UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2003
OR
Commission file number 1-13395
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
(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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of November 4, 2003, there were 29,000,951 shares of Class A Common Stock and 12,029,375 shares of Class B Common Stock outstanding.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Income – Three-month periods ended September 30, 2002 and September 30, 2003
Consolidated Statements of Income – Nine-month periods ended September 30, 2002 and September 30, 2003
Consolidated Balance Sheets – December 31, 2002 and September 30, 2003
Consolidated Statement of Stockholders’ Equity – Nine-month period ended September 30, 2003
Consolidated Statements of Cash Flows – Nine-month periods ended September 30, 2002 and September 30, 2003
Notes to Unaudited Consolidated Financial Statements
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 4. Controls and Procedures
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
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Item 1. Consolidated Financial Statements.
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Revenues:
New vehicles
Used vehicles
Wholesale vehicles
Total vehicles
Parts, service and collision repair
Finance & insurance and other
Total revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Depreciation
Operating income
Other income / (expense):
Interest expense, floor plan
Interest expense, other
Other
Total other expense
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Discontinued operations:
Loss from operations of discontinued dealerships
Income tax benefit
Loss from discontinued operations
Net income
Basic net income per share:
Income per share from continuing operations
Loss per share from discontinued operations
Net income per share
Weighted average common shares outstanding
Diluted net income per share:
See notes to unaudited consolidated financial statements.
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Income from continuing operations before taxes and cummulative effect of change in
accounting principle
Income from continuing operations before cummulative effect of change in accounting principle
Income before cumulative effect of change in accounting principle
Cumulative effect of change in accounting principle, net of tax benefit of $3,325
Basic net income (loss) per share:
Income per share before cumulative effect of change in accounting principle
Cumulative effect of change in accounting principle
Diluted net income (loss) per share:
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CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Current Assets:
Cash
Receivables, net
Inventories
Assets held for sale
Other current assets
Total current assets
Property and equipment, net
Goodwill, net
Other intangible assets, net
Other assets
Total assets
Current Liabilities:
Notes payable - floor plan
Trade accounts payable
Accrued interest
Other accrued liabilities
Current maturities of long-term debt
Total current liabilities
Long-term debt
Other long-term liabilities
Payable to the Company’s Chairman
Deferred income taxes
Stockholders’ Equity:
Class A Common Stock; $.01 par value; 100,000,000 shares authorized;
37,245,706 shares issued and 29,111,542 shares outstanding at December 31, 2002; 38,005,995 shares issued and 28,895,131 shares outstanding at September 30, 2003
Class B Common Stock; $.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at December 31, 2002 and September 30, 2003
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury Stock, at cost (8,134,164 shares held at December 31, 2002 and 9,110,864 shares held at September 30, 2003)
Total stockholders’ equity
Total liabilities and stockholders’ equity
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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Dollars and shares in thousands)
Balance at December 31, 2002
Comprehensive Income:
Net Income
Change in fair value of interest rate swap, net of tax expense of $460
Total comprehensive income, net of tax
Shares issued under stock compensation plans
Income tax benefit associated with stock compensation plans
Dividends declared ($0.10 per share)
Purchase of treasury stock
Balance at September 30, 2003
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CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Cumulative effect of change in accounting principle, net of tax
Equity interest in earnings of investees
Gain on disposal of assets
(Gain)/Loss on retirement of debt
Changes in assets and liabilities that relate to operations:
Receivables
Trade accounts payable and other liabilities
Total adjustments
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired
Purchases of property and equipment
Proceeds from sales of property and equipment
Proceeds from sale of dealerships
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/(repayments) on revolving credit facilities
Proceeds from long-term debt
Payments on long-term debt
Repurchase of debt securities
Purchases of Class A Common Stock
Issuance of shares under stock compensation plans
Net cash provided by (used in) financing activities
NET INCREASE IN CASH
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Class A Common Stock issued for acquisitions
Change in fair value of cash flow hedging instrument (net of tax benefit of of $3,914 for the nine months ended September 30, 2002 and $460 for the nine months ended September 30, 2003)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation — The accompanying unaudited financial information for the nine months ended September 30, 2003 has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany accounts and transactions have been eliminated. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and the results of operations for the periods presented. The results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. These interim financial statements should be read in conjunction with the audited consolidated financial statements of Sonic Automotive, Inc. (“Sonic”) for the year ended December 31, 2002, which were included in Sonic’s Annual Report on Form 10-K and furnished in Current Report on Form 8-K on October 2, 2003 in order to reflect the subsequent reclassifications of dealership franchises between discontinued and continuing operations in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
Stock-Based Compensation — Sonic accounts for its stock-based compensation plans under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. In accordance with those provisions, because the exercise price of all options granted under those plans equaled the market value of the underlying stock at the grant date, no stock-based employee compensation cost is recorded in the accompanying unaudited financial statements. Using the Black-Scholes option pricing model for all options granted, the following table illustrates the effect on income and earnings per share if Sonic had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation:
Net income as reported
Fair value compensation cost, net of tax benefit of $1,321 and $1,695 for the three months ended September 30, 2002 and 2003, respectively
Pro forma net income
Basic income (loss) per share:
Fair value compensation cost, net of tax
Diluted income (loss) per share:
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Income before cumulative effect of change in accounting principle as reported
Fair value compensation cost, net of tax benefit of $3,686 and $4,496, respectively, for the nine months ended September 30, 2002 and 2003
Pro forma income before cumulative effect of change in accounting principle
Derivative Instruments and Hedging Activities — In order to reduce our exposure to market risks from fluctuations in interest rates, we entered into two separate interest rate swap agreements on January 15, 2002 and June 6, 2002 (the “Fixed Swaps”) to effectively convert a portion of our LIBOR-based variable rate debt to a fixed rate. The Fixed Swaps have a notional principal amount of $100.0 million each and mature on October 31, 2004 and June 6, 2006, respectively. Incremental interest expense incurred (the difference between interest received and interest paid) as a result of the Fixed Swaps was $4.4 million for the first nine months of 2003 and has been included in interest expense, other in the accompanying unaudited consolidated statement of income. The Fixed Swaps have been designated and qualify as cash flow hedges and, as a result, changes in the fair value of the Fixed Swaps have been recorded in other comprehensive loss, net of related income taxes, in our statement of stockholders’ equity. The fair value of the Fixed Swaps as of September 30, 2003 is recorded in other long-term liabilities on the accompanying balance sheet. The change in fair value of the Fixed Swaps during the nine months ended September 30, 2003, recorded in accumulated other comprehensive loss, was approximately $1.2 million ($0.7 million, net of tax). Because the critical terms of the Fixed Swaps and the underlying debt obligations were the same, no ineffectiveness was recorded.
Subsequent to September 30, 2003, we have entered into four separate interest rate swaps (the “Variable Swaps”) each at $25.0 million ($100.0 million total) to effectively convert a portion of our fixed rate debt to a LIBOR-based variable rate debt. Under the Variable Swaps’ agreements, Sonic receives 8.625% on the respective notional amounts and pays interest payments on the respective notional amounts at a rate equal to the six month LIBOR rate plus a spread ranging from 3.595% to 3.840% with an average spread of 3.716%. The Variable Swaps expire on August 15, 2013 and have been designated and qualify as fair value hedges and, as a result, future changes in the fair value of the Variable Swaps will be recorded against the associated fixed rate debt, net of related income taxes.
Cumulative Effect of a Change in Accounting Principle — The Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on Issue No. 02-16, “Accounting by a Customer for Certain Consideration Received from a Vendor.” In accordance with Issue No. 02-16, which was effective January 1, 2003, payments received from manufacturers for floor plan assistance and certain types of advertising allowances should be recorded as a reduction of the cost of inventory and recognized as a reduction of cost of sales when the inventory is sold. Previous practice was to recognize such payments as a reduction of cost of sales at the time of vehicle purchase. The cumulative effect of the adoption of Issue No. 02-16 resulted in a decrease to income of $5.6 million, net of applicable income taxes of $3.3 million for the nine months ended September 30, 2003. Had the guidance from Issue No. 02-16 been retroactively applied, results of operations and net income per share for the nine months ended September 30, 2002 would not have been materially different from the previously reported results.
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Reclassifications — Loss from operations of discontinued dealerships for the nine months ended September 30, 2002 reflects reclassifications from the prior year presentation to include additional dealerships sold or identified for sale subsequent to September 30, 2002 which had not been classified as held for sale as of September 30, 2002. In addition, in accordance with Issue No. 02-16, certain incentives received from manufacturers not intended to reimburse specific, incremental, identifiable costs incurred in selling manufacturers’ products which had previously been classified as a reduction of selling, general and administrative expenses are now recorded as a reduction of inventory cost and are included in cost of sales when the associated vehicles are sold.
Recent Accounting Pronouncements — In January 2003, the FASB issued FASB Interpretation (“FIN”) 46 “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires the consolidation of certain variable interest entities by the primary beneficiary if the equity investors do not have a controlling financial interest or sufficient equity at risk to finance the entities’ activities without additional subordinated financial support of other parties. The provisions of FIN 46 are effective for all variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to that date, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 15, 2003, since we have not issued financial statements reporting a variable interest entity in accordance with FIN 46. The adoption of FIN 46 is not expected to have a material impact on our consolidated results of operations, financial position or cash flows.
In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133 generally entered into or modified after September 30, 2003 and hedging relationships designated after September 30, 2003. We do not expect SFAS No. 149 to have a material effect on our consolidated operating results, financial position, or cash flows.
2. BUSINESS ACQUISITIONS AND DISPOSITIONS
Dealership Acquisitions:
During the first nine months of 2003, Sonic acquired 12 automotive dealerships located in California, Oklahoma, Colorado, Texas, and Michigan and four collision centers for an aggregate purchase price of approximately $53.6 million in cash, net of cash acquired. In addition to these automotive dealership and collision center acquisitions, Sonic acquired certain assets which will provide locations for future operations. The unaudited consolidated balance sheet includes preliminary allocations of the purchase price of these acquisitions to the assets and liabilities acquired based on their estimated fair market values at the dates of acquisition and are subject to final adjustment. As a result of these allocations and adjustments for previously recorded acquisitions, we have recorded the following:
Sonic generally expects our franchise agreements to continue for an indefinite period. When these agreements do not have indefinite terms, Sonic anticipates routine renewals without substantial cost. As such, Sonic believes that its franchise agreements will contribute to cash flows for an indefinite period, therefore the carrying amount of franchise rights is not amortized.
In addition, Sonic has entered into agreements to purchase thirteen dealerships. The acquisitions of the thirteen dealerships are expected to close in the fourth quarter of 2003 and in 2004 and will be paid for in cash and shares of Sonic’s Class A common stock.
Dealership Dispositions:
During the first nine months of 2003, Sonic disposed of 13 franchises, resulting in the closing of eight dealerships and six collision centers. These disposals generated cash of $24.8 million. The sale of these dealerships resulted in a net gain of $5.2 million, which is included in discontinued operations on the accompanying unaudited consolidated statement of income for the three and nine month periods ended September 30, 2003. The gain was net of $11.8 million in goodwill associated with these franchises.
In conjunction with dealership dispositions in the first nine months of 2003, Sonic has agreed to indemnify the buyers from certain liabilities and costs arising from operations or events that occurred prior to sale but which may or may not be known at the time
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of sale, including environmental liabilities and liabilities associated from the breach of representations or warranties made under the agreements. The estimated maximum liability associated with current year dispositions related to subleases was $32.0 million and $14.5 million related to general indemnifications. These indemnifications expire within a period of one to three years following the date of the sale. The estimated fair value of these indemnifications was not material.
In addition to the dispositions described above, as of September 30, 2003, Sonic had approved the sale of four additional dealership franchises, which will result in the closing of one dealership. These franchises are generally smaller franchises with unprofitable operations. The operating results of these dealerships are included in discontinued operations on the accompanying unaudited consolidated statements of income. Long lived assets to be disposed of in connection with dealerships not yet sold, consisting primarily of property, equipment, goodwill and other intangible assets, totaled approximately $2.2 million at September 30, 2003 and have been classified in assets held for sale in the accompanying unaudited consolidated balance sheet. Goodwill classified as assets held for sale totaled approximately $0.3 million and $9.9 million at September 30, 2003 and December 31, 2002, respectively. Other assets and liabilities to be disposed in connection with these dispositions include inventories and related notes payable—floor plan. Revenues associated with dealership franchises classified as discontinued operations were $12.9 million and $106.3 million for the three and nine month periods ended September 30, 2003, respectively, and $109.2 million and $361.7 million for the three and nine month periods ended September 30, 2002, respectively.
3. INVENTORIES
Inventories consist of the following:
Parts and accessories
Total
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Land
Building and improvements
Office equipment and fixtures
Parts and service equipment
Company vehicles
Construction in progress
Total, at cost
Less accumulated depreciation
Interest capitalized in conjunction with construction projects was approximately $0.6 million and $2.3 million for the three and nine months ended September 30, 2003, respectively, and approximately $0.7 million and $1.6 million for the three and nine months ended September 30, 2002, respectively.
In addition to the amounts shown above, Sonic incurred approximately $34.7 million in real estate and construction costs as of September 30, 2003 and $39.2 million as of December 31, 2002 on facilities that are or were expected to be completed and sold within one year in sale-leaseback transactions. Accordingly, these costs are included in assets held for sale on the accompanying unaudited consolidated balance sheets. Under the terms of the sale-leaseback transactions, Sonic sells the properties to unaffiliated
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third parties and enters into long-term operating leases on the facilities. During the first nine months of 2003, Sonic sold $24.4 million in dealership properties in sale-leaseback transactions.
5. LONG-TERM DEBT
Long-term debt consists of the following:
Senior Subordinated Notes bearing interest at 11%, maturing August 1, 2008
Senior Subordinated Notes bearing interest at 8.625%, maturing August 15, 2013
Convertible Senior Subordinated Notes bearing interest at 5.25%, maturing May 7, 2009
$500 million revolving credit facility bearing interest at 2.55 percentage points above LIBOR and maturing in October 2006, collateralized by all assets of Sonic
$50 million revolving construction line of credit with Toyota Credit bearing interest at 2.25 percentage points above LIBOR and maturing December 31, 2007, collateralized by Sonic’s guarantee and a lien on all of the borrowing subsidiaries’ real estate and other assets (1)
$100 million revolving real estate acquisition line of credit with Toyota Credit bearing interest at 2.00 percentage points above LIBOR and maturing December 31, 2012, collateralized by Sonic's guarantee and a lien on all of the borrowing subsidiaries’ real estate and other assets (1)
Other notes payable (primarily equipment notes)
Less unamortized discount
Less current maturities
On August 12, 2003, Sonic issued $200.0 million in aggregate principal amount of 8.625% senior subordinated notes (the “8.625% Notes”) in a private offering to qualified institutional buyers as defined by the Securities Act of 1933. The net proceeds, before expenses, of approximately $194.3 million together with an advance from Sonic’s revolving credit facility, were used to redeem all of the 11% senior subordinated notes (the “11% Notes”) for $194.6 million which included accrued but unpaid interest and the redemption premium of 5.5% on September 10, 2003. A resulting loss of $13.9 million, which includes the redemption premium, and the write-off of unamortized discounts and deferred debt issuance costs is included in other income/(expense) in the accompanying unaudited consolidated statement of income for the three and nine month periods ended September 30, 2003. The 8.625% Notes are unsecured obligations that rank equal in right of payment to all of Sonic’s existing and future senior subordinated indebtedness, mature on August 15, 2013 and are redeemable at Sonic’s option after August 15, 2008. In addition, up to 35% of the aggregate principal amount of the 8.625% Notes may be redeemed on or before August 15, 2006 with net cash proceeds from certain equity offerings. Sonic’s obligations under the 8.625% Notes are guaranteed by Sonic’s operative domestic subsidiaries.
Before the 11% Notes were redeemed, both the 8.625% Notes and the 11% Notes were outstanding. Prior to the redemption of the 11% Notes, Sonic applied net proceeds from the sale of the 8.625% Notes to temporarily repay amounts outstanding under the revolving credit facility and invested in short-term fixed income securities.
Balances outstanding under Sonic’s revolving credit facilities and senior subordinated notes are guaranteed by all of Sonic’s operating domestic subsidiaries. These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations. Subsidiaries that are not guarantors are not material.
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6. PAYABLE TO THECOMPANY’S CHAIRMAN
During the quarter ended September 30, 2003, Sonic reduced the payable to the Company’s Chairman by $1.0 million. Subsequent to September 30, 2003, Sonic repaid the remaining $4.5 million outstanding to the Company’s Chairman.
7. PER SHAREDATA
The calculation of diluted net income per share considers the potential dilutive effect of options and shares under Sonic’s stock compensation plans, and Class A common stock purchase warrants. The following table illustrates the dilutive effect of such items:
Basic weighted average number of common shares outstanding
Dilutive effect of stock options
Dilutive effect of warrants
Weighted average number of common shares outstanding, including effect of dilutive securities
In addition to the stock options included in the table above, options to purchase 1,199,550 shares and 1,115,383 shares of Class A common stock were outstanding during the three and nine month periods ended September 30, 2002 and 2003, respectively, but were not included in the computation of diluted net income per share because the options were antidilutive. The total amount of stock options outstanding at September 30, 2002 and 2003 were 5,400,657 and 6,878,697, respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the Sonic Automotive, Inc. and Subsidiaries Unaudited Consolidated Financial Statements and the related notes thereto appearing elsewhere in this report, as well as the audited financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in our Annual Report for the year ended December 31, 2002 on Form 10-K and furnished in our Current Report on Form 8-K on October 2, 2003 in order to reflect the subsequent reclassifications of dealership franchises between discontinued and continuing operations in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
Overview
We are one of the largest automotive retailers in the United States. As of November 5, 2003 we operated 191 dealership franchises, representing 38 different brands of cars and light trucks at 149 locations, and 42 collision repair centers in 15 states. Our dealerships provide comprehensive services including sales of both new and used cars and light trucks, sales of replacement parts, performance of vehicle maintenance, warranty, paint and collision repair services, and arrangement of extended warranty contracts, financing and insurance for our customers. Our brand diversity allows us to offer a broad range of products at a wide range of prices from lower priced, or economy vehicles, to luxury vehicles. We believe that this diversity reduces the risk of changes in customer preferences, product supply shortages and aging products. In addition, although vehicle sales are cyclical and are affected by many factors, including general economic conditions, consumer confidence, levels of discretionary personal income, interest rates and available credit, our parts, service and collision repair services are not closely tied to vehicle sales and are not dependent upon near-term vehicle sales volume. As a result, we believe the diversity of these products and services reduces the risk of periodic economic downturns.
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The following table depicts the breakdown of our new vehicle revenues by brand for the three and nine months ended September 30, 2002 and 2003:
Brand (1)
Honda
Ford
Toyota
Cadillac
General Motors (2)
BMW
Lexus
Chrysler (3)
Volvo
Nissan
Mercedes
Other Luxury (4)
Other (5)
We sell similar products and services, use similar processes in selling our products and services and sell our products and services to similar classes of customers. As a result of this and the way we manage our business, we have aggregated our results into a single segment for purposes of reporting financial condition and results of operations.
We have accounted for all of our dealership acquisitions using the purchase method of accounting and, as a result, we do not include in our consolidated financial statements the results of operations of these dealerships prior to the date they were acquired. Our consolidated financial statements discussed below reflect the results of operations, financial position and cash flows of each of our dealerships acquired prior to September 30, 2003. As a result of the effects of our acquisitions and other potential factors in the future, the historical consolidated financial information described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is not necessarily indicative of the results of operations, financial position and cash flows which would have resulted had such acquisitions occurred at the beginning of the periods presented, nor is it indicative of future results of operations, financial position and cash flows.
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Results of Operations
Revenues
New Vehicles:
New Vehicle Units
Same Store
Acquisitions
Total As Reported
New Vehicle Revenues (in thousands)
New Vehicle Unit Price
Same store new vehicle unit sales increased slightly for the quarter due to strong import sales. A decrease in domestic brands drove the decline in same store unit sales for the year to date period ended September 30, 2003. Import unit sales volume increased by 12.0% and 9.0%, for the three and nine month periods ended September 30, 2003, respectively. These increases were offset by decreases in unit sales of domestic brands of 11.4% and 13.6%, for the quarter and year to date periods ended September 30, 2003, respectively. Our strong performing regions were San Diego/Nevada, South Bay, and North/South Carolina, which experienced same store unit sales growth of 14.2% for the three months ended September 30, 2003 and 10.2% for the nine months ended September 30, 2003. These increases were offset by declines in our Oklahoma and Houston regions, which experienced combined same store unit sales declines of 10.0% and 10.8% for the three and nine months ended September 30, 2003, respectively. Additionally, Los Angeles experienced declines of 6.5% and 13.4% for the three and nine months ended September 30, 2003, respectively. We attribute the declines in these three regions to the concentration of domestic dealerships in their respective markets.
Most of our brands experienced increases in sales price per unit. Ford, Honda, and Volvo sales price per unit all improved due to an increase in sports utility and truck sales which generally have higher selling prices. However, BMW experienced lower sales prices due to a continued increase in competition within the luxury sports utility vehicle market.
Used Vehicles:
Used Vehicle Units
Used Vehicle Revenues (in thousands)
Used Vehicle Unit Price
Same store used unit sales declined primarily due to geographic weaknesses. The Central Division experienced used unit sales declines of 7.5% and 12.3% for the quarter and year to date periods, respectively. Two of the regions in the Central Division, Oklahoma and Colorado, represented declines of 471 units or 17.7% and 1,491 units or 21.0% for the three and nine months ended September 30, 2003, respectively. We believe the decline in these regions is attributable to tightening of credit standards from our sub-prime lenders. Excluding the Oklahoma and Colorado regions, used unit sales would have increased by 259 units or 1.6% for the quarter. The declines generated in the Central Division were partially offset by increases of 277 units or 19.0% and 410 units or 9.9%
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in the Mid-Atlantic and San Diego/Nevada regions for the quarter and year to date periods, respectively. Somewhat offsetting the overall used vehicle decline is a positive trend in used unit sales which has been generated by our initiative to focus on selling Certified Pre-owned vehicles. For the three and nine month periods ended September 30, 2003, Certified Pre-Owned sales increased 2,243 units or 67.2% and 5,689 units 65.1%, respectively.
Wholesale Vehicles:
Wholesale Vehicle Units
Wholesale Vehicle Revenues (in thousands)
Wholesale Unit Price
The decreases in wholesale revenues and unit sales for the quarter and year to date periods ending September 30, 2003 we attribute to both our continued efforts to maintain appropriate inventory levels and improvements in wholesale markets. Additionally, we have been more selective with auction purchases. These two factors contributed to significantly lower wholesale losses for the three and nine months ended September 30, 2003.
Parts, Service and Collision Repair:
Parts, Service and Collision Repair (in thousands)
Same store parts, service and collision repair revenues increased in both the three and nine month periods ended September 30, 2003 in part due to increases in revenue at our Honda dealerships of $2.7 million, or 8.7%, for the three months ended September 30, 2003, and $6.6 million, or 7.4%, for the nine months ended September 30, 2003. Revenue at our BMW dealerships also improved significantly, increasing $2.9 million, or 12.3%, for the three months ended September 30, 2003, and $7.3 million, or 10.6%, for the nine months ended September 30, 2003. These increases were partially offset by decreases at our Ford dealerships of $2.7 million, or 7.9%, for the three months ended September 30, 2003 and $10.2 million, or 10.3%, for the nine months ended September 30, 2003. On a year over year basis, Ford dealerships experienced revenue declines in 2003 due to unusually high parts and service sales in the first quarter of 2002 because of the Firestone tire recall. Wholesale parts sales were also negatively affected by Ford Motor Company’s decision to open a parts depot in the Houston area in the second half of 2002. Parts, service and collision revenues in the Houston region were down $1.2 million, or 5.8%, and $5.7 million, or 9.2%, for the three and nine month periods ended September 30, 2003, respectively.
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Finance and Insurance and Other:
Finance & Insurance Revenue (in thousands)
Total F&I per Unit
Finance and insurance decreased in both the three and nine months ended September 30, 2003 compared to last year. Decreases in finance and insurance revenues from domestic stores were offset by increases in almost all import brands consistent with the decreases in vehicle revenues.
Gross Profit and Gross Margins
Gross Profit (in thousands)
The overall gross margin decreased to 14.8% in the third quarter of 2003 from 15.3% in the third quarter of 2002. The same store new vehicle gross margins decreased from 7.6% in the third quarter of 2002 to 6.8% in 2003 due primarily to a decline in new vehicle gross margins in an effort to increase market share and a result of merchandise mix. The domestic same store new vehicle gross margin decreased from 7.2% in the third quarter of 2002 to 6.2% in 2003, while import new vehicle gross margins dropped from 8.1% to 7.3% over the same period. The quarterly retail used gross margin decreased slightly (from 11.3% to 10.9%) but was offset by a favorable decrease in wholesale losses (from (3.5%) to (2.0)% for the quarters ended September 30, 2002 and 2003, respectively) to create an overall improvement (from 7.2% to 7.5%) in total used vehicle margins when comparing the quarters ended September 30, 2002 and 2003, respectively. The overall decline experienced in vehicle gross margins was offset slightly by an increase in the gross margin in parts, service and collision from 47.5% to 48.1% for the third quarter of 2003. The overall gross margin decline was also caused by a change in mix to more new vehicles as a percentage of total revenues.
During the first nine months of the year, the overall gross margin decreased to 15.3% from 15.5% in 2002. As in the quarter to date period, the decline in the year to date period was also mainly attributable to the decrease in vehicle gross margins, which fell from 7.8% to 7.2%. Parts, service and collision gross margins increased on a year to date basis to 48.1% from 47.4% last year, somewhat offsetting the decrease in the vehicle margins.
Selling, General and Administrative Expenses
SG&A (in thousands)
Selling, general and administrative (“SG&A”) expenses are comprised of four major groups: compensation expenses, advertising expenses, operating rent and rent related expenses, and other expenses. Compensation expenses primarily relate to dealership personnel who are paid a commission or a modest salary plus commission (which typically varies depending on gross profits realized) and support personnel who are paid a salary plus bonus/commission. Due to the fixed component of dealership personnel’s compensation, gross profits and compensation expense are not 100% correlated. Advertising expenses and other expenses vary based
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on the level of actual or anticipated business activity and number of dealerships owned. Rent and rent related expenses typically vary with the number of dealerships and franchises owned, investments made for facility improvements by landlords and interest rates.
Total SG&A as a percentage of gross profit increased to 79.6% in the third quarter of 2003 from 76.4% in the third quarter of 2002, and to 80.3% in the first nine months of 2003 from 76.7% in the first nine months of 2002. These increases were driven primarily by compensation expenses, advertising expenses and rent and rent related expenses.
For the third quarter of 2002 and 2003, compensation expenses comprised 61.0% and 59.5%, respectively, of total SG&A and 46.6% and 47.3%, respectively, of gross profits. For the first nine months of 2002 and 2003, compensation expenses comprised 61.8% and 60.0%, respectively, of SG&A and 47.4% and 48.2%, respectively, of gross profits. Compensation expenses have risen as a percentage of gross profits primarily due to significant declines in gross profit at some of our domestic dealerships in the three and nine month periods ended September 30, 2003, as compared to the prior year.
For the third quarter of 2002 and 2003, advertising expenses comprised 7.9% and 8.6%, respectively, of total SG&A. For the first nine months of 2002 and 2003, advertising expenses comprised 8.1% of total SG&A. Advertising expenditures have not contributed to anticipated improvements in gross profits. We expect future advertising expenditures to fall in line with historical levels.
For the third quarter of 2002 and 2003, rent and rent related expenses comprised 11.9% and 12.7%, respectively, of total SG&A. For the first nine months of 2002 and 2003, rent and rent related expenses comprised 11.9% and 12.6%, respectively, of total SG&A. Rent and rent related expenses increased due to facility improvements and upgrades on several leased properties.
Depreciation (in thousands)
Depreciation expense increased as a result of capital expenditures made in the previous twelve months. During the twelve months ending September 30, 2003, the balance of depreciable property and equipment related to continuing operations increased approximately $47.0 million, or 48.9%, of which $39.0 million related to leasehold improvements. As a percentage of total revenues, depreciation expense was 0.2% in the third quarter of 2003 and 0.1% for the third quarter of 2002.
Floor Plan Interest Expense
Floor plan interest expense decreased by $0.7 million, or 12.0% in the third quarter of 2003 compared to the same period last year. The change reflects a decrease of $1.4 million due to lower interest rates, partially offset by an increase of $0.7 million related to higher outstanding balances primarily related to acquisitions. Floor plan interest expense was flat in the first nine months of 2003 compared to the same period last year.
Other Interest Expense
Other interest expense decreased by $0.1 million, or 0.7% in the third quarter of 2003 and increased $1.9 million, or 6.9% in the first nine months of 2003 compared to the same periods last year. In the third quarter of 2002, Sonic repurchased $6.5 million in aggregate principal amount of the 5.25% convertible notes. Sonic realized a decrease of $0.3 million in interest expense for the three months ended September 30, 2003 due to these repurchases. The convertible notes were issued in May 2002 and as a result the nine months ended September 30, 2003 interest expense increased $2.0 million due to the convertible notes being outstanding for the entire period compared to 2002. On August 12, 2003, Sonic issued the $200.0 million senior subordinated 8.625% notes (the “8.625% Notes”). As a result of the issuance, interest expense increased $2.4 million for the three and nine months ended September 30, 2003. Sonic used the net proceeds to redeem all of the 11% senior subordinated notes (the “11% Notes”) on September 10, 2003. Due to the 30 days of carrying both the 8.625% and 11% Notes, Sonic incurred an additional $1.7 million in interest expense for the three month period. However, Sonic received a
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benefit of $1.1 million in lower interest expense due to the buy back of the 11% Notes. Benefits realized of approximately $1.0 million and $1.4 million in the three and nine months ended September 30, 2003, respectively, as a result of lower interest expense on the Revolving Credit Facility were offset by approximately $0.1 million and $2.0 million of additional interest incurred in the three and nine month periods, respectively, as a result of the Fixed Swaps. As a result of refinancing the 11% Notes with the 8.625% Notes, we anticipate an annual savings of $2.9 million.
Subsequent to September 30, 2003 we have entered into four separate interest rate swaps (the “Variable Swaps”) each at $25.0 million ($100.0 million total) to effectively convert a portion of our fixed rate debt to a LIBOR-based variable rate debt. Under the Variable Swaps’ agreements, Sonic receives 8.625% on the respective notional amounts and pays interest payments on the respective notional amounts at a rate equal to the six month LIBOR rate plus a spread ranging from 3.595% to 3.840% with an average spread of 3.716%. The Variable Swaps expire on August 15, 2013 and have been designated and qualify as fair value hedges and, as a result, future changes in the fair value of the Variable Swaps will be recorded against the associated fixed rate debt, net of related income taxes. As a result of executing the Variable Swaps we anticipate an annual savings of $3.7 million if the six month LIBOR were to remain constant at the September 30, 2003 rate of 1.18%.
Other Income / Expense
Other income / expense increased approximately $15.2 million and $15.4 million in the three and nine month periods ended September 30, 2003 compared to the same periods in the prior year primarily due to debt repurchases. We experienced gains of $1.4 million in the three and nine months ended September 30, 2002 related to repurchases of a portion of our 5.25% and 11% Notes, and debt retirement losses of $13.9 million in the three and nine months ended September 30, 2003, related to the call premium paid and write-offs of discounts and deferred loan costs related to the repayment in full of our 11% Notes.
Liquidity and Capital Resources
We require cash to finance acquisitions and fund debt service and working capital requirements. We rely on cash flows from operations, borrowings under our various credit facilities and offerings of debt and equity securities to meet these requirements. Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations is generated by these subsidiaries. As a result, our cash flow and ability to service debt depends to a substantial degree on the results of operations of these subsidiaries and their ability to provide us with cash. Uncertainties in the economic environment as well as uncertainties associated with the ultimate resolution of geopolitical conflicts may therefore affect our overall liquidity.
8.625% Senior Subordinated Notes
On August 12, 2003, Sonic issued $200.0 million in aggregate principal amount of 8.625% senior subordinated notes in a private offering to qualified institutional buyers as defined by the Securities Act of 1933. The net proceeds, before expenses, of approximately $194.3 million together with an advance from Sonic’s revolving credit facility, were used to redeem all of the 11% senior subordinated notes for $194.6 million which included accrued but unpaid interest and the redemption premium of 5.5% on September 10, 2003. A resulting loss of $13.9 million, which includes the redemption premium, and the write-off of unamortized discounts and deferred debt issuance costs is included in other income/(expense) in the accompanying unaudited consolidated statement of income for the three and nine month periods ended September 30, 2003. The 8.625% Notes are unsecured obligations that rank equal in right of payment to all of Sonic’s existing and future senior subordinated indebtedness, mature on August 15, 2013 and are redeemable at Sonic’s option after August 15, 2008. In addition, up to 35% of the aggregate principal amount of the 8.625% Notes may be redeemed on or before August 15, 2006 with net cash proceeds from certain equity offerings. Sonic’s obligations under the 8.625% Notes are guaranteed by Sonic’s operative domestic subsidiaries.
Floor Plan Facilities
The weighted average interest rate for our floor plan facilities was 3.37% and 2.52% for the three months ended September 30, 2002 and 2003, respectively, and 3.52% and 2.84% for the nine months ended September 30, 2002 and 2003, respectively. Our floor plan interest expense is substantially offset by amounts received from manufacturers, in the form of floor plan assistance. Prior to January 1, 2003, floor plan assistance was recorded as a reduction of cost of sales when received. In accordance with guidance from
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Emerging Issues Task Force Issue No. 02-16, beginning January 1, 2003, floor plan assistance received is capitalized in inventory and charged against cost of sales when the associated inventory is sold. In the first nine months of 2003, we received approximately $29.6 million in manufacturer assistance, which resulted in an effective borrowing rate under our floor plan facilities of 0%. Interest payments under each of our floor plan facilities are due monthly, and we are generally not required to make principal repayments prior to the sale of the vehicles. We were in compliance with all restrictive covenants as of September 30, 2003.
Long-Term Debt and Credit Facilities
At September 30, 2003, the outstanding balance and availability on our long-term credit facilities were as follows (in thousands):
Interest
Rate (1)
Outstanding
Balance
Additional
Borrowing
Availability
Revolving Credit Facility (matures October 2006)
Senior Subordinated Notes (mature August 2013)
Convertible Senior Subordinated Notes (2) (mature May 2009)
Mortgage Facility:
Construction Loan (matures December 2007)
Permanent Loan (matures December 2012)
We were in compliance with all of the restrictive and financial covenants under all our long-term debt and credit facilities at September 30, 2003.
Two banks have agreed to commit $50.0 million to our revolving credit facility which will increase this facility to $550.0 million.
During the quarter ended September 30, 2003, we reduced the payable to the Company’s Chairman by $1.0 million. Subsequent to September 30, 2003, we repaid the remaining $4.5 million outstanding to the Company’s Chairman.
Dealership Acquisitions and Dispositions
In the first nine months of 2003, we acquired 12 dealerships and four collision centers for a combined purchase price of $53.6 million in cash. The total purchase price for acquisitions was based on our internally determined valuation of the dealerships and their assets. The purchase price was financed by cash generated from operations and by borrowings under our Revolving Credit Facility.
During the first nine months of 2003, we disposed of 13 franchises, resulting in the closing of eight dealerships and six collision centers. These disposals generated cash of $24.8 million.
Sale-Leaseback Transactions
In an effort to generate additional cash flow, we typically seek to structure our operations to minimize the ownership of real property. As a result, facilities either constructed by us or obtained in acquisitions are typically sold to third parties in sale-leaseback transactions. The resulting leases generally have initial terms of 10-15 years and include a series of five-year renewal options. We
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have no continuing obligations under these arrangements other than lease payments. The majority of our sale-leaseback transactions are completed with Capital Automotive REIT. During the first nine months of 2003, we sold $24.4 million in dealership properties in sale-leaseback transactions.
Capital Expenditures
Our capital expenditures include the construction of new dealerships and collision repair centers, building improvements and equipment purchased for use in our dealerships. Capital expenditures in the first nine months of 2003 were approximately $58.4 million, of which approximately $37.0 million related to the construction of new dealerships and collision repair centers. Once completed, these new dealerships and collision repair centers are generally sold in sale-leaseback transactions. Capital expenditures incurred during the first nine months of 2003 expected to be sold within a year in sale-leaseback transactions were $34.7 million. We do not expect any significant gains or losses from these sales. As of September 30, 2003, commitments for facilities construction projects totaled approximately $29.2 million. We expect $17.6 million of this amount to be financed through future sale-leaseback transactions.
Stock Repurchase Program
Our Board of Directors has authorized Sonic to expend up to $145.0 million to repurchase shares of its Class A common stock or redeem securities convertible into Class A common stock. In the first nine months of 2003, we repurchased 976,700 shares for approximately $17.8 million which was somewhat offset by proceeds received from the exercise of stock options under stock compensation plans of $8.1 million. Subsequent to September 30, 2003, we have purchased an additional 135,000 shares of Class A common stock for approximately $3.1 million. As of November 5, 2003, we had $17.1 million remaining under our Board authorization.
Dividends
Our Board of Directors approved a quarterly cash dividend program beginning with a dividend of $0.10 per share for shareholders of record on September 15, 2003, which was paid on October 15, 2003. Our Board of Directors approved a second dividend of $0.10 per share for shareholders of record on December 15, 2003, which will be payable on January 15, 2004. Our dividend program reflects our intent to reallocate to dividends a portion of the capital previously allocated to security repurchases.
Cash Flows
For the nine month period ended September 30, 2003, net cash provided by operating activities was approximately $86.2 million, which was generated primarily by changes in working capital accounts and net income adjusted for non-cash items such as depreciation, amortization, gains and losses on debt retirement and deferred income taxes. Significant working capital movements included decreases in notes payable – floor plan of $65.9 million which was offset by decreases in inventories of $51.0 million and an increase in accounts payable and other liabilities of $35.9 million. Cash used for investing activities in the first nine months of 2003 was $61.2 million, the majority of which was related to dealership acquisitions and capital expenditures on construction in progress projects offset by proceeds received from dealership dispositions. In the first nine months of 2003, net cash used by financing activities was $0.6 million and primarily related to repurchases of Class A common stock of $17.8 million offset by net borrowings on our Revolving Credit Facility of $9.4 million and exercise of stock options under stock compensation plans of $8.1 million.
Future Liquidity Outlook
We believe our best source of liquidity for future growth remains cash flows generated from operations combined with our availability of borrowings under our floor plan financing (or any replacements thereof) and other credit arrangements. Though uncertainties in the economic environment as well as uncertainties associated with geopolitical conflicts may affect our ability to generate cash from operations, we expect to generate more than sufficient cash flow to fund our debt service and working capital requirements and any seasonal operating requirements, including our currently anticipated internal growth for our existing businesses, for the foreseeable future. Once these needs are met, we may use remaining cash flow to support our acquisition strategy or repurchase shares of our Class A common stock or publicly traded debt securities, as market conditions warrant.
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Guarantees
In conjunction with dealership dispositions in the current quarter, we have agreed to indemnify the buyers from certain liabilities and costs arising from operations or events that occurred prior to sale but which may or may not be known at the time of sale, including environmental liabilities and liabilities associated from the breach of representations or warranties made under the agreements. The estimated maximum liability associated with current year dispositions related to subleases was $32.0 million and $14.5 million related to general indemnifications. These indemnifications expire within a period of one to three years following the date of the sale. The estimated fair value of these indemnifications was not material.
Seasonality
Our operations are subject to seasonal variations. The first and fourth quarters generally contribute less revenue and operating profits than the second and third quarters. Weather conditions, the timing of manufacturer incentive programs and model changeovers cause seasonality in new vehicle demand. Parts and service demand remains more stable throughout the year.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our variable rate notes payable–floor plan, revolving credit facility borrowings and other variable rate notes expose us to risks caused by fluctuations in the underlying interest rates. The total outstanding balance of such instruments was approximately $1.1 billion at September 30, 2003 and approximately $1.0 billion at September 30, 2002. A change of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately $7.3 million in the first nine months of 2003 and approximately $6.2 million in the first nine months of 2002. Of the total change in interest expense, approximately $5.9 million in the first nine months of 2003 and approximately $4.4 million in first nine months of 2002 would have resulted from notes payable–floor plan.
Our exposure with respect to notes payable–floor plan is mitigated by floor plan assistance payments received from manufacturers that are generally based on rates similar to those incurred under our floor plan financing arrangements. These payments are capitalized as inventory and charged against cost of sales when the associated inventory is sold. During the nine months ended September 30, 2002 and 2003, the amounts we received from manufacturer floor plan assistance exceeded our floor plan interest expense by approximately $11.1 million and $11.9 million, respectively. As a result, the effective rate incurred under our floor plan financing arrangements was reduced to 0% after considering these incentives. A change of 100 basis points in the underlying interest rate would have caused an estimated change in floor plan assistance of approximately $5.0 million in the first nine months of 2003.
In addition to our variable rate debt, we also have lease agreements on a portion of our dealership facilities where the monthly lease payment fluctuates based on LIBOR interest rates. Many of our lease agreements have interest rate floors whereby our lease expense would not fluctuate significantly in periods when LIBOR is relatively low.
In order to reduce our exposure to market risks from fluctuations in interest rates, we entered into two separate interest rate swap agreements on January 15, 2002 and June 6, 2002 (the “Fixed Swaps”) to effectively convert a portion of our LIBOR-based variable rate debt to a fixed rate. The Fixed Swaps each have a notional principal amount of $100.0 million each and mature on October 31, 2004 and June 6, 2006, respectively. Under the terms of the swap agreement entered into on January 15, 2002, we receive interest payments on the notional amount at a rate equal to the one month LIBOR rate, adjusted monthly, and make interest payments at a fixed rate of 3.88%. Under the terms of the swap agreement entered into on June 6, 2002, we receive interest payments on the notional amount at a rate equal to the one month LIBOR rate, adjusted monthly, and make interest payments at a fixed rate of 4.50%. Incremental interest expense incurred (the difference between interest received and interest paid) as a result of the Fixed Swaps was $4.4 million in for the first nine months of 2003 and has been included in interest expense, other in the accompanying unaudited consolidated statement of income. The Fixed Swaps have been designated and qualify as cash flow hedges and, as a result, changes in the fair value of the Fixed Swaps have been recorded in other comprehensive loss, net of related income taxes, in our statement of stockholders’ equity.
Item 4: Controls and Procedures
Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. There were no significant changes in our internal controls over financial reporting or in other factors over the past fiscal quarter that could significantly affect these controls subsequent to the date the evaluation was completed.
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Forward Looking Statements
The following Quarterly Report on Form 10-Q contains numerous “forward-looking statements” within the meaning of the Private Litigation Securities 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, and can generally be identified by words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” and other similar words or phrases. Specific events addressed by these forward-looking statements include, but are not limited to:
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 Exhibit 99.1 to this quarterly report on Form 10-Q and elsewhere in this report, as well as:
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PART II – OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
Exhibit No.
Description
4.1*
4.2*
4.3*
4.4*
31.1
31.2
32.1
32.2
99.1
On July 29, 2003, we filed a Current Report on Form 8-K with the SEC to announce pursuant to Item 9 and Item 12 of Form 8-K certain information regarding our company’s results of operations and financial performance during the quarter ended June 30, 2003.
On July 29, 2003, we filed a Current Report on Form 8-K with the SEC pursuant to Item 9 of Form 8-K to announce that our Board of Directors approved a quarterly cash dividend program.
On July 31, 2003, we filed a Current Report on Form 8-K with the SEC pursuant to Item 9 of Form 8-K to announce recently entered into agreements to purchase or purchased eighteen dealerships with combined revenues of $800 million annually.
On August 4, 2003, we filed a Current Report on Form 8-K with the SEC pursuant to Item 9 of Form 8-K to announce an offering of $200 million of Senior Subordinated Notes due 2013.
On August 4, 2003, we filed a Current Report on Form 8-K with the SEC to reflect the reclassifications of franchises between discontinued and continuing operations in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
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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.
/s/ O. Bruton Smith
O. Bruton Smith
Chairman and Chief Executive Officer
/s/ E. Lee Wyatt, Jr.
E. Lee Wyatt, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
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