SONIC AUTOMOTIVE INC

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 months ended March 31, 2025 and 2024 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, 2024. Due to rounding, segment level financial data may not sum to consolidated results.

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, 2024 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 have implemented the provisions of ASU 2023-07. See Note 9, “Segment Information,” to the accompanying consolidated financial statements for the expanded disclosures required by ASC Topic 280.

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. The standard will be effective for fiscal years beginning after December 15, 2024, and interim periods for fiscal years beginning after December 15, 2025. We are currently evaluating the impact that the adoption of the provisions of the ASU will have on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)”. The amendments require the disclosure of specified information about certain costs and expenses including purchases of inventory, employee compensation, depreciation, intangible asset amortization and depreciation, depletion, and amortization recognized as part of oil and gas producing activities. It also requires the disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively as well as the total amount of selling expenses and, in annual reporting periods, an entity’s description of selling expenses. The standard will be effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the impact that the adoption of the provisions of the ASU will have 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 for the period ended March 31, 2024. The remaining 50% of this dealership was purchased in the fourth quarter of 2024 and its balance sheet is fully consolidated as of December 31, 2024 and March 31, 2025, and its operating results are included in the consolidated statement of operations from the acquisition date through March 31, 2025. 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.

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 March 31, 2025 and December 31, 2024 include approximately $4.9 million and $8.0 million, respectively, related to contract assets from F&I retro revenues recognition, which are recorded in receivables, net. In addition, we recorded approximately $13.2 million related to contract assets from F&I retro revenues recognition in other assets as of March 31, 2025. Changes in contract assets from December 31, 2024 to March 31, 2025 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, 2024 for further discussion of our revenue recognition policies and processes.

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

During the three months ended March 31, 2025 and the three months ended March 31, 2024 we did not acquire any businesses.

During the three months ended March 31, 2025, we terminatedone franchise within the Powersports Segment. During thethree months ended March 31, 2024, we terminatedtwo luxury franchises, in addition to closing the remaining seven Northwest Motorsport stores within the EchoPark Segment.

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

3. Inventories

Inventories consist of the following:

(1)Service loaner inventory includes approximately $31.2 million and $31.7 million as of March 31, 2025 and December 31, 2024, 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.

4. Property and Equipment

Property and equipment, net consists of the following:

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

Capital expenditures were approximately $45.0 million and $43.8 million in the three months ended March 31, 2025 and 2024, 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 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 March 31, 2025 and December 31, 2024 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 three months ended March 31, 2025 were approximately $0.2 million, which was related to property held for sale. Fixed asset impairment charges for the three months ended March 31, 2024 were approximately $1.0 million, which was related to the sale of real estate, capitalized IT project write-off costs and property associated with our decision to close the remaining Northwest Motorsport stores within the EchoPark Segment in January 2024.

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31, 2024 and the three months ended March 31, 2025 were as follows:

(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.

The changes in the carrying amount of franchise assets for the year ended December 31, 2024 and the three months ended March 31, 2025 were as follows:

6. Long-Term Debt

Long-term debt consists of the following:

(1)The interest rate on the Revolving Credit Facility (as defined below) was 125 basis points above one-month Term SOFR (as defined in the Credit Facilities) at both March 31, 2025 and December 31, 2024.

(2)The interest rate on the Mortgage Facility (as defined below) was 150 basis points above one-month Term SOFR (as defined in the Mortgage Facility) at both March 31, 2025 and December 31, 2024.

Credit Facilities

Our Credit Agreement, originally dated as of April 14, 2021, entered into by, among others, the Company and Bank of America, N.A., as administrative agent (as amended to date, the "Credit Agreement"), provides for a syndicated revolving credit facility (the “Revolving Credit Facility”) and syndicated new and used vehicle floor plan facilities (the “Floor Plan Facilities” and, together with the Revolving Credit Facility, the “Credit Facilities”). The Credit Facilities are guaranteed by the Company and certain of our subsidiaries and are secured by a pledge of substantially all of the assets of the Company and the guarantors subject to certain stated exceptions including floor plan agreements with various manufacturer-affiliated captive finance companies and other lending institutions.

On March 13, 2024, we amended and restated our Credit Agreement (the “Sixth Credit Facility Amendment”) to extend the maturity date to March 13, 2029, with an optional one-year extension. The agreement set the aggregate commitments to $2.4 billion consisting of $1.35 billion under the new vehicle floor plan, $700.0 million under the used vehicle floor plan and $350.0 million under the Revolving Credit Facility. The amendment includes an accordion feature allowing for an increase in the commitments up to $450.0 million to be allocated between the three facilities on a pro rata basis and a provision indicating that the Revolving Credit Facility commitment can neither be reduced below $50.0 million nor consist of more than 40% of the aggregate commitments.

In addition, the Sixth Credit Facility Amendment increased the basket for unrestricted quarterly dividends from $0.12 to $0.18 per share of qualified capital stock, provided additional flexibility to make asset sales and repurchases of qualified capital stock, removed the covenant related to maintain a specified consolidated liquidity ratio, and clarified that “Adjusted Term SOFR” (as defined) is inclusive of a 10-basis point credit spread adjustment. Amounts outstanding under the Credit Facilities bear interest at Adjusted Term SOFR plus credit spreads indicated by our Consolidated Total Lease Adjusted Leverage Ratio (as defined).

Availability under the Revolving Credit Facility is the lesser of the $350.0 million commitment or a borrowing base collateralized by eligible assets, less any outstanding letters of credit and borrowings. As of March 31, 2025, the Revolving Borrowing Base was $350.0 million with $11.2 million in outstanding letters of credit andno borrowings, resulting in $338.8 million of availability.

Senior Notes

On October 27, 2021, we issued two series of Senior Notes: $650.0 million bearing interest at 4.625% and maturing on November 15, 2029 (the “4.625% Notes”) and $500.0 million bearing interest at 4.875% and maturing on November 15, 2031 (the “4.875% Notes” and together with the 4.625% Notes, the "Senior Notes"). We used the net proceeds from the issuances to fund the acquisition of RFJ Auto Partners, Inc. and its subsidiaries (the “RFJ Acquisition”) and to repay existing debt.

The notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and its domestic operating subsidiaries. Under certain circumstances, the guarantees of the subsidiaries comprising the EchoPark Business (as defined in the indentures governing the Senior Notes (the "Indentures")) may be released. The Indentures also provide flexibility to enter into fundamental transactions involving the EchoPark Business. The Indentures contain other customary restrictive covenants and default provisions. Interest on the Senior Notes is payable semi-annually in arrears on May 15 and November 15 of each year.

The Senior notes are redeemable, in whole or in part, at any time during the twelve-month period beginning on November 15 of each year at the redemption prices (expressed as percentages of the principal amount thereof) set forth below:

Before November 15, 2026, we may redeem all or part of the 4.875% Notes, subject to a make-whole premium.

Mortgage Facility and Sidecar Facility

On November 22, 2019, we entered into a Credit Agreement between, among others, the Company and PNC Bank, National Association, as administrative agent, providing for both revolving credit and delayed draw term loans (as amended to date, the “Mortgage Facility”).

On March 22, 2024, we amended the Mortgage Facility to conform to the terms of the Sixth A&R Credit agreement.

On May 17, 2024, we incurred a $78.0 million term loan as required under the Mortgage Facility in order to achieve full term loan utilization.

On December 27, 2024, we entered into an agreement, which established a syndicated mortgage loan facility (the “Sidecar Facility”) providing an incremental $149.1 million of term loan commitments. Though the Sidecar Facility is distinct and separate from the Mortgage Facility, the two facilities contain similar terms and conditions, are coterminous, and use one month Term SOFR as a base rate with the same pricing grid.

Interest on the Mortgage Facility and Sidecar Facility is paid monthly in arrears. Amortizing principal payments are 1.875% of the cumulative amount drawn on the term loan portion of Mortgage Facility and Sidecar Facility each quarter end through September 30, 2027, with the remaining balances due on the November 17, 2027 maturity date. We have the right to prepay outstanding principal on either facility at any time without premium or penalty provided that the prepayment exceeds $0.5 million.

As of March 31, 2025, we had $359.2 million of outstanding borrowings and $95.0 million available for revolving loans under the Mortgage Facility. In addition, we had no outstanding borrowings and $83.5 million available for future term loans under the Sidecar Facility based upon the appraised value of the underlying pledged collateral.

Mortgage Notes to Finance Companies

Excluding the Mortgage Facility and Sidecar Facility, our mortgage notes had a weighted-average interest rate of 3.64% and a combined principal balance of $85.3 million as of March 31, 2025. These mortgage notes require monthly payments of principal and interest through their respective maturities, are secured by underlying properties or other collateral and contain certain cross-default provisions. Maturity dates for these mortgage notes range from 2025 to 2031.

Covenants

The Credit Facilities, Mortgage Facility and Sidecar Facility each contain covenants which could prohibit indebtedness, liens, the payment of excess dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets. The facilities contain other covenants and default provisions, including cross defaults to other material indebtedness, change of control events and other events of default customary for commercial credit facilities. Upon the occurrence of an event of default, we could be required to repay all outstanding amounts under these facilities. The facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to $0.18 per share so long as no continuing Event of Default (as defined within each facility) has occurred and provided that we remain in compliance with all financial covenants. Dividends greater than $0.18 per share are subject to the limitations on restricted payments set forth in the facilities. After giving effect to the applicable restrictions, as of March 31, 2025, we had approximately $338.8 million of net income and retained earnings free of such restrictions.

We were in compliance with all restrictive covenants as of March 31, 2025. which include the following:

Many of our facility leases are governed by a guarantee agreement that contains financial and operating covenants identical to those under the Credit Facilities, Mortgage Facility and Sidecar Facility. The guarantee agreement also contains an additional covenant requiring an EBITDAR to Rent ratio (as defined in the guarantee agreement) of no less than 1.50 to 1.00. As of March 31, 2025, the ratio was 13.73 to 1.00.

Derivative Instruments and Hedging Activities

As of March 31, 2025, we had interest rate cap agreements with the following notional amounts, cap rates and maturities to help limit our exposure to potentially increasing interest rates on the Floor Plan Facilities and Mortgage Facility. Settlements are evaluated monthly and paid by the counterparties when one-month Term SOFR exceeds the cap rate. Payments are calculated based on the notional amounts multiplied by the difference between one-month Term SOFR and the cap rates and are recognized as a reduction of interest expense. The total unamortized premium related to the caps was $2.6 million as of March 31, 2025 which will be amortized as interest expense over each cap’s remaining term. The fair value of the outstanding caps was $1.1 million at March 31, 2025 included in other assets in the accompanying consolidated balance sheet.

(1) One-month Term SOFR was approximately 4.32% at March 31, 2025.

The interest rate caps qualify and have been designated as cash flow hedges, As a result, changes in their fair value are recorded in total other comprehensive income (loss) before taxes in the accompanying consolidated statements of comprehensive operations.

For further discussion, 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, 2024.

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 $2.2 million as of March 31, 2025 and December 31, 2024. These indemnifications typically expire within a period ofone tothree 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 March 31, 2025.

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 vigorously defends itself in all legal and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of Sonic’s business, including litigation with customers, employment-related lawsuits, contractual disputes, class actions, purported class actions and actions brought by governmental authorities, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on Sonic’s business, financial condition, results of operations, cash flows or prospects.

There were no significant liabilities recorded related to legal matters as of March 31, 2025 and December 31, 2024.

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2025 and December 31, 2024 were as follows:

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

(2)As of March 31, 2025, approximately $1.1 million was included in other assets in the accompanying unaudited condensed consolidated balance sheet.

As of March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, the fair value and the carrying value of Sonic’s significant fixed rate long-term debt were as follows:

(1)As determined by market quotations from similar securities as of March 31, 2025 and December 31, 2024, 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, 2024.

9. Segment Information

As of March 31, 2025, Sonic hadthree operating segments: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. 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, 2024 for additional discussion of our operating segments. Sonic has determined that its operating segments also represent its reportable segments.

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. The chief operating decision makers evaluate segment performance and allocate resources using metrics such as segment gross profit and segment income. These segment profit metrics are consistent across all segments and align with the way we measure profit on a consolidated basis. The accounting policies applied to segments follow those for the Company as a whole.

Reportable segment financial information for the three months ended March 31, 2025 and 2024 were as follows:

Franchised Dealerships Segment - Reported

(1)Other selling, general and administrative expenses include various fixed and variable expenses, including gain or loss on disposal of franchises, facility repairs and maintenance, utilities, property taxes, certain customer-related costs such as gasoline and service loaners, and insurance, training, legal and information technology expenses.

EchoPark Segment - Reported

(1)Other selling, general and administrative expenses include various fixed and variable expenses, including facility repairs and maintenance, utilities, property taxes, certain customer-related costs such as gasoline, and insurance, training, legal and information technology expenses.

Powersports Segment - Reported

(1)Other selling, general and administrative expenses include various fixed and variable expenses, including gain or loss on disposal of franchises, facility repairs and maintenance, utilities, property taxes, certain customer-related costs such as gasoline, and insurance, training, legal and information technology expenses.

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

(2)For the three months ended March 31, 2025, amount includes $30.0 million of pre-tax benefit in cyber insurance proceeds related to a cybersecurity incident impacting certain of our information systems provided by CDK Global in the second quarter of 2024, approximately $0.9 million of pre-tax charges related to storm damage, and approximately $0.3 million of pre-tax charges related to disposition losses. For the three months ended March 31, 2024, amount includes approximately $2.2 million of pre-tax charges for severance and long-term compensation expense and approximately $1.0 million of pre-tax impairment charges related to property and equipment. Due to rounding, segment level financial data may not sum to consolidated results.

(3)For the three months ended March 31, 2025, amount includes approximately $0.2 million of pre-tax gain on sale of EchoPark property and approximately $0.2 million of pre-tax impairment charges related to property and equipment. For the three months ended March 31, 2024, amount includes approximately $2.1 million of pre-tax charges for severance and long-term compensation expense and 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. Due to rounding, segment level financial data may not sum to consolidated results.

(4)For the three months ended March 31, 2025, amount includes approximately $0.9 million of pre-tax charges related to disposition losses and approximately $1.1 million of pre-tax impairment charges related to property, equipment, and right-of-use assets. Due to rounding, segment level financial data may not sum to consolidated results.

(5)For the three months ended March 31, 2025, amount includes approximately $0.2 million of pre-tax property and equipment charges for real estate held for sale in the EchoPark Segment and approximately $1.1 million of pre-tax property, equipment and right-of-use asset charges for the Powersports Segment. For the three months ended March 31, 2024, amount includes approximately $1.0 million of pre-tax impairment charges for the Franchised Dealerships Segment. Due to rounding, segment level financial data may not sum to consolidated results.