UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): November 4, 1999
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-13395 56-201079
(State or other jurisdiction of (Commission File Number) (I.R.S Employer
incorporation or organization) Identification No.)
5401 E. Independence Boulevard, Charlotte, NC 28212
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 532-3320
(Former name, former address and former fiscal year, if changed
since last report)
- --------------------------------------------------------------------------------
<PAGE>
This Amendment to Current Report on Form 8-K/A amends Sonic's current
report on Form 8-K filed with the Securities and Exchange Commission on November
19, 1999 (Date of Report: November 4, 1999).
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Beginning on page F-1 of
this amendment to Sonic's report on Form 8-K filed November 19, 1999
are the financial statements of Freeland Automotive and the Manhattan
Automotive Group for the periods required pursuant to Rule 3-05 of
Regulation S-X.
(B) PRO FORMA FINANCIAL INFORMATION. Beginning on page P-1 of this
amendment to Sonic's report on Form 8-K filed November 19, 1999 are the
unaudited pro forma financial statements reflecting the business
combination of Sonic, Freeland Automotive and the Manhattan Automotive
Group for the periods required pursuant to Article 11 of Regulation
S-X.
(C) EXHIBITS.
Exhibit
Number Description of Exhibits
- ------ -----------------------
23.1 Consent of Deloitte & Touche LLP
99.1* Amended and Restated Asset Purchase Agreement dated as of
October 28, 1999 by and among Sonic, Freeland & Schuh, Inc.,
South Gate Motors, Inc., Freeland Holdings, Inc., George T.
Freeland, Bernard G. Freeland and Christopher G. Freeland
(incorporated by reference to Exhibit 99.1 to Sonic's Current
Report of Form 8-K filed November 19, 1999)
99.2* Agreement and Plan of Merger dated as of April 6, 1999 by and
among Sonic, Manhattan Auto, Inc., Joseph Herson, Mollye
Mills, John Jaffe and Richard Mills (the "Manhattan Merger
Agreement") (incorporated by reference to Exhibit 4.10 to
Sonic's Registration Statement on Form S-3 (Registration No.
333-82615) (the "August 1999 Form S-3")).
99.3* Letter Agreement dated as of August 3, 1999 regarding
amendment to the Manhattan Merger Agreement (incorporated by
reference to Exhibit 4.11 to the August 1999 Form S-3).
99.4* Asset Purchase Agreement dated April 6, 1999 by and among
Sonic, L.O.R., Inc., Waldorf Automotive, Inc., Manhattan
Imported Cars, Inc. and the stockholders of L.O.R., Waldorf
Automotive and Manhattan Imported Cars (incorporated by
reference to Exhibit 10.3 to Sonic's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
* Filed Previously
2
<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: January 18, 2000 By: /s/ Theodore M. Wright
---------------- -------------------------------------------------
THEODORE M. WRIGHT
VICE PRESIDENT-FINANCE, CHIEF FINANCIAL
OFFICER, TREASURER AND SECRETARY
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FREELAND AUTOMOTIVE
Independent Auditors' Report ........................................................... F-2
Balance Sheets at December 31, 1998 and unaudited at September 30, 1999 ................ F-3
Statements of Income and Net Equity for the Year Ended December 31, 1998 and
unaudited for the nine months Ended September 30, 1998 and 1999 ...................... F-4
Statements of Cash Flows for the Year Ended December 31, 1998 and unaudited for the
nine months Ended September 30, 1998 and 1999 ........................................ F-5
Notes to Financial Statements .......................................................... F-6
MANHATTAN AUTOMOTIVE GROUP
Independent Auditors' Report ........................................................... F-12
Combined Balance Sheets at December 31, 1998 and unaudited at June 30, 1999 ............ F-13
Combined Statements of Income for the Year Ended December 31, 1998 and
unaudited for the six months Ended June 30, 1998 and 1999 ............................ F-14
Combined Statements of Equity for the Year Ended December 31, 1998 and unaudited for
the six months Ended June 30, 1998 and 1999 .......................................... F-15
Combined Statements of Cash Flows for the Year Ended December 31, 1998 and unaudited
for the six months Ended June 30, 1998 and 1999 ...................................... F-16
Notes to Combined Financial Statements ................................................. F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Sonic Automotive, Inc.
Charlotte, North Carolina
We have audited the accompanying balance sheet of Freeland Automotive, a
business unit of South Gate Motors, Inc., as of December 31, 1998, and the
related statements of income and net equity and cash flows for the year then
ended. These financial statements are the responsibility of the management of
South Gate Motors, Inc. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Freeland Automotive, a business unit of
South Gate Motors, Inc., as of December 31, 1998 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records of Freeland Automotive, a business unit of South Gate Motors, Inc., and
may not necessarily be indicative of the conditions that would have existed or
the results of operations that would have occurred had Freeland Automotive been
operated as an unaffiliated company.
November 23, 1999
F-2
<PAGE>
FREELAND AUTOMOTIVE
(A BUSINESS UNIT OF SOUTH GATE MOTORS, INC.)
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
ASSETS 1998 1999
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 2,408,605 $ 2,155,473
Accounts receivable (net of allowance of approximately $136,000
and $81,000, respectively) 2,016,048 1,011,582
Inventories, net (Note 2) 12,395,694 12,828,255
Other current assets 402,123 469,205
----------- -----------
Total current assets 17,222,470 16,464,515
PROPERTY AND EQUIPMENT, Net (Note 3) 8,075,243 8,214,373
RECEIVABLES FROM RELATED PARTIES (Note 5) 2,089,612 2,697,207
OTHER ASSETS 86,796 60,226
----------- -----------
TOTAL ASSETS $27,474,121 $27,436,321
=========== ===========
LIABILITIES AND NET EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan (Note 2) $13,453,935 $11,491,792
Notes payable - related parties (Note 5) 378,333 378,333
Trade accounts payable 1,278,206 1,683,023
Accrued payroll and bonuses (Note 5) 1,074,197 1,710,955
Liability for finance chargebacks 460,000 460,000
Other accrued liabilities 916,932 892,217
Current maturities - long-term debt (Note 4) 361,592 341,095
Current maturities - capital lease obligations (Note 4) 128,492 130,000
----------- -----------
Total current liabilities 18,051,687 17,087,415
----------- -----------
LONG-TERM DEBT (Note 4) 6,865,789 6,615,068
----------- -----------
CAPITAL LEASE OBLIGATIONS (Note 4) 223,023 212,779
----------- -----------
NOTES PAYABLE - Stockholder (Note 5) 1,617,241 1,464,069
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
NET EQUITY (Note 1) 716,381 2,056,990
----------- -----------
TOTAL LIABILITIES AND NET EQUITY $27,474,121 $27,436,321
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
FREELAND AUTOMOTIVE
(A BUSINESS UNIT OF SOUTH GATE MOTORS, INC.)
<TABLE>
<CAPTION>
STATEMENTS OF INCOME AND NET EQUITY
YEAR ENDED DECEMBER 31, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
----------------------------------------
1998 1998 1999
(Unaudited)
REVENUES (Note 1):
<S> <C> <C> <C>
Vehicle sales $ 107,280,833 $ 79,092,477 $ 91,310,802
Parts and service 12,528,222 9,235,536 10,485,012
Finance and insurance 5,416,941 4,051,331 4,494,697
------------- ------------- -------------
Total revenues 125,225,996 92,379,344 106,290,511
COST OF SALES (Note 1) 108,740,505 79,851,509 92,160,535
------------- ------------- -------------
GROSS PROFIT 16,485,491 12,527,835 14,129,976
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 13,952,790 10,565,230 11,118,273
DEPRECIATION AND AMORTIZATION 330,151 225,248 265,808
------------- ------------- -------------
OPERATING INCOME 2,202,550 1,737,357 2,745,895
------------- ------------- -------------
OTHER (INCOME) EXPENSES:
Interest expense - floor plan (Note 2) 1,095,464 832,905 871,893
Interest expense, net (Note 5) 820,339 635,701 591,943
Other expenses (income) 7,742 3,098 (58,550)
------------- ------------- -------------
Total other expense 1,923,545 1,471,704 1,405,286
------------- ------------- -------------
NET INCOME 279,005 265,653 1,340,609
NET EQUITY:
Beginning of period 437,376 437,376 716,381
------------- ------------- -------------
End of period $ 716,381 $ 703,029 $ 2,056,990
============= ============= =============
PRO FORMA PROVISION FOR INCOME
TAXES (Unaudited) (Note 1) $ 110,300 $ 105,000 $ 529,600
============= ============= =============
PRO FORMA NET INCOME (Unaudited)
(Note 1) $ 168,705 $ 160,653 $ 811,009
============= ============= =============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
FREELAND AUTOMOTIVE
(A BUSINESS UNIT OF SOUTH GATE MOTORS, INC.)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
-------------------------------
1998 1998 1999
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 279,005 $ 265,653 $ 1,340,609
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 330,151 225,248 265,808
Loss on disposal of property and equipment 20,154 20,154
Changes in assets and liabilities that relate to operations:
Decrease in accounts receivable 236,562 1,452,483 878,292
Increase in inventories (452,796) (590,762) (432,561)
(Increase) decrease in other current assets 11,010 9,143 (67,082)
(Increase) decrease in other assets 20,299 (13,559) 1,178
Increase (decrease) in trade accounts payable and
accrued liabilities (846,427) (353,969) 1,143,034
----------- ----------- -----------
Total adjustments (681,047) 748,738 1,788,669
----------- ----------- -----------
Net cash provided by (used in) operating
activities (402,042) 1,014,391 3,129,278
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (526,171) (350,683) (379,546)
Receivables from related parties (523,197) (1,394,235) (607,595)
----------- ----------- -----------
Net cash used in investing activities (1,049,368) (1,744,918) (987,141)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable - floor plan 857,274 (765,472) (1,962,143)
Proceeds from long-term debt 300,000 300,000 -
Payments on long-term debt (307,718) (245,714) (271,218)
Payments on capital lease obligations (36,015) - (8,736)
Payments received from (advanced to) stockholder
of South Gate Motors, Inc. 98,816 257,656 (153,172)
----------- ----------- -----------
Net cash provided by (used in) financing activities 912,357 (453,530) (2,395,269)
----------- ----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (539,053) (1,184,057) (253,132)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,947,658 2,947,658 2,408,605
----------- ----------- -----------
End of period $ 2,408,605 $ 1,763,601 $ 2,155,473
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - Cash paid during the
period for interest $ 1,982,457 $ 1,479,382 $ 1,440,238
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING INFORMATION -
Assets acquired under capital lease obligations $ 387,530 $ - $ -
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
FREELAND AUTOMOTIVE
(A BUSINESS UNIT OF SOUTH GATE MOTORS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS - Freeland Automotive ("Freeland") is a business
unit of South Gate Motors, Inc. Freeland operates five automobile
franchises in the Fort Myers, Florida area. Freeland sells new and used
cars and light trucks, sells replacement parts, provides maintenance,
warranty services, and arranges related financing and insurance.
Freeland's five dealership franchises sells new vehicles manufactured by
Mercedes, BMW, Honda, Volkswagon and Nissan. The accompanying financial
statements include the historical cost basis assets and related operations
of the business unit. Accordingly, the balance sheets contained with the
financial statements presents the net equity of the business unit.
The accompanying financial statements have been prepared from the separate
records of Freeland Automotive, a business unit of South Gate Motors,
Inc., and may not necessarily be indicative of the conditions that would
have existed or the results of operations that would have occurred had
Freeland Automotive been operated as an unaffiliated company.
REVENUE RECOGNITION - Freeland records revenue when vehicles are delivered
to customers, and when vehicle service work is performed. Finance and
insurance commission revenue is recognized principally at the time the
contract is placed with the financial institution.
Freeland 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. Freeland
also receives commissions from the sale of credit life, accident, health
and disability insurance and extended service contracts to customers.
Freeland 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.
Commission expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of
estimated chargebacks. Estimated commission expense charged to cost of
sales was approximately $614,000 for the year ended December 31, 1998.
DEALER AGREEMENTS - Freeland purchases substantially all of its new
vehicles from the manufacturers at the prevailing prices charged by each
manufacturer to their franchised dealers. Freeland's sales could be
unfavorably impacted by each manufacturers' unwillingness or inability to
supply the dealerships with an adequate supply of new vehicle inventory.
Freeland operates under dealer agreements with each manufacturer.
Freeland's dealer agreements give it the exclusive right to sell each
manufacturers' product within a given geographic area. Freeland could be
materially adversely affected if each manufacturer awards franchises to
others in the same market where Freeland is operating. A similar adverse
effect could occur if existing competing franchised dealers increase their
market share in Freeland's market.
CASH AND CASH EQUIVALENTS - Freeland considers contracts in transit and
all highly liquid debt instruments with an initial maturity of three
months or less to be cash equivalents. Contracts in transit represent cash
in transit to Freeland from finance companies related to vehicle purchases
and was approximately $2,401,000 at December 31, 1998.
F-6
<PAGE>
INVENTORIES - Inventories of new and used vehicles, including
demonstrators, and parts and accessories are valued at the lower of
specific cost or market. Cost is determined using the last-in, first-out
method ("LIFO") for new and used vehicles, and the first-in, first-out
method ("FIFO") for parts and accessories.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization is computed principally using the
straight-line method over the estimated useful lives of the assets. The
range of estimated useful lives (in years) is as follows:
Useful
Lives
Buildings and improvements 5-40
Leasehold improvements 5-40
Office equipment and fixtures 5-7
Parts and service equipment 5-7
Service units 5
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
INCOME TAXES - South Gate Motors, Inc. is organized as an S Corporation
for federal and state income tax purposes. As such, South Gate Motors,
Inc.'s taxable income is included in the stockholder's personal income tax
return. Accordingly, no provision for federal or state income taxes has
been included in Freeland's statement of income and net equity.
The unaudited pro forma provision for income taxes and the unaudited pro
forma net income for the year ended December 31, 1998 reflect amounts that
would have been recorded had Freeland's income been taxed for federal and
state purposes as if it was a C Corporation.
ADVERTISING COSTS - Freeland expenses advertising costs in the period
incurred. Advertising expenses for the year ended December 31, 1998 were
approximately $2,382,000.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject Freeland to concentrations of credit risk consist principally of
cash on deposit with financial institutions and accounts receivable. At
times, amounts invested with financial institutions may exceed FDIC
insurance limits. Concentrations of credit risk with respect to
receivables are limited primarily to automobile manufacturers and
financial institutions. Credit risk arising from trade receivables from
commercial customers is mitigated by the large number of customers
comprising the trade receivables balances. Trade receivables are
concentrated in Freeland's market area of Fort Myers, Florida.
FAIR VALUE OF FINANCIAL INSTRUMENTS - As of December 31, 1998 the fair
values of Freeland's financial instruments, including accounts receivable,
receivables from related parties, trade accounts payable, notes payable -
floor plan, notes payable - related parties, long-term debt, and notes
payable - stockholder, approximate their carrying values due to either
their short terms to maturity or the existence of interest rates that
approximate prevailing market rates.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-7
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
INTERIM FINANCIAL INFORMATION - The accompanying unaudited financial
information for the nine months ended September 30, 1998 and 1999 has been
prepared on substantially the same basis as the audited financial
statements, and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information set forth therein. The results for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal
year.
2. INVENTORIES AND RELATED NOTES PAYABLE - FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
(Unaudited)
<S> <C> <C>
New and demonstrator vehicles $ 10,254,720 $ 9,846,899
Used vehicles 3,444,780 4,212,418
Parts and accessories 679,299 752,043
------------ ------------
14,378,799 14,811,360
LIFO reserve (1,983,105) (1,983,105)
------------ ------------
Inventories, net $ 12,395,694 $ 12,828,255
============ ============
</TABLE>
Had Freeland used the first-in, first-out method of valuing new and used
vehicles, net income would have been approximately $424,000 during the
year ended December 31, 1998.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $13,453,935 at
December 31, 1998. The floor plan notes bear interest, payable monthly on
the outstanding balances at the prime rate (7.75% at December 31, 1998)
plus 1%. Total floor plan interest expense was $1,095,464 in 1998. The
notes payable are due when the related vehicle is sold. As such, these
floor plan notes payable are shown as a current liability in the
accompanying balance sheets.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
(Unaudited)
<S> <C> <C>
Land $ 4,159,309 $ 4,159,309
Buildings and improvements 3,401,919 3,970,589
Leasehold improvements 187,572 187,572
Office equipment and fixtures 1,169,965 1,234,830
Parts and service equipment 338,897 460,067
Service units 6,790 6,790
Construction in progress 387,280 -
------------ ------------
9,651,732 10,019,157
Less accumulated depreciation and amortization (1,576,489) (1,804,784)
------------ ------------
Property and equipment, net $ 8,075,243 $ 8,214,373
============ ============
</TABLE>
F-8
<PAGE>
4. FINANCING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, September 30,
1998 1999
(unaudited)
<S> <C>
Note payable to PRIMUS Automotive Financial Services, Inc., payable in
monthly installments of $46,363 including interest at the prime rate
(7.75 at December 31, 1998) plus .75%; with remaining principal plus
accrued interest due November 2001, collateralized by substantially all
assets. $4,176,087 4,042,630
Note payable to PRIMUS Automotive Financial Services, Inc., payable in
monthly installments of $29,923 including interest at the prime rate
plus .75%; with remaining principal plus accrued interest due February
2002, collateralized by substantially all assets. 2,726,036 2,642,630
Construction note payable to PRIMUS Automotive Financial Services, Inc.,
payable in monthly installments of $5,000 plus interest at prime rate
plus 1.5%, due June 2003, collateralized by accounts receivable,
inventories, and property and equipment of Freeland and the assets of a
related entity. 275,000 230,000
Other long-term debt 50,258 40,903
---------- ----------
7,227,381 6,956,163
Less current maturities (361,592) (341,095)
---------- ----------
Long-term debt $6,865,789 $6,615,068
---------- ----------
Future maturities of long-term debt at December 31, 1998 are as follows:
Year ending December 31:
1999 $ 361,592
2000 390,669
2001 4,011,626
2002 2,428,494
2003 35,000
-----------
Total $7,227,381
===========
</TABLE>
Freeland leases certain office equipment under agreements accounted for as
capital leases. Assets under capital leases amounted to approximately
$388,000 with accumulated depreciation of approximately $39,000 at
December 31, 1998.
F-9
<PAGE>
The future minimum lease payments under such capital leases at December
31, 1998 are as follows:
Year ending December 31:
1999 $ 139,492
2000 152,298
2001 79,261
2002 6,710
2003 2,092
---------
Total minimum lease payments 379,853
Less amount representing interest (28,338)
---------
Present value of minimum lease payments 351,515
Less current maturities (128,492)
---------
Total $ 223,023
=========
5. RELATED PARTY TRANSACTIONS
Receivables from related parties includes various notes due from other
entities related by common ownership. The notes are classified as
noncurrent based on the expected repayment date. The majority of the
receivables due from related parties are unsecured and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
<S> <C>
Moss Marine (a business unit of South Gate Motors, Inc.) $ 733,206
Freeland and Moore, Inc. d/b/a Harbor Nissan 212,719
Rodgers Cars, Inc. d/b/a Mazda of Ft. Myers 627,611
Other 109,788
----------
Total $1,683,324
==========
</TABLE>
In addition, receivables from related parties includes a secured note
receivable due from Omni Imports of Southwest Florida, Ltd. totaling
$406,288 at December 31, 1998. Interest is accrued monthly at 8.5%.
Interest income on this note amounted to approximately $28,000 for the
year ended December 31, 1998.
Notes payable to related parties consists primarily of unsecured demand
notes payable to Trinity Insurance Company, Ltd. totaling $335,313 at
December 31, 1998. Interest is accrued monthly at rates ranging from 6% -
7%. Interest expense on this note amounted to approximately $25,000 for
the year ended December 31, 1998. In addition, notes payable to related
parties includes a demand note payable of $43,020. Interest is accrued
monthly at the prime rate.
Notes payable to the stockholder of $1,617,241 at December 31, 1998
represents secured loans payable with interest accrued at the prime rate.
The notes are due on demand, however, the notes are subordinate to the
PRIMUS Automotive Financial Services, Inc. ("PRIMUS") long-term debt (see
Note 4) and cannot be repaid while the debt to PRIMUS is outstanding.
Interest expense amounted to approximately $174,000 for the year ended
December 31, 1998.
Included in accrued payroll and bonuses on the accompanying balance sheets
is an accrued bonus to the stockholder of $853,363 at December 31, 1998.
The bonus is subordinate to the PRIMUS debt and approval must be obtained
prior to payment. The bonus is classified as a current liability based on
the expected repayment date.
F-10
<PAGE>
Freeland leases certain operating facilities directly from its stockholder
under an agreement accounted for as an operating lease. The lease expires
in October 2005. In addition, Freeland leases certain operating facilities
on a month-to-month basis from an entity related via common ownership.
Future minimum rental payments required under noncancelable operating
leases at December 31, 1998 are as follows:
Year ending December 31:
1999 $ 95,400
2000 95,400
2001 95,400
2002 95,400
2003 95,400
Thereafter 174,900
-------
Total $651,900
========
Rent expense under the above operating leases was approximately $151,000
during the year ended December 31, 1998. In addition, Freeland paid real
estate taxes of approximately $104,000 on the above leases during the year
ended December 31, 1998.
6. EMPLOYEE BENEFIT PLAN
Freeland has a qualified 401(k) Profit Sharing Plan (the "Plan"), whereby
substantially all of the employees of Freeland meeting certain service
requirements are eligible to participate. Freeland's contributions to the
Plan were approximately $27,000 during the year ended December 31, 1998.
7. CONTINGENCIES
Freeland is exposed to unasserted claims encountered in the normal course
of business. In the opinion of management, on the advice of legal counsel,
the resolution of these matters will not have a materially adverse effect
on Freeland's financial position or future results of operations and cash
flows.
8. SUBSEQUENT EVENT (UNAUDITED)
Effective November 4, 1999, South Gate Motors, Inc. sold substantially
all of the operating assets of Freeland to Sonic Automotive, Inc. for a
total purchase price of approximately $25 million, paid in cash, plus the
assumption of certain liabilities. No effects of the asset sale are
reflected in the accompanying financial statements.
********
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Sonic Automotive, Inc.
Charlotte, North Carolina
We have audited the accompanying combined balance sheet of Manhattan Automotive
Group (the "Company"), which is under common ownership and management, as of
December 31, 1998, and the related combined statements of income, equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Company as of December 31, 1998
and the combined results of its operations and its combined cash flows for the
year then ended in conformity with generally accepted accounting principles.
August 13, 1999
F-12
<PAGE>
MANHATTAN AUTOMOTIVE GROUP
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1998 1999
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 7,987,140 $ 6,590,534
Accounts receivable (net of allowance of approximately $7,000) 3,139,088 3,444,428
Inventories, net (Note 2) 11,454,990 11,886,336
Other current assets 552,101 58,687
-------- -------
Total current assets 23,133,319 21,979,985
PROPERTY AND EQUIPMENT, Net (Note 3) 661,792 657,197
NOTES RECEIVABLE FROM AFFILIATES (Note 5) 2,131,204 2,131,011
OTHER ASSETS (Note 7) 880,765 890,765
-------- -------
TOTAL ASSETS $26,807,080 $ 25,658,958
============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan (Note 2) $ 8,923,882 $ 7,642,106
Notes payable to related parties (Note 5) 378,975 28,090
Trade accounts payable 1,531,810 739,481
Accrued payroll and bonuses 1,207,205 167,299
Dividends payable - 3,400,000
Liability for finance chargebacks 203,400 203,400
Other accrued liabilities 373,577 935,084
-------- -------
Total current liabilities 12,618,849 13,115,460
----------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
EQUITY (Note 4):
Net assets of business unit 566,847 872,254
Common stock of combined companies 33,560 33,560
Paid-in capital 1,720,264 1,720,264
Retained earnings 11,867,560 9,917,421
----------- ----------
Total equity 14,188,231 12,543,498
----------- ----------
TOTAL LIABILITIES AND EQUITY $26,807,080 $ 25,658,958
============ ============
See notes to combined financial statements.
</TABLE>
F-13
<PAGE>
MANHATTAN AUTOMOTIVE GROUP
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, JUNE 30,
--------------------------------
1998 1998 1999
(UNAUDITED)
REVENUES (Note 1):
Vehicle sales $ 135,037,497 $ 62,107,706 $ 74,334,313
Parts, service and collision repair 18,793,794 9,193,264 9,575,791
Finance and insurance 989,792 600,323 635,992
------------- ------------ ------------
Total revenues 154,821,083 71,901,293 84,546,096
COST OF SALES (Note 1) 133,975,188 62,050,946 73,948,994
------------- ------------ ------------
GROSS PROFIT 20,845,895 9,850,347 10,597,102
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
EXPENSES 14,530,114 7,354,280 6,402,117
DEPRECIATION AND AMORTIZATION 174,835 79,448 78,006
------------- ------------ ------------
OPERATING INCOME 6,140,946 2,416,619 4,116,979
------------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense - floor plan (Note 2) (513,786) (247,968) (315,593)
Interest income, net (Note 5) 236,820 104,981 67,367
Other income, net 119,301 26,175 67,814
------------- ------------ ------------
Total other expense (157,665) (116,812) (180,412)
------------- ------------ ------------
INCOME BEFORE INCOME TAXES 5,983,281 2,299,807 3,936,567
PROVISION FOR INCOME TAXES (Notes 1 and 7) 527,000 53,800 604,300
------------- ------------ ------------
NET INCOME $ 5,456,281 $ 2,246,007 $ 3,332,267
============= ============ ============
PRO FORMA PROVISION FOR ADDITIONAL INCOME
TAXES (Unaudited) (Note 1) $ 1,819,000 $ 848,000 $ 939,300
============= ============ ============
PRO FORMA NET INCOME (Unaudited) (Note 1) $ 3,637,281 $ 1,398,007 $ 2,392,967
============= ============ ============
</TABLE>
See notes to combined financial statements.
F-14
<PAGE>
MANHATTAN AUTOMOTIVE GROUP
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF EQUITY (NOTE 4)
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common
Net Assets Stock of Additional
of Business Combined Paid-in Retained Total
Unit Companies Capital Earnings Equity
BALANCE AT JANUARY 1, 1998 $117,981 $33,560 $1,720,264 $ 7,649,145 $ 9,520,950
Dividends declared - - - (789,000) (789,000)
Net income 448,866 - - 5,007,415 5,456,281
-------- ------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1998 $566,847 $33,560 $1,720,264 $11,867,560 $14,188,231
Dividends declared (unaudited) - - - (4,977,000) (4,977,000)
Net income (unaudited) 305,407 - - $ 3,026,860 $ 3,332,267
-------- ------- ---------- ----------- ------------
BALANCE AT JUNE 30, 1999 (unaudited) $872,254 $33,560 $1,720,264 $ 9,917,421 $12,543,498
========= ======= =========== ============ ============
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
MANHATTAN AUTOMOTIVE GROUP
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, JUNE 30,
------------------------------
1998 1998 1999
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,456,281 $ 2,246,007 $ 3,332,267
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 174,835 79,448 78,006
Deferred income taxes (10,000) (10,000) (10,000)
Changes in assets and liabilities that relate to operations:
Increase in accounts receivable (1,018,388) (770,788) (305,340)
Increase (decrease) in inventories (640,714) 977,490 (431,346)
Increase in other current assets (351,447) (196,173) 493,414
Increase (decrease) in trade accounts payable and 922,866 850,559 (1,270,728)
accrued liabilities ------------ ----------- -----------
Total adjustments (922,848) 930,536 (1,445,994)
------------ ----------- -----------
Net cash provided by operating activities 4,533,433 3,176,543 1,886,273
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (196,663) (76,470) (73,411)
Notes receivable from affiliates, net (1,704,695) (982,796) 193
------------ ----------- -----------
Net cash used in investing activities (1,901,358) (1,059,266) (73,218)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable - floor plan 2,507,260 (809,129) (1,281,776)
Payments on notes payable to related parties (215,231) (18,486) (350,885)
Dividends to stockholders (789,000) (456,000) (1,577,000)
------------ ----------- -----------
Net cash provided by (used in) financing activities 1,503,029 (1,283,615) (3,209,661)
------------ ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,135,104 833,662 (1,396,606)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,852,036 3,852,036 7,987,140
------------ ----------- -----------
End of period $ 7,987,140 $ 4,685,698 $ 6,590,534
=========== ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 533,860 $ 260,474 $ 317,659
=========== ============ ===========
Income taxes $ 886,000 $ 258,000 $ 515,000
=========== ============ ===========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE>
MANHATTAN AUTOMOTIVE GROUP
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
DECEMBER 31, JUNE 30,
------------------------
1998 1998 1999
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING INFORMATION:
Dividends declared $ - $ - $ 3,400,000
==== ==== ===========
</TABLE>
See notes to combined financial statements.
F-17
<PAGE>
MANHATTAN AUTOMOTIVE GROUP
<TABLE>
<CAPTION>
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS - Manhattan Automotive Group (the "Company")
operates four automobile dealerships in the Washington, D.C. area. The
Company sells new and used cars and light trucks, sells replacement parts,
provides maintenance, warranty services, paint and repair services and
arranges related financing and insurance. The Company's four vehicle
dealership locations sell new vehicles manufactured by Lexus, BMW, Porche,
Audi, Nissan and Jeep.
The accompanying combined financial statements include the accounts of the
following businesses:
<S> <C> <C> <C>
NAME LOCATION STRUCTURE YEAR END
L.O.R., Inc (DBA: Lexus of Rockville) Rockville, MD S Corporation December 31
Rockville Porsche/Audi (A business unit of Rockville, MD N/A December 31
Manhattan Imported Cars, Inc.)
Manhattan Auto, Inc. (DBA: BMW of Fairfax) Fairfax, VA C Corporation November 30
Waldorf Automotive, Inc. (DBA: Nissan-Jeep of Waldorf, MD S Corporation December 31
Waldorf)
</TABLE>
The combined financial statements have been prepared in connection with
the acquisition of the above businesses by Sonic Automotive, Inc. (see
Note 9). The accompanying combined financial statements reflect the
financial position, results of operations, and cash flows of each of the
above listed businesses. The combination of these businesses has been
accounted for at historical cost in a manner similar to a
pooling-of-interests because the businesses are under common management
and control. Rockville Porsche/Audi is not organized as a separate legal
entity. Accordingly, the accompanying combined balance sheet present only
the net equity of the business unit. All material intercompany
transactions have been eliminated.
REVENUE RECOGNITION - The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
Finance and insurance commission revenue is recognized principally at the
time the contract is placed with the financial institution.
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.
F-18
<PAGE>
Commission expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of
estimated chargebacks. Estimated commission expense charged to cost of
sales was approximately $477,000 for the year ended December 31, 1998.
DEALER AGREEMENTS - The Company purchases substantially all of its new
vehicles from the manufacturers at the prevailing prices charged by each
manufacturer to their franchised dealers. The Company's sales could be
unfavorably impacted by each manufacturers' unwillingness or inability to
supply the dealerships with an adequate supply of new vehicle inventory.
The Company operates under dealer agreements with each manufacturer. The
Company's dealer agreements give it the exclusive right to sell each
manufacturers' product within a given geographic area. The Company could
be materially adversely affected if other manufacturers award franchises
to dealers in the same market where the Company is operating. A similar
adverse effect could occur if existing competing franchised dealers
increase their market share in the Company's market.
CASH AND CASH EQUIVALENTS - The Company considers contracts in transit and
all highly liquid debt instruments with an initial maturity of three
months or less to be cash equivalents. Contracts in transit represent cash
in transit to the Company from finance companies related to vehicle
purchases and was approximately $1,150,000 at December 31, 1998.
INVENTORIES - Inventories of new and used vehicles, including
demonstrators, and parts and accessories are valued at the lower of cost
or market. Cost is determined using the last-in, first-out method ("LIFO")
for new vehicles, the specific identification method for used vehicles,
and the first-in, first-out method ("FIFO") for all other inventories.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization is computed principally using the straight-
line method over the estimated useful lives of the assets. The range of
estimated useful lives (in years) is as follows:
USEFUL
LIVES
Buildings and improvements 20-40
Office equipment and fixtures 7-10
Parts and service equipment 7-15
Company vehicles 3-5
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
INCOME TAXES - Manhattan Auto, Inc. is organized as a C Corporation
subject to both federal and state income taxes. Rockville Porsche/Audi is
included in the federal and state income tax returns of Manhattan Imported
Cars, Inc. Current income taxes are allocated to Rockville Porshe/Audi
based on the business unit's taxable income to the total taxable income of
Manhattan Imported Cars, Inc. L.O.R., Inc. and Waldorf Automotive, Inc.
are organized as S Corporations for federal and state income tax purposes.
As such, the provision for income taxes in the accompanying combined
financial statements only includes federal and state income taxes for
Manhattan Auto, Inc. and Rockville Porsche/Audi.
Deferred taxes are determined using an asset and liability approach. This
method gives consideration to the future tax consequences associated with
differences between financial accounting and tax basis of assets and
liabilities. This method gives immediate effect to changes in income tax
laws upon enactment. A valuation allowance is established when necessary
to reduce deferred tax assets to amounts that are expected to be realized.
F-19
<PAGE>
The unaudited pro forma provision for additional income taxes and the
unaudited pro forma net income for the year ended December 31, 1998
reflect estimated amounts that would have been recorded had L.O.R., Inc.
and Waldorf Automotive, Inc.'s income been taxed for federal and state
purposes as if they were C Corporations.
ADVERTISING COSTS - The Company expenses advertising costs in the period
incurred. Advertising expenses for the year ended December 31, 1998 were
approximately $573,000.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally
of cash on deposit with financial institutions and accounts receivable. At
times, amounts invested with financial institutions may exceed FDIC
insurance limits. Concentrations of credit risk with respect to
receivables are limited primarily to automobile manufacturers and
financial institutions. Credit risk arising from trade receivables from
commercial customers is mitigated by the large number of customers
comprising the trade receivables balances. Trade receivables are
concentrated in the Company's market areas in Northern Virginia and
Maryland.
FAIR VALUE OF FINANCIAL INSTRUMENTS - As of December 31, 1998 the fair
values of the Company's financial instruments including accounts
receivable, notes receivable from affiliates, notes payable - floor plan,
trade accounts payable and notes payable to related parties, approximate
their carrying values due to either their short-term maturity or the
existence of interest rates that approximate prevailing market rates.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
INTERIM FINANCIAL INFORMATION - The accompanying unaudited combined
financial information for the six months ended June 30, 1998 and 1999 has
been prepared on substantially the same basis as the audited combined
financial statements, and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein. The results for interim periods
are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. INVENTORIES AND RELATED NOTES PAYABLE - FLOOR PLAN
Inventories consist of the following:
DECEMBER 31, JUNE 30,
1998 1999
(unaudited)
New and demonstrator vehicles $ 8,774,340 $ 9,120,343
Used vehicles 3,026,537 3,360,588
Parts and accessories 1,778,300 1,529,592
--------------- --------------
13,579,177 14,010,523
LIFO reserve (2,124,187) (2,124,187)
--------------- --------------
Inventories, net $11,454,990 $11,886,336
=============== ==============
During the year ended December 31, 1998, new vehicle inventory quantities
were reduced, resulting in a liquidation of LIFO inventory values. The
liquidation increased pre-tax income by approximately $239,000. Had the
Company used the first-in, first-out method of valuing new vehicles and
certain parts and accessories, pretax income would have been approximately
$5,744,000 in 1998.
F-20
<PAGE>
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions totaling $8,923,882 at December
31, 1998. The floor plan notes bear interest, payable monthly on the
outstanding balances at rates ranging from prime minus .25% to LIBOR plus
2% (prime rate was 7.75% at December 31, 1998 and LIBOR was 5.62% at
December 31, 1998). Total floor plan interest expense was $513,786 in
1998. The notes payable are due when the related vehicle is sold. As such,
these floor plan notes payable are shown as a current liability in the
accompanying combined balance sheets.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31, JUNE 30,
1998 1999
(unaudited)
Buildings and improvements $ 630,209 $ 669,327
Office equipment and fixtures 340,607 346,253
Parts and service equipment 660,322 664,267
Company vehicles 386,108 414,108
Construction in process 13,647 13,647
------------- ------------
2,030,893 2,107,602
Less accumulated depreciation
and amortization (1,369,101) (1,450,405)
------------- ------------
Property and equipment, net $ 661,792 $ 657,197
============= ============
4. COMBINED EQUITY
The capital structure of the businesses included in the combined financial
statements of the Company at December 31, 1998 and June 30 1999 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------------------------
COMMON STOCK
----------------------------------------------------------
SHARES ADDITIONAL
PAR SHARES ISSUED AND PAID-IN RETAINED
VALUE AUTHORIZED OUTSTANDING AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C> <C> <C>
L.O.R., Inc. $ 1 1,000 1,000 $ 1,000 $ 599,000 $ 4,997,310
Manhattan Auto, Inc. 100 500 316 31,560 122,264 5,423,892
Waldorf Automotive, Inc. 1 1,000 1,000 1,000 999,000 1,446,358
Rockville Porsche/Audi (Note 1) - - - - - -
----------- ----------- -----------
Total $ 33,560 $ 1,720,264 $11,867,560
=========== =========== ===========
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
30-JUN-99 (unaudited)
---------------------------------------------------------------------------------------
COMMON STOCK
----------------------------------------------------
SHARES ADDITIONAL RETAINED
PAR SHARES ISSUED AND PAID-IN EARNINGS
VALUE AUTHORIZED OUTSTANDING AMOUNT CAPITAL (DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
L.O.R., Inc. $ 1 1,000 1,000 $ 1,000 $ 599,000 $ 3,669,066
Manhattan Auto, Inc. 100 500 316 31,560 122,264 6,964,981
Waldorf Automotive, Inc. 1 1,000 1,000 1,000 999,000 (112,327)
Rockville Porsche/Audi (Note 1) - - - - - -
----------- ----------- -----------
Total $33,560 $ 1,720,264 $10,521,720
=========== =========== ===========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has notes receivable from various affiliated entities
amounting to $2,131,204 at December 31, 1998. The notes bear interest at
rates ranging from 6% - 7%. The notes are uncollateralized and are
classified as noncurrent based on the expected repayment date. Interest
income from these notes was approximately $125,000 for the year ended
December 31, 1998.
F-22
<PAGE>
In addition, the Company has notes payable to related parties of $378,975
at December 31, 1998. The notes bear interest at 7%. The notes are
unsecured and are classified as noncurrent based on the expected repayment
date. Interest expense on these notes was approximately $25,000 for the
year ended December 31, 1998.
The Company leases certain operating facilities directly from stockholders
of the combining companies or from entities which are owned by those
stockholders. The leases expire at various dates through August 2002. Rent
expense under these related party leases was approximately $575,000 during
the year ended December 31, 1998.
In addition, the Company has other facilities and equipment with leases
expiring at various dates through September 2003. Future minimum rental
payments required under noncancelable operating leases at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Related
Party Other Total
Year ending December 31:
<S> <C> <C> <C>
1999 $ 758,988 $ 590,466 $1,349,454
2000 758,998 620,466 1,379,464
2001 661,992 429,359 1,091,351
2002 252,000 7,022 259,022
2003 - 5,266 5,266
---------- ---------- -----------
Total $2,431,978 $1,652,579 $4,084,557
========== =========== ==========
</TABLE>
Rent expense under all operating leases was approximately $1,300,000
during the year ended December 31, 1998.
6. EMPLOYEE BENEFIT PLAN
The combining companies each have a qualified 401(k) Profit Sharing Plan
(the "Plan"), whereby substantially all of the employees meeting certain
service requirements are eligible to participate. The combined
contributions to the plans were approximately $148,000 during the year
ended December 31, 1998.
7. INCOME TAXES
The provision for income taxes consists of the following components for
the year ended December 31, 1998:
Current:
Federal $451,000
State 86,000
--------
537,000
Deferred:
Federal (8,800)
State (1,200)
--------
(10,000)
--------
Total $527,000
========
F-23
<PAGE>
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income tax rate is as
follows for the year ending December 31, 1998:
Statutory federal rate 34.00%
State income taxes 3.41
Miscellaneous 1.77
-----
Effective income tax rate 39.18%
=====
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes.
A net deferred income tax asset totaling $70,000, included in "other
assets" on the accompanying balance sheet at December 31, 1998, relates
primarily to depreciation and deferred extended warranty costs.
8. CONTINGENCIES
The Company is involved in various legal proceedings incurred in the
normal course of business. Management, on the advice of legal counsel,
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.
9. SALE AGREEMENTS (UNAUDITED)
Effective August 3, 1999, Sonic Automotive, Inc. ("Sonic") purchased
substantially all of the operating assets of L.O.R., Inc., Rockville
Porsche/Audi (a business unit of Manhattan Imported Cars, Inc.), and
Waldorf Automotive, Inc. for a total combined purchase price of $23.7
million, payable in cash and common stock, plus the assumption of certain
liabilities.
In addition, Sonic purchased the outstanding common stock of Manhattan
Auto, Inc. for $10.5 million plus the net book value of the purchased
assets and assumed liabilities. The total purchase price is payable in
common stock with an aggregate market price of $18 million at the date of
closing.
********
F-24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statements of income for the year
ended December 31, 1998 and the nine months ended September 30, 1999 reflect the
historical accounts of Sonic for those periods, adjusted giving effect to the
following events as if those events had occurred on January 1, 1998:
o the following acquisitions completed by Sonic:
ACQUISITION DATE
----------- ----
Casa Ford of Houston, Inc............................. May 1998
Hatfield Automotive Group............................. July 1998
Higginbotham Automotive Group......................... August 1998
Williams Automotive Group............................. January 1999
Global Imports........................................ February 1999
Economy Honda Cars.................................... February 1999
Lloyd Automotive Group................................ May 1999
Newsome Automotive Group.............................. May 1999
Lute Riley Motors, Inc................................ July 1999
Manhattan Automotive Group............................ August 1999
Freeland Automotive................................... November 1999
o Sonic's underwritten offering of its senior subordinated notes in July 1998
and the application of the net offering proceeds and
o Sonic's underwritten offering of Class A common stock in May 1999 and the
application of the net offering proceeds.
The following unaudited pro forma consolidated balance sheet as of
September 30, 1999 reflects the historical accounts of Sonic as of that date as
adjusted to give pro forma effect to the acquisition of Freeland Automotive in
November 1999 as if the acquisition were completed on September 30, 1999.
The unaudited pro forma consolidated financial data and accompanying notes
should be read in conjunction with the consolidated financial statements of the
Manhattan Automotive Group and Freeland Automotive, which are included in this
filing, as well as the consolidated financial statements of Sonic, Casa Ford of
Houston, Inc., Hatfield Automotive Group, Higginbotham Automotive Group,
Williams Automotive Group, Economy Honda Cars, Inc., Global Imports, Inc.,
Newsome Automotive Group, Lloyd Automotive Group, Lute Riley Motors, Inc., all
of which have been included in previous filings by Sonic. The unaudited pro
forma consolidated financial data and accompanying notes do not give effect to
the sale of Cleveland Village Honda nor the following completed acquisitions, or
the financing of those acquisitions, because these transactions are not required
to be presented in accordance with Securities and Exchange Commission rules:
P-1
<PAGE>
ACQUISITION DATE
----------- ----
Century BMW........................................... April 1998
Heritage Lincoln-Mercury.............................. April 1998
Capitol Chevrolet and Imports, Inc. .................. April 1998
Ron Craft Chevrolet-Cadillac-Oldsmobille.............. November 1998
Ron Craft Chrysler Plymouth Jeep...................... November 1998
Tampa Volvo........................................... December 1998
Infiniti of Charlotte................................. January 1999
Rally Mitsubishi...................................... February 1999
Bondeson Chevrolet Oldsmobile Cadillac................ April 1999
Sam White Motor City.................................. April 1999
Fitzgerald Chevrolet.................................. May 1999
Superior Oldsmobile-Cadillac-GMC...................... June 1999
Classic Dodge......................................... July 1999
Southlake Volvo....................................... July 1999
Ben Reading Buick..................................... August 1999
Charleston Lincoln-Mercury............................ August 1999
Shottenkirk Honda..................................... August 1999
Altman Dodge.......................................... October 1999
Joe Camp Ford......................................... October 1999
Integrity Dodge....................................... October 1999
Village Volvo......................................... November 1999
Sonic believes that the assumptions used in the following statements
provide a reasonable basis on which to present the unaudited pro forma financial
data. The unaudited pro forma consolidated financial data are provided for
informational purposes only and should not be construed to be indicative of
Sonic's financial condition, results of operations or covenant compliance had
the transactions and events described above been consummated on the dates
assumed, and are not intended to project Sonic's financial condition on any
future date or its results of operation for any future period.
P-2
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
for the
Sonic Sonic Manhattan Acquisitions Combined
Historical Acquisitions Automotive Freeland and the Notes Pro
(a) (b) Group Automotive Offering Forma
------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales.......................... $ 1,407,030 $ 792,024 $ 135,037 $ 106,629 $ - $ 2,440,720
Parts, service, and collision repair... 162,660 119,369 18,794 12,270 - 313,093
Finance and insurance.................. 34,011 19,399 990 5,402 (240) (c) 59,586
24 (d)
------------- ---------- ---------- ---------- ---------- -------------
Total Revenues.................... 1,603,701 930,792 154,821 124,301 (216) 2,813,399
Cost of Sales............................... 1,396,259 810,481 133,975 107,991 (382) (e) 2,448,324
------------- ---------- ---------- ---------- ---------- -------------
Gross Profit................................ 207,442 120,311 20,846 16,310 166 365,075
Selling, general & administrative expenses.. 150,130 91,819 14,530 13,760 (82) (c) 266,134
(8,923) (f)
4,900 (g)
Management bonus............................ - 3,181 - - (3,181) (f) -
Depreciation and amortization............... 4,607 3,579 175 297 (1,173) (g) 12,697
(139) (h)
5,351 (i)
------------- ---------- ---------- ---------- ---------- -------------
Operating income............................ 52,705 21,732 6,141 2,253 3,413 86,244
Interest expense, floorplan................. 14,096 5,927 514 1,073 (994) (j) 20,616
Interest expense, other..................... 9,395 797 (237) 820 (981) (g) 22,713
(967) (k)
13,886 (l)
Other income................................ 426 602 119 6 - 1,153
------------- ---------- ---------- ---------- ---------- -------------
Income before income taxes.................. 29,640 15,610 5,983 366 (7,531) 44,068
Provision for income taxes.................. 11,083 1,508 527 - (3,072) (m) 16,345
6,299 (n)
------------- ---------- ---------- ---------- ---------- -------------
Net Income.................................. $ 18,557 $ 14,102 $ 5,456 $ 366 $ (10,758) $ 27,723
============= ========== ========== ========== ========== =============
Basic net income per share.................. $ 0.81 $ 0.89
============= =============
Weighted average common shares
outstanding - basic (o)................ 22,852 31,188
============= =============
Diluted net income per share................ $ 0.74 $ 0.74
============= =============
Weighted average common shares
outstanding - diluted (o)(p)........... 24,970 37,675
============= =============
</TABLE>
P-3
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Sonic Sonic Manhattan Combined
Historical Acquisitions Automotive Freeland Pro Forma Pro
(a) (b) Group Automotive Adjustments Forma
------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales..........................$ 1,904,602 $ 152,670 $ 90,121 $ 91,311 $ - $ 2,238,704
Parts, service, and collision repair... 230,249 28,333 11,532 10,485 - 280,599
Finance and insurance.................. 52,095 5,691 748 4,495 (291) (c) 62,738
------------ ---------- --------- --------- ---------- ------------
Total Revenues.................... 2,186,946 186,694 102,401 106,291 (291) 2,582,041
Cost of Sales............................... 1,897,956 161,370 89,664 92,161 - - 2,241,151
------------ ---------- --------- --------- ---------- ------------
Gross Profit................................ 288,990 25,324 12,737 14,130 (291) 340,890
Selling, general & administrative expenses.. 207,293 18,052 13,079 11,118 (142) (c) 242,831
(8,529) (f)
1,960 (g)
Depreciation and amortization............... 7,143 803 92 266 (297) (g) 9,944
1,937 (i)
------------ ---------- --------- --------- ---------- ------------
Operating income (loss)..................... 74,554 6,469 (434) 2,746 4,780 88,115
Interest expense, floorplan................. 15,118 828 349 872 (417) (j) 16,750
Interest expense, other..................... 12,177 229 (147) 592 (546) (g) 15,257
(292) (k)
3,244 (l)
Other income................................ 362 2,838 71 59 (2,658) (g) 672
------------ ---------- --------- --------- ---------- ------------
Income (loss) before income taxes........... 47,621 8,250 (565) 1,341 133 56,780
Provision for income taxes.................. 18,250 1,111 (1,091) - 43 (m) 21,696
3,383 (n)
------------ ---------- --------- --------- ---------- ------------
Net Income.................................. $ 29,371 $ 7,139 $ 526 $ 1,341 $ (3,293) $ 35,084
============ ========== ========= ========= ========== ============
Basic net income per share.................. $ 0.98 $ 1.03
============ ============
Weighted average common shares
outstanding - basic (o)................ 29,948 33,916
============ ============
Diluted net income per share................ $ 0.88 $ 0.90
============ ============
Weighted average common shares
outstanding - diluted (o)(p)........... 33,489 38,836
============ ============
</TABLE>
P-4
<PAGE>
(a) The historical consolidated statement of income data for Sonic for the year
ended December 31, 1998 includes the results of operations of the following
dealerships and dealership groups acquired during the year ended December
31, 1998 from their respective dates of acquisition:
ACQUISITION DATE
----------- ----
Casa Ford of Houston, Inc............................. May 1, 1998
Capitol Chevrolet and Imports, Inc.................... April 1, 1998
Century BMW........................................... April 1, 1998
Heritage Lincoln-Mercury.............................. April 1, 1998
Hatfield Automotive Group............................. July 1, 1998
Higginbotham Automotive Group......................... August 1, 1998
Ron Craft Chevrolet-Cadillac-Oldsmobile............... November 1, 1998
Ron Craft Chrysler Plymouth Jeep...................... November 1, 1998
Tampa Volvo........................................... December 1, 1998
(b) Reflects the results of operations of the following acquisitions completed
during 1998 and 1999 through their respective dates of acquisition:
ACQUISITION DATE
----------- ----
Casa Ford of Houston, Inc............................. May 1998
Hatfield Automotive Group............................. July 1998
Higginbotham Automotive Group......................... August 1998
Williams Automotive Group............................. January 1999
Global Imports, Inc................................... February 1999
Economy Honda Cars, Inc............................... February 1999
Lloyd Automotive Group................................ May 1999
Newsome Automotive Group.............................. May 1999
Lute Riley Motors, Inc................................ July 1999
(c) Reflects the decrease in finance and insurance revenues and selling,
general and administrative expenses included in the results of operations
of Newsome Automotive Group resulting from transactions with affiliates of
Newsome Automotive Group not acquired by Sonic.
(d) Reflects finance and insurance revenues generated by the Higginbotham
Automotive Group for the year ended December 31, 1998, that was paid
directly to the dealership owner and excluded from revenue in the
historical financial statements of the acquired dealerships. No adjustment
has been made to reflect such amounts for the other acquisitions included
within these pro forma statements, as the amounts could not be reasonably
ascertained.
(e) Reflects the conversion from the "last-in, first-out" method of inventory
accounting to the specific identification method of inventory accounting
for Sonic's acquisitions to conform to Sonic's method of accounting for
vehicle inventories.
(f) Reflects the net decrease in selling, general and administrative expenses
related to the net reduction in salaries and bonuses of owners and officers
of the acquired dealerships who have become or will become employees,
consistent with reduced salaries pursuant to employment agreements with
Sonic, or whose positions have been or will be eliminated as part of the
acquisitions which are included in these pro forma financial statements.
(g) Reflects the increase in rent expense related to lease agreements entered
into with the sellers of certain acquired dealerships for the dealerships'
real property that will not be acquired by Sonic, and the decreases in
depreciation expense and interest expense related to mortgage indebtedness
encumbering such property. Reduction of interest expense for the year ended
December 31, 1998 is calculated based on average mortgage indebtedness of
approximately $11.6 million at interest rates ranging from 7.00% to 9.11%.
Reduction of interest expense for the nine months ended September 30, 1999
is calculated based on average mortgage indebtedness of approximately $9.8
million at interest rates ranging from 7.75% to 8.62%. Additional
adjustment for the nine months ended September 30, 1999 reflects the
elimination of approximately $2.7 million of other income at one of the
acquired dealerships representing a gain on sale of real estate immediately
prior to the consummation of the acquisition.
(h) Reflects the elimination of amortization expense related to goodwill that
arose in previous acquisitions in certain of the acquired dealerships from
the effective date of the acquisitions.
(i) Reflects the amortization over an assumed useful life of 40 years of
goodwill resulting from Sonic's acquisitions which are included in these
pro forma financial statements, which were assumed to occur on January 1,
1998. Certain of these acquisitions have purchase agreements which require
Sonic to pay additional amounts in cash or preferred stock based on future
operating results. Amount does not include amortization of the additional
goodwill associated with the contingent purchase prices related to such
acquisitions. The maximum amount of estimated additional amortization would
not exceed $100,000.
P-5
<PAGE>
(j) Reflects the net decrease in interest expense, floor plan resulting from
the refinancing of the notes payable, floor plan of the dealerships being
acquired under Sonic's floor plan facility with Ford Motor Credit Company
(the "Floor Plan Facility") as if such refinancing had occurred at the
beginning of the period presented. The average outstanding balance of notes
payable, floor plan arrangements of the dealerships being acquired was
$116.5 million for the year ended December 31, 1998 and $45.9 million for
the nine months ended September 30, 1999. The average interest rate under
the Floor Plan Facility for the year ended December 31, 1998 was
approximately 7.06% compared to historical interest rates ranging from
7.55% to 9.50%. The average interest rate under the Floor Plan Facility for
the nine months ended September 30, 1999 was approximately 6.57% compared
to historical interest rates ranging from 6.99% to 8.87%.
(k) Reflects the decrease in interest expense related to debt, other than
mortgage indebtedness, which has not or will not be assumed. Reduction of
interest expense for the year ended December 31, 1998 is calculated based
on average indebtedness of approximately $12.9 million at interest rates
ranging from 5.43% to 10.20%. Reduction of interest expense for the nine
months ended September 30, 1999 is calculated based on average indebtedness
of approximately $6.5 million at interest rates ranging from 5.43% to
8.75%.
(l) Adjustment reflects the incremental increase in interest expense, other
resulting from (1) the issuance of $125 million in senior subordinated
notes in July 1998 (the "Notes Offering") used to finance acquisitions, (2)
borrowings under Sonic's revolving credit facility with Ford Motor Credit
Company (the "Revolving Facility") in the amount of $98.4 million used to
finance acquisitions, and (3) the repayment of amounts previously borrowed
under the Revolving Facility with proceeds received from the Notes Offering
and with proceeds received from the issuance of 6,067,230 shares of Class A
common stock on May 5, 1999. Amounts borrowed under the Revolving Facility
which were repaid had an average balance of $27.8 million for the year
ended December 31, 1998 and $28.2 million for the nine months ended
September 30, 1999.
(m) Reflects the net increase in provision for income taxes resulting from pro
forma adjustments, computed using statutory income tax rates ranging from
35.0% to 40.7%
(n) Certain of the acquired dealerships were not subject to federal and state
income taxes because they were either S corporations, partnerships, or
limited liability companies during the period indicated. Upon completion of
these acquisitions, these dealerships became subject to federal and state
income tax as C corporations. This adjustment reflects the resulting
increase in the federal and state income tax provision as if these entities
had been taxable at statutory income tax rates ranging from 35.0% to 40.7%
(o) All earnings per share information reflects Sonic's 2-for-1 common stock
split effective January 25, 1999. Pro forma basic and diluted net income
per share and the related weighted average shares outstanding for the year
ended December 31, 1998 and the nine months ended September 30, 1999 have
been adjusted to reflect the following transactions as if such transactions
had occurred on January 1, 1998:
1. The issuance of 970,588 shares of Class A common stock on September
18, 1999 in connection with the acquisition of Higginbotham Automotive
Group;
2. The issuance of 6,067,230 shares of Class A common stock on May 5,
1999 in connection with Sonic's equity offering;
3. The issuance of 176,030 shares of Class A common stock on May 17, 1999
in connection with the acquisition of Newsome Automotive Group;
4. The issuance of 1,398,902 shares of Class A common stock on August 3,
1999 in connection with the acquisition of Manhattan Automotive Group;
and
In addition to the items above, pro forma diluted net income per share and
the related weighted average shares outstanding for the year ended December
31, 1998 and the nine months ended September 30, 1999 have been adjusted to
include the dilutive effect of the issuance of 16,338 shares of preferred
stock in connection with the 1998 acquisitions and 50,533 shares of
preferred stock in connection with the 1999 acquisitions.
The following is a reconciliation of the pro forma weighted average shares
for the year ended December 31, 1998 and the nine months ended September
30, 1999:
P-6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Weighted Average Shares -- Basic (actual).................................. 22,852 29,948
Issuance of Common Stock in connection with Sonic's equity offering........ 6,067 2,778
Issuance of Common Stock in connection with the following acquisitions:
Higginbotham Automotive Group........................................ 694 -
Newsome Automotive Group............................................. 176 88
Manhattan Automotive Group........................................... 1,399 1,102
-------- --------
Weighted Average Shares -- Basic (pro forma)............................... 31,188 33,916
======== ========
Weighted Average Shares -- Diluted (actual)................................ 24,970 33,489
Issuance of Common Stock in connection with Sonic's equity offering........ 6,067 2,778
Issuance of Common Stock in connection with the following acquisitions:
Higginbotham Automotive Group........................................ 694 -
Newsome Automotive Group............................................. 176 88
Manhattan Automotive Group........................................... 1,399 1,102
Class A Convertible Preferred Stock........................................ 4,369 1,379
-------- --------
Weighted Average Shares -- Diluted (pro forma)............................. 37,675 38,836
======== ========
</TABLE>
(p) For purposes of computing the dilutive effect of convertible preferred
stock issued in connection with the acquisitions to include in the pro
forma diluted weighted average shares outstanding, the actual number of
Class A common shares issued upon conversion were used for convertible
preferred stock that has already been converted. For all other convertible
preferred stock issued in connection with the acquisitions, a Class A
common stock price of $12.09 per share was assumed as the conversion price
(the average of the daily closing prices for the Class A common stock on
the NYSE for the 20 consecutive trading days ending September 30, 1999).
Certain of the shares of convertible preferred stock are subject to
conversion adjustments limiting increases and decreases in the number of
shares of Class A common stock received upon conversion. A 10% increase or
decrease in the price per share used in the conversion of these convertible
preferred shares would not result in a material change (less than $0.01) in
the diluted net income per share for either the twelve months ended
December 31, 1998 or the nine months ended September 30, 1999.
P-7
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET - AS OF SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FREELAND PRO FORMA
SONIC HISTORICAL(e) AUTOMOTIVE ADJUSTMENTS PRO FORMA
-------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.............. $ 69,865 $ 2,155 $ - $ 69,865
- - (2,155) (b)
Marketable Equity Securities........... - - - -
Receivables............................ 54,831 1,012 (1,012) (b) 54,831
Inventories............................ 362,645 12,829 (2,669) (b) 374,788
- - 1,983 (c)
Deferred income taxes.................. 1,762 - - 1,762
Due from affiliates.................... 4,932 - - 4,932
Other current assets................... 5,894 469 (469) (b) 5,894
------------------ ------------------- ------------------- -------------------
Total current assets.............. 499,929 16,465 (4,322) 512,072
Property and equipment, net................. 42,315 8,214 - 43,046
- - (7,483) (d)
Due from Affiliates......................... - 2,697 (2,697) (b) -
Goodwill, net............................... 360,421 - 23,250 (a) 383,671
- - -
Other assets................................ 7,485 60 (60) (b) 7,485
------------------ ------------------- ------------------- -------------------
Total assets...................... $ 910,150 $ 27,436 $ 8,688 $ 946,274
================== =================== =================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable - floor plan............. $ 276,915 $ 11,492 $ (1,277) (b) $ 287,130
Notes payable - FMCC................... - - - -
Notes payable - other.................. - 378 - -
- - (378) (b)
Trade accounts payable................. 22,215 1,683 (1,683) (b) 22,215
Accrued interest....................... 4,469 141 (141) (b) 4,469
Other accrued liabilities.............. 39,900 2,922 (2,922) (b) 39,900
Payable for Acquisitions............... 275 - - 275
Current maturities of long-term debt... 1,176 471 (130) (b) 1,176
- - (341) (d)
------------------ ------------------- ------------------- -------------------
Total current liabilities......... 344,950 17,087 (6,872) 355,165
Long-term debt.............................. 214,235 6,828 25,909 (a) 240,144
- - (258) (b)
- - (6,570)
Notes Payable TCW........................... - - - -
Payable for acquisitions.................... 275 - - 275
Payable to the Company's Chairman........... 5,500 - - 5,500
Payable to affiliates....................... 766 - - 766
Deferred income taxes....................... 6,653 - - 6,653
Income tax payable.......................... 3,906 - - 3,906
Other liabilities........................... - 1,464 (1,464) (b) -
Deferred Revenue............................ - - - -
Stockholders' equity
Cumulative Redeemable Preferred Stock.. - - - -
Redeemable Preferred Stock............. - - - -
Preferred Stock........................ 27,254 - - 27,254
Class A Common Stock................... 237 - - 237
Class B Common Stock................... 123 - - 123
Paid-in capital........................ 242,137 30 (30) (a) 242,137
Retained earnings...................... 64,114 2,027 (2,629) (a) 64,114
- - (809) (b)
- - 1,983 (c)
- - (572) (d)
------------------ ------------------- ------------------- -------------------
Total stockholders' equity........ 333,865 2,057 (2,057) 333,865
------------------ ------------------- ------------------- -------------------
- - - -
------------------ ------------------- ------------------- -------------------
Total liabilities and stockholders' equity.. $ 910,150 $ 27,436 $ 8,688 $ 946,274
================== =================== =================== ===================
</TABLE>
P-8
<PAGE>
(a) Reflects the preliminary allocation of the aggregate purchase price of the
acquisition of Freeland Automotive based on the estimated fair value of the
net assets acquired. Because the carrying amount of the net assets
acquired, which primarily consist of accounts receivable, inventory,
equipment, and floor plan indebtedness, approximates their fair value,
management believes the application of purchase accounting will not result
in a significant adjustment to the carrying amount of those net assets. The
amount of goodwill and the corresponding amortization actually recorded may
ultimately be different from amounts estimated here, depending on the
actual fair value of tangible net assets acquired at closing. The estimated
purchase price allocation consists of the following:
Estimated total consideration (in thousands):
Debt..................................................... $ 25,909
Less: Estimated fair value of tangible net
assets acquired...................................... (2,659)
-----------
Excess of purchase price over fair value of
net tangible assets acquired......................... $ 23,250
===========
(b) Reflects the elimination of certain assets and liabilities other than real
property that will not be acquired.
(c) Reflects the conversion from the "last-in, first-out" method of inventory
accounting to the specific identification method of inventory accounting at
the Freeland Automotive acquisition.
(d) Reflects the elimination of the real property and the related mortgage
indebtedness encumbering such property that will not be acquired.
(e) The balance sheet accounts of Manhattan Automotive Group as of September
30, 1999 are included in the historical accounts of Sonic as of that date
since the acquisition of Manhattan Automotive Group was consummated in
August 1999.
P-9
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Sonic Automotive, Inc.:
We consent to the incorporation by reference in the following Registration
Statements of Sonic Automotive, Inc:
Registration Statement No. 333-82615 on Form S-3;
Registration Statement No. 333-81059 on Form S-8;
Registration Statement No. 333-81053 on Form S-8;
Registration Statement No. 333-71803 on Form S-3;
Registration Statement No. 333-69907 on Form S-8;
Registration Statement No. 333-69901 on Form S-8;
Registration Statement No. 333-69899 on Form S-8;
Registration Statement No. 333-68183 on Form S-3;
Registration Statement No. 333-65447 on Form S-8;
Registration Statement No. 333-49113 on Form S-8,
of our report dated November 23, 1999 on the financial statements of Freeland
Automotive, a business unit of South Gate Motors, Inc., as of and for the year
ended December 31, 1998 and our report dated August 13, 1999 on the combined
financial statements of Manhattan Automotive Group as of and for the year ended
December 31, 1998, both appearing in this Amendment No. 1 to the Current Report
on Form 8-K of Sonic Automotive, Inc.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
January 18, 2000
