Group 1 Automotive Inc (GPI) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Group 1 Automotive fourth quarter and year-end earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded on Thursday, February 24, 2005. I would now like to turn the conference over to Mr. Russell Johnson, from Fleishman-Hillard. Please go ahead, sir.

Good morning everyone, and welcome to the Group 1 Automotive 2004 fourth quarter and year-end earnings conference call. Before we begin, I would like to make a brief remark about forward-looking statements. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume, and the conditions of markets. Those and other risks are described in the Company's filings with the SEC over the last 12 months. Copies of these filings are available from both the SEC and the Company. I will now turn the call over to Mr. B.B. Hollingsworth, Jr., Chairman, President and Chief Executive Officer of Group 1 Automotive. Mr. Hollingsworth, please go ahead.

Good morning, and welcome to our conference call. This morning we will discuss operating results for the fourth quarter of 2004 and the full year. But first for the highlights. Fourth quarter net income was $11.2 million or 47 cents per diluted share, which includes a non-cash impairment charge for one of our Los Angeles area franchises of $2 million after-tax or 8 cents per diluted share on revenues of $1.4 billion for the quarter. Excluding certain items described in schedules attached to the press release, fourth quarter adjusted net income was 56 cents per diluted share versus 54 cents per diluted share in 2003 on a comparable basis. Revenues increased 30.8 percent to $1.4 billion. Same-store revenues grew 2.4 percent, and gross profit increased 25.5 percent to $219.9 million.

Our fourth quarter results reflected the continuation of the market challenges we experienced throughout 2004. Despite this tough environment our Dallas and Florida platforms delivered outstanding fourth quarter results. And from a brand standpoint, our Honda, Nissans and luxury franchises also performed well.

I will now ask Robert Ray to go over the details of our financial results as well as our brands and geographic mix.

Good morning everyone. Let me begin by providing some additional color on the fourth quarter and full year results we announced today. First there are a few items that make our as reported results for 2004 not comparable to 2003. We provided a summary of these items in the schedules of information attached to the news release. And I will briefly review each of these items.

First, as has been mentioned, our fourth quarter 2004 results include an 8 cent charge related to the impairment of indefinite lived tangible assets at one of our Los Angeles area franchises. Second, our fourth quarter 2003 results of 84 cents per share included 21 cents related to the favorable resolution of certain tax contingencies. And third, our fourth quarter 2003 results also included 9 cents per share related to a reduction in our used vehicle valuation reserve.

After adjusting for these items, our fourth quarter '04 results on an as adjusted basis were 56 cents a share compared to 54 cents a share on the same as adjusted basis in the fourth quarter of '03. Similarly, our full year '04 results of $1.18 per share includes the 8 cent impairment charge in Los Angeles, plus 2 other items that had been discussed on our previous calls.

One is a 17 cent charge associated with the early redemption of some of our bonds in Q1 of '04. And the other is the $1.25 charge we recorded in the third quarter of '04 in connection with the impairment of goodwill and certain other long-lived assets at our Atlanta platform. After adjusting for these items our full year 2004 results on as adjusted basis were $2.68 per share as compared with $2.88 per share in 2003.

Now following up on our Atlanta impairment, you will recall that the $41 million impairment charge we recorded in the third quarter was based on management's assessment of the fair market value of the Atlanta platform and the goodwill associated with it. During the fourth quarter we engaged a third party to confirm our initial assessment. This review has now been completed and as a result no adjustment to the original $41 million charge will be required.

Now let's turn to geographic and brand mix. Our geographic mix changed a bit during 2004 as a result of our acquisition activity. Based on 2004 new vehicle unit sales, our top 5 market areas were California, New England, Houston, Oklahoma, and West Texas which together accounted for about 60 percent of our total new vehicle unit sales. For a detailed listing of all our market areas, please see the schedule of additional information attached to the news release.

Our brand mix, again based on 2004 new vehicle unit sales, continued to be dominated by Toyota/Scion/Lexus at 27.7 percent, and Ford at 20.5 percent. For a total exposure to these top 2 brands of just over 48 percent. Our next largest brand exposures were DaimlerChrysler, GM, Nissan/Infiniti, and Honda/Acura, which together comprised another 45.2 percent of our new vehicle unit sales.

As Ben mentioned, we experienced solid performance in the fourth quarter from our group of luxury brands. For 2004 these luxury brands represented approximately 14 percent of our business. This has increased to about 16 percent on a pro forma basis as a result of our mid 2004 acquisitions of BMW, Volvo, Mercedes-Benz and Maybach franchises. During 2004 domestic brands represented 42 percent of our new vehicle unit sales, while imports comprised 58 percent or 59 percent on a pro forma basis. In addition, over the last 2 years our exposure to import brands has increased from 49 percent to 59 percent on a pro forma basis.

Now turning to our consolidated operating results for the fourth quarter. During the quarter we retailed over 46,000 vehicles, up about 23 percent, and serviced about 400,000 vehicles, up roughly 33 percent. As a result, total revenues for the quarter were 1.4 billion, an increase of 31 percent from the prior year. These increased volumes and revenues were primarily due to acquisitions. The integration of these acquisitions has been and will continue to be one of our areas of focus.

Total gross profit for the quarter was $219 million, up 25.5 percent over the prior year, again due mainly to acquisitions. Gross profit as a percentage of revenues decreased by 60 basis points from 15.9 to 15.3 percent. And same-store gross profit was down slightly, by about half a percent to $174 million.

Gross margin from new retail vehicle sales increased by 10 basis points from 7.2 percent to 7.3 percent. This increase was due in part to a 4.8 percent increase in gross profit per retail unit sold to $2,160 roughly. We realized this increase despite a market that remains extremely competitive, largely as a result of the continued influence of manufacturing incentives. Our new vehicle inventory at December 31 was at 70 day supply. This compares to 75 day supply at December 31, '03, and 64 days supply at December 30, '04. Although this current level is slightly above our target, we're nevertheless comfortable with our position.

On the used side, used vehicles gross margins were up about 40 basis points to 11.9 percent in the quarter. And on a gross profit per retail unit basis this translated into a 4.8 percent increase to $1,868 per retail unit. And even after considering losses incurred in wholesale transactions, the net profit per retail unit increased slightly, or less than 1 percent to $1,675 per retail unit.

Our used vehicle inventory at year end was 29 days supply, which is just below our target of 30 days. Parts and service gross margin was down 110 basis points to 55 percent on a 33 percent increase in revenue. This decline largely reflects a change in our business mix among parts, service and collision services, with the lower margin wholesale parts business accounting for a larger percentage of revenue than our service and collision businesses. On a same-store basis, parts and service revenues and gross profit were actually up slightly about 3.6 percent on revenues and 1.6 percent on gross profit. We remain pleased with the performance and position of this business.

Finally, F&I margin was down about 8.5 percent to $921 per retail unit, as we experienced lower finance and service contract penetration rates on both new and used vehicle sales. Our newly acquired franchises have also put downward pressure on our F&I margins as most of these, especially the luxury franchises, typically have F&I margins that are lower than those of our average dealerships.

On the cost side, our same-store SG&A increased by 5 percent during the quarter or $6.9 million from the prior year. Contributing to this increase were increased corporate costs, including higher audit and professional fees associated with our assessment and testing of our internal control environment. In addition, we accrued a litigation reserve of about 4 cents per share in the fourth quarter related to a previously disclosed and ongoing class-action lawsuit in Texas.

Income from operations for the quarter was $29.1 million, or 2 percent of revenues. This includes the impact -- this margin is 2 percent -- includes the impact of our $3.3 million impairment charge in Atlanta, which we report above the line as part of our ongoing operations. Excluding the impairment charge, operating income was $32.4 million, down slightly from $33.3 million or 3 percent of revenues for the same period last year.

Finally, a couple of words on interest expense. Floor plan interest expense increased by $3.3 million for the quarter to 7.7 million. This increase was largely attributable to higher average floor plan debt balances resulting from acquisitions, and the general releveraging of the balance sheet that has occurred since our August '03 senior subordinated note issuance. Higher floor plan interest rates also had an impact. Manufacturer floor plan assistance continues to provide a meaningful benefit. For the quarter, floor plan assistance totaled $8.7 million, which covered our total floor plan interest expense by 114 percent.

Now turning to liquidity and capital structure. From a liquidity standpoint, the Company maintains $1.2 billion in committed credit facilities. Currently we have over $300 million of total availability under these facilities. This availability can be used as needed to fund our floor plan, working capital, acquisition and general corporate needs.

As of year end 2004 we had about $154 million of working capital. This is significantly lower than our working capital level at the end of '03, reflecting the fact that we have releveraged our inventory to more a normal level. And by doing that, we were able to use a good portion of our excess working capital to redeem the Company's 10 7/8 percent senior subordinated notes in March of '04, and fund our acquisition activities throughout the first half of '04.

Also as of year-end, our long-term debt to capitalization ratio was 30 percent, down from 33 percent at September 30. At this fairly modest level of leverage we have significant capacity to fund additional growth.

And finally, net capital expenditures -- I'm sorry -- total capital expenditures for the quarter were around $13 million, of which approximately 10 million was for new or expanded operations. For the year, total capital expenditures were about $48 million.

For additional details regarding our financial condition, as well as our consolidated and same-store operating results, brand and geographic mix, and other financial metrics, please refer to the schedule of additional information attached to the news release.

And with that I will turn it back over to Ben for an update on our recent acquisition activity and our 2005 outlook.

During 2004 Group 1 added 23 franchises with expected annual revenues of approximately $1.2 billion. The brand mix of these franchises consists of 24 percent domestic, and 76 percent import, including 39 percent luxury. The aggregate consideration paid for these acquisitions was approximately $221.7 million in cash net of cash received, the assumption of approximately 109.7 million in inventory financing, and 394,000 shares of Group 1 common stock. The cash portion of these transactions was funded with a combination of cash on hand and borrowings under the Company's revolving credit facility.

In January, 2005 the Company completed the acquisition of new Dodge and Chrysler franchises in Tulsa, Oklahoma. Both of these franchises became part of the Bob Howard Auto Group, and are expected to generate aggregate annual revenues of $46 million. The Chrysler franchise has become part of the Crown Auto World dealership. And the Dodge dealership has been renamed Bob Howard Downtown Dodge.

Group 1 anticipates 2005 full year earnings per diluted share of $2.95 to $3.05, excluding any future acquisition. This estimate is based on our average diluded shares outstanding of 24.2 million. This estimate also includes approximately 7 cents per diluted share related to the expensing of stock compensation that will be required under Statement of Financial Accounting Standards No. 123R for reporting periods ending after June 30, 2005.

Oversupply of domestic new vehicles remains a major concern in the industry. Until inventories more closely match consumer demand, we believe that most of our markets will remain highly competitive. Pressures on gross margins will continue. And sales will be driven by auto makers' incentive programs. In the meantime, we will focus on improving our operating margins and integrating our newly acquired franchises.

We will continue to seek accretive acquisitions that fit our stringent criteria, although at a slower pace than in 2004. While we're pleased with the results of our every 2004 acquisition program, we recognize the need to complete the integration of these newly acquired franchises. As a result, we are establishing a 2005 acquisition target of $300 million in aggregate anticipated annual revenues. As I mentioned, the 2005 earnings per share guidance excludes any financial impact from these acquisitions.

Now for Group 1's top sellers. For the quarter, because we really have a difference this year between the quarter and the year, for the fourth quarter our top-selling brand again once more was the Ford F-Series pickup, number 2 was the Toyota Camry, number 3, the Toyota Corolla, number 4 the Dodge Ram pickup, and number 5 Nissan's Altima.

For the full year Ford F-Series also leads the pack, followed by Toyota Camry, Dodge Ram pickup, number 4 the Toyota Corolla, and number 5 for the year is Honda's Accord.

Group 1 today owns 96 automotive dealerships comprised of 142 franchises, 33 different brands and 32 collision service centers located in 11 states with 15 platforms.

Operator, we are now ready for questions.

(OPERATOR INSTRUCTIONS). John Murphy with Merrill Lynch.

A question for you on the Sarbanes-Oxley cost and the Texas litigation costs in the quarter. I know you called out the Texas litigation costs at about, or the accrual, at about 4 cents. Is it possible to parse out what is going on with the Sarbanes-Oxley? And are either of these ongoing, or what should we expect going forward?

This is Robert.

Let me add one thing. That's a question a lot in America are asking today. Will it be ongoing or what? Go ahead, Robert.

I guess on the numbers I would I guess suggest just if you can -- they will certainly be disclosed in the proxy statement and the 10-K. Needless to say it is a lot. And but it is not -- we certainly didn't break -- we didn't think it warranted breaking out. But it is a big cost and a big effort, and we're not -- we're not unique in that regard, so therefore we're just going to -- we have a plan to talk about it separately.

But at some point I was certain (ph) in a ramp up phase here we might expect that to fade a little bit going forward?

Yes, certainly -- if the cost is associated with man hours spent, then it certainly should go down over time as we get into a more maintenance mode, so to speak.

As you probably know, it is ongoing. But once, as we have done the initial documentation of these controls are in place, it is a matter of just going forward maintenance, also bringing then in new acquisitions. Also we will have to come up to speed with the rest of the Company.

On inventories, it sounds like you're not too high there based on your target. But is there an opportunity to work that down as you work through these -- this big acquisition binge you guys had this year? Is there the opportunity to push gross margin or push back on gross margin on the new vehicle side?

I think on the inventory question first, a lot of our acquisitions in '04 were, as I mentioned, import and luxury. Those inventories are all what I would call lean. It is on the domestic side where we're a bit long. But in a conference call last week with all of our platform Presidents, I guess I could summarize it. At 70 days overall really is kind of okay. Our guide is 60, and we have very little '04 carryover models. So the guys feel I think pretty well in whole. If March comes in like we anticipate it will, then we should be in a very good shape for our inventories by the end of the first quarter.

Another question. How many other stores do you have out there that you're reviewing? We had the Atlanta write-down. We had the Los Angeles write-down. Are there any others that are under review right now that we should be keeping an eye on?

We review all of them every year. We are required to do that and we have completed that review for '04. But that is an ongoing review under the current accounting rules by all -- everybody in the sector and really all public companies. But that was all -- that is all that is appropriate as of December 31.

But you have been through a full review for this year for which you shouldn't probably expect to see anything until late next year or at fourth quarter next year would be --.

The requirement Ben is mentioning is for accounting purposes, and for the impairment we have to -- we're required to review for goodwill and for goodwill and intangible impairment. And we're also -- there's also a new -- so that is the accounting side of it. Now if you're asking a more operational question, we're also required -- that same accounting requirement requires us to relook at any -- whenever management thinks that one of its assets might be impaired, and that is actually what happened in the third quarter with Atlanta, which was a kind of an off cycle impairment, because our requirement is annual, so we would have normally impaired it at the end of the fourth quarter. But we felt, management felt, that the asset had been impaired, and so we took the action at that time.

So we all have that requirement. And so therefore it is -- it does have an ongoing element. And a there's also going to be -- companies are going to be required to adopt a new methodology here for conducting those valuations for intangibles on a more direct method. And so there is going to be some -- there could be some movement in the first quarter related to that change.

And then just a last question. The Dodge and Chrysler store you got in Tulsa, would that possibly be combined with the Jeep and Alpha store? Is that sort of where you're going down there?

Yes. Actually the Chrysler store will be, as I said, moved into Crown, which does have a Jeep franchise in there now. And then we're doing some repositioning, if you will, in that Tulsa market. We also have a BMW store that is in Crown. And in conjunction with this acquisition we purchased a site location. We're going to relocate that BMW into that store into a stand-alone new fabulous BMW store up there. So it was a kind of a below the radar screen acquisition that is going to do a lot of different things. And you're exactly right, moving towards Chrysler Alpha and then also separating out BMW.

Adrienne Dale with Canadian Imperial Bank of Commerce.

With respect to the parts and service business mix you were alluding to the lower margin business accounting for a higher percentage of the sales in that segment. Do you see that trend continuing going forward?

It is fairly -- it doesn't vary that much. The reason -- the contributing factor there for us was that we have in the last year kind of ramped up in certain of our locations the wholesale parts business, and created some very large wholesale parts distribution centers. And so those do have a lower margin, and it is just the weighting of that that has kind of gravitated that margin down a little bit. But in general, that business is very -- is stable. And over time our margins have been at -- very consistent in that business.

And you do have any plans for any significant service bay additions going forward?

We have the capacity to do so certainly, and we are spending money every year to some degree.

We certainly have about what we call 15 percent of our total service bays are flat, or they do not have lifts, so we have the capacity for expansion within existing service operations of approximately 324 service bays today.

We have a capital expenditure budget for '05 that goes before the Board in a few weeks that includes a number of service initiatives and service expansions. We will be talking about those as we go forward. We're really not ready to do that yet, because the Board hasn't looked at that. But I think it is suffice to say that total productive stalls for us today is a little over 2,100. And then we have an additional 15 percent capacity on flat stalls to be able to grow within existing service departments. So pretty nice opportunity there. We will be realizing that, especially our luxury brands. And some of the import brands, especially Toyota, that have seen great growth in great numbers of units in operation around those dealerships are really great opportunities for us to expand really an existing customer base already. And would just be a nice addition to our parts and service revenue base with a pretty high returns.

And then you reduced your Florida exposure a decent amount through these additional acquisitions. Can we assume that you'll continue to reduce your domestic mix going forward through acquisitions in '05 and beyond? And what would be your target mix?

That's a great question. If you could give me a forecast of what all of the auto makers would do over the next 10 years I could probably give you my ideal mix. We're at about 60 percent import right now. And for '05 we don't plan to add a lot of acquisitions anyway.

So you probably would see us stay pretty close to that -- pretty close to that 60 percent import, 40 percent domestic. Although you see, and we just talked about Tulsa, those are definitely DaimlerChrysler stores that we added up there. But we do strategic tuck-in acquisitions that augment existing dealerships. We also look for those opportunities, whether they are domestic or imports.

So I think you won't see a lot of movement in that mix in '05, as we continue to integrate this -- these '04 acquisitions which were largely import. No question that the imports continue to take market share. We're certainly aware of that. And I think that will on the longer-term basis be reflected in our brand mix.

Thanks. And then just lastly what was rent for the fourth quarter?

Coming up.

It has been running around 14 or so on a quarterly basis.

Rick Nelson with Stephens, Inc.

If I go back a year ago, your '04 EPS guidance was 320 to 340, and that excluded acquisitions which in the last year you have acquired 1 billion 2. I am wondering is the issue with core operations? Are the acquisitions not performing, or is the industry environment just more difficult than you thought?

I think definitely the latter. At the time we gave that forecast, you have a great memory, I hope you also remember we said we thought the industry was going to really turn in the second half the year -- second half '04. And it clearly did not. We had a great December, but pretty weak October, November in the industry as a whole and for Group 1 also.

So I think probably a much more difficult industry environment than we are or I dare say anybody else anticipated. Continued margin pressures because of over capacities, as I mentioned in my prepared remarks. And I think -- so that for the first part -- the acquisitions have really performed I think up to our expectations for the most part, the '04 acquisitions. Especially our new luxury brands. Our Houston BMW stores, the Mercedes-Benz in Beverly Hills, our stores up in New Jersey, Long Island, all those luxury brands have done very well.

So what we have seen is I think really -- what I would call our core business -- our core dealerships, the original -- some of the original founder group, if you will. Largely domestic and largely -- some in markets that are particularly soft be flat to down for us. Some of those would be for -- were great used car markets where we have great used car retailers. And the used car business has been very difficult because of what is going on in new vehicles and incentives.

So we have seen -- and it is not only that, it is some market specific. You have heard others talk about the Houston market, for example, has been pretty soft actually since 2001 for a number of reasons. But you have heard everybody talk about that. That is both domestic and import. The only really leader we have here that has done really well is Lexus and our new BMW stores.

And so some of it is market specific, some of it would be brand specific where you have large domestic exposure such as Oklahoma, which is also large used car. So you have kind had almost a double hit where you have domestic new, the volatility with incentives on and off, the pressures on margins, and then the erosion in our used car business in those markets because of that very same thing. So I think -- we continue to work on that -- to focus on those core businesses. It is a big initiative for us this year. As I said, we're not going to do very many acquisitions, strategic tuck-ins. So I believe those are really the factors in that.

How did Atlanta perform in the fourth quarter from a pretax profit standpoint? Is that getting better or is that continuing to deteriorate?

Atlanta, we brought in, as you probably know, new management in Atlanta. They were in place for -- been in place for roughly 3 months probably. As is typical we did lose money in the fourth quarter in Atlanta. Not a surprise there as we went through changes in both Platform President, Platform CFO, and then most of the General Managers in those stores as we kind of got that market repositioned.

We are -- I'm going to be cautious because I have been pretty optimistic about that in the past. So we will say we're cautiously optimistic. We will watch and see what happened in Atlanta. The first quarter is very critical for that platform. But we feel good about the people we have in place. They just have to perform for us now.

Matthew Fassler with Goldman Sachs.

A couple of questions if I could. First of all, I would like to dig a little bit deeper into F&I and decline that you saw in F&I per vehicle retailed. How much of it do you think is simply a function of the mix of your acquisitions, and how much of it do you think comes from performance at your previously existing business?

I will take a shot at that. Certainly these luxury brands that we have acquired in the areas we have acquired them have had lower averages than we have, you know say below $800 PRU. But on top of that the penetration rates have been down as well, and so I think it is -- I think it is in part that it is just -- the new -- the used business just the new versus the toughest in the used businesses is having an impact on F&I. And I don't know if I can give you a great breakdown there, but the data is that our -- we're down I would say 1 percentage point or so in the penetration on the new side from traditional finance in the 75 percent area. And then vehicle services has always been around 40 percent or so. Those are both down kind of 1 percentage point or so.

And because it seems like if you look at the decline in the gross margin rate over all that that has something to do with it. So is there -- are there initiatives in place in your I guess legacy businesses to try to drive that number higher at this point? Or do you think given your strong performance over a number of years that you've kind of reached the ceiling there?

No, I don't think we have reached the ceiling at all. There's a very large bandwidth in S&I PR, what we call PRU, per retail unit. Just to kind of give you a little indication of that, on some of our new luxury brands we required their PRU on F&I down around $300. And you can look at our average and see what that does to that. There has been what I would call a general misperception that in luxury brands it is harder to sell F&I products. Now I don't believe that to be true at all.

So it is just a matter of training, mindset. And I do think there is some tremendous opportunities there. I'm not saying their per retail unit would be as high as perhaps a Chevrolet store, but it certainly would be -- it will be higher than $300, I can promise you that.

My second question relates to your used car gross margins. It seems like to the extent that the aggregate used grosses were down 80 basis points or so, it seems like the wholesale activity is the predominant factor there. That your used retail business is actually up on a gross margin rate basis, but your wholesale losses are higher than they were last year. And I guess they were unusually favorable in Q4. So if you could just give us a little color on both of those pieces of used car gross, and what you expect going forward?

I think the Q4 versus Q4 answer is pretty simple. I mentioned one of the reconciling items we mentioned with this used car valuation reserve that was lower in the fourth quarter of '03. So that is entirely driving what you're seeing there. That would have been negative. It is all flowing through that used vehicles wholesale margin.

How big is that one? Let me get it in dollars, if you would?

On a post tax basis -- well, pretax basis it was 4.3 or so. You can see in the table attached it is $2.1 million post tax.

Got you.

And, Matt, just from an operational strategic standpoint, I know you know this but, part of that is in trying to manage the volatility of the new vehicle market because of incentives, on one month, off the next month, consumer expectations, etc. -- is that it makes the used vehicle inventory management very critical. So what we have done is try to be ultraconservative. You heard me say before we are probably light in used car inventory. We are probably losing retail sales. But what we're gaining is no exposure to used car or very little exposure to our used car inventory in being under 30 days on that supply. And what that does then it drives your wholesale sales up. That is exactly what you have seen happen.

Third question, on floor plan financing. On the year-to-year basis your reported floor plan interest is up, I guess, about 87 percent, 7.7 million versus 4.1 million a year ago, if those numbers are correct. That is a much bigger increase relative to inventory than you showed in the third quarter. So if you could talk about the moving pieced in floor plan, including vendor, or OEM credits, and how you're getting to that increase in floor plan dollars?

It is certainly a combination of -- it is a combination of rates and volumes certainly, but also remember that last year -- but also flowing through that you will remember last year in the fourth quarter the Company had a lot of excess cash on hand from its bond offering that it subsequently used to redeem its notes. That was all being used to reduce its floor plan balances. So on a net basis it was a lot lower.

Would you say that you were smaller users of your facilities last year in the fourth quarter?

Yes. And if you look at the balance sheet that was provided, you can kind of see that. If you look at the notes payable at December 31, it was less than 500, but our inventory was almost 700. So there was that gap there, and that was -- had a net positive impact on our net floor plan interest.

Got you. And my final question, just a quick technical one. What is the effective tax rate that you used to get to your fourth quarter pro forma number, excluding the onetime item that you had this year?

37 percent.

Jerry Marks with Raymond James.

Most of my questions have been answered. Just kind of following up with Matt and the floor plan. And another way to look at it, your floor plan as a percentage of inventories has gone from what 73.5 percent to 97 percent. Should we expect that going forward to kind stay at around 100 percent of inventory?

It is certainly more normal now than it has been in the past.

Has there been times when-- I seem to recall that it has been up even over 100 percent, if that is possible to happen?

It could be over 100 percent of new, if you're just looking at new.

Okay.

Let me add quick, Jerry, you know we have done this before. Last year wasn't the only time, or the year before last, wasn't the only time. But we will park excess funds when we have those -- if you want to continue and let me call it that -- in our floor plan financing. So I can pay that down. We have done that over several years when we did have excess cash on hand. So you know when you say, can you expect that to be around 100 percent going forward? Normally, yes, but with excess funds you would probably see us once again park it short-term in that floor plan credit facility.

In terms of the acquisitions, the 300 million, it seems like you guys -- you are trying to get the 1.2 billion under control, and Atlanta it seems to be a problem. How come you want to do any acquisitions this year?

Let me rephrase that. What we're doing is integrating those acquisitions. They are very much in control and actually performing really well, the '04 acquisitions. I mentioned specifically certain brands, certain dealerships. But really on the whole they have really all done very well. So it really isn't -- that is really not the issue.

More of the issue is that we took on a large amount in '04, 1.2 billion, so we'll do 300 million -- you know these acquisitions we just talked about are almost 50 million. So you just do kind of a typical little tuck-in, you can eat up that 300 million with just a few strategic tuck-ins. And with 15 platforms right now that is real easy to do. So we're always looking for those very strategic opportunities for brand augmentation within our existing market.

So it really isn't -- it is a pretty small amount based on our size today. And absolutely our focus, as I have said, is continuing integration with those. And some of those integrations would be systems and things like that. And then we have to make sure we've got Atlanta right. There's no doubt about that. We are cautiously optimistic about it right now. We've got high-quality people in place there. Atlanta is a tough market for everybody, and we're predominately forward in that market. So we've got a few other factors going on over there besides just management.

And I apologize. I didn't mean in terms of the acquisitions, but just in terms of some of your other stores and things like Atlanta. That's all I had. Thank you very much.

Matt Nemer with Thomas Weisel.

First question is I am just wondering if you saw any sort of bounce back impact in hurricane markets. I know you don't have that many stores in Florida, but even on the periphery in Louisiana, etc.?

We definitely did Florida. New Orleans really wasn't impacted that much by the various storms. They did have evacuations that took place, but not much impact there. But our Florida stores absolutely had a bounce back. And as I mentioned, our top performing platforms for the quarter were Dallas and Florida. And so absolutely that was an impact. I don't think it was huge for us. We don't have a big exposure in Florida. We have 4 pretty good size stores down there, 2 in north Florida, 2 in south Florida.

So it doesn't impact Group 1 like some of the other public companies Florida exposure impacts them as a whole. But you see that. When we had the horrific hail storm last year in Amarillo, Texas. By the way, one of you guys spelled that armadillo in your report. Be sure we get that straight, that is Amarillo. We had where we have had 1,000 cars lost or totaled or damaged. We had a really strong bounce back from that in the succeeding 3 months or so. So it is fairly typical in the industry.

And then my next question was on the L.A. franchise write-down, I'm just going to take a swing and guess that that is a Mitsubishi store. And if it is, how many other stores do you have of that brand?

You get the gold star for the day. It absolutely was a Mitsubishi store. Or is a Mitsubishi store, I should say. We have 4 others scattered throughout, none of which have any franchise value attributed to them.

Okay. So that has already been written down.

That was really our only exposure, if you will, to the impairment issue as far as Mitsubishi is concerned.

And then my next question is on the wholesale loss per vehicle, is it possible to split that out between sort of aged inventory versus vehicles that you brought to wholesale at trade-in or almost immediately? If wholesale prices have been pretty strong at the auctions, and you guys are running very lean with your used car inventory, it would be interesting to kind of know the split there.

We do not split that. But none of it is very old. You can't have 29 days in descending vehicles to auction that have been there for 6 months. It doesn't work that way. So we're pretty aggressive (indiscernible). More of what you try to do is you make the decision if it is the car -- the conditioning. If it a vehicle you want to put your customers in as a retail sale. We usually we know we're going to wholesale it going on, so some of that is immediate. But some of it is absolutely, as I mentioned, is driven by keeping those inventories lean. But there wouldn't be -- you wouldn't see a lot of old cars going over to auction, for example.

And then on the '05 guidance what are your assumptions for -- in that guidance for interest rates in '05, and I guess inventory levels, and then maybe any changes in OEM assistance?

On interest rates we're assuming about -- we do assume a rising interest rate environment. We assume about 120 basis point increase for -- throughout the year, kind of based on sort of the current LIBOR curve, if you will. And we are -- we're assuming a relatively status quo it as relates to floor plan assistance, although the domestics we think will increase because those are largely variable and will float more in tandem with rates. And there is a little bit of a timing lag there, but generally those do float.

Matt, you didn't ask this, but just to kind to add in the guidance -- in the '05 guidance just to reemphasize this, we are including a 7 cent charge for the expensing of a stock compensation for the second half of the year.

I did hear that. And then lastly, CapEx. Do you have any CapEx guidance for '05? Can you give us a sense of should I be roughly flat?

As I mentioned, we're taking that before the Board in a couple of weeks, so I'm going to probably -- we will talk about that at a later call probably. But I would look -- I would not anticipate that going down.

Got it. Okay. Great

Maintenance CapEx should stay the same as it usually has at about depreciation.

Eric Sell (ph) with Wachovia Securities.

Just to clarify Adrienne's question earlier, you guys have a total of 2,100 stalls, is that correct? And in that total are 324 that are not -- you do not have the lift apparatus? Is that --?

No, we have a total of almost 2,500 stalls.

Okay, so that is (multiple speakers).

324 do not have lifts -- flat stalls.

Have you guys ever looked at the split of your mix between light trucks and cars? Is that -- what I'm getting at is your inventory is higher than your peers and you have done a great job on your brand mix. I am just wondering are you guys weighted more towards SUV's and light trucks than the market? Have you guys looked at that?

You're talking about in inventories?

Just in inventory as well as overall new vehicle sales.

Yes, the answer is yes. We are weighted more -- we're at -- for the year we were at 57 percent of new vehicle sales for current versus industry of 54 percent.

Okay. Just slightly more.

Slightly more, yes.

And then most of my questions are answered, but just looking at February, and I know we have this weekend to wait out -- and I know there's a lot of sales in the last weekend of the month. But how is February looking? And then going into March how are you guys feeling towards that?

I will only make a comment on January, and you probably heard this, but this is more a macro comment. But we definitely borrowed sales from January into December. There's a definite pull forward there. We -- it is a little early in February. Just for example, especially in the Northeast, the biggest sales period of the year is during Presidents' Day holiday. So a little early yet on that.

But as I said, with kind of what we're looking at for March and what our guys are seeing, our Platform Presidents are seeing, we feel if it comes in the way we think it will, we're in good shape on inventory so that would tell you that we're feeling pretty good about that.

This is Robert. I want to follow up on your inventory question, because I think -- if I understood where you were going. One thing you also -- you probably you might want to consider is just the way that each -- everyone calculates their day supply. Everyone does it -- there's not complete consistency as you well know. So if you're trying to kind of put our 70 days in perspective, just note that our calculation is on a deemed 30 day month and does not include fleet under the basic parameters.

It excludes fleet?

Right.

Jordan Hemowitz (ph) with Philadelphia Financial.

I'm sorry, all my questions have been answered.

Nate Hudson with Banc of America Securities.

I was just wondering on the inventory numbers, what is the domestic days and what is the import days?

The import days are about 50 and domestic is about 100. Blended to 70.

I guess as rates tick up how aggressive do you intend to be about bringing the domestic numbers down? Or do you think you're going to get enough increase in assistance that your net cost isn't going to increase significantly.

I think that what will happen, a natural progression of the sale season is going to take care of that inventory issue on its own. One of the things -- it is a very delicate balance. I know you guys maybe are on kind of the critical side of inventory days. But on the sales side, if March comes in really like a strong month, you don't want to be short of inventory, because you're going to miss some tremendous opportunities that are there for you. That has happened to some others in the industry in the past. So there's a balancing act of not being too long, but not being too short either.

And so I would say the 70 days at December was a little bit longer than I would like to be, but not too much. But it was a very big sales month. You have to take that into consideration. But where we are right now looking at a 70 days inventory at the end of December we all feel pretty good about that. So it should take care of itself, as it has in past years with us. If you will go back and look, there has been a natural progression to the selling season.

And then one just general question. How significant is the margin differential at this point between your import and your domestic stores? And did that gap widen further last year?

You're talking about like --?

EBITDA margins, I guess?

You're talking about new vehicle sales?

No, just store margins -- store EBITDA margins. How different is -- how different is the number for your import stores versus your domestic stores?

It is really not that different. It is more probably market and brand specific. And probably one of the reasons -- it might surprise you that I say that. But remember we talked about this all last year is the pressure on. For example, Toyota margins is there has been a pretty big push for market share gain. So there's a lot of product, so it makes it very competitive in some of those Toyota markets.

So while they are growing market share like that, there is different factors that impact that. But basically if you look at our stores, some of our top performers as far as margins are domestic stores. Certainly the luxury brands do have higher margins. But we don't see that much difference between the import and domestic.

Mr. Hollingsworth, at this time we have no further questions. Please continue if you have any further remarks you would like to make.

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