x

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

¨

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

Delaware

56-2010790

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

4401 Colwick Road

Charlotte, North Carolina

28211

(Address of principal executive offices)

(Zip Code)

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

·

the number of new and used vehicles sold in the United States as compared to our expectations and the expectations of the market;

·

our ability to generate sufficient cash flows or obtain additional financing to fund our EchoPark^® expansion, our One Sonic-One Experience initiative, capital expenditures, our share repurchase program, dividends on our common stock, acquisitions and general operating activities;

·

our business and growth strategies, including, but not limited to, our EchoPark^® initiative and our One Sonic-One Experience initiative;

·

the reputation and financial condition of vehicle manufacturers whose brands we represent, the financial incentives vehicle manufacturers offer and their ability to design, manufacture, deliver and market their vehicles successfully;

·

our relationships with manufacturers, which may affect our ability to obtain desirable new vehicle models in inventory or complete additional acquisitions;

·

adverse resolution of one or more significant legal proceedings against us or our dealerships or EchoPark^® stores;

·

changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental laws;

·

general economic conditions in the markets in which we operate, including fluctuations in interest rates, employment levels, the level of consumer spending and consumer credit availability;

·

high competition in the automotive retailing industry, which not only creates pricing pressures on the products and services we offer, but also on businesses we may seek to acquire;

·

our ability to successfully integrate potential future acquisitions; and

·

the rate and timing of overall economic recovery or decline.

Page

PART I – FINANCIAL INFORMATION

1

Item 1.

Financial Statements (unaudited)

1

Condensed Consolidated Statements of Income

1

Condensed Consolidated Statements of Comprehensive Income

2

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statement of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

45

PART II – OTHER INFORMATION

46

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 6.

Exhibits

49

Signatures

50

Exhibit Index

51

Three Months Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

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

Revenues:

New vehicles

$

1,286,464

$

1,295,288

$

2,451,034

$

2,497,610

Used vehicles

622,186

658,794

1,220,540

1,252,536

Wholesale vehicles

38,245

41,131

82,620

82,789

Total vehicles

1,946,895

1,995,213

3,754,194

3,832,935

Parts, service and collision repair

351,329

346,164

697,384

669,358

Finance, insurance and other, net

84,088

82,363

165,361

156,963

Total revenues

2,382,312

2,423,740

4,616,939

4,659,256

Cost of Sales:

New vehicles

(1,220,598

)

(1,230,352

)

(2,326,744

)

(2,369,325

)

Used vehicles

(585,217

)

(618,098

)

(1,143,041

)

(1,170,996

)

Wholesale vehicles

(40,084

)

(43,807

)

(85,537

)

(85,673

)

Total vehicles

(1,845,899

)

(1,892,257

)

(3,555,322

)

(3,625,994

)

Parts, service and collision repair

(183,108

)

(175,929

)

(363,162

)

(342,749

)

Total cost of sales

(2,029,007

)

(2,068,186

)

(3,918,484

)

(3,968,743

)

Gross profit

353,305

355,554

698,455

690,513

Selling, general and administrative expenses

(277,204

)

(284,661

)

(561,580

)

(555,523

)

Impairment charges

(151

)

(10,469

)

(151

)

(16,661

)

Depreciation and amortization

(18,905

)

(17,294

)

(37,374

)

(33,703

)

Operating income (loss)

57,045

43,130

99,350

84,626

Other income (expense):

Interest expense, floor plan

(6,690

)

(5,345

)

(13,126

)

(10,123

)

Interest expense, other, net

(12,205

)

(13,054

)

(24,544

)

(26,274

)

Other income (expense), net

6

10

110

100

Total other income (expense)

(18,889

)

(18,389

)

(37,560

)

(36,297

)

Income (loss) from continuing operations before taxes

38,156

24,741

61,790

48,329

Provision for income taxes for continuing operations - benefit (expense)

(15,113

)

(9,649

)

(24,283

)

(18,848

)

Income (loss) from continuing operations

23,043

15,092

37,507

29,481

Discontinued operations:

Income (loss) from discontinued operations before taxes

(362

)

(509

)

(100

)

(1,200

)

Provision for income taxes for discontinued operations - benefit (expense)

141

198

39

468

Income (loss) from discontinued operations

(221

)

(311

)

(61

)

(732

)

Net income (loss)

$

22,822

$

14,781

$

37,446

$

28,749

Basic earnings (loss) per common share:

Earnings (loss) per share from continuing operations

$

0.50

$

0.30

$

0.81

$

0.58

Earnings (loss) per share from discontinued operations

-

(0.01

)

-

(0.01

)

Earnings (loss) per common share

$

0.50

$

0.29

$

0.81

$

0.57

Weighted average common shares outstanding

45,731

50,784

46,340

50,819

Diluted earnings (loss) per common share:

Earnings (loss) per share from continuing operations

$

0.50

$

0.30

$

0.81

$

0.57

Earnings (loss) per share from discontinued operations

-

(0.01

)

(0.01

)

(0.01

)

Earnings (loss) per common share

$

0.50

$

0.29

$

0.80

$

0.56

Weighted average common shares outstanding

45,924

51,093

46,523

51,247

Dividends declared per common share

$

0.05

$

0.025

$

0.10

$

0.05

Three Months Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

(Dollars in thousands)

Net income (loss)

$

22,822

$

14,781

$

37,446

$

28,749

Other comprehensive income (loss) before taxes:

Change in fair value of interest rate swap agreements

(2,798

)

1,439

(7,676

)

(50

)

Provision for income tax benefit (expense) related to

   components of other comprehensive income (loss)

1,063

(547

)

2,916

19

Other comprehensive income (loss)

(1,735

)

892

(4,760

)

(31

)

Comprehensive income (loss)

$

21,087

$

15,673

$

32,686

$

28,718

June 30,

December 31,

2016

2015

(Dollars in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

$

2,419

$

3,625

Receivables, net

313,572

378,520

Inventories

1,590,216

1,599,581

Assets held for sale

6,347

-

Other current assets

54,681

101,386

Total current assets

1,967,235

2,083,112

Property and Equipment, net

951,838

886,902

Goodwill

471,493

471,493

Other Intangible Assets, net

80,555

80,876

Other Assets

40,104

39,998

Total Assets

$

3,511,225

$

3,562,381

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Notes payable - floor plan - trade

$

787,130

$

893,466

Notes payable - floor plan - non-trade

655,282

625,367

Trade accounts payable

129,944

131,204

Accrued interest

12,874

12,640

Other accrued liabilities

219,546

218,507

Current maturities of long-term debt

29,459

33,437

Total current liabilities

1,834,235

1,914,621

Long-Term Debt

848,802

781,145

Other Long-Term Liabilities

70,517

64,245

Deferred Income Taxes

82,743

73,322

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;

   62,955,392 shares issued and 33,418,455 shares outstanding at

   June 30, 2016; 62,586,381 shares issued and 37,910,938 shares

   outstanding at December 31, 2015

630

626

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

   12,029,375 shares issued and outstanding at June 30, 2016

   and December 31, 2015

121

121

Paid-in capital

718,390

713,118

Retained earnings

489,878

457,010

Accumulated other comprehensive income (loss)

(10,392

)

(5,632

)

Treasury stock, at cost; 29,536,937 Class A common stock shares held

   at June 30, 2016 and 24,675,443 Class A common stock shares

   held at December 31, 2015

(523,699

)

(436,195

)

Total Stockholders’ Equity

674,928

729,048

Total Liabilities and Stockholders’ Equity

$

3,511,225

$

3,562,381

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, 2015

62,586

$

626

(24,675

)

$

(436,195

)

12,029

$

121

$

713,118

$

457,010

$

(5,632

)

$

729,048

Shares awarded under stock compensation plans

369

4

-

-

-

-

2

-

-

6

Purchases of treasury stock

-

-

(4,862

)

(87,504

)

-

-

-

-

-

(87,504

)

Income tax expense associated with stock compensation plans

-

-

-

-

-

-

(364

)

-

-

(364

)

Change in fair value of interest rate swap agreements, net of tax benefit of $2,916

-

-

-

-

-

-

-

-

(4,760

)

(4,760

)

Restricted stock amortization

-

-

-

-

-

-

5,634

-

-

5,634

Other

-

-

-

-

-

-

-

-

-

-

Net income (loss)

-

-

-

-

-

-

-

37,446

-

37,446

Dividends declared ($0.10 per share)

-

-

-

-

-

-

-

(4,578

)

-

(4,578

)

Balance at June 30, 2016

62,955

$

630

(29,537

)

$

(523,699

)

12,029

$

121

$

718,390

$

489,878

$

(10,392

)

$

674,928

Six Months Ended June 30,

2016

2015

(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

37,446

$

28,749

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

Depreciation and amortization of property, plant and equipment

37,371

33,701

Provision for bad debt expense

248

1,425

Other amortization

325

325

Debt issuance cost amortization

1,250

966

Debt discount amortization, net of premium amortization

150

83

Stock-based compensation expense

5,634

4,743

Deferred income taxes

11,192

8,396

Net distributions from equity investee

35

82

Asset impairment charges

151

16,661

Loss (gain) on disposal of dealerships and property and equipment

(149

)

(1,202

)

Loss (gain) on exit of leased dealerships

(139

)

707

Changes in assets and liabilities that relate to operations:

Receivables

70,389

65,824

Inventories

9,365

(129,446

)

Other assets

46,560

(4,163

)

Notes payable - floor plan - trade

(106,336

)

51,905

Trade accounts payable and other liabilities

(6,773

)

(24,422

)

Total adjustments

69,273

25,585

Net cash provided by (used in) operating activities

106,719

54,334

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of land, property and equipment

(108,970

)

(82,922

)

Proceeds from sales of property and equipment

887

775

Proceeds from sales of dealerships

-

1,250

Net cash provided by (used in) investing activities

(108,083

)

(80,897

)

CASH  FLOWS FROM FINANCING ACTIVITIES:

Net (repayments) borrowings on notes payable - floor plan - non-trade

29,915

(5,217

)

Borrowings on revolving credit facilities

155,208

238,672

Repayments on revolving credit facilities

(159,411

)

(229,674

)

Proceeds from issuance of long-term debt

76,409

46,075

Debt issuance costs

(293

)

-

Principal payments on long-term debt

(9,633

)

(9,149

)

Purchases of treasury stock

(87,504

)

(14,766

)

Income tax benefit (expense) associated with stock compensation plans

(364

)

416

Issuance of shares under stock compensation plans

6

2,132

Dividends paid

(4,175

)

(2,556

)

Net cash provided by (used in) financing activities

158

25,933

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(1,206

)

(630

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

3,625

4,182

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

2,419

$

3,552

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:

Change in fair value of cash flow interest rate swap agreements (net of tax benefit of $2,916 and

$19 in the six months ended June 30, 2016 and 2015, respectively)

$

(4,760

)

$

(31

)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid (received) during the period for: