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 March 31, 2000
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 May 8, 2000, there were 30,334,293 shares of Class A Common Stock and
12,250,000 shares of Class B Common Stock outstanding.
<PAGE>
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION ----
<S> <C>
ITEM 1. Consolidated Financial
Statements (Unaudited) 3
Consolidated Statements of Income - Three-month periods ended
March 31, 1999 and March 31, 2000
Consolidated Balance Sheets -
December 31, 1999 and March 31, 2000
Consolidated Statement of Stockholders'
Equity - Three-month period ended March 31, 2000
Consolidated Statements of Cash Flows - Three-month periods
ended March 31, 1999 and March 31, 2000
Notes to Unaudited Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 17
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SONIC AUTOMOTIVE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
-------------- --------------
<S> <C> <C>
REVENUES:
New vehicles $ 346,992 $ 854,034
Used vehicles 129,859 305,431
Wholesale vehicles 44,416 101,012
-------------- --------------
Total vehicles 521,267 1,260,477
Parts, service and collision repair 59,625 165,587
Finance & insurance and other (Note 1) 12,560 38,337
-------------- --------------
Total revenues 593,452 1,464,401
COST OF SALES (Note 1) 515,377 1,256,367
-------------- --------------
GROSS PROFIT 78,075 208,034
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 57,214 153,466
DEPRECIATION 526 1,517
GOODWILL AMORTIZATION 1,381 4,050
-------------- --------------
OPERATING INCOME 18,954 49,001
OTHER INCOME AND EXPENSE:
Interest expense, floor plan 4,471 10,357
Interest expense, other 3,643 10,266
Other income 8 38
-------------- --------------
Total other expense 8,106 20,585
-------------- --------------
INCOME BEFORE INCOME TAXES 10,848 28,416
PROVISION FOR INCOME TAXES 4,161 11,045
-------------- --------------
NET INCOME $ 6,687 $ 17,371
============== ==============
BASIC NET INCOME PER SHARE (Note 6) $ 0.27 $ 0.41
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 24,423 42,088
============== ==============
DILUTED NET INCOME PER SHARE (Note 6) $ 0.24 $ 0.39
============== ==============
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES
OUTSTANDING 27,998 44,877
============== ==============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 2000
1999 (UNAUDITED)
---------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 83,111 $ 82,395
Receivables (net of allowance for doubtful accounts of $1,506
at December 31, 1999 and $1,303 at March 31, 2000) 99,987 114,618
Inventories (Note 3) 630,857 702,580
Due from affiliates (Note 5) 4,188 2,103
Other current assets 17,424 22,889
---------------- -------------------
Total current assets 835,567 924,580
PROPERTY AND EQUIPMENT, NET 63,681 70,580
GOODWILL, NET (Note 1) 592,670 638,438
OTHER ASSETS 9,184 10,043
---------------- -------------------
TOTAL ASSETS $ 1,501,102 $ 1,643,459
================ ===================
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 2000
1999 (UNAUDITED)
---------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan $ 517,575 $ 576,540
Trade accounts payable 48,405 57,851
Accrued interest 11,605 8,507
Other accrued liabilities 72,012 86,867
Payable for acquisitions 5,925 275
Current maturities of long-term debt 2,388 2,388
---------------- -------------------
Total current liabilities 657,910 732,428
LONG-TERM DEBT (Note 4) 417,283 464,512
OTHER LONG-TERM LIABILITIES 3,923 3,861
PAYABLE TO THE COMPANY'S CHAIRMAN (Note 5) 5,500 5,500
PAYABLE TO AFFILIATES (Note 5) 723 723
DEFERRED INCOME TAXES 8,476 10,311
INCOME TAX PAYABLE 4,714 3,508
STOCKHOLDERS' EQUITY (Note 6):
Preferred Stock, $.10 par, 3.0 million shares authorized;
300,000 shares designated as Class A Convertible Preferred 27,191 13,761
Stock, liquidation preference $1,000 per share, of which
28,159 shares are issued and outstanding at December 31, 1999
and 14,344 shares are issued and outstanding at March 31, 2000
Class A Common Stock, $.01 par, 100.0 million shares authorized; 29,075,437
shares issued at December 31, 1999
and 32,411,978 shares issued at March 31, 2000 291 324
Class B Common Stock, $.01 par (convertible into Class A Common Stock),
30.0 million shares authorized; 12,250,000 shares issued and 123 123
outstanding at December 31, 1999 and March 31, 2000
Paid-in capital 301,934 323,663
Retained earnings 79,392 96,763
Class A Treasury Stock, at cost (723,600 shares at December 31, 1999
and 1,336,023 at March 31, 2000) (6,358) (12,018)
---------------- -------------------
Total stockholders' equity 402,573 422,616
---------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,501,102 $ 1,643,459
================ ===================
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED CLASS A CLASS B TOTAL
STOCK COMMON STOCK COMMON STOCK PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ --------- ------ ------- ------- ------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1999 28 $ 27,191 29,075 $ 291 12,250 $123 $ 301,934 $ 79,392 $ (6,358) $ 402,573
Issuance of Preferred
Stock (Note 2) 12 11,589 - - - - - - - 11,589
Issuance of Common
Stock - - 809 8 - - (8) - - -
Shares awarded under stock
compensation plans - - 33 - - - 243 - - 243
Conversion of Preferred
Stock (22) (21,904) 2,495 25 - - 21,879 - - -
Redemption of Preferred
Stock (4) (3,115) - - - - (385) - - (3,500)
Purchase of Class A
Treasury Stock - - - - - - - - (5,660) (5,660)
Net income - - - - - - - 17,371 17,371
----- -------- ------ ----- ------ ---- --------- --------- --------- ---------
BALANCE AT MARCH 31, 2000 14 $ 13,761 32,412 $ 324 12,250 $123 $ 323,663 $ 96,763 $ (12,018) $ 422,616
===== ======== ====== ===== ====== ==== ========= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,687 $ 17,371
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,907 5,567
Loss on disposal of property and equipment 292 19
Changes in assets and liabilities that relate to operations:
Receivables (4,027) (11,679)
Inventories (9,077) (22,880)
Other assets (1,783) (1,731)
Notes payable - floor plan 10,340 16,551
Trade accounts payable and other liabilities (1,090) 11,548
------------- -------------
Total adjustments (3,438) (2,605)
------------- -------------
Net cash provided by operating activities 3,249 14,766
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (46,672) (46,602)
Purchases of property and equipment (3,619) (9,519)
Proceeds from sales of property and equipment 10,572 1,168
------------- -------------
Net cash used in investing activities (39,719) (54,953)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 52,961 47,792
Payments on long-term debt (8,295) (1,488)
Purchases of Class A Common Stock and redemptions of Preferred Stock - (9,160)
Issuance of shares under stock compensation plans 603 243
(Advances to) repayments from affiliated companies (895) 2,084
------------- -------------
Net cash provided by financing activities 44,374 39,471
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,904 (716)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,834 83,111
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 59,738 $ 82,395
============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Preferred Stock issued for acquisitions and contingent
consideration (Note 2) $ 28,892 $ 11,589
Conversion of Preferred Stock $ - $ 21,904
</TABLE>
See notes to unaudited consolidated financial statements.
7
<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 similar 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.
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 months ended March 31, 1999 and 2000 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
audited consolidated financial statements of Sonic Automotive, Inc. ("Sonic")
for the year ended December 31, 1999.
REVENUE RECOGNITION -- Sonic records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
Sonic 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. Sonic also receives commissions from the
sale of credit life, accident, health and disability insurance contracts to
customers. Sonic may be assessed a chargeback fee in the event of early
cancellation of a loan or insurance 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.
Sonic also receives commissions from the sale of non-recourse third
party extended service contracts to customers. These contracts provide for no
recourse against Sonic, but instead provide that the applicable manufacturer or
third party warranty company is directly liable for all warranties provided
within the contract. Commission revenue from the sale of these third party
extended service contracts is recorded net of estimated chargebacks at the time
of sale.
Commissions expense related to finance and insurance commission revenue
is charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Commission expense charged to cost of sales was approximately $2.3
million and $6.2 million for the three months ended March 31, 1999 and 2000,
respectively.
GOODWILL -- Goodwill represents the excess purchase price over the
estimated fair value of the tangible and separately measurable intangible net
assets acquired. The cumulative gross amount of goodwill at December 31, 1999
was $605.1 million and at March 31, 2000 was $654.9 million. As a percentage of
total assets and stockholders' equity, goodwill, net of accumulated
amortization, represented 39.5% and 147.2%, respectively, at December 31, 1999,
and 38.8% and 151.1%, respectively, at March 31, 2000. Generally accepted
accounting principles in the United States of America require that goodwill and
all other intangible assets be amortized over the period benefited. Sonic has
determined that the period benefited by the goodwill will be no less than 40
years. Accordingly Sonic is amortizing goodwill over a 40 year period. Earnings
reported in periods immediately following an acquisition would be overstated if
Sonic attributed a 40 year benefit to an intangible asset that should have had a
shorter benefit period. In later years, Sonic would be burdened by a continuing
charge against earnings without the associated benefit to income valued by
management in arriving at the price 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. Sonic
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. Sonic has concluded that the
anticipated future cash flows associated with intangible assets recognized in
its acquisitions will continue indefinitely, and there is no pervasive evidence
that any material portion will dissipate over a period shorter than 40 years.
Sonic will incur additional goodwill in future acquisitions.
The Financial Accounting Standards Board recently proposed new rules
relating to the accounting for business combinations and intangible assets. One
aspect of the proposal would not permit goodwill to be amortized over a period
in excess of 20 years;
8
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
however, we cannot assure that such a rule will be adopted and, if adopted, as
to the final provisions of any such rules. If such a rule is adopted, we have
been advised that it would likely only affect the period over which we amortize
goodwill on our future acquisitions.
2. BUSINESS ACQUISITIONS
ACQUISITIONS COMPLETED DURING THE THREE MONTHS ENDED MARCH 31, 2000:
During the first three months of 2000, Sonic acquired 6 dealerships for
approximately $47.1 million in cash and 11,589 shares of Sonic's Class A
convertible preferred stock, Series II, having an estimated value at the time of
issuance of approximately $11.6 million. The cash portion of the purchase price
was financed with a combination of cash borrowed under Sonic's $350 million
acquisition line of credit with Ford Motor Credit Company (the "Revolving
Facility") and cash generated from Sonic's existing operations. The acquisitions
were 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 their respective acquisition dates. The
aggregate purchase price of these acquisitions has been allocated to the assets
and liabilities acquired based on their estimated fair market value at the
acquisition date as shown in the table below. We are still in the process of
obtaining data necessary to complete the allocation of the purchase price of
these acquisitions. As a result, the values of assets and liabilities included
in the table below reflect preliminary estimates where actual values have not
yet been determined, and may ultimately be different than amounts recorded once
actual values are determined. Any adjustment to the value of the assets and
liabilities will be recorded against goodwill.
Working capital $ 8,907
Property and equipment 1,954
Goodwill 48,739
Non-current liabilites assumed (943)
------------
Total purchase price $ 58,657
============
The following unaudited pro forma financial information presents a
summary of consolidated results of operations as if the acquisition transactions
completed during 1999 and during the first three months of 2000 had occurred as
of the beginning of the year in which the acquisitions were completed, and at
the beginning of the immediately preceding year, 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 Sonic or whose salaries have
been reduced pursuant to employment agreements with Sonic. 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 period presented. These
results are also not necessarily indicative of the results of future operations.
THREE MONTHS ENDED MARCH 31,
1999 2000
------ -------
Total revenues $ 1,376,558 $ 1,510,534
Gross profit $ 186,255 $ 213,195
Net income $ 13,498 $ 17,281
Diluted income per share $ 0.29 $ 0.38
SALE OF DEALERSHIP SUBSIDIARIES:
During the first three months of 2000, Sonic sold substantially all of
the assets of one of its dealership subsidiaries for approximately $0.6 million.
Subsequent to March 31, 2000, Sonic has sold substantially all of the assets at
two additional dealership subsidiaries for approximately $4.5 million. The
aggregate net book value of these assets totaling approximately $4.2 million has
been included in other current assets on the accompanying unaudited consolidated
balance sheet as of March 31, 2000 as assets held for sale.
9
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31, MARCH 31,
1999 2000
----- ----
New vehicles $ 459,382 $ 515,224
Used vehicles 109,130 122,215
Parts and accessories 44,821 48,048
Other 17,524 17,093
------------ -----------
Total $ 630,857 $ 702,580
============ ===========
4. LONG-TERM DEBT
REVOLVING FACILITY
Borrowings, net of repayments, under Sonic's $350 million Revolving
Facility for the three months ended March 31, 2000 were approximately $47.7
million and were primarily used to finance acquisitions. The total outstanding
balance under the Revolving Facility as of March 31, 2000 was approximately
$336.7 million. Additional 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 Sonic not to exceed $35 million.
5. RELATED PARTIES
REGISTRATION RIGHTS AGREEMENT
When Sonic acquired Town & Country Ford, Lone Star Ford, Fort Mill
Ford, Town & Country Toyota and Frontier Oldsmobile-Cadillac in 1997, Sonic
signed a Registration Rights Agreement dated as of June 30, 1997 with Sonic
Financial Corporation ("SFC"), Bruton Smith, Scott Smith and William S. Egan
(collectively, the "Class B Registration Rights Holders"). SFC currently owns
8,881,250 shares of Class B common stock; Bruton Smith, 2,071,250 shares; Scott
Smith, 956,250 shares; and Egan Group, LLC, an assignee of Mr. Egan (the "Egan
Group"), 341,250 shares, all of which are covered by the Registration Rights
Agreement. The Egan Group also owns certain shares of Class A common stock to
which the Registration Rights Agreement applies. If, among other things provided
in Sonic's charter, offers and sales of shares Class B common stock are
registered with the Securities and Exchange Commission, then such shares will
automatically convert into a like number of shares of Class A common stock.
The Class B Registration Rights Holders have certain limited piggyback
registration rights under the Registration Rights Agreement. These rights permit
them to have their shares of Sonic's common stock included in any Sonic
registration statement registering Class A common stock, except for
registrations on Form S-4, relating to exchange offers and certain other
transactions, and Form S-8, relating to employee stock compensation plans. The
Registration Rights Agreement expires in November 2007. SFC is controlled by
Bruton Smith, the Company's Chairman.
PAYABLE TO COMPANY'S CHAIRMAN
Sonic has a note payable to Mr. Smith in the amount of $5.5 million
(the "Subordinated Smith Loan"). The Subordinated Smith Loan bears interest at
Bank of America's announced prime rate plus 0.5% and has a stated maturity date
of November 30, 2000. Under the terms of certain subordination agreements
currently in effect, however, all amounts owed by Sonic to Mr. Smith under the
Subordinated Smith Loan are to be paid only after all amounts owed by Sonic
under the Revolving Facility, Sonic's floor plan financing facility with Ford
Motor Credit and Sonic's senior subordinated notes are fully paid in cash.
Accordingly, the Subordinated Smith Loan has been classified as non-current on
the accompanying consolidated balance sheets.
OTHER RELATED PARTY TRANSACTIONS
o Sonic had amounts receivable from affiliates of $4.2 million at
December 31, 1999 representing amounts owed by SFC. Of this balance,
approximately $2.1 million was collected during the first quarter of
2000. The remaining balance as of March 31, 2000 was approximately $2.1
million and is classified as current based on the expected repayment
dates.
10
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. RELATED PARTIES - (Continued)
o Town and Country Toyota has an amount payable to SFC and Bruton Smith,
which payable totaled approximately $723,000 at both December 31, 1999
and March 31, 2000, respectively. This loan bears interest at 8.75% per
annum and is classified as non-current based on the expected repayment
dates.
6. CAPITAL STRUCTURE AND PER SHARE DATA
TREASURY STOCK/SHARE REPURCHASE PROGRAM --During 1999, Sonic's Board of
Directors authorized Sonic to expend up to $50 million to repurchase shares of
its Class A common stock or redeem securities convertible into Class A common
stock. As of March 31, 2000 Sonic has repurchased 1.3 million shares of Class A
common stock for approximately $12.0 million and has also redeemed 3,500 shares
of Class A convertible preferred stock at a total cost of $3.5 million. Through
May 2, 2000, Sonic has repurchased approximately 2.1 million shares of Class A
common stock for approximately $20.1 million and has redeemed 8,600 shares of
Class A convertible preferred stock for approximately $8.6 million. Sonic will
continue to repurchase shares from time to time subject to market conditions.
PER SHARE DATA - The calculation of diluted net income per share
considers the potential dilutive effect of options and shares under Sonic'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 net income per share.
<TABLE>
<CAPTION>
For the three months ended For the three months ended
March 31, 1999 March 31, 2000
----------------------------------------- ----------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------ ------------ ------------- ------------- ------------ ----------
(DOLLARS AND SHARES IN THOUSANDS (DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE $ 6,687 24,423 $ 0.27 $ 17,371 42,088 $ 0.41
============= ==========
EFFECT OF DILUTIVE SECURITIES
Stock compensation plans - 1,458 - 384
Warrants - 110 - 28
Convertible Preferred Stock - 2,007 - 2,377
------------ ------------ ------------- ------------
DILUTED NET INCOME PER SHARE $ 6,687 27,998 $ 0.24 $ 17,371 44,877 $ 0.39
============ ============ ============= ============= ============ ==========
</TABLE>
11
<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 Sonic's
Consolidated Statements of Income.
<TABLE>
<CAPTION>
Percentage of Total Revenues for
Three Months Ended
March 31,
Revenues: 1999 2000
- --------- ------ ----
<S> <C> <C>
New vehicle sales....................................................................... 58.5% 58.3%
Used vehicle sales...................................................................... 29.4% 27.8%
Parts, service and collision repair..................................................... 10.0% 11.3%
Finance and insurance................................................................... 2.1% 2.6%
----- -----
Total revenues.......................................................................... 100.0% 100.0%
Cost of sales........................................................................... 86.8% 85.8%
----- -----
Gross profit............................................................................ 13.2% 14.2%
Selling, general and administrative..................................................... 9.6% 10.5%
Depreciation ........................................................................... 0.1% 0.1%
Goodwill amortization................................................................... 0.2% 0.3%
----- -----
Operating income........................................................................ 3.2% 3.3%
Interest expense........................................................................ 1.4% 1.4%
----- -----
Income before income taxes.............................................................. 1.8% 1.9%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues grew in each of our primary revenue areas for the
first three months of 2000 as compared with the first three months of 1999,
causing total revenues to increase 147% to $1.5 billion. New vehicle sales
revenue increased 146% to $854.0 million in the first three months of 2000,
compared with $347.0 million in the first three months of 1999. The increase was
due primarily to a 134% increase in new vehicle unit sales to 33,390 in the
first three months of 2000 from 14,282 in the first three months of 1999,
resulting primarily from acquisitions. The remainder of the increase in new
vehicle revenues was due to a 5.3% increase in the average selling price of new
vehicles, resulting primarily from an increase in revenues of higher priced
luxury brands contributed by acquisitions. The percentage of new vehicle
revenues comprised of luxury brands increased to 26.8% in the first three months
of 2000 from 20.1% in the first three months of 1999.
Used vehicle revenues from retail sales increased 135% to $305.4
million in the first three months of 2000 from $129.9 million in the first three
months of 1999. The increase was primarily due to a 114% increase in used
vehicle unit sales to 20,132 in the first three months of 2000 from 9,408 in the
first three months of 1999. Of this increase, approximately 90.1%, or 9,663
units, resulted from acquisitions and 9.9% resulted from stores owned longer
than one year. The remainder of the increase was due to a 9.9% increase in the
average selling price of used vehicles, including a 6.5% increase in the average
selling price of used vehicles from stores owned for longer than one year.
Parts, service and collision repair revenue increased 178% to $165.6
million in the first three months of 2000 compared to $59.6 million in the first
three months of 1999. Approximately 95.2% of the increase resulted from our
acquisitions. Finance and insurance revenue increased $25.8 million, or 205%,
principally due to vehicle sales and related financing contributed by our
acquisitions, as well as a 35.1% improvement in finance and insurance revenues
per vehicle resulting from newly implemented programs designed to improve
training and development of finance and insurance sales people.
GROSS PROFIT. Gross profit increased 166% to $208.0 million in the
first three months of 2000 from $78.1 million in the first three months of 1999.
Approximately 93.8%, or $122.0 million, of the increase resulted from
acquisitions. Gross profit as a percentage of sales increased to 14.2% from
13.2% due primarily to an increase in revenues contributed by parts, service and
collision repair services and finance and insurance products, which earn higher
margins than new vehicles. Parts, service and collision repair revenues as a
percentage of total revenues increased to 11.3% in the first three months of
2000 from 10.0% in the first three months of 1999. Finance and insurance
revenues as a percentage of total revenues increased to 2.6% in the first three
months of 2000 from 2.1% in the first three months of 1999.
12
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, excluding depreciation and amortization, increased 168%
to $153.5 million in the first three months of 2000 from $57.2 million in the
first three months of 1999, resulting principally from acquisitions. Such
expenses as a percentage of revenues increased to 10.5% in the first three
months of 2000 from 9.6% in the first three months of 1999. Compensation
programs, which represent over 50% of a dealership's selling, general and
administrative expenses, are primarily based on gross profits. As a result, the
improvement in gross profit margins resulted in an increase in compensation
expense as a percentage of total revenues to 6.5% in the first three months of
2000 from 6.0% in the first three months of 1999 (as a percentage of gross
profits, compensation expense increased only slightly to 45.5% in the first
three months of 2000 from 45.2% in the first three months of 1999). In addition,
rent expense increased as a percentage of total revenues to 0.9% in the first
three months of 2000 from 0.7% in the first three months of 1999 primarily due
to acquisitions of dealerships located in higher rent markets. As a percentage
of gross profits, selling, general and administrative expenses increased
slightly to 73.8% in the first three months of 2000 from 73.3% in the first
three months of 1999.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation expense, excluding
goodwill amortization, increased 189% to $1.5 million in the first three months
of 2000 from $0.5 million in the first three months of 1999, resulting primarily
from acquisitions. As a percentage of total revenues, depreciation expense was
at 0.1% in both the first three months of 2000 and the first three months of
1999. Goodwill amortization expense increased 193% to $4.1 million in the first
three months of 2000 from $1.4 million in the first three months of 1999,
resulting principally from additional acquisitions.
INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased
132% to $10.4 million in the first three months of 2000 from $4.5 million in the
first three months of 1999, due primarily to floor plan interest expense
incurred by dealerships acquired. As a percentage of total revenues, floor plan
interest decreased to 0.71% in the first three months of 2000 from 0.75% in the
first three months of 1999, despite a 69 basis point increase in the average
floorplan interest rate. The decrease primarily resulted from the acquisition of
dealerships in certain California markets where, due to limited capacity,
dealerships carry lower inventory levels and experience higher inventory
turnover rates.
INTEREST EXPENSE, OTHER. Interest expense, other increased to $10.3
million in the first three months of 2000 from $3.6 million in the first three
months of 1999 due to interest incurred on additional borrowings under our $350
million acquisition line of credit with Ford Motor Credit Company (the
"Revolving Facility").
PROVISION FOR INCOME TAXES. The effective tax rate for the first three
months of 2000 was 38.87%, compared to an effective rate of 38.36% in the first
three months of 1999. The increase was primarily attributable to acquisitions we
made during the year which were either (1) companies operating in states with
higher income tax rates, or (2) stock purchases in which the goodwill
amortization is not deductible for income tax purposes.
NET INCOME. As a result of the factors noted above, our net income
increased by $10.7 million in the first three months of 2000 compared to the
first three months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our principal needs for capital resources are to finance acquisitions
and fund debt service and working capital requirements. Historically, we have
relied on internally generated cash flows from operations, borrowings under our
various credit facilities, and borrowings and capital contributions from our
stockholders to finance our operations and expansion.
During the first three months of 2000, net cash provided by operating
activities was approximately $14.8 million. During the first three months of
1999, net cash provided by operating activities was approximately $3.2 million.
The increase was attributable principally to increases in net income and notes
payable, floorplan and accounts payable and other liabilities, offset by
increases in inventories and accounts receivable.
Cash used for investing activities in the first three months of 2000
was approximately $55.0 million, including $46.6 million paid for acquisitions,
net of cash received, and $9.5 million in capital expenditures. Cash used for
investing activities in the first three months of 1999 was approximately $39.7
million, including $46.7 million paid for acquisitions, net of cash received,
and $3.6 million in capital expenditures. Our principal capital expenditures
typically include building improvements and equipment for use in our
dealerships. Of the capital expenditures in the first three months of 2000,
approximately $5.7 million related to the construction of new dealerships and
collision repair centers. Total construction in process as of March 31, 2000 was
approximately $11.1 million. Sonic is in the process of obtaining a construction
line of credit in the amount of $50 million from Ford Motor Credit Company
("Ford Motor Credit") for the purpose of financing current and future
construction projects. Sonic is also in the process of obtaining a permanent
mortgage credit line in the amount of $100 million from Ford Motor Credit. Upon
completion, construction projects are
13
<PAGE>
expected to either be re-financed with funds from the $100 million permanent
mortgage credit line with Ford Motor Credit or sold to third parties in
sale-leaseback transactions.
During the first three months of 2000, we acquired 6 dealerships for
approximately $47.1 million in cash and 11,589 shares of Sonic's Class A
convertible preferred stock, Series II, recorded at an estimated value of
approximately $11.6 million. The cash portion of the purchase price was financed
with a combination of cash borrowed under our Revolving Facility and cash
generated from our existing operations. The acquisitions were accounted for
using the purchase method of accounting, and the results of operations of such
acquisitions have been included in our consolidated financial statements from
their respective acquisition dates.
As of May 2, 2000, Sonic has sold three dealerships for approximately
$5.3 million in proceeds. No material gains or losses have been realized or are
expected from these sales.
The Revolving Facility currently has a borrowing limit of $350 million.
Amounts outstanding under the Revolving Facility bear interest at 2.50% above
LIBOR (LIBOR was 5.88% at March 31, 2000). The Revolving Facility will mature in
October 2002, but may be extended for a number of additional one year terms to
be negotiated by us and Ford Motor Credit. Borrowings, net of repayments, under
the Revolving Facility for the first three months of 2000 were approximately
$47.7 million and were used to finance acquisitions. As of March 31, 2000, the
total outstanding balance under the Revolving Facility was approximately $336.7
million. 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 not to exceed $35 million.
We agreed under the Revolving Facility not to pledge any of our assets
to any third party (with the exception of currently encumbered assets of our
dealership subsidiaries that are subject to previous pledges or liens). In
addition, the Revolving Facility contains certain negative covenants, 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
o current assets to current liabilities (at least 1.25:1),
o earnings before interest, taxes, depreciation and amortization (EBITDA) and
rent less capital expenditures to fixed charges (at least 1.4:1),
o EBITDA to interest expense (at least 2:1) and
o total adjusted debt to EBITDA (no greater than 2.25:1).
In addition, the loss of voting control over Sonic by Bruton Smith,
Scott Smith and their spouses or immediate family members or the failure by
Sonic, 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. Sonic is in compliance with all
restrictive covenants as of March 31, 2000.
We currently have an aggregate principal balance of $125 million in
senior subordinated notes which mature on August 1, 2008 and bear interest at a
stated rate of 11.0%. The notes are unsecured and are redeemable at our option
after August 1, 2003. Interest payments are due semi-annually on August 1 and
February 1 and commenced February 1, 1999. The notes are subordinated to all of
our present and future senior indebtedness, including the Revolving Facility.
Redemption prices during 12 month periods beginning August 1 are 105.500% in
2003, 103.667% in 2004, 101.833% in 2005 and 100% thereafter.
The indenture governing the senior subordinated notes contains certain
specified restrictive and required financial covenants. We have agreed not to
pledge our assets to any third party except under certain limited circumstances
(for example, floor plan indebtedness). We have also agreed to certain other
limitations or prohibitions concerning the incurrence of other indebtedness,
capital stock, guaranties, asset sales, investments, cash dividends to
shareholders, distributions and redemptions. Sonic is in compliance with all
restrictive covenants as of March 31, 2000.
We currently have standardized floor plan credit facilities with
Chrysler Financial Corporation ("Chrysler Financial") and Ford Motor Credit. The
floor plan credit facility with Chrysler Financial provides up to $750 million
for the purchase of vehicles at our Chrysler dealerships. The floor plan
facility with Ford Motor Credit provides up to $550 million for the purchase of
vehicles at all of our other dealerships. As of March 31, 2000, there was an
aggregate of approximately $128.0 million outstanding under the Chrysler
Financial floorplan facility and $449.8 million outstanding under the Ford Motor
Credit floor plan facility.
Amounts outstanding under the Chrysler Financial floor plan facility
bear interest at 1.25% above LIBOR. Amounts outstanding under the Ford Motor
Credit floor plan facility bear interest at an effective interest rate of prime
less 1.3% (prime was 8.75% at March 31, 2000), subject to certain incentives and
other adjustments. Typically new vehicle floor plan indebtedness exceeds the
related inventory balances. The inventory balances are generally reduced by the
manufacturer's purchase discounts, which are not
14
<PAGE>
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 us by the manufacturers on a
quarterly basis.
We make monthly interest payments on the amount financed under the
floor plan facilities but are 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 facilities contain a
number of covenants, including among others, covenants restricting us with
respect to the creation of liens and changes in ownership, officers and key
management personnel. Sonic is in compliance with all restrictive covenants as
of March 31, 2000.
Sonic's Board of Directors recently authorized Sonic to expend up
to $50 million to repurchase shares of its Class A common stock or redeem
securities convertible into Class A common stock. Through May 2, 2000, Sonic has
repurchased 2,144,006 shares of Class A common stock for approximately $20.1
million and has redeemed 8,600 shares of Class A convertible preferred stock for
approximately $8.6 million. Sonic will continue to repurchase shares from time
to time subject to market conditions.
We believe that funds generated through future operations and
availability of borrowings under our floor plan financing (or any replacements
thereof) and other credit arrangements will be sufficient to fund our debt
service and working capital requirements and any seasonal operating
requirements, including our currently anticipated internal growth for our
existing businesses, for the foreseeable future. We expect to fund any future
acquisitions from future cash flow from operations, additional debt financing
(including the Revolving Facility) or the issuance of Class A common stock,
preferred stock or other convertible instruments.
SEASONALITY
Our operations are subject to seasonal variations. The first quarter
generally contributes less revenue and operating profits than the second, third
and fourth quarters. Seasonality is principally caused by weather conditions and
the timing of manufacturer incentive programs and model changeovers.
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 gross goodwill balance at December 31, 1999 was approximately
$605.1 million and at March 31, 2000 was approximately $655.1 million. As a
percentage of total assets and stockholders' equity, goodwill, net of
accumulated amortization, represented 39.5% and 147.2%, respectively, at
December 31, 1999, and 38.8% and 151.1%, respectively, at March 31, 2000.
Generally accepted accounting principles in the United States of America require
that goodwill and all other intangible assets be amortized over the period
benefited. We have determined that the period benefited by the goodwill will be
no less than 40 years. Accordingly, we are amortizing goodwill over a 40 year
period. Earnings reported in periods immediately following an acquisition would
be overstated if we attributed a 40 year benefit to an intangible asset that
should have had a shorter benefit period. In later years, we 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.
We periodically compare the carrying value of goodwill with the anticipated
undiscounted future cash flows from operations of the business we have acquired
in order to evaluate the recoverability of goodwill. We have concluded that the
anticipated future cash flows associated with intangible assets recognized in
our acquisitions will continue indefinitely, and there is no pervasive evidence
that any material portion will dissipate over a period shorter than 40 years. We
will incur additional goodwill in future acquisitions.
The Financial Accounting Standards Board recently proposed new rules
relating to the accounting for business combinations and intangible assets. One
aspect of the proposal would not permit goodwill to be amortized over a period
in excess of 20 years; however, we cannot assure you that such a rule will be
adopted and, if adopted, as to the final provisions of any such rules. If such a
rule is adopted, we have been advised that it would likely only affect the
period over which we amortize goodwill in our future acquisitions.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. Sonic's only financial instruments with market risk
exposure are variable rate floor plan notes payable, Revolving Facility
borrowings and other variable rate notes. The total outstanding balance of such
instruments was approximately $338.9 million at March 31, 1999 and $931.1
million at March 31, 2000. A change of one percent in the interest rate would
have caused a change in interest expense of approximately $0.8 million for the
three months ended March 31, 1999 and approximately $2.4
15
<PAGE>
million for the three months ended March 31, 2000. Of the total change in
interest expense, approximately $0.7 million for the three months ended March
31, 1999 and approximately $1.4 million for the three months ended March 31,
2000 would have resulted from floor plan notes payable.
Sonic's exposure with respect to floor plan notes payable is mitigated
by floor plan incentives received from manufacturers which are generally based
on rates similar to those incurred under Sonic's floor plan financing
arrangements. Our floor plan interest expense for the three months ended March
31, 2000 exceeded the amounts we received from these manufacturer floor plan
incentives by approximately $1.6 million. As a result, the effective rate
incurred under our floor plan financing arrangements was reduced to an
annualized rate of approximately 1.1% after considering these incentives.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The following sets forth certain information as to all equity
securities sold by Sonic during the periods discussed that were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). As to all
such transactions, an exemption was claimed under Section 4(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder ("Regulation D") as
transactions not involving a public offering in view of sophistication of the
purchasers, their access to material information about Sonic, the disclosures
actually made to them by Sonic, the absence of any general solicitation or
advertising, the status of the purchasers as "accredited investors" as that term
is defined in Rule 501(a) of Regulation D and the filing by Sonic of the
appropriate forms in connection therewith. All such private sales of Sonic's
equity securities were made to the owners of assets associated with, or the
capital stock of, automobile dealerships acquired by Sonic as a part of Sonic's
dealership acquisition strategy.
Sonic has privately issued its Class A common stock in the following
dealership acquisition transactions:
On February 25, 2000, Sonic issued an aggregate 750,745 shares of its
Class A common stock with a value of approximately $6.7 million to Joseph L.
Herson, Mollye H. Mills, Richard Mills and John Jaffe in satisfaction of its
obligations under the Agreement and Plan of Merger dated April 6, 1999 by and
among Sonic, Manhattan Auto, Inc., Joseph Herson, Mollye Mills, John Jaffe and
Richard Mills.
On March 16, 2000, Sonic issued an aggregate 57,976 shares of its Class
A common stock with a value of approximately $0.5 million to certain
affiliates of The Trust Company of the West. These entities held shares of
preferred stock of FirstAmerica Automotive, Inc. at the time of Sonic's
acquisition of FirstAmerica, and this issuance of Sonic's Class A common stock
to these entries was in satisfaction of obligations pertaining to such preferred
stock.
Sonic has also privately issued its Class A convertible preferred
stock (the "Preferred Stock") in dealership acquisition transactions. The
Preferred Stock is divided into three series: the Series I Preferred Stock, the
Series II Preferred Stock and the Series III Preferred Stock. Each share of
Preferred Stock is convertible into shares of Class A common stock at the
holder's option at specified conversion rates. After the second anniversary of
the date of issuance, any shares of Preferred Stock which have not yet been
converted are subject to mandatory conversion to Class A common stock at the
option of Sonic. No fractional shares of Class A common stock will be issued
upon conversion of any shares of Preferred Stock. Instead, Sonic will pay cash
equal to the value of such fractional shares.
Generally, each share of Preferred Stock is convertible into that
number of shares of Class A common stock that has an aggregate Market Price at
the time of conversion equal to $1,000 (with certain adjustments for Series II
and Series III Preferred Stock). "Market Price" is defined generally as the
average closing price per share of the Class A common stock on the New York
Stock Exchange for twenty trading days immediately preceding the date of
determination. Before the first anniversary of the date of issuance of Preferred
Stock, each holder of Preferred Stock is unable to convert without first giving
Sonic ten business days' notice and an opportunity to redeem such Preferred
Stock at the then applicable redemption price.
Sonic has privately issued Preferred Stock in the following dealership
acquisition transactions:
On February 1, 2000, Sonic issued an aggregate 4,602 shares of its
Series II Preferred Stock with a value of approximately $4.6 million to Rod
Maupin, David Hudiburg, Steven Hudiburg, Donna Dodson, Paula Tate, Leslie
Hudiburg, the Paul Hudiburg 1997 Dynasty Trust, and the Jayce T. Hudiburg
Irrevocable Trust to acquire the assets of Riverside Chevrolet, Inc.
On February 1, 2000, Sonic issued an aggregate 2,836 shares of its
Series II Preferred Stock with a value of approximately $2.8 million to James E.
Glover, Steven Hudiburg, Paula Tate, Karen Stevens, Daniel Dodson and Timothy
Dodson to acquire the assets of Jim Glover Dodge, Inc.
On March 1, 2000, Sonic issued an aggregate 4,151 shares of its Series
II Preferred Stock with a value of approximately $4.2 million to Winton M.
Blount, Todd R. Strange and Henry Cobb to acquire the outstanding capital stock
of Cobb Pontiac Cadillac, Inc. and Royal Motor Company, Inc.
17
<PAGE>
ITEM 6. EXHIBITS
(a) Exhibits:
3.1* Amended and Restated Certificate of Incorporation of Sonic
(incorporated by reference to Exhibit 3.1 to Sonic's Registration
Statement on Form S-1 (Reg. No. 333-33295) (the "Form S-1")).
3.2* Certificate of Amendment to Sonic's Amended and Restated Certificate of
Incorporation effective June 18, 1999 (incorporated by reference to
Exhibit 3.2 to Sonic's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "1999 Form 10-K")).
3.3* Certificate of Designation, Preferences and Rights of Class A
Convertible Preferred Stock (incorporated by reference to Exhibit 4.1
to Sonic's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998).
3.4* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to the Form
S-1).
4.1* Form of 11% Senior Subordinated Note due 2008, Series B (incorporated
by reference to Exhibit 4.3 to the Registration Statement on Form S-4
(Reg. Nos. 333-64397 and 333-64397-001 through 333-64397-044) of Sonic
(the "Form S-4")).
4.2* Indenture dated as of July 1, 1998 among Sonic, as issuer, the
subsidiaries of Sonic named therein, as guarantors, and U.S. Bank Trust
National Association, as trustee (the "Trustee"), relating to the 11%
Senior Subordinated Notes due 2008 (incorporated by reference to
Exhibit 4.2 to the Form S-4).
4.3* First Supplemental Indenture dated as of December 31, 1999 among Sonic,
as issuer, the subsidiaries of Sonic named therein, as guarantors and
additional guarantors, and the Trustee, relating to the 11% Senior
Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.2a
to the 1999 Form 10-K).
4.4* Registration Rights Agreement dated as of June 30, 1997 among Sonic, O.
Bruton Smith, Bryan Scott Smith, William S. Egan and Sonic Financial
Corporation (incorporated by reference to Exhibit 4.2 to the Form S-1).
4.5* Letter Agreement dated as of February 25, 2000 by and among Sonic,
Joseph Herson, Mollye Mills, Richard Mills and John Jaffe (incorporated
by reference to Exhibit 4.3 to Sonic's Registration Statement on Form
S-3 (Reg. No. 333-96023)).
27 Financial data schedule for the three month period ended March 31, 2000
(filed electronically).
* Filed Previously
(b) Reports on Form 8-K.
On January 18, 2000, Sonic filed an Amended Current Report on Form
8-K/A, dated November 4, 1999, relating to its Current Report on Form 8-K filed
on November 19, 1999 and containing Financial Statements of the Business
Acquired and Unaudited Pro Forma Financial Statements reflecting the business
combination of Sonic, Freeland Automotive, and the Manhattan Automotive Group.
On January 27, 2000, Sonic filed an Amended Current Report on Form
8-K/A, dated December 10, 1999, relating to its Current Report on Form 8-K filed
on December 22, 1999 and containing Financial Statements of the Business
Acquired and Unaudited Pro Forma Financial Statements reflecting the business
combination of Sonic, FirstAmerica Automotive, Inc. (including dealership
subsidiaries acquired by FirstAmerica in 1998 and 1999), Freeland Automotive,
and the Manhattan Automotive Group.
18
<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.
Date: May 15, 2000 By: /s/ O. Bruton Smith
------------ ---------------------------------
O. Bruton Smith
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: May 15, 2000 By: /s/ Theodore M. Wright
------------ ---------------------------------
Theodore M. Wright
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
19
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SONIC AUTOMOTIVE, INC.
FOR THE QUARTER ENDED MARCH 31, 2000
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
3.1* Amended and Restated Certificate of Incorporation of Sonic
(incorporated by reference to Exhibit 3.1 to Sonic's Registration
Statement on Form S-1 (Reg. No. 333-33295) (the "Form S-1")).
3.2* Certificate of Amendment to Sonic's Amended and Restated Certificate of
Incorporation effective June 18, 1999 (incorporated by reference to
Exhibit 3.2 to Sonic's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "1999 Form 10-K")).
3.3* Certificate of Designation, Preferences and Rights of Class A
Convertible Preferred Stock (incorporated by reference to Exhibit 4.1
to Sonic's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998).
3.4* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to the Form
S-1).
4.1* Form of 11% Senior Subordinated Note due 2008, Series B (incorporated
by reference to Exhibit 4.3 to the Registration Statement on Form S-4
(Reg. Nos. 333-64397 and 333-64397-001 through 333-64397-044) of Sonic
(the "Form S-4")).
4.2* Indenture dated as of July 1, 1998 among Sonic, as issuer, the
subsidiaries of Sonic named therein, as guarantors, and U.S. Bank Trust
National Association, as trustee (the "Trustee"), relating to the 11%
Senior Subordinated Notes due 2008 (incorporated by reference to
Exhibit 4.2 to the Form S-4).
4.3* First Supplemental Indenture dated as of December 31, 1999 among Sonic,
as issuer, the subsidiaries of Sonic named therein, as guarantors and
additional guarantors, and the Trustee, relating to the 11% Senior
Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.2a
to the 1999 Form 10-K).
4.4* Registration Rights Agreement dated as of June 30, 1997 among Sonic, O.
Bruton Smith, Bryan Scott Smith, William S. Egan and Sonic Financial
Corporation (incorporated by reference to Exhibit 4.2 to the Form S-1).
4.5* Letter Agreement dated as of February 25, 2000 by and among Sonic,
Joseph Herson, Mollye Mills, Richard Mills and John Jaffe (incorporated
by reference to Exhibit 4.3 to Sonic's Registration Statement on Form
S-3 (Reg. No. 333-96023)).
27 Financial data schedule for the three month period ended March 31, 2000
(filed electronically).
* Filed Previously
20
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