UnitedAuto Reports Results for Fourth Quarter and 1998
31 March 1999
UnitedAuto Reports Results for Fourth Quarter and 1998
NEW YORK--March 31, 1999--Company Reports Fourth Quarter and Year End 1998 Results and
Records Special Fourth Quarter 1998 Charges Totaling $33.3 Million;
Income from Continuing Operations for 1998 Totals $20.3 Million on
Revenues of $3.3 Billion or $0.97 Per Share on a Diluted Basis,
Excluding Special Charges
Company Engaged in Preliminary Discussions to Receive Strategic
Investment;
JP Morgan Retained to Facilitate Transaction
UnitedAuto Group, Inc. , the nation's second largest publicly traded automotive retailer, today announced results for the fourth quarter and year ended December 31, 1998.
The Company also stated that it is engaged in preliminary discussions regarding a potential strategic investment in the Company. The Company has retained JP Morgan to facilitate a transaction. However, there can be no assurance that any transaction will result from the process.
Marshall S. Cogan, Chairman and Chief Executive Officer said, "Since becoming a public company in 1996, UnitedAuto has grown to over 100 automotive franchises and has emerged as an organization dedicated to best retail practices in our industry. An injection of new capital as well as new professional resources would accelerate the Company's growth and allow us to continue the emphasis on UnitedAuto's dealership operations. Our goal is to continue to improve the Company's profitability through continued diversification among vehicle sales, aftermarket product sales and service revenue."
Fourth Quarter 1998 Results
The Company also announced results for the fourth quarter and year ended December 31, 1998. In the fourth quarter, revenues increased to $838.0 million versus $547.3 million in the comparable prior year period. Gross profit margin for the quarter was 12.3% compared to 11.0% in the comparable prior year period.
The loss from continuing operations in the fourth quarter was $5.0 million, or $0.22 per share on a diluted basis, as compared to a loss from continuing operations of $25.5 million, or a $1.34 per share on a diluted basis in 1997. The fourth quarter of 1998 included a $12.6 million pre-tax charge ($6.9 million after-tax) for the estimated present value of premiums to be paid to an insurance company for its assumption of the repair costs on certain warranties and extended service contracts as discussed below. The fourth quarter of 1997 included a pre-tax charge of $31.7 million ($19.5 million after-tax) taken to realign certain elements of the Company's operations. Excluding the $12.6 million pre-tax charge, gross profit margin would have been 13.7% for the fourth quarter of 1998.
Excluding the $12.6 million charge, income from continuing operations in the fourth quarter of 1998 was $1.9 million or $0.08 per share on a diluted basis.
Of the $838.0 million in fourth quarter revenues, vehicle sales represented approximately 85.7%, or $718.2 million of the total; finance and insurance revenues represented approximately 3.8% or $32.0 million of the total; and service and parts revenues of $87.8 million represented the remaining 10.5%.
The Company sold 19,334 new and 10,790 used vehicles during the fourth quarter versus12,804 new and 7,736 used vehicles for the comparable 1997 period.
Samuel X. DiFeo, President and Chief Operating Officer, stated, "The orderly integration of our 1998 acquisitions contributed to the quarter's results at the dealership level. We will continue to improve our operations by focusing on service opportunities and higher levels of customer satisfaction. The 1998 dealership operating results together with potential new resources will provide us with a stronger framework for continued success during 1999."
The Company also noted that the fourth quarter net income included a pre-tax loss of $20.7 million ($13.3 million after-tax) related to its discontinued auto finance company operations.
Fourth Quarter 1998 Pre-Tax Charges
Fourth quarter 1998 results include pre-tax charges totaling $33.3 million ($20.2 million after-tax), including:
(i) $20.7 million related to the previously announced decision to
discontinue the auto finance business of its subsidiary,
UnitedAuto Finance Inc. The charge exceeds the estimated range of
$13.0 to $15.0 million reported on December 22, 1998 as a result
of revised estimates related to future operating losses,
contractual commitments and the valuation of finance assets.
(ii) $12.6 million related to estimated future repair costs under the
terms of approximately 51,000 warranty and extended service
contracts sold by UnitedAuto Care Inc. from January 1, 1997 to
October 31, 1998. The repair obligations for these contracts had
been contractually assumed by Trace International Holdings, Inc.
and its subsidiary, Alpha Automotive, Inc. During the period
covered by the contract, the Company remitted approximately $7.8
million to Alpha Automotive. The $12.6 million pre-tax charge
results from a decision by the Company to insure these
obligations with a subsidiary of Aon Corporation as a result of
uncertainty regarding the ability of Trace and Alpha Automotive
to perform their obligations.
The Company stated that the $20.7 million pre-tax charge related to its auto finance operations, of which $6.3 million is reflected as operating losses of UnitedAuto Finance, consists of:
o $1.0 million related to the write-off of deferred financing fees
in connection with the closure of UnitedAuto Finance's warehouse
lines;
o $9.9 million related to adjustments to loan portfolio assets,
including (a) losses incurred on the sale of loans in private
non-securitized transactions, (b) provisions to reflect a
decreased capacity to recover certain other finance assets and
(c) losses in connection with exiting interest rate management
transactions. Of this amount, $6.3 million is reflected as fourth
quarter operating losses;
o $5.9 million, primarily related to operations at the Fairport, NY
facility, including lease and systems-related expenses, employee
severance and other administrative expenses, as well as the
write-off of certain fixed assets;
o $3.9 million related to estimated future costs associated with
servicing a $140.0 million securitized portfolio of retail
automotive loans in accordance with contractual commitments.
It added that:
o The Company had auto finance net assets of $23.3 million as of
December 31, 1998 which are expected to be realized in cash as
the loans in the securitized portfolio are repaid. As of March
31, 1999, the Company expects to realize an estimated $17.0
million in cash over the next 24 months; from December 1998 to
March 1999 the Company received $2.9 million.
o The cash portion of the auto finance operations charge is
approximately $7.7 million.
The Company provided the following information pertaining to the pre-tax charge of $12.6 million taken related to estimated future repair costs under the terms of approximately 51,000 warranty and extended service contracts:
o The Company has been informed by Trace and Alpha Automotive that
they are in the process of evaluating their ability to meet their
obligations with respect to the warranty and extended service
contract obligations assumed from UnitedAuto Care. As a result of
the uncertainty about Alpha Automotive's ability to perform its
contractual obligations, the Company has entered into an
insurance agreement with Virginia Surety Company, Inc. and
certain of its affiliates. Virginia Surety is a subsidiary of Aon
Corporation , an insurance services holding company.
Under the terms of the agreement, affiliates of Virginia Surety
have agreed to assume the repair obligations on the 51,000
warranty and extended service contracts in exchange for a fixed
premium payable over time. The $12.6 million pre-tax charge
represents the estimated present value of those premium payments.
The Company has no further financial obligations related to these
contracts other than to make the specified premium payments;
o The Company has terminated the contract with Alpha Automotive
with respect to warranty or extended service contracts sold by
UnitedAuto Care subsequent to October 31, 1998, and has entered
into an agreement with affiliates of Virginia Surety pursuant to
which these affiliates will be obligated for repair obligations
on all warranty and extended service contracts sold and to be
sold by UnitedAuto Care subsequent to October 31, 1998 in
exchange for specified insurance premiums;
o Trace and Alpha Automotive will remain liable with respect to
warranty or extended service contracts sold prior to November 1,
1998. Future recoveries from Trace and Alpha Automotive will
reduce the cost of the Virginia Surety insurance agreement.
1998 Results
For the fiscal year ended December 31, 1998, revenues were $3.3 billion as compared to $2.1 billion in the comparable prior year period. Income from continuing operations for the year was $13.4 million as compared to a net loss of $7.9 million in 1997. Earnings per share from continuing operations in 1998 were $0.64 on a diluted basis versus a 1997 loss per share of $0.44 on a diluted basis.
Excluding the special charges in the fourth quarter, the Company reported income from continuing operations for the year of $20.3 million, or earnings per share of $0.97 on a diluted basis for the year.
Of the $3.3 billion in 1998 dealership revenues, vehicle sales represented approximately 86.2%, or $2.9 billion of the total; finance and insurance revenues represented approximately 3.8%, or $127.4 million of the total; and service and parts revenues of $334.1 million represented the remaining 10.0%.
The Company said that it sold 77,403 new and 46,724 used vehicles during 1998 versus 50,985 new and 31,253 used vehicles for the comparable 1997 period.
Diluted weighted average shares outstanding were 20,932,000 for fiscal 1998 compared to 18,607,000 in 1997. The 1998 weighted average share calculation includes the dilutive effect of the estimated shares to be issued by the Company under the minimum share price guarantee relating to the 1,040,039 shares of common stock issued in connection with the acquisition of the Young Automotive Group during 1998. In February 1999, the Company issued 1,156,689 shares of common stock in settlement of the stock price guarantee obligation with respect to 444,987 shares of common stock. As of March 24, 1998, the Company has 21,895,073 common shares outstanding.
UnitedAuto, which has pursued a strategy based on internal growth from its existing dealerships as well as from strategic acquisitions, operates franchises representing 30 brands in Arizona, Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Nevada, New Jersey, New York, North Carolina, Puerto Rico, South Carolina, Tennessee and Texas. UnitedAuto dealerships sell new and used vehicles and market a complete line of aftermarket automotive products and services through UnitedAuto Care, Inc. and UnitedAuto Care Products, Inc.
Based on its most recent Schedule 13-D filed with the Securities and Exchange Commission, Trace International Holdings, Inc. is the beneficial owner of 4,016,110 shares of common stock of UnitedAuto Group Inc., which represents approximately 20.5% of the Company's outstanding common stock. Marshall S. Cogan, Chairman and Chief Executive Officer of UnitedAuto, is also Chairman and Chief Executive Officer of Trace International Holdings, Inc.
This press release contains forward-looking information, and actual results may materially vary from those expressed or implied herein. Factors, including, economic conditions, manufacturer approvals and acquisition risks, that could affect these results are described in the documents filed by the Company with the Securities and Exchange Commission.
UNITEDAUTO GROUP, INC.
Consolidated Statements of Operations (unaudited)
(Amounts in Thousands, Except Per Share Data)
Fourth Quarter (a)
-----------------------
1998 1997
Vehicle Sales $ 718,186 $ 474,000
Finance and Insurance 32,064 17,781
Service and Parts 87,763 55,541
--------- ---------
Total Revenues 838,013 547,322
Cost of Sales, Including
Floor Plan Interest 734,958 487,163
--------- ---------
Gross Profit 103,055 60,159
Selling, General and
Administrative Expenses 102,360 94,699
--------- ---------
Operating Income (Loss) 695 (34,540)
Other Interest Expense (8,081) (6,822)
Other Income (b) 1,173 --
--------- ---------
Loss From Continuing Operations
Before Minority Interests,
Income Tax Benefit And
Extraordinary Item (6,213) (41,362)
Minority Interests (136) (20)
Income Tax Benefit 1,349 15,849
--------- ---------
Loss From Continuing Operations (5,000) (25,533)
Loss From Discontinued
Operations, Net of Income
Tax Benefit (13,281) (1,393)
Loss Before Extraordinary
Item (18,281) (26,926)
Extraordinary Item, Net of
Income Tax Benefit -- --
--------- ---------
Net Loss ($ 18,281) ($ 26,926)
========= =========
Diluted Earnings Per Share
From Continuing Operations ($ 0.22) ($ 1.34)
========= =========
Diluted Earnings Per Share ($ 0.81) ($ 1.41)
========= =========
Diluted Weighted Average
Shares Outstanding 22,665 19,104
========= =========
EBITDA (c) $ 18,743 $ (1,197)
========= =========
(a) 1997 amounts have been restated to reflect a change in the method
of accounting for new vehicle inventories from LIFO to the
Specific Identification Method.
(b) Represents fees received under management agreements at certain
dealerships for which acquisition is pending final manufacturer
approval.
(c) EBITDA is defined as income from continuing operations before
minority interests, income tax provision, interest expense
(exclusive of interest expense relating to floor plan notes
payable), depreciation and amortization and the effect of the
$12.6 million and $31.7 million unusual charges recorded during
the fourth quarter of 1998 and 1997, respectively.
UNITEDAUTO GROUP, INC.
Consolidated Statements of Operations (unaudited)
(Amounts in Thousands, Except Per Share Data)
Year (a)
------------------------
1998 1997
Vehicle Sales $ 2,881,678 $ 1,827,609
Finance and Insurance 127,405 74,199
Service and Parts 334,064 190,785
----------- -----------
Total Revenues 3,343,147 2,092,593
Cost of Sales, Including
Floor Plan Interest 2,916,248 1,835,531
----------- -----------
Gross Profit 426,899 257,062
Selling, General and
Administrative Expenses 375,043 255,066
----------- -----------
Operating Income 51,856 1,996
Other Interest Expense (31,462) (14,071)
Other Income (b) 4,800 297
----------- -----------
Income (Loss) From
Continuing Operations Before
Minority Interests, Income
Tax (Provision) Benefit
And Extraordinary Item 25,194 (11,778)
Minority Interests (262) (138)
Income Tax (Provision) Benefit (11,554) 3,980
----------- -----------
Income (Loss) From Continuing
Operations Before
Extraordinary Item 13,378 (7,936)
Loss From Discontinued
Operations, Net of Income
Tax Benefit (12,940) (2,204)
Income (Loss) Before
Extraordinary Item 438 (10,140)
Extraordinary Item, Net
of Income Tax Benefit (1,235) --
----------- -----------
Net Loss $ (797) ($ 10,140)
=========== ===========
Diluted Earnings Per
Share From Continuing
Operations $ 0.64 ($ 0.43)
=========== ===========
Diluted Earnings Per Share ($ 0.04) ($ 0.54)
=========== ===========
Diluted Weighted Average
Shares Outstanding 20,932 18,607
=========== ===========
EBITDA (c) $ 85,670 $ 42,053
=========== ===========
(a) 1997 amounts have been restated to reflect a change in the method
of accounting for new vehicle inventories from LIFO to the
Specific Identification Method.
(b) 1998 amounts represents fees received under management agreements
at certain dealerships for which acquisition is pending final
manufacturer approval.
(c) EBITDA is defined as income from continuing operations before
minority interests, income tax provision, interest expense
(exclusive of interest expense relating to floor plan notes
payable), depreciation and amortization and the effect of the
$12.6 million and $31.7 million unusual charges recorded during
the fourth quarter of 1998 and 1997, respectively.
UNITEDAUTO GROUP, INC.
Consolidated Balance Sheets (unaudited)
(Amounts in Thousands)
Year
Assets 1998 1997
Cash and cash equivalents $ 38,538 $ 94,435
Accounts receivable, net 125,460 92,601
Inventories 410,295 324,330
Other current assets 16,420 20,413
--------------------------
Total current assets 590,713 531,779
Property and equipment, net 51,483 37,588
Intangible assets, net 482,049 326,774
Net assets of discontinued operation 23,323 32,601
Other assets 36,626 42,322
--------------------------
Total assets $ 1,184,194 $ 971,064
==========================
Liabilities and Stockholders' Equity
Floor plan notes payable $ 397,234 $ 334,272
Accounts payable 38,435 30,199
Accrued expenses 45,104 40,136
Current portion of long-term debt 24,756 9,981
--------------------------
Total current liabilities 505,529 414,588
Long-term debt 288,265 238,550
Other long-term liabilities 48,750 17,369
--------------------------
Total Liabilities 842,544 670,507
--------------------------
Commitments and contingent liabilities -- --
Stockholders' Equity:
Voting Common Stock 2 2
Non-voting Common Stock -- --
Additional paid-in-capital 352,591 310,373
Accumulated deficit (10,943) (9,818)
--------------------------
Total Stockholders' Equity 341,650 300,557
--------------------------
Total Liabilities and
Stockholders' Equity $ 1,184,194 $ 971,064
==========================
Notes to the Consolidated Balance Sheets are included in the
Company's Form 10-K filed with the Securities and Exchange Commission.