UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016
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 |
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56-2010790 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
4401 Colwick Road Charlotte, North Carolina |
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28211 |
(Address of principal executive offices) |
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(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 |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
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 April 19, 2016, there were 33,789,022 shares of Class A common stock and 12,029,375 shares of Class B common stock outstanding.
Uncertainty of Forward-Looking Statements and Information
This Quarterly Report on Form 10-Q contains, and written or oral statements made from time to time by us or by our authorized officers may contain, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address our future objectives, plans and goals, as well as our intent, beliefs and current expectations regarding future operating performance, results and events, and can generally be identified by words such as “may,” “will,” “should,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee” and other similar words or phrases.
These forward-looking statements are based on our current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors which may cause actual results to differ materially from our projections include those risks described in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2015 and elsewhere in this report, as well as:
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the number of new and used cars sold in the United States as compared to our expectations and the expectations of the market; |
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· |
our ability to generate sufficient cash flows or obtain additional financing to fund our EchoPark® expansion, our One Sonic-One Experience initiative, capital expenditures, our share repurchase program, dividends on our common stock, acquisitions and general operating activities; |
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our business and growth strategies, including, but not limited to, our EchoPark® initiative and our One Sonic-One Experience initiative; |
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the reputation and financial condition of vehicle manufacturers whose brands we represent, the financial incentives vehicle manufacturers offer and their ability to design, manufacture, deliver and market their vehicles successfully; |
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our relationships with manufacturers, which may affect our ability to obtain desirable new vehicle models in inventory or complete additional acquisitions; |
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adverse resolutions of one or more significant legal proceedings against us or our dealerships; |
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changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental laws; |
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general economic conditions in the markets in which we operate, including fluctuations in interest rates, employment levels, the level of consumer spending and consumer credit availability; |
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· |
high competition in the automotive retailing industry, which not only creates pricing pressures on the products and services we offer, but also on businesses we may seek to acquire; |
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· |
our ability to successfully integrate potential future acquisitions; and |
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· |
the rate and timing of overall economic recovery or decline. |
These forward-looking statements speak only as of the date of this report or when made, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances, except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission.
SONIC AUTOMOTIVE, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2016
INDEX
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Item 1. |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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17 |
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Item 3. |
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34 |
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Item 4. |
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35 |
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36 |
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Item 1. |
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36 |
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Item 1A. |
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37 |
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Item 2. |
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38 |
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Item 6. |
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39 |
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40 |
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41 |
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SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended March 31, |
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2016 |
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2015 |
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(Dollars and shares in thousands, except per share amounts) |
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Revenues: |
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New vehicles |
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$ |
1,164,570 |
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$ |
1,202,323 |
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Used vehicles |
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598,355 |
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593,742 |
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Wholesale vehicles |
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44,374 |
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41,656 |
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Total vehicles |
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1,807,299 |
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1,837,721 |
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Parts, service and collision repair |
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346,054 |
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323,194 |
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Finance, insurance and other, net |
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81,273 |
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74,600 |
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Total revenues |
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2,234,626 |
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2,235,515 |
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Cost of Sales: |
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New vehicles |
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(1,106,146 |
) |
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(1,138,973 |
) |
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Used vehicles |
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(557,824 |
) |
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(552,898 |
) |
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Wholesale vehicles |
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(45,452 |
) |
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(41,866 |
) |
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Total vehicles |
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(1,709,422 |
) |
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(1,733,737 |
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Parts, service and collision repair |
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(180,054 |
) |
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(166,819 |
) |
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Total cost of sales |
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(1,889,476 |
) |
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(1,900,556 |
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Gross profit |
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345,150 |
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334,959 |
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Selling, general and administrative expenses |
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(284,375 |
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(270,862 |
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Impairment charges |
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- |
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(6,192 |
) |
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Depreciation and amortization |
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(18,470 |
) |
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(16,409 |
) |
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Operating income (loss) |
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42,305 |
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41,496 |
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Other income (expense): |
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Interest expense, floor plan |
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(6,436 |
) |
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(4,778 |
) |
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Interest expense, other, net |
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(12,339 |
) |
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(13,219 |
) |
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Other income (expense), net |
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104 |
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90 |
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Total other income (expense) |
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(18,671 |
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(17,907 |
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Income (loss) from continuing operations before taxes |
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23,634 |
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23,589 |
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Provision for income taxes for continuing operations - benefit (expense) |
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(9,170 |
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(9,200 |
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Income (loss) from continuing operations |
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14,464 |
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14,389 |
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Discontinued operations: |
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Income (loss) from discontinued operations before taxes |
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261 |
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(691 |
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Provision for income taxes for discontinued operations - benefit (expense) |
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(101 |
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269 |
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Income (loss) from discontinued operations |
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160 |
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(422 |
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Net income (loss) |
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$ |
14,624 |
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$ |
13,967 |
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Basic earnings (loss) per common share: |
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Earnings (loss) per share from continuing operations |
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$ |
0.31 |
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$ |
0.28 |
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Earnings (loss) per share from discontinued operations |
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- |
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(0.01 |
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Earnings (loss) per common share |
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$ |
0.31 |
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$ |
0.27 |
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Weighted average common shares outstanding |
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46,950 |
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50,854 |
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Diluted earnings (loss) per common share: |
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Earnings (loss) per share from continuing operations |
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$ |
0.31 |
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$ |
0.28 |
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Earnings (loss) per share from discontinued operations |
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- |
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(0.01 |
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Earnings (loss) per common share |
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$ |
0.31 |
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$ |
0.27 |
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Weighted average common shares outstanding |
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47,122 |
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51,403 |
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Dividends declared per common share |
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$ |
0.05 |
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$ |
0.025 |
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1
See notes to condensed consolidated financial statements.
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended March 31, |
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2016 |
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2015 |
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(Dollars in thousands) |
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Net income (loss) |
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$ |
14,624 |
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$ |
13,967 |
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Other comprehensive income (loss) before taxes: |
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Change in fair value of interest rate swap agreements |
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(4,878 |
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(1,489 |
) |
Provision for income tax benefit (expense) related to components of other comprehensive income (loss) |
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1,853 |
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566 |
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Other comprehensive income (loss) |
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(3,025 |
) |
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(923 |
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Comprehensive income (loss) |
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$ |
11,599 |
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$ |
13,044 |
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See notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, |
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December 31, |
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2016 |
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2015 |
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(Dollars in thousands) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
2,390 |
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$ |
3,625 |
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Receivables, net |
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278,099 |
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378,520 |
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Inventories |
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1,593,732 |
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1,599,581 |
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Other current assets |
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57,237 |
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101,386 |
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Total current assets |
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1,931,458 |
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2,083,112 |
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Property and Equipment, net |
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908,176 |
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886,902 |
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Goodwill |
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471,493 |
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471,493 |
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Other Intangible Assets, net |
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80,715 |
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80,876 |
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Other Assets |
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39,529 |
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39,998 |
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Total Assets |
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$ |
3,431,371 |
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$ |
3,562,381 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Notes payable - floor plan - trade |
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$ |
811,411 |
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$ |
893,466 |
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Notes payable - floor plan - non-trade |
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608,927 |
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625,367 |
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Trade accounts payable |
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138,511 |
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131,204 |
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Accrued interest |
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13,154 |
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12,640 |
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Other accrued liabilities |
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205,471 |
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218,507 |
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Current maturities of long-term debt |
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26,679 |
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33,437 |
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Total current liabilities |
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1,804,153 |
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1,914,621 |
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Long-Term Debt |
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817,065 |
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781,145 |
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Other Long-Term Liabilities |
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66,941 |
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64,245 |
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Deferred Income Taxes |
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76,755 |
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|
73,322 |
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Commitments and Contingencies |
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Stockholders’ Equity: |
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Class A convertible preferred stock, none issued |
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- |
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- |
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Class A common stock, $0.01 par value; 100,000,000 shares authorized; 62,925,921 shares issued and 34,148,040 shares outstanding at March 31, 2016; 62,586,381 shares issued and 37,910,938 shares outstanding at December 31, 2015 |
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|
629 |
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626 |
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Class B common stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2016 and December 31, 2015 |
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121 |
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121 |
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Paid-in capital |
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715,634 |
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713,118 |
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Retained earnings |
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469,340 |
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457,010 |
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Accumulated other comprehensive income (loss) |
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(8,657 |
) |
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|
(5,632 |
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Treasury stock, at cost; 28,777,881 Class A common stock shares held at March 31, 2016 and 24,675,443 Class A common stock shares held at December 31, 2015 |
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(510,610 |
) |
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(436,195 |
) |
Total Stockholders’ Equity |
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|
666,457 |
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|
729,048 |
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Total Liabilities and Stockholders’ Equity |
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$ |
3,431,371 |
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$ |
3,562,381 |
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See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
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Accumulated |
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Class A |
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Class A |
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Class B |
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Other |
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Total |
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Common Stock |
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Treasury Stock |
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Common Stock |
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Paid-In |
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Retained |
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Comprehensive |
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Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income (Loss) |
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Equity |
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(Dollars and shares in thousands) |
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Balance at December 31, 2015 |
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62,586 |
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|
$ |
626 |
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|
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(24,675 |
) |
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$ |
(436,195 |
) |
|
|
12,029 |
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$ |
121 |
|
|
$ |
713,118 |
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$ |
457,010 |
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|
$ |
(5,632 |
) |
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$ |
729,048 |
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Shares awarded under stock compensation plans |
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|
340 |
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3 |
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- |
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- |
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- |
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- |
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(2 |
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- |
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- |
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1 |
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Purchases of treasury stock |
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- |
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|
|
- |
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|
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(4,103 |
) |
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(74,415 |
) |
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- |
|
|
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- |
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|
|
- |
|
|
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- |
|
|
|
- |
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|
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(74,415 |
) |
Income tax expense associated with stock compensation plans |
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|
- |
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|
|
- |
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|
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- |
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|
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- |
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- |
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- |
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(377 |
) |
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|
- |
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|
- |
|
|
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(377 |
) |
Change in fair value of interest rate swap agreements, net of tax benefit of $1,853 |
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|
- |
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- |
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- |
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- |
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|
|
- |
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- |
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- |
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- |
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(3,025 |
) |
|
|
(3,025 |
) |
Restricted stock amortization |
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- |
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- |
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- |
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- |
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- |
|
|
|
- |
|
|
|
2,895 |
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|
|
- |
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|
|
- |
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|
|
2,895 |
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Net income (loss) |
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|
- |
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|
- |
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|
- |
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|
|
- |
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|
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- |
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|
|
- |
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|
|
- |
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|
|
14,624 |
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|
|
- |
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|
|
14,624 |
|
Dividends declared ($0.05 per share) |
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- |
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|
|
- |
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|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,294 |
) |
|
|
- |
|
|
|
(2,294 |
) |
Balance at March 31, 2016 |
|
|
62,926 |
|
|
$ |
629 |
|
|
|
(28,778 |
) |
|
$ |
(510,610 |
) |
|
|
12,029 |
|
|
$ |
121 |
|
|
$ |
715,634 |
|
|
$ |
469,340 |
|
|
$ |
(8,657 |
) |
|
$ |
666,457 |
|
See notes to condensed consolidated financial statements.
4
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(Dollars in thousands) |
|
|||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
14,624 |
|
|
$ |
13,967 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment |
|
|
18,468 |
|
|
|
16,408 |
|
Provision for bad debt expense |
|
|
141 |
|
|
|
(2 |
) |
Other amortization |
|
|
162 |
|
|
|
162 |
|
Debt issuance cost amortization |
|
|
622 |
|
|
|
483 |
|
Debt discount amortization, net of premium amortization |
|
|
73 |
|
|
|
36 |
|
Stock-based compensation expense |
|
|
2,895 |
|
|
|
2,392 |
|
Deferred income taxes |
|
|
4,141 |
|
|
|
4,063 |
|
Equity interest in earnings of investee |
|
|
(189 |
) |
|
|
(32 |
) |
Asset impairment charges |
|
|
- |
|
|
|
6,192 |
|
Loss (gain) on disposal of dealerships and property and equipment |
|
|
(148 |
) |
|
|
(95 |
) |
Loss (gain) on exit of leased dealerships |
|
|
(409 |
) |
|
|
503 |
|
Changes in assets and liabilities that relate to operations: |
|
|
|
|
|
|
|
|
Receivables |
|
|
101,436 |
|
|
|
56,920 |
|
Inventories |
|
|
5,849 |
|
|
|
31,675 |
|
Other assets |
|
|
44,433 |
|
|
|
(5,089 |
) |
Notes payable - floor plan - trade |
|
|
(82,055 |
) |
|
|
(62,041 |
) |
Trade accounts payable and other liabilities |
|
|
(6,403 |
) |
|
|
(21,486 |
) |
Total adjustments |
|
|
89,016 |
|
|
|
30,089 |
|
Net cash provided by (used in) operating activities |
|
|
103,640 |
|
|
|
44,056 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of land, property and equipment |
|
|
(41,382 |
) |
|
|
(46,767 |
) |
Proceeds from sales of property and equipment |
|
|
769 |
|
|
|
635 |
|
Distributions from equity investee |
|
|
375 |
|
|
|
- |
|
Net cash provided by (used in) investing activities |
|
|
(40,238 |
) |
|
|
(46,132 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net (repayments) borrowings on notes payable - floor plan - non-trade |
|
|
(16,440 |
) |
|
|
(9,199 |
) |
Borrowings on revolving credit facilities |
|
|
76,777 |
|
|
|
120,534 |
|
Repayments on revolving credit facilities |
|
|
(77,290 |
) |
|
|
(120,534 |
) |
Proceeds from issuance of long-term debt |
|
|
33,755 |
|
|
|
25,618 |
|
Debt issuance costs |
|
|
(152 |
) |
|
|
- |
|
Principal payments on long-term debt |
|
|
(4,623 |
) |
|
|
(4,446 |
) |
Purchases of treasury stock |
|
|
(74,415 |
) |
|
|
(11,123 |
) |
Income tax benefit (expense) associated with stock compensation plans |
|
|
(377 |
) |
|
|
394 |
|
Issuance of shares under stock compensation plans |
|
|
1 |
|
|
|
1,881 |
|
Dividends paid |
|
|
(1,873 |
) |
|
|
(1,273 |
) |
Net cash provided by (used in) financing activities |
|
|
(64,637 |
) |
|
|
1,852 |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(1,235 |
) |
|
|
(224 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
3,625 |
|
|
|
4,182 |
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
|
$ |
2,390 |
|
|
$ |
3,958 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Change in fair value of cash flow interest rate swap agreements (net of tax benefit of $1,853 and |
|
|
|
|
|
|
|
|
$566 in the months ended March 31, 2016 and 2015, respectively) |
|
$ |
(3,025 |
) |
|
$ |
(923 |
) |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid (received) during the period for: |
|
|
|
|
|
|
|
|
Interest, including amount capitalized |
|
$ |
18,219 |
|
|
$ |
17,482 |
|
Income taxes |
|
$ |
375 |
|
|
$ |
(667 |
) |
See notes to condensed consolidated financial statements.
5
SONIC AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation – The accompanying condensed consolidated financial statements of Sonic Automotive, Inc. and its wholly-owned subsidiaries (“Sonic,” the “Company,” “we,” “us” and “our”) for the three months ended March 31, 2016 and 2015, are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material normal recurring adjustments necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The operating results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year or future interim periods, because the first quarter normally contributes less operating profit than the second, third and fourth quarters. These interim financial statements should be read in conjunction with the audited consolidated financial statements included in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2015.
Recent Accounting Pronouncements – In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this ASU require that leases are classified as either finance or operating leases, a right-of-use asset and lease liability is recognized in the statement of financial position, and repayments are classified within operating activities in the statement of cash flows. For public companies, this ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 (early adoption is permitted). Upon adoption of this ASU, the presentation of certain items in Sonic’s consolidated financial position, cash flows and other disclosures will be impacted.
In March 2016, the FASB issued ASU 2016-09 to simplify several aspects of the accounting for share-based payment transactions. For public companies, this ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 (early adoption is permitted). Upon adoption of this ASU, the presentation of certain items in Sonic’s consolidated financial position, results of operations, cash flows and other disclosures will be impacted.
Principles of Consolidation – All of Sonic’s subsidiaries are wholly-owned and consolidated in the accompanying condensed consolidated financial statements, except for one 50% - owned dealership that is accounted for under the equity method. All material intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Lease Exit Accruals – Lease exit accruals relate to facilities Sonic has ceased using in its operations that remain subject to a current lease agreement. The accruals represent the present value of the lease payments, net of estimated or actual sublease proceeds, for the remaining life of the operating leases and other accruals necessary to satisfy the lease commitment to the landlord. These situations could include the relocation of an existing facility or the sale of a dealership where the buyer will not be subleasing the property for either the remaining term of the lease or for an amount of rent equal to Sonic’s obligation under the lease, or in situations where a store is closed as a result of the associated franchise being terminated by Sonic or the manufacturer and no other operations continue on the leased property. See Note 12, “Commitments and Contingencies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion.
A summary of the activity of these operating lease exit accruals consists of the following:
|
|
(In thousands) |
|
|
Balance at December 31, 2015 |
|
$ |
14,527 |
|
Lease exit expense (1) |
|
|
(409 |
) |
Payments (2) |
|
|
(1,581 |
) |
Balance at March 31, 2016 |
|
$ |
12,537 |
|
(1) |
Income of approximately $0.5 million is recorded in income (loss) from discontinued operations before taxes, offset partially by expense of approximately $0.1 million recorded in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. |
(2) |
Amount is recorded as an offset to rent expense, with approximately $0.2 million recorded in selling, general and administrative expenses and approximately $1.4 million recorded in income (loss) from discontinued operations before taxes, in the accompanying condensed consolidated statements of income. |
6
SONIC AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income Tax Expense – The overall effective tax rate from continuing operations was 38.8% and 39.0% for the three months ended March 31, 2016 and 2015, respectively. Sonic’s effective tax rate varies from year to year based on the distribution of taxable income between states in which Sonic operates and other tax adjustments. Sonic expects the effective tax rate in future periods to fall within a range of 38.0% to 40.0% before the impact, if any, of changes in valuation allowances related to deferred income tax assets or unusual discrete tax adjustments.
2. Business Acquisitions and Dispositions
Acquisitions – Sonic did not acquire any franchises during the three months ended March 31, 2016 and 2015.
Dispositions – Revenues and other activities associated with dealerships classified as discontinued operations were as follows:
|
|
Three Months Ended March 31, |
|
|
|||||
|
|
2016 |
|
|
2015 |
|
|
||
|
|
(In thousands) |
|||||||
Income (loss) from operations |
|
$ |
(194 |
) |
|
$ |
(335 |
) |
|
Lease exit accrual adjustments and charges |
|
|
455 |
|
|
|
(356 |
) |
|
Pre-tax income (loss) |
|
$ |
261 |
|
|
$ |
(691 |
) |
|
Total revenues |
|
$ |
- |
|
|
$ |
- |
|
|
Sonic did not dispose of any franchises during the three months ended March 31, 2016 and 2015. Revenues and other activities associated with disposed dealerships that remain in continuing operations were as follows:
|
|
Three Months Ended March 31, |
|
|
|||||
|
|
2016 |
|
|
2015 |
|
|
||
|
|
(In thousands) |
|||||||
Income (loss) from operations |
|
$ |
(31 |
) |
|
$ |
(945 |
) |
|
Gain (loss) on disposal |
|
|
(48 |
) |
|
|
(102 |
) |
|
Pre-tax income (loss) |
|
$ |
(79 |
) |
|
$ |
(1,047 |
) |
|
Total revenues |
|
$ |
14 |
|
|
$ |
28,619 |
|
|
3. Inventories
Inventories consist of the following:
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
|
(In thousands) |
|
|||||
New vehicles |
|
$ |
1,133,845 |
|
|
$ |
1,161,490 |
|
Used vehicles |
|
|
270,336 |
|
|
|
251,103 |
|
Service loaners |
|
|
126,503 |
|
|
|
121,946 |
|
Parts, accessories and other |
|
|
63,048 |
|
|
|
65,042 |
|
Net inventories |
|
$ |
1,593,732 |
|
|
$ |
1,599,581 |
|
7
SONIC AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment, net consists of the following:
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
|
(In thousands) |
|
|||||
Land |
|
$ |
264,904 |
|
|
$ |
260,275 |
|
Building and improvements |
|
|
692,545 |
|
|
|
679,712 |
|
Software and computer equipment |
|
|
111,763 |
|
|
|
107,086 |
|
Parts and service equipment |
|
|
81,108 |
|
|
|
79,219 |
|
Office equipment and fixtures |
|
|
80,020 |
|
|
|
76,810 |
|
Company vehicles |
|
|
8,916 |
|
|
|
8,478 |
|
Construction in progress |
|
|
66,601 |
|
|
|
55,010 |
|
Total, at cost |
|
|
1,305,857 |
|
|
|
1,266,590 |
|
Less accumulated depreciation |
|
|
(397,681 |
) |
|
|
(379,688 |
) |
Property and equipment, net |
|
$ |
908,176 |
|
|
$ |
886,902 |
|
In the three months ended March 31, 2016 and 2015, capital expenditures were approximately $41.4 million and $46.8 million, respectively. Capital expenditures for the three months ended March 31, 2016 and 2015 were primarily related to real estate acquisitions, construction of new dealerships and EchoPark® stores, building improvements and equipment purchased for use in Sonic’s dealerships and EchoPark® stores.
5. Goodwill and Intangible Assets
The carrying amount of franchise assets and goodwill was approximately $74.9 million and $471.5 million, respectively, as of March 31, 2016 and December 31, 2015. The carrying amount of goodwill is net of accumulated impairment losses of approximately $796.7 million as of March 31, 2016 and December 31, 2015.
At December 31, 2015, Sonic had approximately $6.0 million of definite life intangibles related to favorable lease agreements. After the effect of amortization of the definite life intangibles, the balance recorded at March 31, 2016 was approximately $5.8 million and is included in other intangible assets, net in the accompanying condensed consolidated balance sheets.
6. Long-Term Debt
Long-term debt consists of the following:
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
|
(In thousands) |
|
|||||
2014 Revolving Credit Facility (1) |
|
$ |
3,690 |
|
|
$ |
4,203 |
|
7.0% Senior Subordinated Notes due 2022 (the “7.0% Notes”) |
|
|
200,000 |
|
|
|
200,000 |
|
5.0% Senior Subordinated Notes due 2023 (the “5.0% Notes”) |
|
|
300,000 |
|
|
|
300,000 |
|
Mortgage notes to finance companies-fixed rate, bearing interest from 3.51% to 7.03% |
|
|
183,885 |
|
|
|
168,410 |
|
Mortgage notes to finance companies-variable rate, bearing interest at 1.25 to 2.80 percentage points above one-month or three-month LIBOR |
|
|
165,014 |
|
|
|
150,961 |
|
Net debt discount and premium (2) |
|
|
(1,489 |
) |
|
|
(1,562 |
) |
Debt issuance costs |
|
|
(12,414 |
) |
|
|
(12,884 |
) |
Other |
|
|
5,058 |
|
|
|
5,454 |
|
Total debt |
|
$ |
843,744 |
|
|
$ |
814,582 |
|
Less current maturities |
|
|
(26,679 |
) |
|
|
(33,437 |
) |
Long-term debt |
|
$ |
817,065 |
|
|
$ |
781,145 |
|
(1) |
The interest on the 2014 Revolving Credit Facility was 2.25% above LIBOR at March 31, 2016 and December 31, 2015. |
(2) |
March 31, 2016 includes a $1.3 million discount associated with the 7.0% Notes and a $0.2 million discount associated with mortgage notes payable. December 31, 2015 includes a $1.3 million discount associated with the 7.0% Notes and a $0.3 million discount associated with mortgage notes payable. |
8
SONIC AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2014 Credit Facilities
On July 23, 2014, Sonic entered into an amended and restated syndicated revolving credit facility (the “2014 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan credit facilities (the “2014 Floor Plan Facilities” and, together with the 2014 Revolving Credit Facility, the “2014 Credit Facilities”), which are scheduled to mature on August 15, 2019.
Availability under the 2014 Revolving Credit Facility is calculated as the lesser of $225.0 million or a borrowing base calculated based on certain eligible assets, less the aggregate face amount of any outstanding letters of credit under the 2014 Revolving Credit Facility (the “Revolving Borrowing Base”). The 2014 Revolving Credit Facility may be increased at Sonic’s option up to $275.0 million upon satisfaction of certain conditions. Based on balances as of March 31, 2016, the Revolving Borrowing Base was approximately $185.0 million. As of March 31, 2016, Sonic had approximately $3.7 million of outstanding borrowings and approximately $21.7 million in outstanding letters of credit under the 2014 Revolving Credit Facility, resulting in total borrowing availability of approximately $159.6 million under the 2014 Revolving Credit Facility. See Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion.
7.0% Senior Subordinated Notes
On July 2, 2012, Sonic issued $200.0 million in aggregate principal amount of unsecured senior subordinated 7.0% Notes which mature on July 15, 2022. The 7.0% Notes were issued at a price of 99.11% of the principal amount thereof, resulting in a yield to maturity of 7.125%. Interest on the 7.0% Notes is payable semi-annually in arrears on January 15 and July 15 of each year. See Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion.
5.0% Senior Subordinated Notes
On May 9, 2013, Sonic issued $300.0 million in aggregate principal amount of unsecured senior subordinated 5.0% Notes which mature on May 15, 2023. The 5.0% Notes were issued at a price of 100.0% of the principal amount thereof. Interest on the 5.0% Notes is payable semi-annually in arrears on May 15 and November 15 of each year. See Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion.
Mortgage Notes
During the three months ended March 31, 2016, Sonic obtained approximately $33.7 million in mortgage financing related to four of its dealership properties. As of March 31, 2016, the weighted average interest rate was 3.74% and the total outstanding principal balance was approximately $348.9 million, related to approximately 40% of Sonic’s operating locations. These mortgage notes require monthly payments of principal and interest through their respective maturities and are secured by the underlying properties. Maturity dates for these mortgage notes range between 2016 and 2033.
Covenants
Sonic was in compliance with the covenants under the 2014 Credit Facilities as of March 31, 2016. Financial covenants include required specified ratios (as each is defined in the 2014 Credit Facilities) of:
|
|
Covenant |
|
|||||||||
|
|
Minimum Consolidated Liquidity Ratio |
|
|
Minimum Consolidated Fixed Charge Coverage Ratio |
|
|
Maximum Consolidated Total Lease Adjusted Leverage Ratio |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Required ratio |
|
|
1.05 |
|
|
|
1.20 |
|
|
|
5.50 |
|
March 31, 2016 actual |
|
|
1.16 |
|
|
|
1.75 |