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EX-32.2 - EX-32.2 - SONIC AUTOMOTIVE INCsah-ex322_9.htm
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EX-31.2 - EX-31.2 - SONIC AUTOMOTIVE INCsah-ex312_6.htm
EX-31.1 - EX-31.1 - SONIC AUTOMOTIVE INCsah-ex311_10.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2017

OR

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

For the transition period from                      to                     

Commission File Number: 1-13395

 

SONIC AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

56-2010790

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

4401 Colwick Road

Charlotte, North Carolina

 

28211

(Address of principal executive offices)

 

(Zip Code)

(704) 566-2400

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     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     No 

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

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

As of October 23, 2017, there were 31,166,205 shares of Class A common stock and 12,029,375 shares of Class B common stock outstanding.

 

 

 

 


Uncertainty of Forward-Looking Statements and Information

This Quarterly Report on Form 10-Q contains, and written or oral statements made from time to time by us or by our authorized officers may contain, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address our future objectives, plans and goals, as well as our intent, beliefs and current expectations regarding future operating performance, results and events, and can generally be identified by words such as “may,” “will,” “should,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee” and other similar words or phrases.

These forward-looking statements are based on our current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors which may cause actual results to differ materially from our projections include those risks described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and elsewhere in this report, as well as:

 

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;

 

the adverse resolution of one or more significant legal proceedings against us or our franchised dealerships or pre-owned 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.

These forward-looking statements speak only as of the date of this report or when made, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances, except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission.

 

 

 


 

SONIC AUTOMOTIVE, INC.

FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

 

 

  

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

  

 

20

  

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

 

47

  

 

 

 

Item 4.

  

Controls and Procedures

  

 

49

  

 

 

PART II – OTHER INFORMATION

  

 

50

  

 

 

 

Item 1.

  

Legal Proceedings

  

 

50

  

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

 

51

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

 

52

  

 

 

 

 

 

 

 

Item 6.

  

Exhibits

  

 

53

  

 

 

SIGNATURES

  

 

54

  

 

 

 

 

 

 


PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New vehicles

 

$

1,362,301

 

 

$

1,375,144

 

 

$

3,809,302

 

 

$

3,826,178

 

Used vehicles

 

 

659,724

 

 

 

660,974

 

 

 

1,936,088

 

 

 

1,881,514

 

Wholesale vehicles

 

 

43,098

 

 

 

70,522

 

 

 

130,174

 

 

 

153,141

 

Total vehicles

 

 

2,065,123

 

 

 

2,106,640

 

 

 

5,875,564

 

 

 

5,860,833

 

Parts, service and collision repair

 

 

347,717

 

 

 

361,709

 

 

 

1,060,873

 

 

 

1,059,093

 

Finance, insurance and other, net

 

 

92,861

 

 

 

89,579

 

 

 

262,832

 

 

 

254,940

 

Total revenues

 

 

2,505,701

 

 

 

2,557,928

 

 

 

7,199,269

 

 

 

7,174,866

 

Cost of Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New vehicles

 

 

(1,296,063

)

 

 

(1,312,756

)

 

 

(3,622,264

)

 

 

(3,639,500

)

Used vehicles

 

 

(620,579

)

 

 

(621,352

)

 

 

(1,816,076

)

 

 

(1,764,393

)

Wholesale vehicles

 

 

(46,390

)

 

 

(73,029

)

 

 

(136,555

)

 

 

(158,566

)

Total vehicles

 

 

(1,963,032

)

 

 

(2,007,137

)

 

 

(5,574,895

)

 

 

(5,562,459

)

Parts, service and collision repair

 

 

(180,047

)

 

 

(191,706

)

 

 

(550,788

)

 

 

(554,867

)

Total cost of sales

 

 

(2,143,079

)

 

 

(2,198,843

)

 

 

(6,125,683

)

 

 

(6,117,326

)

Gross profit

 

 

362,622

 

 

 

359,085

 

 

 

1,073,586

 

 

 

1,057,540

 

Selling, general and administrative expenses

 

 

(283,974

)

 

 

(282,141

)

 

 

(870,139

)

 

 

(843,721

)

Impairment charges

 

 

(200

)

 

 

(6,089

)

 

 

(3,315

)

 

 

(6,240

)

Depreciation and amortization

 

 

(22,686

)

 

 

(19,928

)

 

 

(65,751

)

 

 

(57,302

)

Operating income (loss)

 

 

55,762

 

 

 

50,927

 

 

 

134,381

 

 

 

150,277

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, floor plan

 

 

(8,882

)

 

 

(6,672

)

 

 

(26,413

)

 

 

(19,797

)

Interest expense, other, net

 

 

(13,028

)

 

 

(13,016

)

 

 

(39,200

)

 

 

(37,560

)

Other income (expense), net

 

 

4

 

 

 

11

 

 

 

(14,490

)

 

 

120

 

Total other income (expense)

 

 

(21,906

)

 

 

(19,677

)

 

 

(80,103

)

 

 

(57,237

)

Income (loss) from continuing operations before taxes

 

 

33,856

 

 

 

31,250

 

 

 

54,278

 

 

 

93,040

 

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

 

 

(14,126

)

 

 

(12,281

)

 

 

(22,254

)

 

 

(36,565

)

Income (loss) from continuing operations

 

 

19,730

 

 

 

18,969

 

 

 

32,024

 

 

 

56,475

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations before taxes

 

 

(481

)

 

 

(1,413

)

 

 

(1,650

)

 

 

(1,513

)

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

 

 

191

 

 

 

555

 

 

 

657

 

 

 

595

 

Income (loss) from discontinued operations

 

 

(290

)

 

 

(858

)

 

 

(993

)

 

 

(918

)

Net income (loss)

 

$

19,440

 

 

$

18,111

 

 

$

31,031

 

 

$

55,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations

 

$

0.45

 

 

$

0.42

 

 

$

0.72

 

 

$

1.23

 

Earnings (loss) per share from discontinued operations

 

 

-

 

 

 

(0.02

)

 

 

(0.02

)

 

 

(0.02

)

Earnings (loss) per common share

 

$

0.45

 

 

$

0.40

 

 

$

0.70

 

 

$

1.21

 

Weighted average common shares outstanding

 

 

43,496

 

 

 

45,118

 

 

 

44,281

 

 

 

45,930

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations

 

$

0.45

 

 

$

0.42

 

 

$

0.72

 

 

$

1.22

 

Earnings (loss) per share from discontinued operations

 

 

(0.01

)

 

 

(0.02

)

 

 

(0.02

)

 

 

(0.02

)

Earnings (loss) per common share

 

$

0.44

 

 

$

0.40

 

 

$

0.70

 

 

$

1.20

 

Weighted average common shares outstanding

 

 

43,811

 

 

 

45,354

 

 

 

44,585

 

 

 

46,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.05

 

 

$

0.05

 

 

$

0.15

 

 

$

0.15

 

 

 

See notes to condensed consolidated financial statements.

1

 


SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

(In thousands)

 

 

Net income (loss)

 

$

19,440

 

 

$

18,111

 

 

$

31,031

 

 

$

55,557

 

 

Other comprehensive income (loss) before taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Change in fair value of interest rate swap and rate cap

        agreements

 

 

747

 

 

 

4,197

 

 

 

2,891

 

 

 

(3,479

)

 

Provision for income tax benefit (expense) related to

   components of other comprehensive income (loss)

 

 

(284

)

 

 

(1,595

)

 

 

(1,099

)

 

 

1,322

 

 

Other comprehensive income (loss)

 

 

463

 

 

 

2,602

 

 

 

1,792

 

 

 

(2,157

)

 

Comprehensive income (loss)

 

$

19,903

 

 

$

20,713

 

 

$

32,823

 

 

$

53,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

2

 


SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

ASSETS

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,379

 

 

$

3,108

 

Receivables, net

 

 

410,945

 

 

 

430,242

 

Inventories

 

 

1,390,053

 

 

 

1,570,701

 

Other current assets

 

 

18,399

 

 

 

26,993

 

Total current assets

 

 

1,832,776

 

 

 

2,031,044

 

Property and Equipment, net

 

 

1,120,811

 

 

 

1,010,380

 

Goodwill

 

 

526,918

 

 

 

472,437

 

Other Intangible Assets, net

 

 

78,350

 

 

 

80,233

 

Other Assets

 

 

55,714

 

 

 

45,242

 

Total Assets

 

$

3,614,569

 

 

$

3,639,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current Liabilities:

 

 

 

 

 

 

 

 

Notes payable - floor plan - trade

 

$

718,959

 

 

$

850,537

 

Notes payable - floor plan - non-trade

 

 

600,379

 

 

 

675,353

 

Trade accounts payable

 

 

102,122

 

 

 

117,740

 

Accrued interest

 

 

11,144

 

 

 

13,265

 

Other accrued liabilities

 

 

239,667

 

 

 

236,982

 

Current maturities of long-term debt

 

 

59,475

 

 

 

43,003

 

Total current liabilities

 

 

1,731,746

 

 

 

1,936,880

 

Long-Term Debt

 

 

1,016,390

 

 

 

839,675

 

Other Long-Term Liabilities

 

 

64,123

 

 

 

61,170

 

Deferred Income Taxes

 

 

79,336

 

 

 

76,447

 

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;

   63,456,698 shares issued and 31,166,205 shares outstanding at

   September 30, 2017; 62,967,061 shares issued and 32,703,865 shares

   outstanding at December 31, 2016

 

 

635

 

 

 

630

 

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

   12,029,375 shares issued and outstanding at September 30, 2017

   and December 31, 2016

 

 

121

 

 

 

121

 

Paid-in capital

 

 

730,638

 

 

 

721,695

 

Retained earnings

 

 

565,563

 

 

 

541,146

 

Accumulated other comprehensive income (loss)

 

 

(470

)

 

 

(2,262

)

Treasury stock, at cost; 32,290,493 Class A common stock shares held

   at September 30, 2017 and 30,263,196 Class A common stock shares

   held at December 31, 2016

 

 

(573,513

)

 

 

(536,166

)

Total Stockholders’ Equity

 

 

722,974

 

 

 

725,164

 

Total Liabilities and Stockholders’ Equity

 

$

3,614,569

 

 

$

3,639,336

 

 

See notes to condensed consolidated financial statements.

 

3

 


SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

(In thousands)

 

Balance at December 31, 2016

 

 

62,967

 

 

$

630

 

 

 

(30,263

)

 

$

(536,166

)

 

 

12,029

 

 

$

121

 

 

$

721,695

 

 

$

541,146

 

 

$

(2,262

)

 

$

725,164

 

Shares awarded under stock compensation plans

 

 

490

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41

 

 

 

-

 

 

 

-

 

 

 

46

 

Purchases of treasury stock

 

 

-

 

 

 

-

 

 

 

(2,027

)

 

 

(37,347

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(37,347

)

Change in fair value of interest rate swap and rate cap agreements, net of tax expense of $1,099

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,792

 

 

 

1,792

 

Restricted stock amortization

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,902

 

 

 

-

 

 

 

-

 

 

 

8,902

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31,031

 

 

 

-

 

 

 

31,031

 

Dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,614

)

 

 

-

 

 

 

(6,614

)

Balance at September 30, 2017

 

 

63,457

 

 

$

635

 

 

 

(32,290

)

 

$

(573,513

)

 

 

12,029

 

 

$

121

 

 

$

730,638

 

 

$

565,563

 

 

$

(470

)

 

$

722,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

4

 


 

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

31,031

 

 

$

55,557

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization of property, plant and equipment

 

 

65,747

 

 

 

57,298

 

Provision for bad debt expense

 

 

657

 

 

 

260

 

Other amortization

 

 

487

 

 

 

487

 

Debt issuance cost amortization

 

 

1,784

 

 

 

1,886

 

Debt discount amortization, net of premium amortization

 

 

157

 

 

 

226

 

Stock-based compensation expense

 

 

8,902

 

 

 

8,394

 

Deferred income taxes

 

 

2,745

 

 

 

8,004

 

Net distributions from equity investee

 

 

17

 

 

 

(123

)

Asset impairment charges

 

 

3,315

 

 

 

6,240

 

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

 

 

(8,594

)

 

 

(245

)

Loss (gain) on exit of leased dealerships

 

 

2,016

 

 

 

1,109

 

Loss (gain) on retirement of debt

 

 

14,607

 

 

 

-

 

Changes in assets and liabilities that relate to operations:

 

 

 

 

 

 

 

 

Receivables

 

 

24,330

 

 

 

85,708

 

Inventories

 

 

191,077

 

 

 

94,910

 

Other assets

 

 

(4,286

)

 

 

63,763

 

Notes payable - floor plan - trade

 

 

(131,578

)

 

 

(130,579

)

Trade accounts payable and other liabilities

 

 

(14,282

)

 

 

(11,362

)

Total adjustments

 

 

157,101

 

 

 

185,976

 

Net cash provided by (used in) operating activities

 

 

188,132

 

 

 

241,533

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of businesses, net of cash acquired

 

 

(76,610

)

 

 

(15,861

)

Purchases of land, property and equipment

 

 

(181,893

)

 

 

(155,060

)

Proceeds from sales of property and equipment

 

 

392

 

 

 

1,050

 

Proceeds from sales of dealerships

 

 

22,578

 

 

 

-

 

Net cash provided by (used in) investing activities

 

 

(235,533

)

 

 

(169,871

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

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

 

 

(74,974

)

 

 

(36,748

)

Borrowings on revolving credit facilities

 

 

253,668

 

 

 

183,275

 

Repayments on revolving credit facilities

 

 

(118,668

)

 

 

(187,478

)

Proceeds from issuance of long-term debt

 

 

288,419

 

 

 

99,592

 

Debt issuance costs

 

 

(4,673

)

 

 

(216

)

Principal payments and repurchase of long-term debt

 

 

(31,194

)

 

 

(25,735

)

Repurchase of debt securities

 

 

(210,914

)

 

 

-

 

Purchases of treasury stock

 

 

(37,347

)

 

 

(97,486

)

Income tax benefit (expense) associated with stock compensation plans

 

 

-

 

 

 

(1,101

)

Issuance of shares under stock compensation plans

 

 

46

 

 

 

9

 

Dividends paid

 

 

(6,691

)

 

 

(6,458

)

Net cash provided by (used in) financing activities

 

 

57,672

 

 

 

(72,346

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

10,271

 

 

 

(684

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

 

3,108

 

 

 

3,625

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

13,379

 

 

$

2,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Change in fair value of interest rate swap and rate cap agreements (net of tax expense of

 

 

 

 

 

 

 

 

$1,099 and benefit of $1,322 in the nine months ended September 30, 2017 and 2016, respectively)

 

$

1,792

 

 

$

(2,157

)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

 

 

Interest, including amount capitalized

 

$

67,523

 

 

$

57,149

 

Income taxes

 

$

30,752

 

 

$

26,922

 

 

 

See notes to condensed consolidated financial statements.


 

5

 


SONIC AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Summary of Significant Accounting Policies

Basis of Presentation The accompanying condensed consolidated financial statements of Sonic Automotive, Inc. and its wholly owned subsidiaries (“Sonic,” the “Company,” “we,” “us” and “our”) for the three and nine months ended September 30, 2017 and 2016 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. 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 consolidated financial statements and related notes thereto included in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09 to amend the accounting guidance on revenue recognition. The amendments in this ASU are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The amendments in this ASU must be applied using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or (ii) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which requires additional footnote disclosures). This ASU is effective for reporting periods beginning after December 15, 2017. Earlier application is permitted only as of reporting periods beginning after December 15, 2016. Sonic plans to adopt this ASU effective January 1, 2018 and anticipates adopting the modified retrospective transition approach. While management is still evaluating the specific financial statement impact and quantitative and qualitative disclosure impact of the provisions of this ASU, management generally expects similar performance obligations to result under this ASU as compared with deliverables and separate units of accounting under current U.S. GAAP and does not expect the adoption of this standard to have a material impact on its financial statements, revenue recognition practices or internal controls. As a result, management expects the amounts and timing of revenue recognition to generally remain the same, with the exception of the timing of revenue recognition related to service and collision repair orders that are incomplete as of a reporting date and certain finance and insurance income earned in periods subsequent to the completion of the initial performance obligation, neither of which are expected to have a material impact on reported results of operations.

 

In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this ASU require that leases are classified as either finance or operating leases, a right-of-use asset and lease liability is recognized in the statement of financial position, and repayments are classified within operating activiti