SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number: 000-24669
HOMETOWN AUTO RETAILERS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 06-1501703
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
774 Straits Turnpike
Watertown, CT 06795
(Address of principal executive offices) (Zip code)
(860) 945-6900
(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 |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
------------------------------------------------ -----------
Common Stock, Class A, par value $.001 per share 2,296,016
Common Stock, Class B, par value $.001 per share 3,701,000
2
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 5
Consolidated Statements of Operations for
the six and three months ended June 30, 2000 and 1999 6
Consolidated Statement of Equity at June 30, 2000 7
Consolidated Statements of Cash Flows for
the six months ended June 30, 2000 and 1999 8
Notes to Consolidated Financial Statements 9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 21
SIGNATURES 22
3
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein particularly in view of the Company's limited history of operating
multiple dealerships in a combined entity, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved. Factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements include, but are not limited to, the factors
set forth herein under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
4
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PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
HOMETOWN AUTO RETAILERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
(unaudited)
----------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,858 $ 1,635
Accounts receivable, net 9,276 6,101
Inventories 40,908 51,455
Prepaid expenses and other current assets 2,675 2,618
------- -------
Total current assets 54,717 61,809
Property and equipment, net 7,656 8,415
Investment in e-commerce company 3,258 --
Goodwill, net 24,952 24,578
Other assets 1,296 2,505
------- -------
Total assets $91,879 $97,307
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Floor plan notes payable $42,011 $48,986
Accounts payable and accrued expenses 4,219 4,787
Current maturities of long-term debt 678 708
Other current bank borrowings -- 2,200
------- -------
Total current liabilities 46,908 56,681
Long-term debt 8,837 9,051
Long-term deferred income taxes 2,042 200
Other long-term liabilities 550 360
------- -------
Total liabilities 58,337 66,292
Stockholders' Equity
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, Class A, $.001 par value, 24,000,000 shares
authorized, 2,296,016 and 2,147,000 issued and outstanding; 2 2
Common stock, Class B, $.001 par value, 3,760,000 shares
authorized, 3,701,000 and 3,753,000 issued and outstanding 4 4
Additional paid-in capital 28,780 26,194
Retained earnings 4,756 4,815
------- -------
Total stockholders' equity 33,542 31,015
------- -------
Total liabilities and stockholders' equity $91,879 $97,307
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
<PAGE>
HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
New vehicle sales ......................... $ 47,134 $ 45,702 $ 93,284 $ 81,301
Used vehicle sales ........................ 19,817 23,530 40,175 40,306
Parts and service sales ................... 6,033 6,126 11,735 11,034
Other dealership revenues, net ............ 1,785 1,802 3,601 3,149
---------- ---------- ---------- ----------
Total revenues ......................... 74,769 77,160 148,795 135,790
Cost of sales
New vehicle sales ......................... 44,664 43,005 88,410 76,668
Used vehicle sales ........................ 17,805 21,338 36,409 36,608
Parts and service sales ................... 2,682 2,593 5,145 4,684
---------- ---------- ---------- ----------
Cost of sales ........................ 65,151 66,936 129,964 117,960
---------- ---------- ---------- ----------
Gross profit ........................... 9,618 10,224 18,831 17,830
Amortization of goodwill ..................... 164 150 327 286
Selling, general and administrative
expenses .................................. 8,963 8,343 17,498 15,268
---------- ---------- ---------- ----------
Income from operations ................. 491 1,731 1,006 2,276
Other income (expense)
Interest expense, net ..................... (562) (482) (1,037) (775)
Other income (expense), net ............... (112) (42) (84) (43)
---------- ---------- ---------- ----------
Income (loss) before taxes ............. (183) 1,207 (115) 1,458
Provision (benefit) for income taxes ......... (86) 519 (56) 619
---------- ---------- ---------- ----------
Net income (loss) ...................... $ (97) $ 688 $ (59) $ 839
========== ========== ========== ==========
Earnings (loss) per share, basic (Note 3) .... $ (0.02) $ 0.12 $ (0.01) $ 0.14
Earnings (loss) per share, diluted (Note 3) .. $ (0.02) $ 0.11 $ (0.01) $ 0.14
Weighted average shares, basic (Note 3) ...... 5,997,016 5,900,000 5,992,939 5,850,000
Weighted average shares, diluted (Note 3) .... 6,236,799 6,052,000 6,129,486 5,927,000
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
6
<PAGE>
HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF EQUITY
(in thousands)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Additional Total
------------ ------------ Paid-in Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
------ ------ ------ ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 2,147 $ 2 3,753 $ 4 $ 26,194 $ 4,815 $ 31,015
Conversion of Class B
Common to Class A
Common 52 -- (52) -- -- -- --
Issuance of Class A
Common Stock 97 -- -- -- 326 -- 326
Valuation adjustment
to e-Commerce
Subsidiary -- -- -- -- 2,260 -- 2,260
Net income -- -- -- -- -- (59) (59)
----- ---- ----- ---- -------- ------- --------
Balance at
June 30, 2000 2,296 $ 2 3,701 $ 4 $ 28,780 $ 4,756 $ 33,542
===== ==== ===== ==== ======== ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
7
<PAGE>
HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six Months ended
June 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (59) $ 839
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities -
Depreciation and amortization 673 545
Deferred income taxes (225) 479
Changes in assets and liabilities:
Accounts receivable, net (3,175) (958)
Inventories 10,547 (5,252)
Prepaid expenses and other current assets 318 (1,524)
Other assets (42) (451)
Floor plan notes payable (6,975) 6,938
Accounts payable and accrued expenses (165) (1,341)
Other liabilities 190 --
-------- --------
Net cash provided by (used in) operating activities 1,087 (725)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (246) (5,123)
Proceeds from sales of property and equipment 57 37
Acquisition, net of cash acquired (757) (3,171)
-------- --------
Net cash used in investing activities (946) (8,257)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 9,389
Principal payments of long-term debt (244) (1,219)
Payments of floor plan notes -- (2,538)
Other current bank borrowings, net of repayments -- (1,700)
Due from/to related parties -- 194
Issuance of common stock 326 --
-------- --------
Net cash provided by financing activities 82 4,126
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 223 (4,856)
CASH AND CASH EQUIVALENTS, beginning of period 1,635 5,514
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,858 $ 658
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for - Interest $ 1,037 $ 775
Cash paid for - Taxes 108 417
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
8
<PAGE>
HOMETOWN AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Business of Hometown Auto Retailers, Inc. ("Hometown" or the "Company")
Hometown sells new and used cars and light trucks, provides maintenance
and repair services, sells replacement parts and provides related financing,
insurance and service contracts through 11 franchised dealerships located in New
Jersey, New York, Connecticut, Massachusetts and Vermont. The company's
dealerships offer 13 American and Asian automotive brands; Chevrolet, Chrysler,
Daewoo, Dodge, Ford, Isuzu, Jeep, Lincoln, Mazda, Mercury, Oldsmobile, Plymouth
and Toyota. Hometown's purpose is to consolidate and operate automobile
dealerships in the Northeast, primarily in New Jersey and New England.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The Company believes that: (i) the accompanying financial information
contains all the material adjustments necessary to fairly present its financial
position as of June 30, 2000; (ii) all adjustments necessary to present fairly
the results for the interim periods have been made; and (iii) all adjustments
are of a normal recurring nature. Operating results of interim periods are not
necessarily indicative of the results for full year periods.
The Company's operations are subject to seasonal variations, with the
second and third quarters generally contributing more revenues and operating
profit than the first and fourth quarters. This seasonality is driven primarily
by: (i) the historical timing of major Manufacturer incentive programs and model
changeovers; (ii) weather-related factors, which primarily affect parts and
service; and (iii) consumer buying patterns.
Use of estimates
The financial statements and related disclosures have been prepared in
conformity with generally accepted accounting principles and, accordingly,
include amounts based on estimates and judgments of management. Actual results
could differ from those estimates.
New Accounting Pronouncements
The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition", in December 1999. SAB No. 101 expresses
the views of the SEC staff in applying generally accepted accounting principles
to certain revenue recognition issues. In June 2000, the SEC issued SAB No. 101B
to defer the effective date of the implementation of SAB No. 101 until the
fourth quarter of fiscal 2000. Management has concluded that the implementation
of this SAB will not have a material impact on its financial position or its
results of operations.
9
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HOMETOWN AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investments
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", requires that the Company account for its equity investment in an
e-commerce company, CarDay.com, as an available-for-sale security, reported at
fair value and adjusted for other-than-temporary declines in value. Unrealized
gains and losses are excluded from earnings and reported in a separate component
of shareholders' equity (net of the effect of income taxes) until sold. The
Company does not believe there has been a change in the fair value of the
investment during the six months ended June 30, 2000.
Sale of Subsidiary Stock
In January 2000, a majority owned subsidiary of the Company, CarDay.com,
obtained equity financing, which reduced the Company's ownership percentage to
approximately 15% (11.7% on a fully diluted basis). The Company has treated the
resulting increase in value of the investment net of related deferred taxes as
an increase in additional paid in capital. The Company believes that any similar
transactions are unlikely.
3. EARNINGS (LOSS) PER SHARE:
"Basic earnings (loss) per share" represents net income (loss) divided
by the weighted average shares outstanding. "Diluted earnings (loss) per share"
represents net income (loss) divided by weighted average shares outstanding
adjusted for the incremental dilution of potentially dilutive securities. For
the three months and six months ended June 30, 2000 and 1999, weighted average
shares include potentially dilutive shares related to a share price guarantee in
connection with the acquisition of Toyota of Newburgh (See Note 7).
4. RECEIVABLES:
One company, which represents approximately $780,000 of outstanding
receivables, has ceased payment on its obligation to Hometown. Hometown obtained
and docketed a judgment against that company for the amount due plus interest on
May 10, 2000. On May 12, 2000, a petition for bankruptcy under Chapter 7 was
filed against such company by certain of its other creditors. Management is
pursuing recovery by executing on the judgment obtained and investigating
insurance coverage. Hometown has recorded an estimated reserve for bad debts in
the amount of $345,000 in the consolidated financial statements as of June 30,
2000. However, depending on the success of its current recovery efforts, the
company may be required to provide additional reserves in future periods.
Hometown is not currently entering into any new contracts with this company.
10
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HOMETOWN AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVENTORIES:
New, used and demonstrator vehicles are stated at the lower of cost or
market, determined on a specific unit basis. Parts and accessories are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Inventories consist of the following:
6/30/00 12/31/99
(in thousands)
------- -------
New Vehicles $31,198 $39,760
Used Vehicles 7,880 10,566
Parts, accessories and other 1,830 1,129
------- -------
Total Inventories $40,908 $51,455
======= =======
6. FLOOR PLAN NOTES PAYABLE:
The Company funds its working capital needs with a revolving line of
credit (herein referred to as the "floor plan notes payable") from GE Capital
Corporation ("GE"). As of June 30, 2000, the Company had $42.0 million of floor
plan notes payable outstanding, bearing interest of 30 day LIBOR plus 185 basis
points. Interest expense on floor plan notes payable, before manufacturers'
interest assistance, totaled approximately $681,000 for the three months and
$1,321,000 for the six months ended June 30, 2000. Manufacturer interest
assistance, which is recorded as a reduction of net interest expense, totaled
$405,000 for the quarter and $850,000 for the six month period, leaving net
floor plan interest of $276,000 and $471,000 for the quarter and year to date,
respectively.
The Company and GE Capital Corporation agreed to modify the terms of the
lending agreement with respect to the financial covenants required of Hometown.
The covenants for the quarter ended June 30, 2000 are: (i) interest coverage
ratio - minimum of 1.30; (ii) debt service ratio - minimum of 1.10; (iii)
leverage ratio - maximum of 2.00; current ratio - minimum of 1.12; (iv) tangible
net worth - minimum of $6,000,000. Additionally, Hometown must have EBITDA of
$4,250,000 for the year ended December 31, 2000. Some of these covenant
requirements are scheduled to increase in future periods. Hometown complied with
all loan covenants at June 30, 2000. However, there can be on assurance that the
Company will be in compliance with these or any other loan covenants at any time
in the future.
11
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HOMETOWN AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. BUSINESS COMBINATIONS:
In April 1999, the Company acquired its first dealership in New York,
Newburgh Toyota, for a purchase price of approximately $2.9 million in cash,
100,000 shares of Hometown Class A Common Stock and the assumption of floor plan
and various other debt for the fully capitalized operation. The Company has
guaranteed that the stock issued in connection with this transaction will have a
value of $1,000,000 at the end of a two-year period. Additional shares of the
Company's Common stock will be issuable if there is a shortfall.
On January 12, 2000, Hometown purchased a Jeep franchise, special tools
and signage for $0.75 million. This franchise was tucked into the Company's
existing Brattleboro, Vermont dealership. This acquisition was accounted for
using the purchase method of accounting, resulting in goodwill of approximately
$0.75 million
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Hometown sells new and used cars and light trucks, provides maintenance
and repair services, sells replacement parts and provides related financing,
insurance and service contracts through 11 franchised dealerships located in New
Jersey, New York, Connecticut, Massachusetts and Vermont. The company's
dealerships offer 13 American and Asian automotive brands; Chevrolet, Chrysler,
Daewoo, Dodge, Ford, Isuzu, Jeep, Lincoln, Mazda, Mercury, Oldsmobile, Plymouth
and Toyota. Hometown's purpose is to consolidate and operate automobile
dealerships in the Northeast, primarily in New Jersey and New England.
Operating Strategy
The Company operates its dealerships as local businesses, responsive to
the communities they serve. Administratively, Hometown standardizes and
centralizes many functions in order to simplify operations and utilize scale
economies. This integration and implementation of best practices may present
opportunities to increase revenues and reduce costs but may also necessitate
additional costs and expenditures for corporate administration, including
expenses necessary to implement the Company's acquisition strategy. These
various costs and possible cost-savings and revenue enhancements may make
historical operating results not comparable to, or indicative of, future
performance.
Combined Revenues, Units, Gross Profit and Gross Profit Percentage to Revenues
The total revenue by category for Hometown for the three and six months
ended June 30, 2000 and June 30, 1999, are as follows:
For the three months ended For the six months ended
June 30, June 30,
(in thousands) (in thousands)
2000 1999 2000 1999
------- ------- -------- --------
New vehicle $47,134 $45,702 $93,284 $81,301
Used vehicle - retail 17,083 18,966 33,863 33,376
Used vehicle - wholesale 2,734 4,564 6,312 6,930
Parts and service 6,033 6,126 11,735 11,034
F&I and other 1,785 1,802 3,601 3,149
------- ------- -------- --------
Total Revenue $74,769 $77,160 $148,795 $135,790
======= ======= ======== ========
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The units sold by category for Hometown for the three and six months
ended June 30, 2000 and June 30, 1999, are as follows:
For the three months ended For the six months ended
June 30, June 30,
2000 1999 2000 1999
------ ----- ------ -----
New vehicle 1,839 1,888 3,643 3,249
Used vehicle - retail 1,123 1,351 2,413 2,387
Used vehicle - wholesale 819 842 1,651 1,467
------ ----- ------ -----
Total units sold 3,781 4,081 7,707 7,103
====== ===== ====== =====
The new vehicle revenue by manufacturer for Hometown for the three and
six months ended June 30, 2000 and June 30, 1999, are as follows:
For the three months ended For the six months ended
June 30, June 30,
(in thousands) (in thousands)
2000 1999 2000 1999
-------- -------- -------- --------
Ford Motor $ 25,897 $ 24,465 $ 50,277 $ 47,317
Toyota Motor 14,063 14,269 27,983 20,450
Daimler Chrysler 4,216 5,274 8,459 9,931
GM 1,439 1,459 3,226 2,909
All Other 1,519 235 3,339 694
-------- -------- -------- --------
Total Revenue $ 47,134 $ 45,702 $ 93,284 $ 81,301
======== ======== ======== ========
The new vehicle units sold by manufacturer for Hometown for the three
and six months ended June 30, 2000 and June 30, 1999, are as follows:
For the three months ended For the six months ended
June 30, June 30,
2000 1999 2000 1999
------ ----- ----- -----
Ford Motor 887 933 1,743 1,761
Toyota Motor 631 656 1,246 924
Daimler Chrysler 186 225 353 406
GM 64 60 139 120
All Other 71 14 162 38
------ ----- ----- -----
Total units sold 1,839 1,888 3,643 3,249
====== ===== ===== =====
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The gross profit (loss) by category for Hometown for the three and six
months ended June 30, 2000 and June 30, 1999, are as follows:
For the three months ended For the six months ended
June 30, June 30,
(in thousands) (in thousands)
2000 1999 2000 1999
------- ------- ------- -------
New vehicle $ 2,470 $ 2,697 $ 4,874 $ 4,633
Used vehicle - retail 2,060 2,100 3,883 3,644
Used vehicle - wholesale (48) 92 (117) 54
Parts and service 3,351 3,533 6,590 6,350
F&I and other 1,785 1,802 3,601 3,149
------- ------- ------- -------
Total Gross Profit (Loss) $ 9,618 $10,224 $18,831 $17,830
======= ======= ======= =======
The gross profit (loss) percent of revenue by category for Hometown for
the three and six months ended June 30, 2000 and June 30, 1999, are as follows:
For the three months ended For the six months ended
June 30, June 30,
2000 1999 2000 1999
------ ------ ------ ------
New vehicle 5.2% 5.9% 5.2% 5.7%
Used vehicle - retail 12.1% 11.1% 11.5% 10.9%
Used vehicle - wholesale (1.8%) 2.0% (1.9%) 0.8%
Parts and service 55.5% 57.7% 56.2% 57.5%
F&I and other 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Total Gross Profit (Loss)
percent 12.9% 13.3% 12.7% 13.1%
====== ====== ====== ======
Three months ended June 30, 2000 compared with three months ended June 30, 1999.
Revenue
Total Revenue decreased $2.4 million, or 3.1% from $77.2 million for
three months ended June 30, 1999 to $74.8 million for three months ended June
30, 2000.
Revenue from the sale of new vehicles increased $1.4 million, or 3.1% from
$45.7 million for the three months ended June 30, 1999 to $47.1 million for
three months ended June 30, 2000. Revenue increases resulting from an increase
in average revenue per vehicle of $1,423 were partially offset by a decrease in
new units sold of 49 vehicles. The increase in revenue per vehicles is
attributable to a large fleet sale in June 1999 of low-end Mercury Tracers, and
a change in the mix of new vehicle sales in 2000 toward higher-end
Lincoln/Mercury vehicles.
Revenue from the sale of used vehicles at retail decreased $1.9 million,
or 9.9%, from $19.0 million for the quarter ended June 30, 1999, to $17.1
million for the quarter ended June 30, 2000. The decrease consisted of a rise
15
<PAGE>
in average revenue per vehicle of $1,173 offset by a decrease in sales of used
vehicles at retail of 228 units. Revenue from the sale of used vehicles at
wholesale decreased $1.9 million, or 40.1%, from $4.6 million for the quarter
ended June 30, 1999, to $2.7 million for the quarter ended June 30, 2000. That
change consisted of a decrease in sales of used vehicles at wholesale of 23
units along with a decrease in revenue per vehicle of $2,081. The decrease in
wholesale sales resulted from the deliberate reductions in inventory in the
first quarter of 2000. Since the level of aged inventory was significantly
reduced, most of the wholesale sales in the second quarter reflected the
disposal of low value vehicles taken in trade. The Company's policy is to take
such low value vehicles to auction immediately.
Parts and service sales revenue decreased $0.1 million, or 1.5% from
$6.1 million for the three months ended June 30, 1999, to $6.0 million for the
three months ended June 30, 2000.
Gross Profit
Total gross profit decreased $0.6 million, or 6.0%, from $10.2 million
for the three months ended June 30, 1999, to $9.6 million for the three months
ended June 30, 2000.
Gross profit on new vehicle sales declined by $227,000, or 8.4%, to $2.5
million for the second quarter of 2000. This decrease was attributable to the
aforementioned decline in units sold and a decrease in gross profit of $86 per
unit. Gross profit on used vehicles sold at retail declined $40,000, or 1.9%. An
increase of $280 in gross profit per unit was offset by the decline in units
sold. Gross profit on parts and service sales declined by $182,000, or 5.2%, to
$3.4 million for the quarter ended June 30, 2000 due to a decrease in the gross
profit percentage from 57.7% in second quarter of 1999 to 55.5% in the same
period in 2000.
Amortization of Goodwill
Goodwill amortization increased to $164,000 for the quarter ended June
30, 2000 from $150,000 for the quarter ended June 30, 1999, reflecting the
acquisitions referred to in Note 7 of the Notes to Consolidated Financial
Statements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $620,000, or
7.4%, from $8.3 million for the three months ended June 30, 1999, to $9.0
million for the three months ended June 30, 2000. The results for the second
quarter of 2000 include $345,000 in bad debt expense as well as $50,000 of sales
training expenses and a $30,000 accrual of 401K expenses relating to the plan
adopted in October 1999. Also, investor relations expenses increased by $44,000
from the prior year.
Net Interest Expense
Net interest expense increased $80,000 to $562,000 for the second
quarter of 2000. That increase was primarily attributable to the Falcon
Financial mortgages that were entered into in May 1999.
Pre-Tax Income (Loss)
Income before taxes decreased from $1.2 million for the three months
ended June 30, 1999, to a loss of $183,000 for the three months ended June 30,
2000. The decrease was due to a reduction in gross profit of $606,000, increased
selling, general and administrative expenses of $620,000, increased interest
expense of $80,000 and increased net other expenses of $70,000.
Provision (benefit) for income tax
The effective income tax rate was 43% in the three months ended June 30,
1999 and 48% in the three months ended June 30, 2000. The change in the rate was
the result of the impact of current forecasts of income before taxes, and
current forecasts of permanent differences between tax and book income.
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Net Income(Loss)
Net income decreased from $688,000 for the quarter ended June 30, 1999,
to a loss of $97,000 for the quarter ended June 30, 2000.
Earnings Per Share, Basic and Diluted
See Note 7 to the Consolidated Financial Statements for a description of
potentially dilutive securities.
Six months ended June 30, 2000 compared with six months ended June 30, 1999
Revenue
Total Revenue increased $13.0 million, or 9.6% from $135.8 million for
the six months ended June 30, 1999 to $148.8 million for the six months ended
June 30, 2000. Most of that increase is attributable to the acquisition of
Toyota of Newburgh in April 1999. Same store revenues were up $3.2 million, or
2.6% over the prior year.
Revenue from the sale of new vehicles increased $12.0 million, or 14.7%
from $81.3 million for the six months ended June 30, 1999 to $93.3 million for
the six months ended June 30, 2000. Revenue increases resulting from an increase
in new units sold of 394 vehicles coupled with an increase in average revenue
per vehicle of $584. The acquisition of Toyota of Newburgh contributed $5.3
million of that increase. The increase in revenue per vehicle can be attributed
to a change in product mix toward higher priced models, mostly during the second
quarter, net of the effect of the addition of Toyota of Newburgh. Same store
revenues on new vehicle sales were up $6.7 million, or 9.0%. On a same store
basis, the number of units sold increased by 160 units and the average revenue
per unit increased by $847.
Revenue from the sale of used vehicles at retail increased $487,000, or
1.5%, from $33.4 million for the six months ended June 30, 1999, to $33.9
million for the six months ended June 30, 2000. The increase consisted of a rise
in sales of used vehicles at retail of 26 units coupled with an increase in
average revenue per vehicle of $51. Revenue from the sale of used vehicles at
wholesale declined $617,000, or 8.9%, from $6.9 million for the six months ended
June 30, 1999, to $6.3 million for the six months ended June 30, 2000. That
change consisted of an increase in sales of used vehicles at wholesale of 184
units offset by a decrease in revenue per vehicle of $900. Much of the increase
in used vehicle revenue can be attributed to a deliberate reduction in used
vehicle inventory during the first quarter of 2000.
Parts and service sales revenue increased $701,000, or 6.4% from $11.0
million for the six months ended June 30, 1999, to $11.7 million for the six
months ended June 30, 2000. The increase was attributable to the addition of the
Toyota of Newburgh franchise. Same store revenues from parts and service sales
declined by $230,000 or 2.3% from the same six months last year.
Finance, Insurance, Extended Service and other dealership revenues
increased $451,000, or 14.3% from $3.2 million for the six months ended June 30,
1999 to $3.6 million for the six months ended June 30, 2000. This increase was
primarily attributable to the increase in unit sales of new and used vehicles at
retail of 420 units, or 7.5%.
Gross Profit
Total gross profit increased $1.0 million, or 5.6%, from $17.8 million
for the six months ended June 30, 1999, to $18.8 million for the six months
ended June 30, 2000. The primary reason for this increase was the effect of the
aforementioned acquisitions. Same store gross profit increased $54,000, or 0.3%.
Gross profit on new vehicles increased $241,000, or 5.2%, from $4.6
million for the quarter ended June 30, 1999, compared to $4.9 million for the
same period of 2000. Unit sales increased by 394 vehicles,
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while gross profit per unit declined by $88. The increase in gross profit on new
vehicles was due to the acquisition of Toyota of Newburgh. Same store sales of
new vehicles declined $52,000, or 1.3%.
Gross profit on the sale of used vehicles at retail increased $239,000,
or 6.6%, from $3.6 million for the second quarter of 1999 to $3.9 million for
the second quarter of 2000. Unit sales increased by 26 units, while gross profit
per unit increased by $83. Same store gross profit on the sale of used vehicles
at retail increased $194,000, or 6.4%.
Gross profit on parts and service increased $239,000, or 3.8%, from $6.4
million for the six months ended June 30, 1999, to $6.6 million for the six
months ended June 30, 2000. The increase in gross profit is attributable to the
acquisition of Toyota of Newburgh. Same store gross profit on parts and service
declined by $159,000, or 2.7%.
Amortization of Goodwill
Goodwill amortization increased to $327,000 for the six months ended
June 30, 2000 from $286,000 for the six months ended June 30, 1999, reflecting
the acquisitions referred to in Note 7 of the Notes to Consolidated Financial
Statements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.2 million, or
14.6%, from $15.3 million for the six months ended June 30, 1999, to $17.5
million for the six months ended June 30, 2000. Toyota of Newburgh accounted for
$1.1 million of that increase. In the first quarter of 2000, Hometown paid and
expensed a $100,000 fee for its waiver of covenants on the GE floor plan loan
for December 31, 1999. Bad debt expense of $345,000 was recognized in the second
quarter of 2000. Costs for the sales training program were approximately
$100,000 in the first six months of 2000. Investor relations expenses increased
by $87,000 for the six months ended June 30, 2000 compared to the prior year.
401K expenses totaled $60,000 in the first two quarters of 2000. Additionally,
the Company incurred costs in connection with the occupancy and staffing of its
new Headquarters in Watertown, Connecticut and the installation of information
systems during year 2000 to date.
Net Interest Expense
Net interest expense increased $262,000 to $1.0 million for the six
months ended June 30, 1999. That increase was primarily attributable to the
Falcon Financial mortgages that were entered into in May 1999.
Pre-Tax Income (Loss)
Income before taxes decreased $1.6 million from $1.5 million for the six
months ended June 30, 1999, to a loss of $115,000 for the six months ended June
30, 2000. The decrease was primarily due to increased selling, general and
administrative expenses of $2.2 million, increased interest expense of $0.3
million offset by increased gross profit of $1.0 million.
Provision (benefit) for income tax
The effective income tax rate was 42% in the six months ended June 30,
1999 and 49% in the six months ended June 30, 2000. The change in the rate was
the result of the impact of current forecasts of income before taxes, and
current forecasts of permanent differences between tax and book income.
Net Income (Loss)
Net income decreased from $839,000 for the six months ended June 30,
1999 to a loss of $59,000 for the six months ended June 30, 2000.
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Earnings (Loss) Per Share, Basic and Diluted
See Note 7 to the Consolidated Financial Statements for a description of
potentially dilutive securities.
Weighted Average Shares
The weighted average shares outstanding for the six months ended June 30, 2000
and 1999 are 5,992,939 shares and 5,850,000 shares, respectively. Fully diluted
shares outstanding were 6,129,486 and 5,927,000, respectively, at those dates.
Cyclicality
The Company's operations, like the automotive retailing industry in
general, are affected by a number of factors relating to general economic
conditions, including consumer business cycles, consumer confidence, economic
conditions, availability of consumer credit and interest rates. Although the
above factors, among others, may affect the Company's business, Hometown
believes that the impact on the Company's operations of future negative trends
in such factors will be somewhat mitigated by its: (i) strong parts, service and
collision repair services; (ii) variable cost salary structure; (iii) geographic
regional focus; and (iv) product diversity.
Seasonality
The Company's operations are subject to seasonal variations, with the
second and third quarters generally contributing more revenues and operating
profit than the first and fourth quarters. This seasonality is driven primarily
by: (i) Manufacturer related factors, primarily the historical timing of major
Manufacturer incentive programs and model changeovers; (ii) weather-related
factors, which primarily affect parts and service; and (iii) consumer buying
patterns.
Effects of Inflation
Inflation did not have a significant effect on the results of
operations.
Liquidity and Capital Resources
The principal sources of liquidity include cash on hand, cash from
operations, and floor plan financing.
Cash and Cash Equivalents
Total cash and cash equivalents at June 30, 2000 and December 31, 1999,
were $1.9 million and $1.6 million, respectively, representing an increase of
$0.3 million in cash and cash equivalents. Operating activities provided $1.1
million in cash and cash equivalents. The issuance of stock provided $0.3
million. Those funds were used to acquire a Jeep franchise that was tucked into
our existing Brattleboro, Vermont location ($0.75 million); to purchase
equipment ($0.2 million), and to repay long-term debt ($0.2 million).
Receivables
The Company had $9.3 million in accounts receivable at June 30, 2000
compared to $6.1 million at December 31, 1999. An unusually high level of sales
in the last week of June accounted for approximately $2.0 million of this
increase. The majority of those receivables are from companies that provide or
secure financing for customer purchases.
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At June 30, 2000, one such company, which represents approximately
$780,000 of those receivables, has ceased payment on its obligation to Hometown.
Hometown obtained and docketed a judgment against that company for the amount
due plus interest on May 10, 2000. On May 12, 2000, a petition for bankruptcy
under Chapter 7 was filed against such company by certain of its other
creditors. Management is pursuing recovery by executing on the judgment obtained
and investigating insurance coverage. Hometown has recorded an estimated reserve
for bad debts in the amount of $345,000 in the consolidated financial statements
as of June 30, 2000. However, depending on the success of its current recovery
efforts, the company may be required to provide additional reserves in future
periods. Hometown is not currently entering into any new contracts with this
company.
Floor Plan Financing
The Company funds its working capital needs with a revolving line of
credit from GE Capital Corporation (herein referred to as the "floor plan notes
payable"). As of June 30, 2000, the Company had $42.0 million of floor plan
financing outstanding, bearing interest of LIBOR plus 185 basis points. Interest
expense on floor plan notes payable, before manufacturers' interest assistance,
totaled approximately $1.3 million for the six months ended June 30, 2000.
Manufacturer interest assistance, which is recorded as a reduction of net
interest expense, totaled $850,000 for the period, leaving net floor plan
interest for the six months of $471,000.
The Company and GE Capital Corporation agreed to modify the terms of the
lending agreement with respect to the financial covenants required of Hometown.
The covenants for the quarter ended June 30, 2000 are: (i) interest coverage
ratio - minimum of 1.30; (ii) debt service ratio - minimum of 1.10; (iii)
leverage ratio - maximum of 2.00; current ratio - minimum of 1.12; (iv) tangible
net worth - minimum of $6,000,000. Additionally, Hometown must have EBITDA of
$4,250,000 for the year ended December 31, 2000. Some of these covenant
requirements are scheduled to increase in future periods. Hometown complied with
all loan covenants at June 30, 2000. However, there can be on assurance that the
Company will be in compliance with these or any other loan covenants at any time
in the future.
Acquisitions
On January 12, 2000, Hometown purchased a Jeep franchise, special tools
and signage for $0.75 million. This franchise was tucked into the Company's
existing Brattleboro, Vermont dealership. This acquisition was accounted for
using the purchase method of accounting, resulting in goodwill of approximately
$0.75 million.
Forward Looking Statement
When used in the Quarterly Report on Form 10Q, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect the Company's future plans of operations, business strategy, results
of operations and financial condition. The Company wishes to ensure that such
statements are accompanied by meaningful cautionary statements pursuant to the
safe harbor established in the Private Securities Litigation Reform Act of 1995.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors including the ability
of the Company to consummate, and the terms of, acquisitions. Such
forward-looking statements should, therefore, be considered in light of various
important factors, including those set forth herein and others set forth from
time to time in the Company's reports and registration statements filed with the
Securities and Exchange Commission (the "Commission"). The Company disclaims any
intent or obligation to update such forward-looking statements.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits:
1. 27.1 Financial Data Schedule
b. Reports on Form 8-K:
None.
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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.
Hometown Auto Retailers, Inc.
August 14, 2000 By: /s/ Corey E. Shaker
----------------- ---------------------------
Date Corey E. Shaker, President and
Chief Executive Officer
August 14, 2000 By: /s/ Michael J. Shonborn
----------------- ---------------------------
Date Michael J. Shonborn, Chief
Financial Officer and Secretary
