SONIC AUTOMOTIVE INC

1. Summary of Significant Accounting Policies

Basis of Presentation– The accompanying unaudited condensed consolidated financial statements of Sonic Automotive, Inc. and its wholly owned subsidiaries (collectively referred to herein as “Sonic,” the “Company,” “we,” “us” or “our”) for the three and nine months ended September 30, 2026 and 2025 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (the “U.S.”) (“GAAP”) for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all material normal, recurring adjustments necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2025. Due to rounding, segment level financial data may not sum to consolidated results.

Recent Accounting Pronouncements– Please refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2025 for further discussion of 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 became effective for fiscal years beginning after December 15, 2024. We have implemented the provisions of ASU 2023-09. See Note 7, “Income Taxes,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2025 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 the adoption of this 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 legislation 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 these changes did not have a material impact on our consolidated financial statements for the three and nine months ended September 30, 2026. We continue to monitor related guidance and assess any implications for our consolidated financial statements.

Principles of Consolidation– All of our dealership and non-dealership subsidiaries are wholly owned and consolidated in the accompanying unaudited condensed consolidated financial statements. All material intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. Certain amounts and percentages may not compute due to rounding.

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

Management has evaluated our established business processes, revenue transaction streams and accounting policies, and identified our material revenue streams to be: (1) the sale of new vehicles; (2) the sale of used vehicles to retail customers; (3) the sale of wholesale used vehicles at third-party auctions; (4) the arrangement of third-party vehicle financing and the sale of third-party service, warranty and other insurance contracts; and (5) the performance of vehicle maintenance and repair services and the sale of related parts and accessories. The transaction price for a retail vehicle sale is specified in the contract with the customer and encompasses both cash and non-cash considerations. In the context of a retail vehicle sale, customers frequently trade in their existing vehicles. The value of this trade-in is determined based on its stand-alone selling price as specified in the contract, utilizing various third-party pricing sources. There are no other non-cash forms of consideration associated with retail sales, and sales are reported net of sales tax and other similar taxes. 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 unaudited condensed consolidated balance sheets as of September 30, 2026 and December 31, 2025 include approximately $12.1 million and $7.0 million, respectively, related to contract assets from F&I retro revenues recognition, which are recorded in receivables, net. In addition, we recorded approximately $8.1 million and $10.2 million related to contract assets from F&I retro revenues recognition in other assets as of September 30, 2026 and December 31, 2025, respectively. Changes in contract assets from December 31, 2025 to September 30, 2026 were primarily due to ordinary business activity, including the receipt of cash for amounts earned and recognized in prior periods. Please refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2025 for further discussion of our revenue recognition policies and processes.

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

2. Business Acquisitions and Dispositions

Acquisitions

During the nine months ended September 30, 2026, in an effort to expand and diversify our business, we acquiredone business (consisting ofsix locations) in our Powersports Segment andone business in our Franchised Dealerships Segment for an aggregate gross purchase price of approximately $169.3 million. The dealership locations include Falcons Fury Harley-Davidson (Conyers, Georgia), Raging Bull Harley-Davidson (Durham, North Carolina), San Diego Harley-Davidson (San Diego, California), Space Coast Harley-Davidson (Palm Bay, Florida), Treasure Coast Harley-Davidson (Stuart, Florida) in addition to one authorized retail outlet location, Cocoa Beach Harley-Davidson (Cocoa Beach, Florida), and Porsche Walnut Creek (Walnut Creek, California). The allocation of the aggregate gross purchase price included inventory of approximately $30.9 million, property and equipment of approximately $4.2 million, real estate of approximately $55.3 million, goodwill of approximately $9.7 million, franchise assets of approximately $71.5 million, other assets of approximately $0.2 million, right-of-use assets of $12.6 million, lease liabilities of $12.8 million, and other liabilities of approximately $2.3 million.

The accompanying consolidated statements of operations include revenue and income before taxes attributable to the businesses acquired during the nine months ended September 30, 2026 of approximately $51.8 million and $2.2 million, respectively. Acquisition costs recognized as an expense in the consolidated statements of operations related to this acquisition were immaterial. Additionally, the total amount of goodwill and other intangibles from the acquisitions that is expected to be deductible for tax purposes is approximately $81.2 million.

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

(1) The supplemental pro forma information for revenue and income before taxes of the Company as though the business combination had occurred on January 1, 2026 is impracticable to provide for the Powersports Segment acquisition due to the fact that carve-out financial information for the acquired business prior to the acquisition was not available. The pro forma information shown for the nine months ended September 30, 2026 only includes the pro forma information from the Franchised Dealerships Segment acquisition.

(2) The prior year supplemental pro forma revenue and income before taxes for the twelve months ended December 31, 2025 assume the acquisitions had occurred on January 1, 2025. Historical financial information for the acquired businesses was available only on a cumulative year-to-date basis, without the monthly detail necessary to present pro forma information for the nine months ended September 30, 2025.

During the nine months ended September 30, 2025, 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.

Dispositions

During the nine months ended September 30, 2026, we disposed ofthree mid-line import franchised dealerships, one domestic franchised dealership, andone collision center. The disposal of these five locations and related real estate generated net cash of approximately $40.5 million and $22.2 million, respectively, for combined net proceeds of $62.7 million, and generated a pre-tax gain on disposal of approximately $5.1 million. During the nine months ended September 30, 2025, we disposed ofone mid-line import franchised dealership and terminatedone domestic franchised dealership andone powersports franchise. The disposal of the mid-line import franchised dealership generated net cash of approximately $9.6 million.

3. Inventories

Inventories consist of the following:

(1)Service loaner inventory includes approximately $35.5 million and $35.7 million as of September 30, 2026 and December 31, 2025, respectively, related to vehicles that are leased directly from the manufacturer on a short-term basis. A corresponding liability is included within notes payable - floor plan - trade on the accompanying unaudited condensed consolidated balance sheets.

4. Property and Equipment

Property and equipment, net consists of the following:

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

Capital expenditures were approximately $69.2 million and $223.7 million in the three and nine months ended September 30, 2026, respectively, and in the three and nine months ended September 30, 2025 capital expenditures were approximately $33.5 million and $112.6 million, respectively. Capital expenditures in all periods were primarily related to construction of new franchised dealerships and powersports stores, and building improvements and equipment purchased for use in our franchised dealerships, EchoPark and powersports stores. Certain capital expenditures are recognized in the Franchised Dealerships Segment to better monitor project development costs prior to transferring the capitalized asset balance to the appropriate entity or operating segment upon project completion. There were no assets held for sale as of September 30, 2026. Assets held for sale as of December 31, 2025 consisted of real property not currently used in operations that we expected to dispose of in the next 12 months.

Fixed asset impairment charges for the nine months ended September 30, 2026 were approximately $0.4 million, which were related to the impairment of a construction project that was canceled. Fixed asset impairment charges for the nine months ended September 30, 2025 were approximately $0.2 million, which were related to property held for sale.

During the current year, the estimated useful lives of buildings and improvements were evaluated based on historical experience and industry practices. As a result, we revised the estimated useful lives of certain buildings and improvements, reducing depreciation expense by approximately $4.6 million and $13.8 million for the three and nine months ended September 30, 2026, respectively.

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 Dealerships 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, 2026 and determined there was no 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, 2026 and determined there was no impairment in any of our indefinite-lived franchise assets.

The changes in the carrying amount of goodwill for the year ended December 31, 2025 and the nine months ended September 30, 2026 were as follows:

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

The changes in the carrying amount of franchise assets for the year ended December 31, 2025 and the nine months ended September 30, 2026 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 150 and 125 basis points above one-month Adjusted Term SOFR (as defined in the Credit Facilities) at September 30, 2026 and December 31, 2025 respectively.

(2)The interest rate on the Mortgage Facility and Sidecar Facility (each as defined below) was 175 and 150 basis points above one-month Adjusted Term SOFR (as defined in each of the Mortgage Facility and Sidecar Facility) at September 30, 2026 and December 31, 2025, respectively.

(3)The interest rate on the Bridge Facility (as defined below) was 250 basis points above one-month Term SOFR (as defined in the Bridge Facility) at September 30, 2026.

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 currently includes aggregate commitments of $2.4 billion as well as an accordion feature allowing for an increase in future 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 Facilities.

In addition, the Sixth Credit Facility Amendment increased the basket for unrestricted quarterly dividends from $0.12 to $0.18 per share of qualified capital stock, provided additional flexibility 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 one-month Adjusted Term SOFR plus credit spreads indicated by our Consolidated Total Lease Adjusted Leverage Ratio (as defined in the Credit Agreement).

As of September 30, 2026, the aggregate commitments 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 September 30, 2026, the Revolving Borrowing Base was $301.2 million and we had $11.7 million in outstanding letters of credit andno borrowings, resulting in $289.5 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 with cumulative draws totaling $405.0 million.

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 September 30, 2026, we had $276.4 million of outstanding term borrowings and $95.0 million available for revolving loans under the Mortgage Facility. In addition, we had $134.7 million of outstanding term borrowings under the Sidecar Facility.

Bridge Facility

On March 27, 2026, we entered into a Bridge Facility Credit Agreement with PNC Bank, N.A. as administrative agent and lender, which provided for a senior unsecured term loan facility in an aggregate principal amount of $150.0 million (the “Bridge Facility”). We borrowed the full $150.0 million available on the closing date. The Bridge Facility contains certain covenants and events of default which are similar to the Mortgage Facility and Sidecar Facility and will mature on the earlier of the date that is 364 days after the closing date or the occurrence of a refinancing of the Mortgage Facility. Amounts outstanding under the Bridge Facility bear interest at a rate equal to one-month Term SOFR plus 2.50% per annum which is paid monthly in arrears. We have the right to prepay outstanding principal under the Bridge Facility at any time without premium or penalty provided that the prepayment amount exceeds $0.5 million.

Notes to Finance Companies

Our notes to finance companies (excluding the Mortgage Facility, Sidecar Facility, and Bridge Facility) had a weighted-average interest rate of 5.01% and a combined principal balance of $54.2 million as of September 30, 2026. These 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. These notes mature between 2028 and 2034.

Covenants

The Credit Facilities, Mortgage Facility, Sidecar Facility, Bridge Facility and Senior Notes each contain covenants which could prohibit the issuance of additional indebtedness, the payment of dividends over certain limits, other restricted payments such as share repurchases, certain types of capital expenditures and asset purchases and material dispositions and acquisitions. They also 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.

Financial covenants for the Credit Facilities, Mortgage Facility, Sidecar Facility and Bridge Facility include a minimum Consolidated Fixed Charge Coverage Ratio (as defined in each agreement) of 1.20 to 1.00 and a maximum Consolidated Total Lease Adjusted Leverage Ratio (as defined in each agreement) of 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 September 30, 2026.

Derivative Instruments and Hedging Activities

As of September 30, 2026, we had interest rate cap agreements with the following notional amounts, cap rates and maturities to help limit our exposure to potentially increasing interest rates on the Floor Plan Facilities and Mortgage Facility. Settlements are evaluated monthly and paid by the counterparties when one-month Term SOFR exceeds the cap rate. Payments are calculated based on the notional amounts multiplied by the difference between one-month Term SOFR and the cap rates and are recognized as a reduction in interest expense. The total unamortized premium amount related to the outstanding interest rate caps was $2.3 million as of September 30, 2026 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 $1.3 million at September 30, 2026 included in other current assets in the accompanying unaudited condensed consolidated balance sheets.

(1) One-month Term SOFR was approximately 3.91% at September 30, 2026.

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.

For further discussion, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2025.

7. Commitments and Contingencies

Guarantees and Indemnification Obligations

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

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

In accordance with the terms of agreements entered into for the 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 $13.7 million as of September 30, 2026 and $3.0 million as of December 31, 2025. 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 September 30, 2026.

Legal Matters

Sonic is involved, and expects to continue to be involved, in various legal and administrative proceedings arising out of the conduct of its business, including regulatory investigations and private civil actions brought by plaintiffs purporting to represent a potential class or for which a class has been certified. Although Sonic vigorously defends itself in all legal and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of Sonic’s business, including litigation with customers, employment-related lawsuits, contractual disputes, class actions, purported class actions and actions brought by governmental authorities, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on Sonic’s business, financial condition, results of operations, cash flows or prospects.

There were no significant liabilities recorded related to legal matters as of September 30, 2026 and December 31, 2025.

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2026 and December 31, 2025 were as follows:

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

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

As of September 30, 2026 and December 31, 2025, 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 and variable interest notes to finance companies approximated their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates.

As of September 30, 2026 and December 31, 2025, the fair value and the carrying value of Sonic’s significant fixed rate long-term debt were as follows:

(1)As determined by market quotations from similar securities as of September 30, 2026 and December 31, 2025, respectively (Level 2).

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

For further discussion of Sonic’s fair value measurements, see Note 11, “Fair Value Measurements,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2025.

9. Segment Information

As of September 30, 2026, Sonic hadthree operating segments: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. Refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2025 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 (“CODM”) to assess operating performance and allocate resources. Sonic’s CODM 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 CODM uses segment gross profit and segment income (loss) to assess performance and allocate resources across the reportable segments. The CODM evaluates these measures against budget and prior-year results on a monthly basis to assess each segment’s operating performance and determine resource needs. Segment gross profit is used to evaluate the profitability of each segment’s revenue-generating activities, while segment income (loss) is used to evaluate profitability after operating expenses and other income and expenses included in the measure. These evaluations inform the annual budgeting process and ongoing decisions regarding capital expenditures, business expansion, and other investments within and among the segments.

These measures are calculated consistently across the reportable segments using accounting policies consistent with those applied in Sonic’s consolidated financial statements.

The following tables present segment revenues, expenses, and measures of segment profit or loss for the three and nine months ended September 30, 2026 and 2025, consistent with the segment-level information regularly provided to the CODM:

Franchised Dealerships Segment - Reported

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

EchoPark Segment - Reported

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

Powersports Segment - Reported

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

(1)Segment income (loss) for each segment is defined as income (loss) before taxes and impairment charges. Due to rounding, segment level financial data may not sum to consolidated results.

(2)For the three months ended September 30, 2026, amount includes approximately $0.9 million of pre-tax charges related to property damages, approximately $1.0 million in pre-tax proceeds from legal settlements, and approximately $0.6 million in pre-tax charges related to lease exits. For the three months ended September 30, 2025, amount includes approximately $2.8 million of pre-tax loss related to the disposal of franchises, and approximately $0.7 million of pre-tax legal expenses. For the nine months ended September 30, 2026, amount includes approximately $5.1 million of pre-tax gain related to dispositions, approximately $2.1 million of pre-tax charges related to property damages, approximately $0.6 million in pre-tax charges related to lease exits, and approximately $1.0 million in pre-tax proceeds related to legal settlements. For the nine months ended September 30, 2025, amount includes $40.0 million of pre-tax benefit from cyber insurance proceeds related to a cybersecurity incident impacting certain of our information systems provided by CDK Global in the second quarter of 2024, approximately $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.

(3)For the three months ended September 30, 2026, amount includes approximately $0.6 million in pre-tax charges related to lease exits. For the three months ended September 30, 2025, amount includes approximately $0.1 million of pre-tax loss on dispositions. For the nine months ended September 30, 2026, amount includes approximately $3.0 million of pre-tax gain on lease terminations. For the nine months ended September 30, 2025, amount includes approximately $0.9 million of pre-tax gain on dispositions.

(4)For the three months ended September 30, 2025, amount includes approximately $0.2 million of pre-tax loss related to dispositions. For the nine months ended September 30, 2025, amount includes approximately $1.1 million of pre-tax charges related to dispositions.

(5)For the nine months ended September 30, 2026, amount includes approximately $0.4 million of non-cash pre-tax impairment charges related to construction-in-progress projects for the Franchised Dealerships Segment. For the nine months ended September 30, 2025, amount includes approximately $0.2 million of non-cash pre-tax property and equipment impairment charges for real estate held for sale in the EchoPark Segment, approximately $7.2 million of non-cash pre-tax franchise asset impairment charges for the Powersports Segment, approximately $0.4 million of non-cash pre-tax property, equipment and right-of-use asset impairment charges for the Powersports Segment, and approximately $165.9 million of non-cash pre-tax franchise asset impairment charges for the Franchised Dealerships Segment.