UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-2010790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5401 E Independence Blvd, Charlotte, North Carolina 28212
(Address of principal executive offices) (Zip Code)
(704) 532-3320
(Registrant's telephone number, including area code)
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
As of November 17, 1997, there were 11,250,000 shares of $0.01 par value common
stock outstanding.
<PAGE>
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Combined and Consolidated Financial 3
Statements (Unaudited)
Combined and Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997
Combined and Consolidated Statements of Income -
Three-month and Nine-month periods ended
September 30, 1996 and September 30, 1997
Combined and Consolidated Statement
of Stockholders' Equity - Nine-month period
ended September 30, 1997
Combined and Consolidated Statements of Cash Flows -
Nine-month periods ended September 30, 1996
and September 30, 1997
Notes to Unaudited Combined and Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS.
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,
December 31, 1997
1996 (Unaudited)
--------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 6,679 $ 14,100
Marketable equity securities ..................... 638 1,027
Receivables (net of allowance for doubtful
accounts of $225 and $875)...................... 11,908 15,582
Inventories (Notes 1 and 3)....................... 71,550 89,576
Deferred income taxes............................. 280 256
Other current assets.............................. 333 896
-------- --------
Total current assets ........................... 91,388 121,437
-------- --------
PROPERTY AND EQUIPMENT, NET........................ 12,467 15,597
GOODWILL, NET (Note 2)............................. 4,266 23,652
DUE FROM AFFILIATES (Note 6) ...................... 2,466 871
OTHER ASSETS ...................................... 389 318
-------- --------
TOTAL ASSETS ...................................... $110,976 $161,875
======== ========
See notes to unaudited combined and consolidated financial statements.
3
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,
December 31, 1997
1996 (Unaudited)
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan (Note 3)............... $ 63,893 $ 85,008
Trade accounts payable ........................... 3,643 5,537
Accrued interest ................................. 521 437
Other accrued liabilities ........................ 3,032 5,332
Payable to Company's Chairman (Note 2)............ -- 3,500
Current maturities of long-term debt ............. 519 487
-------- --------
Total current liabilities ..................... 71,608 100,301
LONG-TERM DEBT (Note 4)............................ 5,286 25,805
PAYABLE TO AFFILIATED COMPANIES.................... 914 839
DEFERRED INCOME TAXES ............................. 1,059 971
INCOME TAX PAYABLE (Note 5)........................ 5,500 3,871
MINORITY INTEREST.................................. 314 --
-------- --------
Total liabilities ............................. 84,681 131,787
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Note 1):
Preferred stock, $.10 par value, 3,000,000 shares
authorized and unissued ........................ -- --
Class A Common stock, $.01 par, 50,000,000 shares
authorized and unissued ........................ -- --
Class B Common Stock, $.01 par, 15,000,000 shares
authorized, 6,250,000 shares issued and
outstanding .................................... 63 63
Paid-in capital .................................. 13,333 14,941
Retained earnings ................................ 12,993 15,081
Unrealized (loss)/gain on marketable equity
securities ..................................... (94) 3
-------- --------
Total stockholders' equity .................... 26,295 30,088
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $110,976 $161,875
======== ========
See notes to unaudited combined and consolidated financial statements.
4
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Three Months Ended
September 30,
1996 1997
------- --------
REVENUES:
Vehicle sales ............................... $ 80,696 $110,407
Parts, service and collision repair ......... 11,230 13,411
Finance and insurance ....................... 1,917 3,282
-------- -------
Total revenues ....................... 93,843 127,100
COST OF SALES ................................ 82,329 112,251
-------- -------
GROSS PROFIT ................................. 11,514 14,849
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . 8,619 11,260
DEPRECIATION AND AMORTIZATION ................ 431 376
-------- -------
OPERATING INCOME ............................. 2,464 3,213
-------- -------
OTHER INCOME AND EXPENSES:
Interest expense, floorplan ................. 1,277 1,987
Interest expense, other ..................... 132 112
Gain on sale of marketable equity securities - 157
Other income ................................ 66 254
-------- -------
Total other expense ........................ 1,343 1,688
-------- -------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST .................................... 1,121 1,525
PROVISION FOR INCOME TAXES ................... 431 614
-------- -------
INCOME BEFORE MINORITY INTEREST............... 690 911
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY .. 10 -
-------- -------
NET INCOME ................................... 680 911
-------- -------
NET INCOME PER SHARE ......................... $ 0.11 $ 0.15
======== =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING. 6,250 6,250
======== =======
See notes to unaudited combined and consolidated financial statements.
5
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Nine Months Ended
September 30,
1996 1997
-------- ------
REVENUES:
Vehicle sales ................................ $245,029 $295,485
Parts, service and collision repair .......... 32,235 36,317
Finance and insurance ........................ 6,194 8,046
-------- --------
Total revenues ........................ 283,458 339,848
COST OF SALES ................................. 249,520 300,673
-------- --------
GROSS PROFIT .................................. 33,938 39,175
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 25,210 29,673
DEPRECIATION AND AMORTIZATION ................. 791 772
-------- --------
OPERATING INCOME .............................. 7,937 8,730
-------- --------
OTHER INCOME AND EXPENSES:
Interest expense, floorplan .................. 4,078 5,005
Interest expense, other ...................... 316 382
Gain on sale of marketable equity securities . 279 292
Other income ................................. 157 394
-------- --------
Total other expense ......................... 3,958 4,701
-------- --------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST ..................................... 3,979 4,029
PROVISION FOR INCOME TAXES .................... 1,524 1,531
-------- --------
INCOME BEFORE MINORITY INTEREST ............... 2,455 2,498
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY.... 50 47
-------- --------
NET INCOME .................................... $ 2,405 $ 2,451
======== ========
NET INCOME PER SHARE .......................... $ 0.38 $ 0.39
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING.. 6,250 6,250
======== ========
See notes to unaudited combined and consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
(Unaudited)
Unrealized
(Loss)/Gain
Common Stock Additional on Marketable Total
------------ Paid-In Retained Equity Stockholders'
Shares Amount Capital Earnings Securities Equity
------ ----- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 ............ 6,250 $ 63 $13,333 $12,993 $(94) $26,295
Capital contribution (unaudited)..... -- -- 3,208 -- -- 3,208
Stock redemption (unaudited) (Note 6) -- -- (1,600) -- -- (1,600)
Dividend (unaudited)................. -- -- -- (363) -- (363)
Net income (unaudited)............... -- -- -- 2,451 -- 2,451
Change in net unrealized loss on
marketable equity
securities (unaudited).............. -- -- -- -- 97 97
------ ---- ------- ------- ----- -------
BALANCE SEPTEMBER 30, 1997 (Unaudited) 6,250 $ 63 $14,941 $15,081 $3 $30,088
====== ==== ======= ======= ===== =======
</TABLE>
See notes to unaudited combined and consolidated financial statements.
7
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1997
----- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 2,405 $ 2,451
-------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 791 772
Minority interest .................................... 50 47
Loss on disposal of property and equipment ........... 80 31
Gain on sale of marketable equity securities ......... (279) (292)
Deferred income taxes ................................ (62) (65)
Changes in assets and liabilities that
relate to operations:
(Increase) decrease in receivables .................. (1,878) 855
(Increase) decrease in inventories .................. (7,289) 8,307
(Increase) decrease in other current assets ......... (240) 126
Increase (decrease) in other non-current assets ..... (40) 52
Increase (decrease) in notes payable-floor plan ..... 4,763 (3,607)
Increase (decrease) in accounts payable and
accrued expenses ................................... 1,845 (611)
-------- -------
Total adjustments ................................ (2,259) 5,615
-------- -------
Net cash provided by operating activities ........ 146 8,066
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash received ........... (5,127) (21,773)
Purchases of marketable equity securities............... (207) (250)
Proceeds from sale of marketable equity securities...... 350 250
Purchases of property and equipment..................... (1,522) (1,605)
Proceeds from sale of property and equipment............ 4 35
Net (advances to) receipts from affiliates.............. (4,757) 3,057
--------- -------
Net cash used in investing activities ............. (11,259) (20,286)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions .................................. 7,019 1
Proceeds from long-term debt ........................... 599 20,062
Payments of long-term debt ............................. (442) (422)
--------- -------
Net cash provided by financing activities.......... 7,176 19,641
--------- -------
NET INCREASE (DECREASE) IN CASH ......................... (3,937) 7,421
--------- -------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 8,994 6,679
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 5,507 $ 14,100
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.............................................. $ 4,513 $ 5,517
Income taxes ......................................... $ 1,176 $ 1,469
See notes to unaudited combined and consolidated financial statements.
8
<PAGE>
The following Notes to Unaudited Combined and Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contain estimates and forward-looking statements as indicated herein
by the use of such terms as "estimated", "expects", "approximate" or
"projected". Such statements reflect management's current views, are based on
certain assumptions and are subject to risks and uncertainties. No assurance can
be given that actual results or events will not differ materially from those
projected, estimated, assumed, or anticipated in any such forward-looking
statements. Important factors that could cause actual results to differ from
those projected or estimated are discussed herein.
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
NOTES TO UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The accompanying unaudited financial information for
the three and nine months ended September 30, 1996 and 1997 has been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts and transactions have been eliminated.
These unaudited combined and consolidated financial statements reflect, in the
opinion of management, all material adjustments (which include only normal
recurring adjustments) necessary to fairly state the financial position and the
results of operations for the periods presented. The results for interim periods
are not necessarily indicative of the results to be expected for the entire
fiscal year. These interim financial statements should be read in conjunction
with the Company's audited combined and consolidated financial statements for
the year ended December 31, 1996.
INITIAL PUBLIC OFFERING OF COMMON STOCK -- The Company completed its initial
offering of common stock (the Offering) on November 10, 1997 by issuing
5,000,000 shares of Class A common stock at a price of $12.00 per share. Net
proceeds after offering expenses were estimated at $53,800,000. Class A common
stock entitles the holder to one vote per share, while the Class B common stock
entitles the holder to ten votes per share, except in certain circumstances.
INVENTORIES -- In connection with the Offering, the Company changed its method
of accounting for its inventories of new vehicles from the last-in-first-out
method ("LIFO") to the first-in-first-out method ("FIFO"). In accordance with
Accounting Principles Board Opinion No. 20, "Accounting Changes", the
accompanying financial statements and related notes have been retroactively
restated to reflect that change. Accordingly, inventories of new vehicles,
including demonstrators, and parts and accessories are stated at the lower of
FIFO cost or market. Inventories of used vehicles are stated at the lower of
specific cost or market.
The new method of accounting for inventories of new vehicles was adopted to
provide a better matching of revenues and expenses in the future and to conform
with the predominant industry practice for automobile dealerships that are
publicly-held. The effect of the accounting change was to increase retained
earnings as of January 1, 1996 by $7,243,677.
NEW ACCOUNTING STANDARDS -- In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). This Statement, which is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods,
specifies the computation, presentation and disclosure requirements for earnings
per share. The calculation of weighted average shares outstanding using SFAS 128
subsequent to September 30, 1997 will be affected by the issuance of 5,000,000
shares of Class A Common Stock in connection with the Offering, and by the
granting of stock options in connection with the 1997 Stock Option Plan (see
Note 7).
9
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending December 31,
1998, and the Company does not intend to adopt this Statement prior to the
effective date. Had the Company early adopted this Statement, it would have
reported comprehensive income of $680,000 and $2,420,000 for the three and nine
months ended September 30, 1996, respectively, and $1,011,000 and $2,546,000 for
the three and nine months ended September 30, 1997, respectively.
STOCK SPLIT -- All share and per share amounts included in the accompanying
financial statements for all periods presented have been adjusted to reflect a
625 for 1 stock split of the Class B Common Stock effective as of October 16,
1997.
2. BUSINESS ACQUISITIONS
ACQUISITIONS COMPLETED SUBSEQUENT TO SEPTEMBER 30, 1997 -- In October, the
Company completed its previously announced acquisition of Ken Marks Ford, Inc.
located in Clearwater, Florida for a total purchase price of $25.5 million. The
purchase price is subject to adjustment based on the net book value of the
purchased assets and assumed liabilities as of the closing date. The acquisition
was financed with amounts borrowed under a revolving credit facility (see Note
4).
In October, the Company completed its previously announced acquisition of
Williams Motors, Inc. located in Rock Hill, South Carolina for a purchase price
of $1.8 million. The acquisition was financed with amounts borrowed under a
short-term line of credit maturing on February 15, 1998 (see Note 4).
In November, the Company completed its previously announced acquisitions of the
Bowers Dealerships and Affiliated Companies (the "Bowers Acquisition") located
primarily in the Chattanooga and Nashville, Tennessee areas and Dyer Volvo (the
"Dyer Acquisition") located in Atlanta, Georgia for a total purchase price of
$45.6 million. The purchase price of these acquisitions is subject to adjustment
based on the net book value of the purchased assets and assumed liabilities as
of the closing date. The acquisition of the Bowers Dealerships was financed with
$23.6 million in cash obtained from operations and from proceeds of the Offering
and with a $4.0 million promissory note payable in 28 equal quarterly
installments bearing interest at prime less 0.5%. The acquisition of Dyer Volvo
was financed with $18.0 million in cash obtained from operations and from
proceeds of the Offering.
The above acquisitions were accounted for using purchase accounting.
ACQUISITIONS COMPLETED DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1997 --
Effective September 1, 1997, the Company completed its previously announced
acquisition of Lake Norman Dodge and Affiliates for a total purchase price of
$18.3 million, funded on September 29, 1997 with amounts borrowed under a short
term line of credit maturing on February 15, 1998 (see Note 4). The purchase
price is subject to adjustment based on the net book value of the purchased
assets and assumed liabilities as of the closing date. The transaction was
accounted for using purchase accounting and the results of operations of Lake
Norman Dodge and Affiliates have been included in the accompanying Unaudited
Combined and Consolidated Statements of Income from the effective date of
acquisition.
10
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. BUSINESS ACQUISITIONS -- CONTINUED
The purchase price of Lake Norman Dodge and Affiliates has been allocated to the
assets and liabilities acquired at their estimated fair market value at the
acquisition date as follows:
Working capital.................................................. $ 2,952,000
Property and equipment........................................... 495,000
Long-term debt................................................... (847,000)
Goodwill......................................................... 15,738,000
-----------
Total............................................................ $18,338,000
===========
The following unaudited pro forma financial information presents a summary of
consolidated results of operations as if the transaction had occurred as of
January 1, 1996 after giving effect to certain adjustments, including
amortization of goodwill, interest expense on acquisition debt and related
income tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made on that date, nor are they necessarily indicative
of results which may occur in the future.
(PRO FORMA)
Three Months Ended
------------------
September 30,
1996 1997
----------- ---------
Total revenues.............................. $ 130,861 $ 152,389
Gross profit................................ 14,978 15,709
Net income ................................. 407 705
Net income per share........................ $0.07 $0.11
===== =====
(PRO FORMA)
Nine Months Ended
----------------
September 30,
1996 1997
----------- ---------
Total revenues.............................. $ 377,654 $ 442,205
Gross profit................................ 43,923 48,832
Net income ................................. 1,439 1,558
Net income per share........................ $0.23 $0.25
===== =====
In June 1997, the Company through its wholly-owned subsidiary, Fort Mill
Chrysler-Plymouth-Dodge, acquired certain dealership assets and liabilities of
Jeff Boyd Chrysler-Plymouth-Dodge for a total purchase price of $3.7 million.
Of the total purchase price, $3.5 million was funded with an advance by
Mr. O. Bruton Smith, the Company's Chairman and Chief Executive Officer, bearing
interest at 3.83%. It is anticipated that this advance will be repaid in full
with proceeds of the Offering.
11
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. BUSINESS ACQUISITIONS -- CONTINUED
This transaction was accounted for using purchase accounting and the results of
the operations of this dealership have been included from the date of
acquisition through September 30, 1997 in the accompanying Unaudited Combined
and Consolidated Statement of Income. Company management believes that on a
pro-forma basis, revenues, net income and earnings per share would not have been
materially affected assuming this acquisition had occurred on January 1, 1996.
The purchase price has been allocated to the assets and liabilities acquired at
their estimated fair market value at the acquisition date as follows:
Working capital.............................................. $977,000
Property and equipment....................................... 250,000
Goodwill..................................................... 2,473,000
----------
Total........................................................ $3,700,000
==========
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
December 31, September 30,
1996 1997
------------- -------------
New vehicles.................................. $51,798,000 $69,044,000
Used vehicles ................................ 14,372,000 14,004,000
Parts and accessories......................... 4,940,000 5,708,000
Other......................................... 440,000 820,000
----------- ----------
Total $71,550,000 $89,576,000
=========== ===========
All new and certain used vehicles are pledged to collateralize floor plan notes
payable to financial institutions in the amount of $63,893,000 and $85,008,000
at December 31, 1996 and September 30, 1997, respectively. The floor plan notes
bear interest, payable monthly on the outstanding balance, at variable rates
ranging from LIBOR plus 2.75% to prime plus 1.0%. Total floor plan interest
expense amounted to $1,277,000, and $1,987,000 for the three months ended
September 30, 1996 and 1997, respectively, and $4,078,000, and $5,005,000 for
the nine months ended September 30, 1996 and 1997, respectively. The notes
payable are due when the related vehicle is sold. As such, these floor plan
notes payable are shown as a current liability in the accompanying combined and
consolidated balance sheets.
4. LONG-TERM DEBT
SIX-MONTH FACILITY -- On August 28, 1997 the Company obtained from NationsBank,
N.A. ("NationsBank") a short-term line of credit in an aggregate principal
amount of up to $20.0 million (the "Six-Month Facility"). Amounts outstanding
under the Six-Month Facility bear interest at 7.75% and mature no later than
February 15, 1998. The Six-Month Facility is secured by a pledge of Speedway
Motorsports, Inc. common stock shares owned by O. Bruton Smith, the Company's
Chairman and Chief Executive Officer. As of September 30, 1997, $20.0 million
was outstanding under the Six-Month facility. Amounts outstanding have been
classified as long term as such amounts are expected to be refinanced with
proceeds received from the Offering and the Revolving Facility (see discussion
below).
12
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. LONG-TERM DEBT -- CONTINUED
REVOLVING FACILITY -- On October 15, 1997, the Company obtained a secured,
revolving acquisition line of credit (the "Revolving Facility") from Ford Motor
Credit in an initial aggregate principal amount of $26.0 million (the "Initial
Loan Commitment"), which the Company expects to increase to an aggregate
principal amount of $75 million (the "Maximum Loan Commitment") pursuant to a
commitment from Ford Motor Credit. Under the terms of the Revolving Facility
governing the Initial Loan Commitment, amounts outstanding under the Revolving
Facility bear interest at prime plus 1% and mature on December 15, 1997, unless
the Revolving Facility is increased to the Maximum Loan Commitment. If increased
to the Maximum Loan Commitment, the Revolving Facility will mature in two years,
unless the Company requests that such term be extended, at the option of Ford
Motor Credit, for a number of additional one year terms to be negotiated by the
parties. The Initial Loan Commitment is secured by a pledge of Speedway
Motorsports, Inc. common stock owned by Sonic Financial, an affiliate through
common ownership. Subsequent to September 30, 1997, the Company borrowed $25.0
million against the Revolving Facility to fund the acquisition of Ken Marks
Ford. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
5. INCOME TAXES
A change to the FIFO from the LIFO method of inventory for new vehicles resulted
in an additional income tax liability. This liability was recorded as $5,500,000
and $5,479,000 (including $1,608,000 included in other accrued liabilities) at
December 31, 1996 and September 30, 1997, respectively. Of the total liability,
$1,146,000 is payable in January, 1998, with the remaining liability payable in
quarterly installments of approximately $229,000 through December 15, 2002.
Certain subsidiaries of Sonic (such subsidiaries together with the Company and
Sonic Financial, being hereinafter referred to as the "Sonic Group") have joined
with Sonic Financial in filing consolidated federal income tax returns for
several years. Such subsidiaries joined with Sonic Financial in filing for
1996 and for the period ending on June 30, 1997. Under applicable federal tax
law, each corporation included in Sonic Financial's consolidated return is
jointly and severally liable for any resultant tax. Under a tax allocation
agreement dated as of June 30, 1997, however, the Company agreed to pay to Sonic
Financial, in the event that additional federal income tax is determined to be
due, an amount equal to the Company's separate federal income tax liability
computed for all periods in which any member of the Sonic Group has been a
member of Sonic Financial's consolidated group, less amounts previously recorded
by the Company. Also pursuant to such agreement, Sonic Financial agreed to
indemnify the Company for any additional amount determined to be due from Sonic
Financial's consolidated group in excess of the federal income tax liability of
the Sonic Group for such periods. The tax allocation agreement establishes
procedures with respect to tax adjustments, tax claims, tax refunds, tax credits
and other tax attributes relating to periods ending prior to the time that the
Sonic Group shall leave Sonic Financial's consolidated group.
6. RELATED PARTIES
Town & Country Ford and Lone Star Ford have each made several non-interest
bearing advances to Sonic Financial. As of December 31, 1996, Town & Country
Ford had made $1,956,000 of such advances ($2,123,000 as of June 30, 1997). In
preparation for the Reorganization, a demand promissory note by Sonic Financial
evidencing certain of these advances was canceled in exchange for the redemption
of certain shares of the capital stock of Town & Country Ford held by Sonic
Financial. As of December 31, 1996, Lone Star Ford had made $510,000 of advances
to
13
<PAGE>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Sonic Financial. In preparation for the Reorganization, a demand promissory note
by Sonic Financial evidencing certain of these advances was canceled pursuant to
a dividend.
7. EMPLOYEE BENEFIT PLANS
On October 9, 1997, the Company adopted the 1997 Stock Option Plan (the "Plan").
Under the provisions of the Plan, options to purchase 1,125,000 shares of Class
A Common Stock may be granted to key employees of the Company and its
subsidiaries and to officers, directors, consultants and other individuals
providing services to the Company. The exercise price of the options may not be
less than the market value of the Class A Common Stock on the date of grant.
Vesting periods will range from 5 to 10 years. In connection with Offering, the
Board of Directors has granted options to purchase an aggregate of 587,509
shares of Class A Common Stock under the Plan. The Company intends to adopt the
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" to account for the Plan's transactions.
On October 9, 1997, the Company adopted the Sonic Employee Stock Purchase Plan
(the "ESPP"). The ESPP provides employees of the Company the opportunity to
purchase Class A Common Stock after completion of the Offering. Under the terms
of the ESPP, on January 1 of each year all eligible employees electing to
participate will be granted an option to purchase shares of Class A Common
Stock. The Company's Compensation Committee will annually determine the number
of shares of Class A Common Stock available for purchase under each option. The
purchase price at which Class A Common Stock will be purchased through the ESPP
will be 90% of the lesser of (i) the fair market value of the Class A Common
Stock on the applicable Grant Date and (ii) the fair market value of the Class A
Common Stock on the applicable Exercise Date. Options will expire on the last
exercise date of the calendar year in which granted. A total of 150,000 shares
of Class A Common Stock have been reserved for purchase under the ESPP.
8. CONTINGENCIES
The Company is involved in various legal proceedings. Management believes that
the outcome of such proceedings will not have a materially adverse effect on the
Company's financial position or future results of operations and cash flows.
14
<PAGE>
<TABLE>
<CAPTION>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Unaudited Combined and Consolidated Financial Statements including the Notes
thereto.
RESULTS OF OPERATIONS
The following table summarizes, for the periods presented, the percentages of
total revenues represented by certain items reflected in the Company's statement
of operations.
Percentage of Total Revenues for
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Revenues:
<S> <C> <C> <C> <C>
New vehicle sales........................................ 63.3% 60.6% 64.0% 60.9%
Used vehicle sales....................................... 23.5% 25.4% 22.9% 25.5%
Parts, service and collision repair...................... 10.6% 12.0% 10.7% 11.4%
Finance and insurance.................................... 2.6% 2.0% 2.4% 2.2%
------ ------ ------ ------
Total revenues. .........................................100.0% 100.0% 100.0% 100.0%
Cost of sales............................................ 88.3% 87.7% 88.5% 88.0%
------ ------ ------ ------
Gross profit............................................. 11.7% 12.3% 11.5% 12.0%
Selling, general and administrative...................... 8.9% 9.2% 8.7% 8.9%
Operating income......................................... 2.5% 2.6% 2.6% 2.8%
Interest expense......................................... 1.7% 1.5% 1.6% 1.6%
----- ----- ----- -----
Income before income taxes............................... 1.2% 1.2% 1.2% 1.4%
===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
REVENUES. Revenues grew in each of the Company's primary revenue areas, except
for used vehicles, for the first nine months of 1997 as compared with the first
nine months of 1996, causing total revenues to increase 19.9% to $339.8 million.
Same store growth for the nine months ended September 30, 1997 was 13.3%. New
vehicle sales revenue increased 26.1% to $217.6 million, compared with $172.6
million. New vehicle unit sales increased from 9,126 to 10,348 or 13.4%,
attributing to the increase in vehicle sales revenues. The remainder of the
increase was primarily due to a 11.2% increase in the average selling price
resulting from changes in vehicle prices, particularly a shift in customer
preference to higher cost light trucks and sport utility vehicles along with the
additional revenues from the acquisitions of Lake Norman Chrysler-Plymouth-Jeep,
Lake Norman Dodge ("Lake Norman Dodge and Affiliates") and Fort Mill
Chrysler-Plymouth-Dodge dealerships.
Used vehicle revenues from retail sales declined 0.2% from $52.9 million in the
first nine months of 1996 to $52.7 million in the first nine months of 1997. The
decline in used vehicle revenues was due principally to declines in used vehicle
unit sales at the Company's Town & Country Ford and Lone Star Ford locations,
which related to changes in consumer demand.
The Company's parts, service and collision repair revenue increased 12.7% to
$36.3 million from $32.2 million. The increase in service and parts revenue was
due principally to increased parts revenue, including wholesale parts, from the
Company's Lone Star Ford and Fort Mill Ford locations. Finance and insurance
revenue increased $1.9 million or 30%, due principally to increased new vehicle
sales and related financing.
15
<PAGE>
GROSS PROFIT. Gross profit increased 15.4% in the 1997 period to $39.2 million
from $33.9 million in the 1996 period due to increases in revenues of new
vehicles principally at the Company's Lone Star Ford and Fort Mill Ford
locations. Parts and service revenue increases also contributed to the increase
in gross profit. Gross profit as a percentage of sales declined to 11.5% from
12.0% due principally to increases in lower margin used vehicle sales from the
prior period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased 17.7% from
$25.2 million to $29.7 million. This increase was due to higher sales volume and
additional expenses incurred related to the acquisitions of Lake Norman
Chrysler-Plymouth-Jeep, Lake Norman Dodge and Fort Mill Chrysler-Plymouth-Jeep
dealerships.
INTEREST EXPENSE. The Company's interest expense increased 22.6% from $4.4
million to $5.4 million. The increase in interest expense was due to additional
floor plan indebtedness related to the acquisitions of Lake Norman
Chrysler-Plymouth-Jeep, Lake Norman Dodge and Fort Mill Chrysler-Plymouth-Jeep
dealerships and increases in interest rates on floor plan debt.
NET INCOME. As a result of the factors noted above, the Company's net income
increased by $46,000 in the first nine months of 1997 compared to the first nine
months of 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES. The Company's total revenue increased 35.4% to $127.1 million for the
three months ended September 30, 1997 from $93.8 million for the comparable
period of 1996. The same stores sales growth for the three months ended
September 30, 1997 was 17.6%. New vehicle sales increased 41.6% to $80.5 million
from $56.8 million, primarily because of the acquisitions of Fort Mill
Chrysler-Plymouth-Dodge, Lake Norman Chrysler-Plymouth-Jeep and Lake Norman
Dodge dealerships in June 1997 and September 1997, respectively. The inclusion
of the results of the Fort Mill Chrysler-Plymouth-Dodge, Lake Norman
Chrysler-Plymouth-Jeep and Lake Norman Dodge dealerships accounted for 44.0% of
the Company's overall increase in new vehicle sales for the three months ended
September 30, 1997. The increase in unit sales of 22.5% was primarily
attributable to an increase in new vehicle units sold primarily at the Company's
Fort Mill Ford and Lone Star Ford dealerships. The remainder of the increase in
new vehicle sales in 1997 was largely attributable to an increase in average
unit sales prices of 15.6% which the Company believes was primarily due to
changes in inventory mix (in response to shifting customer preferences to light
trucks and sport utility vehicles) and general increases in new vehicle sales
prices.
Used vehicle revenues from retail sales increased 13.7% to $20.1 million for the
three months ended September 30, 1997 from $17.7 million for the comparable
period of 1996. The inclusion of the results of the Company's Fort Mill
Chrysler-Plymouth-Dodge, Lake Norman Chrysler-Plymouth-Jeep and Lake Norman
Dodge dealership acquisitions accounted for substantially all of this increase
in used vehicle sales.
The Company's parts, service and collision repair revenue increased 19.4% to
$13.4 million for the three months ended September 30, 1997, compared to $11.2
million for the comparable period of 1996. The increase in service and parts
revenue was due principally to increased parts revenue, including wholesale
parts, from the Company's Lone Star Ford and Fort Mill Ford locations. Finance
and insurance revenues increased $1.4 million or 71.2%, due principally to
increased new vehicle sales and related financings.
16
<PAGE>
GROSS PROFIT. Gross profit increased 28.0% for the three months ended September
30, 1997 to $14.8 million from $11.5 million for the comparable period in 1996.
The increase in gross profit was principally attributable to the increase in
gross profit per unit of 17.0% for new vehicle retail sales along with the
additional revenues from the acquisitions of the Fort Mill
Chrysler-Plymouth-Dodge, Lake Norman Chrysler-Plymouth-Jeep and Lake Norman
Dodge dealerships. Gross profit decreased from 12.3% to 11.7% as a percentage of
sales due principally to increases in sales of lower margin used vehicles.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's SG&A expenses
increased $2.6 million, or 30.6%, for the three months ended September 30, 1997,
from $8.6 million for the comparable period in 1996. However, as a percentage of
revenue, SG&A expenses decreased from 9.2% to 8.7%. The inclusion of the results
of the Company's Fort Mill Chrysler-Plymouth-Dodge, Lake Norman
Chrysler-Plymouth-Jeep and Lake Norman Dodge dealership acquisitions accounted
for substantially all of the increase in SG&A expenses.
INTEREST EXPENSE. The Company's interest expense for the three months ended
September 30, 1997 increased 49.0% to $2.1 million from $1.4 million for the
comparable period in 1996. The increase in interest expense was due to the
acquisitions of Lake Norman Chrysler-Plymouth-Jeep, Lake Norman Dodge and Fort
Mill Chrysler-Plymouth-Dodge dealerships, and increases in interest rates on
floor plan debt and increased new vehicle inventory levels at existing
dealerships.
NET INCOME. The Company's net income for the three months ended September 30,
1997 increased 33.4% to $0.9 million from $0.7 million for the comparable period
in 1996. The increase in net income was primarily due to overall revenue and
gross profit increases, particularly in finance and insurance products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for capital resources are to finance acquisitions,
debt service and working capital requirements. The Company has relied primarily
upon internally generated cash flows from operations, borrowing under its
various credit facilities and funds from the Offering to finance its operations
and expansion.
The Company has historically maintained a separate revolving floor plan credit
facility for each dealership which has been used to finance vehicle inventory.
The Company currently has floor plan credit facilities with Ford Motor Credit,
Chrysler Financial Corporation and World Omni Financial Corporation. As of
September 30, 1997 there was an aggregate of $85.0 million outstanding under the
floor plan credit facilities. These floor plan facilities bear interest at
variable rates ranging from LIBOR plus 2.75% to prime plus 1.0%. Typically new
vehicle floor plan indebtedness exceeds the related inventory balances. The
inventory balance is generally reduced by the manufacturer's purchase discounts,
and such reduction is not reflected in the related floor plan liability. The
manufacturer purchase discounts are standard in the industry, typically occur on
all new vehicle purchases, and are not used to offset the related floor plan
liability. These discounts are aggregated and generally paid to the Company by
the manufacturer on a quarterly basis. The related floor plan liability becomes
due as vehicles are sold.
The Company makes monthly interest payments on the amount financed under the
floor plan lines but is not required to make loan principal repayments prior to
the sale of the vehicles. The underlying notes are due when the related vehicles
are sold and are collateralized by vehicle inventories and other assets of the
Company. The floor plan financing agreements contain a number of covenants,
including among others, covenants restricting the Company with respect to the
creation of liens and changes in ownership, officers and key management
personnel.
17
<PAGE>
The Company has received a commitment from Ford Motor Credit to consolidate its
new vehicle floor plan lines. The average interest expense under this new
agreement is anticipated to be approximately 7.6% compared to historical rates
ranging from 7.75% to 10.25%.
During the first nine months of 1997, the Company generated net cash of $9.8
million from operating activities. Net cash provided by operating activities was
$0.1 million for the comparable period in 1996. Of this increase $8.3 million
was attributable to reductions in inventory offset by $3.6 million paydown of
floor plan liabilities. The decrease in inventory levels for the nine months
ended September 1997 reflects an increase in the volume of sales and an effort
to decrease inventory levels before the new year models are to be received.
Cash used for investing activities, excluding amounts paid in acquisitions, was
approximately $0.2 million for the first nine months of 1997 and related
primarily to additions for building improvements and the purchase of equipment
at Lone Star Ford.
Cash provided by financing activities for the first nine months of 1997 of $20
million primarily reflects additional financing received for the purchase of
Lake Norman Chrysler-Plymouth-Jeep and Lake Norman Dodge.
In conjunction with the recent consummation of the Lake Norman Acquisition, the
Company obtained from NationsBank, N.A. ("NationsBank") a short-term line of
credit in an aggregate principal amount of up to $20.0 million that matures no
later than February 15, 1998 (the "Six-Month Facility"). A total of $20.0
million in aggregate principal amount is currently outstanding under the
Six-Month Facility, which amount has been applied to fund the purchase price of
the Lake Norman Acquisition and the Williams Acquisition. The Six-Month Facility
is secured by a pledge of Speedway Motorsports, Inc. common stock shares owned
by O. Bruton Smith, the Company's Chairman and Chief Executive Officer. No
assets of the Company secure the Six-Month Facility, and the Company is under no
obligation to repay or reimburse Mr. Smith should NationsBank foreclose on the
securities pledged by Mr. Smith.
The Company recently obtained a secured, revolving acquisition line of credit
("Revolving Facility") from Ford Motor Credit in an initial aggregate principal
amount of $26.0 million (the "Initial Loan Commitment"), which the Company
expects to be increased to an aggregate principal amount of $75.0 million (the
"Maximum Loan Commitment") pursuant to a commitment from Ford Motor Credit. The
Company has also received a commitment from Ford Motor Credit to provide floor
plan financing to the Company's wholly-owned dealership subsidiaries (the
"Wholesale Credit Lines" and, together with the Revolving Facility, the
"Facilities"). Under the terms of the Revolving Facility governing the Initial
Loan Commitment, the Revolving Facility will mature on December 15, 1997, unless
the Revolving Facility is increased to the Maximum Loan Commitment. After the
increase to the Maximum Loan Commitment, the Revolving Loan Facility will mature
in two years, unless the Company requests that such term be extended, at the
option of Ford Motor Credit, for a number of additional one year terms to be
negotiated by the parties. No assurance can be given that such extensions will
be granted. The Revolving Facility is expected to be increased to the Maximum
Loan Commitment after the consummation of the Offering, subject to customary
terms and conditions, including that the Company receive a minimum amount of net
proceeds from the Offering. There is no assurance that this condition (which
would require the Underwriters' exercise of their over-allotment option, which
may not occur) will be met or that it will be waived or otherwise modified by
Ford Motor Credit. The proceeds from the Initial Loan Commitment were used to
consummate the Ken Marks Acquisition. Amounts to be drawn under the Maximum Loan
Commitment are anticipated by the Company to be used (i) for the acquisition of
additional dealership subsidiaries, (ii) to refinance the amounts remaining
outstanding under the Six-Month Facility (after application of the proceeds of
the Offering), which will result in the retirement of the Six-Month Facility,
and (iii) to provide general working capital needs of the Company not to exceed
$10 million. The Wholesale Credit Lines are to be provided to the Company's
dealership subsidiaries,
18
<PAGE>
including the dealerships acquired in the Acquisitions, subject to customary
terms and conditions on terms substantially the same as the floor plan financing
previously provided by Ford Motor Credit to the Company's subsidiaries.
Although management believes that the Revolving Facility will be increased to
the Maximum Loan Commitment after the consummation of the Offering, no assurance
can be given that such increase will occur. The Initial Loan Commitment is
secured by a pledge of Speedway Motorsports, Inc. common stock owned by Sonic
Financial. The Company is under no obligation to repay or reimburse Sonic
Financial if Ford Motor Credit forecloses on its securities. In addition, all of
the Facilities are secured by a pledge by the Company of all the capital stock,
membership interests and partnership interests of all of the Company's
dealership subsidiaries and a lien on all of the Company's other assets, except
for real estate owned by the Company. Mr. Smith and the Company's subsidiaries
also guarantee the Facilities, and the Company will guarantee the Wholesale
Credit Lines. The guarantees made by the Company's dealership subsidiaries are
secured by certain assets of such dealership subsidiaries. After consummation of
the Offering, Sonic Financial will be required at the time the Revolving
Facility is increased to the Maximum Loan Commitment to provide continued credit
support for the Revolving Facility in the form of a pledge of shares of Speedway
Motorsports, Inc. common stock owned by Sonic Financial equal in value to three
times the amount of the shortfall between $70 million and the actual net
proceeds of the Offering to the Company (including the proceeds, if any, from
the exercise of the Underwriters' over-allotment option). In addition, Mr. Smith
may be required to continue his guarantee, provide additional credit support or
make additional debt or equity contributions to the Company (to the extend the
Company does not receive a minimum amount of net proceeds from the Offering).
When the Company will need to refinance the Revolving Facility, there can be no
assurance that Mr. Smith will agree to guarantee such debt or that the assets of
Mr. Smith or Sonic Financial will be available to provide additional security
under a new agreement, or that a new agreement could be arranged on terms as
favorable as the terms of the Six-Month Facility or the Revolving Facility
without a guarantee by, or pledge of the assets of, Mr. Smith or Sonic
Financial. Pursuant to the terms of the Revolving Facility, the Company also
agreed not to pledge any of its assets to any third party (with the exception of
currently encumbered real estate and assets of the Company's dealership
subsidiaries that are subject to previous pledges or liens).
The Revolving Facility currently does not contain any affirmative financial
covenants by the Company, but does contain certain negative covenants made by
the Company, including covenants restricting or prohibiting the payment of
dividends, capital expenditures and material dispositions of assets as well as
other customary covenants. It is anticipated by the Company that when the
Initial Loan Commitment is increased to the Maximum Loan Commitment, the
Revolving Facility will be amended by Ford Motor Credit and the Company to
provide for, in addition to the negative covenants described in the previous
sentence, additional financial covenants requiring the Company to maintain
compliance with, among other things, specified ratios of (i) debt to tangible
equity (as defined in the Revolving Facility), (ii) current assets to current
liabilities, (iii) earnings before interest, taxes, depreciation and
amortization (EBITDA) to fixed charges, (iv) EBITDA to interest expense, (v)
EBITDA to total debt and (vi) EBITDA to total floor plan debt. Moreover, the
loss of voting control over the Company by the Smith Group or the failure by the
Company, with certain exceptions, to own all the outstanding equity, membership
or partnership interests in its dealership subsidiaries will constitute an event
of default under the Revolving Facility.
NEW ACCOUNTING STANDARDS -- In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). This Statement, which is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods,
specifies the computation, presentation and disclosure requirements for earnings
per share. The calculation of weighted average shares outstanding using SFAS 128
subsequent to September 30, 1997 will be affected by the issuance of 5,000,000
shares of Class A Common Stock in connection with the Offering, and by the
granting of stock options in connection with the 1997 Stock Option Plan.
19
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending December 31,
1998, and the Company does not intend to adopt this Statement prior to the
effective date. Had the Company early adopted this Statement, it would have
reported comprehensive income of $680,000 and $2,420,000 for the three and nine
months ended September 30, 1996, respectively, and $1,011,000 and $2,546,000 for
the three and nine months ended September 30, 1997, respectively.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) On November 10, 1997, the Company's Registration Statement on Form S-1
(SEC File No. 333-33295) was declared effective. The Company commenced the
offering of its Class A Common Stock, per value $.01 per share ("Class A Common
Stock") as of November 10, 1997. On November 17, 1997, the Company received
$53.8 million in estimated net proceeds (after payment of the underwriters'
discount and other Offering expenses) from the initial public offering (the
"Offering") of 5,000,000 shares of its Class A Common Stock, which was sold at
an aggregate price to the public of $60.0 million. From the aggregate price to
the public, $4.2 million has been applied as the underwriters' discount and
approximately $436,000 has been applied to date to other expenses of the
Offering and paid directly to entities unaffiliated with the Company. Total
other expenses of the Offering are estimated eventually to be $2.0 million.
Net proceeds from the Offering have been applied to date as follows:
Acquisition of Other Businesses
(Dyer Acquisition and
Bowers Acquisition) ........................ $38.3 million
Payments made in connection with the Bowers Acquisition were made directly to
Nelson E. Bowers, III and his business associates. Mr. Bowers became an officer
of the Company after the consummation of the Bowers Acquisition and is expected
to be appointed a director of the Company during the Company's fourth quarter.
Payments made in connection with the Dyer Acquisition were made directly to
Richard Dyer and his business associates. Mr. Dyer became an officer and
manager of a subsidiary of the Company after the consummation of the Dyer
Acquisition.
The Offering closed as of November 17, 1997, subject to the underwriter's
over-allotment option described below. The managing underwriters for the
Offering are Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Merrill Lynch International, NationsBanc Montgomery Securities,
Inc. and Wheat, First Securities, Inc. The Company has registered 5,750,000
shares of Class A Common Stock, the sale of which would yield an aggregate
price to the public of $69.0 million. The Company has granted an over-allotment
options to the underwriters covering the remaining registered and unsold
750,000 shares of Class A Common Stock, which options are currently unexercised
and will expire on December 10, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial data schedule for the nine month period ended September 30, 1997
(filed electronically).
(b) No reports were filed on Form 8-K during the fiscal quarter covered by
this Form 10-Q.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONIC AUTOMOTIVE, INC.
(REGISTRANT)
Date: November 17, 1997 By: /s/ O. Bruton Smith
----------------- -----------------------
O. Bruton Smith
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: November 17, 1997 By: /s/ Theodore M. Wright
----------------- --------------------------
Theodore M. Wright
VICE PRESIDENT-FINANCE, CHIEF FINANCIAL
OFFICER, TREASURER, SECRETARY AND DIRECTOR
22
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SONIC AUTOMOTIVE, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
27 Financial data schedule for the nine month period ended September 30,
1997.
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED
STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD
ENDING SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,100
<SECURITIES> 1,027
<RECEIVABLES> 15,582
<ALLOWANCES> 875
<INVENTORY> 89,576
<CURRENT-ASSETS> 121,437
<PP&E> 15,597
<DEPRECIATION> 6,542
<TOTAL-ASSETS> 161,875
<CURRENT-LIABILITIES> 101,301
<BONDS> 25,805
0
0
<COMMON> 63
<OTHER-SE> 30,025
<TOTAL-LIABILITY-AND-EQUITY> 161,875
<SALES> 295,485
<TOTAL-REVENUES> 339,848
<CGS> 300,673
<TOTAL-COSTS> 300,673
<OTHER-EXPENSES> 30,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,387
<INCOME-PRETAX> 4,029
<INCOME-TAX> 1,531
<INCOME-CONTINUING> 2,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,451
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
