Exhibit 99.4 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (In Thousands except per share amounts)
Historical -------------------------------- Sonic Clearwater Pro Forma Pro Forma for Automotive, Inc. Dealerships Adjustments the Acquisition ----------------- ------------ ------------- ---------------- REVENUES: Vehicle Sales $ 467,858 $ 108,812 $ - $ 576,670 Parts, service and collision repair 57,537 10,500 - 68,037 Finance and insurance 10,606 2,587 94 (9) 13,287 -------------- ------------ ----------- ------------ Total revenues 536,001 121,899 94 657,994 COST OF SALES 471,253 105,786 - 577,039 -------------- ------------ ----------- ------------ GROSS PROFIT 64,748 16,113 94 80,955 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 48,520 12,226 864 (1) 60,871 (594)(2) (145)(3) DEPRECIATION AND AMORTIZATION 1,322 390 (143)(1) 1,762 (133)(4) 326 (5) -------------- ------------ ----------- ------------ OPERATING INCOME 14,906 3,497 (81) 18,322 OTHER INCOME AND EXPENSE: Interest expense, floor plan 8,007 779 (83)(6) 8,703 Interest expense, other 1,199 721 (557)(1) 2,306 (174)(7) 1,117 (8) Gain on sale of marketable equity securities 298 - - 298 Other income - 194 - 194 -------------- ------------ ----------- ------------ Total other expense 8,908 1,306 303 10,517 -------------- ------------ ----------- ------------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 5,998 2,191 (384) 7,805 INCOME TAX PROVISION 2,249 - 845 (10) 2,946 (148)(11) -------------- ------------ ----------- ------------ INCOME BEFORE MINORITY INTEREST 3,749 2,191 (1,081) 4,859 MINORITY INTEREST IN EARNINGS OF SUBSIDIARY 47 - - 47 -------------- ------------ ----------- ------------ NET INCOME $ 3,702 $ 2,191 $ (1,081) $ 4,812 ============== ============ =========== ============ BASIC NET INCOME PER SHARE $ 0.53 $ 0.69 ============== ============ WEIGHTED AVERAGE SHARES OUTSTANDING 6,949 6,949 ============== ============ DILUTED NET INCOME PER SHARE $ 0.53 $ 0.67 ============== ============ WEIGHTED AVERAGE SHARES OUTSTANDING 6,949 7,204 ============== ============
See notes to pro forma statements 5 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 ADJUSTMENT - ---------- (1) Reflects the Company's estimate of the increase in rent expense related to lease agreements entered into with the seller of the Clearwater Dealerships for the dealerships' real property that will not be acquired by the Company, and decreases in depreciation expense (based on useful lives ranging from 31.5 to 39 years) and interest expense related to mortgage indebtedness encumbering such property. The related mortgage indebtedness was approximately $5.90 million with interest charged at rates ranging from 9.0% to 9.5% annually. (2) The decrease in selling, general and administrative expenses reflects the elimination of salaries paid to the owners of the Clearwater Dealerships who will no longer be involved in the operation of the dealerships as a direct result of the acquisition of the Clearwater Dealerships. (3) Reflects the net decrease in selling, general and administrative expenses related to the net reduction in salaries and fringe benefits of owners and employees of the Clearwater Dealerships who will become employees of the Company, consistent with reduced salaries pursuant to certain employees' employment agreements with the Company. (4) Reflects the elimination of amortization expense related to goodwill that arose in the acquisition of the Clearwater Dealerships by the previous owner, assuming that the acquisition giving rise to goodwill was consummated on January 1, 1997. (5) Reflects the amortization over an amortization period of 40 years of approximately $13.03 million in goodwill resulting from the acquisition of the Clearwater Dealerships which was assumed to have occurred on January 1, 1997. Subject to the Agreement, the Company will be required to make an additional payment, not to exceed $1.75 million, equal to 50% of the pre-tax earnings of the Clearwater Dealerships for fiscal year ended December 31, 1998. Goodwill was calculated based on a $1.66 million earnout payment based on the pro forma results of operations for 1997 and the earnings to date for 1998 of the Clearwater Dealerships. The amount of the earnout payment and the corresponding goodwill actually recorded may be higher or lower than the amount estimated here, depending on the actual fiscal year 1998 pre-tax earnings of the Clearwater Dealerships. (6) Reflects the decrease in floor plan interest expense resulting from the refinancing of the floor plan notes payable arrangements of the Clearwater Dealerships to the Company's corporate contractual master floor plan agreement with Ford Motor Credit Company, which requires placement of acquired dealerships floor plan financing with Ford Motor Credit Company. The average interest rate under the master agreement is approximately 7.6% compared to the 8.5% interest rate for the Clearwater Dealerships. (7) Reflects the decrease in other interest expense resulting from the Company not assuming the Clearwater Dealerships' notes payable to affiliates amounting to $500,000 at an interest rate of 10.0% and other long-term obligations amounting to $1.31 million at interest rates ranging from 9.0% to 10.0%. (8) Reflects the increase in interest expense associated with borrowings amounting to $13.15 million at an interest rate of 8.5% made under the Company's Amended and Restated Credit Agreement with Ford Motor Credit Company to provide the funds necessary for the acquisition of the Clearwater Dealerships. 6 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 ADJUSTMENT - ---------- (9) Reflects finance and insurance revenues generated by the Clearwater Dealerships that were paid directly to the dealership owners or wholly-owned management companies and excluded from revenue in the historical statements of the Clearwater Dealerships. (10) The Clearwater Dealerships were not subject to federal and state income taxes because they were organized as S corporations during the period indicated. This adjustment reflects an increase in the federal and state income tax provision as if the Clearwater Dealerships had been taxable at the combined statutory income tax rate of 38.6%. Upon completion of the Acquisition, this entity that has historically not been subject to corporate income tax will thereafter be subject to federal and state income tax as a C corporation. (11) Reflects the net decrease in the provision for income taxes resulting from adjustments (1) through (9) above, computed using an effective income tax rate of 38.6%. 7 UNAUDITED PRO FORMA BALANCE SHEET DECEMBER 31, 1997 (In Thousands except per share amounts)
Historical -------------------------------- Sonic Clearwater Pro Forma Pro Forma for Automotive, Inc. Dealerships Adjustments the Acquisition ----------------- ------------ ------------- ---------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 18,304 $ 2,065 $ - $ 20,369 Marketable Equity Securities 270 - - 270 Receivables 19,784 1,138 - 20,922 Inventories 156,514 9,215 - 165,729 Deferred income taxes 405 - - 405 Due from affiliates 1,047 - - 1,047 Other current assets 1,048 282 - 1,330 --------------- ----------- ------------ ------------ Total current assets 197,372 12,700 - 210,072 PROPERTY AND EQUIPMENT, NET 19,081 7,829 (7,466)(2) 19,444 GOODWILL, NET 74,362 1,736 13,025 (1) 87,387 (1,736)(3) OTHER ASSETS 635 - - 635 --------------- ----------- ------------ ------------ TOTAL ASSETS $ 291,450 $ 22,265 $ 3,823 $ 317,538 =============== =========== ============ ============ LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Notes payable - floor plan $ 133,236 $ 8,321 $ - $ 141,557 Trade accounts payable 6,612 789 - 7,401 Accrued interest 1,071 - - 1,071 Other accrued liabilities 10,748 466 - 11,214 Payable to affiliates 445 500 (500)(4) 445 Current maturities of long term debt 584 1,090 (1,090)(2)(6) 584 --------------- ----------- ------------ ------------ Total current liabilities 152,696 11,166 (1,590) 162,272 LONG-TERM DEBT 38,640 6,117 (6,117)(2)(6) 51,786 13,146 (5) PAYABLE TO COMPANY'S CHAIRMAN 5,500 - - 5,500 PAYABLE TO AFFILIATES 4,394 - - 4,394 DEFERRED INCOME TAXES 1,079 - - 1,079 INCOME TAX PAYABLE 4,776 - - 4,776 STOCKHOLDERS' EQUITY Preferred stock - - 3,366 (1) 3,366 Class A Common Stock 50 - - 50 Class B Common Stock 63 - - 63 Common Stock of Acquired Entity - 1,202 (1,202)(1) - Paid in capital 68,045 1,210 (1,210)(1) 68,045 Retained earnings 16,186 2,570 (2,570)(1) 16,186 Unrealized gain on marketable equity securities 21 - - 21 --------------- ----------- ------------ ------------ Total stockholders' equity 84,365 4,982 (1,616) 87,731 --------------- ----------- ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 291,450 $ 22,265 $ 3,823 $ 317,538 =============== =========== ============ ============
See notes to pro forma statements 8 NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DECEMBER 31, 1997 ADJUSTMENT - ---------- (1) Reflects the preliminary allocation of the aggregate purchase price of the Clearwater Dealerships 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 an adjustment to the carrying amount of those net assets. The amount of goodwill and corresponding amortization expense actually recorded may ultimately be different from the amounts estimated here, depending upon the actual fair value of tangible net assets acquired at closing, changes in the estimated fair value of the shares of preferred stock issued as determined by an independent appraisal which has not yet been finalized, as well as the actual earnout payment made by the Company (see note 7). The estimated purchase price allocation consists of the following: Estimated total consideration: Cash $ 11,487,000 Preferred stock 3,366,000 Earnout payment (7) 1,659,000 -------------- 16,512,000 Less estimated fair value of tangible net assets acquired 3,487,000 -------------- Excess of purchase price over fair value of net tangible assets acquired $ 13,025,000 ============== (2) Reflects the real property of the Clearwater Dealerships, which is not being acquired in the Acquisition and the related mortgage indebtedness in the amount of $5.90 million. (3) Reflects the elimination of goodwill that arose in the acquisition of the Clearwater Dealerships by the previous owner. (4) Reflects the Payable to a Clearwater Dealership stockholder that will not be assumed by the Company. (5) Reflects borrowings amounting to $13.15 million made under the Company's Amended and Restated Credit Agreement with Ford Motor Credit Company to provide a portion of the funds necessary for the acquisition of the Clearwater Dealerships. (6) Reflects the capital loans of the Clearwater Dealerships amounting to $1.31 million which will not be assumed by the Company. (7) Subject to the Agreement, the Company will be required to make an additional payment, not to exceed $1.75 million, equal to 50% of the pre-tax earnings of the Clearwater Dealerships for fiscal year ended December 31, 1998. The amount of the earnout payment recorded was estimated based on the pro forma results of operations for 1997 and the earnings to date for 1998 of the Clearwater Dealerships. The amount of the earnout payment and the corresponding goodwill actually recorded may be higher or lower than the amount estimated here, depending on the actual fiscal year 1998 pre-tax earnings of the Clearwater Dealerships.