Attached files
| file | filename |
|---|---|
| EX-32.2 - EX-32.2 - SONIC AUTOMOTIVE INC | sah-ex322_6.htm |
| EX-31.2 - EX-31.2 - SONIC AUTOMOTIVE INC | sah-ex312_9.htm |
| EX-31.1 - EX-31.1 - SONIC AUTOMOTIVE INC | sah-ex311_7.htm |
| EX-32.1 - EX-32.1 - SONIC AUTOMOTIVE INC | sah-ex321_8.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
|
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-13395
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
56-2010790 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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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.
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Large accelerated filer |
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x |
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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 October 26, 2015, there were 37,781,160 shares of Class A common stock and 12,029,375 shares of Class B common stock outstanding.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015
INDEX
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3 |
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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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21 |
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Item 3. |
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40 |
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Item 4. |
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Item 1. |
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42 |
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Item 1A. |
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43 |
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Item 2. |
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44 |
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Item 6. |
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45 |
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47 |
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48 |
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2
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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||||||||||
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2015 |
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2014 |
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2015 |
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2014 |
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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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$ |
1,368,029 |
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$ |
1,327,837 |
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$ |
3,865,639 |
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$ |
3,773,234 |
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Used vehicles |
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|
652,058 |
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583,570 |
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1,904,594 |
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1,747,254 |
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Wholesale vehicles |
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37,971 |
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41,433 |
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120,760 |
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127,797 |
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Total vehicles |
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2,058,058 |
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1,952,840 |
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5,890,993 |
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5,648,285 |
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Parts, service and collision repair |
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|
350,520 |
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325,740 |
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1,019,878 |
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973,646 |
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Finance, insurance and other, net |
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85,830 |
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77,024 |
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242,792 |
|
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223,340 |
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Total revenues |
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2,494,408 |
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2,355,604 |
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7,153,663 |
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6,845,271 |
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Cost of Sales: |
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New vehicles |
|
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(1,302,594 |
) |
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(1,258,811 |
) |
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(3,671,919 |
) |
|
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(3,563,342 |
) |
|
Used vehicles |
|
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(610,328 |
) |
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(542,325 |
) |
|
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(1,781,323 |
) |
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(1,627,842 |
) |
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Wholesale vehicles |
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(40,452 |
) |
|
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(42,519 |
) |
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(126,126 |
) |
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(130,290 |
) |
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Total vehicles |
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(1,953,374 |
) |
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(1,843,655 |
) |
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(5,579,368 |
) |
|
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(5,321,474 |
) |
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Parts, service and collision repair |
|
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(180,783 |
) |
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(170,460 |
) |
|
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(523,531 |
) |
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(506,361 |
) |
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Total cost of sales |
|
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(2,134,157 |
) |
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(2,014,115 |
) |
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(6,102,899 |
) |
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(5,827,835 |
) |
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Gross profit |
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360,251 |
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341,489 |
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1,050,764 |
|
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1,017,436 |
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Selling, general and administrative expenses |
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(280,041 |
) |
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(270,144 |
) |
|
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(835,564 |
) |
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(803,031 |
) |
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Impairment charges |
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(37 |
) |
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(208 |
) |
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(16,698 |
) |
|
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(215 |
) |
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Depreciation and amortization |
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(17,250 |
) |
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(14,235 |
) |
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(50,953 |
) |
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(43,047 |
) |
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Operating income (loss) |
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62,923 |
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56,902 |
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147,549 |
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171,143 |
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Other income (expense): |
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Interest expense, floor plan |
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(5,364 |
) |
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(4,406 |
) |
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(15,488 |
) |
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(13,941 |
) |
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Interest expense, other, net |
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(12,361 |
) |
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(12,893 |
) |
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(38,635 |
) |
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(40,576 |
) |
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Other income (expense), net |
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- |
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(1 |
) |
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102 |
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98 |
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Total other income (expense) |
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(17,725 |
) |
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(17,300 |
) |
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(54,021 |
) |
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(54,419 |
) |
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Income (loss) from continuing operations before taxes |
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45,198 |
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39,602 |
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93,528 |
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116,724 |
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Provision for income taxes for continuing operations - benefit (expense) |
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(18,095 |
) |
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(15,045 |
) |
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(36,944 |
) |
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(45,122 |
) |
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Income (loss) from continuing operations |
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27,103 |
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24,557 |
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56,584 |
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71,602 |
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Discontinued operations: |
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Income (loss) from discontinued operations before taxes |
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(999 |
) |
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|
254 |
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(2,200 |
) |
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(838 |
) |
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Provision for income taxes for discontinued operations - benefit (expense) |
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|
401 |
|
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(99 |
) |
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|
869 |
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|
327 |
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Income (loss) from discontinued operations |
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(598 |
) |
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|
155 |
|
|
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(1,331 |
) |
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|
(511 |
) |
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Net income (loss) |
|
$ |
26,505 |
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$ |
24,712 |
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$ |
55,253 |
|
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$ |
71,091 |
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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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$ |
0.54 |
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$ |
0.47 |
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$ |
1.12 |
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$ |
1.36 |
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Earnings (loss) per share from discontinued operations |
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|
(0.01 |
) |
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|
- |
|
|
|
(0.03 |
) |
|
|
(0.01 |
) |
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Earnings (loss) per common share |
|
$ |
0.53 |
|
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$ |
0.47 |
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$ |
1.09 |
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$ |
1.35 |
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Weighted average common shares outstanding |
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|
50,456 |
|
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|
52,070 |
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|
50,697 |
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|
52,333 |
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Diluted earnings (loss) per common share: |
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Earnings (loss) per share from continuing operations |
|
$ |
0.53 |
|
|
$ |
0.47 |
|
|
$ |
1.11 |
|
|
$ |
1.35 |
|
|
Earnings (loss) per share from discontinued operations |
|
|
(0.01 |
) |
|
|
- |
|
|
|
(0.03 |
) |
|
|
(0.01 |
) |
|
Earnings (loss) per common share |
|
$ |
0.52 |
|
|
$ |
0.47 |
|
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$ |
1.08 |
|
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$ |
1.34 |
|
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Weighted average common shares outstanding |
|
|
50,769 |
|
|
|
52,553 |
|
|
|
51,086 |
|
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|
52,808 |
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Dividends declared per common share |
|
$ |
0.025 |
|
|
$ |
0.025 |
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|
$ |
0.075 |
|
|
$ |
0.075 |
|
See notes to condensed consolidated financial statements.
3
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
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||||||||||
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2015 |
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2014 |
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|
2015 |
|
|
2014 |
|
||||
|
|
|
(Dollars in thousands) |
|
|||||||||||||
|
Net income (loss) |
|
$ |
26,505 |
|
|
$ |
24,712 |
|
|
$ |
55,253 |
|
|
$ |
71,091 |
|
|
Other comprehensive income (loss) before taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap agreements |
|
|
(4,221 |
) |
|
|
4,037 |
|
|
|
(4,271 |
) |
|
|
5,223 |
|
|
Provision for income tax benefit (expense) related to components of other comprehensive income (loss) |
|
|
1,604 |
|
|
|
(1,534 |
) |
|
|
1,623 |
|
|
|
(1,985 |
) |
|
Other comprehensive income (loss) |
|
|
(2,617 |
) |
|
|
2,503 |
|
|
|
(2,648 |
) |
|
|
3,238 |
|
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Comprehensive income (loss) |
|
$ |
23,888 |
|
|
$ |
27,215 |
|
|
$ |
52,605 |
|
|
$ |
74,329 |
|
See notes to condensed consolidated financial statements.
4
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
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September 30, |
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December 31, |
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2015 |
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2014 |
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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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$ |
2,493 |
|
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$ |
4,182 |
|
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Receivables, net |
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|
299,530 |
|
|
|
371,994 |
|
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Inventories |
|
|
1,422,433 |
|
|
|
1,311,702 |
|
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Other current assets |
|
|
99,459 |
|
|
|
81,081 |
|
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Total current assets |
|
|
1,823,915 |
|
|
|
1,768,959 |
|
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Property and Equipment, net |
|
|
859,855 |
|
|
|
799,319 |
|
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Goodwill |
|
|
472,613 |
|
|
|
475,929 |
|
|
Other Intangible Assets, net |
|
|
81,937 |
|
|
|
83,720 |
|
|
Other Assets |
|
|
54,088 |
|
|
|
55,208 |
|
|
Total Assets |
|
$ |
3,292,408 |
|
|
$ |
3,183,135 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities: |
|
|
|
|
|
|
|
|
|
Notes payable - floor plan - trade |
|
$ |
762,031 |
|
|
$ |
711,618 |
|
|
Notes payable - floor plan - non-trade |
|
|
521,924 |
|
|
|
551,118 |
|
|
Trade accounts payable |
|
|
113,527 |
|
|
|
132,405 |
|
|
Accrued interest |
|
|
12,485 |
|
|
|
12,409 |
|
|
Other accrued liabilities |
|
|
214,900 |
|
|
|
208,654 |
|
|
Current maturities of long-term debt |
|
|
31,711 |
|
|
|
30,802 |
|
|
Total current liabilities |
|
|
1,656,578 |
|
|
|
1,647,006 |
|
|
Long-Term Debt |
|
|
795,871 |
|
|
|
742,610 |
|
|
Other Long-Term Liabilities |
|
|
73,984 |
|
|
|
69,200 |
|
|
Deferred Income Taxes |
|
|
72,815 |
|
|
|
57,601 |
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
Class A convertible preferred stock, none issued |
|
|
- |
|
|
|
- |
|
|
Class A common stock, $0.01 par value; 100,000,000 shares authorized; 62,456,603 shares issued and 37,899,038 shares outstanding at September 30, 2015; 62,046,966 shares issued and 38,890,533 shares outstanding at December 31, 2014 |
|
|
625 |
|
|
|
620 |
|
|
Class B common stock; $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at September 30, 2015 and December 31, 2014 |
|
|
121 |
|
|
|
121 |
|
|
Paid-in capital |
|
|
707,419 |
|
|
|
697,760 |
|
|
Retained earnings |
|
|
427,819 |
|
|
|
376,353 |
|
|
Accumulated other comprehensive income (loss) |
|
|
(9,072 |
) |
|
|
(6,424 |
) |
|
Treasury stock, at cost; 24,557,565 Class A shares held at September 30, 2015 and 23,156,433 Class A shares held at December 31, 2014 |
|
|
(433,752 |
) |
|
|
(401,712 |
) |
|
Total Stockholders' Equity |
|
|
693,160 |
|
|
|
666,718 |
|
|
Total Liabilities and Stockholders' Equity |
|
$ |
3,292,408 |
|
|
$ |
3,183,135 |
|
See notes to condensed consolidated financial statements.
5
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
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|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Class A |
|
|
Class A |
|
|
Class B |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|||||||||||||||||
|
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Common Stock |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
Stockholders' |
|
|||||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity |
|
||||||||||
|
|
|
(Dollars and shares in thousands) |
|
|||||||||||||||||||||||||||||||||||||
|
Balance at December 31, 2014 |
|
|
62,047 |
|
|
$ |
620 |
|
|
|
(23,156 |
) |
|
$ |
(401,712 |
) |
|
|
12,029 |
|
|
$ |
121 |
|
|
$ |
697,760 |
|
|
$ |
376,353 |
|
|
$ |
(6,424 |
) |
|
$ |
666,718 |
|
|
Shares awarded under stock compensation plans |
|
|
389 |
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,834 |
|
|
|
- |
|
|
|
- |
|
|
|
1,839 |
|
|
Purchases of treasury stock |
|
|
- |
|
|
|
- |
|
|
|
(1,402 |
) |
|
|
(32,040 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(32,040 |
) |
|
Income tax benefit associated with stock compensation plans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
416 |
|
|
|
- |
|
|
|
- |
|
|
|
416 |
|
|
Fair value of interest rate swap agreements, net of tax benefit of $1,623 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,648 |
) |
|
|
(2,648 |
) |
|
Restricted stock amortization |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,409 |
|
|
|
- |
|
|
|
- |
|
|
|
7,409 |
|
|
Other |
|
|
21 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net income (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
55,253 |
|
|
|
- |
|
|
|
55,253 |
|
|
Dividends ($0.075 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,787 |
) |
|
|
- |
|
|
|
(3,787 |
) |
|
Balance at September 30, 2015 |
|
|
62,457 |
|
|
$ |
625 |
|
|
|
(24,558 |
) |
|
$ |
(433,752 |
) |
|
|
12,029 |
|
|
$ |
121 |
|
|
$ |
707,419 |
|
|
$ |
427,819 |
|
|
$ |
(9,072 |
) |
|
$ |
693,160 |
|
See notes to condensed consolidated financial statements.
6
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2015 |
|
|
2014 |
|
||
|
|
|
(Dollars in thousands) |
|
|||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
55,253 |
|
|
$ |
71,091 |
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment |
|
|
50,948 |
|
|
|
43,042 |
|
|
Provision for bad debt expense |
|
|
1,633 |
|
|
|
331 |
|
|
Other amortization |
|
|
487 |
|
|
|
987 |
|
|
Debt issuance cost amortization |
|
|
1,456 |
|
|
|
1,654 |
|
|
Debt discount amortization, net of premium amortization |
|
|
127 |
|
|
|
43 |
|
|
Stock - based compensation expense |
|
|
7,409 |
|
|
|
6,203 |
|
|
Deferred income taxes |
|
|
16,837 |
|
|
|
21,273 |
|
|
Equity interest in earnings of investee |
|
|
(278 |
) |
|
|
(221 |
) |
|
Asset impairment charges |
|
|
16,698 |
|
|
|
215 |
|
|
Loss (gain) on disposal of dealerships and property and equipment |
|
|
(699 |
) |
|
|
(11,646 |
) |
|
Loss (gain) on exit of leased dealerships |
|
|
1,485 |
|
|
|
(272 |
) |
|
Changes in assets and liabilities that relate to operations: |
|
|
|
|
|
|
|
|
|
Receivables |
|
|
76,888 |
|
|
|
96,778 |
|
|
Inventories |
|
|
(110,732 |
) |
|
|
52,070 |
|
|
Other assets |
|
|
(20,532 |
) |
|
|
(53,589 |
) |
|
Notes payable - floor plan - trade |
|
|
50,413 |
|
|
|
(50,363 |
) |
|
Trade accounts payable and other liabilities |
|
|
(15,953 |
) |
|
|
(22,054 |
) |
|
Total adjustments |
|
|
76,187 |
|
|
|
84,451 |
|
|
Net cash provided by (used in) operating activities |
|
|
131,440 |
|
|
|
155,542 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchase of businesses, net of cash acquired |
|
|
- |
|
|
|
(15,288 |
) |
|
Purchases of land, property and equipment |
|
|
(127,098 |
) |
|
|
(89,930 |
) |
|
Proceeds from sales of property and equipment |
|
|
1,256 |
|
|
|
6,406 |
|
|
Proceeds from sales of dealerships |
|
|
1,250 |
|
|
|
51,391 |
|
|
Distributions from equity investee |
|
|
225 |
|
|
|
400 |
|
|
Net cash provided by (used in) investing activities |
|
|
(124,367 |
) |
|
|
(47,021 |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net (repayments) borrowings on notes payable - floor plan - non-trade |
|
|
(29,194 |
) |
|
|
(101,371 |
) |
|
Borrowings on revolving credit facilities |
|
|
309,409 |
|
|
|
97,847 |
|
|
Repayments on revolving credit facilities |
|
|
(306,163 |
) |
|
|
(88,068 |
) |
|
Proceeds from issuance of long-term debt |
|
|
65,075 |
|
|
|
40,420 |
|
|
Debt issuance costs |
|
|
- |
|
|
|
(2,956 |
) |
|
Principal payments on long-term debt |
|
|
(14,280 |
) |
|
|
(15,134 |
) |
|
Purchases of treasury stock |
|
|
(32,040 |
) |
|
|
(39,536 |
) |
|
Income tax benefit (expense) associated with stock compensation plans |
|
|
416 |
|
|
|
336 |
|
|
Issuance of shares under stock compensation plans |
|
|
1,839 |
|
|
|
2,552 |
|
|
Dividends paid |
|
|
(3,824 |
) |
|
|
(3,963 |
) |
|
Net cash provided by (used in) financing activities |
|
|
(8,762 |
) |
|
|
(109,873 |
) |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(1,689 |
) |
|
|
(1,352 |
) |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
4,182 |
|
|
|
3,016 |
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
2,493 |
|
|
$ |
1,664 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Change in fair value of cash flow hedging instruments (net of tax benefit of $1,623 and |
|
|
|
|
|
|
|
|
|
expense of $1,985 in the nine months ended September 30, 2015 and 2014, respectively) |
|
$ |
(2,648 |
) |
|
$ |
3,238 |
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
Cash paid (received) during the period for: |
|
|
|
|
|
|
|
|
|
Interest, including amount capitalized |
|
$ |
53,694 |
|
|
$ |
54,267 |
|
|
Income taxes |
|
$ |
21,718 |
|
|
$ |
34,278 |
|
See notes to condensed consolidated financial statements.
7
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 and nine months ended September 30, 2015 and 2014, are unaudited and have been prepared in accordance with United States 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, 2014.
Recent Accounting Pronouncements – In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03 to simplify the presentation of debt issuance costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and premiums. The ASU also requires that the amortization of debt issuance costs be reported as interest expense. For public companies, this ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 (early adoption is permitted). The adoption of this ASU will impact the presentation of certain items in Sonic’s consolidated financial position and other disclosures.
Also in April 2015, the FASB issued ASU 2015-05 related to customer’s accounting for fees paid in a cloud computing arrangement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after
December 15, 2015 (early adoption is permitted). Sonic does not expect this ASU to have a significant impact on its consolidated financial position, results of operations or cash flows.
In July 2015, the FASB issued ASU 2015-11 to clarify the subsequent measurement of inventory. This ASU requires an entity to measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The ASU excludes inventory measured using last-in, first-out and the retail inventory method. For public companies, this ASU is effective for fiscal years beginning after December 15, 2016 (early adoption is permitted). Sonic does not expect this ASU to have a significant impact on its consolidated financial position, results of operations or cash flows.
Principles of Consolidation – All of Sonic’s dealership and non-dealership 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. 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 whereby 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. See Note 12, “Commitments and Contingencies,” of the notes to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2014 for further discussion.
A summary of the activity of these operating lease exit accruals consists of the following:
|
|
|
(In thousands) |
|
|
|
Balance at December 31, 2014 |
|
$ |
18,962 |
|
|
Lease exit expense (1) |
|
|
1,485 |
|