5.1 Form of Opinion of Cravath, Swaine & Moore**
10.1 1999 Option Plan**
10.2 Form of 2001 Stock Option Plan*
10.3 Form of Employee Stock Purchase Plan*
10.4 Third Amended and Restated Limited Liability Company
Agreement of Asbury Automotive Group L.L.C.**
10.5 Employment Agreement of Thomas R. Gibson*
10.6 Amended and Restated Employment Agreement of Brian E.
Kendrick*
10.7 Amended and Restated Employment Agreement of Thomas F.
McLarty**
10.8 Severance Pay Agreement of Phillip R. Johnson**
10.9 Credit Agreement, dated as of January 17, 2001,
between Asbury Automotive Group L.L.C. and Ford Motor
Credit Company, Chrysler Financial Company,
L.L.C., and General Motors Acceptance Corporation. +**
10.10 Form of Stockholders Agreement dated [ ]
between Asbury Automotive Holdings and Stockholders
named therein.*
10.11 Ford Dealer Agreement*
10.12 General Motors Dealer Agreement*
10.13 Honda Dealer Agreement*
10.14 Mercedes Dealer Agreement*
10.15 Nissan Dealer Agreement*
10.16 Toyota Dealer Agreement*
10.17 Acura Dealer Agreement*
10.18 Lexus Dealer Agreement*
10.19 Chrysler Dealer Agreement*
21.1 List of subsidiaries of Asbury Automotive Group, Inc.*
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Dixon Odom P.L.L.C.*
23.3 Consent of Cravath, Swaine & Moore (contained in
Exhibit 5)
24.1 Power of Attorney
--------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested with respect to certain
portions of this document and has been filed separately with the
Securities and Exchange Commission.
(b) Financial Statement Schedules
II-2
The financial statement schedules are omitted because they are
inapplicable or the requested information is shown in the consolidated
financial statements of Asbury Automotive Group or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(2) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance on Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it is declared effective.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, the State of New York, on the 31st day of July, 2001.
Asbury Automotive Group L.L.C.
By: *
-----------------------------------
Name: Brian E. Kendrick
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the registration statement has been signed by the following
persons in the capacities and on the date indicated.
Signature Title Date
*
- -------------------------
Brian E. Kendrick President and Chief Executive July 31, 2001
Officer
*
- -------------------------
Thomas F. Gilman Vice President and Chief July 31, 2001
Financial Officer
*
- -------------------------
Thomas R. Gibson Chairman July 31, 2001
*
- -------------------------
Michael C. Paul Controller July 31, 2001
*
- -------------------------
Timothy C. Collins Director July 31, 2001
*
- -------------------------
Ian K. Snow Director July 31, 2001
*
- -------------------------
John M. Roth Director July 31, 2001
*
- -------------------------
C.V. Nalley Director July 31, 2001
*
- -------------------------
B. David McDavid Director July 31, 2001
*
- -------------------------
Charles B. Tomm Director July 31, 2001
* /s/ Brian E. Kendrick
- -------------------------
Attorney-in-Fact
*** Asbury Automotive Group L.L.C., a Delaware limited liability company,
which on or prior to the effective date of this registration statement will be
converted into a Delaware corporation, named Asbury Automotive Group, Inc.
through either a conversion into a corporation or by a merger with an entity or
a subsidiary of an entity which has no other business.
II-4
EXHIBIT 24.1
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Asbury Automotive Group, L.L.C. (the "Company"), constitutes and
appoints Brian E. Kendrick and Thomas F. Gilman, as his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign a Registration Statement on Form
S-1 (the "Registration Statement") to be filed with the Securities and
Exchange Commission (the "SEC") in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of common stock,
and any or all amendments to such Registration Statement, including
post-effective amendments, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the SEC and other appropriate
governmental agencies, and grants unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intent and
purposes as he or she might or could do in person, and hereby ratifies and
confirms all that said attorneys-in-fact and agents, each acting alone, or his
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. This Power of Attorney may be executed in any number of
counterparts (whether facsimile or original), each of which shall be deemed an
original with respect to any party whose signature appears thereon, and all of
which shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have duly signed this Power of
Attorney this 18th day of July, 2001.
/s/ Brian E. Kendrick
- ----------------------------
Brian E. Kendrick
President and Chief Executive
Officer
2
/s/ Thomas F. Gilman
- ----------------------------
Thomas F. Gilman
Vice President and Chief
Financial Officer
/s/ Thomas R. Gibson
- ----------------------------
Thomas R. Gibson
Chairman and Director
/s/ Michael C. Paul
- ----------------------------
Michael C. Paul
Controller
/s/ Timothy C. Collins
- ----------------------------
Timothy C. Collins
Director
/s/ Ian K. Snow
- ----------------------------
Ian K. Snow
Director
/s/ John M. Roth
- ----------------------------
John M. Roth
Director
/s/ C.V. Jim Nalley
- ----------------------------
C.V. Jim Nalley
Director
/s/ B. David McDavid
- ----------------------------
B. David McDavid
Director
/s/ Charles B. Tomm
- ----------------------------
Charles B. Tomm
Director