UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-13395

 

SONIC AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

56-2010790

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

4401 Colwick Road

Charlotte, North Carolina

 

28211

(Address of principal executive offices)

 

(Zip Code)

(704) 566-2400

(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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 17, 2014, there were 39,145,916 shares of Class A Common Stock and 12,029,375 shares of Class B Common Stock outstanding.

 

 

 

 

 


INDEX TO FORM 10-Q

 

 

  

Page

 

PART I – FINANCIAL INFORMATION

  

 

3

  

 

 

 

ITEM 1.

  

Financial Statements

  

 

3

  

 

 

 

 

  

Unaudited Condensed Consolidated Statements of Income – Third Quarter and Nine Months Ended September 30, 2014 and September 30, 2013

  

 

3

  

 

 

 

 

  

Unaudited Condensed Consolidated Statements of Comprehensive Income – Third Quarter and Nine Months Ended September 30, 2014 and September 30, 2013

  

 

4

  

 

 

 

 

  

Unaudited Condensed Consolidated Balance Sheets – September 30, 2014 and December 31, 2013

  

 

5

  

 

 

 

 

  

Unaudited Condensed Consolidated Statement of Stockholders’ Equity – Nine Months Ended
September 30, 2014

  

 

6

  

 

 

 

 

  

Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and September 30, 2013

  

 

7

  

 

 

 

 

  

Notes to Unaudited Condensed Consolidated Financial Statements

  

 

8

 

 

 

 

ITEM 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

 

22

  

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

 

42

  

 

 

 

ITEM 4.

  

Controls and Procedures

  

 

43

  

 

 

PART II – OTHER INFORMATION

  

 

44

  

 

 

 

ITEM 1A.

  

Risk Factors

  

 

44

  

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

 

45

  

 

 

 

ITEM 6.

  

Exhibits

  

 

46

  

 

 

SIGNATURES

  

 

48

  

 

 

EXHIBIT INDEX

  

 

49

  

 

 

 

2


PART I—FINANCIAL INFORMATION

 

Item 1: Financial Statements.

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

(Dollars and shares in thousands, except per share amounts)

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New vehicles

 

$

1,327,837

 

 

$

1,261,270

 

 

$

3,773,234

 

 

$

3,651,486

 

 

 

Used vehicles

 

 

583,570

 

 

 

559,848

 

 

 

1,747,254

 

 

 

1,625,006

 

 

 

Wholesale vehicles

 

 

41,433

 

 

 

42,731

 

 

 

127,797

 

 

 

134,556

 

 

 

Total vehicles

 

 

1,952,840

 

 

 

1,863,849

 

 

 

5,648,285

 

 

 

5,411,048

 

 

 

Parts, service and collision repair

 

 

325,740

 

 

 

309,600

 

 

 

973,646

 

 

 

913,290

 

 

 

Finance, insurance and other, net

 

 

77,024

 

 

 

68,747

 

 

 

223,340

 

 

 

203,461

 

 

 

Total revenues

 

 

2,355,604

 

 

 

2,242,196

 

 

 

6,845,271

 

 

 

6,527,799

 

 

 

Cost of Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New vehicles

 

 

(1,258,811

)

 

 

(1,188,862

)

 

 

(3,563,342

)

 

 

(3,444,818

)

 

 

Used vehicles

 

 

(542,325

)

 

 

(520,872

)

 

 

(1,627,842

)

 

 

(1,510,391

)

 

 

Wholesale vehicles

 

 

(42,519

)

 

 

(45,928

)

 

 

(130,290

)

 

 

(140,899

)

 

 

Total vehicles

 

 

(1,843,655

)

 

 

(1,755,662

)

 

 

(5,321,474

)

 

 

(5,096,108

)

 

 

Parts, service and collision repair

 

 

(170,460

)

 

 

(160,453

)

 

 

(506,361

)

 

 

(468,784

)

 

 

Total cost of sales

 

 

(2,014,115

)

 

 

(1,916,115

)

 

 

(5,827,835

)

 

 

(5,564,892

)

 

 

Gross profit

 

 

341,489

 

 

 

326,081

 

 

 

1,017,436

 

 

 

962,907

 

 

 

Selling, general and administrative expenses

 

 

(270,144

)

 

 

(254,564

)

 

 

(803,031

)

 

 

(748,479

)

 

 

Impairment charges

 

 

(208

)

 

 

(18

)

 

 

(215

)

 

 

(69

)

 

 

Depreciation and amortization

 

 

(14,235

)

 

 

(13,744

)

 

 

(43,047

)

 

 

(39,020

)

 

 

Operating income (loss)

 

 

56,902

 

 

 

57,755

 

 

 

171,143

 

 

 

175,339

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, floor plan

 

 

(4,406

)

 

 

(5,463

)

 

 

(13,941

)

 

 

(16,267

)

 

 

Interest expense, other, net

 

 

(12,893

)

 

 

(13,553

)

 

 

(40,576

)

 

 

(42,302

)

 

 

Other income (expense), net

 

 

(1

)

 

 

29

 

 

 

98

 

 

 

(28,143

)

 

 

Total other income (expense)

 

 

(17,300

)

 

 

(18,987

)

 

 

(54,419

)

 

 

(86,712

)

 

 

Income (loss) from continuing operations before taxes

 

 

39,602

 

 

 

38,768

 

 

 

116,724

 

 

 

88,627

 

 

 

Provision for income taxes - benefit (expense)

 

 

(15,045

)

 

 

(14,066

)

 

 

(45,122

)

 

 

(33,510

)

 

 

Income (loss) from continuing operations

 

 

24,557

 

 

 

24,702

 

 

 

71,602

 

 

 

55,117

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations and the sale of dealerships

 

 

254

 

 

 

(2,057

)

 

 

(838

)

 

 

(2,434

)

 

 

Income tax benefit (expense)

 

 

(99

)

 

 

682

 

 

 

327

 

 

 

852

 

 

 

Income (loss) from discontinued operations

 

 

155

 

 

 

(1,375

)

 

 

(511

)

 

 

(1,582

)

 

 

Net income (loss)

 

$

24,712

 

 

$

23,327

 

 

$

71,091

 

 

$

53,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations

 

$

0.47

 

 

$

0.47

 

 

$

1.36

 

 

$

1.04

 

 

 

Earnings (loss) per share from discontinued operations

 

 

-

 

 

 

(0.03

)

 

 

(0.01

)

 

 

(0.03

)

 

 

Earnings (loss) per common share

 

$

0.47

 

 

$

0.44

 

 

$

1.35

 

 

$

1.01

 

 

 

Weighted average common shares outstanding

 

 

52,070

 

 

 

52,553

 

 

 

52,333

 

 

 

52,578

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations

 

$

0.47

 

 

$

0.46

 

 

$

1.35

 

 

$

1.03

 

 

 

Earnings (loss) per share from discontinued operations

 

 

-

 

 

 

(0.02

)

 

 

(0.01

)

 

 

(0.03

)

 

 

Earnings (loss) per common share

 

$

0.47

 

 

$

0.44

 

 

$

1.34

 

 

$

1.00

 

 

 

Weighted average common shares outstanding

 

 

52,553

 

 

 

52,918

 

 

 

52,808

 

 

 

52,930

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.025

 

 

$

0.025

 

 

$

0.075

 

 

$

0.075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Unaudited Condensed Consolidated Financial Statements.

 

 

 

3


SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

24,712

 

 

$

23,327

 

 

$

71,091

 

 

$

53,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate swap agreements

 

 

4,037

 

 

 

350

 

 

 

5,223

 

 

 

13,377

 

 

 

Provision for income tax benefit (expense) related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

components of other comprehensive income (loss)

 

 

(1,534

)

 

 

(133

)

 

 

(1,985

)

 

 

(5,083

)

 

 

Other comprehensive income (loss)

 

 

2,503

 

 

 

217

 

 

 

3,238

 

 

 

8,294

 

 

 

Comprehensive income (loss)

 

$

27,215

 

 

$

23,544

 

 

$

74,329

 

 

$

61,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Unaudited Condensed Consolidated Financial Statements.

 

4


SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

2014

 

 

2013

 

 

 

 

 

(Dollars in thousands)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,664

 

 

$

3,016

 

 

 

Receivables, net

 

 

270,386

 

 

 

354,138

 

 

 

Inventories

 

 

1,203,394

 

 

 

1,282,138

 

 

 

Assets held for sale

 

 

14,811

 

 

 

4,101

 

 

 

Other current assets

 

 

137,271

 

 

 

88,792

 

 

 

Total current assets

 

 

1,627,526

 

 

 

1,732,185

 

 

 

Property and Equipment, net

 

 

742,081

 

 

 

702,011

 

 

 

Goodwill

 

 

474,088

 

 

 

476,315

 

 

 

Other Intangible Assets, net

 

 

82,449

 

 

 

87,866

 

 

 

Other Assets

 

 

57,769

 

 

 

52,793

 

 

 

Total Assets

 

$

2,983,913

 

 

$

3,051,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

Notes payable - floor plan - trade

 

$

630,667

 

 

$

681,030

 

 

 

Notes payable - floor plan - non-trade

 

 

462,703

 

 

 

570,661

 

 

 

Trade accounts payable

 

 

102,806

 

 

 

126,025

 

 

 

Accrued interest

 

 

12,163

 

 

 

12,653

 

 

 

Other accrued liabilities

 

 

200,839

 

 

 

185,951

 

 

 

Liabilities associated with assets held for sale - non-trade

 

 

6,587

 

 

 

-

 

 

 

Current maturities of long-term debt

 

 

24,018

 

 

 

18,216

 

 

 

Total current liabilities

 

 

1,439,783

 

 

 

1,594,536

 

 

 

Long-Term Debt

 

 

759,463

 

 

 

730,157

 

 

 

Other Long-Term Liabilities

 

 

71,476

 

 

 

81,286

 

 

 

Deferred Income Taxes

 

 

59,620

 

 

 

31,552

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

Class A convertible preferred stock, none issued

 

 

-

 

 

 

-

 

 

 

Class A common stock, $0.01 par value; 100,000,000 shares authorized;

 

 

 

 

 

 

 

 

 

 

62,006,636 shares issued and 39,438,090 shares outstanding at

 

 

 

 

 

 

 

 

 

 

September 30, 2014; 61,584,248 shares issued and 40,683,984 shares

 

 

 

 

 

 

 

 

 

 

outstanding at December 31, 2013

 

 

620

 

 

 

616

 

 

 

Class B common stock; $0.01 par value; 30,000,000 shares authorized;

 

 

 

 

 

 

 

 

 

 

12,029,375 shares issued and outstanding at September 30, 2014

 

 

 

 

 

 

 

 

 

 

and December 31, 2013

 

 

121

 

 

 

121

 

 

 

Paid-in capital

 

 

694,869

 

 

 

685,782

 

 

 

Retained earnings

 

 

351,507

 

 

 

284,368

 

 

 

Accumulated other comprehensive income (loss)

 

 

(5,344

)

 

 

(8,582

)

 

 

Treasury stock, at cost; 22,568,546 Class A shares held

 

 

 

 

 

 

 

 

 

 

at September 30, 2014 and 20,900,264 Class A shares

 

 

 

 

 

 

 

 

 

 

held at December 31, 2013

 

 

(388,202

)

 

 

(348,666

)

 

 

Total Stockholders' Equity

 

 

653,571

 

 

 

613,639

 

 

 

Total Liabilities and Stockholders' Equity

 

$

2,983,913

 

 

$

3,051,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Unaudited Condensed Consolidated Financial Statements.

 

 

5


SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Class A

 

 

Class A

 

 

Class B

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

 

(Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

 

61,584

 

 

$

616

 

 

 

(20,900

)

 

$

(348,666

)

 

 

12,029

 

 

$

121

 

 

$

685,782

 

 

$

284,368

 

 

$

(8,582

)

 

$

613,639

 

Shares awarded under stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plans

 

 

403

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,548

 

 

 

-

 

 

 

-

 

 

 

2,552

 

Purchases of treasury stock

 

 

-

 

 

 

-

 

 

 

(1,669

)

 

 

(39,536

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(39,536

)

Income tax benefit associated with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock compensation plans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

336

 

 

 

-

 

 

 

-

 

 

 

336

 

Fair value of interest rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

agreements, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expense of $1,985

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,238

 

 

 

3,238

 

Restricted stock amortization

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,203

 

 

 

-

 

 

 

-

 

 

 

6,203

 

Other

 

 

20

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71,091

 

 

 

-

 

 

 

71,091

 

Dividends ($0.075 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,952

)

 

 

-

 

 

 

(3,952

)

Balance at September 30, 2014

 

 

62,007

 

 

$

620

 

 

 

(22,569

)

 

$

(388,202

)

 

 

12,029

 

 

$

121

 

 

$

694,869

 

 

$

351,507

 

 

$

(5,344

)

 

$

653,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Unaudited Condensed Consolidated Financial Statements.

 

 

6


SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

 

2013

 

 

 

(Dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

71,091

 

 

$

53,535

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of property, plant and equipment

 

 

43,042

 

 

 

39,048

 

Provision for bad debt expense

 

 

331

 

 

 

125

 

Other amortization

 

 

987