UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 1-13395

______________________________________

SONIC AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

______________________________________

Delaware	56-2010790
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4401 Colwick Road		28211
Charlotte,	North Carolina
(Address of principal executive offices)		(Zip Code)

(704) 566-2400

(Registrant’s telephone number, including area code)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	SAH	New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of October 22, 2024, there were 22,160,687 shares of the registrant’s Class A Common Stock, par value $0.01 per share, and 12,029,375 shares of the registrant’s Class B Common Stock, par value $0.01 per share, outstanding.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This report contains, and written or oral statements made from time to time by us or by our authorized officers may contain, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address our future objectives, plans and goals, as well as our intent, beliefs and current expectations regarding future operating performance, results and events, and can generally be identified by words such as “may,” “will,” “should,” “could,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee” and other similar words or phrases.

These forward-looking statements are based on our current estimates and assumptions and involve various risks and uncertainties. As a result, you should not place undue reliance on these statements, and you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors which may cause actual results to differ materially from our projections include those risks described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 and in “Item 1A. Risk Factors” of this report and elsewhere herein, as well as:

•the number of new and used vehicles sold in the United States as compared to our expectations and the expectations of the market;

•our ability to generate sufficient cash flows or to obtain additional financing to fund our business expansion, capital expenditures, our share repurchase program, dividends on our common stock, acquisitions and general operating activities;

•our business and growth strategies, including, but not limited to, our EchoPark store operations;

•the reputation and financial condition of vehicle manufacturers whose brands we represent, the financial incentives vehicle manufacturers offer and their ability to design, manufacture, deliver and market their vehicles successfully;

•our relationships with vehicle manufacturers, which may affect our ability to obtain desirable new vehicle models in inventory or to complete additional acquisitions or dispositions;

•the adverse resolution of one or more significant legal proceedings against us or our subsidiaries;

•changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental laws;

•changes in vehicle and parts import quotas, duties, tariffs or other restrictions, including supply shortages that could be caused by global political and economic factors or other supply chain disruptions;

•the inability of vehicle manufacturers and their suppliers to obtain, produce and deliver vehicles or parts and accessories to meet demand at our franchised dealerships for sale and use in our parts, service and collision repair operations;

•general economic conditions in the markets in which we operate, including fluctuations in interest rates, inflation, vehicle valuations, employment levels, the level of consumer spending and consumer credit availability;

•high levels of competition in the retail automotive industry, which not only create pricing pressures on the products and services we offer, but also on businesses we may seek to acquire;

•our ability to successfully integrate recent or future acquisitions;

•the rate and timing of recovery from, and the impact of, the CDK Global software outage and future cybersecurity incidents on our business;

•the significant control that our principal stockholders exercise over us and our business matters; and

•the rate and timing of overall economic expansion or contraction.

These forward-looking statements speak only as of the date of this report or when made, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances, except as required under the federal securities laws and the rules and regulations of the U.S. Securities and Exchange Commission.

SONIC AUTOMOTIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Operations	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	81
PART II – OTHER INFORMATION		82
Item 1.	Legal Proceedings	82
Item 1A.	Risk Factors	83
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 5.	Other Information	85
Item 6.	Exhibits	86
SIGNATURES		87

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars and shares in millions, except per share amounts)
Revenues:
Retail new vehicles	$	1,566.8	$	1,573.5	$	4,575.2	$	4,624.4
Fleet new vehicles	22.2		23.2		68.0		70.4
Total new vehicles	1,589.0		1,596.7		4,643.2		4,694.8
Used vehicles	1,180.7		1,340.4		3,582.5		3,991.2
Wholesale vehicles	67.2		79.3		215.8		256.3
Total vehicles	2,836.9		3,016.4		8,441.5		8,942.3
Parts, service and collision repair	479.0		453.4		1,369.8		1,327.6
Finance, insurance and other, net	175.6		173.7		517.2		517.7
Total revenues	3,491.5		3,643.5		10,328.5		10,787.6
Cost of sales (1):
Retail new vehicles	(1,479.2)		(1,442.1)		(4,293.4)		(4,213.5)
Fleet new vehicles	(21.6)		(22.3)		(65.7)		(67.3)
Total new vehicles	(1,500.8)		(1,464.4)		(4,359.1)		(4,280.8)
Used vehicles	(1,139.5)		(1,288.1)		(3,449.6)		(3,877.4)
Wholesale vehicles	(68.5)		(80.7)		(218.5)		(255.8)
Total vehicles	(2,708.8)		(2,833.2)		(8,027.2)		(8,414.0)
Parts, service and collision repair	(239.1)		(228.1)		(682.4)		(669.0)
Total cost of sales	(2,947.9)		(3,061.3)		(8,709.6)		(9,083.0)
Gross profit	543.6		582.2		1,618.9		1,704.6
Selling, general and administrative expenses	(392.1)		(409.6)		(1,177.4)		(1,214.2)
Impairment charges	—		—		(2.4)		(62.6)
Depreciation and amortization	(37.9)		(35.2)		(111.1)		(105.7)
Operating income	113.6		137.4		328.0		322.1
Other income (expense):
Interest expense, floor plan	(23.0)		(17.4)		(65.4)		(48.9)
Interest expense, other, net	(29.8)		(29.0)		(88.1)		(86.2)
Other income (expense), net	—		0.2		(0.5)		0.3
Total other income (expense)	(52.8)		(46.2)		(154.0)		(134.8)
Income before taxes	60.8		91.2		174.0		187.3
Provision for income taxes - benefit (expense)	13.4		(22.8)		(16.6)		(47.8)
Net income	$	74.2	$	68.4	$	157.4	$	139.5
Basic earnings per common share:
Earnings per common share	$	2.18	$	1.96	$	4.63	$	3.94
Weighted-average common shares outstanding	34.0		34.9		34.0		35.4
Diluted earnings per common share:
Earnings per common share	$	2.13	$	1.92	$	4.52	$	3.85
Weighted-average common shares outstanding	34.9		35.6		34.8		36.2

    (1) Cost of sales is exclusive of depreciation and amortization shown separately below.

See notes to unaudited condensed consolidated financial statements.

1

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in millions)
Net income	$	74.2	$	68.4	$	157.4	$	139.5
Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements	(0.3)		0.3		0.9		1.5
Total other comprehensive income (loss) before taxes	(0.3)		0.3		0.9		1.5
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	0.1		(0.1)		(0.2)		(0.4)
Other comprehensive income (loss)	(0.2)		0.2		0.7		1.1
Comprehensive income	$	74.0	$	68.6	$	158.1	$	140.6

See notes to unaudited condensed consolidated financial statements.

2

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2024		December 31, 2023
	(Dollars in millions, except per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents	$	17.6	$	28.9
Receivables, net	436.6		528.1
Inventories	1,918.8		1,578.3
Other current assets	438.4		385.1
Total current assets	2,811.4		2,520.4
Property and Equipment, net	1,602.9		1,601.0
Goodwill	347.1		253.8
Other Intangible Assets, net	417.4		417.4
Operating Right-of-Use Lease Assets	205.2		222.6
Finance Right-of-Use Lease Assets	293.9		236.6
Other Assets	80.3		112.8
Total Assets	$	5,758.2	$	5,364.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade	$	159.9	$	152.1
Notes payable - floor plan - non-trade	1,675.2		1,520.6
Trade accounts payable	148.5		149.8
Operating short-term lease liabilities	25.6		29.9
Finance short-term lease liabilities	11.0		10.2
Other accrued liabilities	400.6		370.2
Current maturities of long-term debt	117.7		60.1
Total current liabilities	2,538.5		2,292.9
Long-Term Debt	1,578.2		1,616.5
Other Long-Term Liabilities	106.9		89.6
Operating Long-Term Lease Liabilities	200.8		219.2
Finance Long-Term Lease Liabilities	318.8		254.5
Commitments and Contingencies
Stockholders’ Equity:
Class A Convertible Preferred Stock, none issued	—		—
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 69,344,295 shares issued and 22,155,687 shares outstanding at September 30, 2024; 68,618,393 shares issued and 21,931,785 shares outstanding at December 31, 2023	0.7		0.7
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at September 30, 2024 and December 31, 2023	0.1		0.1
Paid-in capital	878.2		855.4
Retained earnings	1,365.3		1,238.6
Accumulated other comprehensive income (loss)	2.3		1.6
Treasury stock, at cost; 47,188,608 Class A Common Stock shares held at September 30, 2024 and 46,686,608 Class A Common Stock shares held at December 31, 2023	(1,231.6)		(1,204.5)
Total Stockholders’ Equity	1,015.0		891.9
Total Liabilities and Stockholders’ Equity	$	5,758.2	$	5,364.6

See notes to unaudited condensed consolidated financial statements.

3

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in millions, except per share amounts)
Balance at June 30, 2023	68.4	$	0.7	(45.0)	$	(1,117.6)	12.0	$	0.1	$	839.8	$	1,151.2	$	2.5	$	876.7
Shares awarded under stock compensation plans	0.1	—		—	—		—	—		1.8		—		—		1.8
Purchases of treasury stock	—	—		(1.7)	(86.8)		—	—		—		—		—		(86.8)
Effect of cash flow hedge instruments, net of tax expense of $0.1	—	—		—	—		—	—		—		—		0.2		0.2
Stock compensation expense	—	—		—	—		—	—		6.7		—		—		6.7
Net income	—	—		—	—		—	—		—		68.4		—		68.4
Class A dividends declared ($0.29 per share)	—	—		—	—		—	—		—		(6.0)		—		(6.0)
Class B dividends declared ($0.29 per share)	—	—		—	—		—	—		—		(3.5)		—		(3.5)
Balance at September 30, 2023	68.5	$	0.7	(46.7)	$	(1,204.4)	12.0	$	0.1	$	848.3	$	1,210.1	$	2.7	$	857.5

	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in millions, except per share amounts)
Balance at June 30, 2024	69.3	$	0.7	(47.2)	$	(1,231.6)	12.0	$	0.1	$	871.6	$	1,301.4	$	2.5	$	944.7
Shares awarded under stock compensation plans	—	—		—	—		—	—		1.1		—		—		1.1
Purchases of treasury stock	—	—		—	—		—	—		—		—		—		—
Effect of cash flow hedge instruments, net of tax benefit of $0.1	—	—		—	—		—	—		—		—		(0.2)		(0.2)
Stock compensation expense	—	—		—	—		—	—		5.5		—		—		5.5
Net income	—	—		—	—		—	—		—		74.2		—		74.2
Class A dividends declared ($0.30 per share)	—	—		—	—		—	—		—		(6.6)		—		(6.6)
Class B dividends declared ($0.30 per share)	—	—		—	—		—	—		—		(3.7)		—		(3.7)
Balance at September 30, 2024	69.3	$	0.7	(47.2)	$	(1,231.6)	12.0	$	0.1	$	878.2	$	1,365.3	$	2.3	$	1,015.0

See notes to unaudited condensed consolidated financial statements.

4

	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in millions, except per share amounts)
Balance at December 31, 2022	67.6	$	0.7	(43.4)	$	(1,026.9)	12.0	$	0.1	$	819.4	$	1,100.3	$	1.6	$	895.2
Shares awarded under stock compensation plans	0.9	—		—	—		—	—		11.6		—		—		11.6
Purchases of treasury stock	—	—		(3.3)	(177.5)		—	—		—		—		—		(177.5)
Effect of cash flow hedge instruments, net of tax expense of $0.4	—	—		—	—		—	—		—		—		1.1		1.1
Stock compensation expense	—	—		—	—		—	—		17.3		—		—		17.3
Net income	—	—		—	—		—	—		—		139.5		—		139.5
Class A dividends declared ($0.86 per share)	—	—		—	—		—	—		—		(19.4)		—		(19.4)
Class B dividends declared ($0.86 per share)	—	—		—	—		—	—		—		(10.3)		—		(10.3)
Balance at September 30, 2023	68.5	$	0.7	(46.7)	$	(1,204.4)	12.0	$	0.1	$	848.3	$	1,210.1	$	2.7	$	857.5

	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in millions, except per share amounts)
Balance at December 31, 2023	68.6	$	0.7	(46.7)	$	(1,204.5)	12.0	$	0.1	$	855.4	$	1,238.6	$	1.6	$	891.9
Shares awarded under stock compensation plans	0.7	—		—	—		—	—		4.8		—		—		4.8
Purchases of treasury stock	—	—		(0.5)	(27.1)		—	—		—		—		—		(27.1)
Effect of cash flow hedge instruments, net of tax expense of $0.2	—	—		—	—		—	—		—		—		0.7		0.7
Stock compensation expense	—	—		—	—		—	—		18.0		—		—		18.0
Net income	—	—		—	—		—	—		—		157.4		—		157.4
Class A dividends declared ($0.90 per share)	—	—		—	—		—	—		—		(19.8)		—		(19.8)
Class B dividends declared ($0.90 per share)	—	—		—	—		—	—		—		(10.9)		—		(10.9)
Balance at September 30, 2024	69.3	$	0.7	(47.2)	$	(1,231.6)	12.0	$	0.1	$	878.2	$	1,365.3	$	2.3	$	1,015.0

See notes to unaudited condensed consolidated financial statements.

5

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2024		2023
	(Dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	157.4	$	139.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	96.2		92.0
Debt issuance cost amortization	4.2		4.9
Stock-based compensation expense	18.0		17.3
Deferred income taxes	(10.7)		(10.5)
Asset impairment charges	2.4		62.6
Loss (gain) on disposal of dealerships and property and equipment	0.6		(18.1)
Other	1.2		0.3
Changes in assets and liabilities that relate to operations:
Receivables	100.6		49.2
Inventories	(347.3)		(230.7)
Other assets	(69.5)		(7.2)
Notes payable - floor plan – trade	7.8		6.3
Trade accounts payable and other liabilities	60.6		(1.4)
Total adjustments	(135.9)		(35.3)
Net cash provided by operating activities	21.5		104.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired	—		(75.1)
Purchases of land, property and equipment	(145.9)		(153.6)
Proceeds from sales of property and equipment	50.7		5.1
Proceeds from sales of dealerships	8.2		52.2
Net cash used in investing activities	(87.0)		(171.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable - floor plan - non-trade	99.6		153.5
Borrowings on revolving credit facilities	77.5		—
Repayments on revolving credit facilities	(77.5)		—
Proceeds from issuance of long-term debt	78.0		—
Debt issuance costs	(5.7)		(1.6)
Principal payments of long-term debt	(57.9)		(71.5)
Principal payments of long-term lease liabilities	(6.9)		(11.7)
Purchases of treasury stock	(27.1)		(177.5)
Issuance of shares under stock compensation plans	4.8		11.6
Dividends paid	(30.6)		(30.2)
Net cash provided by (used in) financing activities	54.2		(127.4)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(11.3)		(194.6)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	28.9		229.2
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	17.6	$	34.6
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, including amounts capitalized	$	135.9	$	115.0
Income taxes	$	51.2	$	73.4

See notes to unaudited condensed consolidated financial statements.

6

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements of Sonic Automotive, Inc. and its wholly owned subsidiaries (collectively referred to herein as “Sonic,” the “Company,” “we,” “us” or “our”) for the three and nine months ended September 30, 2024 and 2023 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (the “U.S.”) (“GAAP”) for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all material normal, recurring adjustments necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2023. Due to rounding, segment level financial data may not sum to consolidated results.

CDK Outage – On June 19, 2024, CDK Global (“CDK”), a third-party provider of certain information systems, notified the Company that CDK had suspended certain systems used by the Company in response to a cybersecurity incident impacting CDK (the “CDK outage”). As a result, the Company experienced disruptions to its dealer management system (“DMS”), its customer relationship management system (the “CRM”) and other systems that support sales, inventory and accounting functions (collectively with the DMS and the CRM the “Affected Systems”). On June 26, 2024, CDK began restoring access to certain of those Affected Systems. The Company performed internal risk assessments and data validation procedures on the Affected Systems, and, beginning on June 30, 2024, the Company resumed processing transactions in the DMS. As of July 31, 2024, the Company regained access to all of the Affected Systems, including CRM and inventory management applications.

During the CDK outage, all of the Company’s dealerships remained open and operating, utilizing workaround solutions to minimize the disruption caused by the CDK outage. However, the lack of access to the Affected Systems disrupted the efficient execution of the Company’s dealership operations and affected its ability to manage inventory, track customer leads, deliver vehicles and complete transactions with customers in a typical transaction timeframe, resulting in a negative impact to the Company’s business and results from operations during the quarters ended June 30, 2024 and September 30, 2024.

Recent Accounting Pronouncements – Please refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of recent accounting pronouncements.

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments require the disclosure of significant segment expenses as well as expanded interim disclosures, along with other changes to segment disclosure requirements. The standard will be effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. We are currently evaluating the impact that the adoption of the provisions of the ASU will have on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires greater disaggregation of income tax disclosures. The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted. We are currently evaluating the impacts of this guidance on our consolidated financial statements.

Principles of Consolidation – All of our dealership and non-dealership subsidiaries are wholly owned and consolidated in the accompanying unaudited condensed consolidated financial statements, except for one 50%-owned dealership that is accounted for under the equity method. All material intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. Certain amounts and percentages may not compute due to rounding.

Revenue Recognition – Revenue is recognized when a customer obtains control of promised goods or services and in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. We do not include the cost of obtaining contracts within the related revenue streams since we elected the practical expedient to expense the costs to obtain a contract when incurred.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Management has evaluated our established business processes, revenue transaction streams and accounting policies, and identified our material revenue streams to be: (1) the sale of new vehicles; (2) the sale of used vehicles to retail customers; (3) the sale of wholesale used vehicles at third-party auctions; (4) the arrangement of third-party vehicle financing and the sale of third-party service, warranty and other insurance contracts; and (5) the performance of vehicle maintenance and repair services and the sale of related parts and accessories. The transaction price for a retail vehicle sale is specified in the contract with the customer and encompasses both cash and non-cash considerations. In the context of a retail vehicle sale, customers frequently trade in their existing vehicles. The value of this trade-in is determined based on its stand-alone selling price as specified in the contract, utilizing various third-party pricing sources. There are no other non-cash forms of consideration associated with retail vehicle sales, and sales are reported net of sales tax and other similar assets. Generally, performance obligations are satisfied when the associated vehicle is delivered to a customer and customer acceptance has occurred, over time as the maintenance and repair services are performed, or at the time of wholesale and retail parts sales. We do not have any revenue streams with significant financing components, as payments are typically received within a short period of time following completion of the performance obligation(s).

Retrospective finance and insurance revenues (“F&I retro revenues”) are recognized when the product contract has been executed with the end customer and the transaction price is estimated each reporting period based on the expected value method using historical and projected data. F&I retro revenues can vary based on a variety of factors, including number of contracts and history of cancellations and claims. Accordingly, we utilize this historical and projected data to constrain the consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

We record revenue when vehicles are delivered to customers, as vehicle service work is performed and when parts are delivered. Conditions for completing a sale include having an agreement with the customer, including pricing, and it being probable that the proceeds from the sale will be collected.

The accompanying unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 include approximately $2.2 million and $31.8 million, respectively, related to contract assets from F&I retro revenues recognition, which are recorded in receivables, net. In addition, we recorded approximately $19.7 million related to contract assets from F&I retro revenues recognition in other assets as of September 30, 2024. Changes in contract assets from December 31, 2023 to September 30, 2024 were primarily due to ordinary business activity, including the receipt of cash for amounts earned and recognized in prior periods. Please refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of our revenue recognition policies and processes.

Out-of-Period Adjustment for the Correction of Errors – In the third quarter of 2024, Sonic identified errors in its previously issued financial statements. These errors have been corrected in the condensed consolidated financial statements for the three and nine months ended September 30, 2024, through a cumulative out-of-period adjustment. Sonic has determined that these errors are not material to the previously issued financial statements, and the cumulative out-of-period adjustment for the correction of these errors is also not material to the financial statements for the three and nine months ended September 30, 2024. Below is a summary of the corrected errors and their cumulative impact.

In 2022 when the Company completed its purchase accounting for the 2021 stock acquisition of RFJ Auto Partners, Inc., the Company failed to recognize deferred income tax liabilities associated with franchise assets recorded in purchase accounting. According to ASC 805-740-23-3, a deferred tax liability or asset should be recognized for an acquired entity's taxable or deductible temporary difference, except for differences relating to the portion of goodwill for which amortization is not deductible for tax purposes. This understated goodwill and deferred income tax liabilities by $93.5 million. In addition, due to the absence of deferred income tax liabilities related to these franchise assets, the 2022 impairment of certain of these franchise assets did not include a reduction in the related deferred income tax liabilities leading to an overstatement of income tax expense by $31.0 million. Sonic corrected these errors in the current period by recording an increase in goodwill of $93.5 million, increasing deferred income tax liabilities by $62.5 million and recording a benefit to deferred income tax expense of $31.0 million.

Income Taxes – During the three month period ended September 30, 2024, we identified an error related to certain tax benefits associated with the impairment of franchise assets in 2022 that impacted the Company's income statement for the three months ended March 31, 2022 and for the year-ended December 31, 2022, as well as interim and annual balance sheets for the periods since March 31, 2022. As a result, during the three-month period ended September 30, 2024, we recognized a $31.0 million discrete tax benefit related to tax benefits associated with the impairment of franchise assets in 2022 resulting in a favorable rate impact of 51.0% and 17.8% for the three and nine months ended September 30, 2024, respectively.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share – The calculation of diluted earnings per share considers the potential dilutive effect of outstanding restricted stock units, restricted stock and stock options granted under Sonic’s stock compensation plans (and any non-forfeitable dividends paid on such awards).

2. Business Acquisitions and Dispositions

We did not acquire any businesses during the nine months ended September 30, 2024. During the nine months ended September 30, 2023, we acquired one business (consisting of five locations) in our Powersports Segment (as defined below) for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $75.1 million. The allocation of the approximately $75.1 million aggregate gross purchase price included inventory of approximately $11.1 million, property and equipment of approximately $0.7 million, franchise assets of approximately $22.6 million, goodwill of approximately $11.9 million, real estate of approximately $29.0 million, other assets of approximately $0.1 million, and other liabilities of approximately $0.3 million.

During the nine months ended September 30, 2024, we terminated two luxury franchised dealerships and disposed of two mid-line import franchised dealerships, in addition to closing the remaining seven Northwest Motorsport stores within the EchoPark Segment (as defined below). The disposal of two mid-line import franchised dealerships generated net cash of approximately $8.2 million. During the nine months ended September 30, 2023, we disposed of one luxury franchised dealership, one domestic franchised dealership, and one mid-line import franchised dealership that generated net cash of approximately $52.2 million.

Revenues and other activities associated with disposed stores, terminated franchises or closed stores that remain in continuing operations were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(In millions)
Income (loss) from operations	$	(2.2)	$	(6.4)	$	(11.5)	$	(35.0)
Gain (loss) on disposal, termination and closure charges	0.1		(0.3)		(1.3)		20.4
Lease exit accrual adjustments and charges	1.2		(1.4)		7.4		(5.7)
Property impairment charges	—		—		—		(46.0)
Pre-tax income (loss)	(0.9)		(8.1)		(5.4)		(66.3)
Total Revenues	$	0.4	$	72.8	$	23.6	$	449.4

3. Inventories

Inventories consist of the following:

	September 30, 2024		December 31, 2023
	(In millions)
New vehicles	$	1,133.4	$	799.6
Used vehicles	498.1		505.7
Service loaners (1)	178.6		172.7
Parts, accessories and other	108.7		100.3
Inventories	$	1,918.8	$	1,578.3

(1)Service loaner inventory includes approximately $30.3 million and $22.7 million as of September 30, 2024 and December 31, 2023, respectively, related to vehicles that are leased directly from the manufacturer on a short-term basis. A corresponding liability is included within notes payable - floor plan - trade on the accompanying unaudited condensed consolidated balance sheets.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Property and Equipment

Property and equipment, net consists of the following:

	September 30, 2024		December 31, 2023
	(In millions)
Land	$	470.3	$	493.0
Buildings and improvements	1,494.7		1,425.8
Furniture, fixtures and equipment	562.2		563.3
Construction in progress	54.3		61.4
Total, at cost	2,581.5		2,543.5
Less accumulated depreciation	(969.2)		(927.8)
Subtotal	1,612.3		1,615.7
Less assets held for sale (1)	(9.4)		(14.7)
Property and equipment, net	$	1,602.9	$	1,601.0

(1)Classified in other current assets in the accompanying unaudited condensed consolidated balance sheets.

In the three and nine months ended September 30, 2024, capital expenditures were approximately $53.3 million and $145.9 million, respectively, and, in the three and nine months ended September 30, 2023, capital expenditures were approximately $78.1 million and $153.6 million, respectively. Capital expenditures in all periods were primarily related to construction of new franchised dealerships and powersports stores, and building improvements and equipment purchased for use in our franchised dealerships and EchoPark and powersports stores. Certain capital expenditures are recognized in the Franchised Dealerships Segment (as defined below) to better monitor project development costs prior to transferring the capitalized asset balance to the appropriate entity or operating segment upon project completion. Assets held for sale as of September 30, 2024 and December 31, 2023 consisted of real property not currently used in operations that we expect to dispose of in the next 12 months.

Fixed asset impairment charges for the nine months ended September 30, 2024 were approximately $2.4 million, which was related to the sale of real estate and capitalized IT project write-off costs and property associated with our decision to close the remaining Northwest Motorsport stores in January 2024. Fixed asset impairment charges for the nine months ended September 30, 2023 were approximately $32.5 million, the majority of which related to our decision to indefinitely suspend operations at certain locations with our EchoPark Segment and to close certain Northwest Motorsport stores.

5. Goodwill and Intangible Assets

In accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other,” we test goodwill for impairment at least annually (as of April 30 of each year) or more frequently if indications of impairment exist. The ASC also states that if an entity determines, based on an assessment of certain qualitative factors, that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative goodwill impairment test is unnecessary.

In performing a quantitative test for impairment of goodwill, we primarily use the income approach method of valuation that includes the discounted cash flow (“DCF”) method that utilizes inputs, including projected revenues, margin, terminal growth rates, discount rates and a market capitalization reconciliation.

We completed our annual impairment testing as of April 30, 2024 and determined there was no impairment.

In evaluating the recoverability of our indefinite lived franchise assets, we utilized a multi-period excess earnings method (“MPEEM”) model using unobservable inputs (Level 3) to estimate the fair value of the franchise assets for each of our franchises with recorded franchise assets. The significant assumptions in our MPEEM model include projected revenue, projected operating margins, a discount rate (and estimates in the discount rate inputs) and residual growth rates. We completed our annual impairment testing as of April 30, 2024 and determined there was no impairment.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The changes in the carrying amount of goodwill for the year ended December 31, 2023 and the nine months ended September 30, 2024 were as follows:

	Franchised Dealerships Segment		EchoPark Segment		Powersports Segment		Total
	(In millions)
Balance at December 31, 2022 (1)	$	221.8	$	—	$	9.2	$	231.0
Additions through current year acquisitions	—		—		11.9		11.9
Reductions from dispositions	(1.8)		—		—		(1.8)
Reductions from impairment	—		—		—		—
Prior year acquisition allocations	9.8		—		2.9		12.7
Balance at December 31, 2023 (1)	$	229.8	$	—	$	24.0	$	253.8
Additions through current year acquisitions	—		—		—		—
Reductions from dispositions	(0.2)		—		—		(0.2)
Reductions from impairment	—		—		—		—
Prior year acquisition allocations	93.5		—		—		93.5
Balance at September 30, 2024 (1)	$	323.1	$	—	$	24.0	$	347.1

(1)Net of accumulated impairment losses of $1.1 billion and $202.9 million related to the Franchised Dealerships Segment and the EchoPark Segment, respectively.

During the quarter ended September 30, 2024, we identified an error related to the goodwill associated with the purchase of certain franchise assets in a business combination in the year ended December 31, 2021. As a result, during the quarter ended September 30, 2024, we recorded a $93.5 million adjustment to goodwill to provide for deferred income tax liabilities.

The changes in the carrying amount of franchise assets for the year ended December 31, 2023 and the nine months ended September 30, 2024 were as follows:

	Franchised Dealerships Segment		EchoPark Segment		Powersports Segment		Total
	(In millions)
Balance at December 31, 2022	$	371.7	$	1.9	$	23.1	$	396.7
Additions through current year acquisitions	—		—		22.6		22.6
Reductions from dispositions	—		(1.9)		—		(1.9)
Balance at December 31, 2023	$	371.7	$	—	$	45.7	$	417.4
Additions through current year acquisitions	—		—		—		—
Reductions from dispositions	—		—		—		—
Balance at September 30, 2024	$	371.7	$	—	$	45.7	$	417.4

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Long-Term Debt

Long-term debt consists of the following:

	September 30, 2024		December 31, 2023
	(In millions)
Revolving Credit Facility (1)	$	—	$	—
4.625% Senior Notes due 2029 (the “4.625% Notes”)	650.0		650.0
4.875% Senior Notes due 2031 (the “4.875% Notes”)	500.0		500.0
Mortgage Facility (2)	371.9		311.0
Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%	132.0		163.0
Mortgage notes to finance companies - variable rate, bearing interest at 1.75% to 2.90% above one-month or three-month SOFR	65.9		75.6
Subtotal	$	1,719.8	$	1,699.6
Debt issuance costs	(23.9)		(23.0)
Total debt	1,695.9		1,676.6
Less current maturities	(117.7)		(60.1)
Long-term debt	$	1,578.2	$	1,616.5

(1)The interest rate on the Revolving Credit Facility (as defined below) was 125 basis points above one-month Adjusted Term SOFR (as defined in the Credit Facilities (as defined below)) at both September 30, 2024 and December 31, 2023.

(2)The interest rate on the Mortgage Facility (as defined below) was 150 basis points above one-month Adjusted Term SOFR (as defined in the Mortgage Facility) at both September 30, 2024 and December 31, 2023.

Credit Facilities

On October 7, 2022, we amended (the "Second Amendment to the Fifth Credit Facility Amendment") our syndicated revolving credit facility (the "Revolving Credit Facility") and our syndicated new and used vehicle floor plan credit facilities (the "Floor Plan Facilities" and, together with the Revolving Credit Facility, the "Credit Facilities") to, among other things: (i) replace the London InterBank Offered Rate (“LIBOR”)-based Eurodollar reference interest rate option with Term SOFR; (ii) amend the provisions relating to the basis for inclusion of real property owned by the Company or certain of its subsidiaries in the borrowing base for the Revolving Credit Facility; (iii) amend the minimum amount of commitments under the Revolving Credit Facility and the proportion that such commitments may compose of the total Credit Facility commitments made by the lenders; and (iv) adjust aspects of the offset account used for voluntary reductions to interest under the Floor Plan Facilities.

On March 13, 2024, we amended the Credit Facilities (the “Sixth Credit Facility Amendment”) to (1) extend the scheduled maturity dates to March 13, 2029, with a permitted one-year extension option thereafter; and (2) reduce the aggregate commitments to $2.4 billion. The commitment under the new vehicle revolving floor plan facility was increased to $1.35 billion, the commitment under the used vehicle revolving floor plan facility was reduced to $700.0 million and the commitment under the Revolving Credit Facility remained at $350.0 million. The Amendment includes an accordion feature in which the aggregate commitments may be increased, at the Company’s option, up to $450.0 million allocated between the three facilities on a pro rata basis. The Amendment contains a provision indicating that the Revolving Credit Facility commitments cannot be reduced below $50.0 million and may not consist of more than 40% of the aggregate commitments.

In addition, the Sixth Credit Facility Amendment (1) increased the basket for quarterly dividends from $0.12 to $0.18 per share of qualified capital stock; (2) provided additional flexibility for the Company to make asset sales and repurchases of its qualified capital stock; (3) removed the covenant requiring the Company to maintain a specified consolidated liquidity ratio; and (4) amended the definition of “Adjusted Term SOFR” to clarify that it is inclusive of a 10-basis point credit spread adjustment. Amounts outstanding under the Credit Facilities bear interest at rates based upon specified credit spreads above Adjusted Term SOFR.

Availability under the Revolving Credit Facility is calculated as the lesser of the current $350.0 million commitment or a borrowing base (the “Revolving Borrowing Base”) collateralized by certain eligible assets, less any outstanding letters of credit and borrowings. As of September 30, 2024, the Revolving Borrowing Base was $332.6 million and we had $11.5 million in outstanding letters of credit and no borrowings, resulting in $321.1 million of availability under the Revolving Credit Facility.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our obligations under the Credit Facilities are guaranteed by the Company and certain subsidiaries and are secured by a pledge of substantially all of the assets of the guarantors. We have agreed under the Credit Facilities not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the Credit Facilities contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the Credit Facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to $0.18 per share so long as no Event of Default (as defined in the Credit Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the Credit Facilities. Dividends greater than $0.18 per share are permitted subject to limitations on restricted payments set forth in the Credit Facilities.

4.625% Notes

On October 27, 2021, we issued $650.0 million in aggregate principal amount of 4.625% Notes, which will mature on November 15, 2029. Sonic used the net proceeds from the issuance of the 4.625% Notes, along with the net proceeds of the 4.875% Notes, to fund the acquisition of RFJ Auto Partners, Inc. and its subsidiaries completed in December 2021 (the “RFJ Acquisition”) and to repay existing debt.

The 4.625% Notes were issued under an Indenture, dated as of October 27, 2021 (the “2029 Indenture”), by and among the Company, certain subsidiary guarantors named therein (collectively, the “Guarantors”) and U.S. Bank National Association, as trustee (the “trustee”). The 4.625% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company’s domestic operating subsidiaries. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2029 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2029 Indenture) may be released. The 2029 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the EchoPark Business. The 2029 Indenture provides that interest on the 4.625% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2029 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.625% Notes are redeemable by the Company under certain circumstances. For further discussion of the 4.625% Notes, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2023.

4.875% Notes

On October 27, 2021, we issued $500.0 million in aggregate principal amount of 4.875% Notes, which will mature on November 15, 2031. Sonic used the net proceeds from the issuance of the 4.875% Notes, along with the net proceeds of the 4.625% Notes, to fund the RFJ Acquisition and to repay existing debt.

The 4.875% Notes were issued under an Indenture, dated as of October 27, 2021 (the “2031 Indenture”), by and among the Company, the Guarantors and the trustee. The 4.875% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company’s domestic operating subsidiaries. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2031 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2031 Indenture) may be released. The 2031 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the Echo-Park Business. The 2031 Indenture provides that interest on the 4.875% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2031 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.875% Notes are redeemable by the Company under certain circumstances. For further discussion of the 4.875% Notes, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2023.

Mortgage Facility

On November 17, 2022, in connection with the closing of the Fourth Mortgage Facility Amendment, the Company incurred a $320.0 million term loan, with a portion of the proceeds used to repay the entire $77.6 million principal amount of a prior term loan. The lenders under the Mortgage Facility committed to providing, upon the terms set forth in the Amendment and upon the pledging of sufficient collateral by the Company, delayed draw-term loans in an aggregate principal amount up to $85.0 million (the “Delayed Draw Credit Facility”) and revolving loans in an aggregate principal amount not to exceed

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$95.0 million. Based on this, the aggregate commitments of the lenders under the Mortgage Facility equaled a total of $500.0 million, after satisfaction of the conditions set forth in the Mortgage Facility, including the appraisal and pledging of collateral of a specified value. The Amendment also (1) replaced the LIBOR-based Eurodollar reference interest rate option with one-month Term SOFR; and (2) made changes to the pricing grid for loans incurred under the Mortgage Facility, specifying credit spreads based on the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the Mortgage Facility). As permitted by the Fourth Mortgage Facility Amendment, the Company incurred a term loan under the Delayed Draw Credit Facility with a principal amount of $7.0 million on November 18, 2022. On May 17, 2024, the Company incurred a required additional term loan under the Delayed Draw Credit Facility with a principal amount of $78.0 million.

On March 22, 2024, we entered into an amendment to the Mortgage Facility (the “Fifth Mortgage Facility Amendment”) to conform to the terms of the Sixth Credit Facility Amendment, including (1) adding certain specified share exchange transactions as permitted restricted payments and dispositions; (2) removing the covenant requiring the Company to maintain a specified consolidated liquidity ratio; and (3) increasing the basket for quarterly dividends from $0.12 to $0.18 per share of qualified capital stock.

As of September 30, 2024, we had $371.9 million of outstanding borrowings and $95.0 million available under the Mortgage Facility.

Interest on the Mortgage Facility is paid monthly in arrears. Amortizing principal payments are scheduled to be $5.1 million per quarter from the quarter ending March 31, 2023 through the quarter ending December 31, 2024 and $7.6 million per quarter from the quarter ending March 31, 2025 through the quarter ending September 30, 2027 with the remaining balance due on the November 17, 2027 maturity date. The Company has the right to prepay outstanding principal at any time without premium or penalty provided the prepayment amount exceeds $0.5 million.

For further discussion of the Mortgage Facility, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2023.

Mortgage Notes to Finance Companies

As of September 30, 2024, the weighted-average interest rate of our other outstanding mortgage notes (excluding the Mortgage Facility) was 5.10% and the total outstanding mortgage principal balance of these notes (excluding the Mortgage Facility) was approximately $197.9 million. These mortgage notes require monthly payments of principal and interest through their respective maturities and are secured by the underlying properties and contain certain cross-default provisions. Maturity dates for these mortgage notes range from 2025 to 2033.

Covenants

The Credit Facilities and the Mortgage Facility contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. The Credit Facilities and the Mortgage Facility also contain limitations on our ability to pledge assets to third parties, subject to certain stated exceptions.

We were in compliance with the financial covenants under the Credit Facilities and the Mortgage Facility as of September 30, 2024. Financial covenants include required specified ratios (as each is defined in the Credit Facilities and the Mortgage Facility) of:

	Covenant
	Minimum Consolidated Fixed Charge Coverage Ratio	Maximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratio	1.20	5.75
September 30, 2024 actual	1.90	3.25

The Credit Facilities and the Mortgage Facility contain events of default, including cross defaults to other material indebtedness, change of control events and other events of default customary for syndicated commercial credit facilities. Upon the future occurrence of an event of default, we could be required to immediately repay all outstanding amounts under the Credit Facilities and the Mortgage Facility.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of September 30, 2024, we had approximately $320.2 million of net income and retained earnings free of such restrictions. We were in material compliance with all restrictive covenants under our debt agreements as of September 30, 2024.

In addition, many of our facility leases are governed by a guarantee agreement between the landlord and us that contains financial and operating covenants. The financial covenants under the guarantee agreement are identical to those under the Credit Facilities and the Mortgage Facility with the exception of one additional financial covenant related to the ratio of EBITDAR to Rent (as defined in the guarantee agreement) with a required ratio of no less than 1.50 to 1.00. As of September 30, 2024, the ratio was 12.21 to 1.00.

7. Commitments and Contingencies

Guarantees and Indemnification Obligations

In accordance with the terms of our operating lease agreements, our dealership subsidiaries, acting as lessees, generally agree to indemnify the lessor from certain exposure arising as a result of the use of the leased premises, including environmental exposure and repairs to leased property upon termination of the lease. In addition, we have generally agreed to indemnify the lessor in the event of a breach of the lease by the lessee.

In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships. In general, the subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to leased property upon termination of the lease, to the extent that the assignee or the sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, Sonic remains liable for such obligations.

In accordance with the terms of agreements entered into for the sale of our dealerships, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of sale, including environmental exposure and exposure resulting from the breach of representations or warranties made in accordance with the agreements. While our exposure with respect to environmental remediation is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately $8.7 million as of September 30, 2024 and $8.0 million as of December 31, 2023. These indemnifications typically expire within a period of one to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at September 30, 2024.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee at both September 30, 2024 and December 31, 2023 was approximately $4.3 million.

Legal Matters

Sonic is involved, and expects to continue to be involved, in various legal and administrative proceedings arising out of the conduct of its business, including regulatory investigations and private civil actions brought by plaintiffs purporting to represent a potential class or for which a class has been certified. Although Sonic is unable to predict with certainty the outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, Sonic does not believe it is reasonably possible that its current and threatened legal proceedings will have a material adverse effect on Sonic’s business, financial position or consolidated results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material adverse effect on Sonic’s financial results.

There were no significant liabilities recorded related to legal matters as of September 30, 2024 and December 31, 2023.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 were as follows:

	Fair Value Based on Significant Other Observable Inputs (Level 2)
	September 30, 2024		December 31, 2023
	(In millions)
Assets:
Cash surrender value of life insurance policies (1)	$	46.7	$	42.9
Interest rate caps designated as hedges (2)	—		1.0
Total assets	$	46.7	$	43.9

(1)Included in other assets in the accompanying unaudited condensed consolidated balance sheets.

(2)As of December 31, 2023, approximately $1.0 million was included in other current assets in the accompanying unaudited condensed consolidated balance sheets.

As of September 30, 2024 and December 31, 2023, the fair values of Sonic’s financial instruments, including receivables, notes receivable from finance contracts, notes payable – floor plan, trade accounts payable, borrowings under the revolving credit facilities and certain mortgage notes, approximated their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates.

As of September 30, 2024 and December 31, 2023, the fair value and the carrying value of Sonic’s significant fixed rate long-term debt were as follows:

	September 30, 2024				December 31, 2023
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In millions)
4.875% Notes (1)	$	456.3	$	500.0	$	447.5	$	500.0
4.625% Notes (1)	$	604.5	$	650.0	$	591.5	$	650.0
Mortgage Notes (2)	$	128.7	$	132.0	$	156.6	$	163.0

(1)As determined by market quotations from similar securities as of September 30, 2024 and December 31, 2023, respectively (Level 2).

(2)As determined by the DCF method (Level 2).

For further discussion of Sonic’s fair value measurements, see Note 11, “Fair Value Measurements,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2023.

9. Segment Information

As of September 30, 2024, Sonic had three operating segments: (1) retail automotive franchises that sell new vehicles and buy and sell used vehicles, sell replacement parts, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Franchised Dealerships Segment”); (2) pre-owned vehicle specialty retail locations that provide guests an opportunity to search our nationwide inventory, purchase a pre-owned vehicle, select finance and insurance products and sell their current vehicle to us (the “EchoPark Segment”); and (3) retail locations that sell new and used powersports vehicles, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Powersports Segment”). Sonic has determined that its operating segments also represent its reportable segments. Due to rounding, segment level financial data may not sum to consolidated results.

The reportable segments identified above are the business activities of Sonic for which discrete financial information is available and for which operating results are regularly reviewed by Sonic’s chief operating decision maker to assess operating performance and allocate resources. Sonic’s chief operating decision maker is a group of three individuals consisting of: (1) the Company’s Chief Executive Officer; (2) the Company’s President; and (3) the Company’s Chief Financial Officer.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reportable segment financial information for the three and nine months ended September 30, 2024 and 2023 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(In millions)
Segment Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles	$	1,539.9	$	1,546.7	$	4,510.8	$	4,550.9
Fleet new vehicles	22.2		23.2		68.0		70.4
Total new vehicles	1,562.1		1,569.9		4,578.8		4,621.3
Used vehicles	701.4		780.7		2,162.8		2,322.8
Wholesale vehicles	42.4		51.4		139.1		165.3
Parts, service and collision repair	458.9		431.8		1,333.2		1,289.0
Finance, insurance and other, net	122.4		126.0		366.3		375.4
Franchised Dealerships Segment revenues	$	2,887.2	$	2,959.8	$	8,580.2	$	8,773.8
EchoPark Segment revenues:
Retail new vehicles	$	—	$	—	$	—	$	1.0
Used vehicles	470.3		554.8		1,402.0		1,651.3
Wholesale vehicles	23.8		26.6		74.4		89.1
Finance, insurance and other, net	50.8		45.3		145.2		136.4
EchoPark Segment revenues	$	544.9	$	626.7	$	1,621.6	$	1,877.8
Powersports Segment revenues:
Retail new vehicles	$	26.9	$	26.8	$	64.4	$	72.5
Used vehicles	9.0		4.9		17.6		17.1
Wholesale vehicles	1.1		1.3		2.3		1.9
Parts, service and collision repair	20.1		21.6		36.6		38.6
Finance, insurance and other, net	2.3		2.4		5.8		5.9
Powersports Segment revenues	$	59.4	$	57.0	$	126.7	$	136.0
Total consolidated revenues	$	3,491.5	$	3,643.5	$	10,328.5	$	10,787.6

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(In millions)
Segment Income (Loss) (1):
Franchised Dealerships Segment (2)	$	51.6	$	101.5	$	168.0	$	357.2
EchoPark Segment (3)	5.2		(16.9)		6.1		(116.5)
Powersports Segment	4.0		6.6		2.3		9.2
Total segment income	$	60.8	$	91.2	$	176.4	$	249.9
Impairment charges (4)	—		—		(2.4)		(62.6)
Income before taxes	$	60.8	$	91.2	$	174.0	$	187.3

(1)Segment income (loss) for each segment is defined as income (loss) before taxes and impairment charges.

(2)For the three months ended September 30, 2024, amount includes approximately $1.8 million of pre-tax charges related to excess compensation related to the CDK outage and approximately $1.5 million of pre-tax charges related to storm damage. For the nine months ended September 30, 2024, amount includes approximately $13.0 million of pre-tax charges related to excess compensation related to the CDK outage, approximately $5.1 million of pre-tax charges related to storm damage, approximately $2.2 million of pre-tax charges related to severance and long-term compensation expense, and approximately $1.0 million of pre-tax impairment charges related to property and equipment. For the nine months ended September 30, 2023, amount includes approximately $20.9 million of pre-tax gain related to acquisitions and dispositions and approximately $1.9 million of pre-tax charges related to storm damage.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(3)For the three months ended September 30, 2024, amount includes approximately $2.3 million of pre-tax gain on dispositions of real estate. For the three months ended September 30, 2023, amount includes approximately $0.9 million of pre-tax charges for long-term compensation expense and approximately $3.9 million related to pre-tax lease exit charges. For the nine months ended September 30, 2024, amount includes approximately $3.0 million of pre-tax gain on exit of leased properties, approximately $2.9 million of pre-tax charges for severance and long-term compensation expense, approximately $2.1 million of pre-tax charges related to closed store accrued expenses related to the indefinite suspension of operations at certain EchoPark locations, approximately $1.4 million of pre-tax impairment charges related to property and equipment, approximately $2.9 million of pre-tax gain on acquisitions and dispositions, and approximately $0.4 million of pre-tax charges related to excess compensation related to the CDK outage. For the nine months ended September 30, 2023, amount includes approximately $62.6 million of pre-tax impairment charges related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property, approximately $10.0 million of pre-tax charges related to used vehicle inventory valuation adjustments, approximately $5.1 million of pre-tax charges for long-term compensation expense, approximately $4.3 million of pre-tax lease exit charges and approximately $0.3 million of pre-tax loss related to acquisitions and dispositions.

(4)For the nine months ended September 30, 2024, amount includes approximately $1.4 million of pre-tax property and equipment charges for real estate held for sale in the EchoPark Segment and approximately $1.0 million of pre-tax property and equipment charges for the Franchised Dealerships Segment. For the nine months ended September 30, 2023, amount includes approximately $62.6 million of pre-tax impairment charges related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property for the EchoPark Segment.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(In millions)
Segment Impairment Charges:
Franchised Dealerships Segment	$	—	$	—	$	1.0	$	—
EchoPark Segment	—		—		1.4		62.6
Powersports Segment	—		—		—		—
Total impairment charges	$	—	$	—	$	2.4	$	62.6

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(In millions)
Segment Depreciation and Amortization:
Franchised Dealerships Segment	$	31.5	$	28.2	$	91.6	$	82.8
EchoPark Segment	5.4		6.1