Hometown Auto Retailers Reports Second Quarter 2002 Results; Company Nears Completion of New Facility in Boston
WATERTOWN, Conn.--Aug. 12, 2002--Conference call slated for Thursday, August 15 at 4:00 p.m. (EDT)
Hometown Auto Retailers, Inc. (OTCBB:HCAR) today announced financial results for the quarter and six-month period ended June 30, 2002.
Hometown reported revenues of $73.0 million in the second quarter of 2002 versus restated revenues of $74.5 million for the same period in 2001, a decrease of $1.5 million or 2.0 percent. For the first half of 2002, Hometown reported revenues of $138.1 million versus restated revenues of $135.1 million, an increase of $3.0 million or 2.2 percent.
Hometown's gross profits for the second quarter of 2002 decreased $1.0 million or 9.0 percent to $10.1 million versus restated gross profits of $11.1 million in same period in 2001. Gross profits for the first half of the year decreased approximately $500,000 or 2.5 percent to $19.7 million versus restated gross profits of $20.2 million in same period in 2001.
Hometown's net income for the second quarter of 2002 decreased $300,000 to $309,000 generating basic and diluted earnings per share of $0.04 versus restated net income of $609,000 and restated basic and diluted earnings per share of $0.10 for the same period in 2001. Net income for the first half of 2002 decreased $262,000 to $544,000 generating basic and diluted earnings per share of $0.08 versus restated net income of $806,000 and restated basic and diluted earnings per share of $0.13 and $0.11, respectively, for the same period in 2001.
Hometown reported total cash and cash equivalents at the end of the second quarter of 2002 of $4.1 million versus $4.4 million in total cash and cash equivalents on hand as of December 31, 2001.
"Although our gross and net profits are down on a year-over-year basis for the quarter and first half of the year, we are encouraged by the progress we are seeing on an overall basis at the company," said Corey Shaker, president and chief executive officer of Hometown. "As we stated in our annual results conference call, our goal is to show steady improvement on an operating basis and year over year.
"Along these lines, we are very excited about our soon-to-be-completed new Baystate Lincoln Mercury facility in Metro West Boston. This will be a state-of-the-art facility on a beautifully landscaped parcel that will lend to a very positive purchasing experience. We have spent more than $1 million on this facility so far and at the same time, we've been able to maintain a strong cash position relative to the amount of cash we had on hand at the end of December 2001. As we stated in our first quarter results announcement, we are continuing our focus on cutting costs and building cash from operations to give Hometown a solid footing for the future."
Hometown sold 3,654 vehicles during the second quarter of 2002, 154 more than it sold in the same period in 2001. Hometown sold 6,879 vehicles during the six months ended June 30, 2002, 192 more than it sold in the same period in 2001. Total vehicles sold (by category) are shown in the table below.
For the three months ended For the six months ended
June 30, June 30,
2002 2001 2002 2001
----------------------------------------------------
New vehicle 1,828 1,540 3,256 2,891
Used vehicle - retail 1,099 1,146 2,199 2,248
Used vehicle - wholesale 727 814 1,424 1,548
----- ----- ----- -----
Total units sold 3,654 3,500 6,879 6,687
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Sales of new cars increased by 8.5 percent or $3.5 million to $44.9 million for the second quarter of 2002 from $41.4 million in the same period in 2001. Used vehicle sales (retail) in the second quarter of 2002 fell $4.9 million or 24.1 percent to $15.4 million compared to $20.3 million for the same period in 2001. The decrease in used vehicle sales sold at retail can be attributed in part to lack of demand and consumer interest in purchasing new vehicles due to special dealer financing programs.
Used vehicle sales (wholesale) in the second quarter of 2002 increased approximately $500,000 or 12.5 percent to $4.5 million versus $4.0 million in used vehicle sales (wholesale) in the same period in 2001. Parts and service revenues for the second quarter of 2002 decreased approximately $700,000 or 10.6 percent to $5.9 million from $6.6 million for the three months ended June 30, 2001. Other revenues (net) remained essentially flat at $2.2 million for the second quarter of 2002 versus the same period in 2001.
In June 2001, the Financial Accounting Standards Board approved SFAS 142 - "Goodwill and Other Intangible Assets." Among other things, this eliminated the need to amortize goodwill and requires companies to use a fair-value approach to determine whether there is an impairment of existing and future goodwill. As stated by Hometown on May 31, 2002, when it released its results for the first quarter of 2002, Hometown has been "evaluating the impact of SFAS 142 on its consolidated financial statements."
By adopting SFAS 142, Hometown is required to determine by the end of 2002 the correct implied fair value of the goodwill currently carried on its books and record any impairment charges that result from this application as a cumulative effect of a change in accounting principle. To test for impairment, Hometown management has obtained appraisals of its reporting units and performed an evaluation that indicates a severe impairment exists. As a result, Hometown expects to record a one-time, non-cash charge in the third quarter to reduce the carrying value of its goodwill.
In accordance with SFAS 142, Hometown ceased recording goodwill amortization effective January 1, 2002. Had SFAS 142 been adopted on January 1, 2001, Hometown's restated net income for the second quarter of 2001 would have increased by $144,000 to $753,000, with restated basic and diluted earnings per share increasing by $0.03 and $0.02, respectively, to $0.13 and $0.12. Similarly, without goodwill amortization in 2001, Hometown's restated net income for the first half of 2001 would have increased by $293,000 to $1.1 million, with restated basic and diluted earnings per share increasing by $0.05 and $0.04, respectively, to $0.18 and $0.15.
On a separate note, Connecticut dealerships operate under "dealer obligor" 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. Though Connecticut State Law continues to hold the dealership responsible for warranty service and insurance, the law allows a dealer to assign responsibility to others if the dealer's customers accept acknowledged forms of contracts specifying this assignment. Commencing in June 2002, Hometown's Connecticut dealerships began using a form of contract that included the acknowledged "contract assignment" provision for a portion of their extended warranty contracts. Some of the contracts used by these dealerships prior to June 2002 also contained the assignment language.
Though Hometown will remain contingently liable even if such contracts are assigned, based on the financial strength of the assignee Hometown may be able to advance recognition of some of its previously deferred revenue. Hometown is investigating the magnitude of previously deferred revenues under extended warranty service agreements containing approved assignment language and is exploring with its auditors the possibility of advancing recognition of a portion of the deferred revenues generated under these agreements.
Hometown will hold a conference call to discuss its results for the second quarter on Thursday, August 15, 2002 at 4:00 p.m. (EDT). Interested parties can participate by dialing 800-450-0788 (in the U.S.) or 612-332-0923 (for international participants). A replay of the conference call will be available from 7:00 p.m. (EDT) on August 15, 2002 through 11:59 p.m. (EDT) on Sunday, August 18, 2002 by calling 800-475-6701 (U.S. callers) or 320-365-3844 (international callers) (access code: 649010).
About Hometown
Hometown Auto Retailers (www.htauto.com) 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 10 franchised dealerships located in New Jersey, New York, Connecticut, Massachusetts and Vermont. The company's dealerships offer 12 American and Asian automotive brands, including Chevrolet, Chrysler, Daewoo, Dodge, Ford, Isuzu, Jeep, Lincoln, Mazda, Mercury, Oldsmobile, and Toyota. Hometown also has a freestanding Ford and Lincoln Mercury factory authorized service center to provide maintenance and repair services of cars and trucks.
This release contains "forward-looking statements" based on current expectations but involving known and unknown risks and uncertainties. Actual results or achievements may be materially different from those expressed or implied. The company's plans and objectives are based on assumptions involving judgments with respect to future economic, competitive and market conditions, its ability to consummate, and the timing of, acquisitions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the company. Therefore, there can be no assurance than any forward-looking statement will prove to be accurate.
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,
2002 2001 2002 2001
(Restated) (Restated)
-------------------------------------------
Revenues
New vehicle sales $ 44,920 $ 41,351 $ 81,575 $ 76,010
Used vehicle sales 19,923 24,306 40,037 42,591
Parts and service sales 5,928 6,642 12,030 12,590
Other, net 2,231 2,155 4,453 3,910
-------- -------- -------- --------
Total revenues 73,002 74,454 138,095 135,101
Cost of sales
New vehicle 42,122 38,681 76,555 70,915
Used vehicle 18,170 21,955 36,431 38,326
Parts and service 2,609 2,762 5,401 5,614
-------- -------- -------- --------
Total cost of sales 62,901 63,398 118,387 114,855
-------- -------- -------- --------
Gross profit 10,101 11,056 19,708 20,246
Amortization of goodwill - 175 - 353
Selling, general and
administrative expenses 8,779 8,913 17,151 16,444
-------- -------- -------- --------
Income from operations 1,322 1,968 2,557 3,449
Interest income 4 29 21 30
Interest (expense) (834) (1,096) (1,685) (2,367)
Other income 18 - 24 254
Other (expense) (1) (1) (3) (2)
-------- -------- -------- --------
Income before taxes 509 900 914 1,364
Provision for income taxes 200 291 370 558
-------- -------- -------- --------
Net income $ 309 $ 609 $ 544 $ 806
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Earnings per share, basic $ 0.04 $ 0.10 $ 0.08 $ 0.13
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Earnings per share,
diluted $ 0.04 $ 0.10 $ 0.08 $ 0.11
======== ======== ======== ========
Weighted average shares
outstanding, basic 7,175,105 6,000,109 7,175,105 6,000,109
Weighted average shares
outstanding, diluted 7,175,105 6,200,109 7,175,105 7,111,146
HOMETOWN AUTO RETAILERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 30, December 31,
ASSETS 2002 2001
(Unaudited)
------------- -------------
Current Assets:
Cash and cash equivalents $ 4,136 $ 4,446
Accounts receivable, net 6,295 5,656
Inventories, net 37,746 31,887
Prepaid expenses and other current
assets 381 344
Deferred income taxes and taxes
receivable 955 1,681
-------- --------
Total current assets 49,513 44,014
Property and equipment, net 12,630 11,889
Goodwill, net 23,708 23,708
Other assets 2,718 2,231
-------- --------
Total assets $ 88,569 $ 81,842
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Floor plan notes payable $ 39,210 $ 32,553
Accounts payable and accrued
expenses 5,824 6,160
Current maturities of long-term debt
and capital lease
obligations 758 709
Deferred revenue 579 476
-------- --------
Total current liabilities 46,371 39,898
Long-term debt and capital lease
obligations 12,433 12,797
Long-term deferred income taxes 830 721
Other long-term liabilities and
deferred revenue 909 974
-------- --------
Total liabilities 60,543 54,390
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, 3,563,605 and 3,561,605
shares issued and outstanding 3 3
Common stock, Class B, $.001 par
value, 3,760,000 shares
authorized, 3,611,500 and 3,613,500
shares issued and outstanding 4 4
Additional paid-in capital 29,760 29,730
Accumulated deficit (1,741) (2,285)
-------- --------
Total stockholders' equity 28,026 27,452
-------- --------
Total liabilities and
stockholders' equity $ 88,569 $ 81,842
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