Mail Stop 3561
July 20, 2005
Mr. Corey E. Shaker
President and Chief Executive Officer
Hometown Auto Retailers, Inc.
1309 South Main Street
Waterbury, CT 06706
RE: Hometown Auto Retailers, Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
Filed March 24, 2005
Form 10-Q for Fiscal Quarter Ended March 31, 2005
File No. 0-24669
Dear Mr. Shaker:
We have reviewed the responses in your letter dated July 7,
2005
and have the following additional comments. Where indicated, we
think you should revise your document in response to these
comments.
If you disagree, we will consider your explanation as to why our
comment is inapplicable or a revision is unnecessary. Please be
as
detailed as necessary in your explanation. After reviewing this
information, we may raise additional comments.
We welcome any questions you may have about our comments or
on
any other aspect of our review. Feel free to call us at the
telephone numbers listed at the end of this letter.
Form 10-K for Fiscal Year Ended December 31, 2004
2. Summary of Significant Accounting Policies, page F-7
Segments, page F-12
1. We have reviewed your response to comment 10 in our letter
dated
June 13, 2005, noting that it appears you have identified each of
your dealerships, as well as your free-standing service center, as
an
operating segment under paragraph 10 of SFAS 131. Please
substantiate your claim that each of your operating segments has
similar economic characteristics. Begin by telling us the measure
of
profit or loss (e.g., operating income as a percentage of sales)
you
use to evaluate the performance of your operating segments. For
each
of the last five fiscal years, please provide us with that
quantitative performance measure for each of your operating
segments
and demonstrate how that information supports the similarity of
the
economic characteristics of your operating segments. In addition,
please tell us how you intend to present your segment information
going forward considering your pending Exchange Agreement with
Shaker
Auto Group. Notwithstanding the preceding, please provide the
disclosures required by paragraph 26 of SFAS 131 including the
number
of operating segments you have identified.
2. We have reviewed your response to comment 14 in our letter
dated
June 13, 2005. We have the following additional comments that
require an amendment to your financial statements:
* It is our understanding that Ford Motor Credit Corporation
("FMMC")
directly pays the manufacturers from which you purchase your new
vehicle inventory. We also assume that you do not have the
discretion to receive these funds prior to disbursement to the
manufacturers. Please note that, under paragraph 23a. of SFAS 95,
payments to suppliers to acquire goods for resale should be
classified as operating activities. Therefore, we believe that
payments made to FMCC related to unaffiliated manufacturers, for
example, Toyota, should be classified in financing activities.
See
AICPA TIS Section 1300.16 for further guidance. We also assume
that the minority, or possibly none, of your used vehicle
inventories
are financed through or obtained from your manufacturers and that
you
receive access to this cash prior to disbursement. Therefore, we
believe these used vehicle financings, including borrowings and
repayments, should also be classified in cash flows from financing
activities. Please confirm if our used vehicle assumptions are
correct. Please amend your filing to restate your statement of
cash
flows by (1) classifying payments made to FMCC related to
purchases
of new vehicle inventory from unaffiliated manufacturers as
financing
activities, and (2) if applicable, classifying borrowings and
repayments used in the procurement of used vehicle inventory as
financing activities.
? Rule 5-02(19)(a) of Regulation S-X requires separate and
clear
display of amounts payable to trade creditors and amounts payable
for
borrowings. Therefore, please restate your balance sheet to
reflect
separately the portion of the notes payable to FMCC for purchases
of
new vehicles from affiliated manufacturers, Ford, Lincoln and
Mercury, as notes payable to trade creditors. Notes payable to
FMCC
for purchases of new vehicle inventory from unaffiliated
manufacturers should be classified as borrowings.
? Please amend your footnote disclosure to clarify the revised
balance sheet and statement of cash flows presentation and to
further
describe the mechanics of your floor plan notes payable
arrangements,
including how cash disbursements are processed and if you have
discretion to receive cash directly from FMCC.
10. Capital Structure and Per Share Data, page F-20
3. We have reviewed your response to comment 16 in our letter
dated
June 13, 2005. Please note that Item 10(e)(1)(ii)(B) of
Regulation
S-K prohibits adjusting a non-GAAP performance measure to
eliminate
items identified as non-recurring, infrequent or unusual when the
nature of the charge or gain is such that it is reasonably likely
to
recur within two years or there was a similar charge or gain
within
the prior two years. Since you recorded tax benefits in fiscal
years
2004 and 2003 and likely will record gains or losses upon
consummation of the Vergopia settlement agreement and/or your
exchange agreement with the Shaker Auto Group, it appears
presentation of these per share measures are not permitted by
Regulation S-K. We believe the impact of these items on your
results
of operations can be adequately explained in detail within MD&A
and
the notes to your consolidated financial statements without
presentation of non-GAAP per share measures.
As appropriate, please amend your filing and respond to
these comments within 10 business days or tell us when you will
provide us with a response. Detailed response letters greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your responses to our comments.
You may contact Andrew Blume at (202) 551-3254 if you
have
questions regarding comments on the financial statements and
related
matters. Please contact me at (202) 551-3843 with any other
questions.
Sincerely,
George F. Ohsiek, Jr.
Branch Chief
Mr. Corey E. Shaker
Hometown Auto Retailers, Inc.
July 20, 2005
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