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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13395
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-201079
(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 August 14, 1998, there were 5,041,462 shares of Class A Common Stock, par
value $.01 per share, and 6,250,000 shares of Class B Common Stock, par value
$.01 per share, outstanding.
<PAGE>
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial
Statements (Unaudited) 3
Consolidated Statements of Income -
Three-month periods ended
June 30, 1997 and June 30, 1998
Consolidated Statements of Income -
Six-month periods ended
June 30, 1997 and June 30, 1998
Consolidated Balance Sheets -
December 31, 1997 and June 30, 1998
Consolidated Statement of Stockholders'
Equity - Six-month period ended June 30, 1998
Consolidated Statements of Cash Flows -
Six-month periods ended June 30, 1997
and June 30, 1998
Notes to Unaudited Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 10-Q 22
SIGNATURES 23
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
1997 1998
--------- ----------
REVENUES:
Vehicle sales $ 99,611 $ 338,706
Parts, service and collision repair 11,928 39,028
Finance and insurance (Note 1) 2,562 7,718
--------- ----------
Total revenues 114,101 385,452
COST OF SALES 100,865 336,019
--------- ----------
GROSS PROFIT 13,236 49,433
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,641 35,206
DEPRECIATION AND AMORTIZATION 178 1,036
--------- ----------
OPERATING INCOME 3,417 13,191
OTHER INCOME AND EXPENSE:
Interest expense, floor plan 1,680 4,106
Interest expense, other 161 1,662
Other income 1 7
--------- ----------
Total other expense 1,840 5,761
--------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 1,577 7,430
PROVISION FOR INCOME TAXES 577 2,762
--------- ----------
INCOME BEFORE MINORITY INTEREST 1,000 4,668
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY 1 -
========= ==========
NET INCOME $ 999 $ 4,668
========= ==========
BASIC NET INCOME PER SHARE (Note 6) $ 0.41
==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,277
==========
DILUTED NET INCOME PER SHARE (Note 6) $ 0.39
==========
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING 11,859
==========
See notes to unaudited consolidated financial statements.
3
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Six Months Ended
June 30,
1997 1998
--------- ----------
REVENUES:
Vehicle sales $ 185,216 $ 567,279
Parts, service and collision repair 22,907 68,020
Finance and insurance (Note 1) 4,763 13,541
--------- ----------
Total revenues 212,886 648,840
COST OF SALES 188,422 564,195
--------- ----------
GROSS PROFIT 24,464 84,645
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,364 61,819
DEPRECIATION AND AMORTIZATION 396 1,851
--------- ----------
OPERATING INCOME 5,704 20,975
OTHER INCOME AND EXPENSE:
Interest expense, floor plan 3,018 7,341
Interest expense, other 318 2,745
Other income 135 15
--------- ----------
Total other expense 3,201 10,071
--------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 2,503 10,904
PROVISION FOR INCOME TAXES 916 4,100
--------- ----------
INCOME BEFORE MINORITY INTEREST 1,587 6,804
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY 47 -
========= ==========
NET INCOME $ 1,540 $ 6,804
========= ==========
BASIC NET INCOME PER SHARE (Note 6) $ 0.60
==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,264
==========
DILUTED NET INCOME PER SHARE (Note 6) $ 0.58
==========
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING 11,637
==========
See notes to unaudited consolidated financial statements.
4
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
December 31, 1998
1997 (Unaudited)
---------- ----------
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,304 $ 27,228
Receivables (net of allowance for doubtful
accounts of $523,000 and $2.3 million at
December 31, 1997 and June 30, 1998,
respectively) 19,784 35,761
Inventories (Note 3) 156,514 175,515
Deferred income taxes 405 669
Due from affiliates (Note 5) 1,047 1,084
Other current assets 1,318 3,854
---------- ----------
Total current assets 197,372 244,111
PROPERTY AND EQUIPMENT, NET 19,081 22,040
GOODWILL, NET (Notes 1 and 2) 74,362 102,948
OTHER ASSETS 635 524
========== ==========
TOTAL ASSETS $ 291,450 $ 369,623
========== ==========
See notes to unaudited consolidated financial statements.
5
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
December 31, 1998
1997 (Unaudited)
---------- ---------
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan $ 133,236 $ 149,670
Trade accounts payable 6,612 7,971
Accrued interest 1,071 1,584
Other accrued liabilities 10,748 17,949
Payable to affiliates (Note 5) 445 445
Payable for acquisitions (Note 2) - 15,726
Current maturities of long-term debt (Note 4) 584 789
---------- ---------
Total current liabilities 152,696 194,134
LONG-TERM DEBT (NOTE 4) 38,640 54,644
PAYABLE TO THE COMPANY'S CHAIRMAN (Note 5) 5,500 5,500
PAYABLE TO AFFILIATES (Note 5) 4,394 4,160
DEFERRED INCOME TAXES 1,079 1,079
INCOME TAX PAYABLE 4,776 6,705
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 6)
Preferred Stock, $.10 par, liquidation preference
$1,000 per share, 3.0 million shares
authorized; 13,034 shares issued and
outstanding at June 30, 1998 - 11,763
Class A Common Stock, $.01 par, 50.0 million
shares authorized; 5.0 million shares
issued and outstanding 50 50
Class B Common Stock, $.01 par, 15.0 million
shares authorized; 6.3 million shares
issued and outstanding 63 63
Paid-in capital 68,045 68,535
Retained earnings 16,186 22,990
Unrealized gain on marketable equity
securities 21 -
---------- ---------
Total stockholders' equity 84,365 103,401
========== =========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 291,450 $ 369,623
========== =========
See notes to unaudited consolidated financial statements
6
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) on
Preferred Class A Class B Marketable Total
Stock Common Stock Common Stock Paid-In Retained Equity Stockholders'
Shares Amount Shares Amount Shares Amount Capital Earnings Securities Equity
-------- ---------- -------- ------- ------- -------- --------- ---------- ---------- ------------
<S> <C>
BALANCE AT
DECEMBER 31, 1997 - $ - 5,000 $ 50 6,250 $ 63 $ 68,045 $ 16,186 $ 21 $ 84,365
Issuance of Preferred
Stock (Note 2) 13 11,763 - - - - - - - 11,763
Shares awarded under
stock compensation
plans - - 27 - - - 224 - - 224
Issuance of Warrants
(Note 2) - - - - - - 266 - - 266
Unrealized loss on
marketable equity
securities - - - - - - - (21) (21)
Net income - - - - - - 6,804 6,804
BALANCE AT
JUNE 30, 1998 ======== ========== ======== ======= ======= ======== ========= ========== ========== ============
13 $ 11,763 5,027 $ 50 6,250 $ 63 $ 68,535 $ 22,990 $ - $ 103,401
======== ========== ======== ======= ======= ======== ========= ========== ========== ============
</TABLE>
See notes to unaudited consolidated financial statements
7
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1997 1998
-------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,540 $ 6,804
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 396 1,851
Minority interest 47 -
Gain on sale of marketable equity securities (135) -
Loss on disposal of fixed assets - 104
Deferred income taxes 23 -
Changes in assets and liabilities that relate
to operations:
Receivables (989) (8,493)
Inventories 2,800 29,384
Other assets (370) (1,245)
Notes payable - floor plan 290 (25,867)
Accounts payable and other current
liabilities 1,310 1,003
Income tax payable (934) (545)
-------- -----------
Total adjustments 2,438 (3,808)
-------- -----------
Net cash provided by operating activities 3,978 2,996
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired
(Note 2) (3,627) (7,808)
Purchases of property and equipment (886) (1,261)
-------- -----------
Net cash used in investing activities (4,513) (9,069)
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 23,688
Payments of long-term debt (180) (8,645)
Issuance of shares under stock
compensation plans - 224
Capital contributions 3,209 -
Receipts from (advances to) affiliate companies 65 (270)
-------- -----------
Net cash provided by financing activities 3,094 14,997
-------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,559 8,924
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,679 18,304
======== ===========
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,238 $ 27,228
======== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Preferred Stock issued pursuant to acquisitions
(Notes 2 and 6) $ - $ 11,763
Payable for acquisitions (Note 2) $ - $ 15,726
Issuance of warrants (Notes 2 and 6) $ - $ 266
See notes to unaudited consolidated financial statements.
8
<PAGE>
The following Notes to Unaudited 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", "projected"
or simlar terms. 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 and in other filings with the
Securities and Exchange Commission.
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The accompanying unaudited financial information
for the three and six months ended June 30, 1997 and 1998 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 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 consolidated financial statements for the year ended December
31, 1997.
GOODWILL - Goodwill represents the excess purchase price over the
estimated fair value of the tangible and separately measurable intangible net
assets acquired. The cumulative amount of goodwill at December 31, 1997 and June
30, 1998 was $75.0 million and $104.5 million, respectively. As a percentage of
total assets and stockholders' equity, goodwill, net of accumulated
amortization, represented 25.5% and 88.1%, respectively, at December 31, 1997,
and 27.8% and 99.6%, respectively, at June 30, 1998. Generally accepted
accounting principles require that goodwill and all other intangible assets be
amortized over the period benefited. The Company has determined that the period
benefited by the goodwill will be no less than 40 years and, accordingly, is
amortizing goodwill over a 40 year period. If the Company were not to separately
recognize a material intangible asset having a benefit period of less than 40
years, or were not to give effect to shorter benefit periods of factors giving
rise to a material portion of the goodwill, earnings reported in periods
immediately following the acquisition would be overstated. In later years, the
Company would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the
consideration paid for the businesses acquired. Earnings in later years also
could be significantly affected if management then determined that the remaining
balance of goodwill was impaired. The Company periodically compares the carrying
value of goodwill with the anticipated undiscounted future cash flows from
operations of the businesses acquired in order to evaluate the recoverability of
goodwill. The Company has concluded that the anticipated future cash flows
associated with intangible assets recognized in its acquisitions will continue
indefinitely, and these is no pervasive evidence that any material portion will
dissipate over a period shorter than 40 years.
FINANCE AND INSURANCE REVENUE RECOGNITION - The Company arranges financing
for customers through various financial institutions and receives a commission
from the lender equal to the difference between the interest rates charged to
customers over the predetermined interest rates set by the financing
institution. The Company also receives commissions from the sale of credit life,
accident, health and disability insurance and extended service contracts to
customers. The Company may be assessed a chargeback fee in the event of early
cancellation of a loan, insurance contract, or service contract by the customer.
Finance and insurance commission revenue is recorded net of estimated
chargebacks at the time the related contract is placed with the financial
institution.
RECLASSIFICATION - Certain balances reported in prior periods have been
reclassified to conform with current period presentation.
COMPREHENSIVE INCOME - There were no material differences between net
income and comprehensive income in 1997 or 1998. Comprehensive income amounted
to $1.0 million and $4.7 million for the three months ended June 30, 1997 and
June 30, 1998, respectively, and $1.5 million and $6.8 million for the six
months ended June 30, 1997 and June 30, 1998, respectively.
NEW ACCOUNTING STANDARD - In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Standard redefines how operating segments are determined and requires disclosure
of certain financial and descriptive information about a company's operating
segments. This Statement will be effective for the Company's fiscal year ending
December 31, 1998, and need not be applied to interim financial statements in
the initial year of its application. The Company has not yet completed its'
analysis of which operating segments it will disclose, if any.
9
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. BUSINESS ACQUISITIONS
PENDING ACQUISITIONS
The Company has entered into definitive agreements to acquire a dealership
located in Chattanooga, Tennessee and a dealership group comprised of three
dealerships located in Daytona Beach, Florida for an aggregate purchase price of
approximately $26.2 million plus the net book value of the assets acquired. The
aggregate purchase price will be payable in approximately 12,183 shares of
Preferred Stock with a liquidation preference of approximately $1,000 per share
and the balance payable in cash obtained from the Company's existing opearations
and from the private placement of the Company's 11% Senior Subordinated Notes in
July 1998 (the "Offering" - see Note 4). These acquisitions are expected to be
consummated in the third quarter of 1998.
ACQUISITIONS COMPLETED SUBSEQUENT TO JUNE 30, 1998
In July 1998, the Company completed its previously announced acquisition
of Hatfield Automotive Group located in Columbus Ohio (the "Hatfield
Acquisition") for a total purchase price of $48.6 million, paid with $34.6
million in cash and with 14,025 shares of Series I Preferred Stock (see Note 6)
having a liquidation preference of approximately $14.0 million. Of the cash
portion of the purchase price, $26.2 million was financed with borrowings under
the Revolving Facility (see Note 4), which was subsequently repaid with proceeds
from the Offering, and $8.4 million with proceeds from the Offering.
ACQUISITIONS COMPLETED DURING THE SIX MONTHS ENDED JUNE 30, 1998
On January 1, 1998, the Company began operation and obtained control of
Clearwater Toyota, Clearwater Mitsubishi and Clearwater Collision Center (the
"Clearwater Acquisition") located in Clearwater, Florida. On April 1, 1998, the
Company began operation and obtained control of Capitol Chevrolet and Imports
located in Montgomery, Alabama (the "Montgomery Acquisition"), Century BMW
located in Greenville, South Carolina (the "Century Acquisition") and Heritage
Lincoln-Mercury located in Greenville, South Carolina (the "Heritage
Acquisition"). On May 1, 1998, the Company began operation and obtained control
of Casa Ford of Houston, Inc. located in Houston, Texas (the "Casa Ford
Acquisition"). The aggregate purchase price for the Clearwater Acquisition, the
Montgomery Acquisition, the Century Acquisition, the Heritage Acquisition, and
the Casa Ford Acquisition (collectively, the "1998 Acquisitions") was
approximately $40.7 million, paid with $29.0 million in cash and with 13,034
shares of Preferred Stock (381 shares of Series I Preferred Stock, 6,380 shares
of Series II Preferred Stock, and 6,273 shares of Series III Preferred Stock -
see Note 6) having an aggregate liquidation preference of approximately $13.0
million and an estimated fair value of approximately $11.7 million. Of the $29.0
million cash portion of the aggregate purchase price, $15.4 million was financed
with borrowings under the Revolving Facility, which was subsequently repaid with
the proceeds from the Offering, $12.9 million with the proceeds from the
Offering, and $0.1 million with cash generated from the Company's existing
operations. The remaining $0.6 million of the cash portion of the purchase price
is payable to the seller of the Montgomery Acquisition on the first and second
anniversaries of the closing date of the Montgomery Acquisition. In addition,
the Company will issue to the seller of the Century Acquisition warrants to
purchase 75,000 shares of the Company's Class A Common Stock at a purchase price
equal to the market value of the Class A Common Stock on the date of grant. The
Company will record these warrants at fair value at time of issuance. In
accordance with terms of the Clearwater Acquisition and the Montgomery
Acquisition, the Company may be required to pay additional amounts up to $5.1
million contingent on the future performance of the dealerships acquired in such
acquisitions. In addition, in accordance with the terms of the Casa Ford
Acquisition, the Company may be required to pay additional amounts to the
seller equal to five times the amount by which the dealership's pre-tax earnings
for 1998, if any, exceed $2.5 million, and five times the amount by which the
dealership's pre-tax earnings for 1999, if any, exceed the greater of $2.5
million or the dealership's 1998 pre-tax earnings. Any additional amounts paid
will be accounted for as additional goodwill. The Payable for Acquisitions in
the amount of $16.1 million included in the accompanying consolidated financial
statements represents the cash consideration paid for the Montgomery
Acquisition, Century Acquisition, Heritage Acquisition, and Casa Ford
Acquisition upon the closing of such acquisitions in July 1998.
The Company did not consummate the acquisition of the assets of the Jaguar
franchise that comprises a portion of the Heritage Acquisition pending a final
determination by Jaguar of whether to approve this acquisition. If Jaguar does
approve this acquisition, the Company will acquire the assets of the Jaguar
franchise and will pay to the sellers an additional $0.2 million, payable with
200 shares of Preferred Stock, plus the net book value of the assets of the
Jaguar franchise, payable in cash. There can be no assurance that such approval
will be obtained.
10
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. BUSINESS ACQUISITIONS -- CONTINUED
The 1998 Acquisitions have been accounted for using the purchase method of
accounting and the results of operations of such acquisitions have been included
in the accompanying unaudited consolidated financial statements from the date
the Company began operation and obtained control. The purchase price of the 1998
Acquisitions has been allocated as shown below to the assets and liabilities
acquired based on their estimated fair market value at the acquisition date. The
purchase price and corresponding goodwill may ultimatley be different than
amounts recorded depending on the actual fair value of tangible net assets
acquired and changes in the estimated fair value of Preferred Stock (see
Note 6).
Working capital $ 11,826
Property and equipment 2,462
Goodwill 29,147
Non-current liabilites assumed (2,699)
========
Total purchase price $ 40,736
========
The following unaudited pro forma financial information presents a summary of
consolidated results of operations as if the Clearwater Acquisition, Montgomery
Acquisition, Century Acquisition, Heritage Acquisition, Casa Ford Acquisition,
and acquisition of dealership groups completed in 1997 had occurred at the
beginning of the period in which the acquisitions were completed and at the
beginning of the immediately preceding period after giving effect to certain
adjustments, including amortization of goodwill, interest expense on acquisition
debt and related income tax effects. The pro forma financial information does
not give effect to adjustments relating to net reductions in floor plan interest
expense resulting from re-negotiated floor plan financing agreements or to
reductions in salaries and fringe benefits of former owners or officers of
acquired dealerships who have not been retained by the Company or whose salaries
have been reduced pursuant to employment agreements with the Company. The pro
forma results have been prepared for comparative purposes only and are not
necessarily indicative of the results of operations that would have occurred had
the acquisitions been completed at the beginning of the periods presented. These
results are also not necessarily indicative of the results of future operations.
THREE MONTHS ENDING SIX MONTHS ENDING
JUNE 30, JUNE 30,
1997 1998 1997 1998
------------ --------- ---------- ----------
Total revenues $ 359,659 $ 391,992 $ 689,565 $ 728,588
Gross profit $ 44,401 $ 50,376 $ 84,046 $ 94,551
Net Income $ 3,676 $ 5,043 $ 5,192 $ 6,901
Diluted net income per share $ 0.30 $ 0.39 $ 0.42 $ 0.54
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
New vehicles $ 118,751 $ 122,315
Used vehicles 27,990 39,187
Parts and accessories 9,085 12,467
Other 688 1,546
============= =============
Total $ 156,514 $ 175,515
============= =============
4. LONG-TERM DEBT
In August 1997, the Company obtained a $20 million loan from NationsBank,
N.A. (the "NationsBank Facility"). The proceeds from the NationsBank Facility
were used in the consummation of the acquisition of three dealerships. The
NationsBank Facility was personally guaranteed by Mr. O. Bruton Smith, the
Company's Chairman and Chief Executive Officer, which guarantee was released in
February 1998. The NationsBank Facility matured in February 1998 and was repaid
with proceeds from the initial public offering of Class A Common Stock ("IPO")
and the Revolving Facility (as defined below).
11
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
4. LONG-TERM DEBT - CONTINUED
The Company has a $75.0 million secured line of credit (the "Revolving
Facility") from Ford Motor Credit. The Revolving Facility bears interest at a
fluctuating per annum rate equal to the "prime" or "base" rate announced by a
majority (or if there is no majority, the median rate announced by the three) of
the following banks: The Chase Manhattan Bank, NationsBank, N.A., Citibank,
N.A., Bank of America National Trust and Savings Association and Morgan Guaranty
Trust Company of New York (the "Revolving Facility Prime Rate"). The Revolving
Facility will mature in October, 1999, unless the Company requests that the 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. As of June 30, 1998, the Revolving Facility Prime
Rate was 8.5% and the balance outstanding under the Revolving Facility was $48.8
million. On July 31, 1998, all indebtedness outstanding under the revolving
facility was repaid with the proceeds from the Offering. Future amounts to be
drawn under the Revolving Facility are to be used for the acquisition of
additional dealerships and to provide general working capital needs of the
Company not to exceed $10 million.
The Company agreed under the Revolving Facility 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 also contains 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. Additional negative
covenants include specified ratios of (i) total 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) the current lending commitment under the Revolving Facility to scaled
assets (as defined in the Revolving Facility). 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. The Company did not meet the specified total debt
to tangible equity ratios required by the Revolving Facility at March 31, 1998
and at June 30, 1998 and has obtained a waiver with regard to such requirement
from Ford Motor Credit. The waiver is subject to certain requirements to the
effect that the Company must meet modified ratios after June 30, 1998 and
December 31, 1998. In connection with the Offering, the Company and Ford Motor
Credit amended the Revolving Facility to provide that the Company's 11% Senior
Subordinated Notes due 2008 (the "Notes"), which are subordinated to the
Revolving Facility, will be treated as equity capital for purposes of this ratio
and, accordingly, the Company is in compliance with this covenant after giving
effect to the issuance of the Notes.
In July 1998, the Company completed its private placement of the Notes.
Interest is payable February 1 and August 1 of each year, commencing February 1,
1999. The Notes contain certain restrictive covenants and are unsecured senior
subordinated obligations of the Company.
5. RELATED PARTIES
REGISTRATION RIGHTS AGREEMENT:
As part of the reorganization of the Company in connection with its
initial public offering (the "Reorganization"), the Company entered into a
Registration Rights Agreement dated as of June 30, 1997 (the "Registration
Rights Agreements") with Sonic Financial, Bruton Smith, Scott Smith and William
S. Egan. Sonic Financial, Bruton Smith, Scott Smith and Egan Group, LLC, an
assignee of Mr. Egan (the "Egan Group") currently are the owners of record of
4,440,625, 1,035,625, 478,125 and 295,625 shares of Class B Common Stock,
respectively. Upon the registration of any of their shares or as otherwise
provided in the Company's Amended and Restated Certificate of Incorporation,
such shares will automatically be converted into a like number of shares of
Class A Common Stock. Subject to certain limitations, the Registration Rights
Agreements provide Sonic Financial Corporation ("SFC"), Bruton Smith, Scott
Smith and the Egan Group with certain piggyback registration rights that permit
them to have their shares of Common Stock, as selling security holders, included
in any registration statement pertaining to the registration of Class A Common
Stock for issuance by the Company or for resale by other selling security
holders, with the exception of registration statements on Forms S-4 and S-8
relating to exchange offers (and certain other transactions) and employee stock
compensation plans, respectively. These registration rights will be limited or
restricted to the extent an underwriter of an offering, if an underwritten
offering, or the Company's Board of Directors, if not an underwritten offering,
determines that the amount to be registered by Sonic Financial, Bruton Smith,
Scott Smith or the Egan Group would not permit the sale of Class A Common Stock
in the quantity and at the price originally sought by the Company or the
original selling security holders, as the case may be. The Registration Rights
Agreement expires on the November 17, 2007. Sonic Financial is controlled by the
Company's Chairman and Chief Executive Officer, Bruton Smith.
THE SMITH GUARANTIES, PLEDGES AND SUBORDINATED LOAN:
In connection with the Company obtaining the NationsBank Facility,
Mr. Bruton Smith guaranteed the obligations of the Company and secured his
guarantee with a pledge of common stock of Speedway Motorsports Inc. ("SMI")
owned directly by him. In February 1998, the Company repaid in full the amounts
owed under the NationsBank Facility and Mr. Smith's guarantee was released.
12
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. RELATED PARTIES - CONTINUED
In connection with the Company obtaining the Revolving Facility and a
global floor plan line of credit for all its dealership subsidiaries ("the Floor
Plan Facility" and, together with the Revolving Facility, the "Ford Credit
Facilities"), Mr. Smith personally guaranteed the obligations of the Company
under the Ford Credit Facilities, and such obligations were further secured with
a pledge of shares of common stock of SMI owned directly by him or through Sonic
Financial Corporation and having an estimated value at December 31, 1997 of
approximately $50.0 million (the "Revolving Pledge").
In December 1997, upon increase of the borrowing limit under the Revolving
Facility to the maximum loan commitment of $75.0 million, the Revolving Pledge
remained in place, Mr. Smith's guarantee of the Revolving Facility was released
and Mr. Smith was required to lend $5.5 million (the "Subordinated Smith Loan")
to the Company to increase its capitalization. The Subordinated Smith Loan was
required by Ford Motor Credit as a condition to its agreement to increase the
borrowing limit under the Revolving Facility. The Subordinated Smith Loan is
evidenced by the Company's Subordinated Promissory Note dated December 1, 1997
in favor of Mr. Smith, bears interest at prime plus 0.5% and matures on November
30, 2000. All amounts owed by the Company to Mr. Smith under the Subordinated
Smith Loan are subordinate in right of payment to all amounts owed by the
Company under the Ford Credit Facilities pursuant to the terms of a
Subordination Agreement dated as of December 5, 1997 between Mr. Smith and
Ford Motor Credit.
DEALERSHIP LEASES:
On July 9, 1998, the Company entered into, subject to the approval of the
Company's Board of Directors and the Company's independent directors, a
Strategic Alliance Agreement and Agreement for the Mutual Referral of
Acquisition Opportunities (the "Alliance Agreement") with an operating
partnership controlled by Mar Mar Realty Trust, a Maryland real estate
investment trust ("MMRT"). MMRT owns the real estate associated with various
automobile dealerships, automotive aftermarket retailers and other automotive
related businesses and leases such property to the business operators located
thereon. O. Bruton Smith, the Company's Chairman and Chief Executive Officer,
serves as the chairman of MMRT's board of trustees and is presently its
controlling shareholder.
Under the Alliance Agreement, the Company has agreed to refer real estate
acquisition opportunities that arise in connection with its dealership
acquisitions to MMRT. In exchange, MMRT has agreed to refer dealership
acquisition opportunities to the Company and to provide to the Company, at the
Company's cost, certain real estate development, maintenance, survey, and
inspection services. Pursuant to the Alliance Agreement, the Company has entered
into contracts to sell the real estate associated with Town and Country Toyota
and Fort Mill Ford, two of the Company's dealerships, for an aggregate purchase
price of $10.3 million. In addition, the Alliance Agreement provides for an
agreed form of lease (the "Sonic Form Lease") pursuant to which MMRT would lease
real estate to the Company should MMRT acquire real estate associated with any
of the Company's operations. Presently, the Company leases or intends to lease
from MMRT 18 parcels of land associated with 16 of its dealerships, including
the real estate associated with Town and Country Toyota and Fort Mill Ford which
the Company will lease back from MMRT pursuant to leases substantially similar
to the Sonic Form Lease. The aggregate initial annual base rent to be paid by
the Company for all 18 properties under the leases with MMRT is approximately
$6.4 million.
CHARTOWN TRANSACTIONS
Chartown is a general partnership engaged in real estate development and
management. Before the Reorganization, Town & Country Ford maintained a 49%
partnership interest in Chartown with the remaining 51% held by SMDA Properties,
LLC, a North Carolina limited liability company ("SMDA"). Mr. Smith owns an 80%
direct membership interest in SMDA with the remaining 20% owned indirectly
through Sonic Financial. In addition, Sonic Financial also held a demand
promissory note for approximately $1.6 million issued by Chartown (the "Chartown
Note"), which was uncollectible due to insufficient funds. As part of the
Reorganization, the Chartown Note was canceled and Town & Country Ford
transferred its partnership interest in Chartown to Sonic Financial for nominal
consideration. In connection with that transfer, Sonic Financial agreed to
indemnify Town & Country Ford for any and all obligations and liabilities,
whether known or unknown, relating to Chartown and Town & Country Ford's
ownership thereof.
THE BOWERS VOLVO NOTE
In connection with Volvo's approval of the Company's acquisition of a
Volvo franchise as part of the acquisition of the Bowers Dealerships and
Affiliated Companies Acquisition in 1997 (the "Bowers Acquisition"), Volvo,
among other things, conditioned its approval upon Nelson Bowers, the Company's
Executive Vice President and a Director, acquiring and maintaining a 20%
interest in the Company's Sonic Automotive of Chattanooga, LLC ("Chattanooga
Volvo") subsidiary that will operate the Volvo franchise. Mr. Bowers financed
all of the purchase price for this 20% interest by issuing a promissory note
(the "Bowers Volvo Note") in favor of Sonic Automotive of Nevada, Inc. ("Sonic
Nevada"), the wholly-owned subsidiary of the Company that controls a majority
interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers'
interest in Chattanooga Volvo.
13
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES UNAUDITED TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. RELATED PARTIES - CONTINUED
The Bowers Volvo Note is for a principal amount of $900,000 and bears
interest at the lowest applicable federal rate as published by the U.S. Treasury
Department in effect on November 17, 1997. Accrued interest is payable annually.
The operating agreement of Chattanooga Volvo provides that profits and
distributions are to be allocated first to Mr. Bowers to the extent of interest
to be paid on the Bowers Volvo Note and next to the other members of Chattanooga
Volvo according to their percentages of ownership. No other profits or any
losses of Chattanooga Volvo will be allocated to Mr. Bowers under this
arrangement. Mr. Bowers' interest in Chattanooga Volvo will be redeemed and the
Bowers Volvo Note will be due and payable in full when Volvo no longer requires
Mr. Bowers to maintain his interest in Chattanooga Volvo.
OTHER RELATED PARTY TRANSACTIONS
Prior to June 30, 1997, two dealership subsidiaries of the Company had
each made several non-interest bearing advances to SFC ($2.5 million at December
31, 1996). In preparation for the Reorganization, a demand promissory note by
SFC evidencing $2.1 million of these advances was canceled in June 1997 in
exchange for the redemption of certain shares of the capital stock of Town &
Country Ford held by SFC. In addition, a demand promissory note by SFC
evidencing $509,000 of these advances was canceled in June 1997 pursuant to a
dividend.
The Company had amounts receivable from affiliates of $1.0 million and
$1.1 million at December 31, 1997 and June 30, 1998, respectively. Of this
amount, $622,000 and $929,000 relates to advances made by the Company to SFC at
December 31, 1997 and June 30, 1998, respectively. The remaining $425,000 and
$154,000 at December 31, 1997 and June 30, 1998, respectively, primarily relates
to receivables from executives of the Company who were former owners of certain
dealerships acquired in 1997. These receivables resulted from differences in the
negotiated and actual net book value of the dealerships at the date of
acquisitions. The amounts receivable from affiliates are non-interest bearing
and are classified as current based on the expected repayment dates.
The Company had amounts payable to affiliates of $4.8 million and $4.6
million at December 31, 1997 and June 30, 1998, respectively. Amounts payable to
affiliates includes a note payable to the Company's Executive Vice-President and
former owner of the Bowers Dealerships resulting from the acquisition of the
Bowers Dealerships. The note is payable in 28 equal quarterly installments
bearing interest at prime less 0.5%. The balance outstanding under this note was
$4.0 million and $3.7 million at December 31, 1997 and June 30, 1998,
respectively. The current portion of this note amounted to $445,000 at December
31, 1997 and June 30, 1998. The remaining portion of the amount payable to
affiliates consisted of loans from affiliates, the majority of which bear
interest at 8.75%, and is classified as noncurrent based upon the expected
repayment dates.
6. CAPITAL STRUCTURE AND PER SHARE DATA
PREFERRED STOCK - In 1997, the Company authorized 3 million shares of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. No preferred
shares were issued and outstanding as of December 31, 1997.
In March 1998, the Board of Directors designated 300,000 shares
of preferred stock as Class A Convertible Preferred Stock, par value $0.10 per
share, which was divided into 100,000 of Series I Convertible Preferred Stock,
par value $0.10 per share (the "Series I Preferred Stock"), 100,000 shares of
Series II Convertible Preferred Stock, par value $0.10 per share (the "Series II
Preferred Stock"), and 100,000 shares of Series III Convertible Preferred Stock,
par value $0.10 per share (the "Series III Preferred Stock" and together with
the Series I Preferred Stock and the Series II Preferred Stock, collectively,
the "Preferred Stock").
The Preferred Stock has a liquidation preference of $1,000 per share. Each
share of Preferred Stock is convertible, at the option of the holder, into that
number of shares of Class A Common Stock as is determined by dividing $1,000 by
the average closing price for the Class A Common Stock on the NYSE for the 20
days preceding the date of issuance of the shares of Preferred Stock (the
"Market Price"). Conversion of Series II Preferred Stock and Series III
Preferred Stock is subject to certain adjustments which have the effect of
limiting increases and decreases in the value of the Class A Common Stock
receivable upon conversion by 10% of the original value of the shares of Series
II Preferred Stock or Series III Preferred Stock.
The Preferred Stock is redeemable at the Company's option at any time
after the date of issuance. The redemption price of the Series I Preferred Stock
is $1,000 per share. The redemption price for the Series II Preferred Stock and
Series III Preferred Stock is as follows: (i) prior to the second anniversary of
the date of issuance, the redemption price is the greater of $1,000 per share or
the aggregate Market Price of the Class A Common Stock into which it could be
converted at the time of redemption, and (ii) after the second anniversary of
the date of issuance, the redemption price is the aggregate Market Price of the
Class A Common Stock into which it could be converted at the time of redemption.
Each share of Preferred Stock entitles its holder to a number of votes
equal to that number of shares of Class A Common Stock into which it could be
converted as of the record date for the vote. Holders of preferred stock are
entitled to participate in dividends payable on the Class A Common Stock on an
"as-if-converted" basis. The Preferred Stock has no preferential dividends.
14
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. CAPITAL STRUCTURE AND PER SHARE DATA - CONTINUED
Preferred Stock reported in the accompanying Unaudited Consolidated
Balance Sheet as of June 30, 1998 consists of 381 shares of Series I Preferred
Stock, 6,380 shares of Series II Preferred Stock, and 6,273 shares of Series III
Preferred Stock issued in connection with the consummation of the 1998
Acquisitions (see Note 2). These shares of Preferred Stock were preliminarily
recorded at their estimated fair value pending completion of an independent
valuation.
WARRANTS - In connection with the acquisition of Dyer Volvo in November
1997, the Company issued on January 15, 1998 warrants to purchase 44,391 shares
of Class A Common Stock at $12 per share, which is currently exercisable and
expires on January 15, 2003. The Company has recorded the issuance of such
warrants at an estimated fair value pending completion of an independent
valuation. In addition, in connection with the Century Acquisition, the Company
will issue to the seller of the Century Acquisition warrants to purchase 75,000
shares of the Company's Class A Common Stock at a purchase price equal to the
market value of the Class A Common Stock on the date of grant. The Company will
record these warrants at fair value at time of issuance.
PER SHARE DATA - The calculation of diluted net income per share considers
the potential dilutive effect of options and shares under the Company's stock
compensation plans, Class A Common Stock purchase warrants, and Class A
Convertible Preferred Stock. The following table illustrates the dilutive effect
of such items on EPS:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, 1998 June 30, 1998
--------------------------------- ---------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C>
BASIC EPS
Income available to
common shareholders 4,668 11,277 $ 0.41 6,804 11,264 $ 0.60
========== ==========
EFFECT OF DILUTIVE SECURITIES
Stock compensation plans - 274 - 202
Warrants - 13 - 9
Convertible Preferred Stock - 295 - 162
---------- ---------- ---------- ----------
DILUTED EPS
Income available to common
shareholders + assumed
conversions 4,668 11,859 $ 0.39 6,804 11,637 $ 0.58
========== ========== ========== ========== ========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings which are incidental
to its business. The Company is protecting its interest in all such matters and
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.
15
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition should be read in conjunction with the Unaudited
Consolidated Financial Statements and the related 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 Six Months
Ended June 30 Ended June 30
----------------- -----------------
1997 1998 1997 1998
------- ------- ------- -------
Revenues:
New vehicle sales ................. 65.1% 60.7% 64.5% 59.7%
Used vehicle sales ................ 22.2% 27.2% 22.5% 27.7%
Parts, service and collision
repair .......................... 10.5% 10.1% 10.8% 10.5%
Finance and insurance ............. 2.2% 2.0% 2.2% 2.1%
Total revenues .................... 100.0% 100.0% 100.0% 100.0%
Cost of sales .................... 88.4% 87.2% 88.5% 87.0%
Gross profit ...................... 11.6% 12.8% 11.5% 13.0%
Selling, general and
administrative .................. 8.6% 9.4% 8.8% 9.8%
Operating income .................. 3.0% 3.4% 2.7% 3.2%
Interest expense ................. 1.6% 1.5% 1.6% 1.6%
Income before taxes ............... 1.4% 1.9% 1.2% 1.7%
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUES. Revenues grew in each of the Company's primary revenue areas for
the first six months of 1998 as compared with the first six months of 1997,
causing total revenues to increase 204.8% to $648.8 million. New vehicle sales
revenue increased 182.4% to $387.5 million in the first six months of 1998,
compared with $137.2 million in the first six months of 1997. The increase was
due primarily to an increase in new vehicle unit sales of 153.3% to 16,601, as
compared with 6,553 in the first six months of 1997 resulting principally from
additional unit sales contributed by the acquisitions of Jeff Boyd
Chrysler-Plymouth-Dodge in June 1997; Lake Norman Dodge and Affiliates in
September 1997; Ken Marks Ford in October 1997; Dyer Volvo and the Bowers
Dealerships and Affiliated Companies in November 1997; Clearwater Toyota,
Clearwater Mitsubishi, and Clearwater Collision Center in January 1998; Century
BMW, Heritage Lincoln Mercury, and Capitol Chevrolet and Imports in April 1998;
and Casa Ford in May 1998 (the "Acquisitions"). The remainder of the increase
was due to a 11.5% increase in the average selling price of new vehicles
resulting principally from sales of higher priced import vehicles contributed by
the Acquisitions.
Used vehicle revenues from retail sales increased 305.6% to $132.5 million
in the first six months of 1998 from $32.7 million in the first six months of
1997. The increase was due primarily to an increase in used vehicle unit sales
of 268.4% to 9,719, as compared with 2,638 in the first six months of 1997,
resulting from additional unit sales contributed by the Acquisitions. The
remainder of the increase was due to a 10.1% increase in the average selling
price of used vehicles resulting principally from sales of higher priced luxury
and import vehicles contributed by the Acquisitions along with an increase in
used vehicle revenues of 15.2% in the first six months of 1998 compared to the
first six months of 1997 from used vehicle revenues from stores owned for longer
than one year.
The Company's parts, service and collision repair revenue increased 196.9%
to $68.0 million in the first six months of 1998 compared to $22.9 million in
the first six months of 1997, due principally to the Acquisitions. Finance and
insurance revenue increased $8.8 million, or 184.3%, due principally to
increased new vehicle sales and related financing.
GROSS PROFIT. Gross profit increased 246.0% to $84.6 million in the first
six months of 1998 from $24.5 million in the first six months of 1997 due
principally to increases in revenues contributed by dealerships acquired. Gross
profit as a percentage of sales increased to 13.1% from 11.5% due to increases
in new vehicle gross margins resulting from sales of higher margin import
vehicles contributed by acquired dealerships, as well as improved gross margins
of used vehicles resulting from efforts made to improve management of used
vehicle inventories. Additionally, gross margin percentages for each profit
center are affected by the mix of revenues within each profit center,
correspondingly. Used vehicle revenues increased and new vehicle revenues
decreased as a percentage of total revenues from 15.3% and 64.4% in the first
six months of 1997, respectively, compared to 20.4% and 59.7% for the first six
months of 1998, respectively. The revenue mix resulted in increased used vehicle
gross profits and decreased new vehicle gross profits as a percentage of the
total gross profits from 11.3% and 36.7%, respectively, in the first six months
of 1997 to 15.5% and 35.3% in the first six months of 1998.
16
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including depreciation and amortization, increased
239.4% to $63.7 million in the first six months of 1998 from $18.8 million in
the first six months of 1997. Such expenses as a percentage of revenues
increased to 9.8% from 8.8% due principally to expenses inherent with the
initial growth and formation of the Company. Additionally, as gross profits and
gross profit margins increase expenses related to employees commissions for
sales of related products increase, respectively.
INTEREST EXPENSE, FLOORPLAN. Interest expense, floorplan increased 143.3%
to $7.3 million from $3.0 million, due primarily to floorplan interest incurred
by the Acquisitions. As a percentage of total revenues, floor plan interest
decreased from 1.4% to 1.1% primarily due to decreased interest rates under the
Company's floor plan financing arrangements, as well as improved management of
inventory levels.
INTEREST EXPENSE, OTHER. Interest expense, other increased 764.2% to $2.7
million from $0.3 million, due primarily to interest incurred on acquisition
related indebtedness.
NET INCOME. As a result of the factors noted above, the Company's net
income increased by $5.3 million in the first six months of 1998 compared to the
first six months of 1997.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUES. Revenues grew in each of the Company's primary revenue areas for
the three months ended June 30, 1998 as compared with the three months ended
June 30, 1997, causing total revenues to increase 237.8% to $385.5 million. New
vehicle sales revenue increased 214.5% to $233.7 million for the three months
ended June 30, 1998, compared with $74.3 million for the three months ended June
30, 1997. The increase was due primarily to an increase in new vehicle unit
sales of 182.6% to 9,984, as compared with 3,533 for the three months ended June
30, 1997 resulting principally from additional unit sales contributed by the
Acquisitions. The remainder of the increase was due to a 11.3% increase in the
average selling price of new vehicles resulting principally from sales of higher
priced import vehicles contributed by the Acquisitions.
Used vehicle revenues from retail sales increased 344.5% to $76.0 million
for the three months ended June 30, 1998 from $17.1 million for the comparable
period of 1997. The increase was due primarily to an increase in used vehicle
unit sales of 293.4% to 5,386 as compared with 1,369 for the three months ended
June 30, 1997, resulting from additional unit sales contributed by the
Acquisitions. The remainder of the increase was due to a 13.0% increase in the
average selling price of used vehicles resulting principally from sales of
higher priced luxury and import vehicles contributed by the Acquisitions along
with an increase in used vehicle revenues of 12.1% for the three months ended
June 30, 1998 compared to the three months ended June 30, 1997 from used vehicle
revenues on a same store basis
The Company's parts, service and collision repair revenue increased 227.2%
to $39.0 million for the three months ended June 30, 1998 compared to $11.9
million for the same period of the prior year, due principally to the
Acquisitions. Finance and insurance revenue increased $5.2 million, or 201.2%,
due principally to increased new vehicle sales and related financing.
GROSS PROFIT. Gross profit increased 273.5% to $49.4 million for the three
months ended June 30, 1998 from $13.2 million for the three months ended June
30, 1997 due principally to increases in revenues contributed by dealerships
acquired. Gross profit as a percentage of sales increased to 12.8% from 11.6%
due to increases in new vehicle gross margins resulting from sales of higher
margin import vehicles contributed by acquired dealerships, as well as improved
gross margins of used vehicles resulting from efforts made to improve management
of used vehicle inventories.
Additionally, gross margin percentages for each profit center are affected
by the mix of revenues within each profit center, correspondingly. Used vehicle
revenues increased and new vehicle revenues decreased as a percentage of total
revenues from 14.9% and 65.1% for the three months ended June 30, 1997,
respectively, compared to 19.7% and 60.6% for the three months ended June 30,
1998, respectively. The revenue mix resulted in increased used vehicle gross
profits and decreased new vehicle gross profits as a percentage of the total
gross profits from 11.5% and 38.3%, respectively, for the three months ended
June 30, 1997 to 15.7% and 36.0% for the three months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including depreciation and amortization, increased
269.1% to $36.2 million for the three months ended June 30, 1998 from $9.8
million for the same period in the prior year. Such expenses as a percentage of
revenues increased to 9.4% from 8.6% due principally to expenses inherent with
the initial growth and formation of the Company. Additionally, as gross profits
and gross profit margins increase expenses related to employees commissions for
sales of related products increase, respectively.
INTEREST EXPENSE, FLOORPLAN. Interest expense, floorplan increased 144.4%
to $4.1 million from $1.7 million, due primarily to floorplan interest incurred
by the Acquisitions. As a percentage of total revenues, floor plan interest
decreased from 1.5% to 1.1% primarily due to decreased interest rates under the
Company's floor plan financing arrangements, as well as improved management of
inventory levels.
INTEREST EXPENSE, OTHER. Interest expense, other increased 932.3% to $1.7
million from $0.2 million, due primarily to interest incurred on acquisition
related indebtedness.
NET INCOME. As a result of the factors noted above, the Company's net
income increased by $3.7 million for the three months ended June 30, 1998
compared to comparable period of 1997.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
The Company's principal needs for capital resources are to finance
acquisitions and fund debt service and working capital requirements.
Historically, the Company has relied primarily upon internally generated cash
flows from operations, borrowings under its various credit facilities, and
borrowings and capital contributions from its stockholders to finance its
operations and expansion. On November 10, 1997, the Company completed its
initial public offering of its Class A common stock, par value $.01 per share,
providing approximately $53.7 million of additional capital resources for the
consummation of certain of the Acquisitions. In addition, on July 31, 1998, the
Company completed its private placement of $125 million of its Senior
Subordinated Notes due 2008 (the "Notes") which provided an additional $120.6
million of capital resources for the consummation of certain of the Acquisitions
and for future acquisitions (the "Offering").
The Company currently has a standardized floor plan credit facility with
Ford Motor Credit for each of the Company's dealership subsidiaries (the "Floor
Plan Facility"). As of June 30, 1998, there was an aggregate of $149.7 million
outstanding under the Floor Plan Facility. The Floor Plan Facility at June 30,
1998 had an effective rate of prime less .9%, subject to certain incentives,
etc. Typically new vehicle floor plan indebtedness exceeds the related inventory
balances. The inventory balance is generally reduced by the applicable
automobile manufacturer's (the "Manufacturer's") purchase discounts, and such
reduction is not reflected in the related floor plan liability. These
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 Facility 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 relevant dealership subsidiary. The Floor Plan Facility contains 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.
During the first six months of 1998, the Company generated net cash of
$3.0 million from operating activities, compared to $4.0 million in the first
six months of 1997. The decrease was attributable principally to an increase in
receivables due to additional acquisitions and revenue growth.
Cash used for investing activities, excluding amounts paid in
acquisitions, was approximately $1.3 million for the first six months of 1998
and related primarily to acquisitions of property and equipment.
Cash provided by financing activities for the six months of 1998 of $15.0
primarily reflects amounts borrowed under the Company's revolving credit
facility to finance acquisitions.
In August 1997, the Company obtained a $20 million loan from NationsBank,
N.A. (the "NationsBank Facility"). The proceeds from the NationsBank Facility
were used in the consummation of the acquisition of the two Lake Norman
dealerships and of Fort Mill Chrysler-Plymouth-Dodge. The NationsBank Facility
was guaranteed by Mr. O. Bruton Smith personally, which guarantee was released
in February 1998. The NationsBank Facility matured in February 1998 and was
repaid with proceeds from the IPO and the Revolving Facility (as defined below).
The Company has a $75 million secured revolving line of credit (the
"Revolving Facility") from Ford Motor Credit. The Revolving Facility bears
interest at a fluctuating per annum rate equal to the "prime" or "base" rate
announced by a majority (or if there is no majority, the median rate announced
by the three) of the following banks: The Chase Manhattan Bank, NationsBank,
N.A., Citibank, N.A., Bank of America National Trust and Savings Association and
Morgan Guaranty Trust Company of New York (the "Revolving Facility Prime Rate").
The Revolving Facility will mature in October, 1999, unless the Company requests
that the 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. As of June 30, 1998, the Revolving
Facility Prime Rate was 8.5% and the balance outstanding under the Revolving
Facility was $48.8 million. On July 31, 1998, all indebtedness outstanding under
the revolving facility was repaid with the proceeds from the Offering. Future
amounts to be drawn under the Revolving Facility are to be used for the
acquisition of additional dealerships and to provide general working capital
needs of the Company not to exceed $10 million.
The Company agreed under the Revolving Facility 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 also contains 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. Additional negative
covenants include specified ratios of (i) total 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) the current lending commitment under the Revolving Facility to scaled
assets (as defined in the Revolving Facility). 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. The Company did not meet the specified total debt
to tangible equity ratios required by the Revolving Facility at March 31, 1998
and at June 30, 1998 and has obtained a waiver with regard to such requirement
from Ford Motor Credit. In connection with the Offering, the Company and Ford
Motor Credit amended the Revolving Facility to provide that the Notes (which are
subordinated to the Revolving Facility) will be treated as equity capital for
purposes of this ratio and, accordingly, the Company is in compliance with this
covenant after giving effect to the issuance of the Notes.
18
<PAGE>
Capital expenditures, excluding amounts paid in acquisitions, were $0.9
million and $1.3 million for the six months ended June 30, 1997 and 1998,
respectively. The Company's principal capital expenditures typically include
building improvements and equipment for use in the Company's dealerships.
In 1997, the Company authorized 3 million shares of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. In March 1998, the
Board of Directors designated 300,000 shares of preferred stock as Class A
Convertible Preferred Stock, par value $0.10 per share, which was divided into
100,000 of Series I Convertible Preferred Stock, par value $0.10 per share
(the "Series I Preferred Stock"), 100,000 shares of Series II Convertible
Preferred Stock, par value $0.10 per share (the "Series II Preferred Stock"),
and 100,000 shares of Series III Convertible Preferred Stock, par value $0.10
per share (the "Series III Preferred Stock" and together with the Series I
Preferred Stock and the Series II Preferred Stock, collectively, the "Preferred
Stock").
The Preferred Stock has a liquidation preference of $1,000 per share. Each
share of Preferred Stock is convertible, at the option of the holder, into that
number of shares of Class A Common Stock as is determined by dividing $1,000 by
the average closing price for the Class A Common Stock on the NYSE for the 20
days preceding the date of issuance of the shares of Preferred Stock (the
"Market Price"). Conversion of Series II Preferred Stock and Series III
Preferred Stock is subject to certain adjustments which have the effect of
limiting increases and decreases in the value of the Class A Common Stock
receivable upon conversion by 10% of the original value of the shares of Series
II Preferred Stock or Series III Preferred Stock.
The Preferred Stock is redeemable at the Company's option at any time
after the date of issuance. The redemption price of the Series I Preferred Stock
is $1,000 per share. The redemption price for the Series II Preferred Stock and
Series III Preferred Stock is as follows: (i) prior to the second anniversary of
the date of issuance, the redemption price is the greater of $1,000 per share or
the aggregate Market Price of the Class A Common Stock into which it could be
converted at the time of redemption, and (ii) after the second anniversary of
the date of issuance, the redemption price is the aggregate Market Price of the
Class A Common Stock into which it could be converted at the time of redemption.
Each share of Preferred Stock entitles its holder to a number of votes
equal to that number of shares of Class A Common Stock into which it could be
converted as of the record date for the vote. Holders of preferred stock are
entitled to participate in dividends payable on the Class A Common Stock on an
"as-if-converted" basis. The Preferred Stock has no preferential dividends.
In July 1998, the Company completed its previously announced acquisition
of Hatfield Automotive Group located in Columbus Ohio (the "Hatfield
Acquisition") for a total purchase price of $48.6 million, paid with $34.6
million in cash and with 14,025 shares of Series I Preferred Stock having a
liquidation preference of approximately $14.0 million. Of the cash portion of
the purchase price, $26.2 million was financed with borrowings under the
Revolving Facility (see Note 4), which was subsequently repaid with proceeds
from the Offering, and $8.4 million was financed with proceeds from the
Offering.
On January 1, 1998, the Company began operation and obtained control of
Clearwater Toyota, Clearwater Mitsubishi and Clearwater Collision Center (the
"Clearwater Acquisition") located in Clearwater, Florida. On April 1, 1998, the
Company began operation and obtained control of Capitol Chevrolet and Imports
located in Montgomery, Alabama (the "Montgomery Acquisition"), Century BMW
located in Greenville, South Carolina (the "Century Acquisition") and Heritage
Lincoln-Mercury located in Greenville, South Carolina (the "Heritage
Acquisition"). On May 1, 1998, the Company began operation and obtained control
of Casa Ford of Houston, Inc. located in Houston, Texas (the "Casa Ford
Acquisition). The aggregate purchase price for the Clearwater Acquisition, the
Montgomery Acquisition, the Century Acquisition, the Heritage Acquisition, and
the Casa Ford Acquisition (collectively, the "1998 Acquisitions") was
approximately $40.7 million, paid with $29.0 million in cash and with 13,034
shares of Preferred Stock (381 shares of Series I Preferred Stock, 6,380 shares
of Series II Preferred Stock, and 6,273 shares of Series III Preferred Stock)
having an aggregate liquidation preference of approximately $13.0 million and an
estimated fair value of approximately $11.7 million. Of the $29.0 million cash
portion of the aggregate purchase price, $15.4 million was financed with
borrowings under the Revolving Facility, which was subsequently repaid with the
proceeds from the Offering, $12.9 million was financed with the proceeds from
the Offering, and $0.1 million was paid with cash generated from the Company's
existing operations. The remaining $0.6 million of the cash portion of the
purchase price is payable to the seller of the Montgomery Acquisition on the
first and second anniversaries of the closing date of the Montgomery
Acquisition. In addition, the Company will issue to the seller of the Century
Acquisition warrants to purchase 75,000 shares of the Company's Class A Common
Stock at a purchase price equal to the market value of the Class A Common Stock
on the date of grant. In accordance with terms of the Clearwater Acquisition and
the Montgomery Acquisition, the Company may be required to pay additional
amounts up to $5.1 million contingent on the future performance of the
dealerships acquired in such acquisitions. In addition, in accordance with the
terms of the Casa Ford Acquisition, the Company may be required to pay
additional amounts to the seller equal to five times the amount by which the
dealership's pre-tax earnings for 1998, if any, exceed $2.5 million, and five
times the amount by which the dealership's pre-tax earnings for 1999, if any,
exceed the greater of $2.5 million or the dealership's 1998 pre-tax earnings.
Any additional amounts paid will be accounted for as additional goodwill. The
Payable for Acquisitions in the amount of $16.1 million included in the
accompanying consolidated financial statements represents the consideration to
be paid for the Montgomery Acquisition, Century Acquisition, Heritage
Acquisition, and Casa Ford Acquisition which were closed in July 1998.
19
<PAGE>
The Company did not consummate the acquisition of the assets of the Jaguar
franchise that comprises a portion of the Heritage Acquisition pending a final
determination by Jaguar of whether to approve this acquisition. If Jaguar does
approve this acquisition, the Company will acquire the assets of the Jaguar
franchise and will pay to the sellers an additional $0.2 million, payable with
200 shares of Preferred Stock, plus the net book value of the assets of the
Jaguar franchise, payable in cash. There can be no assurance that such approval
will be obtained.
The Company has entered into definitive agreements to acquire a dealership
located in Chattanooga, Tennessee and a dealership group comprised of three
dealerships located in Daytona Beach, Florida for an aggregate purchase price of
approximately $26.2 million plus the book value of the assets acquired. The
aggregate purchase price will be payable in approximately 12,183 shares of
Preferred Stock with a liquidation preference of approximately $1,000 per share
and the balance payable in cash obtained from the Company's existing operations
and from proceeds of the Offering. These acquisitions are expected to be
consummated in the third quarter of 1998.
The Company incurred a tax liability of approximately $7.1 million in
connection with the change in its tax basis of accounting for inventory from
LIFO to FIFO, which is payable over a six-year period beginning in January 1998.
In addition, in connection with the Montgomery Acquisition and the Casa Ford
Acquisition, the Company will incur an additional estimated tax liability in the
amount of approximately $20 million as a result of the change in accounting for
the inventory from LIFO to FIFO, which will be a payable over a six year period.
As of June 30, 1998, the remaining cumulative balance of the LIFO tax liability
was $8.4 million. The Company expects to be pay such obligation with cash
provided by operations.
The Company believes that funds generated through future operations and
availability of borrowings under its floor plan financing (or any replacements
thereof) and its other credit arrangements will be sufficient to fund its debt
service and working capital requirements and any seasonal operating
requirements, including its currently anticipated internal growth, for the
foreseeable future. The Company expects to fund any future acquisitions from its
future cash flow from operations, additional debt financing (including the
Revolving Facility) or the issuance of Class A Common Stock or issuance of other
convertible instruments.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures and it has completed an
assessment of its own operations in this regard. The Company has determined that
its systems are Year 2000 compliant and the costs associated with making its
systems Year 2000 compliant were immaterial. However, many of the Company's
lenders and suppliers, including suppliers that provide finance and insurance
products, may be impacted by Year 2000 complications. The Company does not
believe that failure of the Company's lenders or suppliers to ensure that their
computer systems are Year 2000 compliant will have a material adverse impact on
the Company's business, results of operations, and financial condition, although
no assurances can be given in this regard. Furthermore, there can be no
assurances that Year 2000 deficiencies on the part of dealerships to be acquired
by the Company would not have a material adverse impact on the Company's
business, results of operations, and financial condition.
SIGNIFICANT MATERIALITY OF GOODWILL
Goodwill represents the excess purchase price over the estimated fair
value of the tangible and separately measurable intangible net assets acquired.
The cumulative amount of goodwill at December 31, 1997 and June 30, 1998 was
$75.0 million and $104.5 million, respectively. As a percentage of total assets
and stockholders' equity, goodwill, net of accumulated amortization, represented
25.5% and 88.1%, respectively, at December 31, 1997, and 27.8% and 99.6%,
respectively, at June 30, 1998. Generally accepted accounting principles require
that goodwill and all other intangible assets be amortized over the period
benefited. The Company has determined that the period benefited by the goodwill
will be no less than 40 years and, accordingly, is amortizing goodwill over a 40
year period. If the Company were not to separately recognize a material
intangible asset having a benefit period of less than 40 years, or were not to
give effect to shorter benefit periods of factors giving rise to a material
portion of the goodwill, earnings reported in periods immediately following the
acquisition would be overstated. In later years, the Company would be burdened
by a continuing charge against earnings without the associated benefit to income
valued by management in arriving at the consideration paid for the businesses
acquired. Earnings in later years also could be significantly affected if
management then determined that the remaining balance of goodwill was impaired.
The Company periodically compares the carrying value of goodwill with the
anticipated undiscounted future cash flows from operations of the businesses
acquired in order to evaluate the recoverability of goodwill. The Company has
concluded that the anticipated future cash flows associated with intangible
assets recognized in its acquisitions will continue indefinitely, and these is
no pervasive evidence that any material portion will dissipate over a period
shorter than 40 years.
NEW ACCOUNTING STANDARD
20
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures and Segments of an
Enterprise and Related Information". This Standard redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. 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.
The Company has not yet completed its analysis of which operating segments it
will report on, if any.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NO.
10.1* Amendment No. 1 and Supplement to Asset Purchase Agreement dated as of
May 28, 1998 by and among Sonic Automotive, Inc., and Hatfield Jeep Eagle,
Inc., Hatfield Lincoln Mercury, Inc., Westside Dodge, Inc., Toyota West,
Inc., Hatfield Hyundai, Inc., Bud C. Hatfield, Dan E. Hatfield and Dan E
Hatfield, as Trustee of the Bud C. Hatfield, Sr. Special Irrevocable Trust
(incorporated by reference to Exhibit 99.6 to the Company's Current Report
on Form 8-K dated July 9, 1998 (the "July 9, 1998 Form 8-K")).
10.2* Asset Purchase Agreement dated April 10, 1998 by and among Sonic
Automotive, Inc., Century Auto Sales, Inc. and A. Foster McKissick, III
and Murray P. McKissick (incorporated by reference to Exhibit 99.9 to the
July 9, 1998 Form 8-K).
10.3* Contract to Purchase and Sell Real Property dated as of April 10, 1998 by
and between the Company, Century Auto Sales, Inc. and Fairway Investments,
LLC (incorporated by reference to Exhibit 99.10 to the July 9, 1998
Form 8-K).
10.4* Asset Purchase Agreement dated April 10, 1998 by and among the Company,
Fairway Management Company d/b/a Heritage Lincoln-Mercury-Jaguar, and
Fairway Ford, Inc. (incorporated by reference to Exhibit 99.11 to the
July 9, 1998 Form 8-K).
10.5* Contract to Purchase and Sell Real Property dated as of April 10, 1998 by
and between the Company, Century Auto Sales, Inc. and Fairway Ford, Inc.
(incorporated by reference to Exhibit 99.12 to the July 9, 1998 Form 8-K).
27 Financial data schedule for the six months ended June 30, 1998 (filed
electronically).
(b) Reports on Form 8-K.
The Company has not filed any reports on Form 8-K during the quarter for
which this report is filed.
* Filed Previously
22
<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: August 14, 1998 By: /s/ O. Bruton Smith
--------------- --------------------
O. Bruton Smith
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: August 14, 1998 By: /s/ Theodore M Wright
--------------- -----------------------
Theodore M. Wright
VICE PRESIDENT-FINANCE, CHIEF FINANCIAL
OFFICER, TREASURER, SECRETARY AND DIRECTOR
23
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SONIC AUTOMOTIVE, INC.
FOR THE SIX MONTHS ENDED June 30, 1998
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.1* Amendment No. 1 and Supplement to Asset Purchase Agreement dated as of
May 28, 1998 by and among Sonic Automotive, Inc., and Hatfield Jeep
Eagle, Inc., Hatfield Lincoln Mercury, Inc., Westside Dodge, Inc.,
Toyota West, Inc., Hatfield Hyundai, Inc., Bud C. Hatfield, Dan E.
Hatfield and Dan E Hatfield, as Trustee of the Bud C. Hatfield, Sr.
Special Irrevocable Trust (incorporated by reference to Exhibit 99.6 to
the Company's Current Report on Form 8-K dated July 9, 1998 (the
"July 9, 1998 Form 8-K")).
10.2* Asset Purchase Agreement dated April 10, 1998 by and among Sonic
Automotive, Inc., Century Auto Sales, Inc. and A. Foster McKissick,
III and Murray P. McKissick (incorporated by reference to Exhibit
99.9 to the July 9, 1998 Form 8-K).
10.3* Contract to Purchase and Sell Real Property dated as of April 10,
1998 by and between the Company, Century Auto Sales, Inc. and
Fairway Investments, LLC (incorporated by reference to Exhibit 99.10
to the July 9, 1998 Form 8-K).
10.4* Asset Purchase Agreement dated April 10, 1998 by and among the
Company, Fairway Management Company d/b/a Heritage
Lincoln-Mercury-Jaguar, and Fairway Ford, Inc. (incorporated by
reference to Exhibit 99.11 to the July 9, 1998 Form 8-K).
10.5* Contract to Purchase and Sell Real Property dated as of April 10,
1998 by and between the Company, Century Auto Sales, Inc. and
Fairway Ford, Inc. (incorporated by reference to Exhibit 99.12 to
the July 9, 1998 Form 8-K).
27 Financial data schedule for the six months ended June 30, 1998.
* Filed Previously
24
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