SEC Company Response from HOMETOWN AUTO RETAILERS INC (CIK 0001061117) — Jul 8, 2005
HOMETOWN AUTO RETAILERS INC (CIK 0001061117)
Date: July 8, 2005 · CIK: 0001061117 · Accession: 0001144204-05-020985
AI Filing Summary & Sentiment
Referenced dates: June 13, 2005
Letter
Re: Hometown Auto Retailers, Inc. Form - 10-K for Fiscal Year ended December 31, 2004, Filed March 24, 2005 Form - 10-Q for Fiscal Quarter ended March 31, 2005 File No. 0-24669
Dear Mr. Ohsiek:
This will respond to the staff's letter of comments dated June 13, 2005. For ease of reference, the comments in the letter are reproduced below with our response shown in boldface immediately below the comment.
General
1.
Where a comment below requests additional disclosures or other revisions to be made, these revisions should be included in your future filings, as applicable.
Hometown will make additional disclosures or other revisions to future filings as applicable.
Form 10-K for Fiscal Year Ended December 31, 2004
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 23
2.
Please include an overview section in your future filings. We assume that this section could include a summarized discussion of important information such as sales and gross profit for new car sales, used car sales, parts and service and finance and insurance for all periods presented, a table of key performance indicators used by management, new and used car unit sales information, etc. Any tabular or statistical disclosures should be accompanied by a narrative explaining the most significant aspects of your performance at an overview level. Please refer to SEC Release No. 33-8350 for guidance and tell us how you intend to revise future filings.
Hometown will revise future filings (using SEC Release No. 33-8350 for guidance) similar to the following for all periods presented:
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 8 franchised dealerships 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.
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, which primarily affect parts and service and (iii) consumer buying patterns. Sales also fluctuate due to other items such as availability of credit, consumer confidence in the economy, industry competition, international conflicts and fuel prices among others.
We assess the growth of our revenues and gross profit by comparing the year-to-year results of our dealerships that have operated continuously during the periods being compared. Hometown’s operating results reflect the sale of a Chrysler/Jeep sales and service franchise on June 3, 2003. At that time, sales of new vehicles along with parts and service stopped at that location while sales of used vehicles continued until August 2004 contributing to decreases in sales and gross profit from 2003 to 2004. We have segregated that dealership’s operations in the analysis that follows to allow for a better comparison of the results. Also, during the fourth quarter of 2004, Hometown announced that it had resolved in principal to resolve certain litigation matters (See Item 3 - Legal Proceedings), which provides for the transfer of the Westwood Lincoln Mercury dealership upon receipt of manufacturer approval.
Revenues are generated from: (i) the sale of new vehicles to (a) retail customers and (b) commercial customers, referred to as fleet; (ii) the sale of used vehicles to (a) retail customers and (b) other dealers at auctions, referred to as wholesale; (iii) parts and service sales; and (iv) the sale of third-party extended warranty products and the arrangement of third-party financing and insurance for which the company receives a fee, referred to as other revenues. We assess revenue results by a year-to-year comparison as follows: new and used vehicle revenues on unit volumes, parts and service revenues on aggregate revenues and other on per retail vehicle.
The past few years has shown a decrease in used vehicle sales as manufacturers have continued to promote demand for new vehicles through offering various incentive programs including cash rebates and low interest financing. It is not expected that the manufacturers will stop these promotions.
Our gross profit percentage varies with product mix and varies across product lines. Parts and service revenues generate the highest gross profit percentages, followed generally by used vehicle sales and new vehicle sales. Other revenues are recorded net. We assess gross profit results by a year-to-year comparison as follows: new and used vehicle gross profit per retail vehicle, parts and service on aggregate gross profit and other on gross profit per retail vehicle.
Selling, general and administrative expenses (“SG&A”) consist of: compensation and related taxes and benefits, advertising, building costs (rent, utilities, real estate taxes, depreciation), data processing and other operating expenses. A large amount of compensation is variable in that it is commission based and certain significant expenses, such as advertising, are controllable.
Interest expense primarily relates to indebtedness incurred in connection with new and used vehicle inventories. Other interest expense consists of all other interest charges on interest bearing debt including capitalized leases.
The following will be added to the Revenues discussion.
Revenues
For the Year Ended
December 31,
Increase
%
(in thousands, except per vehicle data)
(Decrease)
Change
New vehicle data:
Retail revenues - same store
Retail revenues - sold store (1)
Total new retail revenues
Fleet Revenues - same store
Total new vehicles revenues, as reported
New retail units - same store
New retail units - sold store (1)
Fleet units
Total new vehicle units
Used vehicle data:
Retail revenues - same store
Retail revenues - sold store (1)
Total used retail revenues
Wholesale revenues - same store
Wholesale revenues - sold store (1)
Total wholesale revenues
Total used vehicle revenue, as reported
Used retail units
Used wholesale units
Total used units
Parts and service:
Parts and service revenues - same store
Parts and service revenues - sold store (1)
Total parts and service revenue
Other revenues, net
Other revenues, net - same store
Other revenues, net - sold store (1)
Total other revenues, net, as reported
Total revenue
Same store
Sold store (1)
Total revenue, as reported
The following will be added to the Gross Profit discussion.
Gross profit
For the Year Ended
Increase
%
December 31,
(Decrease)
Change
(in thousands, except per vehicle data)
New vehicle data:
Retail gross profit - same store
Retail gross profit - sold store (1)
Total new retail gross profit
Gross profit percentage
Fleet gross profit - same store
Gross profit percentage
Total new vehicles gross profit, as reported
Gross profit percentage
New retail units - same store
New retail units - sold store (1)
Fleet units
Total new vehicle units
Used vehicle data:
Retail gross profit - same store
Retail gross profit - sold store (1)
Total used retail gross profit
Gross profit percentage
Wholesale gross profit - same store
Wholesale gross profit - sold store (1)
Total wholesale gross profit
Gross profit percentage
Total used vehicle gross profit, as reported
Gross profit percentage
Used retail units
Used wholesale units
Total used units
Parts and service:
Parts and service gross profit - same store
Parts and service gross profit - sold store (1)
Total parts and service revenue
Gross profit percentage
Other gross profit
Other gross profit - same store
Other gross profit - sold store (1)
Total other gross profit, as reported
Gross profit percentage
Total gross profit
Same store
Sold store (1)
Total gross profit, as reported
Gross profit per retail vehicle - same store
Gross profit per retail vehicle - sold store (1)
Gross profit per retail vehicle - as reported
(1) Represents sale of a Chrysler/Jeep sales and service franchise on June 3, 2003.
3.
Where you identify intermediate causes of changes in your operating results, also describe the reasons underlying the intermediate causes. For example, you indicate that the decrease in total revenues-from fiscal year 2003 to 2004 is attributable to a reduction of units sold partially offset by an increase in average selling price. While this information is beneficial to the reader, you do not explain why unit sales decreased or average selling price increased. A discussion of the relevant factors and trends that led to these movements, such as new product lines or changes in manufacturer promotions, would be beneficial to the reader. See SEC Release No. 33-8350.
In future discussions of changes in operating results, the Company will discuss the relevant factors that led to the movements discussed.
4.
Your presentation of gross profit percentages and gross profit fluctuations excluding the impact of fleet sales represent non-GAAP measures subject to the disclosure and reconciliation requirements in Item 10(e) of Regulation S-K. While there is no per se prohibition against adjusting non-GAAP performance measures to exclude recurring type items such as these, you must meet the burden of demonstrating the usefulness of any non-GAAP measures which exclude recurring items. Thus please disclose the following information in future filings:
·
The manner in which you use the non-GAAP measure to conduct or evaluate business;
·
The economic substance behind your decision to use such a measure;
·
The material limitations associated with use of the non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure;
·
The substantive reasons why you believe the non-GAAP financial measure provides useful information to investors.
In addition to the above guidance, please ensure that you provide a reconciliation, preferably in tabular form, which reconciles the non-GAAP measure to your gross margin as calculated in accordance with GAAP. Show us what the revised disclosures will look like. We may have further comment. For further guidance, see Item 10(e) of Regulation S-K and questions 8 and 9 o
Show Raw Text
CORRESP
1
filename1.htm
Unassociated Document
1309
South Main Street, Waterbury, CT 06706 (203) 756-1300
July
7,
2005
Mr.
George F. Ohsiek, Jr.
Branch
Chief
The
United States Securities and Exchange Commission
100
F
Street, N.E.
Washington,
DC 20549
Re:
Hometown Auto Retailers, Inc.
Form - 10-K for Fiscal Year ended December
31, 2004, Filed March 24, 2005
Form - 10-Q for Fiscal Quarter ended
March
31, 2005
File No.
0-24669
Dear
Mr.
Ohsiek:
This
will
respond to the staff's letter of comments dated June 13, 2005. For ease of
reference, the comments in the letter are reproduced below with our response
shown in boldface immediately below the comment.
General
1.
Where
a comment below requests additional disclosures or other revisions
to be
made, these revisions should be included in your future filings,
as
applicable.
Hometown
will make additional disclosures or other revisions to future filings as
applicable.
Form
10-K for Fiscal Year Ended December 31, 2004
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 23
2.
Please
include an overview section in your future filings. We assume that
this
section could include a summarized discussion of important information
such as sales and gross profit for new car sales, used car sales,
parts
and service and finance and insurance for all periods presented,
a table
of key performance indicators used by management, new and used car
unit
sales information, etc. Any tabular or statistical disclosures should
be
accompanied by a narrative explaining the most significant aspects
of your
performance at an overview level. Please refer to SEC Release No.
33-8350
for guidance and tell us how you intend to revise future filings.
Hometown
will revise future filings (using SEC Release No. 33-8350 for guidance) similar
to the following for all periods presented:
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 8 franchised dealerships 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.
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, which primarily affect parts and service and (iii) consumer buying
patterns. Sales also fluctuate due to other items such as availability of
credit, consumer confidence in the economy, industry competition, international
conflicts and fuel prices among others.
We
assess the growth of our revenues and gross profit by comparing the year-to-year
results of our dealerships that have operated continuously during the periods
being compared. Hometown’s operating results reflect the sale of a Chrysler/Jeep
sales and service franchise on June 3, 2003. At that time, sales of new vehicles
along with parts and service stopped at that location while sales of used
vehicles continued until August 2004 contributing to decreases in sales and
gross profit from 2003 to 2004. We have segregated that dealership’s operations
in the analysis that follows to allow for a better comparison of the results.
Also, during the fourth quarter of 2004, Hometown announced that it had resolved
in principal to resolve certain litigation matters (See Item 3 - Legal
Proceedings), which provides for the transfer of the Westwood Lincoln Mercury
dealership upon receipt of manufacturer approval.
Revenues
are generated from: (i) the sale of new vehicles to (a) retail customers and
(b)
commercial customers, referred to as fleet; (ii) the sale of used vehicles
to
(a) retail customers and (b) other dealers at auctions, referred to as
wholesale; (iii) parts and service sales; and (iv) the sale of third-party
extended warranty products and the arrangement of third-party financing and
insurance for which the company receives a fee, referred to as other revenues.
We assess revenue results by a year-to-year comparison as follows: new and
used
vehicle revenues on unit volumes, parts and service revenues on aggregate
revenues and other on per retail vehicle.
The
past few years has shown a decrease in used vehicle sales as manufacturers
have
continued to promote demand for new vehicles through offering various incentive
programs including cash rebates and low interest financing. It is not expected
that the manufacturers will stop these promotions.
2
Our
gross profit percentage varies with product mix and varies across product lines.
Parts and service revenues generate the highest gross profit percentages,
followed generally by used vehicle sales and new vehicle sales. Other revenues
are recorded net. We assess gross profit results by a year-to-year comparison
as
follows: new and used vehicle gross profit per retail vehicle, parts and service
on aggregate gross profit and other on gross profit per retail
vehicle.
Selling,
general and administrative expenses (“SG&A”) consist of: compensation and
related taxes and benefits, advertising, building costs (rent, utilities, real
estate taxes, depreciation), data processing and other operating expenses.
A
large amount of compensation is variable in that it is commission based and
certain significant expenses, such as advertising, are controllable.
Interest
expense primarily relates to indebtedness incurred in connection with new and
used vehicle inventories. Other interest expense consists of all other interest
charges on interest bearing debt including capitalized
leases.
The
following will be added to the Revenues discussion.
Revenues
For
the Year Ended
December
31,
Increase
%
(in
thousands, except per vehicle data)
2004
2003
(Decrease)
Change
New
vehicle data:
Retail
revenues - same store
Retail
revenues - sold store (1)
Total
new retail revenues
Fleet
Revenues - same store
Total
new vehicles revenues, as reported
New
retail units - same store
New
retail units - sold store (1)
Fleet
units
Total
new vehicle units
Used
vehicle data:
Retail
revenues - same store
Retail
revenues - sold store (1)
Total
used retail revenues
Wholesale
revenues - same store
Wholesale
revenues - sold store (1)
Total
wholesale revenues
Total
used vehicle revenue, as reported
Used
retail units
Used
wholesale units
Total
used units
Parts
and service:
Parts
and service revenues - same store
Parts
and service revenues - sold store (1)
Total
parts and service revenue
Other
revenues, net
Other
revenues, net - same store
Other
revenues, net - sold store (1)
Total
other revenues, net, as reported
Total
revenue
Same
store
Sold
store (1)
Total
revenue, as reported
The
following will be added to the Gross Profit
discussion.
3
Gross
profit
For
the Year Ended
Increase
%
December
31,
(Decrease)
Change
(in
thousands, except per vehicle data)
2004
2003
New
vehicle data:
Retail
gross profit - same store
Retail
gross profit - sold store (1)
Total
new retail gross profit
Gross
profit percentage
Fleet
gross profit - same store
Gross
profit percentage
Total
new vehicles gross profit, as reported
Gross
profit percentage
New
retail units - same store
New
retail units - sold store (1)
Fleet
units
Total
new vehicle units
Used
vehicle data:
Retail
gross profit - same store
Retail
gross profit - sold store (1)
Total
used retail gross profit
Gross
profit percentage
Wholesale
gross profit - same store
Wholesale
gross profit - sold store (1)
Total
wholesale gross profit
Gross
profit percentage
Total
used vehicle gross profit, as reported
Gross
profit percentage
Used
retail units
Used
wholesale units
Total
used units
Parts
and service:
Parts
and service gross profit - same store
Parts
and service gross profit - sold store (1)
Total
parts and service revenue
Gross
profit percentage
Other
gross profit
Other
gross profit - same store
Other
gross profit - sold store (1)
Total
other gross profit, as reported
Gross
profit percentage
Total
gross profit
Same
store
Sold
store (1)
Total
gross profit, as reported
Gross
profit per retail vehicle - same store
Gross
profit per retail vehicle - sold store (1)
Gross
profit per retail vehicle - as reported
(1)
Represents sale of a Chrysler/Jeep sales and service franchise on June 3,
2003.
4
3.
Where
you identify intermediate causes of changes in your operating results,
also describe the reasons underlying the intermediate causes. For
example,
you indicate that the decrease in total revenues-from fiscal year
2003 to
2004 is attributable to a reduction of units sold partially offset
by an
increase in average selling price. While this information is beneficial
to
the reader, you do not explain why unit sales decreased or average
selling
price increased. A discussion of the relevant factors and trends
that led
to these movements, such as new product lines or changes in manufacturer
promotions, would be beneficial to the reader. See SEC Release No.
33-8350.
In
future discussions of changes in operating results, the Company will discuss
the
relevant factors that led to the movements discussed.
4.
Your
presentation of gross profit percentages and gross profit fluctuations
excluding the impact of fleet sales represent non-GAAP measures subject
to
the disclosure and reconciliation requirements in Item 10(e) of Regulation
S-K. While there is no per
se prohibition
against adjusting non-GAAP performance measures to exclude recurring
type
items such as these, you must meet the burden of demonstrating the
usefulness of any non-GAAP measures which exclude recurring items.
Thus
please disclose the following information in future filings:
·
The
manner in which you use the non-GAAP measure to conduct or evaluate
business;
·
The
economic substance behind your decision to use such a measure;
·
The
material limitations associated with use of the non-GAAP financial
measure
as compared to the use of the most directly comparable GAAP financial
measure;
·
The
substantive reasons why you believe the non-GAAP financial measure
provides useful information to investors.
In
addition to the above guidance, please ensure that you provide a reconciliation,
preferably in tabular form, which reconciles the non-GAAP measure to your gross
margin as calculated in accordance with GAAP. Show us what the revised
disclosures will look like. We may have further comment. For further guidance,
see Item 10(e) of Regulation S-K and questions 8 and 9 o