SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
Commission file number: 000-24669
HOMETOWN AUTO RETAILERS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 06-1501703
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
774 Straits Turnpike
Watertown, CT 06795
Address of principal executive offices) (Zip code)
(860) 945-6900
(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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes|_| No |X|
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding
- -------------------------------------------------------- --------------
Common Stock, Class A, par value $.001 per share 3,870,137
Common Stock, Class B, par value $.001 per share 3,519,252
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Balance Sheets at June 30, 2004
(Unaudited) and December 31, 2003 (Audited) 3
Unaudited Consolidated Statements of Operations
for the three and six months ended June 30, 2004
and 2003 4
Unaudited Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 2004 and 2003 5
Unaudited Consolidated Statements of Cash Flows for the six
months ended June 30, 2004 and 2003 6
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 25
ITEM 4. Controls and Procedures 25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 26
ITEM 4. Submission of Matters to a Vote of Security Holders 26
ITEM 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
CERTIFICATIONS 28
FORWARD LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of Hometown Auto Retailers, Inc. ("Hometown") to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The forward-looking statements
included herein are based on current expectations that involve numerous risks
and uncertainties. Hometown's plans and objectives are based, in part, on
assumptions involving the continued expansion of business. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of Hometown. Although Hometown believes that its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this Report will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
statements, the inclusion of such information should not be regarded as a
representation by Hometown or any other person that the objectives and plans of
Hometown will be achieved. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the factors set forth herein under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
2
HOMETOWN AUTO RETAILERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, December 31,
ASSETS 2004 2003
(Unaudited)
-------- --------
Current Assets:
Cash and cash equivalents $ 7,082 $ 5,639
Accounts receivable, net 5,871 6,058
Inventories, net 49,791 37,774
Prepaid expenses and other current assets 640 625
Deferred and prepaid income taxes 1,416 1,349
-------- --------
Total current assets 64,800 51,445
Property and equipment, net 13,906 12,678
Other assets 1,085 1,141
-------- --------
Total assets $ 79,791 $ 65,264
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Floor plan notes payable $ 50,558 $ 38,003
Accounts payable and accrued expenses 5,815 5,798
Current maturities of long-term debt and capital lease obligations 1,155 996
Deferred revenue 916 609
-------- --------
Total current liabilities 58,444 45,406
Long-term debt and capital lease obligations 12,900 12,076
Long-term deferred income taxes 125 125
Other long-term liabilities and deferred revenue 802 729
-------- --------
Total liabilities 72,271 58,336
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, Class A, $.001 par value, 12,000,000 shares
authorized, 3,870,137 and 3,655,853 shares issued and outstanding,
respectively 4 4
Common stock, Class B, $.001 par value, 3,760,000 shares
authorized, 3,519,252 shares issued and outstanding 3 3
Additional paid-in capital 30,017 29,760
Accumulated deficit (22,504) (22,839)
-------- --------
Total stockholders' equity 7,520 6,928
-------- --------
Total liabilities and stockholders' equity $ 79,791 $ 65,264
======== ========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues
New vehicle sales $ 44,776 $ 50,952 $ 85,891 $ 86,882
Used vehicle sales 15,780 18,739 32,690 35,133
Parts and service sales 6,155 6,219 12,114 12,435
Other, net 2,011 2,193 3,905 3,973
----------- ----------- ----------- -----------
Total revenues 68,722 78,103 134,600 138,423
Cost of sales
New vehicle 41,960 47,668 80,315 81,228
Used vehicle 14,318 16,945 29,562 31,763
Parts and service 2,813 2,711 5,572 5,633
----------- ----------- ----------- -----------
Total cost of sales 59,091 67,324 115,449 118,624
----------- ----------- ----------- -----------
Gross profit 9,631 10,779 19,151 19,799
Selling, general and administrative expenses 8,466 9,109 17,087 17,555
----------- ----------- ----------- -----------
Income from operations 1,165 1,670 2,064 2,244
Interest income 37 7 81 14
Interest (expense) (884) (799) (1,685) (1,577)
Other income 1 938 3 951
Other (expense) -- -- (4) (3)
----------- ----------- ----------- -----------
Pre-tax income 319 1,816 459 1,629
Provision for income taxes 86 733 124 667
----------- ----------- ----------- -----------
Net income
$ 233 $ 1,083 $ 335 $ 962
=========== =========== =========== ===========
Earnings per share, basic $ 0.03 $ 0.15 $ 0.05 $ 0.13
=========== =========== =========== ===========
Earnings per share, diluted $ 0.03 $ 0.15 $ 0.05 $ 0.13
=========== =========== =========== ===========
Weighted average shares outstanding, basic 7,191,588 7,175,105 7,183,347 7,175,105
Weighted average shares outstanding, diluted 7,324,514 7,175,105 7,397,886 7,175,105
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Class A Class B Retained
Common Stock Common Stock Additional Earnings Total
---------------------- ----------------------- Paid-in (Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit) Equity
-------- -------- -------- -------- -------- -------- --------
Balance at
December 31, 2002 3,564 $ 3 3,611 $ 4 $ 29,760 $(25,217) $ 4,550
Conversion of Class B
Common to Class A Common 1 -- (1) -- -- -- --
Net income -- -- -- -- -- 962 962
-------- -------- -------- -------- -------- -------- --------
Balance at
June 30, 2003 3,565 $ 3 3,610 $ 4 $ 29,760 $(24,255) $ 5,512
======== ======== ======== ======== ======== ======== ========
Balance at
December 31, 2003 3,656 $ 4 3,519 $ 3 $ 29,760 $(22,839) $ 6,928
Exercise of Warrants 214 -- -- -- 257 257
Net income -- -- -- -- -- 335 335
-------- -------- -------- -------- -------- -------- --------
Balance at
June 30, 2004 3,870 $ 4 3,519 $ 3 $ 30,017 $(22,504) $ 7,520
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
HOMETOWN AUTO RETAILERS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Six Months
ended June 30,
----------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 335 $ 962
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 628 691
(Gain) loss on sale/disposal of sales and service franchise and
property and equipment 4 (939)
Deferred income taxes 124 633
Changes in assets and liabilities:
Accounts receivable, net 187 (2,113)
Inventories, net (11,559) 1,605
Prepaid expenses and other current assets (15) (63)
Prepaid taxes (191) (260)
Other assets 12 21
Floor plan notes payable 12,555 (6)
Accounts payable and accrued expenses 17 1,304
Deferred revenue 307 211
Other long-term liabilities and deferred revenue 73 (17)
-------- --------
Net cash provided by operating activities 2,477 2,029
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,684) (442)
Proceeds from sale of sales and service franchise and property and
equipment -- 942
-------- --------
Net cash provided by (used in) investing activities (1,684) 500
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt and capital lease obligations (957) (1,264)
Proceeds from long-term borrowings 1,350 39
Exercise of warrants 257 --
-------- --------
Net cash provided by (used in) financing activities 650 (1,225)
Net increase in cash and cash equivalents 1,443 1,304
CASH AND CASH EQUIVALENTS, beginning of period 5,639 3,624
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 7,082 $ 4,928
======== ========
Cash paid for - Interest $ 1,630 $ 1,557
Cash paid for - Taxes $ 191 $ 260
Purchases financed by capital lease obligations $ 590 $ 579
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
HOMETOWN AUTO RETAILERS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Business of Hometown Auto Retailers, Inc. ("Hometown" or the "Company")
Hometown sells new and used cars and light trucks, provides maintenance
and repair services, sells replacement parts and provides related financing,
insurance and service contracts through 9 franchised dealerships, 1 stand-alone
used car facility and 1 stand-alone service facility, located in New Jersey, New
York, Connecticut, Massachusetts and Vermont. Hometown's dealerships offer 9
American and Asian automotive brands including Chevrolet, Chrysler, Dodge, Ford,
Jeep, Lincoln, Mazda, Mercury and Toyota.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated balance sheet as of June 30, 2004, the
consolidated statements of operations for the three and six months ended June
30, 2004 and 2003, the consolidated statements of stockholders' equity and the
consolidated statements of cash flows for the six months ended June 30, 2004 and
2003, are unaudited. The consolidated financial statements include all
significant majority-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments necessary to present fairly
the financial position, results of operations and cash flows for the interim
periods were made. Certain reclassifications have been made to the prior year
amounts to conform to the current year presentation. Due to seasonality and
other factors, the results of operations for interim periods are not necessarily
indicative of the results that will be realized for the entire year.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, were omitted. Accordingly, these consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 2003, which are included in
Hometown's filing of its annual report on Form 10-K.
The financial statements have been prepared in conformity with generally
accepted accounting principles and, accordingly, include amounts based on
estimates and judgments of management. Actual results could differ from those
estimates.
Stock-based Compensation
At June 30, 2004, Hometown has one stock-based employee compensation plan,
the 1998 Stock Option Plan (the "Stock Option Plan"). As allowed by SFAS 148,
Hometown has elected not to use one of the alternative methods of transition
available for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Hometown accounts for this plan under the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
or greater than the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and earnings per
share if the company had applied the fair value recognition provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", to stock-based
employee compensation.
7
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
(in thousands)
Net income, as reported $ 233 $ 1,083 $ 335 $ 962
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (1) (7) (6) (14) (12)
--------- --------- --------- ---------
Pro forma net income $ 226 $ 1,077 $ 321 $ 950
========= ========= ========= =========
Earnings per share:
Basic, as reported $ 0.03 $ 0.15 $ 0.05 $ 0.13
Basic, pro forma $ 0.03 $ 0.15 $ 0.04 $ 0.13
Diluted, as reported $ 0.03 $ 0.15 $ 0.05 $ 0.13
Diluted, pro forma $ 0.03 $ 0.15 $ 0.04 $ 0.13
(1) All awards refer to awards granted, modified, or settled in fiscal periods
since plan inception in 1998; that is, awards for which the fair value was
required to be measured under Statement 123.
New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. The objective of this interpretation is to provide
guidance on how to identify a variable interest entity ("VIE") and determine
when the assets, liabilities, non-controlling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity will need to
consolidate the entity if the company's interest in the VIE is such that the
company will absorb a majority of the VIE's expected losses and/or receive a
majority of the entity's expected residual returns, if they occur.
Interpretation No. 46 also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. In December 2003,
the FASB completed deliberations of proposed modifications to FIN 46 ("Revised
Interpretations") resulting in multiple effective dates based on the nature as
well as the creation date of the VIE. VIE's created after January 31, 2003, but
prior to January 1, 2004, may be accounted for either based on the original
interpretation or the Revised Interpretations. However, the Revised
Interpretations must be applied no later than Hometown's first quarter of fiscal
2004. VIE's created after January 1, 2004 must be accounted for under the
Revised Interpretations. Special Purpose Entities ("SPE's") created prior to
February 1, 2003 may be accounted for under the original or revised
interpretation's provisions no later than Hometown's first quarter of fiscal
2004. Non-SPE's created prior to February 1, 2003, should be accounted for under
the revised interpretation's provisions no later than Hometown's first quarter
of fiscal 2004. Hometown has not entered into any material arrangements with
VIE's created after January 31, 2003. The adoption of this interpretation did
not have any effect on Hometown's financial statements.
3. EARNINGS PER SHARE
"Basic earnings per share" is computed by dividing net income by the
weighted average common shares outstanding. "Diluted earnings per share" is
computed by dividing net income by the weighted average common shares
outstanding adjusted for the incremental dilution of potentially dilutive
securities. Options and warrants to purchase approximately 829,000 and 1,401,000
shares of common stock were outstanding as of June 30, 2004 and 2003,
respectively. Basic and diluted weighted average shares for the three and six
months ended June 30, 2004 and 2003 are as follows:
8
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Basic, Weighted Average Shares
7,191,588 7,175,105 7,183,347 7,175,105
========= ========= ========= =========
Common Stock Equivalents 132,926 -- 214,539 --
--------- --------- --------- ---------
Diluted, Weighted Average Shares
7,324,514 7,175,105 7,397,886 7,175,105
========= ========= ========= =========
The common stock equivalents are options and warrants whose exercise price
is less than the average market price of the common shares during the period.
For the three and six months ended June 30, 2004, options and warrants to
purchase 549,000 and 133,000 shares, respectively of Hometown common stock were
excluded from the calculation of diluted income per share due to the options and
warrant prices being greater than the average market price of the common shares
during the period. For the three and six months ended June 30, 2003, options and
warrants to purchase 1,401,000 shares of Hometown common stock were excluded
from the calculation of diluted income per share due to the options and warrant
prices being greater than the average market price of the common shares during
the period.
The basic and diluted income per share for the three months ended June 30,
2004 and 2003 is $0.03 and $0.15, respectively. The basic and diluted income per
share for the six months ended June 30, 2004 and 2003 is $0.05 and $0.13,
respectively. The three and six months ended June 30, 2003 includes $0.08 per
share from the gain on sale of a Chrysler/Jeep sales and service franchise in
June 2003.
4. INVENTORIES
New, used and demonstrator vehicles are stated at the lower of cost or
market, determined on a specific unit basis. Parts and accessories are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Inventories, net consist of the following:
6/30/04 12/31/03
------- -------
(in thousands)
New Vehicles $40,508 $28,420
Used Vehicles 7,206 7,255
Parts, accessories and other 2,077 2,099
------- -------
Total Inventories $49,791 $37,774
======= =======
The lower of cost or market reserves were $0.7 million at June 30, 2004
and December 31, 2003.
9
5. INTANGIBLE ASSETS
As of June 30, 2004 and December 31, 2003, Hometown's intangible assets
consisted of the following:
6/30/04 12/31/03
----- -----
(in thousands)
Deferred finance charges $ 272 $ 267
Accumulated amortization (110) (98)
Non-compete agreement 381 381
Accumulated amortization (301) (270)
Franchise Fee 10 10
Accumulated amortization (2) (1)
----- -----
Net intangible assets $ 250 $ 289
===== =====
These assets are included in Other Assets in the consolidated financial
statements.
6. FLOOR PLAN NOTES PAYABLE
Hometown has a floor plan line of credit at each dealership with Ford
Motor Credit Corporation ("FMCC"). The FMCC floor plan agreement provides
financing for vehicle purchases and is secured by and dependent upon new and
used vehicle inventory levels. Maximum availability under the FMCC agreement is
a function of new and used car sales and is not a pre-determined amount.
Hometown is subject to the FMCC standard financing agreement which
provides for floor plan loans for new and used vehicles that have variable
interest rates that increase or decrease based on movements in the prime or
LIBOR borrowing rates. The FMCC agreement has no set maturity date and it is the
intention of Hometown to continue with this financing on an ongoing basis.
7. BUILDING PURCHASE / OTHER INDEBTEDNESS
In June 2004, Hometown exercised an option to buy the building leased by
its Brattleboro, VT. dealership. The purchase price was $1.5 million plus
closing costs. The purchase was financed by a $1.05 million bank loan, a $0.3
million term note held by the seller and $0.15 million in cash. The bank loan is
for 10 years, carries an interest rate of 7.0% for the first five years and is
variable thereafter with monthly payments sufficient to amortize the loan over a
15-year period. After 10-years, the balance of the bank loan will be
renegotiated. The note held by the seller is payable over three years and
carries an interest rate of 10.5%.
8. EXERCISE OF WARRANTS / COMMON STOCK
In connection with a Private Equity Financing in July 2001, Hometown
issued warrants that entitled the holders to purchase up to 487,498 shares of
Class A Common shares at a purchase price of $1.20 per share, exercisable over a
three-year period. In June 2004, 214,284 warrants were exercised for
approximately $257,000 and 214,284 shares of Class A Common shares were issued.
At June 30, 2004, 273,214 warrants remain outstanding. These warrants expired in
July 2004.
10
9. COMMITMENTS AND CONTINGENCIES
Litigation
In May 2001, Hometown's wholly-owned subsidiary Morristown Auto Sales,
Inc. ("Morristown") assigned the lease for the premises, where it was operating
its Lincoln Mercury dealership in Morristown, New Jersey to Crestmont MM, L.P.
(the "Assignee"). On or about July 12, 2002, Morristown received notice from the
landlord that the Assignee had not paid the required monthly rent, maintained
the premises in accordance with the lease, nor provided the required insurance
for the premises. In September 2002, Hometown received notice of a complaint
filed by the landlord against Hometown, Morristown and certain former officers
seeking payment of rent and other obligations through June 2005. In October
2002, Morristown filed a complaint against the Assignee to recover any potential
damages from the Assignee as provided under the lease assignment. The Assignee
has made a claim against Hometown for breach of the assignment agreement and
misrepresentation of the use of the subject property. The Assignee has also
brought a claim against Morristown's president, Hometown's Chief Executive
Officer, for misrepresentation. Total anticipated costs for the remainder of the
lease term, through June 2005, is $540,000 for rent plus certain other costs.
Hometown believes it has meritorious defenses to the claim and cross-claim and
is vigorously defending this action. In addition, the landlord has leased the
premises to another tenant for the period from January 29, 2003 through January
29, 2005 for a total of $240,000, thereby significantly reducing Morristown's
exposure to a damages judgment for lost rent. The landlord has also amended its
complaint to state a claim directly against the assignee. Hometown does not
believe that the eventual outcome of the case will have a material adverse
effect on Hometown's consolidated financial position or results of operations.
On or about February 7, 2001, Salvatore A. Vergopia and Edward A.
Vergopia, former directors and executive officers of Hometown, and Janet
Vergopia, the wife of Salvatore A. Vergopia (the "Vergopias") filed a complaint
in the Superior Court of New Jersey in Bergen County, against Hometown, its
officers and directors, certain holders of its Class B common stock, and certain
other unnamed persons, alleging breach of two employment agreements, wrongful
termination of employment, breach of a stockholders' agreement and certain other
wrongful conduct, including age discrimination and breach of fiduciary duty. The
Vergopias are seeking back pay, front pay, compensatory, consequential and
punitive damages, for an unspecified amount as well as, reinstatement,
injunctive and other legal and equitable relief. Salvatore A. Vergopia and
Edward A. Vergopia have also commenced a second action for defamation against
Hometown and its Chief Executive Officer, which has been consolidated with the
action initially filed.
Litigation counsel has been retained by our insurers to represent us in
this action. A motion has been granted such that only a single shareholder
remains as an individual shareholder defendant. Also, Hometown has filed
counterclaims to recover damages associated with the Vergopias breaches of
certain agreements, as well as breaches of their fiduciary duties. Discovery has
been extended as a result of the Vergopias bringing a fourth amended complaint
to September 24, 2004. A trial date has been set for November 29, 2004.
Hometown and its chief executive officer were served with a third lawsuit
brought by Edward and Salvatore Vergopia claiming defamation and tortious
interference with contract arising out of a letter allegedly sent to one of
Hometown's automobile manufacturers. Since the original filing, the Vergopias
have sought to add Hometown's Regional Vice President - South as an additional
defendant. Litigation counsel has been retained by our insurers to represent us
in this action as well. The suit is in its earliest stages and Hometown's
counsel has removed the third action from New Jersey state court to Federal
court. Discovery has been initiated. Hometown presently believes that this third
action by the Vergopias involves damage claims that are similar to those already
made in the two pending actions in the Superior Court of New Jersey in Bergen
County.
We believe that the Vergopias commenced these actions in response to our
dismissal of both Salvatore A. Vergopia and Edward A. Vergopia from their
officerships and employment positions with us. We believe we have meritorious
defenses and are vigorously defending these actions. Hometown does not believe
that the eventual outcome of the cases will have a material adverse effect on
Hometown's consolidated financial position or results of operations.
11
Universal Underwriters Group ("Universal"), Hometown's insurance provider,
commenced a lawsuit against The Chubb Group of Insurance Companies ("Chubb"),
Hometown's former Director and Officer Liability Insurance provider, Hometown,
certain officers, directors and shareholders of Hometown and the Vergopias
seeking a declaration of its coverage obligations with respect to the suit
brought by the Vergopias discussed above. The suit has been consolidated with
the suit brought by the Vergopias for discovery and case management purposes.
Universal originally acknowledged its obligation to defend and indemnify
Hometown against the Vergopias claims and engaged separate counsel to represent
Hometown and its directors. Universal is now seeking to limit its obligations
under the comprehensive insurance policy as well as require Chubb to share in
defense and indemnity obligations. Hometown originally commenced an action
seeking affirmative declaration of its rights under its policy with Universal,
but allowed this action to be stayed pending a resolution of the action brought
by Universal. Hometown has brought counterclaims against Universal and a
cross-claim for declaratory judgment against Chubb. Hometown maintains that the
insurers are obligated to defend and indemnify on all claims brought by the
Vergopias. Hometown's former counsel and assistant secretary has been added to
the case as a defendant in the action and has made cross-claims against Hometown
demanding indemnification for claims made by the Vergopias against him in the
underlying action. The claims made by the Vergopias against Hometown's former
counsel and assistant secretary have recently been disposed of as the court
granted summary judgment against the Vergopias as to those claims. Discovery is
ongoing on this matter. Hometown believes it has meritorious claims and is
vigorously defending this action and prosecuting its counterclaims and
cross-claims. Hometown does not believe that the eventual outcome of the case
will have a material adverse effect on Hometown's consolidated financial
position or results of operations.
Hometown from time to time may be a defendant in lawsuits arising from
normal business activities. Management reviews pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on Hometown's consolidated
financial position or results of operations.
Guarantees
One of Hometown's dealerships, prior to fiscal 2000, had entered into
various arrangements whereby Hometown guaranteed or partially guaranteed loans
advanced by financial institutions to certain customers. As of June 30, 2004,
one of these loans remains unpaid. This is a vehicle loan, granted by a
financial institution, to a customer of the dealership with below average credit
that has been fully guaranteed by Hometown. The outstanding balance of this loan
at June 30, 2004, is approximately $2,000. No reserve is recorded for this loan,
as it has not been reported delinquent. Should the loan become delinquent,
Hometown would expect to realize proceeds from the sale of the vehicle upon
repossession of such vehicle. The amount of proceeds, if any, is undetermined
due to not knowing its condition.
Hometown will continue to provide a reserve for potential future default
losses associated with the guarantees based on available historical information.
The reserve continues to decrease as the loans are paid off and due to no new
loan guarantees being provided by Hometown to customers with below average
credit.
In connection with the acquisition in 1999 of real estate used by Baystate
Lincoln Mercury, Hometown guaranteed the mortgage debt of Rellum Realty Company.
The 1999 guaranty was given in substitution for a February 1998 guaranty of that
debt by the Muller Group, a subsidiary of Hometown. In the event of default by
Rellum Realty Company, Hometown is required to make the mortgage payments, but
does not take ownership of the property. As of June 30, 2004 the mortgage debt
balance is $4.5 million. Hometown makes annual lease payments of approximately
$864,000 to the landlord. The annual mortgage payments made by the landlord
total approximately $774,000. The mortgage matures March 2013. The lease was
recorded as a capital lease. The capital lease obligation is $4.0 million at
June 30, 2004.
Warranties
12
Hometown's new vehicle sales and certain used vehicle sales have
manufacturer warranties that specify coverage and period. In these instances,
Hometown is reimbursed by the manufacturer for the cost of parts and service on
the vehicle covered by these warranties, as specified by the manufacturer.
Hometown also provides a limited warranty on used vehicles sold at retail. The
warranty period is as agreed upon by the customer and may be subject to a
minimum period as mandated by the state. The typical warranty period ranges up
to three months. Hometown also sells parts and service. Manufacturer parts are
covered by limited warranties, as specified by the manufacturer. Service also
has a limited warranty; whereby the part and certain labor costs are covered
under the limited manufacturer warranty. Also, certain Hometown dealerships
provide a three or five year 100,000-mile limited warranty on new and/or used
vehicles. The cost of this warranty is charged to the cost of sale of the
vehicle. The warranty covers certain parts and service for three or five years
or until the vehicle reaches an odometer reading of 100,000 miles, whichever
comes sooner. The warranty is insured, making the cost of the warranty fixed for
Hometown. The insurance company pays costs associated with the warranty work to
Hometown. An insurance company that is wholly owned by Ford Motor Company
reinsures the insurance policy. If the insurance company were to fail, Hometown
would be responsible for the costs of the service. Hometown has not recorded any
additional reserve for this warranty program.
Hometown records a reserve referred to as "policy" for used vehicle
warranties and the labor portion of service warranties based on available
historical information. At June 30, 2004 and December 31, 2003, Hometown has a
reserve of $172,000 and $175,000, respectively. The reserve is based on the last
three months of used vehicle units sold and the average cost of repairs over the
last twelve months. While Hometown believes its estimated liability for product
warranties is adequate and that the judgment applied is appropriate, the
estimated liability for product warranties could differ materially from future
actual warranty costs.
Balance At Additions To Balance At
Beginning of Costs and End of
Reserve for Policy Work Year Expenses Deductions Quarter
- ---------------------------------------- ---------------- --------------- ------------ -------------
Six Months Ended June 30, 2004 $175,000 $349,000 $(352,000) $172,000
Other revenues generated by sales of extended service plans, finance,
insurance and other do not have any Hometown warranties attached to the sale,
except for certain sales in Connecticut dealerships.
Connecticut dealerships operate under state laws, which make the dealers
responsible for providing warranty service and insurance in the event of default
by the insurance carriers. Accordingly, commissions on insurance and service
contract sales are required to be recognized over the life of the related
insurance product. For these dealerships, Hometown records the revenue as a
liability and amortizes the amount into revenue over a five-year period. At June
30, 2004 and December 31, 2003, Hometown had $1,228,000 and $1,225,000 of
related deferred revenue, respectively. During the six months ended June 30,
2004, these dealerships generated approximately $239,000 of related warranty
service and insurance revenue, which was deferred. During the same period,
approximately $236,000 of deferred revenue was amortized to Other Revenues, net.
At June 30, 2004 and December 31, 2003, Hometown also had other deferred revenue
of $488,000 and $112,000, respectively. The 2004 other deferred revenue of
$488,000, represents the balance of a $500,000 advance on warranty income from
Hometown's Extended Service Plan vendor. It is estimated that this advance will
be earned over 19 months. There were no fees or other costs associated with the
advance.
Franchise Agreements
In July 2004, Toyota Motor Sales, U.S.A., Inc. notified Hometown that the
current Toyota Dealer Agreement was extended through September 18, 2004.
Hometown is currently awaiting receipt of a revised new Toyota Dealer Agreement
and anticipates executing that agreement prior to the expiration of the current
agreement. Previously on March 13, 2003, Hometown was notified by Toyota Motor
Sales, U.S.A., that Hometown must correct certain operational deficiencies or
make substantial progress toward rectifying such deficiencies. Toyota had
previously expressed concerns that the financial resources of the Toyota
dealerships were being used to finance the cash flow deficits of other Hometown
dealerships and that because of this the financial health of the Toyota
dealerships were detrimentally affected by a net working capital deficiency.
Toyota requested and Hometown provided a written action plan and consolidated
financial forecast. Toyota also expressed concerns about the impact of Ford
13
Motor Credit's financing terms upon the Toyota dealerships and the existing
litigation, including the Vergopia's as discussed above in Note 9, Commitments
and Contingencies - Litigation. Hometown developed and implemented plans to
correct the operational deficiencies that would bring Hometown into compliance.
Hometown has obtained written confirmations from Ford Motor Credit in response
to Toyota's requests for information relating to financing arrangements. In
addition, Hometown has improved net working capital through the sale of a
Chrysler/Jeep sales and service franchise in the second quarter of 2003 and
advances on warranty income from Hometown's Extended Service Plan vendor.
Hometown has been in regular contact with Toyota to review the efforts of
Hometown to resolve the deficiencies alleged by Toyota. The two Toyota
dealerships for the fiscal year ended December 31, 2003 had combined revenues of
$105.1 million and pre-tax income before allocation of corporate costs of $2.3
million. Hometown believes that it has corrected the alleged net working capital
deficiency for the Toyota dealerships, that it has alleviated the concerns
expressed by Toyota and that Hometown will enter into a new dealer agreement
with Toyota Motor Sales, U.S.A prior to the expiration of the current dealer
agreement.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is based on the historical financial statements of Hometown Auto
Retailers, Inc. and contains forward-looking statements that involve risks and
uncertainties. Hometown's actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors, as
described under "Risk Factors" as detailed on Hometown's annual report on Form
10-K for the year ended December 31, 2003.
OVERVIEW
Hometown sells new and used cars and light trucks, provides maintenance
and repair services, sells replacement parts and provides related financing,
insurance and service contracts through 9 franchised dealerships, 1 stand-alone
used car facility and 1 stand-alone service facility located in New Jersey, New
York, Connecticut, Massachusetts and Vermont. Hometown's dealerships offer 9
American and Asian automotive brands including Chevrolet, Chrysler, Dodge, Ford,
Jeep, Lincoln, Mazda, Mercury and Toyota.
UNITS
The units sold by category for Hometown for the three and six months ended
June 30, 2004 and 2003, are as follows:
For the three months For the six months
ended June 30, ended June 30,
2004 2003 2004 2003
----- ----- ----- -----
New vehicle 1,655 2,098 3,151 3,466
Used vehicle - retail 781 1,000 1,696 1,936
Used vehicle - wholesale 932 768 1,835 1,380
----- ----- ----- -----
Total units sold 3,368 3,866 6,682 6,782
===== ===== ===== =====
Hometown sold a Chrysler/Jeep sales and service franchise on June 3, 2003.
The units sold by category for Hometown on a same store basis (excluding the
Chrysler/Jeep sales and service franchise for all periods) for the three and six
months ended June 30, 2004 and 2003, are as follows:
For the three months For the six months
ended June 30, ended June 30,
2004 2003 2004 2003
----- ----- ----- -----
New vehicle 1,655 2,068 3,151 3,373
Used vehicle - retail 781 1,000 1,696 1,936
Used vehicle - wholesale 932 768 1,835 1,380
----- ----- ----- -----
Total units sold 3,368 3,836 6,682 6,689
===== ===== ===== =====
15
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2003.
REVENUE
Total revenue decreased $9.4 million, or 12.0% to $68.7 million for three
months ended June 30, 2004 from $78.1 million for three months ended June 30,
2003. Hometown sold a Chrysler/Jeep sales and service franchise on June 3, 2003.
On a same store basis (excluding the Chrysler/Jeep sales and service franchise
for all periods), revenues decreased $8.4 million or 10.9% to $68.7 million for
the three months ended June 30, 2004 from $77.1 million for the three months
ended June 30, 2003. This decrease was primarily due to decreased sales of new
vehicles ($5.3 million) and decreased sales of used vehicles ($2.9 million).
Revenue from the sale of new vehicles decreased $6.2 million, or 12.2% to
$44.8 million for the three months ended June 30, 2004 from $51.0 million for
three months ended June 30, 2003. On a same store basis, revenues decreased $5.3
million, or 10.6% to $44.8 million for the three months ended June 30, 2004 from
$50.1 million for the three months ended June 30, 2003. The decrease is
attributable to a reduction of 413 units sold ($10.0 million) in 2004 compared
to 2003, partially offset by an 11.6% increase in average selling price ($4.7
million). The increase in average selling price is primarily due to truck and
livery sales representing a higher percentage of total sales in 2004 compared to
2003, combined with higher fleet sales in 2003 compared to 2004. The fleet sales
had a lower average selling price than other units sold. The decrease is
primarily from Hometown's Toyota ($3.7 million), Ford ($1.9 million), Chevrolet
($1.4 million), and Mazda ($0.2 million) dealerships, partially offset by
increases at Lincoln Mercury ($1.5 million) and Chrysler/Jeep ($0.4 million).
The decrease at the Toyota dealerships was primarily due a decrease in fleet
sales of $3.9 million due to a decrease of 277 units sold in 2004 compared to
2003. Excluding the decrease in fleet sales, other Toyota sales increased $0.2
million due to a 6.3% increase in the average selling price ($1.0 million),
partially offset by a decrease of 34 units sold in 2004 compared to 2003 ($0.8
million). The decrease at the Ford dealership was primarily due to a decrease of
76 units sold in 2004 compared to 2003 ($2.0 million), partially offset by 2.0%
increase in the average selling price ($0.1 million). The decrease at the
Chevrolet dealership was primarily due to a decrease in fleet sales of $0.8
million due to a decrease of 42 units sold in 2004 compared to 2003. Excluding
the decrease in fleet sales, other Chevrolet sales decreased $0.6 million due to
a decrease of 31 units sold in 2004 compared to 2003 ($0.7 million), partially
offset by a 2.7% increase in the average selling price ($0.1 million). The
decrease at the Mazda dealership was primarily due to a decrease of 11 units
sold in 2004 compared to 2003 ($0.2 million). The increase at the Lincoln
Mercury dealerships was primarily due to an increase of 94 livery units sold in
2004 compared to 2003 ($3.7 million), partially offset by a decrease of other
sales of $2.2 million due to a decrease of 47 units sold in 2004 compared to
2003 ($1.7 million) combined with a 5.5% decrease in the average selling price
($0.5 million). The Chrysler/Jeep increase was primarily due to an additional 11
units sold ($0.3 million) in 2004 compared to 2003, combined with a 3.1%
increase in the average selling price ($0.1 million).
Revenue from the sale of used vehicles decreased $2.9 million, or 15.5% to
$15.8 million for the three months ended June 30, 2004 from $18.7 million for
three months ended June 30, 2003. This was due to decreased used vehicle
revenues at retail ($3.2 million), primarily due to a decrease of 219 units;
partially offset by increased used vehicle sales at wholesale ($0.3 million),
due to an increase of 164 units ($0.8 million), partially offset by an 11.9%
decrease in average selling price ($0.5 million). The decrease in wholesale
average selling price is a function of the vehicles that were taken as trade-ins
at the time of new vehicle purchases. Although the average selling price on
wholesale decreased in 2004 from 2003, gross profit increased slightly. See
Gross Profit below. The decreased revenues at retail were primarily due to
decreases at Toyota ($1.4 million), Lincoln Mercury ($1.2 million), Ford ($0.7
million), Mazda ($0.2 million) and the used car outlet ($0.2 million), partially
offset by increases at Chevrolet ($0.5 million). The decrease at Toyota was
primarily due to a decrease of 96 units. The decrease at the Lincoln Mercury
dealerships was primarily due to a decrease of 92 units ($1.5 million),
partially offset by an 8.8% increase in average selling price ($0.3 million).
The decrease at Ford was primarily due to a decrease of 45 units. The decrease
at Mazda was primarily due to a decrease of 13 units. Also, the decrease at
Hometown's used car outlet, the site of the sold Chrysler/Jeep franchise, was
primarily due to a 42.4% decrease in average selling price ($0.3 million),
partially offset by an increase of 6 units ($0.1 million). The 42.4 % decrease
in average selling price in 2004 from 2003 at this location was due to the mix
of inventory available for sale. Although there was a decrease in average
selling price, gross profit on these vehicles actually decreased minimally in
2004 from 2003. The increase at Chevrolet was primarily due to the sale of an
additional 24 units ($0.3 million), combined with an 8.4% increase in average
selling price ($0.2 million). Toyota ($0.4 million) and Lincoln Mercury ($0.2
million) experienced increases in used vehicle sales at wholesale, while there
were decreases at Hometown's used car outlet ($0.2 million), Chrysler/Jeep ($0.1
million) and Chevrolet (less than $0.1 million) dealerships.
16
Parts and service revenue remained consistent at $6.2 million for the
three months ended June 30, 2004 and June 30, 2003. As a result of the sale of a
Chrysler/Jeep sales and service franchise, that dealership's parts and service
business was closed. Excluding this business for all periods, parts and service
revenue increased $0.2 million, or 3.3% to $6.2 million for the three months
ended June 30, 2004, from $6.0 million for the three months ended June 30, 2003.
Increases were primarily due to the Toyota ($0.1 million), Ford ($0.1 million)
and Chevrolet ($0.1 million) dealerships, partially offset by decreases at
Lincoln Mercury ($0.2 million).
Other dealership revenues decreased $0.2 million, or 9.1% to $2.0 million
for the three months ended June 30, 2004 from $2.2 million for the three months
ended June 30, 2003. On a same store basis, the decrease in other dealership
revenues remained at $0.2 million. This decrease is primarily attributable to
decreases in other dealership revenues of used vehicles ($0.3 million) partially
offset by increases in other dealership revenues of new vehicles ($0.1 million).
GROSS PROFIT
Total gross profit decreased $1.2 million, or 11.1%, to $9.6 million for
the three months ended June 30, 2004, from $10.8 million for the three months
ended June 30, 2003. Hometown sold a Chrysler/Jeep sales and service franchise
on June 3, 2003. On a same store basis (excluding the Chrysler/Jeep sales and
service franchise for all periods), gross profit decreased $1.0 million, or 9.4%
to $9.6 million for the three months ended June 30, 2004, from $10.6 million for
the three months ended June 30, 2003. This decrease was attributable to
decreased gross profit on: (i) new vehicle sales ($0.4 million), (ii) used
vehicle sales ($0.3 million), (iii) other dealership revenues ($0.2 million) and
(iv) parts and service sales ($0.1 million). Gross profit percentage for
Hometown was 14.0% for the three months ended June 30, 2004 and 13.8% for the
three months ended June 30, 2003. Adjusting both periods for Toyota and
Chevrolet fleet sales, gross profit percentage was 14.1% for the three months
ended June 30, 2004 and 14.7% for the three months ended June 30, 2003.
Gross profit on the sale of new vehicles decreased $0.5 million, or 15.2%,
to $2.8 million for the three months ended June 30, 2004, from $3.3 million for
the three months ended June 30, 2003. On a same store basis gross profit on the
sale of new vehicles decreased $0.4 million, or 12.5%, to $2.8 million for the
three months ended June 30, 2004, from $3.2 million for the three months ended
June 30, 2003. The decrease in gross profit is primarily attributable to a
decrease of 413 units ($0.6 million), partially offset by a 9.5% increase in
average gross profit per vehicle ($0.2 million). The unit decrease includes a
319-unit decrease attributable to Toyota (277 units) and Chevrolet (42 units)
fleet sales, which had a minimal effect on the decrease in gross profit
($36,000). Excluding fleet sales, the following brands experienced a decrease in
gross profit on the sale of new vehicles in the 2004 period compared to 2003:
Lincoln Mercury ($0.2 million), Chevrolet ($0.1 million) and Ford ($0.1
million). The Lincoln Mercury decrease is net of an increase of $0.1 million
attributable to a 94-unit increase in livery sales. The Lincoln Mercury and
Chevrolet decreases were split between unit decreases and decreased gross profit
per unit. The Ford decrease was due to the decrease of 76 units. Partially
offsetting these decreases were increases at Mazda, Chrysler/Jeep and Toyota,
which combined for an increase in gross profit of $0.1 million. These increases
were primarily due to increased gross profit per unit; Chrysler/Jeep also had
increases attributable to an additional 11 units sold. Gross profit percentage
for 2004 was 6.3% compared to 6.4% for 2003. Adjusting both periods for Toyota
and Chevrolet fleet sales, which generate low margins, gross profit percentage
for new vehicles was 6.4% in 2004 and 7.1% in 2003.
Gross profit on the sale of used vehicles decreased $0.3 million, or
16.7%, to $1.5 million for the three months ended June 30, 2004, from $1.8
million for the three months ended June 30, 2003. This decrease is primarily due
to a 219-unit decrease at retail, partially offset by a small increase in gross
profit at wholesale. Decreases at Lincoln Mercury ($0.2 million), Toyota ($0.1
million) and Ford ($0.1 million), were partially offset by increases at
Chevrolet, Chrysler/Jeep and Hometown's used car outlet (together totaling $0.1
million). Gross profit percentage on the sale of used vehicles was 9.3% in 2004
compared to 9.6% in 2003.
17
Parts and service gross profit decreased $0.2 million, or 5.7%, to $3.3
million for the three months ended June 30, 2004, from $3.5 million for the
three months ended June 30, 2003. As a result of the sale of a Chrysler/Jeep
sales and service franchise, that dealership's parts and service business was
closed. Excluding this business for all periods, parts and service gross profit
decreased $0.1 million, or 2.9%, to $3.3 million for the three months ended June
30, 2004, from $3.4 million for the three months ended June 30, 2003. Gross
profit percentage was 54.3% in 2004 compared to 56.5% in 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $0.6 million, or
6.6%, to $8.5 million for the three months ended June 30, 2004 from $9.1 million
for the three months ended June 30, 2003. The decrease is primarily attributable
to reductions in payroll and related taxes ($0.5 million), various reserves for
chargebacks ($0.2 million) and professional fees (less than $0.1 million),
partially offset by an increase in advertising of $0.1 million. Approximately
$0.1 million of the decrease in payroll and related taxes is due to the sale of
the Chrysler/Jeep sales and service franchise in June 2003.
OTHER INCOME
In June 2003, Hometown sold a Chrysler/Jeep sales and service franchise in
Waterbury, CT resulting in a gain of approximately $936,000 recorded in Other
Income.
INTEREST EXPENSE
Interest expense increased $0.1 million, or 12.5%, to $0.9 million for the
three months ended June 30, 2004, from $0.8 million for the three months ended
June 30, 2003. The increase is primarily due to an increase of floorplan
interest expense resulting from higher average borrowings.
PROVISION FOR INCOME TAX
The effective income tax rate was 27.0% in the quarter ended June 30, 2004
and 40.4% in the same period of 2003. The rates were based on current forecasts
of income before taxes, and current forecasts of permanent differences between
tax and book income. The 2004 rate reflects the expected full year effective tax
rate adjusted for a reduction in the valuation allowance associated with the
2004 amortization of goodwill for tax purposes. Deferred taxes, including
valuation allowances, will be reviewed throughout fiscal 2004.
NET INCOME
Net income decreased $0.9 million to $0.2 million for the three months
ended June 30, 2004, from $1.1 million for the three months ended June 30, 2003.
The decrease is primarily due to the gain on sale of the Chrysler/Jeep sales and
service franchise recorded in Other Income. See above for explanation of other
changes.
EARNINGS PER SHARE, BASIC AND DILUTED AND WEIGHTED AVERAGE SHARES
"Basic earnings (loss) per share" is computed by dividing net income
(loss) by the weighted average common shares outstanding. "Diluted earnings
(loss) per share" is computed by dividing net income (loss) by the weighted
average common shares outstanding adjusted for the incremental dilution of
potentially dilutive securities. Options and warrants to purchase approximately
829,000 and 1,401,000 shares of common stock were outstanding as of June 30,
2004 and 2003, respectively. The basic weighted average shares are 7,191,588 and
7,175,105 shares for the three months ended June 30, 2004 and 2003,
respectively. The diluted weighted average shares are 7,324,514 and 7,175,105
for the 2004 and 2003 periods, respectively. Options whose exercise price is
less than the average market price of the common shares during the period are
included in weighted average shares as common stock equivalents. Periods that do
not include common stock equivalents exclude them due to the options and warrant
prices being greater than the average market price of the common shares during
the period or due to the effect being anti-dilutive. See Note 3 to the
consolidated financial statements.
18
The basic and diluted income per share for the three months ended June 30,
2004 and 2003 is $0.03 and $0.15, respectively. The three months ended June 30,
2003 includes $0.08 per share from the gain on sale of a Chrysler/Jeep sales and
service franchise in June 2003.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30,
2003.
REVENUE
Total revenue decreased $3.8 million, or 2.7% to $134.6 million for six
months ended June 30, 2004, from $138.4 million for six months ended June 30,
2003. Hometown sold a Chrysler/Jeep sales and service franchise on June 3, 2003.
On a same store basis (excluding the Chrysler/Jeep sales and service franchise
for all periods), revenues decreased $0.9 million or 0.7% to $134.6 million for
the six months ended June 30, 2004, from $135.5 million for the six months ended
June 30, 2003. This decrease was primarily due to decreased sales of used
vehicles ($2.4 million), partially offset by an increase in sales of new
vehicles ($1.5 million).
Revenue from the sale of new vehicles decreased $1.0 million, or 1.2% to
$85.9 million for the six months ended June 30, 2004, from $86.9 million for six
months ended June 30, 2003. On a same store basis, revenues increased $1.5
million, or 1.8% to $85.9 million for the six months ended June 30, 2004, from
$84.4 million for the six months ended June 30, 2003. The increase is
attributable to an 8.9% increase in average selling price ($7.1 million),
partially offset by a reduction of 222 units sold in 2004 compared to 2003 ($5.6
million). The increase in average selling price is primarily due to truck and
livery sales representing a higher percentage of total sales in 2004 compared to
2003, combined with higher fleet sales in 2003 compared to 2004. The fleet sales
had a lower average selling price than other units sold. The increase is
primarily from Hometown's Lincoln Mercury ($4.8 million), Chrysler/Jeep ($0.9
million) and Chevrolet ($0.1 million) dealerships, partially offset by decreases
at Toyota ($3.2 million), Ford ($1.0 million) and Mazda ($0.1 million). The
increase at the Lincoln Mercury dealerships was primarily due to an increase of
135 livery units sold in 2004 compared to 2003 ($5.2 million), partially offset
by a decrease of other sales of $0.4 million due to a 2.9% decrease in the
average selling price ($0.5 million), partially offset by an increase of 3 units
sold in 2004 compared to 2003 ($0.1 million). The Chrysler/Jeep increase was
primarily due to an additional 27 units sold ($0.7 million) in 2004 compared to
2003, combined with a 5.1% increase in the average selling price ($0.2 million).
The increase at the Chevrolet dealership is net of a $0.8 million decrease in
fleet sales (42 units) in 2004 compared to 2003. Excluding the decrease in fleet
sales, other Chevrolet sales increased $0.9 million due to a increase of 26
units sold in 2004 compared to 2003 ($0.6 million), combined with a 2.7%
increase in the average selling price ($0.3 million). The decrease at the Toyota
dealerships was primarily due a decrease in fleet sales of $4.4 million, due to
a decrease of 309 units sold in 2004 compared to 2003. Excluding the decrease in
fleet sales, other Toyota sales increased $1.1 million, due to a 4.8% increase
in the average selling price ($1.5 million), partially offset by a decrease of
14 units sold in 2004 compared to 2003 ($0.3 million). The decrease at the Ford
dealership was primarily due to a decrease of 40 units sold in 2004 compared to
2003. The decrease at the Mazda dealership was primarily due to a decrease of 8
units sold in 2004 compared to 2003 ($0.2 million), partially offset by 2.6%
increase in the average selling price ($0.1 million).
19
Revenue from the sale of used vehicles decreased $2.4 million, or 6.8% to
$32.7 million for the six months ended June 30, 2004 from $35.1 million for six
months ended June 30, 2003. This was due to decreased used vehicle revenues at
retail ($2.8 million), primarily due to a decrease of 240 units ($3.5 million),
partially offset by a 2.6% increase in average selling price ($0.7 million).
This is partially offset by increased used vehicle sales at wholesale ($0.4
million), primarily due to an increase of 455 units ($2.2 million), partially
offset by a 20.1% decrease in average selling price ($1.8 million). The decrease
in wholesale average selling price is a function of the vehicles that were taken
as trade-ins at the time of new vehicle purchases. Although the average selling
price on wholesale decreased in 2004 from 2003, gross profit increased slightly.
See Gross Profit below. Used vehicle inventory available for sale at retail
increased during the year due to the increased new vehicle sales (during the
first quarter of 2004) bringing in more vehicles as trade-ins at time of new
vehicle purchase. This combined with the decrease in used vehicle sales at
retail caused more vehicles to be sold at wholesale to manage used vehicle
inventory levels. The decreased revenues at retail were primarily due to
decreases at Toyota ($1.5 million), Ford ($1.1 million), Lincoln Mercury ($0.8
million), the used car outlet ($0.3 million), Mazda ($0.2 million) and
Chrysler/Jeep ($0.1 million), partially offset by increases at Chevrolet ($1.2
million). The decrease at Toyota was primarily due to a decrease of 143 units
($2.0 million), partially offset by a 7.7% increase in average selling price
($0.5 million). The decrease at Ford was primarily due to a decrease of 65 units
($1.0 million), combined with a 5.2% decrease in average selling price ($0.1
million). The decrease at the Lincoln Mercury dealerships was primarily due to a
decrease of 93 units ($1.5 million), partially offset by an 8.8% increase in
average selling price ($0.7 million). The decrease at Hometown's used car
outlet, the site of the sold Chrysler/Jeep franchise, was primarily due to a
39.7% decrease in average selling price ($0.5 million), partially offset by an
increase of 12 units ($0.2 million). The 39.7 % decrease in average selling
price in 2004 from 2003 at this location was due to the mix of inventory
available for sale. Although there was a decrease in average selling price,
gross profit on these vehicles actually increased minimally in 2004 from 2003.
See Gross Profit below. The decrease at Mazda was primarily due to a decrease of
20 units ($0.3 million), partially offset by a 13.3% increase in average selling
price ($0.1 million). The decrease at Chrysler/Jeep was primarily due to a
decrease of 8 units sold in 2004 compared to 2003. The increase at Chevrolet was
primarily due to the sale of an additional 77 units ($1.0 million), combined
with a 5.1% increase in average selling price ($0.2 million). Toyota ($0.7
million), Lincoln Mercury ($0.1 million) and Ford ($0.1 million) experienced
increases in used vehicle revenues at wholesale, while there were decreases at
Hometown's used car outlet ($0.3 million), Chrysler/Jeep ($0.1 million) and
Chevrolet (less than $0.1 million) dealerships.
Parts and service revenue decreased $0.3 million, or 2.4% to $12.1 million
for the six months ended June 30, 2004, from $12.4 million for six months ended
June 30, 2003. As a result of the sale of a Chrysler/Jeep sales and service
franchise, that dealership's parts and service business was closed. Excluding
this business for all periods, parts and service revenue increased $0.1 million,
or 0.8% to $12.1 million for the six months ended June 30, 2004, from $12.0
million for the six months ended June 30, 2003. Increases were primarily due to
the Toyota ($0.4 million), Ford ($0.1 million) and Chevrolet ($0.1 million)
dealerships, partially offset by decreases at Lincoln Mercury ($0.4 million) and
Chrysler/Jeep ($0.1 million).
Other dealership revenues decreased $0.1 million, or 2.5% to $3.9 million
for the six months ended June 30, 2004, from $4.0 million for the six months
ended June 30, 2003. On a same store basis, the decrease in other dealership
revenues was less than $0.1 million. Decreases in other dealership revenues of
used vehicles was mostly offset by increases in other dealership revenues of new
vehicles.
GROSS PROFIT
Total gross profit decreased $0.6 million, or 3.0%, to $19.2 million for
the six months ended June 30, 2004, from $19.8 million for the six months ended
June 30, 2003. Hometown sold a Chrysler/Jeep sales and service franchise on June
3, 2003. On a same store basis (excluding the Chrysler/Jeep sales and service
franchise for all periods), gross profit decreased $0.2 million, or 1.0% to
$19.2 million for the six months ended June 30, 2004, from $19.4 million for the
six months ended June 30, 2003. This decrease was primarily attributable to
decreased gross profit on used vehicle sales ($0.3 million) and other dealership
revenues ($0.1 million); partially offset by increased gross profit on new
vehicle sales ($0.1 million). Gross profit percentage for Hometown was 14.2% for
the six months ended June 30, 2004 and 14.3% for the six months ended June 30,
2003. Adjusting both periods for Toyota and Chevrolet fleet sales, gross profit
percentage was 14.3% for the six months ended June 30, 2004 and 14.9% for the
six months ended June 30, 2003.
20
Gross profit on the sale of new vehicles decreased $0.1 million, or 1.8%,
to $5.6 million for the six months ended June 30, 2004, from $5.7 million for
the six months ended June 30, 2003. On a same store basis gross profit on the
sale of new vehicles increased $0.1 million, or 1.8%, to $5.6 million for the
six months ended June 30, 2004, from $5.5 million for the six months ended June
30, 2003. The increase in gross profit is primarily attributable to a 9.0%
increase in average gross profit per vehicle ($0.5 million), partially offset by
a decrease of 222 units ($0.4 million). The unit decrease includes a 351-unit
decrease attributable to Toyota (309 units) and Chevrolet (42 units) fleet
sales, which had a minimal effect on gross profit ($40,000). Excluding fleet
sales, the following brands experienced an increase in gross profit on the sale
of new vehicles in the 2004 period compared to 2003: Toyota ($0.2 million),
Chrysler/Jeep ($0.1 million) and Mazda ($0.1 million). These increases were
primarily due to increased gross profit per unit; Chrysler/Jeep also had
increases attributable to an additional 27 units sold. Partially offsetting
these increases were decreases at Lincoln Mercury ($0.1 million), Ford ($0.1
million) and Chevrolet ($0.1 million). The Lincoln Mercury decrease is net of an
increase of $0.1 million attributable to a 135-unit increase in livery sales.
Gross profit percentage for 2004 and 2003 was 6.5%. Adjusting both periods for
Toyota and Chevrolet fleet sales, which generate low margins, gross profit
percentage for new vehicles was 6.5% in 2004 and 6.9% in 2003.
Gross profit on the sale of used vehicles decreased $0.3 million, or 8.8%,
to $3.1 million for the six months ended June 30, 2004, from $3.4 million for
the six months ended June 30, 2003. This decrease is primarily due to a 240-unit
decrease at retail partially offset by a small increase in gross profit at
wholesale. Decreases at retail for Toyota ($0.2 million), Lincoln Mercury ($0.1
million), and Ford ($0.1 million) were partially offset by increases at
Chevrolet ($0.1 million), and Chrysler/Jeep and Hometown's used car outlet
(together totaling less than $0.1 million). Gross profit percentage on the sale
of used vehicles was 9.6% in 2004 and 2003.
Parts and service gross profit decreased $0.3 million, or 4.4%, to $6.5
million for the six months ended June 30, 2004, from $6.8 million for the six
months ended June 30, 2003. As a result of the sale of a Chrysler/Jeep sales and
service franchise, that dealership's parts and service business was closed.
Excluding this business for all periods, parts and service gross profit remained
consistent at $6.5 million for the six months ended June 30, 2004 and June 30,
2003. Gross profit percentage was 54.0% in 2004 compared to 54.7% in 2003.
Decreases at Lincoln Mercury ($0.2 million) and Chrysler/Jeep (less than $0.1
million) were mostly offset by increases at Toyota ($0.1 million) and Mazda,
Ford and Chevrolet (together totaling $0.1 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $0.5 million, or
2.8%, to $17.1 million for the six months ended June 30, 2004 from $17.6 million
for the six months ended June 30, 2003. The decrease is primarily attributable
to reductions in payroll and related taxes ($0.5 million), various reserves for
chargebacks ($0.2 million) and professional fees (less than $0.1 million),
partially offset by an increase in advertising of $0.2 million. Approximately
$0.2 million of the decrease in payroll and related taxes is due to the sale of
the Chrysler/Jeep sales and service franchise in June 2003.
OTHER INCOME
In June 2003, Hometown sold a Chrysler/Jeep sales and service franchise in
Waterbury, CT resulting in a gain of approximately $936,000 recorded in Other
Income.
INTEREST EXPENSE
Interest expense increased $0.1 million, or 6.3%, to $1.7 million for the
six months ended June 30, 2004, from $1.6 million for the six months ended June
30, 2003. The increase is primarily due to an increase of floorplan interest
expense resulting from higher average borrowings.
21
PROVISION FOR INCOME TAX
The effective income tax rate was 27.0% in the six months ended June 30,
2004 and 40.9% in the same period of 2003. The rates were based on current
forecasts of income before taxes, and current forecasts of permanent differences
between tax and book income. The 2004 rate reflects the expected full year
effective tax rate adjusted for a reduction in the valuation allowance
associated with the 2004 amortization of goodwill for tax purposes. Deferred
taxes, including valuation allowances, will be reviewed throughout fiscal 2004.
NET INCOME
Net income decreased $0.7 million to $0.3 million for the six months ended
June 30, 2004, from $1.0 million for the six months ended June 30, 2003. The
decrease is primarily due to the gain on sale of the Chrysler/Jeep sales and
service franchise recorded in Other Income. See above for explanation of other
changes.
EARNINGS PER SHARE, BASIC AND DILUTED AND WEIGHTED AVERAGE SHARES
"Basic earnings (loss) per share" is computed by dividing net income
(loss) by the weighted average common shares outstanding. "Diluted earnings
(loss) per share" is computed by dividing net income (loss) by the weighted
average common shares outstanding adjusted for the incremental dilution of
potentially dilutive securities. Options and warrants to purchase approximately
829,000 and 1,401,000 shares of common stock were outstanding as of June 30,
2004 and 2003, respectively. The basic weighted average shares are 7,183,347 and
7,175,105 shares for the six months ended June 30, 2004 and 2003, respectively.
The diluted weighted average shares are 7,397,886 and 7,175,105 for the 2004 and
2003 periods, respectively. Options whose exercise price is less than the
average market price of the common shares during the period are included in
weighted average shares as common stock equivalents. Periods that do not include
common stock equivalents exclude them due to the options and warrant prices
being greater than the average market price of the common shares during the
period or due to the effect being anti-dilutive. See Note 3 to the consolidated
financial statements.
The basic and diluted income per share for the six months ended June 30,
2004 and 2003 is $0.05 and $0.13, respectively. The six months ended June 30,
2003 includes $0.08 per share from the gain on sale of a Chrysler/Jeep sales and
service franchise in June 2003.
CYCLICALITY
Hometown's operations, like the automotive retailing industry in general,
are affected by a number of factors relating to general economic conditions,
including consumer business cycles, consumer confidence, economic conditions,
availability of consumer credit and interest rates. Although the above factors,
among others, may affect Hometown's business, Hometown believes that the impact
on Hometown's operations of future negative trends in such factors will be
somewhat mitigated by its (i) strong parts, service and collision repair
services, (ii) variable cost salary structure, (iii) geographic regional focus,
and (iv) product diversity.
SEASONALITY
Hometown's operations are subject to seasonal variations, with the second
and third quarters generally contributing more revenues and operating profit
than the first and fourth quarters. This seasonality is driven primarily by: (i)
Manufacturer related factors, primarily the historical timing of major
Manufacturer incentive programs and model changeovers, (ii) weather-related
factors and (iii) consumer buying patterns.
EFFECTS OF INFLATION
Due to the relatively low levels of inflation experienced in the 2004 and
2003 periods, inflation did not have a significant effect on the results of
Hometown during those periods.
22
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity are cash on hand, cash from operations
and floor plan financing.
Cash and Cash Equivalents
Total cash and cash equivalents was $7.1 million and $5.6 million at June
30, 2004 and December 31, 2003, respectively.
Cash Flow from Operations
The following table sets forth the consolidated selected information from
the unaudited statements of cash flows:
Six months ended
June 30,
2004 2003
---------- ----------
(in thousands)
Net cash provided by operating activities $ 2,477 $ 2,029
Net cash provided by (used in) investing activities (1,684) 500
Net cash provided by (used in) financing activities 650 (1,225)
------- -------
Net increase in cash and cash equivalents $ 1,443 $ 1,304
======= =======
For the six months ended June 30, 2004, net cash provided from operations
of $2.5 million primarily consists of: (i) net income plus non-cash items of
$1.1 million; (ii) the increase in floor plan liability in excess of the
increase in inventory of $1.0 million; and (iii) an increase in other long term
liabilities and deferred revenue of $0.4 million. Net cash used in investing
activities of $1.7 million is due to capital expenditures, primarily the
Brattleboro, VT. building purchased in June 2004 for $1.5 million. Net cash
provided by financing activities of $0.7 million is due to proceeds from
long-term borrowings of $1.4 million and exercise of warrants of $0.3 million;
partially offset by principal payments of long-term debt and capital lease
obligations of $1.0 million. The long-term borrowings were used to acquire the
Brattleboro, VT. building discussed above.
For the six months ended June 30, 2003, net cash provided from operations
of $2.0 million primarily consists of: (i) net income plus non-cash items of
$1.3 million; (ii) the decrease in inventory in excess of the decrease in floor
plan liability of $1.6 million; and (iii) an increase in accounts payable and
accrued expenses of $1.3 million; partially offset by increased accounts
receivable of $2.1 million. Net cash provided by investing activities of $0.5
million is primarily due to the proceeds from the sale of a Chrysler/Jeep sales
and service franchise of $0.9 million, partially offset by capital expenditures
of $0.4 million. Net cash used in financing activities of $1.2 million is due to
principal payments of long-term debt and capital lease obligations.
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Capital Expenditures
Capital expenditures for fiscal 2004 are expected to be approximately $2.2
million, consisting primarily of the purchase of a building, equipment and
leasehold improvements. The building was acquired in June 2004 for $1.5 million.
It is a Hometown dealership that had been previously leased, that had a purchase
option. See Other Indebtedness.
Receivables
Hometown had $5.9 million in accounts receivable at June 30, 2004 compared
to $6.1 million at December 31, 2003. The majority of those receivables, $2.7
million and $3.1 million as of June 30, 2004 and December 31, 2003,
respectively, are due from finance companies that provide or secure financing
for customer purchases, and primarily represent contracts-in-transit. These
amounts are typically received within seven days of the transaction. The
allowance for doubtful accounts is $0.3 million at June 30, 2004 and December
31, 2003.
Inventories
Hometown had $49.8 million in inventories, net at June 30, 2004 compared
to $37.8 million at December 31, 2003. The majority of inventory, $40.5 million
and $28.4 million as of June 30, 2004 and December 31, 2003, respectively, is
new vehicle inventory. New, used and demonstrator vehicle values are stated at
the lower of cost or market, determined on a specific unit basis. Parts and
accessories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. Hometown assesses the lower of cost or market reserve
requirement for vehicles, on an individual unit basis, taking into consideration
historical loss rates, the age and composition of the inventory and current
market conditions. The lower of cost or market reserves were $0.7 million at
June 30, 2004 and December 31, 2003.
Floor Plan Financing
Hometown has a floor plan line of credit at each dealership with Ford
Motor Credit Corporation ("FMCC"). The FMCC floor plan agreement provides
financing for vehicle purchases and is secured by and dependent upon new and
used vehicle inventory levels. Maximum availability under the FMCC agreement is
a function of new and used car sales and is not a pre-determined amount.
Hometown is subject to the FMCC standard financing agreement which
provides for floor plan loans for new and used vehicles that have variable
interest rates that increase or decrease based on movements in the prime or
LIBOR borrowing rates. The FMCC agreement has no set maturity date and it is the
intention of Hometown to continue with this financing on an ongoing basis.
Other Indebtedness
In June 2004, Hometown exercised an option to buy the building leased by
its Brattleboro, VT. dealership. The purchase price was $1.5 million plus
closing costs. The purchase was financed by a $1.05 million bank loan, a $0.3
million term note held by the seller and $0.15 million in cash. The bank loan is
for 10 years, carries an interest rate of 7.0% for the first five years and is
variable thereafter with monthly payments sufficient to amortize the loan over a
15-year period. After 10-years, the balance of the bank loan will be
renegotiated. The note held by the seller is payable over three years and
carries an interest rate of 10.5%.
Exercise of Warrants / Common Stock
In connection with a Private Equity Financing in July 2001, Hometown
issued warrants that entitled the holders to purchase up to 487,498 shares of
Class A Common shares at a purchase price of $1.20 per share, exercisable over a
three-year period. In June 2004, 214,284 warrants were exercised for
approximately $257,000, and 214,284 shares of Class A Common shares were issued.
At June 30, 2004, 273,214 warrants remain outstanding. These warrants expired in
July 2004.
24
FORWARD LOOKING STATEMENT
When used in the Quarterly Report on Form 10Q, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect Hometown's future plans of operations, business strategy, results of
operations and financial condition. Hometown wishes to ensure that such
statements are accompanied by meaningful cautionary statements pursuant to the
safe harbor established in the Private Securities Litigation Reform Act of 1995.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors including the ability
of Hometown to consummate, and the terms of, acquisitions. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth herein and others set forth from time to time
in Hometown's reports and registration statements filed with the Securities and
Exchange Commission (the "Commission"). Hometown disclaims any intent or
obligation to update such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on our
amounts outstanding under our floor plan financing arrangement, which bears
interest at variable rates based on the prime or LIBOR borrowing rates. Based on
floor plan amounts outstanding at June 30, 2004 of $50.6 million, a 1% change in
the prime rate would result in a $0.5 million change to annual floor plan
interest expense.
At June 30, 2004, Hometown invested $5.3 million of excess cash, of which
$1.3 million was invested in money market accounts paying a weighted average
interest rate of 0.80% at June 30, 2004, and $4.0 million was invested in a Ford
Motor Credit Company cash management account paying interest of 5.00% at June
30, 2004. The cash management account interest rate is tied to the rate charged
on Hometown's floor plan financing arrangement.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended, are recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any disclosure controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to use its
judgment in evaluating the cost to benefit relationship of possible controls and
procedures.
At June 30, 2004, management, with the participation of the CEO and CFO,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation and subject to the
foregoing, our management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective to accomplish their
objectives.
There have been no significant changes in our internal controls over
financial reporting during the most recently completed fiscal quarter that
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9 - Commitments and Contingencies - Litigation, to the notes to
the unaudited consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Hometown held its Annual Stockholders Meeting on June 8, 2004. The
following matters were submitted to a vote of security holders.
1) The candidates nominated for election to its Board of Directors are as
follows:
Candidates Votes For Votes Withheld
---------- --------- --------------
Corey E. Shaker 26,957,231 7,170
William C. Muller Jr. 26,958,231 6,170
Joseph Shaker 26,957,231 7,170
Bernard J. Dzinski Jr. 26,958,231 6,170
Steven A. Fournier 26,957,231 7,170
H. Dennis Lauzon 26,957,731 6,670
Timothy C. Moynahan 26,957,231 7,170
All seven nominees were elected to the Board. Those individuals represent
the entire Board of Directors as no other directors had terms continuing after
the meeting.
2) To ratify the selection of BDO Seidman, LLP as independent auditors for the
year ending December 31, 2004. The selection of BDO Seidman, LLP was ratified.
There were 26,959,331 votes for, 5,070 votes against and 0 votes abstaining.
No other matter was submitted to a vote of security holders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
31.1 Chief Executive Officer Certification
31.2 Chief Financial Officer Certification
32.1 Chief Executive Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Chief Financial Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K
On May 13, 2004, Hometown filed a report on Form 8-K with respect to Items 7 and
12 on such report, related to the Company's announcing its first quarter 2004
results.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hometown Auto Retailers, Inc.
August 10, 2004 By: /s/ Corey E. Shaker
---------------
---------------------------------------------
Date Corey E. Shaker
President and Chief Executive Officer
August 10, 2004 By: /s/ Charles F. Schwartz
---------------
---------------------------------------------
Date Charles F. Schwartz
Chief Financial Officer
27