SONIC AUTOMOTIVE INC

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

1. Description of Business and Summary of Significant Accounting Policies

Organization and Business -Sonic Automotive, Inc. (“Sonic,” the “Company,” “we,” “us” or “our”) is one of the largest automotive retailers in the United States (“U.S.”) (as measured by reported total revenue). As a result of the way we manage our business, we hadthree reportable segments as of December 31, 2025: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of December 31, 2025, we operated 111 stores in the Franchised Dealerships Segment,18 stores in the EchoPark Segment and 14 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 134 new vehicle franchises (representing 24 different brands of cars and light trucks) and 16 collision repair centers in 18 states. The EchoPark Segment consists of 18 stores operating in 10 states. The Powersports Segment consists of 41 franchises at 14 locations (11 full-service dealerships and 3 authorized retail outlets) in 3 states.

The Franchised Dealerships Segment provides comprehensive sales and services, including: (1) sales of both new and used cars and light trucks; (2) sales of replacement parts and performance of vehicle maintenance, manufacturer warranty repairs, and paint and collision repair services (collectively, “Fixed Operations”); and (3) arrangement of third-party financing, extended warranties, service contracts, insurance and other aftermarket products (collectively, “F&I”) for our guests. The EchoPark Segment sells used cars and light trucks and arranges third-party F&I product sales for our guests in pre-owned vehicle specialty retail locations, and does not offer customer-facing Fixed Operations services. The Powersports Segment offers guests: (1) sales of both new and used powersports vehicles (such as motorcycles, personal watercraft and all-terrain vehicles); (2) Fixed Operations activities; and (3) third party F&I services. All three segments generally operate independently of one another, with the exception of certain shared back-office functions and corporate overhead costs. Due to rounding, segment level financial data may not sum to consolidated results.

Reclassification -The accompanying financial statements for the prior year period include certain reclassifications related to items within Note 14, Segment Information. These reclassifications did not affect the Company’s consolidated results of operations, financial position, or cash flows for the year ended December 31, 2025.

Recent Accounting Pronouncements -In December 2023, the FASB issued ASU 2023-09, “Income Taxes (ASC Topic 740): Improvements to Income Tax Disclosures.” The amendments require the disclosure of a reconciliation between income tax expense from continuing operations and the amount computed by multiplying income from continuing operations before income taxes by the applicable statutory rate as well as an annual disaggregation of the income tax rate reconciliation between certain specified categories by both percentage and reported amounts, along with other changes to income tax disclosure requirements. 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 have implemented the provisions of ASU 2023-09. See note 7, “Income Taxes,” to the accompanying consolidated financial statements for the additional disclosures required by ASC Topic 740.

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 definition 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.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the United States. The bill contains a range of tax reforms affecting businesses, including the immediate expensing of research and development expenditures, 100% bonus depreciation on qualified property, and various other provisions effective in tax years 2026 through 2029. After evaluating the OBBBA’s provisions, we have determined that the impact of these changes on its consolidated financial statements for the current reporting period is immaterial. Provisions taking effect in 2026 will affect the deductibility of executive compensation and charitable contributions and will contribute to a higher overall income tax rate. We will continue to monitor future guidance and assess any additional implications for subsequent periods.

Principles of Consolidation -All of our dealership and non-dealership subsidiaries are wholly owned and consolidated in the accompanying consolidated financial statements, except for one 50%-owned dealership that is accounted for under the equity method as of and for the year ended December 31, 2023. The remaining 50% of this dealership was purchased in the fourth quarter of 2024. As a result, its balance sheet is fully consolidated as of December 31, 2024, and its operating results are included in the consolidated statement of operations from the acquisition date through December 31, 2025. All material intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. Certain amounts and percentages may not compute due to rounding.

Use of Estimates -The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires Sonic’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the accompanying consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, particularly related to intangible asset values, deferred tax asset values and reserves for unrecognized tax benefits, reserves for legal matters, insurance reserves, reserves for future commission revenue to be returned to the third-party provider for early termination of finance and insurance contracts (“chargebacks”), and estimates of certain retrospective finance and insurance revenue.

Cash and Cash Equivalents -We classify cash and all highly liquid investments with a maturity of three months or less at the date of purchase, including short-term time deposits and government agency and corporate obligations, as cash and cash equivalents.

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 sales, and sales are reported net of sales tax and other similar assets. Generally, performance obligations are satisfied when the associated vehicle is either 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 consolidated balance sheets as of December 31, 2025 and 2024 include approximately $7.0 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 $10.2 million and $13.2 million related to contract assets from F&I retro revenues recognition in other assets as of December 31, 2025 and 2024, respectively. Changes in contract assets from December 31, 2024 to December 31, 2025 were primarily due to ordinary business activity, including the receipt of cash for amounts earned and recognized in prior periods.

Floor Plan Assistance -We receive floor plan assistance in the form of direct payments or credits from certain manufacturers. This assistance reduces the carrying value of our new vehicle inventory and is recognized as a reduction of cost of sales at the time the associated inventory is sold. Amounts recognized as a reduction of cost of sales were approximately $65.6 million, $64.2 million and $58.7 million in 2025, 2024 and 2023, respectively.

Contracts in Transit -Contracts in transit represent finance contracts evidencing loans or lease agreements between us, as creditor, and the guest, as borrower, to acquire or lease a vehicle in situations where a third-party finance source has given us initial, non-binding approval to assume our position as creditor. Funding and final approval from the finance source is provided upon the finance source’s review of the loan or lease agreement and related documentation executed by the guest at the dealership. These finance contracts are typically funded within 10 days of the initial approval of the finance transaction given by the third-party finance source. The finance source is not contractually obligated to make the loan or lease to the guest until it gives its final approval and funds the transaction, and until such final approval is given, the contracts in transit represent amounts due from the guest to us. Contracts in transit are included in receivables, net on the accompanying consolidated balance sheets and totaled approximately $215.3 million and $246.5 million at December 31, 2025 and 2024, respectively.

Accounts Receivable -In addition to contracts in transit, our accounts receivable primarily consists of amounts due from automobile manufacturers for repair services performed on vehicles with a remaining factory warranty and amounts due from third parties from the sale of parts. We evaluate receivables for collectability based on the age of the receivable, the credit history of the third party, past collection experience, current economic conditions, and reasonable and supportable forecasts of future conditions. The recorded allowance for doubtful accounts receivable was not significant at December 31, 2025 and 2024.

Receivables, net consist of the following:

Inventories -Inventories of new vehicles, recorded net of manufacturer credits, and used vehicles, including demonstrators, are stated at the lower of specific cost or net realizable value. Inventories of parts and accessories are accounted for using the “first-in, first-out” (“FIFO”) method of inventory accounting and are stated at the lower of FIFO cost or net realizable value. Other inventories are primarily service loaner vehicles and, to a lesser extent, vehicle chassis, other supplies and capitalized customer work-in-progress (open customer vehicle repair orders). Other inventories are stated at the lower of specific cost (depreciated cost for service loaner vehicles) or net realizable value.

Property and Equipment -Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. We amortize leasehold improvements over the shorter of the estimated useful life or the remaining available lease term. The available lease term includes renewal options if the exercise of a renewal option has been determined to be reasonably assured.

The range of estimated useful lives is as follows:

We review the carrying value of property and equipment and other long-lived assets (including related right-of-use assets for leased properties, but excluding goodwill and other intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such an indication is present, we compare the carrying amount of the asset to the estimated undiscounted cash flows related to that asset. We conclude that an asset is impaired if the sum of such expected future cash flows is less than the carrying amount of the related asset. If we determine an asset is impaired, the impairment loss would be the amount by which the carrying amount of the related asset exceeds its fair value. The fair value of the asset would be determined based on the quoted market prices, if available. If quoted market prices are not available, we determine fair value by using a discounted cash flow (“DCF”) model. Fixed asset impairments for the year ended December 31, 2025 were approximately $0.2 million, which was related to real estate classified as held for sale. Fixed asset impairments for the year ended December 31, 2024 were approximately $3.9 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 impairments for the year ended December 31, 2023 were approximately $42.7 million, the majority of which related to our decisions to indefinitely suspend operations at certain locations within our EchoPark Segment and to close certain Northwest Motorsport stores. See Note 4, “Property and Equipment,” for further discussion of impairment charges.

Derivative Instruments and Hedging Activities -We utilize derivative financial instruments for the purpose of hedging the risks relating to the variability of cash flows caused by fluctuations in interest rates. We document our risk management strategy and hedge effectiveness at the inception of, and during the term of, each hedge. As of December 31, 2025, we utilized interest rate cap agreements to limit our exposure to increases in one-month Term Secured Overnight Financing Rate (“SOFR”) above certain levels. See Note 6, “Long-Term Debt,” for further discussion of derivative instruments and hedging activities.

Goodwill -Goodwill is recognized to the extent that the purchase price of the acquisition exceeds the estimated fair value of the net assets acquired, including other identifiable intangible assets. In accordance with 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.

For purposes of goodwill impairment testing, we have three reporting units, which consist of: (1) our traditional franchised dealerships, (2) our EchoPark stores and (3) our powersports stores. In evaluating goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of the required goodwill impairment. We utilized the DCF method to estimate the enterprise value of each reporting unit. The significant assumptions in our DCF model include projected revenues, margin, terminal growth rate, discount rates and a market capitalization reconciliation. As a result of our April 30, 2025 annual test, we determined it was more likely than not that the fair value of each reporting unit was greater than its carrying value, therefore, we were not required to record goodwill impairment for any of our reporting units during 2025. As a result of our April 30, 2024 annual test, we determined it was more likely than not that the fair value of each reporting unit was greater than its carrying value, therefore, we were not required to record goodwill impairment for any of our reporting units during 2024. As a result of our April 30, 2023 annual test, we determined it was more likely than not that the fair value of each reporting unit was greater than its carrying value, therefore, we were not required to record goodwill impairment for any of our reporting units during 2023. See Note 5, “Goodwill and Intangible Assets,” for further discussion of goodwill.

Other Intangible Assets -The principal identifiable intangible assets other than goodwill acquired in an acquisition are rights under franchise or dealer agreements with manufacturers. We classify franchise and dealer agreements as indefinite lived intangible assets as it has been our experience that renewals have occurred without substantial cost or material modifications to the underlying agreements. As such, we believe that our franchise and dealer agreements will contribute to cash flows for an indefinite period, therefore the carrying amount of franchise rights is not amortized. In accordance with ASC Topic 350, “Intangibles - Goodwill and Other,” we evaluate other intangible assets for impairment annually (as of April 30 of each year) or more frequently if indications of impairment exist.

We utilized a multi-period excess earnings method (“MPEEM”) model 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. Our estimate of future revenue growth is in part driven by our estimates of new vehicle industry sales volume in future periods. While not completely correlated, we believe the historic and projected industry sales volume is a good general indicator of growth or contraction in the retail automotive industry.

As a result of our impairment testing as of April 30, 2025, we determined that several of our franchise assets’ fair values did not exceed the carrying values, resulting in a non-cash pre-tax franchise asset impairment charge of $172.4 million to reduce the carrying value to fair value during 2025. As of a result of our impairment testing as of April 30, 2024, we determined the fair value of the franchise assets for each of our franchises exceeded the carrying value of the franchise assets for all of our franchises, resulting in no franchise asset impairment charges during 2024. As of a result of our impairment testing as of April 30, 2023, we determined the fair value of the franchise assets for each of our franchises exceeded the carrying value of the franchise assets for all of our franchises, resulting in no franchise asset impairment charges during 2023. See Note 5, “Goodwill and Intangible Assets,” for further discussion of franchise and dealer agreements.

Income Taxes -Income taxes are provided for the tax effects of transactions reported in the accompanying consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are provided at enacted tax rates for the tax effects of carryforward items and temporary differences between the tax basis of assets and liabilities and their reported amounts. As a matter of course, the Company is regularly audited by various taxing authorities and, from time to time, these audits result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. Management believes that the Company’s tax positions comply, in all material respects, with applicable tax law and that the Company has adequately provided for any reasonably foreseeable outcome related to these matters.

From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. A tax position that does not meet the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The tax position is measured at the largest amount of benefit or expense that is likely to be realized upon ultimate settlement. We adjust our estimates periodically because of ongoing examinations by and settlements with the various taxing authorities, as well as changes in tax laws, regulations and precedent. See Note 7, “Income Taxes,” for further discussion of our uncertain tax positions.

Concentrations of Credit and Business Risk -Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash on deposit with financial institutions, which may exceed Federal Deposit Insurance Corporation insurance limits. Concentrations of credit risk with respect to receivables are limited primarily to receivables from automobile manufacturers, totaling approximately $124.7 million and $130.4 million at December 31, 2025 and 2024, respectively, and receivables from financial institutions (which include manufacturer-affiliated captive finance companies and commercial banks) and third-party warranty and insurance product providers, totaling approximately $248.9 million and $279.6 million at December 31, 2025 and 2024, respectively. We work with a single third-party provider for the majority of our extended warranties, service contracts and other aftermarket products. Credit risk arising from trade receivables from commercial customers is reduced by the large number of customers comprising the trade receivables balances.

We are subject to a concentration of risk in the event of financial distress or other adverse events related to any of the automobile manufacturers whose franchised dealerships are included in our brand portfolio. BMW accounted for 19%,20%, and 20% of our total retail automotive dealership revenues as of December 31, 2025, 2024, and 2023, respectively, and Mercedes franchises accounted for 11%,11%, and 11% of our total retail automotive dealership revenues as of December 31, 2025, 2024, and 2023, respectively. We purchase our new vehicle inventory from various automobile manufacturers at the prevailing prices available to all franchised dealerships. In addition, we finance a portion of our new and used vehicle inventory with manufacturer-affiliated captive finance companies. Our results of operations could be adversely affected by the manufacturers’ inability to supply our dealerships with an adequate supply of new vehicle inventory and related floor plan financing. We also have concentrations of risk related to the geographic markets in which our dealerships or stores operate. Changes in overall economic, retail automotive or regulatory environments in one or more of these markets could adversely impact the results of our operations.

Financial Instruments and Market Risks -As of December 31, 2025 and 2024, the fair values of our financial instruments, including receivables, notes receivable from finance contracts, notes payable - floor plan, trade accounts payable, and borrowings under our variable interest rate credit facilities approximated their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates. See Note 11, “Fair Value Measurements,” for further discussion of the fair value and carrying value of our fixed rate long-term debt and other financial instruments.

We have variable interest rate debt including the notes payable - floor plan, Revolving Credit Facility, Mortgage Facility and Sidecar Facility that expose us to risks caused by fluctuations in the underlying interest rates. We currently manage interest rate risk by entering into interest rate cap agreements. The counterparties to our interest rate cap agreements are large financial institutions; however, we could be exposed to loss in the event of non-performance by any of these counterparties. See further discussion in Note 6, “Long-Term Debt.”

Advertising -We expense advertising costs in the period incurred, net of earned cooperative manufacturer credits that represent reimbursements for specific, identifiable and incremental advertising costs. Advertising expense amounted to approximately $101.2 million, $84.5 million and $92.2 million for 2025, 2024 and 2023, respectively, and is classified in selling, general and administrative expenses in the accompanying consolidated statements of operations.

We have cooperative advertising reimbursement agreements with certain automobile manufacturers we represent. These agreements require us to provide the manufacturer with support for qualified, actual advertising expenditures in order to receive reimbursement under the agreements. It is uncertain whether or not we would maintain the same level of advertising expenditures if these manufacturers discontinued their cooperative programs. Cooperative manufacturer credits classified as an offset to advertising expenses were approximately $37.0 million, $34.7 million and $34.7 million for 2025, 2024 and 2023, respectively.

Segment Information -For purposes of reporting financial condition and results of operations, we have determined that we have three reportable segments: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. The Franchised Dealerships Segment provides comprehensive sales and services, including: (1) sales of both new and used cars and light trucks; (2) Fixed Operations activities; and (3) F&I services for our guests. The EchoPark Segment sells used cars and light trucks and arranges third-party F&I product sales for our guests in pre-owned vehicle specialty retail locations, and does not offer customer-facing Fixed Operations services. The Powersports Segment offers guests: (1) sales of both new and used powersports vehicles (such as motorcycles, personal watercraft and all-terrain vehicles); (2) Fixed Operations activities; and (3) F&I services. All three segments generally operate independently of one another, with the exception of certain shared back-office functions and corporate overhead costs. Due to rounding, segment level financial data may not sum to consolidated results.

Earnings Per Share- The calculation of diluted earnings per share considers the potential dilutive effect of outstanding restricted stock units, restricted stock awards and stock options granted under Sonic’s stock compensation plans (and any non-forfeitable dividends paid on such awards). The total dilutive effect of these outstanding equity awards was 0.8 million shares,0.9 million shares and 0.9 million shares for 2025, 2024 and 2023, respectively.

2. Business Acquisitions and Dispositions

Acquisitions

During 2025, in an effort to expand and diversify our business, we acquired five businesses in our Franchised Dealerships Segment and were awardedone franchise in our Powersports Segment, which was previously an authorized retail outlet in Sturgis, South Dakota. The businesses acquired in our Franchised Dealerships Segment were Jaguar Land Rover Los Angeles, Jaguar Land Rover Newport Beach, Jaguar Land Rover San Jose, Land Rover Pasadena and Jaguar Land Rover Santa Monica for an aggregate gross purchase price of approximately $440.3 million. The allocation of the aggregate gross purchase price included inventory of approximately $166.1 million, property and equipment of approximately $9.4 million, goodwill of approximately $64.2 million, franchise assets of approximately $202.0 million, other assets of approximately $1.8 million, right-of-use assets of $88.0 million, lease liabilities of $88.0 million, and other liabilities of approximately $3.2 million.

The accompanying consolidated statements of operations include revenue and earnings attributable to the businesses acquired during 2025 of approximately $284.9 million and $8.3 million, respectively. Acquisition costs recognized as an expense in the 2025 consolidated statements of operations related to these acquisitions were immaterial. Additionally, the total amount of goodwill and other intangibles (franchise assets) from these acquisitions that is expected to be deductible for tax purposes related to these acquisitions is approximately $266.2 million.

The following unaudited pro forma summary presents consolidated information as if the 2025 acquisitions had occurred on January 1, 2024:

During 2024, in an effort to expand and diversify our business, we acquiredtwo businesses in our Franchised Dealerships Segment: North Point Volvo and Audi New Orleans. Additionally, we acquiredone business (consisting oftwo locations) in our Powersports Segment: Motorcycles of Charlotte and Motorcycles of Greensboro. The aggregate gross purchase price of the businesses (including inventory acquired and subsequently funded by floor plan notes payable) was approximately $55.3 million. For North Point Volvo, we purchased the remaining 50% interest that was previously accounted for under the equity method. The purchase price of this acquisition was allocated based on information currently available to the tangible and intangible assets acquired and liabilities assumed utilizing the stock acquisition method of accounting. The acquisition of the remaining 50% interest represented $21.1 million of the total aggregate gross purchase price and included inventory of approximately $10.7 million, property and equipment of approximately $0.2 million, goodwill of approximately $3.5 million, franchise assets of $6.0 million, real estate of approximately $12.4 million, other assets of approximately $1.7 million, and other liabilities of approximately $3.0 million. Due to the acquisition of the remaining 50% of interest, we have recognized a gain of $3.5 million on the initial investment recorded. The allocation of the remaining $34.2 million of the total aggregate gross purchase price of the two other businesses included inventory of approximately $17.2 million, right-of-use assets of $13.3 million, property and equipment of approximately $0.3 million, franchise assets of approximately $6.9 million, goodwill of approximately $7.8 million, real estate of approximately $5.2 million, other assets of approximately $0.1 million, lease liabilities of $13.3 million, and other liabilities of approximately $3.3 million.

During 2023, we acquiredone business (consisting offive locations) in our Powersports Segment 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 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.

Results of acquired dealerships are included in our accompanying consolidated statements of operations commencing on the date of acquisition. Our acquisitions are accounted for such that the assets acquired and liabilities assumed are recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The fair value of our manufacturer franchise rights are determined as of the acquisition date, by discounting the projected cash flows specific to each franchise. This analysis includes projected revenue, projected operating margin, a discount rates (and estimates in the discount rate inputs) and residual growth rates.

Dispositions

During 2025, we disposed ofone mid-line import franchised dealership and terminatedone domestic franchised dealership andone powersports dealership. The disposal of the mid-line import franchised dealership generated net cash of approximately $9.6 million. During 2024, we terminatedtwo luxury franchised dealerships and disposed oftwo mid-line import franchised dealerships, in addition toclosing the remaining seven Northwest Motorsport stores within the EchoPark Segment. The disposal oftwo mid-line import franchised dealerships generated net cash of approximately$8.2 million. Pre-tax loss for Northwest Motorsport stores included in continuing operations for the years ended December 31, 2024 and 2023 were $8.0 million and $24.0 million, respectively. During 2023, we disposed ofone luxury franchised dealership, one domestic franchised dealership, andone mid-line import franchised dealership which generated net cash of approximately $52.2 million. In conjunction with dealership dispositions, we have agreed to indemnify the buyers from certain liabilities and costs arising from operations or events that occurred prior to sale but which may or may not have been known at the time of sale, including environmental liabilities and liabilities resulting from the breach of representations or warranties made under the agreements. See Note 12, “Commitments and Contingencies,” for further discussion.

In the ordinary course of business, we evaluate our dealership franchises for possible disposition based on various strategic and performance criteria. As of December 31, 2025, we did not have any dealerships classified as held for sale.

On June 22, 2023, we announced a plan to indefinitely suspend operations ateight EchoPark locations and 14 related delivery/buy centers. In addition, during the third quarter of 2023, we closed three Northwest Motorsport pre-owned locations within the EchoPark Segment. In connection with these closures, Sonic recorded a charge totaling approximately $75.2 million during the second quarter of 2023. This charge included impairments of $32.5 million related to fixed assets, $16.0 million related to right-of-use assets and $14.1 million related to cease-use accruals; $0.4 million related to lease exit charges; $10.0 million of inventory valuation adjustments; and $2.2 million related to severance. During the third quarter of 2023, we recorded approximately $4.8 million in additional charges related to these store closures, which included $3.9 million of lease exit charges and $0.9 million related to severance.

In the fourth quarter of 2023, we recorded fixed asset and right-of-use assets impairment charges of approximately $16.7 million for the EchoPark Segment. In January 2024, we closed the remaining seven Northwest Motorsport stores.

3. Inventories and Related Notes Payable - Floor Plan

Inventories consist of the following:

(1)Service loaner inventory includes approximately $35.7 million and $31.7 million as of December 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 consolidated balance sheets.

We finance all of our new and certain of our used vehicle inventory through standardized floor plan facilities with either: (1) certain manufacturer captive finance companies or (2) a syndicate of manufacturer-affiliated captive finance companies and commercial banks. We also use these floor plan facilities to finance the acquisition of new and certain used vehicle inventory as part of acquisitions of dealerships. These floor plan facilities are due on demand and currently bear interest at variable rates based on either one-month Term SOFR or prime plus an additional spread, depending on the lender arrangement. The weighted-average interest rate for our new vehicle floor plan facilities was 5.33%,6.29% and 6.11% for 2025, 2024 and 2023, respectively. Our floor plan interest expense related to the new vehicle floor plan arrangements is partially offset by amounts received from manufacturers in the form of floor plan assistance capitalized in inventory and charged against cost of sales when the associated inventory is sold. For 2025, 2024 and 2023, we recognized a reduction in cost of sales of approximately $65.6 million, $64.2 million and $58.7 million, respectively, related to manufacturer floor plan assistance.

The weighted-average interest rate for our used vehicle floor plan facilities was 6.50%,7.37% and 7.23% for 2025, 2024 and 2023, respectively.

The new and used vehicle floor plan facilities are collateralized by vehicle inventory of the relevant dealership subsidiary. The new and used vehicle floor plan facilities contain a number of covenants, including, among others, covenants restricting us with respect to the creation of liens and changes in ownership, officers and key management personnel. We were in compliance with all of these restrictive covenants as of December 31, 2025.

Sonic participates in a program with its syndicated floor plan lender wherein Sonic maintains a deposit balance with the lender that earns interest based on an agreed upon rate. The deposit balance was $300.0 million and $340.0 million as of December 31, 2025 and 2024, respectively, and is included in other current assets in the Consolidated Balance Sheets. The interest received as a result of this deposit balance is classified as a reduction in interest expense, floor plan in the accompanying consolidated statements of income. In 2025, 2024 and 2023, the reduction in interest expense, floor plan was approximately $15.9 million, $23.7 million and $19.4 million, respectively.

4. Property and Equipment

Property and equipment, net consists of the following:

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

Interest capitalized in conjunction with construction projects and software development was approximately $2.2 million, $2.6 million and $2.2 million for 2025, 2024 and 2023, respectively. As of December 31, 2025, commitments for facility construction projects totaled approximately $20.9 million.

During 2025, 2024 and 2023, property and equipment impairment charges were recorded as noted in the following table:

Property and equipment impairment charges in 2025 were approximately $0.2 million, which was related to real estate held for sale. In 2024 and 2023 impairment charges were related to the closure of certain EchoPark and Northwest Motorsports stores, and the abandonment of certain construction projects in our Franchised Dealerships Segment.

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. We evaluated our Franchised Dealership Segment reporting unit on a qualitative basis as substantial cushion existed between the calculated fair value and associated carrying values in the prior year evaluation and there were not any meaningful events or trends which would significantly erode this cushion. We evaluated our Powersports Segment reporting unit on a quantitative basis.

In performing the quantitative test in the Powersports Segment reporting unit for impairment of goodwill, we primarily used 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, 2025 and determined there wasno impairment of goodwill in either reporting unit evaluated.

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, 2025 and determined that several of our franchise assets’ fair values did not exceed the carrying values, resulting in a non-cash pre-tax franchise asset impairment charge of $172.4 million to reduce the carrying value to fair value as of April 30, 2025. After the effect of impairment charges, the carrying value of our franchise assets totaled approximately $454.1 million at December 31, 2025, and is included in other intangible assets, net in the accompanying consolidated balance sheet as of such date.

The changes in the carrying amount of goodwill for the year ended 2025 and 2024 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.

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, 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 2025 and 2024 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 Adjusted Term SOFR (as defined in the Credit Facilities) at December 31, 2025 and 125 basis points above one-month Adjusted Term SOFR at December 31, 2024.

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

Future maturities of long-term debt are as follows:

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 its subsidiaries and are secured by a pledge of substantially all of the guarantors’ assets subject to certain exceptions, including floor plan agreements with various manufacturer-affiliated captive finance companies.

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 Sixth Credit Facility Amendment includes the aggregate commitments of $2.4 billion and includes an accordion feature allowing for an increase in the commitments of up to $450.0 million allocated between the three facilities on a pro rata basis. Under the Sixth Credit Facility Amendment, the Revolving Credit Facility commitment can neither be reduced below $50.0 million nor consist of more than 40% of the aggregate commitments under the Credit Agreement.

In addition, the Sixth Credit Facility Amendment increased the unrestricted basket for quarterly dividends from $0.12 to $0.18 per share of qualified capital stock, provided additional flexibility for the Company to make asset sales and repurchases of its qualified capital stock, removed the consolidated liquidity ratio covenant, and clarified that “Adjusted Term SOFR” (as defined in the Credit Agreement) 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 in the Credit Agreement).

As of December 31, 2025, the commitments under the Credit Facilities consisted of $1.5 billion for the new vehicle floor plan, $550.0 million for the used vehicle floor plan and $350.0 million for the Revolving Credit Facility. Availability under the Revolving Credit Facility is calculated as 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 December 31, 2025, the Revolving Borrowing Base was $311.5 million and we had $11.2 million in outstanding letters of credit andno outstanding borrowings, resulting in $300.3 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 and to repay existing debt.

The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company’s 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 contain 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 an agreement between, among others, the Company and PNC Bank, N.A., 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 Credit Facility Amendment.

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 Adjusted Term SOFR as a base rate with the same pricing grid.

On October 24, 2025, we incurred an additional $149.1 million term loan as required under the Sidecar Facility in order to achieve full utilization.

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 amount exceeds $0.5 million.

As of December 31, 2025, we had $312.7 million of outstanding term borrowings and $95.0 million available for revolving loans under the Mortgage Facility. In addition, we had $143.1 million of outstanding term borrowings under the Sidecar Facility.

Mortgage Notes to Finance Companies

Our mortgage notes (excluding the Mortgage Facility and Sidecar Facility) had a weighted-average interest rate of 4.14% and a combined principal balance of $29.4 million as of December 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 2026 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 applicable agreement) 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 each agreement. After giving effect to the applicable restrictions, as of December 31, 2025, we had approximately $391.1 million of net income and retained earnings free of such restrictions.

Financial covenants for the Credit Facilities, Mortgage Facility and Sidecar Facility facilities include a minimum Consolidated Fixed Charge Coverage Ratio (as defined) of 1.20 to 1.00 and a Consolidated Total Lease Adjusted Leverage Ratio (as defined) not to exceed 5.75 to 1.00. Similar financial covenants apply to our Senior Notes as well as to certain facility leases and their related guaranty agreements. We remain in compliance with all restrictive covenants as of December 31, 2025.

Derivative Instruments and Hedging Activities

As of December 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 Facility 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 rates and the cap rates and are recognized as a reduction in interest expense. The total unamortized premium amount related to the outstanding interest rate caps was $2.6 million as of December 31, 2025 which will be amortized as a reduction in interest expense over each cap’s remaining term. The fair value of the outstanding interest rate caps was $0.1 million at December 31, 2025 included in other assets in the accompanying consolidated balance sheet.

(1)One-month Term SOFR was 3.688% at December 31, 2025.

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

7. Income Taxes

The provision for income taxes - benefit (expense) consists of the following:

The reconciliation of the U.S. statutory federal income tax rate with our federal and state overall effective income tax rate in accordance with ASU 2023-09 is as follows for the year ending December 31, 2025:

(1) The states that constitute the majority of the tax effect in this category include California, Texas, and Florida.

For the years ending December 31, 2024 and 2023, the reconciliation of the U.S. statutory federal income tax rate with our federal and state overall effective income tax rate is as follows:

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Significant components of our deferred tax assets and liabilities were as follows:

Net long-term deferred tax balances were approximately $0.9 million deferred tax assets and $26.2 million deferred tax liabilities at December 31, 2025 and 2024, respectively, and are recorded in other assets and other long-term liabilities, respectively, on the accompanying consolidated balance sheets.

We have approximately $156.5 million in gross state net operating loss carryforwards that will expire between 2026 and 2045. Management reviews these carryforward positions, the time remaining until expiration and other opportunities to realize these carryforwards in making an assessment as to whether it is more likely than not that these carryforwards will be realized. The results of future operations, regulatory framework of the taxing authorities and other related matters cannot be predicted with certainty and, therefore, differences from the assumptions used in the development of management’s judgment could occur. As of December 31, 2025, we had recorded a valuation allowance amount of approximately $6.5 million related to certain state net operating loss carryforward deferred tax assets as we determined that we would not be able to generate sufficient state taxable income in the related entities to realize the accumulated net operating loss carryforward balances.

The following table is a reconciliation of our unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023:

Unrecognized tax benefits and associated accrued interest and penalties are included in income tax provision. The accrued liability recognized related to interest and penalties was $1.3 million and $1.1 million as of December 31, 2025 and 2024, respectively.

Sonic and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Sonic’s 2022 through 2025 U.S. federal income tax returns remain open to examination by the U.S. Internal Revenue Service. Sonic’s and its subsidiaries’ state income tax returns remain open to examination by state taxing authorities for years ranging from 2019 to 2025.

Pursuant to the adoption of ASU 2023-09, cash paid for income taxes, net of refunds received, was as follows:

(1) Jurisdiction representing 5% or more of total income taxes paid, net of refunds.

8. Related Parties

Certain of our dealerships purchase the zMAX micro-lubricant from Oil-Chem Research Corporation (“Oil-Chem”), a subsidiary of Speedway Motorsports, LLC (“Speedway Motorsports”), for resale to Fixed Operations guests of our dealerships in the ordinary course of business. David Bruton Smith, our Chairman and Chief Executive Officer, is an officer and director of Speedway Motorsports and an officer and director of Sonic Financial Corporation (“SFC”), which is the largest stockholder of Sonic; Marcus G. Smith, a director and a greater than 10% beneficial owner of Sonic, is a director and the Chief Executive Officer and President of Speedway Motorsports and a director and an officer of SFC; B. Scott Smith, a director and a greater than 10% beneficial owner of Sonic, is a co-owner, director and an officer of both Speedway Motorsports and SFC; Michael Hodge, a director of Sonic, is the Chief Financial Officer of Speedway Motorsports and SFC; and William R. Brooks, a director of Sonic, is Vice Chairman of Speedway Motorsports and a director and an officer at SFC. There were no purchases from Oil-Chem by our dealerships in 2025, and there were approximately $0.4 million and $1.2 million in 2024 and 2023, respectively. We also engaged in other transactions with various Speedway Motorsports subsidiaries, consisting primarily of: (1) merchandise and apparel purchases from SMISC Holdings, LLC (d/b/a SMI Properties) (“SMISC”) for approximately $0.7 million, $0.8 million and $0.9 million in 2025, 2024 and 2023, respectively; and (2) vehicle sales to various Speedway Motorsports subsidiaries which were approximately $0.6 million, $0.2 million and $0.2 million in 2025, 2024 and 2023, respectively.

In July 2024, the Company entered into a Sponsorship Agreement between EchoPark Automotive, Inc., a subsidiary of Sonic (“EchoPark Automotive”), and SMISC pursuant to which EchoPark Automotive agreed to be an official sponsor of a NASCAR Cup Series race and related events scheduled to be held annually in Austin, Texas (the “NASCAR Event”). In exchange for the right to sponsor the NASCAR Event, EchoPark Automotive paid an annual sponsor fee of approximately $2.5 million to SMISC in both 2024 and 2023. In February 2025, the Company, EchoPark Automotive and SMISC entered into an amendment to the Sponsorship Agreement pursuant to which EchoPark Automotive received sponsorship rights and benefits associated with several NASCAR events held at Speedway Motorsports facilities. In exchange, the Company paid a sponsorship fee of $6.8 million to Speedway GLOBE, LLC (“GLOBE”), a subsidiary of Speedway Motorsports, in 2025.

In June 2025, the Company entered into a Facility Naming Rights and Sponsorship Agreement with GLOBE, which replaced the Sponsorship Agreement and pursuant to which EchoPark Automotive agreed to become the naming rights partner of the Atlanta Motor Speedway, LLC (“AMS”) motorsports facility, and the AMS facility was renamed as “EchoPark Speedway.” The parties also agreed to continue the sponsorship rights and benefits associated with several NASCAR events held at Speedway Motorsports facilities previously provided by the amended Sponsorship Agreement. The Facility Naming Rights and Sponsorship Agreement covers a seven-year period. The Company paid total rights fees of approximately $9.5 million to GLOBE in 2025 (inclusive of the $6.8 million previously paid to GLOBE pursuant to the amended Sponsorship Agreement).

We participate in various aircraft-related transactions with SFC, a privately held company controlled by David Bruton Smith, our Chairman and Chief Executive Officer, and Marcus G. Smith and B. Scott Smith, both directors of Sonic, and of which Michael Hodge and William R. Brooks, directors of Sonic, are officers. Such transactions include, but are not limited to, the use of aircraft owned by SFC for business-related travel by our executives, a management agreement with SFC for storage and maintenance of aircraft leased by us from unrelated third parties and the use of our aircraft for business-related travel by certain affiliates of SFC. We incurred net expenses of approximately $4.4 million, $4.0 million and $1.6 million in 2025, 2024 and 2023, respectively, for aircraft-related transactions with SFC.

9. Capital Structure and Per Share Data

Preferred Stock- We have 3,000,000 shares of “blank check” preferred stock authorized with such designations, rights and preferences as may be determined from time to time by our Board of Directors. Our Board of Directors has designated 300,000 shares of preferred stock as Class A Convertible Preferred Stock, par value $0.10 per share (the “Preferred Stock”), which is divided into 100,000 shares of Series I Preferred Stock,100,000 shares of Series II Preferred Stock and 100,000 shares of Series III Preferred Stock. There wereno shares of Preferred Stock issued or outstanding at December 31, 2025 or 2024.

Common Stock- We havetwo classes of common stock. We have authorized 100,000,000 shares of Class A Common Stock at a par value of $0.01 per share. Class A Common Stock entitles its holder toone vote per share. We have also authorized 30,000,000 shares of Class B Common Stock at a par value of $0.01 per share. Class B Common Stock entitles its holder to 10 votes per share, except in certain circumstances. Each share of Class B Common Stock is convertible intoone share of Class A Common Stock either upon voluntary conversion at the option of the holder, or automatically upon the occurrence of certain events, as provided in our Amended and Restated Certificate of Incorporation. The two classes of common stock share equally in dividends and in the event of liquidation.

Share Repurchases - Prior to January 1, 2023, our Board of Directors had approved cumulative authorizations allowing us to expend up to $1.5 billion to repurchase shares of our Class A Common Stock. As of December 31, 2025, we had repurchased a total of approximately 48.6 million shares of Class A Common Stock at an average price per share of approximately $27.19. As of December 31, 2025, we had approximately $169.9 million remaining under our Board’s share repurchase authorization.

Per Share Data -The calculation of diluted earnings per share considers the potential dilutive effect of restricted stock units, restricted stock awards and stock options granted under Sonic’s stock compensation plans (and any non-forfeitable dividends paid on such awards), in addition to Class A Common Stock purchase warrants, if applicable.

10. Employee Benefit Plans

Substantially all of our employees are eligible to participate in a 401(k) plan. Matching contributions by us to our 401(k) plans were approximately $14.3 million, $13.1 million and $13.2 million in 2025, 2024 and 2023, respectively.

Stock Compensation Plans

We currently havetwo active stock compensation plans: the Sonic Automotive, Inc. 2012 Stock Incentive Plan (the “2012 Plan”) and the Sonic Automotive, Inc. 2012 Formula Restricted Stock and Deferral Plan for Non-Employee Directors (the “2012 Formula Plan”). Collectively, these plans are referred to as the “Stock Plans.” During the second quarter of 2012, our stockholders voted to approve the 2012 Plan and the 2012 Formula Plan, with authorization for issuance of 2,000,000 shares of Class A Common Stock and 300,000 shares of Class A Common Stock, respectively. Our stockholders have subsequently voted to increase the number of shares of Class A Common Stock authorized for issuance periodically since the inception of the two active stock compensation plans, with current authorized balances as of December 31, 2025 at 8,000,000 shares and 600,000 shares of Class A Common Stock, respectively.

The Stock Plans were adopted by our Board of Directors in order to attract and retain key personnel. Under the 2012 Plan, options to purchase shares of Class A Common Stock may be granted to key employees of Sonic and its subsidiaries and to officers, directors, consultants and other individuals providing services to us. The options are granted at the fair market value of our Class A Common Stock at the date of grant, typically vest over a period ofthree years, are exercisable upon vesting and typically expire 10 years from the date of grant. The 2012 Plan also authorizes the issuance of restricted stock awards and restricted stock units. Restricted stock award and restricted stock unit grants under the 2012 Plan typically vest over a period ranging fromone tothree years, but may be longer in certain cases. The 2012 Formula Plan provides for grants of restricted stock awards or deferred restricted stock units to non-employee directors and restrictions on those shares expire on the earlier of the first anniversary of the grant date or the day before the next annual meeting of our stockholders, except to the extent that such grant is considered an interim grant for a newly elected non-employee director, in which case, restrictions on those shares expire on the first anniversary of the grant date. Individuals holding non-vested restricted stock awards granted under the 2012 Plan and the 2012 Formula Plan have voting rights and certain grants may receive dividends on non-vested shares. Individuals holding restricted stock units or options granted under the 2012 Plan do not have voting or dividend rights. We issue new shares of Class A Common Stock to employees and directors to satisfy our option exercise and stock grant obligations. To offset the effects of these transactions, we have historically repurchased shares of our outstanding Class A Common Stock after considering cash flow, market conditions and other factors; however, there is no guarantee that this will occur in future periods.

A summary of the status of the stock options related to the Stock Plans is presented below:

A summary of the status of the non-vested restricted stock award and restricted stock unit grants related to the Stock Plans is presented below:

During 2025, approximately 284,000 restricted stock units were awarded to our executive officers and other key associates under the 2012 Plan. Awards vest over three years. The majority of the restricted stock units awarded to executive officers and other key associates are subject to forfeiture, in whole or in part, based upon continuation of employment and compliance with any restrictive covenants contained in an agreement between us and the respective executive officer or other key associate. Also in 2025, approximately 28,000 restricted stock units were granted to our Board of Directors pursuant to the 2012 Formula Plan and vest on the earlier of the first anniversary of the grant date or the day before the next annual meeting of our stockholders, except to the extent that such grant is considered an interim grant for a newly elected non-employee director, in which case, restrictions on those shares vest on the first anniversary of the grant date. We recognized compensation expense within selling, general and administrative expenses related to stock options, restricted stock units and restricted stock awards of approximately $23.1 million, $23.5 million and $23.3 million in 2025, 2024 and 2023, respectively.

Tax benefits recognized related to restricted stock unit and restricted stock award compensation expense were approximately $6.5 million, $6.8 million and $6.6 million for 2025, 2024 and 2023, respectively. Total compensation cost related to non-vested restricted stock units and restricted stock awards not yet recognized at December 31, 2025 was approximately $34.8 million and is expected to be recognized over a weighted-average period of approximately 3.15 years.

Supplemental Executive Retirement Plan

On December 7, 2009, the Compensation Committee of our Board of Directors approved and adopted the Sonic Automotive, Inc. Supplemental Executive Retirement Plan (the “SERP”) to be effective as of January 1, 2010. The SERP is a non-qualified deferred compensation plan that is unfunded for federal tax purposes. The SERP includes 13 active or former members of senior management at December 31, 2025. The purpose of the SERP is to attract and retain key members of management by providing a retirement benefit in addition to the benefits provided by our tax-qualified and other non-qualified deferred compensation plans.

The following table sets forth the status of the SERP:

(1)As of December 31, 2025, approximately $0.5 million was included in other accrued liabilities and approximately $25.3 million was included in other long-term liabilities in the accompanying consolidated balance sheet as of such date. As of December 31, 2024, approximately $0.5 million was included in other accrued liabilities and approximately $21.3 million was included in other long-term liabilities in the accompanying consolidated balance sheet as of such date.

The following table provides the cost components of the SERP:

The weighted-average assumptions used to determine the benefit obligation and net periodic benefit costs consist of:

The estimated future benefit payments expected to be paid for each of the next five years and the sum of the payments expected for the next five years thereafter are:

Multiemployer Benefit Plan

Three of our dealership subsidiaries in northern California currently make fixed-dollar contributions to the Automotive Industries Pension Plan (the “AI Pension Plan”) pursuant to collective bargaining agreements between our subsidiaries and the International Association of Machinists (the “IAM”)). The AI Pension Plan is a “multiemployer plan” as defined under the Employee Retirement Income Security Act of 1974, as amended. Three of our dealership subsidiaries actively contribute to the AI Pension Plan pursuant to collective bargaining agreements with the IAM. These subsidiaries employ approximately 170 individuals, which constitutes less than 2% of our total workforce. The risks of participating in this multiemployer pension plan are different from single-employer plans in the following aspects:

•assets contributed to the multiemployer pension plan by one employer may be used to provide benefits to employees of other participating employers;

•if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and

•if we choose to stop participating in the multiemployer pension plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in the AI Pension Plan for 2025, 2024 and 2023 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number (the “EIN”). Unless otherwise noted, the most recent Pension Protection Act of 2006 (the “PPA”) zone status available in the years ended December 31, 2025 and 2024 is for the plan’s year-end at December 31, 2024 and 2023, respectively. The zone status is based on information that we received from the AI Pension Plan. Among other factors, plans in the red zone are generally less than 65% funded (“Critical Status”), plans in the yellow zone are less than 80% funded and plans in the green zone are at least 80% funded. The “FIP/RP Status- Pending/Implemented” column indicates plans for which a Financial Improvement Plan (“FIP”) or a Rehabilitation Plan (“RP”) is either pending or has been implemented. The last column lists the expiration dates of the collective bargaining agreements to which the plan is subject. The number of employees covered by the AI Pension Plan decreased 1.3% from December 31, 2023 to December 31, 2024 and decreased 0.5% from December 31, 2024 to December 31, 2025, affecting the period-to-period comparability of the contributions for 2025, 2024 and 2023.

Our participating dealership subsidiaries were not listed in the AI Pension Plan’s Form 5500 as providing more than 5% of the total contributions for the plan years ended December 31, 2025 and 2024. In March 2008, the Board of Trustees of the AI Pension Plan notified participants, participating employers and local unions that the AI Pension Plan’s actuary had issued a certification that the AI Pension Plan was in critical status. In conjunction with the AI Pension Plan’s critical status, all participating employers were required to increase employer contributions to the AI Pension Plan for a seven-year period which commenced in 2013. As of April 2023, the AI Pension Plan’s actuary certified that the AI Pension Plan remained in Critical Status for the plan year commencing January 1, 2023, with the projected pension liability underfunded by approximately $1.0 billion and projected to become insolvent in the 2032 plan year. In July 2023, the Pension Benefit Guaranty Corporation (the “PBGC”) approved an application by the AI Pension Plan for special financial assistance in the amount of approximately $1.1 billion to address the underfunded status of the plan.

Under applicable federal law, any employer contributing to a multiemployer pension plan that completely ceases participating in the plan while the plan is underfunded is subject to payment of such employer’s assessed share of the aggregate unfunded vested benefits of the plan. In certain circumstances, an employer can be assessed withdrawal liability for a partial withdrawal from a multiemployer pension plan. If any of these adverse events were to occur in the future, it could result in a substantial withdrawal liability assessment that could have a material adverse effect on our business, financial condition, results of operations or cash flows.

11. Fair Value Measurements

In determining fair value, Sonic uses various valuation approaches, including market, income and/or cost approaches. “Fair Value Measurements and Disclosures” in the ASC establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of Sonic. Unobservable inputs are inputs that reflect Sonic’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that Sonic has the ability to access. Assets utilizing Level 1 inputs include marketable securities that are actively traded, including Sonic’s stock or public bonds.

Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Assets and liabilities utilizing Level 2 inputs include cash flow hedges and deferred compensation plan balances.

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Asset and liability measurements utilizing Level 3 inputs include those used in estimating fair value of non-financial assets and non-financial liabilities in purchase acquisitions, those used in assessing impairment of right-of-use assets (“ROU assets”), property, plant and equipment and other intangibles, and those used in the reporting unit valuation in the goodwill impairment evaluation.

The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required by Sonic in determining fair value is greatest for assets and liabilities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input (Level 3 being the lowest level) that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, Sonic’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. Sonic uses inputs that are current as of the measurement date, including during periods when the market may be abnormally high or abnormally low. Accordingly, fair value measurements can be volatile based on various factors that may or may not be within Sonic’s control.

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

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

(2)Included in other current assets in the accompanying audited condensed balance sheets.

Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets or assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived assets or assets held for sale group’s fair value less cost to sell (increase or decrease) are reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale.

As of December 31, 2025 and 2024, the fair values of Sonic’s financial instruments, including receivables, notes receivable from finance contracts, notes payable - floor plan, trade accounts payable and borrowings under our variable interest rate credit facilities approximated their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates.

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

(1)As determined by market quotations as of December 31, 2025 and 2024, respectively (Level 2).

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

12. 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 sales 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 $3.0 million as of December 31, 2025 and $2.2 million as of 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 December 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 related to legal matters as of December 31, 2025 and December 31, 2024.

13. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) are as follows:

(1)Net of tax expense of $0.2 million related to losses on cash flow hedges andno tax benefit related to the defined benefit pension plan.

(2)Net of tax expense of $0.6 million related to losses on cash flow hedges and $0.6 million tax expense related to the defined benefit pension plan.

(3)Net of tax benefit of $0.4 million related to gains on cash flow hedges.

(4)Net of tax benefit of $0.7 million related to gains on cash flow hedges and $1.0 million tax benefit related to the defined benefit pension plan.

See the heading “Derivative Instruments and Hedging Activities” in Note 6, “Long-Term Debt,” for further discussion of our cash flow hedges. For further discussion of our defined benefit pension plan, see Note 10, “Employee Benefit Plans.”

14. Segment Information

As of December 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,” 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 years ended December 31, 2025 were as follows:

Franchised Dealerships Segment - Reported

(1) Other selling, general and administrative expenses include various fixed and variable expenses, including gain on disposal of franchises, certain customer-related costs such as gasoline and service loaners, in addition to insurance, training, legal and information technology expenses.

EchoPark Segment - Reported

(1) Other selling, general and administrative expenses include various fixed and variable expenses, including certain customer-related costs such as gasoline, in addition to 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 on disposal of franchises, certain customer-related costs such as gasoline, in addition to insurance, training, legal and information technology expenses.

Note: Due to rounding, segment level financial data may not sum to consolidated results.

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

(2)For 2025, amount includes approximately $40.0 million of pre-tax benefit from cyber insurance proceeds related to the CDK outage, approximately $5.0 million of pre-tax charges related to storm damage, approximately $5.5 million of pre-tax loss related to dispositions, and approximately $0.7 million of pre-tax legal expenses. For 2024, amount includes approximately $13.0 million of pre-tax charges related to excess compensation as a result of the CDK outage, approximately $8.3 million of pre-tax charges related to storm damage, approximately $3.5 million of pre-tax gain related to the acquisition of the remaining equity interest in a joint venture, $10.0 million of pre-tax gain related to the CDK outage cyber claim payment, and approximately $2.2 million of pre-tax charges related to severance and long-term compensation expense. For 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.

(3)For 2025, amount includes approximately $0.9 million of pre-tax gain on dispositions. For 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 $2.1 million of pre-tax gain on real estate dispositions, and approximately $0.4 million of pre-tax charges related to excess compensation as a result of the CDK outage. For 2023, amount includes approximately $10.0 million of pre-tax charges related to used vehicle inventory valuation adjustments, $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 2025, amount includes approximately $1.1 million of pre-tax charges related to dispositions. For 2024, amount includes approximately $0.5 million of pre-tax charges related to severance and long-term compensation expense.

(5)For 2025, amount includes approximately $165.9 million of non-cash pre-tax franchise asset impairment charges for the Franchised Dealerships Segment, approximately $0.2 million of non-cash pre-tax property and equipment impairment charges for real estate held for sale in the EchoPark Segment, and approximately $0.4 million of non-cash pre-tax property, equipment and right-of-use asset impairment charges, and approximately $7.2 million of non-cash pre-tax franchise asset impairment charges for the Powersports Segment. For 2024, amount includes approximately $1.2 million of pre-tax franchise asset and property and equipment impairment charges for the Franchised Dealerships Segment and approximately $2.7 million of pre-tax property and equipment charges for real estate held for sale in the EchoPark Segment. For 2023, amount includes approximately $1.0 million of pre-tax franchise asset and property and equipment impairment charges for the Franchised Dealerships Segment and approximately $78.3 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.

(1)The floor plan deposit balance was reclassified to Corporate and other in the current period. Prior period amounts as of December 31, 2024 have been adjusted to conform to the current period presentation.

15. Leases

The majority of our leases are related to dealership properties that are subject to long-term lease arrangements. In addition, we have certain equipment leases and contracts containing embedded leased assets that have been evaluated and included in the recorded Right of Use assets (“ROU”) asset and lease liabilities as appropriate.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred or previously recognized favorable lease assets, less any lease incentives received or previously recognized lease exit accruals. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the ROU asset is reduced using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to us or we are reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is reduced over the expected useful life of the underlying asset. Expense related to the reduction of the ROU asset is recognized and presented separately from interest expense on the lease liability.

Variable lease payments associated with our leases are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expense in our consolidated statements of operations in the same line item as expense arising from fixed lease payments (operating leases) or expense related to the reduction of the ROU asset (finance leases).

ROU assets for operating and finance leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Topic 360, “Property, Plant, and Equipment,” to determine whether the ROU asset is impaired and, if so, the amount of the impairment loss to recognize.

We regularly monitor events or changes in circumstances that may require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

Key estimates and judgments related to the measurement and recording of ROU assets and lease liabilities include how we determine: (1) the discount rate used to discount the unpaid lease payments to present value; and (2) the expected lease term, including any extension options.

ASC Topic 842, “Leases,” requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, we cannot determine the interest rate implicit in the lease because we do not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, we generally use our incremental borrowing rate as the discount rate for the lease. We determined the discount rate for our leases based on the risk-free rate as of the measurement date for varying maturities corresponding to the remaining lease term, adjusted for the risk-premium attributed to Sonic’s corporate credit rating for a secured or collateralized instrument.

Many of our lease arrangements have one or more existing renewal options to extend the lease term (typically in five- to 10-year increments), which were considered in the calculation of the ROU assets and lease liabilities if we determined that it was reasonably certain that an extension option would be exercised. The lease term for all of the Company’s leases includes the non-cancelable period of the lease plus any additional periods covered by our option to extend the lease that we are reasonably certain to exercise. We determine the probability of the exercise of a lease extension option based on our long-term strategic business outlook and the condition and remaining useful life of the fixed assets at the location subject to the lease agreement, among other factors.

We have elected the practical expedient under ASC Topic 842 to not separate lease and non-lease components for the following classes of underlying assets: uniforms, computer equipment, shop equipment and marketing-related assets (e.g., signage).

The majority of our lease agreements require fixed monthly payments (subject to either specific or index-based escalations in future periods) while other agreements require variable lease payments based on changes in SOFR or any replacement thereof. Lease payments included in the measurement of the lease liability comprise the: (1) fixed lease payments, including in-substance fixed payments, owed over the lease term, which include termination penalties we would owe if the estimated lease term assumes that we would be likely to exercise a termination option prior to the earliest expiration date; (2) variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date; and (3) the exercise price of our option to purchase the underlying asset if we are reasonably certain to exercise the option. Our leases do not typically contain residual value guarantees.

In certain situations, we have entered into sublease agreements whereby we sublease all or a portion of a leased real estate asset to a third party. To the extent that we have a sublease related to a lease agreement for an asset that we are no longer using in operations, we have reduced the ROU asset by any applicable net deficiency in expected cash flows from that sublease (either due to partial monthly sublease proceeds or a sublease term less than the remaining master lease term). ASC Topic 842 also provides practical expedients for ongoing accounting. We elected the short-term lease recognition exemption for our real estate and equipment leases, which means that for those leases that qualify, we do not recognize ROU assets or lease liabilities and recognize the expense related to the short-term leases on a straight-line basis over the lease term and any variable lease payments in the period in which the obligation for those payments is incurred. We have also elected the practical expedient that allows us not to separate non-lease components of an agreement from lease components (for certain non-real estate assets).

Following is information related to lease expenses and other lease-related information for the years ended December 31, 2025 and 2024:

(1)Included in operating cash flows in the accompanying consolidated statements of cash flows.

(1)Includes the impact of reclassification of ROU assets from operating leases to finance leases due to remeasurement.