Exhibit 99.4
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(In Thousands except per share amounts)
Historical
--------------------------------
Sonic Clearwater Pro Forma Pro Forma for
Automotive, Inc. Dealerships Adjustments the Acquisition
----------------- ------------ ------------- ----------------
REVENUES:
Vehicle Sales $ 467,858 $ 108,812 $ - $ 576,670
Parts, service and collision repair 57,537 10,500 - 68,037
Finance and insurance 10,606 2,587 94 (9) 13,287
-------------- ------------ ----------- ------------
Total revenues 536,001 121,899 94 657,994
COST OF SALES 471,253 105,786 - 577,039
-------------- ------------ ----------- ------------
GROSS PROFIT 64,748 16,113 94 80,955
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 48,520 12,226 864 (1) 60,871
(594)(2)
(145)(3)
DEPRECIATION AND AMORTIZATION 1,322 390 (143)(1) 1,762
(133)(4)
326 (5)
-------------- ------------ ----------- ------------
OPERATING INCOME 14,906 3,497 (81) 18,322
OTHER INCOME AND EXPENSE:
Interest expense, floor plan 8,007 779 (83)(6) 8,703
Interest expense, other 1,199 721 (557)(1) 2,306
(174)(7)
1,117 (8)
Gain on sale of marketable equity securities 298 - - 298
Other income - 194 - 194
-------------- ------------ ----------- ------------
Total other expense 8,908 1,306 303 10,517
-------------- ------------ ----------- ------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 5,998 2,191 (384) 7,805
INCOME TAX PROVISION 2,249 - 845 (10) 2,946
(148)(11)
-------------- ------------ ----------- ------------
INCOME BEFORE MINORITY INTEREST 3,749 2,191 (1,081) 4,859
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY 47 - - 47
-------------- ------------ ----------- ------------
NET INCOME $ 3,702 $ 2,191 $ (1,081) $ 4,812
============== ============ =========== ============
BASIC NET INCOME PER SHARE $ 0.53 $ 0.69
============== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 6,949 6,949
============== ============
DILUTED NET INCOME PER SHARE $ 0.53 $ 0.67
============== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 6,949 7,204
============== ============
See notes to pro forma statements
5
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
ADJUSTMENT
- ----------
(1) Reflects the Company's estimate of the increase in rent expense
related to lease agreements entered into with the seller of the
Clearwater Dealerships for the dealerships' real property that will
not be acquired by the Company, and decreases in depreciation expense
(based on useful lives ranging from 31.5 to 39 years) and interest
expense related to mortgage indebtedness encumbering such property.
The related mortgage indebtedness was approximately $5.90 million with
interest charged at rates ranging from 9.0% to 9.5% annually.
(2) The decrease in selling, general and administrative expenses reflects
the elimination of salaries paid to the owners of the Clearwater
Dealerships who will no longer be involved in the operation of the
dealerships as a direct result of the acquisition of the Clearwater
Dealerships.
(3) Reflects the net decrease in selling, general and administrative
expenses related to the net reduction in salaries and fringe benefits
of owners and employees of the Clearwater Dealerships who will become
employees of the Company, consistent with reduced salaries pursuant to
certain employees' employment agreements with the Company.
(4) Reflects the elimination of amortization expense related to goodwill
that arose in the acquisition of the Clearwater Dealerships by the
previous owner, assuming that the acquisition giving rise to goodwill
was consummated on January 1, 1997.
(5) Reflects the amortization over an amortization period of 40 years of
approximately $13.03 million in goodwill resulting from the
acquisition of the Clearwater Dealerships which was assumed to have
occurred on January 1, 1997. Subject to the Agreement, the Company
will be required to make an additional payment, not to exceed $1.75
million, equal to 50% of the pre-tax earnings of the Clearwater
Dealerships for fiscal year ended December 31, 1998. Goodwill was
calculated based on a $1.66 million earnout payment based on the pro
forma results of operations for 1997 and the earnings to date for 1998
of the Clearwater Dealerships. The amount of the earnout payment and
the corresponding goodwill actually recorded may be higher or lower
than the amount estimated here, depending on the actual fiscal year
1998 pre-tax earnings of the Clearwater Dealerships.
(6) Reflects the decrease in floor plan interest expense resulting from
the refinancing of the floor plan notes payable arrangements of the
Clearwater Dealerships to the Company's corporate contractual master
floor plan agreement with Ford Motor Credit Company, which requires
placement of acquired dealerships floor plan financing with Ford Motor
Credit Company. The average interest rate under the master agreement
is approximately 7.6% compared to the 8.5% interest rate for the
Clearwater Dealerships.
(7) Reflects the decrease in other interest expense resulting from the
Company not assuming the Clearwater Dealerships' notes payable to
affiliates amounting to $500,000 at an interest rate of 10.0% and
other long-term obligations amounting to $1.31 million at interest
rates ranging from 9.0% to 10.0%.
(8) Reflects the increase in interest expense associated with borrowings
amounting to $13.15 million at an interest rate of 8.5% made under the
Company's Amended and Restated Credit Agreement with Ford Motor Credit
Company to provide the funds necessary for the acquisition of the
Clearwater Dealerships.
6
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
ADJUSTMENT
- ----------
(9) Reflects finance and insurance revenues generated by the Clearwater
Dealerships that were paid directly to the dealership owners or
wholly-owned management companies and excluded from revenue in the
historical statements of the Clearwater Dealerships.
(10) The Clearwater Dealerships were not subject to federal and state
income taxes because they were organized as S corporations during the
period indicated. This adjustment reflects an increase in the federal
and state income tax provision as if the Clearwater Dealerships had
been taxable at the combined statutory income tax rate of 38.6%. Upon
completion of the Acquisition, this entity that has historically not
been subject to corporate income tax will thereafter be subject to
federal and state income tax as a C corporation.
(11) Reflects the net decrease in the provision for income taxes resulting
from adjustments (1) through (9) above, computed using an effective
income tax rate of 38.6%.
7
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
(In Thousands except per share amounts)
Historical
--------------------------------
Sonic Clearwater Pro Forma Pro Forma for
Automotive, Inc. Dealerships Adjustments the Acquisition
----------------- ------------ ------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,304 $ 2,065 $ - $ 20,369
Marketable Equity Securities 270 - - 270
Receivables 19,784 1,138 - 20,922
Inventories 156,514 9,215 - 165,729
Deferred income taxes 405 - - 405
Due from affiliates 1,047 - - 1,047
Other current assets 1,048 282 - 1,330
--------------- ----------- ------------ ------------
Total current assets 197,372 12,700 - 210,072
PROPERTY AND EQUIPMENT, NET 19,081 7,829 (7,466)(2) 19,444
GOODWILL, NET 74,362 1,736 13,025 (1) 87,387
(1,736)(3)
OTHER ASSETS 635 - - 635
--------------- ----------- ------------ ------------
TOTAL ASSETS $ 291,450 $ 22,265 $ 3,823 $ 317,538
=============== =========== ============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan $ 133,236 $ 8,321 $ - $ 141,557
Trade accounts payable 6,612 789 - 7,401
Accrued interest 1,071 - - 1,071
Other accrued liabilities 10,748 466 - 11,214
Payable to affiliates 445 500 (500)(4) 445
Current maturities of long term debt 584 1,090 (1,090)(2)(6) 584
--------------- ----------- ------------ ------------
Total current liabilities 152,696 11,166 (1,590) 162,272
LONG-TERM DEBT 38,640 6,117 (6,117)(2)(6) 51,786
13,146 (5)
PAYABLE TO COMPANY'S CHAIRMAN 5,500 - - 5,500
PAYABLE TO AFFILIATES 4,394 - - 4,394
DEFERRED INCOME TAXES 1,079 - - 1,079
INCOME TAX PAYABLE 4,776 - - 4,776
STOCKHOLDERS' EQUITY
Preferred stock - - 3,366 (1) 3,366
Class A Common Stock 50 - - 50
Class B Common Stock 63 - - 63
Common Stock of Acquired Entity - 1,202 (1,202)(1) -
Paid in capital 68,045 1,210 (1,210)(1) 68,045
Retained earnings 16,186 2,570 (2,570)(1) 16,186
Unrealized gain on marketable equity securities 21 - - 21
--------------- ----------- ------------ ------------
Total stockholders' equity 84,365 4,982 (1,616) 87,731
--------------- ----------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 291,450 $ 22,265 $ 3,823 $ 317,538
=============== =========== ============ ============
See notes to pro forma statements
8
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
ADJUSTMENT
- ----------
(1) Reflects the preliminary allocation of the aggregate purchase price of
the Clearwater Dealerships based on the estimated fair value of the
net assets acquired. Because the carrying amount of the net assets
acquired, which primarily consist of accounts receivable, inventory,
equipment, and floor plan indebtedness, approximates their fair value,
management believes the application of purchase accounting will not
result in an adjustment to the carrying amount of those net assets.
The amount of goodwill and corresponding amortization expense actually
recorded may ultimately be different from the amounts estimated here,
depending upon the actual fair value of tangible net assets acquired
at closing, changes in the estimated fair value of the shares of
preferred stock issued as determined by an independent appraisal which
has not yet been finalized, as well as the actual earnout payment made
by the Company (see note 7). The estimated purchase price allocation
consists of the following:
Estimated total consideration:
Cash $ 11,487,000
Preferred stock 3,366,000
Earnout payment (7) 1,659,000
--------------
16,512,000
Less estimated fair value of tangible
net assets acquired 3,487,000
--------------
Excess of purchase price over fair value
of net tangible assets acquired $ 13,025,000
==============
(2) Reflects the real property of the Clearwater Dealerships, which is not
being acquired in the Acquisition and the related mortgage
indebtedness in the amount of $5.90 million.
(3) Reflects the elimination of goodwill that arose in the acquisition of
the Clearwater Dealerships by the previous owner.
(4) Reflects the Payable to a Clearwater Dealership stockholder that
will not be assumed by the Company.
(5) Reflects borrowings amounting to $13.15 million made under the
Company's Amended and Restated Credit Agreement with Ford Motor Credit
Company to provide a portion of the funds necessary for the
acquisition of the Clearwater Dealerships.
(6) Reflects the capital loans of the Clearwater Dealerships amounting to
$1.31 million which will not be assumed by the Company.
(7) Subject to the Agreement, the Company will be required to make an
additional payment, not to exceed $1.75 million, equal to 50% of the
pre-tax earnings of the Clearwater Dealerships for fiscal year ended
December 31, 1998. The amount of the earnout payment recorded was
estimated based on the pro forma results of operations for 1997 and
the earnings to date for 1998 of the Clearwater Dealerships. The
amount of the earnout payment and the corresponding goodwill actually
recorded may be higher or lower than the amount estimated here,
depending on the actual fiscal year 1998 pre-tax earnings of the
Clearwater Dealerships.