UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, ~~2020~~2021

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

For the transition period from to

Commission File Number: 1-13395

SONIC AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)


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

4401 Colwick Road

28211

Charlotte,

North Carolina

(Address of principal executive offices)

(Zip Code)

(704) 566-2400

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share

SAH

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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

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

As of April ~~29, 2020,~~26, 2021, there were ~~30,890,395~~29,565,403 shares of the registrant’s Class A Common Stock and 12,029,375 shares of the registrant’s Class B Common Stock outstanding.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This Quarterly Report on Form 10-Q contains, and written or oral statements made from time to time by us or by our authorized officers may contain, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address our future objectives, plans and goals, as well as our intent, beliefs and current expectations regarding future operating performance, results and events, and can generally be identified by words such as “may,” “will,” “should,” “could,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee” and other similar words or phrases.

These forward-looking statements are based on our current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors which may cause actual results to differ materially from our projections include those risks described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and in “Item 1A. Risk Factors” of this report and elsewhere herein, as well as:

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

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

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

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

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

•the adverse resolution of one or more significant legal proceedings against us or our franchised dealerships or EchoPark stores;

•changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental ~~laws;~~laws, including any change in law or regulations in response to the COVID 19 pandemic;

•changes in vehicle and parts import quotas, duties, tariffs or other ~~restrictions;~~restrictions, including supply shortages that could be caused by the COVID-19 pandemic or other supply chain disruptions;

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

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

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

•our ability to successfully integrate potential future acquisitions;

•our principal shareholders exercise significant control over us and our business matters;

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

•the severity and duration of the COVID-19 pandemic and the actions taken by vehicle manufacturers, governmental authorities, businesses or consumers in response to the pandemic, including in response to a worsening or “second wave” of the pandemic.

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

SONIC AUTOMOTIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(Unaudited)


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(Dollars and shares in thousands, except per share amounts)							(Dollars and shares in thousands, except per share amounts)
Revenues:	Revenues:					Revenues:
New vehicles	New vehicles	$	959,489	$	1,066,334	New vehicles	$	1,156,317	$	959,489
Used vehicles	Used vehicles	850,052		820,366		Used vehicles	1,090,097		850,052
Wholesale vehicles	Wholesale vehicles	48,543		54,770		Wholesale vehicles	74,809		48,543
Total vehicles	Total vehicles	1,858,084		1,941,470		Total vehicles	2,321,223		1,858,084
Parts, service and collision repair	Parts, service and collision repair	334,680		341,430		Parts, service and collision repair	320,914		334,680
Finance, insurance and other, net	Finance, insurance and other, net	115,292		106,238		Finance, insurance and other, net	144,661		115,292
Total revenues	Total revenues	2,308,056		2,389,138		Total revenues	2,786,798		2,308,056
Cost of Sales:
Cost of sales:						Cost of sales:
New vehicles	New vehicles	(914,074)		(1,012,538)		New vehicles	(1,086,852)		(914,074)
Used vehicles	Used vehicles	(817,922)		(783,358)		Used vehicles	(1,059,229)		(817,922)
Wholesale vehicles	Wholesale vehicles	(48,700)		(56,037)		Wholesale vehicles	(73,960)		(48,700)
Total vehicles	Total vehicles	(1,780,696)		(1,851,933)		Total vehicles	(2,220,041)		(1,780,696)
Parts, service and collision repair	Parts, service and collision repair	(176,782)		(178,194)		Parts, service and collision repair	(165,864)		(176,782)
Total cost of sales	Total cost of sales	(1,957,478)		(2,030,127)		Total cost of sales	(2,385,905)		(1,957,478)
Gross profit	Gross profit	350,578		359,011		Gross profit	400,893		350,578
Selling, general and administrative expenses	Selling, general and administrative expenses	(282,156)		(247,095)		Selling, general and administrative expenses	(289,356)		(282,156)
Impairment charges	Impairment charges	(268,000)		(1,952)		Impairment charges	0		(268,000)
Depreciation and amortization	Depreciation and amortization	(22,297)		(22,649)		Depreciation and amortization	(23,687)		(22,297)
Operating income (loss)	Operating income (loss)	(221,875)		87,315		Operating income (loss)	87,850		(221,875)
Other income (expense):	Other income (expense):					Other income (expense):
Interest expense, floor plan	Interest expense, floor plan	(10,508)		(13,226)		Interest expense, floor plan	(5,113)		(10,508)
Interest expense, other, net	Interest expense, other, net	(10,965)		(12,853)		Interest expense, other, net	(10,285)		(10,965)
Other income (expense), net	Other income (expense), net	100		100		Other income (expense), net	101		100
Total other income (expense)	Total other income (expense)	(21,373)		(25,979)		Total other income (expense)	(15,297)		(21,373)
Income (loss) from continuing operations before taxes	Income (loss) from continuing operations before taxes	(243,248)		61,336		Income (loss) from continuing operations before taxes	72,553		(243,248)
Provision for income taxes for continuing operations - benefit (expense)	Provision for income taxes for continuing operations - benefit (expense)	44,117		(18,987)		Provision for income taxes for continuing operations - benefit (expense)	(18,864)		44,117
Income (loss) from continuing operations	Income (loss) from continuing operations	(199,131)		42,349		Income (loss) from continuing operations	53,689		(199,131)
Discontinued operations:	Discontinued operations:					Discontinued operations:
Income (loss) from discontinued operations before taxes	Income (loss) from discontinued operations before taxes	(285)		(180)		Income (loss) from discontinued operations before taxes	720		(285)
Provision for income taxes for discontinued operations - benefit (expense)	Provision for income taxes for discontinued operations - benefit (expense)	83		52		Provision for income taxes for discontinued operations - benefit (expense)	(187)		83
Income (loss) from discontinued operations	Income (loss) from discontinued operations	(202)		(128)		Income (loss) from discontinued operations	533		(202)
Net income (loss)	Net income (loss)	$	(199,333)	$	42,221	Net income (loss)	$	54,222	$	(199,333)
Basic earnings (loss) per common share:	Basic earnings (loss) per common share:					Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations	Earnings (loss) per share from continuing operations	$	(4.67)	$	0.99	Earnings (loss) per share from continuing operations	$	1.29	$	(4.67)
Earnings (loss) per share from discontinued operations	Earnings (loss) per share from discontinued operations	(0.01)		(0.01)		Earnings (loss) per share from discontinued operations	0.02		(0.01)
Earnings (loss) per common share	Earnings (loss) per common share	$	(4.68)	$	0.98	Earnings (loss) per common share	$	1.31	$	(4.68)
Weighted-average common shares outstanding	Weighted-average common shares outstanding	42,615		42,838		Weighted-average common shares outstanding	41,541		42,615
Diluted earnings (loss) per common share:	Diluted earnings (loss) per common share:					Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations	Earnings (loss) per share from continuing operations	$	(4.67)	$	0.99	Earnings (loss) per share from continuing operations	$	1.23	$	(4.67)
Earnings (loss) per share from discontinued operations	Earnings (loss) per share from discontinued operations	(0.01)		(0.01)		Earnings (loss) per share from discontinued operations	0.02		(0.01)
Earnings (loss) per common share	Earnings (loss) per common share	$	(4.68)	$	0.98	Earnings (loss) per common share	$	1.25	$	(4.68)
Weighted-average common shares outstanding	Weighted-average common shares outstanding	42,615		42,888		Weighted-average common shares outstanding	43,542		42,615

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~OPERATIONS

(Unaudited)


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(Dollars in thousands)							(Dollars in thousands)
Net income (loss)	Net income (loss)	$	(199,333)	$	42,221	Net income (loss)	$	54,222	$	(199,333)
Other comprehensive income (loss) before taxes:	Other comprehensive income (loss) before taxes:					Other comprehensive income (loss) before taxes:
Change in fair value of interest rate swap and interest rate cap agreements		361		(2,349)
Change in fair value and amortization of interest rate cap agreements						Change in fair value and amortization of interest rate cap agreements	411		361
Amortization of terminated interest rate swap agreements	Amortization of terminated interest rate swap agreements	(797)		(288)		Amortization of terminated interest rate swap agreements	0		(797)
Total other comprehensive income (loss) before taxes	Total other comprehensive income (loss) before taxes	(436)		(2,637)		Total other comprehensive income (loss) before taxes	411		(436)
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	164		776		Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	(168)		164
Other comprehensive income (loss)	Other comprehensive income (loss)	(272)		(1,861)		Other comprehensive income (loss)	243		(272)
Comprehensive income (loss)	Comprehensive income (loss)	$	(199,605)	$	40,360	Comprehensive income (loss)	$	54,465	$	(199,605)

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Dollars in thousands)							(Dollars in thousands)
ASSETS	ASSETS									ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	181,780	$	29,103	Cash and cash equivalents	$	77,233	$	170,313
Receivables, net	Receivables, net	200,876		432,742		Receivables, net	373,518		371,666
Inventories	Inventories	1,608,218		1,517,875		Inventories	1,232,253		1,247,254
Other current assets	Other current assets	138,912		37,890		Other current assets	97,680		93,334
Total current assets	Total current assets	2,129,786		2,017,610		Total current assets	1,780,684		1,882,567
Property and Equipment, net	Property and Equipment, net	1,092,385		1,097,247		Property and Equipment, net	1,166,925		1,120,526
Goodwill	Goodwill	207,791		475,791		Goodwill	219,195		213,977
Other Intangible Assets, net	Other Intangible Assets, net	64,300		64,300		Other Intangible Assets, net	64,300		64,300
Operating Right-of-Use Lease Assets	Operating Right-of-Use Lease Assets	344,148		337,842		Operating Right-of-Use Lease Assets	320,914		330,322
Finance Right-of-Use Lease Assets	Finance Right-of-Use Lease Assets	50,698		34,691		Finance Right-of-Use Lease Assets	65,216		60,121
Other Assets	Other Assets	87,636		43,554		Other Assets	74,993		74,180
Total Assets	Total Assets	$	3,976,744	$	4,071,035	Total Assets	$	3,692,227	$	3,745,993

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY									LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Notes payable - floor plan - trade	Notes payable - floor plan - trade	$	827,292	$	860,871	Notes payable - floor plan - trade	$	538,768	$	585,225
Notes payable - floor plan - non-trade	Notes payable - floor plan - non-trade	719,446		678,223		Notes payable - floor plan - non-trade	687,550		739,019
Trade accounts payable	Trade accounts payable	78,394		135,217		Trade accounts payable	136,314		105,098
Operating short-term lease liabilities	Operating short-term lease liabilities	43,139		43,332		Operating short-term lease liabilities	40,685		42,339
Finance short-term lease liabilities	Finance short-term lease liabilities	20,225		1,564		Finance short-term lease liabilities	4,059		3,515
Accrued interest	Accrued interest	6,534		10,830		Accrued interest	4,105		8,496
Other accrued liabilities	Other accrued liabilities	237,211		266,211		Other accrued liabilities	295,331		279,477
Current maturities of long-term debt	Current maturities of long-term debt	80,803		69,908		Current maturities of long-term debt	74,520		68,244
Total current liabilities	Total current liabilities	2,013,044		2,066,156		Total current liabilities	1,781,332		1,831,413
Long-Term Debt	Long-Term Debt	830,839		636,978		Long-Term Debt	637,377		651,823
Other Long-Term Liabilities	Other Long-Term Liabilities	66,287		73,746		Other Long-Term Liabilities	90,311		88,753
Operating Long-Term Lease Liabilities	Operating Long-Term Lease Liabilities	311,371		304,151		Operating Long-Term Lease Liabilities	288,589		296,564
Finance Long-Term Lease Liabilities	Finance Long-Term Lease Liabilities	33,216		36,313		Finance Long-Term Lease Liabilities	67,388		62,290
Deferred Income Taxes	Deferred Income Taxes	—		8,927		Deferred Income Taxes	771		345
Commitments and Contingencies	Commitments and Contingencies					Commitments and Contingencies	0		0
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Class A Convertible Preferred Stock, none issued		—		—
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 65,199,247 shares issued and 30,834,793 shares outstanding at March 31, 2020; 64,733,667 shares issued and 31,105,000 shares outstanding at December 31, 2019		652		647
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2020 and December 31, 2019		121		121
Class A Convertible Preferred Stock, NaN issued						Class A Convertible Preferred Stock, NaN issued	0		0
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,017,716 shares issued and 29,250,512 shares outstanding at March 31, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020						Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,017,716 shares issued and 29,250,512 shares outstanding at March 31, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020	660		656
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2021 and December 31, 2020						Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2021 and December 31, 2020	121		121
Paid-in capital	Paid-in capital	758,327		755,904		Paid-in capital	771,079		767,599
Retained earnings	Retained earnings	586,511		790,158		Retained earnings	771,864		721,770
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(2,334)		(2,062)		Accumulated other comprehensive income (loss)	(3,373)		(3,616)
Treasury stock, at cost; 34,364,454 Class A Common Stock shares held at March 31, 2020 and 33,628,667 Class A Common Stock shares held at December 31, 2019		(621,290)		(600,004)
Treasury stock, at cost; 36,767,204 Class A Common Stock shares held at March 31, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020						Treasury stock, at cost; 36,767,204 Class A Common Stock shares held at March 31, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020	(713,892)		(671,725)
Total Stockholders’ Equity	Total Stockholders’ Equity	721,987		944,764		Total Stockholders’ Equity	826,459		814,805
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	3,976,744	$	4,071,035	Total Liabilities and Stockholders’ Equity	$	3,692,227	$	3,745,993

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


		Class A Common Stock				Class A Treasury Stock					Class B Common Stock						Paid-In Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity	Class A Common Stock					Class A Treasury Stock						Class B Common Stock							Paid-In Capital				Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total Stockholders’ Equity
		Shares	Amount		Shares	Amount		Shares	Amount													Accumulated Other Comprehensive Income (Loss)				Shares		Amount			Shares		Amount			Shares			Amount			Paid-In Capital
		(Dollars and shares in thousands, except per share amounts)																																											(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2018		64,197	$	642	(33,476)	$	(597,623)	12,029	$	121	$	745,052	$	670,691	$	4,233	$	823,116
Balance at December 31, 2019																			Balance at December 31, 2019	64,734				$	647		(33,629)		$	(600,004)		12,029		$	121		$	755,904		$	790,158		$	(2,062)				$	944,764
Shares awarded under stock compensation plans	Shares awarded under stock compensation plans	480	5		—	—		—	—		54		—		—		59		Shares awarded under stock compensation plans	465			5			—		—			—		—			(4)			—			—					1
Purchases of treasury stock	Purchases of treasury stock	—	—		(149)	(2,333)		—	—		—		—		—		(2,333)		Purchases of treasury stock	—			—			(735)		(21,286)			—		—			—			—			—				(21,286)
Effect of cash flow hedge instruments, net of tax benefit of $776		—	—		—	—		—	—		—		—		(1,861)		(1,861)
Effect of cash flow hedge instruments, net of tax benefit of $164																			Effect of cash flow hedge instruments, net of tax benefit of $164	—			—			—		—			—		—			—			—			(272)				(272)
Restricted stock amortization	Restricted stock amortization	—	—		—	—		—	—		2,814		—		—		2,814		Restricted stock amortization	—			—			—		—			—		—			2,427			—			—				2,427
Net income (loss)	Net income (loss)	—	—		—	—		—	—		—		42,221		—		42,221		Net income (loss)	—			—			—		—			—		—			—			(199,333)			—				(199,333)
Cumulative effect of change in accounting principle (1)		—	—		—	—		—	—		—		(7,428)		—		(7,428)

Class A dividends declared ($0.10)	Class A dividends declared ($0.10)	—	—		—	—		—	—		—		(3,099)		—		(3,099)		Class A dividends declared ($0.10)	—			—			—		—			—		—			—			(3,111)			—				(3,111)
Class B dividends declared ($0.10)	Class B dividends declared ($0.10)	—	—		—	—		—	—		—		(1,203)		—		(1,203)		Class B dividends declared ($0.10)	—			—			—		—			—		—			—			(1,203)			—				(1,203)
Balance at March 31, 2019		64,677	$	647	(33,625)	$	(599,956)	12,029	$	121	$	747,920	$	701,182	$	2,372	$	852,286
Balance at March 31, 2020																			Balance at March 31, 2020	65,199			$	652		(34,364)		$	(621,290)		12,029		$	121		$	758,327		$	586,511		$	(2,334)			$	721,987

Class A
Common Stock Class A
Treasury Stock Class B
Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Shares Amount Shares Amount Shares Amount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2019 64,734 $ 647 (33,629) $ (600,004) 12,029 $ 121 $ 755,904 $ 790,158 $ (2,062) $ 944,764
Shares awarded under stock compensation plans 465 5 — — — — (4) — — 1
Purchases of treasury stock — — (735) (21,286) — — — — — (21,286)
Effect of cash flow hedge instruments, net of tax benefit of $164 — — — — — — — — (272) (272)
Restricted stock amortization — — — — — — 2,427 — — 2,427
Net income (loss) — — — — — — — (199,333) — (199,333)
Class A dividends declared ($0.10) — — — — — — — (3,111) — (3,111)
Class B dividends declared ($0.10) — — — — — — — (1,203) — (1,203)
Balance at March 31, 2020 65,199 $ 652 (34,364) $ (621,290) 12,029 $ 121 $ 758,327 $ 586,511 $ (2,334) $ 721,987

~~(1)See Note 1, “Summary of Significant Accounting Policies,” for further discussion.~~


	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2020	65,608	$	656	(35,810)	$	(671,725)	12,029	$	121	$	767,599	$	721,770	$	(3,616)	$	814,805
Shares awarded under stock compensation plans	410	4		—	—		—	—		(4)		—		—		0
Purchases of treasury stock	—	—		(957)	(42,167)		—	—		—		—		—		(42,167)
Effect of cash flow hedge instruments, net of tax expense of $168	—	—		—	—		—	—		—		—		243		243
Restricted stock and stock option amortization	—	—		—	—		—	—		3,484		—		—		3,484
Net income (loss)	—	—		—	—		—	—		—		54,222		—		54,222

Class A dividends declared ($0.10)	—	—		—	—		—	—		—		(2,925)		—		(2,925)
Class B dividends declared ($0.10)	—	—		—	—		—	—		—		(1,203)		—		(1,203)
Balance at March 31, 2021	66,018	$	660	(36,767)	$	(713,892)	12,029	$	121	$	771,079	$	771,864	$	(3,373)	$	826,459

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(Dollars in thousands)							(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	Net income (loss)	$	(199,333)	$	42,221	Net income (loss)	$	54,222	$	(199,333)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:					Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	21,540		22,198		Depreciation and amortization of property and equipment	22,202		21,540
Provision for bad debt expense	Provision for bad debt expense	134		159		Provision for bad debt expense	91		134

Debt issuance cost amortization	Debt issuance cost amortization	557		591		Debt issuance cost amortization	823		557

Stock-based compensation expense	Stock-based compensation expense	2,427		2,814		Stock-based compensation expense	3,484		2,427
Deferred income taxes	Deferred income taxes	(53,999)		(2,816)		Deferred income taxes	(2,915)		(53,999)
Net distributions from equity investee	Net distributions from equity investee	448		379		Net distributions from equity investee	171		448
Asset impairment charges	Asset impairment charges	268,000		1,952		Asset impairment charges	0		268,000
Loss (gain) on disposal of dealerships and property and equipment	Loss (gain) on disposal of dealerships and property and equipment	(39)		(46,785)		Loss (gain) on disposal of dealerships and property and equipment	(25)		(39)
Loss (gain) on exit of leased dealerships		—		(170)

Changes in assets and liabilities that relate to operations:	Changes in assets and liabilities that relate to operations:					Changes in assets and liabilities that relate to operations:
Receivables	Receivables	231,732		66,814		Receivables	(1,943)		231,732
Inventories	Inventories	(90,342)		(40,210)		Inventories	16,530		(90,342)
Other assets	Other assets	(89,114)		(66,967)		Other assets	9,628		(89,114)
Notes payable - floor plan - trade	Notes payable - floor plan - trade	(33,579)		(57,984)		Notes payable - floor plan - trade	(46,457)		(33,579)
Trade accounts payable and other liabilities	Trade accounts payable and other liabilities	(105,630)		(16,525)		Trade accounts payable and other liabilities	34,419		(105,630)
Total adjustments	Total adjustments	152,135		(136,550)		Total adjustments	36,008		152,135
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	(47,198)		(94,329)		Net cash provided by (used in) operating activities	90,230		(47,198)
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of businesses, net of cash acquired						Purchase of businesses, net of cash acquired	(8,817)		0
Purchases of land, property and equipment	Purchases of land, property and equipment	(19,805)		(30,619)		Purchases of land, property and equipment	(67,663)		(19,805)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	194		1,125		Proceeds from sales of property and equipment	912		194
Proceeds from sales of dealerships	Proceeds from sales of dealerships	—		121,700		Proceeds from sales of dealerships	0		0
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(19,611)		92,206		Net cash provided by (used in) investing activities	(75,568)		(19,611)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade	Net (repayments) borrowings on notes payable - floor plan - non-trade	41,223		9,841		Net (repayments) borrowings on notes payable - floor plan - non-trade	(51,469)		41,223
Borrowings on revolving credit facilities	Borrowings on revolving credit facilities	460,916		126,185		Borrowings on revolving credit facilities	4,906		460,916
Repayments on revolving credit facilities	Repayments on revolving credit facilities	(250,916)		(126,185)		Repayments on revolving credit facilities	(4,906)		(250,916)

Debt issuance costs	Debt issuance costs	(24)		—		Debt issuance costs	(25)		(24)
Principal payments and repurchase of long-term debt	Principal payments and repurchase of long-term debt	(5,777)		(6,011)		Principal payments and repurchase of long-term debt	(8,968)		(5,777)
Principal payments of long-term lease liabilities	Principal payments of long-term lease liabilities	(337)		—		Principal payments of long-term lease liabilities	(930)		(337)
Purchases of treasury stock	Purchases of treasury stock	(21,286)		(2,333)		Purchases of treasury stock	(42,167)		(21,286)

Issuance of shares under stock compensation plans	Issuance of shares under stock compensation plans	1		59		Issuance of shares under stock compensation plans	0		1
Dividends paid	Dividends paid	(4,314)		(2,565)		Dividends paid	(4,183)		(4,314)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	219,486		(1,009)		Net cash provided by (used in) financing activities	(107,742)		219,486
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	152,677		(3,132)		NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(93,080)		152,677
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	29,103		5,854		CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	170,313		29,103
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	181,780	$	2,722	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	77,233	$	181,780

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Effect of cash flow hedge instruments (net of tax benefit of $164 and $776 in the three months ended March 31, 2020 and 2019, respectively)		$	(272)	$	(1,861)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:	Cash paid (received) during the period for:					Cash paid (received) during the period for:
Interest, including amount capitalized	Interest, including amount capitalized	$	25,359	$	26,945	Interest, including amount capitalized	$	19,140	$	25,359
Income taxes	Income taxes	$	3	$	10,277	Income taxes	$	(382)	$	3

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements of Sonic Automotive, Inc. and its wholly owned subsidiaries (“Sonic,” the “Company,” “we,” “us” or “our”) for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. 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 operating results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year or future interim periods, because the first quarter historically has contributed less operating profit than the second and third ~~and~~quarters, while the fourth ~~quarters.~~quarter historically has contributed the highest operating profit of any quarter. Additionally, the ~~continued magnitude and impact of~~ongoing COVID-19 pandemic could impact earnings infor the ~~second, third~~remainder of 2021 and ~~fourth quarters of 2020.~~beyond. 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, ~~2019.~~2020.

COVID 19 – The COVID-19 pandemic began negatively ~~impacted~~impacting the global ~~economy. As~~economy in the first quarter of ~~March 31, 2020, the~~2020. The impact on the economy ~~is primarily affecting~~affected both consumer demand and supply of manufactured goods as many countries around the world and states and municipalities in the ~~United States ("~~U.S.~~") have~~ mandated restrictions on citizen movements ~~(stay-at-home~~(i.e., shelter-in-place or stay-at-home orders) or on in-person retail trade or manufacturing activities at physical locations. As a result, many businesses ~~have~~ curtailed operations and furloughed or terminated ~~many positions.~~employees. In the U.S., the federal government passed several relief measures, ~~through~~including the ~~legislature that were signed by the President and enacted into law. Those measures include the~~ Coronavirus Aid, Relief, and Economic Security Act ~~(“CARES Act”)~~ (CARES Act) and the Families First Coronavirus Response ~~Act. Both Acts~~Act, in an attempt to provide short-term relief to families and businesses as a result of the economic impacts of the COVID-19 pandemic.

Specifically related to Sonic, all our stores have been impacted by the crisis. As of March 31, 2020, the majority of our stores are not permitted to conduct retail sales of new and used vehicles at our physical locations. Those locations can offer virtual sales transactions with “contactless” delivery to customers. Due to the critical nature of automotive repair, our fixed operations have been deemed “essential” by governmental agencies and were able to continue to conduct business, but must maintain certain local standards for “social distancing”. As a result, in the last several weeks of March of 2020, we experienced 30%-50% declines in unit sales of new and used vehicles (as compared to the prior year period) and 15%-30% reductions in repair order activity in fixed operations. These trends have continued into April of 2020 and are expected to continue until at least through mid-May of 2020.

~~Based on these events, we evaluated our long-lived assets for impairment.~~ This evaluation included reviews of fixed assets and related right-of-use assets, franchise assets and goodwill. As a result of this evaluation, we determined the carrying values of all long-lived assets to be recoverable at March 31, 2020 with the exception of goodwill related to our franchised dealership reporting unit. One of the primary factors which contributed to the conclusion that goodwill was impaired was the market value of Sonic's stock between the announcement date of the pandemic on March 11, 2020 to March 31, 2020. See Note 5 for further discussion.

~~The effects of~~broader economic backdrop resulting from the COVID-19 pandemic ~~continue to evolve. While we currently expect to begin to see recovery~~had a direct impact on our business and operations beginning in March 2020 and continuing through the ~~last half~~date of 2020, the outbreak may cause changes in customer behaviors, including a potential reduction in consumer spending for vehicles and automotive repairs. This may lead to increased asset recovery and valuation risks, such as impairment of additional long-lived assets. The uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our supply chain and require other changes to our operations. These and other factors may adversely impact our revenues, operating income and earnings per share financial measures.

this report. As a result of the pandemic and related shelter-in-place or stay-at-home orders, we ~~have~~ transitioned many of our teammates to remote work arrangements. In situations where ~~the~~a teammate’s role ~~does~~did not permit remote work ~~(ie.~~(e.g., service repair technicians), we ~~have~~ implemented staggered work hours, social distancing and other ~~social distancing~~safety measures to promote the health and safety of our teammates and guests. As a result of the systems and infrastructure we had in place prior to the pandemic, we ~~have been~~were largely able to ~~effectively~~ maintain our back-office operations, financial reporting and internal control processes with minimal ~~disruption.~~disruption or changes in the effectiveness of such processes.

All of our store operations were impacted by the COVID-19 pandemic to varying degrees. During parts of the first half of 2020, the majority of our stores were not permitted to conduct retail sales of new and used vehicles at our physical locations. Those locations could offer virtual sales transactions with “contactless” delivery to customers but experienced lower consumer demand as a result of the initial onset of the pandemic and state and local governmental restrictions on business and consumer activities. Due to the critical nature of automotive repair, our fixed operations were deemed “essential” by governmental agencies and have largely been able to continue to conduct business so far, while adjusting operations to comply with state and local standards for safety and social distancing to promote the health and safety of our teammates and guests. As of March 31, 2021, most of such restrictions had been relaxed; however, our stores remain subject to both external and self-imposed health and safety policies and practices that may affect the way we sell vehicles and interact with our guests in the future.

The ongoing effects of the COVID-19 pandemic continue to evolve. While we currently expect to see continued economic recovery in the remainder of the fiscal year ending December 31, 2021, the ongoing pandemic may cause changes in consumer behaviors, including a potential reduction in consumer spending for vehicles and automotive repairs, especially if the pandemic worsens or the regulatory environment changes in response to the pandemic. This may lead to increased asset recovery and valuation risks, such as impairment of additional indefinite lived intangible assets. In addition, uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our vehicle and parts inventory supply chain and require other changes to our operations. These and other factors may adversely impact our revenues, operating income and earnings per share financial measures.

Recent Accounting Pronouncements – In ~~June 2016,~~March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ~~2016-13, “Financial Instruments - Credit Losses~~2020-04, “Reference Rate Reform (Accounting Standards Codification (“ASC”) Topic ~~326)~~848): ~~Measurement~~Facilitation of ~~Credit Losses~~the Effects of Reference Rate Reform on Financial ~~Instruments.~~Reporting.” ASU 2020-04 provides optional guidance for a limited period of time to ease potential accounting impact associated with transitioning away from reference rates that are expected to be discontinued, such as the London InterBank Offered Rate (“LIBOR”). The ~~amendment~~amendments in this ~~update replaced the previous incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology~~ASU apply only to contracts, hedging relationships, and other transactions that ~~reflects~~reference LIBOR or another reference rate expected ~~credit losses and requires consideration of a broader range of reasonable and supportable information~~ to ~~assess credit~~be

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~loss estimates. This~~discontinued. The amendments in ASU ~~is effective for fiscal years~~2020-04 could be adopted beginning ~~after December 15, 2019. We adopted this ASU as of~~ January 1, 2020 and are effective through December 31, 2022. Other than the ~~effects~~2021 Credit Agreement (as defined herein), we do not currently have any contracts that have been modified, amended or renegotiated to accommodate a transition to a new reference rate, but we will continue to evaluate any such modifications or amendments to our contracts to determine the applicability of this ~~ASU did not materially impact~~standard on our unaudited condensed consolidated financial ~~statements.~~statements and related financial statement disclosures. See Note 11, Subsequent Events, for a discussion of the amendment, restatement and consolidation of the 2016 Credit Facilities subsequent to March 31, 2021.

Principles of Consolidation – All of our dealership and non-dealership subsidiaries are wholly owned and consolidated in the accompanying unaudited condensed consolidated financial statements, except for one 50%-owned dealership that is accounted for under the equity method. All material intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.

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. ASC Topic 606, “Revenue from Contracts with Customers,” applies a five-step model that includes: (1) identifying the contract(s) with the customer; (2) identifying the performance obligation(s) in the contract(s); (3) determining the transaction price; (4) allocating the transaction price to the performance obligation(s) in the contract(s); and (5) recognizing revenue as the performance obligation(s) are satisfied. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. 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 vehicle financing and the sale of service, warranty and other insurance contracts; and (5) the performance of vehicle maintenance and repair services and the sale of related parts and accessories. Generally, performance conditions are satisfied when the associated vehicle is either delivered or returned to a customer and customer acceptance has occurred, or over time as the maintenance and repair services are performed. 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). ~~Certain retrospective~~

Retrospective finance and insurance ~~revenue is earned in periods subsequent to the completion of the initial performance obligation~~revenues (“F&I retro revenues”).

~~F&I retro revenues~~ are recognized when the product contract has been executed with the end customer and ~~are~~the transaction price is estimated each reporting period based on the expected value method using historical and projected data, which results in the acceleration of revenue recognition. F&I retro revenues, which represent variable consideration, subject to constraint, are to be included in the transaction price and recognized when or as the performance obligation is satisfied.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, when 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 ~~sales price must be reasonably expected to~~proceeds from the sale will be collected.

~~Receivables, net in the~~The accompanying unaudited condensed consolidated balance sheets as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 include approximately ~~$3.6~~$14.5 million and ~~$5.1~~$21.7 million, respectively, related to ~~work in process and~~ contract assets ~~related to~~from F&I retro revenues ~~of approximately $5.2 million and $12.9 million, respectively.~~recognition. Changes in contract assets from December 31, ~~2019~~2020 to March 31, ~~2020~~2021 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, ~~2019~~2020 for further discussion of our revenue recognition policies and processes.

Income ~~Tax Expense~~Taxes – The overall effective tax rate from continuing operations was 26.0% for the three months ended March 31, 2021, and 18.2% for the three months ended March 31, ~~2020, and 31.0%~~2020. Income tax expense for the three months ended March 31, ~~2019.~~2021 includes a $1.5 million discrete benefit related to vested or exercised stock compensation awards. Income tax ~~expense~~benefit for the three months ended March 31, 2020 includes a $51.3 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge recognized in such quarter, and a $0.5 million discrete benefit related to vested or exercised stock compensation awards, offset partially by a $0.1 million discrete charge related to changes in uncertain tax positions. Income tax expense for the three months ended March 31, 2019 includes a $1.5 million discrete charge for non-deductible executive officer compensation related to executive transition costs, a $0.2 million discrete charge related to changes in uncertain tax positions, and a $0.2 million discrete charge related to vested or exercised stock compensation awards. Sonic’s effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share – The calculation of diluted earnings per share considers the potential dilutive effect of 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).

2. Business Acquisitions and Dispositions

We acquired 1 pre-owned business during the three months ended March 31, 2021 for a gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $8.8 million. We did not acquire any businesses during the three months ended March 31, 2020.

We did 0tnot dispose of any dealerships during the three months ended March 31, ~~2020. We disposed of 1 luxury franchised dealership~~2021 and 3 mid-line import franchised dealerships during the three months ended March 31, 2019 that generated net cash of approximately $121.7 million. The results of operations of each of these disposed dealerships remain in continuing operations in the accompanying unaudited condensed consolidated statements of income.

~~Revenues and other activities associated with disposed franchised dealerships that remain in continuing operations were as follows:~~

Three Months Ended March 31,
2020 2019
(In thousands)
Income (loss) from operations $ (160) $ (2,553)
Gain (loss) on disposal 2 46,750
Lease exit accrual adjustments and charges — 170
Pre-tax income (loss) $ (158) $ 44,367
Total revenues $ — $ 106,774

~~Revenues and other activities associated with disposed franchised dealerships classified as discontinued operations were as follows:~~

Three Months Ended March 31,
2020 2019
(In thousands)
Income (loss) from operations $ (285) $ (180)
Lease exit accrual adjustments and charges — —
Pre-tax income (loss) $ (285) $ (180)
Total revenues $ — $ —

2020.

3. Inventories

Inventories consist of the following:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(In thousands)							(In thousands)
New vehicles	New vehicles	$	1,072,318	$	983,123	New vehicles	$	602,724	$	648,448
Used vehicles	Used vehicles	324,526		319,791		Used vehicles	442,744		413,209
Service loaners	Service loaners	152,254		152,278		Service loaners	129,184		128,531
Parts, accessories and other	Parts, accessories and other	59,120		62,683		Parts, accessories and other	57,601		57,066
Net inventories	Net inventories	$	1,608,218	$	1,517,875	Net inventories	$	1,232,253	$	1,247,254

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

4. Property and Equipment

Property and equipment, net consists of the following:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(In thousands)							(In thousands)
Land	Land	$	373,963	$	373,301	Land	$	377,978	$	375,297
Building and improvements	Building and improvements	976,904		969,609		Building and improvements	1,046,004		1,028,016
Furniture, fixtures and equipment	Furniture, fixtures and equipment	352,574		346,260		Furniture, fixtures and equipment	391,968		365,222
Construction in progress	Construction in progress	53,214		50,928		Construction in progress	55,799		34,767
Total, at cost	Total, at cost	1,756,655		1,740,098		Total, at cost	1,871,749		1,803,302
Less accumulated depreciation	Less accumulated depreciation	(638,030)		(616,611)		Less accumulated depreciation	(695,130)		(673,082)
Subtotal	Subtotal	1,118,625		1,123,487		Subtotal	1,176,619		1,130,220
Less assets held for sale (1)	Less assets held for sale (1)	(26,240)		(26,240)		Less assets held for sale (1)	(9,694)		(9,694)
Property and equipment, net	Property and equipment, net	$	1,092,385	$	1,097,247	Property and equipment, net	$	1,166,925	$	1,120,526

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

In the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, capital expenditures were approximately ~~$19.8~~$67.7 million and ~~$30.6~~$19.8 million, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions, construction of new franchised dealerships and EchoPark stores, building improvements and equipment purchased for use in our franchised dealerships and EchoPark stores. Assets held for sale as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 consists of real property not currently used in operations that we expect to dispose of in the next 12 months.

There were 0 fixed asset impairment charges for the three months ended March 31, 2021 and 2020. Impairment charges for the three months ended March 31, 2019, were approximately $2.0 million, related to fair value adjustments of real estate at former EchoPark locations classified as held for sale.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Goodwill and Intangible Assets

The carrying amount of goodwill was approximately $219.2 million and $214.0 million as of March 31, 2021 and December 31, 2020, respectively. The carrying amount of goodwill for our franchised dealership reporting unit was $147.2 million and $147.3 million as of March 31, 2021 and December 31, 2020, respectively. The carrying amount of goodwill for our EchoPark reporting unit was $72.0 million and $66.7 million as of March 31, 2021 and December 31, 2020, respectively. The total carrying amount of goodwill is net of accumulated impairment losses of approximately $1.1 billion as of both March 31, 2021 and December 31, 2020. The carrying amount of indefinite lived franchise assets was approximately $64.3 million as of both March 31, 2021 and December 31, 2020.

Pursuant to the applicable accounting pronouncements, we were required to evaluate the recoverability of our long-lived assets at the end of the first quarter of 2020 as a result of the effects of the COVID-19 pandemic on our operations and market value. Based on this evaluation, we determined the carrying value of our franchised dealership reporting unit goodwill was greater than the fair value of the reporting unit. Accordingly, we recorded a non-cash goodwill impairment charge of ~~$268.0~~$268 million and a corresponding income tax benefit of $51.3 million to reduce the carrying value to fair value as of March 31, 2020. We ~~utilized~~did not record any impairment charges for the ~~Discounted Cash Flows ("DCF") method, using unobservable inputs (Level 3) to estimate Sonic's enterprise value as of~~three months ended March 31, 2020 and reconciled the discounted cash flows to Sonic's market capitalization, using quoted market price inputs (Level 1). The significant assumptions in our DCF model include projected earnings, a discount rate (and estimates in the discount rate inputs), control premium factors and residual growth rates.2021.

The carrying amount of goodwill was approximately $207.8 million and $475.8 million as of March 31, 2020 and December 31, 2019, respectively. The carrying amount of goodwill for our franchised dealership reporting unit was $147.8 million and $415.8 million as of March 31, 2020 and December 31, 2019, respectively. The carrying amount of goodwill for our EchoPark reporting unit was $60.0 million as of March 31, 2020 and December 31, 2019. The total carrying amount of goodwill is net of accumulated impairment losses of approximately $1.1 billion and $797.6 million as of March 31, 2020 and December 31, 2019, respectively. The carrying amount of franchise assets was approximately $64.3 million as of both March 31, 2020 and December 31, 2019, respectively.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

6. Long-Term Debt

Long-term debt consists of the following:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(In thousands)							(In thousands)
2016 Revolving Credit Facility (1)	2016 Revolving Credit Facility (1)	$	210,000	$	—	2016 Revolving Credit Facility (1)	$	0	$	0

6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”)	6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”)	250,000		250,000		6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”)	250,000		250,000
2019 Mortgage Facility (2)	2019 Mortgage Facility (2)	109,088		109,088		2019 Mortgage Facility (2)	98,179		100,906
Mortgage notes to finance companies - fixed rate, bearing interest from 3.51% to 7.03%		191,248		194,535
Mortgage notes to finance companies - fixed rate, bearing interest from 2.41% to 7.03%						Mortgage notes to finance companies - fixed rate, bearing interest from 2.41% to 7.03%	208,461		212,135
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR	Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR	158,855		161,345		Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR	162,322		164,889

Subtotal	Subtotal	$	919,191	$	714,968	Subtotal	$	718,962	$	727,930
Debt issuance costs	Debt issuance costs	(7,549)		(8,082)		Debt issuance costs	(7,065)		(7,863)
Total debt	Total debt	911,642		706,886		Total debt	711,897		720,067
Less current maturities	Less current maturities	(80,803)		(69,908)		Less current maturities	(74,520)		(68,244)
Long-term debt	Long-term debt	$	830,839	$	636,978	Long-term debt	$	637,377	$	651,823

(1)The interest rate on the 2016 Revolving Credit Facility (as defined below) was ~~175~~ ~~and~~ 150 basis points above LIBOR at both March 31, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

(2)The interest rate on the 2019 Mortgage Facility (as defined below) was ~~175 and 200~~150 basis points above ~~the London Interbank Offer Rate ("LIBOR")~~LIBOR at both March 31, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

2016 Credit Facilities

On November 30, 2016, we entered into an amended and restated syndicated revolving credit facility (the “2016 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan credit facilities (the “2016 Floor Plan Facilities” and, together with the 2016 Revolving Credit Facility, the “2016 Credit Facilities”)~~, which are scheduled to mature on November 30, 2021.~~. The amendment and restatement of the 2016 Credit Facilities extended the scheduled maturity date, increased availability under the 2016 Revolving Credit Facility by $25.0 million and increased availability under the 2016 Floor Plan Facilities by $215.0 million, among other things. On September 17, 2020, the 2016 Credit Facilities were amended to extend their scheduled maturity date for one additional year to November 30, 2022.

Availability under the 2016 Revolving Credit Facility is calculated as the lesser of ~~$250.0~~$245.5 million or a borrowing base calculated based on certain eligible assets, less the aggregate face amount of any outstanding letters of credit under the 2016 Revolving Credit Facility (the “2016 Revolving Borrowing Base”). The 2016 Revolving Credit Facility may be increased at our option up to ~~$300.0~~$295.5 million upon satisfaction of certain conditions. As of March 31, ~~2020,~~2021, the 2016 Revolving Borrowing Base was approximately ~~$196.5~~$231.1 million based on balances as of such ~~date which will go into effect upon filing of this Form 10-Q for the period ended March 31, 2020.~~date. As of March 31, ~~2020,~~2021, we had ~~$210.0 million in~~0 outstanding borrowings and approximately ~~$13.0~~$12.3 million in outstanding letters of credit under the 2016 Revolving Credit Facility, resulting in 0$218.8 million remaining borrowing availability under the 2016 Revolving Credit Facility.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The 2016 Floor Plan Facilities are comprised of a new vehicle revolving floor plan facility ~~( as~~(as amended, the “2016 New Vehicle Floor Plan Facility”) and a used vehicle revolving floor plan facility (as amended, the “2016 Used Vehicle Floor Plan Facility”), subject to a borrowing base, in a combined amount of up to ~~$1.015 billion.~~$966.0 million. We may, under certain conditions, request an increase in the 2016 Floor Plan Facilities to a maximum borrowing limit of up to ~~$1.265~~$1.216 billion, which shall be allocated between the 2016 New Vehicle Floor Plan Facility and the 2016 Used Vehicle Floor Plan Facility as we request, with no more than ~~30%~~40% of the aggregate commitments allocated to the commitments under the 2016 Used Vehicle Floor Plan Facility. During the second quarter of 2020, we amended the 2016 Floor Plan Facilities to convert the 2016 Used Vehicle Floor Plan Facility from a borrowing base calculation of availability to a vehicle identification number (“VIN”)-specific floor plan borrowing and payoff process, which provides additional borrowing flexibility. Outstanding obligations under the 2016 Floor Plan Facilities are guaranteed by us and certain of our subsidiaries and are secured by a pledge of substantially all of our and our subsidiaries’ assets. ~~The~~As of the dates presented in the unaudited condensed consolidated financial statements, the amounts outstanding under the 2016 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR.

We have agreed under the 2016 Credit Facilities not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2016 Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2016 Credit Facilities contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2016 Credit Facilities permit cash dividends on our Class A and Class B Common Stock so long as no ~~event~~Event of

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~default~~ Default (as defined in the 2016 Credit Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2016 Credit Facilities.

See Note 11, Subsequent Events, for a discussion of the amendment, restatement and consolidation of the 2016 Credit Facilities subsequent to March 31, 2021.

6.125% Notes

On March 10, 2017, we issued $250.0 million in aggregate principal amount of unsecured senior subordinated 6.125% Notes due 2027 (the “6.125% Notes”) which mature on March 15, 2027. The 6.125% Notes were issued at a price of 100.0% of the principal amount thereof. Balances outstanding under the 6.125% Notes are guaranteed by all of our domestic operating subsidiaries. These guarantees are full and unconditional and joint and several. ~~The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered to be minor. Interest on the~~

For further discussion of Sonic’s 6.125% Notes, ~~is payable semi-annually in arrears on March 15 and September 15 of each year.~~

~~We may redeem the 6.125% Notes, in whole or in part, at any time on or after March 15, 2022 at the following redemption prices, which are expressed as percentages of the principal amount:~~


	~~Redemption Price~~
~~Beginning on March 15, 2022~~	~~103.063~~	%
~~Beginning on March 15, 2023~~	~~102.042~~	%
~~Beginning on March 15, 2024~~	~~101.021~~	%
~~Beginning on March 15, 2025 and thereafter~~	~~100.000~~	%

Before March 15, 2022, we may redeem all or a part of the 6.125% Notes at a redemption price equal to 100.0% of the aggregate principal amount of the 6.125% Notes redeemed, plus the Applicable Premium (as defined in the indenture governing the 6.125% Notes) and accrued and unpaid interest, if any,see Note 6, “Long-Term Debt,” to the ~~redemption date. The indenture governing~~consolidated financial statements in Sonic’s Annual Report on Form 10-K for the 6.125% Notes also provides that holders of the 6.125% Notes may require us to repurchase the 6.125% Notes at a purchase price equal to 101.0% of the aggregate principal amount of the 6.125% Notes, plus accrued and unpaid interest, if any, to the date of purchase if we undergo a Change of Control (as defined in the indenture governing the 6.125% Notes).

The indenture governing the 6.125% Notes contains certain specified restrictive covenants. We have agreed not to pledge any assets to any third-party lender of senior subordinated debt except under certain limited circumstances. We also have agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, guarantees, liens, certain types of investments, certain transactions with affiliates, mergers, consolidations, issuance of preferred stock, cash dividends to stockholders, distributions, redemptions and the sale, assignment, lease, conveyance or disposal of certain assets. Specifically, the indenture governing the 6.125% Notes limits our ability to pay quarterly cash dividends on our Class A and Class B Common Stock in excess of $0.12 per share. We may only pay quarterly cash dividends on our Class A and Class B Common Stock if we comply with the terms of the indenture governing the 6.125% Notes. We were in compliance with all restrictive covenants in the indenture governing the 6.125% Notes as of Marchyear ended December 31, 2020.

Our obligations under the 6.125% Notes may be accelerated by the holders of 25% of the outstanding principal amount of the 6.125% Notes then outstanding if certain events of default occur, including: (1) defaults in the payment of principal or interest when due; (2) defaults in the performance, or breach, of our covenants under the 6.125% Notes; and (3) certain defaults under other agreements under which we or our subsidiaries have outstanding indebtedness in excess of $50.0 million.

2019 Mortgage Facility

On November 22, 2019, we entered into a delayed draw-term loan credit agreement which is scheduled to mature on November 22, 2024 (the “2019 Mortgage Facility”).

Under the 2019 Mortgage Facility, Sonic has a maximum borrowing limit of $112.2 million, which varies based on the appraised value of the collateral underlying the 2019 Mortgage Facility. The amount available for borrowing under the 2019 Mortgage Facility is subject to compliance with a borrowing base. The borrowing base is calculated based on 75% of the ~~appraisal~~appraised value of certain eligible real estate designated by Sonic and owned by certain of our subsidiaries. Based on balances as of March 31, ~~2020,~~2021, we had approximately ~~$109.1~~$98.2 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately ~~$3.1~~$14.0 million under the 2019 Mortgage Facility.

Amounts outstanding under the 2019 Mortgage Facility bear interest at (1) a specified rate above LIBOR (as defined in the 2019 Mortgage Facility), ranging from 1.50% to 2.75% per annum according to a performance-based pricing grid determined by the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the 2019 Mortgage Facility) as of the last day of the immediately preceding fiscal quarter (the “Performance Grid”); or (2) a specified rate above the Base Rate

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(as~~ (as defined in the 2019 Mortgage Facility), ranging from 0.50% to 1.75% per annum according to the Performance Grid. ~~Interest on the~~

For further discussion of Sonic’s 2019 Mortgage Facility, ~~is paid monthly in arrears calculated using the Base Rate plus the Applicable Rate (as defined in the 2019 Mortgage Facility) according~~see Note 6, “Long-Term Debt,” to the ~~Performance Grid. Repayment of principal is paid quarterly commencing~~consolidated financial statements in Sonic’s Annual Report on ~~March~~Form 10-K for the year ended December 31, 2020 through September 30, 2024 at a rate of 2.50% of the aggregate initial principal amount. A balloon payment of the remaining balance will be due at the November 22, 2024 maturity date. Prior to the November 22, 2024 maturity date, the Company reserves the right to prepay the principal amount outstanding at any time without premium or penalty provided the prepayment amount exceeds $0.5 million.2020.

The 2019 Mortgage Facility contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2019 Mortgage Facility permits quarterly cash dividends on our Class A and Class B Common Stock up to $0.10 per share so long as no Event of Default (as defined in the 2019 Mortgage Facility) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2019 Mortgage Facility.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Notes to Finance Companies

As of March 31, ~~2020,~~2021, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was ~~4.01%~~3.50% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately ~~$350.1~~$370.8 million. These mortgage notes require monthly payments of principal and interest through their respective maturities, are secured by the underlying properties and contain certain cross-default provisions. Maturity dates for these mortgage notes range between ~~2020~~2021 and 2033.

2020 Line of Credit Facility

On June 23, 2020, we entered into a line of credit agreement with Ally Bank, which is scheduled to mature on June 22, 2021 (the “2020 Line of Credit Facility”).

The 2020 Line of Credit Facility has borrowing availability of up to $54.1 million which can be used for general corporate purposes. The amount available for borrowing under the 2020 Line of Credit Facility is directly tied to the appraised value of certain real estate properties of the Company, which are used as collateral for any funds drawn under the 2020 Line of Credit Facility. As of March 31, 2021, we had 0 outstanding borrowings under the 2020 Line of Credit Facility, resulting in $54.1 million remaining borrowing availability under the 2020 Line of Credit Facility.

The 2020 Line of Credit Facility contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2020 Line of Credit Facility permits quarterly cash dividends on our Class A and Class B Common Stock up to $0.10 per share so long as no Event of Default (as defined in the 2020 Line of Credit Facility) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2020 Line of Credit Facility.

Covenants

We have agreed under the 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility contain certain negative covenants, including certain covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions.

We were in compliance with the financial covenants under the 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility as of March 31, ~~2020.~~2021. Financial covenants include required specified ratios (as each is defined in the 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility) of:


		Covenant						Covenant
		Minimum Consolidated Liquidity Ratio	Minimum Consolidated Fixed Charge Coverage Ratio	Maximum Consolidated Total Lease Adjusted Leverage Ratio		Minimum Consolidated Liquidity Ratio	Minimum Consolidated Fixed Charge Coverage Ratio	Maximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratio	Required ratio	1.05	1.20	5.75	Required ratio	1.05	1.20	5.75
March 31, 2020 actual		1.07	1.70	3.69
March 31, 2021 actual					March 31, 2021 actual	1.15	2.32	2.47

The 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility contain events of default, including cross defaults to other material indebtedness, change of control events and other events of default customary for syndicated commercial credit facilities. Upon the future occurrence of an event of default, we could be required to immediately repay all outstanding amounts under the 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility.

After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of March 31, ~~2020,~~2021, we had approximately ~~$274.1~~$290.0 million of net income and retained earnings free of such restrictions. We were in compliance with all restrictive covenants under our debt agreements as of March 31, ~~2020.~~2021.

In addition, many of our facility leases are governed by a guarantee agreement between the landlord and us that contains financial and operating covenants. The financial covenants under the guarantee agreement are identical to those under the 2016 Credit Facilities, ~~and~~ the 2019 Mortgage Facility and the 2020 Line of Credit Facility with the exception of one additional financial

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

covenant related to the ratio of EBTDAR to Rent (as defined in the guarantee agreement) with a required ratio of no less than 1.50 to 1.00. As of March 31, ~~2020,~~2021, the ratio was ~~5.80~~8.01 to 1.00.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Derivative Instruments and Hedging Activities~~

Prior to March 9, 2018, we had outstanding interest rate cash flow swap agreements to effectively convert a portion of our LIBOR-based variable rate debt to a fixed rate (these interest rate cash flow swap agreements were terminated on March 9, 2018 with a net $4.8 million payment to us from the counterparties, which is being amortized into income as a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income on a ratable basis over the original term of these agreements (through July 1, 2020)). As of both March 31, 2020 and December 31, 2019, we had interest rate cap agreements to limit our exposure to increases in LIBOR rates above certain levels. Under the terms of these interest rate cap agreements, interest rates reset monthly. We paid cash premiums of approximately $2.5 million and $2.8 million in the years ended December 31, 2019 and 2018, respectively, upon entering into new interest rate cap agreements, and the cash premiums were reflected in operating cash flows for the period in which the premiums were paid. The total unamortized premium amounts related to the outstanding interest rate caps were approximately $3.4 million and $3.7 million as of March 31, 2020 and December 31, 2019, respectively, and will be amortized into interest expense, other, net in the accompanying unaudited condensed consolidated statements of income over the remaining term of the interest rate cap agreements. The fair value of the outstanding interest rate cap positions at March 31, 2020 was an asset of approximately $0.1 million, included in other assets in the accompanying unaudited condensed consolidated balance sheet as of such date. The fair value of the outstanding interest rate cap positions at December 31, 2019 was a net asset of approximately $0.1 million, included in other assets in the accompanying unaudited condensed consolidated balance sheet as of such date.

~~Under the terms of the interest rate cap agreements, we will receive interest based on the following:~~

Notional
Amount Cap Rate (1) Receive Rate (1) (2) Start Date End Date
(In millions)
$ 312.5 2.000% one-month LIBOR July 1, 2019 June 30, 2020
$ 250.0 3.000% one-month LIBOR July 1, 2019 June 30, 2020
$ 225.0 3.000% one-month LIBOR July 1, 2020 June 30, 2021
$ 150.0 2.000% one-month LIBOR July 1, 2020 July 1, 2021
$ 250.0 3.000% one-month LIBOR July 1, 2021 July 1, 2022

~~(1)~~Under these interest rate caps, no payment from the counterparty will occur unless the stated receive rate exceeds the stated cap rate, in which case a net payment to us from the counterparty, based on the spread between the receive rate and the cap rate, will be recognized as a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income.

~~(2)The one-month LIBOR rate was approximately 0.993% at March 31, 2020.~~

The interest rate caps are designated as cash flow hedges, and the changes in the fair value of these instruments are recorded in other comprehensive income (loss) in the accompanying unaudited condensed consolidated statements of comprehensive income and are disclosed in the supplemental schedule of non-cash financing activities in the accompanying unaudited condensed consolidated statements of cash flows. For the three months ended March 31, 2020, we did 0t have incremental interest income (the excess of interest received over interest paid) related to the interest rate caps. For the three months ended March 31, 2019, incremental interest income (the excess of interest received over interest paid) related to the interest rate caps was approximately $0.4 million and is included as a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income, and the interest amount is disclosed in the supplemental disclosures of cash flow information in the accompanying unaudited condensed consolidated statements of cash flows. The estimated net benefit expected to be reclassified out of accumulated other comprehensive income (loss) into results of operations during the next 12 months is approximately $0.7 million.

7. Commitments and Contingencies

Legal and Other Proceedings

In the ordinary course of business, 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

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

of these matters could have a material adverse effect on Sonic’s business, financial condition, results of operations, cash flows or prospects.

~~Included in other accrued liabilities~~ When we believe that a loss is probable and ~~other long-term liabilities~~reasonably estimable, we make an accrual for our estimated probable losses. Such reserves are presently immaterial, both individually and in the accompanying unaudited condensed consolidated balance sheet as of March 31, 2020 was approximately $0.4 million and $0.2 million, respectively, in reserves that Sonic was holding for pending proceedings. Included in other accrued liabilities and other long-term liabilities in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2019 was approximately $1.2 million and $0.3 million, respectively, for such reserves. Exceptaggregate. Other than as reflected in ~~such~~our recognized reserves, Sonic is currently unable to estimate a range of reasonably possible loss, or a range of reasonably possible loss in excess of the amount accrued, for pending proceedings.

Guarantees and Indemnification Obligations

In accordance with the terms of ~~Sonic’s~~our operating lease agreements, ~~Sonic’s~~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, ~~Sonic has~~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 ~~Sonic’s~~our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such ~~dealerships or facilities.~~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 sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, Sonic remains liable for such obligations.

In accordance with the terms of agreements entered into for the sale of ~~Sonic’s~~our dealerships, ~~Sonic~~we generally ~~agrees~~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 ~~Sonic’s~~our exposure with respect to environmental remediation and repairs is difficult to quantify, ~~Sonic’s~~our maximum exposure associated with these general indemnifications was approximately ~~$43.3 million and $46.5~~$25.0 million at both March 31, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020. These indemnifications typically expire within a period of one to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at March 31, ~~2020.~~2021.

~~Sonic~~We also ~~guarantees~~guarantee the floor plan commitments of ~~its~~our 50%-owned joint ~~venture, the~~venture. The amount of ~~which~~such guarantee was approximately $4.3 million at both March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

8. 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 swap instruments 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

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 unaudited condensed consolidated balance sheets as of March 31, ~~2020~~2021 and December 31, ~~2019 are~~2020 were as follows:


		Fair Value Based on Significant Other Observable Inputs (Level 2)							Fair Value Based on Significant Other Observable Inputs (Level 2)
		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(In thousands)							(In thousands)
Assets:	Assets:					Assets:
Cash surrender value of life insurance policies (1)	Cash surrender value of life insurance policies (1)	$	32,209	$	32,799	Cash surrender value of life insurance policies (1)	$	35,940	$	35,739
Interest rate caps designated as hedges (2)		88		97

Total assets	Total assets	$	32,297	$	32,896	Total assets	$	35,940	$	35,739

Liabilities:	Liabilities:					Liabilities:

Deferred compensation plan ~~(3)~~(2)	Deferred compensation plan ~~(3)~~(2)	$	17,934	$	17,890	Deferred compensation plan ~~(3)~~(2)	$	21,644	$	20,685
Total liabilities	Total liabilities	$	17,934	$	17,890	Total liabilities	$	21,644	$	20,685

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(2)~~As of both March 31, 2020 and December 31, 2019, approximately $0.1 million was included in other assets in the accompanying unaudited condensed consolidated balance sheet.~~

~~(3)~~Included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

There were ~~$268.0 million of impairment charges related to long-lived intangible assets assessed~~0 instances during the three months ended March 31, ~~2020~~2021 which required a fair value measurement of assets ordinarily measured at fair value on a non-recurring basis. Goodwill has been adjusted for fair value through impairment charges using Level 1 and Level 3 fair value inputs as discussed in Note 5, "Goodwill and Intangible Assets." Remaining intangible and long-livedThese assets will be evaluated as of the annual valuation assessment date of October 1, ~~2020~~2021 or as events or changes in circumstances require.

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair values of Sonic’s financial instruments, including receivables, notes receivable from finance contracts, notes payable – floor plan, trade accounts payable, borrowings under the revolving credit facilities and certain mortgage notes, approximated their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates.

AtAs of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair value and carrying value of Sonic’s significant fixed rate long-term debt were as follows:

March 31, 2020 December 31, 2019
Fair Value Carrying Value Fair Value Carrying Value
(In thousands)
6.125% Notes (1) $ 207,500 $ 250,000 $ 261,250 $ 250,000
Mortgage Notes (2) $ 194,265 $ 191,248 $ 195,962 $ 194,535


	March 31, 2021				December 31, 2020
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In thousands)
6.125% Notes (1)	$	258,125	$	250,000	$	263,438	$	250,000

(1)As determined by market quotations from similar securities as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively (Level 1)2).

~~(2)As determined by discounted cash flows (Level 3) based~~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 ~~estimated current market interest rates~~Form 10-K for ~~comparable instruments.~~the year ended December 31, 2020.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) ~~by component~~related to our cash flow hedges and defined benefit pension plan for the three months ended March 31, ~~2020~~2021 are ~~as follows:~~presently immaterial, both individually and in the aggregate.

Gains and
(Losses) on
Cash Flow
Hedges Defined
Benefit
Pension
Plan Total
Accumulated
Other
Comprehensive
Income (Loss)
(In thousands)
Balance at December 31, 2019 $ (1,326) $ (736) $ (2,062)
Other comprehensive income (loss) before reclassifications (1) 294 — 294
Amounts reclassified out of accumulated other comprehensive income (loss) (2) (566) — (566)
Net current-period other comprehensive income (loss) (272) — (272)
Balance at March 31, 2020 $ (1,598) $ (736) $ (2,334)

~~(1)Net of tax expense of $67 related to cash flow hedges.~~

~~(2)Net of tax benefit of $231 related to cash flow hedges.~~

~~See the heading “Derivative Instruments and Hedging Activities” in Note 6, “Long-Term Debt,” for~~For further discussion of Sonic’s ~~cash flow hedges.~~accumulated other comprehensive income (loss), see Note 13, “Accumulated Other Comprehensive Income (Loss),” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020. For further discussion of Sonic’s defined benefit pension plan, see Note 10, “Employee Benefit Plans,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

10. Segment Information

As of March 31, ~~2020,~~2021, Sonic had 2 operating ~~segments comprised of:~~segments: (1) retail automotive franchises that sell new vehicles and buy and sell used vehicles, sell replacement parts, perform vehicle ~~repair~~maintenance, warranty and ~~maintenance~~repair services, and arrange finance and insurance products (the “Franchised Dealerships Segment”); and (2) pre-owned vehicle specialty retail locations that provide ~~customers~~guests an opportunity to search our nationwide inventory, purchase a pre-owned vehicle, select finance and insurance products and sell their current vehicle to us (the “EchoPark Segment”). 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~~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.

1613

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reportable segment financial information for the three months ended March 31, 2021 and 2020 ~~and 2019 are~~were as follows:


							Three Months Ended March 31,
		Three Months Ended March 31,								2021		2020
		2020		2019			(In thousands)
Segment Revenues:	Segment Revenues:	(In thousands, except unit data)							Segment Revenues:
Franchised Dealerships Segment revenues:	Franchised Dealerships Segment revenues:					Franchised Dealerships Segment revenues:
New vehicles	New vehicles	$	959,489	$	1,066,334	New vehicles	$	1,156,317		$	959,489
Used vehicles	Used vehicles	566,888		603,949		Used vehicles	661,534			566,888
Wholesale vehicles	Wholesale vehicles	42,440		52,533		Wholesale vehicles	56,204			42,440
Parts, service and collision repair	Parts, service and collision repair	324,501		336,225		Parts, service and collision repair	308,077			324,501
Finance, insurance and other, net	Finance, insurance and other, net	83,029		80,521		Finance, insurance and other, net	97,525			83,029
Franchised Dealerships Segment revenues	Franchised Dealerships Segment revenues	$	1,976,347	$	2,139,562	Franchised Dealerships Segment revenues	$	2,279,657		$	1,976,347

EchoPark Segment revenues:	EchoPark Segment revenues:					EchoPark Segment revenues:
Used vehicles	Used vehicles	$	283,164	$	216,417	Used vehicles	$	428,563		$	283,164
Wholesale vehicles	Wholesale vehicles	6,103		2,237		Wholesale vehicles	18,605			6,103
Parts, service and collision repair	Parts, service and collision repair	10,179		5,205		Parts, service and collision repair	12,837			10,179
Finance, insurance and other, net	Finance, insurance and other, net	32,263		25,717		Finance, insurance and other, net	47,136			32,263
EchoPark Segment revenues	EchoPark Segment revenues	$	331,709	$	249,576	EchoPark Segment revenues	$	507,141		$	331,709

Total consolidated revenues	Total consolidated revenues	$	2,308,056	$	2,389,138	Total consolidated revenues	$	2,786,798		$	2,308,056


							Three Months Ended March 31,
		Three Months Ended March 31,								2021		2020
		2020		2019			(In thousands, except unit data)
Segment Income (Loss) (1):	Segment Income (Loss) (1):	(In thousands)							Segment Income (Loss) (1):
Franchised Dealerships Segment (2)		$	22,656	$	61,182
Franchised Dealerships Segment						Franchised Dealerships Segment	$	70,543		$	22,656
EchoPark Segment	EchoPark Segment	2,096		2,106		EchoPark Segment	2,010			2,096
Total segment income (loss)	Total segment income (loss)	$	24,752	$	63,288	Total segment income (loss)	$	72,553		$	24,752
Impairment charges (3)		(268,000)		(1,952)
Impairment charges (2)						Impairment charges (2)	0			(268,000)
Income (loss) from continuing operations before taxes	Income (loss) from continuing operations before taxes	$	(243,248)	$	61,336	Income (loss) from continuing operations before taxes	$	72,553		$	(243,248)

Retail New and Used Vehicle Unit Sales Volume:	Retail New and Used Vehicle Unit Sales Volume:					Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment	Franchised Dealerships Segment	47,762		52,609		Franchised Dealerships Segment	51,594			47,762
EchoPark Segment	EchoPark Segment	13,986		11,051		EchoPark Segment	19,670			13,986
Total retail new and used vehicle unit sales volume	Total retail new and used vehicle unit sales volume	61,748		63,660		Total retail new and used vehicle unit sales volume	71,264			61,748

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

(2)~~For the~~ ~~three months ended March 31, 2019~~, ~~the above amount includes a~~ ~~pre-tax net gain on the disposal of franchised dealerships of approximately $46.7 million, offset partially by approximately $6.3 million of pre-tax executive transition costs.~~

~~(3)~~For the three months ended March 31, 2020, the above amount includes a pre-tax impairment charge of approximately $268.0 million related to adjustments in fair value of goodwill for the Franchised Dealerships Segment as a result of the ~~economic disruptions due to~~effects of the ~~worldwide spread of~~ COVID-19 ~~which has adversely affected~~pandemic on our ~~business. For the three months ended March 31, 2019, the above amount includes approximately $1.9 million of pre-tax~~operations and market value.


	Three Months Ended March 31,
	2021		2020
	(In thousands)
Impairment Charges:
Franchised Dealerships Segment	$	0	$	268,000
EchoPark Segment	0		0
Total impairment charges	$	0	$	268,000

~~fair value adjustments to real estate at former EchoPark locations classified as held for sale.~~

1714

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(In thousands)							(In thousands)
Impairment Charges:
Depreciation and Amortization:						Depreciation and Amortization:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	268,000	$	26	Franchised Dealerships Segment	$	20,376	$	19,589
EchoPark Segment	EchoPark Segment	—		1,926		EchoPark Segment	3,311		2,708
Total impairment charges		$	268,000	$	1,952
Total depreciation and amortization						Total depreciation and amortization	$	23,687	$	22,297


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(In thousands)							(In thousands)
Depreciation and amortization:
Floor Plan Interest Expense:						Floor Plan Interest Expense:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	19,589	$	20,237	Franchised Dealerships Segment	$	4,117	$	9,608
EchoPark Segment	EchoPark Segment	2,708		2,412		EchoPark Segment	996		900
Total depreciation and amortization		$	22,297	$	22,649
Total floor plan interest expense						Total floor plan interest expense	$	5,113	$	10,508


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(In thousands)							(In thousands)
Floor Plan Interest Expense:
Interest Expense, Other, Net:						Interest Expense, Other, Net:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	9,608	$	12,505	Franchised Dealerships Segment	$	9,958	$	10,599
EchoPark Segment	EchoPark Segment	900		721		EchoPark Segment	327		366
Total floor plan interest expense		$	10,508	$	13,226
Total interest expense, other, net						Total interest expense, other, net	$	10,285	$	10,965


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(In thousands)							(In thousands)
Interest Expense, Other, Net:
Capital Expenditures:						Capital Expenditures:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	10,599	$	12,414	Franchised Dealerships Segment	$	46,171	$	17,249
EchoPark Segment	EchoPark Segment	366		439		EchoPark Segment	21,492		2,556
Total interest expense, other, net		$	10,965	$	12,853
Total capital expenditures						Total capital expenditures	$	67,663	$	19,805

Three Months Ended March 31,
2020 2019
(In thousands)
Capital expenditures:
Franchised Dealerships Segment $ 17,249 $ 25,229
EchoPark Segment 2,556 5,390
Total capital expenditures $ 19,805 $ 30,619


	March 31, 2021		December 31, 2020
	(In thousands)
Assets:
Franchised Dealerships Segment assets	$	3,054,643	$	3,096,811
EchoPark Segment assets	560,346		478,869
Corporate and other:
Cash and cash equivalents	77,233		170,313


Other corporate assets	5		0
Total assets	$	3,692,227	$	3,745,993

1815

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 December 31, 2019
(In thousands)
Assets:
Franchised Dealerships Segment assets $ 3,550,745 $ 3,797,878
EchoPark Segment assets 244,219 244,054
Corporate and other:
Cash and cash equivalents 181,780 29,103
Total assets $ 3,976,744 $ 4,071,035
11. Subsequent Events

~~11. Lease Accounting~~

On April 14, 2021, Sonic entered into an Fifth Amended, Restated and Consolidated Credit Agreement, dated as of April 14, 2021, among Sonic, the subsidiaries of Sonic named therein, each lender a party thereto and Bank of America, N.A., as administrative agent, revolving swing line lender, new vehicle swing line lender, used vehicle swing line lender and an l/c issuer (the “2021 Credit Agreement”). 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 ROU asset and lease liabilities as appropriate.

As2021 Credit Agreement provides for a ~~result of the adoption of ASC 842, “Leases,” on January 1, 2019, we are required to recognize~~revolving credit facility (the “Revolving Facility”), a ~~ROU asset~~new vehicle floor plan inventory finance facility (the “New Vehicle Floor Plan Facility”) and a ~~lease liability in~~used vehicle floor plan inventory finance facility (the “Used Vehicle Floor Plan Facility” and, together with the ~~accompanying unaudited condensed consolidated balance sheets at~~New Vehicle Floor Plan Facility, the ~~lease commencement date. For operating leases,~~“Floor Plan Facility”). The Revolving Facility and the ~~lease liability is initially~~Floor Plan Facility (together, the “2021 Credit Facilities”) replace the 2016 Credit Facilities and ~~subsequently measured at~~each has a maturity date of April 14, 2025. The initial borrowing limits under the ~~present value~~Revolving Facility and Floor Plan Facility are $250.0 million and $1.6 billion, respectively.

Subsequent to March 31, 2021 Sonic’s Board of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently measured at reduced cost using the effective interest method.

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 dateDirectors approved an increase to the ~~earlier~~Company’s quarterly cash dividend, to $0.12 per share, payable on July 15, 2021 to all stockholders of record on June 15, 2021, in addition Sonic’s Board of Directors increased 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 unaudited condensed consolidated statements of income 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~~Company’s share repurchase authorization by impairment losses. We use the long-lived assets impairment guidance in ASC 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 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.$250.0 million.

1916

SONIC AUTOMOTIVE, INC.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL ~~STATEMENTS~~CONDITION AND RESULTS OF OPERATIONS

Many of our lease arrangements have one or more existing renewal options to extend the lease term (typically in five- to ten-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 noncancellable period of the lease plus any additional periods covered by our option to extend the lease that we are reasonably certain to exercise. We determined 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.

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 LIBOR 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).

~~Following is information related to changes in our ROU asset and lease liability balances and other financial information for the three months ended March 31, 2020:~~

As Reported December 31, 2019 New
Leases Modifications (1) Reduction / Amortization As Reported March 31, 2020
(In thousands)
ROU Assets:
Finance Leases $ 34,691 $ — $ 16,763 $ (756) $ 50,698
Operating Leases 337,842 — 17,191 (10,885) 344,148
Total ROU Assets $ 372,533 $ — $ 33,954 $ (11,641) $ 394,846
Current Lease Liabilities:
Finance Leases $ 1,564 $ — $ 18,588 $ 73 $ 20,225
Operating Leases 43,332 — 402 (595) 43,139
Total Current Lease Liabilities $ 44,896 $ — $ 18,990 $ (522) $ 63,364
Long-Term Lease Liabilities:
Finance Leases $ 36,313 $ — $ (2,687) $ (410) $ 33,216
Operating Leases 304,151 — 17,651 (10,431) 311,371
Total Long-Term Lease Liabilities $ 340,464 $ — $ 14,964 $ (10,841) $ 344,587

~~(1)Includes the impact of remeasurements related to lease terminations and changes in assumptions around the probability of exercise of extension options.~~

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Three Months Ended March 31,
2020 2019
(In thousands)
Lease Expense:
Finance lease expense:
Reduction of ROU assets $ 756 $ 709
Interest on lease liabilities 1,344 1,176
Operating lease expense (1) 16,610 17,997
Short-term lease expense (1) 420 427
Variable lease expense 718 114
Sublease income (3,099) (3,578)
Total $ 16,749 $ 16,845

~~(1)Included in operating cash flows in the accompanying unaudited condensed consolidated statement of cash flows as of March 31, 2020.~~

Three Months Ended March 31,
2020 2019
(In thousands)
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Financing cash flows for finance leases $ 337 $ 281
Operating cash flows for finance leases $ 1,344 $ 1,176
Operating cash flows for operating leases $ 16,753 $ 18,469
ROU assets obtained in exchange for lease liabilities
Finance leases $ 6,728 $ 9,983
Operating leases (1) $ 27,226 $ (10,711)

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

March 31, 2020 March 31, 2019
Other Information:
Weighted-average remaining lease term (in years)
Finance leases 7.8 11.4
Operating leases 9.6 9.8
Weighted-average discount rate
Finance leases 16.52 % 18.31 %
Operating leases 6.56 % 6.86 %

Undiscounted Lease Cash Flows Under ASC 842 as of March 31, 2020
Finance Operating Receipts from Subleases
Year Ending December 31, (In thousands)
Remainder of 2020 $ 23,572 $ 48,808 $ (8,343)
2021 6,075 60,674 (8,228)
2022 6,083 54,358 (6,103)
2023 6,144 52,687 (6,103)
2024 6,263 47,219 (5,042)
Thereafter 43,103 223,118 (4,270)
Total $ 91,240 $ 486,864 $ (38,089)
Less: Present value discount (37,799) (132,354)
Lease liabilities $ 53,441 $ 354,510

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto and “Item 1A. Risk Factors” in this report, as well as the consolidated financial statements and related notes thereto, “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~Except to the extent that differences among operating segments are material to an understanding of our business taken as a whole,~~Unless otherwise noted, we present the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis. To the extent that we believe a discussion of the differences among reportable segments will enhance a reader’s understanding of our financial condition, cash flows and other changes in financial condition and results of operations, the differences are discussed separately.

Unless otherwise noted, all discussion of increases or decreases are for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The following discussion of Franchised Dealerships Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net, is on a same store basis, except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market's opening.

Overview

We are 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 had two reportable segments as of March 31, ~~2020:~~2021: (1) the Franchised Dealerships Segment and (2) the EchoPark Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of March 31, ~~2020,~~2021, we operated 8684 stores in the Franchised Dealerships Segment and ~~nine~~21 stores in the EchoPark Segment. The Franchised Dealerships Segment consists of 9996 new vehicle franchises (representing 21 different brands of cars and light trucks) and 1514 collision repair centers in 12 states.

The Franchised Dealerships Segment provides comprehensive 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 extended warranties, service contracts, financing, insurance and other aftermarket products (collectively, “finance and insurance” or “F&I”) for our ~~customers.~~guests. The EchoPark Segment sells used cars and light trucks and arranges F&I product sales for our ~~customers~~guests in pre-owned vehicle specialty retail locations. Our EchoPark business generally operates independently from our franchised dealerships ~~business.~~business (except for certain shared back-office functions and corporate overhead costs). Sales operations ~~in our first~~for EchoPark ~~market in Denver, Colorado~~ began in the fourth quarter of ~~2014. As~~2014, and, as of March 31, ~~2020,~~2021, we ~~had three~~operated 21 EchoPark stores in ~~operation in Colorado, four in Texas, one in North Carolina and one in California. By the end of~~11 states. During 2020, we ~~expect to open three additional~~announced an accelerated EchoPark ~~stores. We believe that the continued expansion of our EchoPark business will provide long-term benefits to the Company, our stockholders and our guests.~~

~~Beginning in the middle of March 2020 the novel coronavirus~~ ~~(“COVID-19”)~~ ~~pandemic began to adversely impact our business operations. All of the markets~~growth plan in which we ~~currently operate are under various levels of “shelter-in-place” or “stay-at-home” orders~~plan to open 25 additional EchoPark stores annually from ~~state and local governmental authorities, which in many cases significantly restrict our business operations and suppress consumer activity, in particular related~~2021 to our vehicle sales activities. As a result, we saw significant declines in new and used vehicle unit sales volume, including a year-over-year decline of approximately 50% during the second half of March 2020 as compared to the second half of March 2019, and our parts and service business is currently operating below full capacity, despite automotive repair having been deemed an essential service in all of the markets in which we operate. We currently expect these trends to continue into the second quarter with the expectation that the majority of shelter-in-place and stay-at-home orders will be lifted in the latter half of the second quarter of 2020. If the shelter-in-place and stay-at-home orders are extended or there is a second wave of shut-downs in the second half of the year due to another outbreak of COVID-19, we would again expect to face headwinds on the demand side of our business.

As a result of these developments and the impact of COVID-19, we took various actions in an attempt to mitigate the financial impact of COVID-19 on our business during the first quarter of 2020. We have placed approximately 1,700 associates on unpaid leave, terminated an additional 1,200 associates, implemented additional compensation expense reductions, and instituted a hiring freeze. We have also taken actions to reduce our advertising expenses and non-essential spending, and postponed certain capital expenditures. We have taken steps to shore up our liquidity position and continue to evaluate opportunities for further expense reduction and additional sources of liquidity2025 as we ~~navigate the COVID-19 pandemic.~~build out an expected 140-plus point nationwide EchoPark distribution network by 2025.

Executive Summary

Results in the three months ended March 31, 2021 benefit from a favorable comparison to the year ago quarter, where the onset of the COVID-19 pandemic caused significant disruption to our industry and business. The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of sales (“SAAR”) ~~decreased 12.4%~~increased 12.7%, to ~~14.9~~16.9 million vehicles, in the three months ended March 31, 2021, compared to 15.0 million vehicles in the three months ended March 31, 2020, ~~compared to 17.0 million vehicles in the three months ended March 31, 2019,~~ according to data from Bloomberg ~~Financial Markets,~~Finance L.P., provided by Stephens Inc. ~~Prior to COVID-19,~~For 2021, analysts’ industry expectation for the total new vehicle SAAR ~~in 2020 ranged~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ranges from 14.5 million vehicles (flat compared to 2020) to 16.0 million vehicles (an increase of 10.3% compared to ~~17.0 million vehicles. It is difficult to anticipate what~~2020). We estimate the ~~total~~2021 new vehicle SAAR ~~may~~will be ~~in 2020~~between 15.5 million vehicles (an increase of 6.9% compared to 2020) and ~~beyond due~~16.0 million vehicles (an increase of 10.3% compared to ~~the rapidly evolving circumstances around~~2020). The ongoing effects of the COVID-19 pandemic, ~~and related economic impact. Further~~ changes in consumer confidence, ~~unemployment levels,~~ availability of consumer financing, interest rates, additional federal relief spending by the U.S government, manufacturer inventory production levels, or incentive levels from automotive manufacturers or ~~government programs~~shifts in level, availability of new and used vehicle inventory, or timing of consumer demand as a result of natural disasters or other unforeseen circumstances could cause the actual ~~2020 total~~2021 new vehicle SAAR to vary from ~~current expectations.~~our expectation. For example, a material portion of our revenue is generated from our stores in Texas, nearly all of which were affected by the extreme winter weather and related power outages experienced in February 2021. Many factors, including brand and geographic concentrations as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. ~~Since we do not participate in any material manner in~~Our new vehicle sales strategy focuses on our retail new

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

vehicle sales (as opposed to fleet ~~sales,~~new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the retail new vehicle SAAR (which excludes fleet new vehicle sales). According to the Power Information Network (“PIN”) from J.D. Power, industry retail new vehicle SAAR was ~~11.6~~14.3 million vehicles for the three months ended March 31, ~~2020, a decrease~~2021, an increase of ~~8.7%~~23.3% from 11.6 million vehicles in the prior year period.

Franchised Dealerships Segment

As a result of the disposition, termination or closure of several franchised dealerships ~~and EchoPark~~ stores ~~since March 31, 2019,~~subsequent to January 1, 2020, the change in consolidated reported amounts from period to period may not be indicative of the ~~actual~~current or future operational or financial performance of our current group of operating stores. ~~Please refer to the same store tables and discussion on the following pages for more meaningful comparison and discussion of financial results on a comparable store basis.~~

Unless otherwise noted, all discussion of increases or decreases are for the three months ended March 31, 2020 and are compared to the same prior year period. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net are on a same store basis, except where otherwise noted. All currently operating stores (both our franchised dealerships and EchoPark stores) are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.

~~See “Future Liquidity Outlook” section for further discussion related to actions taken to preserve and increase liquidity.~~

~~Franchised Dealerships Segment~~

New vehicle revenue ~~decreased 4.7%~~increased 21.6% during the three months ended March 31, ~~2020,~~2021, primarily driven by a ~~6.1% decrease~~13.8% increase in new vehicle unit sales volume. New vehicle gross profit ~~decreased 12.1%~~increased 52.8% during the three months ended March 31, ~~2020,~~2021, primarily driven ~~primarily~~ by a ~~6.4% decrease~~34.4% increase in new vehicle gross profit per ~~unit.~~unit due primarily to a 6.9% increase in new vehicle average selling price. New vehicle gross profit per unit ~~decreased $144~~increased $724 per unit, or ~~6.4%~~34.4%, to ~~$2,093~~$2,831 per unit in the three months ended March 31, ~~2020.~~2021, due primarily to higher average selling prices due to inventory shortages in certain makes and models as a result of vehicle manufacturer supply chain disruptions and production delays during the COVID-19 pandemic.

Retail used vehicle revenue ~~decreased 1.8%~~increased 18.0% during the three months ended March 31, ~~2020.~~2021, primarily driven by an 11.0% increase in retail used vehicle average selling price. Retail used vehicle ~~unit sales volume increased 1.5%~~gross profit decreased 5.8% during the three months ended March 31, ~~2020. Retail used vehicle gross profit decreased 1.0% during the three months ended March 31, 2020, primarily driven by~~2021, due to a decrease in retail used vehicle gross profit per ~~unit. Retail used~~unit of $142 per unit, or 11.3%, to $1,112 per unit as a result of higher cost of inventory. Wholesale vehicle gross profit ~~per unit decreased $32 per unit, or 2.5%, to $1,240 per unit~~improved by approximately $0.8 million in the three months ended March 31, ~~2020. Wholesale vehicle gross loss decreased approximately $0.9 million, or 91.9%, during the three months ended March 31, 2020,~~2021, due primarily ~~driven by~~to a ~~decrease~~33.6% increase in average wholesale ~~vehicle gross loss~~revenue per unit as a result of ~~$124, or 91.2%. We generally focus~~increased demand in the wholesale auction market as a result of new vehicle inventory shortages. In the past, we have focused on maintaining used vehicle inventory days’ supply in the 30- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. Our reported franchised dealerships used vehicle inventory days’ supply was approximately 2927 and 2729 days as of March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Fixed Operations revenue ~~increased 1.5%~~decreased 4.7% and Fixed Operations gross profit decreased 1.8% during the three months ended March 31, ~~2020. Fixed Operations gross profit increased 2.0% during the three months ended March 31, 2020,~~2021, driven primarily by lower consumer demand for repairs as a ~~5.3% increase in customer pay (as hereinafter defined) gross profit.~~result of shelter-in-place and stay-at-home orders related to the COVID-19 pandemic. Fixed Operations gross margin increased 30150 basis points, to ~~48.7%~~50.2%, during the three months ended March 31, ~~2020,~~2021, driven primarily by ~~higher levels of customer pay revenue and~~ an increase in customer pay revenue contribution and higher customer pay gross margin.

F&I revenue increased ~~6.9%~~18.7% during the three months ended March 31, ~~2020,~~2021, driven primarily by an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased ~~$150~~$135 per unit, or ~~9.9%~~8.1%, to ~~$1,671~~$1,807 per unit in the three months ended March 31, ~~2020.~~2021. We believe that our proprietary software applications, playbook processes and ~~customer-centric~~guest-centric selling approach enable us to optimize F&I gross profit and penetration rates (the number of F&I products sold per vehicle) across our F&I product lines. We believe that we will continue to increase revenue in this area as we refine our processes, train our associates and continue to sell a high volume of retail new and used vehicles at our stores.

EchoPark Segment

Total EchoPark revenues increased 52.9% in the three months ended March 31, 2021, driven primarily by the opening of ten new EchoPark stores in the last year, and increases in retail used vehicle unit sales volume and average selling price. Total gross profit increased 44.3% in the three months ended March 31, 2021, due primarily to higher retail used vehicle unit sales volume and a 2.0% increase in total gross profit per unit, to $2,339 per unit.

Retail used vehicle revenue increased ~~22.6%~~51.3% and F&I revenue increased 46.1% during the three months ended March 31, ~~2020. Retail~~2021, driven primarily by a 40.6% increase in retail used vehicle unit sales volume ~~increased 18.2% during the three months ended March 31, 2020.~~and an increase in retail used vehicle average selling price. Combined retail used vehicle and F&I gross profit per unit ~~decreased $126~~increased $45 per unit, or ~~5.5%~~2.0%, to ~~$2,172~~$2,339 per unit during the three months ended March 31, ~~2020.~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

2021.

Wholesale vehicle gross ~~loss was flat.~~profit improved by approximately $0.2 million, or 252.7%, during the three months ended March 31, 2021, due in part to higher average wholesale prices as a result of increased demand for used vehicles at auction. We generally focus on maintaining used vehicle inventory days’ supply in the ~~30-to~~30- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. Our used vehicle inventory days’ supply at our EchoPark stores was approximately 3440 and 2934 days as of March 31, 2021 and 2020, respectively. The elevated level of used inventory days’ supply as of March 31, 2021 was due primarily to the opening of several new EchoPark stores, which require additional inventory on hand but are not yet generating retail used vehicle sales at the rate of a mature store.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market's opening. EchoPark same market total revenues increased 19.4% during the three months ended March 31, 2021, driven primarily by an 8.2% increase in retail used vehicle unit sales volume and ~~2019, respectively.~~

an increase in retail used vehicle average selling price. Same market total gross profit increased 19.3% during the three months ended March 31, 2021, due primarily to higher retail used vehicle unit sales volume and an 1.8% increase in total gross profit per unit, to $2,336 per unit.

Results of Operations – Consolidated

The following ~~table lists~~tables list other items of interest that affected reported amounts in the accompanying unaudited condensed consolidated statements of ~~income:~~operations:

Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
(Amounts are before the effect of income taxes) Franchised Dealerships Segment EchoPark Segment Total Franchised Dealerships Segment EchoPark Segment Total Income Statement Line Impacted
(In thousands)
Gain (loss) on franchise disposals $ — $ — $ — $ 46,680 $ — $ 46,680 SG&A expenses
Executive transition costs — — — (6,264) — (6,264) SG&A expenses
Impairment charges (268,000) — (268,000) — (1,926) (1,926) Impairment charges


	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
(Amounts are before the effect of income taxes, except tax items)	Franchised Dealerships Segment		EchoPark Segment		Total		Franchised Dealerships Segment		EchoPark Segment		Total		Operations Statement Line Impacted
	(In thousands)



Impairment charges	$	—	$	—	$	—	$	(268,000)	$	—	$	(268,000)	Impairment charges

The following table depicts the breakdown of our new vehicle revenues from continuing operations by brand for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended March 31,							Three Months Ended March 31,
Brand	Brand	2020		2019		Brand	2021		2020
Luxury:	Luxury:					Luxury:
BMW	BMW	25.2	%	21.2	%	BMW	23.8	%	25.2	%
Mercedes	Mercedes	13.4	%	12.2	%	Mercedes	12.8	%	13.4	%
Audi	Audi	6.1	%	6.7	%	Audi	7.2	%	6.1	%
Lexus	Lexus	4.8	%	5.1	%	Lexus	5.1	%	4.8	%
Land Rover	Land Rover	4.3	%	4.9	%	Land Rover	4.5	%	4.3	%
Porsche	Porsche	3.0	%	3.2	%	Porsche	3.7	%	3.0	%
Cadillac	Cadillac	2.2	%	2.2	%	Cadillac	3.0	%	2.2	%
MINI	MINI	1.0	%	1.0	%	MINI	0.9	%	1.0	%
Other luxury (1)	Other luxury (1)	2.3	%	3.0	%	Other luxury (1)	2.5	%	2.3	%
Total Luxury	Total Luxury	62.3	%	59.5	%	Total Luxury	63.5	%	62.3	%
Mid-line Import:	Mid-line Import:					Mid-line Import:
Honda	Honda	14.8	%	17.5	%	Honda	13.1	%	14.8	%
Toyota	Toyota	8.7	%	8.7	%	Toyota	9.1	%	8.7	%
Volkswagen	Volkswagen	0.9	%	1.9	%	Volkswagen	1.2	%	0.9	%
Hyundai	Hyundai	1.1	%	1.5	%	Hyundai	1.0	%	1.1	%
Other imports (2)		0.5	%	1.5	%
Nissan						Nissan	0.4	%	0.5	%
Total Mid-line Import	Total Mid-line Import	26.0	%	31.1	%	Total Mid-line Import	24.8	%	26.0	%
Domestic:	Domestic:					Domestic:
Ford	Ford	5.9	%	4.8	%	Ford	5.9	%	5.9	%
General Motors (“GM”) (3)		5.8	%	4.6	%
General Motors (2)						General Motors (2)	5.8	%	5.8	%
Total Domestic	Total Domestic	11.7	%	9.4	%	Total Domestic	11.7	%	11.7	%
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%

(1)Includes Acura, Infiniti, Jaguar ~~Smart~~ and Volvo.

(2)~~Includes Kia, Nissan, Scion and Subaru.~~

~~(3)~~Includes Buick, Chevrolet and GMC.

~~Results of Operations~~

2419

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

service and collision repair, and finance, insurance and other, net are on a same store basis, except where otherwise noted. All currently operating stores (both our franchised dealerships and EchoPark stores) are included within the same store group in the first full month following the first anniversary

Results of ~~the store’s opening or acquisition.~~Operations

Results of Operations – Consolidated

New Vehicles – Consolidated

The retail automotive industry uses the total new vehicle SAAR to measure the annual amount of expected new vehicle unit sales activity (both retail and fleet sales) within the ~~United States.~~U.S. The total and retail new vehicle SAAR below reflect all brands marketed or sold in the ~~United States.~~U.S. The total and retail new vehicle SAAR include brands we do not sell and markets in which we do not operate; therefore, our new vehicle sales may not trend directly in line with the total and retail new vehicle SAAR. We believe that the retail new vehicle SAAR is a more meaningful metric for comparing our new vehicle unit sales volume to the industry due to our minimal fleet vehicle business.

Beginning in the middle of March 2020, COVID-19 began to adversely impact the retail automotive industry and consequentially also our business operations by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While most of these shelter-in-place and stay-at-home orders have been relaxed since they were initially implemented, most remained in place to varying degrees through the end of the first quarter of 2021 in most of the markets in which we operate. Retail new vehicle SAAR, fleet new vehicle SAAR and total new vehicle SAAR were as follows:


		Three Months Ended March 31,				Better / (Worse)			Three Months Ended March 31,			Better / (Worse)
		2020	2019	% Change				2021	2020	% Change
		(In millions of vehicles)								(In millions of vehicles)
Retail new vehicle SAAR (1)	Retail new vehicle SAAR (1)	11.6	12.7	(8.7)	%		Retail new vehicle SAAR (1)	14.3	11.6	23.3	%
Fleet new vehicle SAAR	Fleet new vehicle SAAR	3.3	4.3	(23.3)	%		Fleet new vehicle SAAR	2.6	3.4	(23.5)	%
Total new vehicle SAAR ~~(1)~~(2)	Total new vehicle SAAR ~~(1)~~(2)	14.9	17.0	(12.4)	%		Total new vehicle SAAR ~~(1)~~(2)	16.9	15.0	12.7	%

(1)Source: PIN from J.D. Power

~~The following table provides a reconciliation of consolidated reported basis and same store basis for total new vehicles (combined retail and fleet data):~~(2)Source: Bloomberg Finance L.P., provided by Stephens Inc.

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 959,491 $ 1,006,903 $ (47,412) (4.7) %
Acquisitions, open points and dispositions (2) 59,431 (59,433) NM
Total as reported $ 959,489 $ 1,066,334 $ (106,845) (10.0) %
Total new vehicle gross profit:
Same store $ 45,465 $ 51,752 $ (6,287) (12.1) %
Acquisitions, open points and dispositions (50) 2,044 (2,094) NM
Total as reported $ 45,415 $ 53,796 $ (8,381) (15.6) %
Total new vehicle unit sales:
Same store 21,724 23,133 (1,409) (6.1) %
Acquisitions, open points and dispositions — 2,064 (2,064) NM
Total as reported 21,724 25,197 (3,473) (13.8) %

~~NM = Not Meaningful~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our consolidated reported new vehicle results (combined retail and fleet data) ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Reported new vehicle:	Reported new vehicle:											Reported new vehicle:
Revenue	Revenue	$	959,489		$	1,066,334		$	(106,845)	(10.0)	%	Revenue	$	1,156,317		$	959,489		$	196,828	20.5	%
Gross profit	Gross profit	$	45,415		$	53,796		$	(8,381)	(15.6)	%	Gross profit	$	69,465		$	45,415		$	24,050	53.0	%
Unit sales	Unit sales	21,724			25,197			(3,473)		(13.8)	%	Unit sales	24,358			21,724			2,634		12.1	%
Revenue per unit	Revenue per unit	$	44,167		$	42,320		$	1,847	4.4	%	Revenue per unit	$	47,472		$	44,167		$	3,305	7.5	%
Gross profit per unit	Gross profit per unit	$	2,091		$	2,135		$	(44)	(2.1)	%	Gross profit per unit	$	2,852		$	2,091		$	761	36.4	%
Gross profit as a % of revenue	Gross profit as a % of revenue	4.7		%	5.0		%	(30)		bps		Gross profit as a % of revenue	6.0		%	4.7		%	130		bps

~~Our consolidated same store new vehicle results (combined retail and fleet data) are as follows:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 959,491 $ 1,006,903 $ (47,412) (4.7) %
Gross profit $ 45,465 $ 51,752 $ (6,287) (12.1) %
Unit sales 21,724 23,133 (1,409) (6.1) %
Revenue per unit $ 44,167 $ 43,527 $ 640 1.5 %
Gross profit per unit $ 2,093 $ 2,237 $ (144) (6.4) %
Gross profit as a % of revenue 4.7 % 5.1 % (40) bps

For further analysis of new vehicle results, see the tables and discussion under the heading “New Vehicles – Franchised Dealerships Segment” in the Franchised Dealerships Segment section below.

Used Vehicles – Consolidated

Used vehicle revenues are directly affected by a number of factors, including the pricing and level of manufacturer incentives on new vehicles, the number and quality of trade-ins and lease turn-ins, the availability and pricing of used vehicles acquired at auction and the availability of consumer credit. As with new vehicles, COVID-19 began to adversely impact the retail automotive industry and consequentially also our business operations ~~starting~~beginning in the middle of March 2020, by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While most of these shelter-in-place and stay-at-home orders have been relaxed since they were initially implemented, most remained in place to varying degrees through the end of the first quarter of 2021 in most of the markets in which we operate.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~The following table provides a reconciliation of~~Our consolidated reported ~~basis and same store basis for~~ retail used ~~vehicles:~~vehicle results were as follows:

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store $ 832,190 $ 793,460 $ 38,730 4.9 %
Acquisitions, open points and dispositions 17,862 26,906 (9,044) NM
Total as reported $ 850,052 $ 820,366 $ 29,686 3.6 %
Total used vehicle gross profit:
Same store $ 30,444 $ 32,351 $ (1,907) (5.9) %
Acquisitions, open points and dispositions 1,686 4,657 (2,971) NM
Total as reported $ 32,130 $ 37,008 $ (4,878) (13.2) %
Total used vehicle unit sales:
Same store 39,105 36,692 2,413 6.6 %
Acquisitions, open points and dispositions 919 1,771 (852) NM
Total as reported 40,024 38,463 1,561 4.1 %


	Three Months Ended March 31,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue	$	1,090,097		$	850,052		$	240,045	28.2	%
Gross profit	$	30,868		$	32,130		$	(1,262)	(3.9)	%
Unit sales	46,906			40,024			6,882		17.2	%
Revenue per unit	$	23,240		$	21,239		$	2,001	9.4	%
Gross profit per unit	$	658		$	803		$	(145)	(18.1)	%
Gross profit as a % of revenue	2.8		%	3.8		%	(100)		bps

~~NM = Not Meaningful~~

For further analysis of used vehicle results, see the tables and discussion under the headings “Used Vehicles – Franchised Dealerships Segment” and “Used Vehicles and F&I – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

Wholesale Vehicles – Consolidated

Wholesale vehicle revenues are affected by retail new and used vehicle unit sales volume and the associated trade-in volume, as well as short-term, temporary and seasonal fluctuations in wholesale auction pricing. Since the onset of the COVID-19 pandemic in March of 2020, wholesale vehicle prices and supply at auction have experienced periods of volatility, impacting our wholesale vehicle revenues and gross profit (loss), as well as retail used vehicle revenues and related gross profit. Wholesale vehicle revenues are also significantly affected by our corporate inventory management strategy and policies, which are designed to optimize our total used vehicle inventory and minimize inventory carrying risks.

Our consolidated reported ~~retail used~~wholesale vehicle results ~~are~~were as follows:

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 850,052 $ 820,366 $ 29,686 3.6 %
Gross profit $ 32,130 $ 37,008 $ (4,878) (13.2) %
Unit sales 40,024 38,463 1,561 4.1 %
Revenue per unit $ 21,239 $ 21,329 $ (90) (0.4) %
Gross profit per unit $ 803 $ 962 $ (159) (16.5) %
Gross profit as a % of revenue 3.8 % 4.5 % (70) bps


	Three Months Ended March 31,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	74,809		$	48,543		$	26,266	54.1	%
Gross profit (loss)	$	849		$	(157)		$	1,006	640.8	%
Unit sales	9,693			8,675			1,018		11.7	%
Revenue per unit	$	7,718		$	5,596		$	2,122	37.9	%
Gross profit (loss) per unit	$	88		$	(18)		$	106	588.9	%
Gross profit (loss) as a % of revenue	1.1		%	(0.3)		%	140		bps

~~Our consolidated same store retail used vehicle results are as follows:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue $ 832,190 $ 793,460 $ 38,730 4.9 %
Gross profit $ 30,444 $ 32,351 $ (1,907) (5.9) %
Unit sales 39,105 36,692 2,413 6.6 %
Revenue per unit $ 21,281 $ 21,625 $ (344) (1.6) %
Gross profit per unit $ 779 $ 882 $ (103) (11.7) %
Gross profit as a % of revenue 3.7 % 4.1 % (40) bps

For further analysis of ~~used vehicle results, see the tables and discussion under the headings “Used Vehicles – Franchised Dealerships Segment” and “Used Vehicles and F&I~~ – ~~EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Wholesale Vehicles – Consolidated~~

Wholesale vehicle revenues are affected by retail new and used vehicle unit sales volume and the associated trade-in volume. Wholesale vehicle revenues are also significantly affected by our corporate inventory management strategy and policies, which are designed to optimize our total used vehicle inventory and minimize inventory carrying risks.

~~The following table provides a reconciliation of consolidated reported basis and same store basis for wholesale vehicles:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store $ 48,313 $ 52,004 $ (3,691) (7.1) %
Acquisitions, open points and dispositions 230 2,766 (2,536) NM
Total as reported $ 48,543 $ 54,770 $ (6,227) (11.4) %
Total wholesale vehicle gross profit (loss):
Same store $ (154) $ (1,083) $ 929 85.8 %
Acquisitions, open points and dispositions (3) (184) 181 NM
Total as reported $ (157) $ (1,267) $ 1,110 87.6 %
Total wholesale vehicle unit sales:
Same store 8,586 7,972 614 7.7 %
Acquisitions, open points and dispositions 89 675 (586) NM
Total as reported 8,675 8,647 28 0.3 %

~~NM = Not Meaningful~~

~~Our consolidated reported wholesale vehicle results are as follows:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 48,543 $ 54,770 $ (6,227) (11.4) %
Gross profit (loss) $ (157) $ (1,267) $ 1,110 87.6 %
Unit sales 8,675 8,647 28 0.3 %
Revenue per unit $ 5,596 $ 6,334 $ (738) (11.7) %
Gross profit (loss) per unit $ (18) $ (147) $ 129 87.8 %
Gross profit (loss) as a % of revenue (0.3) % (2.3) % 200 bps

~~Our consolidated same store wholesale vehicle results are as follows:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue $ 48,313 $ 52,004 $ (3,691) (7.1) %
Gross profit (loss) $ (154) $ (1,083) $ 929 85.8 %
Unit sales 8,586 7,972 614 7.7 %
Revenue per unit $ 5,627 $ 6,523 $ (896) (13.7) %
Gross profit (loss) per unit $ (18) $ (136) $ 118 86.8 %
Gross profit (loss) as a % of revenue (0.3) % (2.1) % 180 bps

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~For further analysis of~~ wholesale vehicle results, see the tables and discussion under the headings “Wholesale Vehicles – Franchised Dealerships Segment” and “Wholesale Vehicles – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fixed Operations – Consolidated

Parts, service and collision repair revenues consist of customer requested repair orders (“customer pay”), warranty repairs, wholesale parts and internal, sublet and other. Parts and service revenue is driven by the mix of warranty repairs versus customer pay repairs, available service capacity (a combination of service bay count and technician availability), vehicle quality, manufacturer recalls, customer loyalty and prepaid or manufacturer-paid maintenance programs. Internal, sublet and other primarily relates to preparation and reconditioning work performed on vehicles that are later sold to ~~customers.~~a third party. When that work is performed by one of our dealerships or stores, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet.

We believe that, over time, vehicle quality will continue to improve, but vehicle complexity and the associated demand for repairs by qualified technicians at ~~franchised~~manufacturer-affiliated dealerships ~~will~~may result in market share gains that could offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to add service capacity at our dealerships and stores to further increase Fixed Operations revenues. Manufacturers continue to extend new vehicle warranty periods and have also begun to include regular maintenance items in the warranty or complimentary maintenance program coverage. These factors, over the long term, combined with the extended manufacturer warranties on certified pre-owned vehicles, should facilitate ~~long-term~~ growth in our parts and service business. Barriers to long-term growth may include reductions in the rate paid by manufacturers to dealers for warranty work performed, as well as the improved quality of vehicles that may affect the level and frequency of future customer pay or warranty-related revenues.

The ~~following table provides~~COVID-19 pandemic continues to have a ~~reconciliation~~significant effect on our consolidated Fixed Operations revenues, as travel restrictions, government-imposed stay-at-home and shelter-in-place orders and fewer workers undertaking a daily commute combined to substantially decrease the number of ~~consolidated reported basis~~miles driven in the U.S., which decreased the demand for maintenance and ~~same store basis for Fixed Operations:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same store $ 336,725 $ 327,562 $ 9,163 2.8 %
Acquisitions, open points and dispositions (2,045) 13,868 (15,913) NM
Total as reported $ 334,680 $ 341,430 $ (6,750) (2.0) %
Total Fixed Operations gross profit:
Same store $ 159,055 $ 155,851 $ 3,204 2.1 %
Acquisitions, open points and dispositions (1,157) 7,385 (8,542) NM
Total as reported $ 157,898 $ 163,236 $ (5,338) (3.3) %

~~NM = Not Meaningful~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

warranty and collision repair services.

Our consolidated reported Fixed Operations results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,					Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change			% Change
		(In thousands)																				(In thousands)
Reported Fixed Operations:	Reported Fixed Operations:																				Reported Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	135,056		$	137,721		$	(2,665)	(1.9)	%	Customer pay	$	133,567		$	135,056		$	(1,489)		(1.1)	%
Warranty	Warranty	60,760			68,973			(8,213)		(11.9)	%	Warranty	53,131			60,760			(7,629)			(12.6)	%
Wholesale parts	Wholesale parts	38,706			39,297			(591)		(1.5)	%	Wholesale parts	34,689			38,706			(4,017)			(10.4)	%
Internal, sublet and other	Internal, sublet and other	100,158			95,439			4,719		4.9	%	Internal, sublet and other	99,527			100,158			(631)			(0.6)	%
Total revenue	Total revenue	$	334,680		$	341,430		$	(6,750)	(2.0)	%	Total revenue	$	320,914		$	334,680		$	(13,766)		(4.1)	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	74,595		$	74,326		$	269	0.4	%	Customer pay	$	75,973		$	74,595		$	1,378		1.8	%
Warranty	Warranty	33,746			38,407			(4,661)		(12.1)	%	Warranty	30,928			33,746			(2,818)			(8.4)	%
Wholesale parts	Wholesale parts	6,667			6,796			(129)		(1.9)	%	Wholesale parts	6,105			6,667			(562)			(8.4)	%
Internal, sublet and other	Internal, sublet and other	42,890			43,707			(817)		(1.9)	%	Internal, sublet and other	42,044			42,890			(846)			(2.0)	%
Total gross profit	Total gross profit	$	157,898		$	163,236		$	(5,338)	(3.3)	%	Total gross profit	$	155,050		$	157,898		$	(2,848)		(1.8)	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	55.2		%	54.0		%	120		bps		Customer pay	56.9		%	55.2		%	170			bps
Warranty	Warranty	55.5		%	55.7		%	(20)		bps		Warranty	58.2		%	55.5		%	270			bps
Wholesale parts	Wholesale parts	17.2		%	17.3		%	(10)		bps		Wholesale parts	17.6		%	17.2		%	40			bps
Internal, sublet and other	Internal, sublet and other	42.8		%	45.8		%	(300)		bps		Internal, sublet and other	42.2		%	42.8		%	(60)			bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	47.2		%	47.8		%	(60)		bps		Total gross profit as a % of revenue	48.3		%	47.2		%	110			bps

~~Our consolidated same store Fixed Operations results are as follows:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay $ 137,147 $ 133,233 $ 3,914 2.9 %
Warranty 61,313 65,474 (4,161) (6.4) %
Wholesale parts 38,706 38,157 549 1.4 %
Internal, sublet and other 99,559 90,698 8,861 9.8 %
Total revenue $ 336,725 $ 327,562 $ 9,163 2.8 %
Gross profit
Customer pay $ 75,729 $ 71,929 $ 3,800 5.3 %
Warranty 33,907 36,525 (2,618) (7.2) %
Wholesale parts 6,667 6,565 102 1.6 %
Internal, sublet and other 42,752 40,832 1,920 4.7 %
Total gross profit $ 159,055 $ 155,851 $ 3,204 2.1 %
Gross profit as a % of revenue
Customer pay 55.2 % 54.0 % 120 bps
Warranty 55.3 % 55.8 % (50) bps
Wholesale parts 17.2 % 17.2 % — bps
Internal, sublet and other 42.9 % 45.0 % (210) bps
Total gross profit as a % of revenue 47.2 % 47.6 % (40) bps

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

For further analysis of Fixed Operations results, see the tables and discussion under the headings “Fixed Operations – Franchised Dealerships Segment” and “Fixed Operations – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

F&I – Consolidated

Finance, insurance and other, net revenues include commissions for arranging vehicle financing and insurance, sales of third-party extended warranties and service contracts for vehicles, and sales of other aftermarket products. In connection with vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and used vehicle unit sales volume, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives and our F&I penetration rate. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

~~The following table provides a reconciliation of consolidated reported basis and same store basis for F&I:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 109,054 $ 99,384 $ 9,670 9.7 %
Acquisitions, open points and dispositions 6,238 6,854 (616) NM
Total as reported $ 115,292 $ 106,238 $ 9,054 8.5 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 1,810 $ 1,669 $ 141 8.4 %
Reported $ 1,885 $ 1,676 $ 209 12.5 %
Total combined new and used retail unit sales:
Same store 60,244 59,546 698 1.2 %
Acquisitions, open points and dispositions 919 3,835 (2,916) NM
Total as reported 61,163 63,381 (2,218) (3.5) %

~~NM = Not Meaningful~~

Our consolidated reported F&I results ~~are~~were as follows:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit and per unit data)															(In thousands, except unit and per unit data)
Reported F&I:	Reported F&I:									Reported F&I:
Revenue	Revenue	$	115,292	$	106,238	$	9,054	8.5	%	Revenue	$	144,661	$	115,292	$	29,369	25.5	%
Unit sales	Unit sales	61,163		63,381		(2,218)		(3.5)	%	Unit sales	70,723		61,163		9,560		15.6	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	1,885	$	1,676	$	209	12.5	%	Gross profit per retail unit (excludes fleet)	$	2,045	$	1,885	$	160	8.5	%

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Our consolidated same store F&I results are as follows:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue $ 109,054 $ 99,384 $ 9,670 9.7 %
Unit sales 60,244 59,546 698 1.2 %
Gross profit per retail unit (excludes fleet) $ 1,810 $ 1,669 $ 141 8.4 %

For further analysis of F&I results, see the tables and discussion under the headings “F&I – Franchised Dealerships Segment” and “Used Vehicles and F&I – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

Results of Operations – Franchised Dealerships Segment

As a result of the disposition, termination or closure of several franchised dealerships ~~since~~subsequent to the three months ended March 31, ~~2019,~~2020, the change in reported amounts from period to period may not be indicative of the actual operational or financial performance of our current group of operating stores. Please refer to the same store tables and discussion on the following pages for more meaningful comparison and discussion of financial results on a comparable store basis.

Unless otherwise noted, all discussion of increases or decreases are for the three months ended March 31, 2020 and are compared to the same prior year period. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net are on a same store basis, except where otherwise noted. All currently operating stores are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.

New Vehicles – Franchised Dealerships Segment

New vehicle revenues include the sale of new vehicles to retail customers, as well as the sale of fleet vehicles. New vehicle revenues and gross profit can be influenced by vehicle manufacturer incentives to consumers (which vary from cash-back incentives to low interest rate financing, among other things), the availability of consumer credit and the level and type of manufacturer-to-dealer incentives, as well as manufacturers providing adequate inventory allocations to our dealerships to meet customer demands. The automobile manufacturing industry is cyclical and historically has experienced periodic downturns characterized by oversupply and weak demand, both within specific brands and in the industry as a whole. As an automotive retailer, we seek to mitigate the effects of this sales cycle by maintaining a diverse brand mix of dealerships. Our brand diversity allows us to offer a broad range of products at a wide range of prices from lower-priced/economy vehicles to luxury vehicles.

3223

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following ~~tables provide~~table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for total new vehicles (combined retail and fleet data):


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit data)															(In thousands, except unit data)
Total new vehicle revenue:	Total new vehicle revenue:									Total new vehicle revenue:
Same store	Same store	$	959,491	$	1,006,903	$	(47,412)	(4.7)	%	Same store	$	1,156,317	$	950,589	$	205,728	21.6	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	(2)		59,431		(59,433)		NM		Acquisitions, open points and dispositions	—		8,900		(8,900)		NM
Total as reported	Total as reported	959,489		1,066,334		(106,845)		(10.0)	%	Total as reported	$	1,156,317	$	959,489	$	196,828	20.5	%

Total new vehicle gross profit:	Total new vehicle gross profit:									Total new vehicle gross profit:
Same store	Same store	$	45,465	$	51,752	$	(6,287)	(12.1)	%	Same store	$	68,956	$	45,115	$	23,841	52.8	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	(50)		2,044		(2,094)		NM		Acquisitions, open points and dispositions	509		300		209		NM
Total as reported	Total as reported	$	45,415	$	53,796	$	(8,381)	(15.6)	%	Total as reported	$	69,465	$	45,415	$	24,050	53.0	%

Total new vehicle unit sales:	Total new vehicle unit sales:									Total new vehicle unit sales:
Same store	Same store	21,724		23,133		(1,409)		(6.1)	%	Same store	24,358		21,410		2,948		13.8	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	—		2,064		(2,064)		NM		Acquisitions, open points and dispositions	—		314		(314)		NM
Total as reported	Total as reported	21,724		25,197		(3,473)		(13.8)	%	Total as reported	24,358		21,724		2,634		12.1	%

NM = Not Meaningful

Our Franchised Dealerships Segment reported new vehicle results (combined retail and fleet data) ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Reported new vehicle:	Reported new vehicle:											Reported new vehicle:
Revenue	Revenue	$	959,489		$	1,066,334		$	(106,845)	(10.0)	%	Revenue	$	1,156,317		$	959,489		$	196,828	20.5	%
Gross profit	Gross profit	$	45,415		$	53,796		$	(8,381)	(15.6)	%	Gross profit	$	69,465		$	45,415		$	24,050	53.0	%
Unit sales	Unit sales	21,724			25,197			(3,473)		(13.8)	%	Unit sales	24,358			21,724			2,634		12.1	%
Revenue per unit	Revenue per unit	$	44,167		$	42,320		$	1,847	4.4	%	Revenue per unit	$	47,472		$	44,167		$	3,305	7.5	%
Gross profit per unit	Gross profit per unit	$	2,091		$	2,135		$	(44)	(2.1)	%	Gross profit per unit	$	2,852		$	2,091		$	761	36.4	%
Gross profit as a % of revenue	Gross profit as a % of revenue	4.7		%	5.0		%	(30)		bps		Gross profit as a % of revenue	6.0		%	4.7		%	130		bps

Our Franchised Dealerships Segment same store new vehicle results (combined retail and fleet data) ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Same store new vehicle:	Same store new vehicle:											Same store new vehicle:
Revenue	Revenue	$	959,491		$	1,006,903		$	(47,412)	(4.7)	%	Revenue	$	1,156,317		$	950,589		$	205,728	21.6	%
Gross profit	Gross profit	$	45,465		$	51,752		$	(6,287)	(12.1)	%	Gross profit	$	68,956		$	45,115		$	23,841	52.8	%
Unit sales	Unit sales	21,724			23,133			(1,409)		(6.1)	%	Unit sales	24,358			21,410			2,948		13.8	%
Revenue per unit	Revenue per unit	$	44,167		$	43,527		$	640	1.5	%	Revenue per unit	$	47,472		$	44,399		$	3,073	6.9	%
Gross profit per unit	Gross profit per unit	$	2,093		$	2,237		$	(144)	(6.4)	%	Gross profit per unit	$	2,831		$	2,107		$	724	34.4	%
Gross profit as a % of revenue	Gross profit as a % of revenue	4.7		%	5.1		%	(40)		bps		Gross profit as a % of revenue	6.0		%	4.7		%	130		bps

3324

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Same Store Franchised Dealerships Segment New Vehicles – Three Months Ended March 31, ~~2020~~2021 Compared to Three Months Ended March 31, ~~2019~~2020

New vehicle revenue ~~decreased 4.7% and new vehicle unit sales volume decreased 6.1%,~~increased 21.6% due primarily ~~driven by decreases~~to a 13.8% increase in new vehicle unit sales volume ~~at our California~~ and ~~Nevada dealerships,~~higher average selling price, which ~~were negatively impacted~~was driven by ~~governmental orders restricting vehicle sales activity for most of the second half of March 2020~~a favorable comparison due to ~~COVID-19.~~the impact of COVID-19 on the year-ago quarter. New vehicle gross profit ~~decreased~~increased approximately ~~$6.3~~$23.8 million, or ~~12.1%.~~52.8%, as a result of increased new vehicle unit sales volume and higher new vehicle gross profit per unit. New vehicle gross profit per unit ~~decreased $144~~increased $724 per unit, or ~~6.4%~~34.4%, to ~~$2,093~~$2,831 per unit, due primarily ~~driven by decreases~~to inventory shortages in ~~new~~certain makes and models as a result of vehicle ~~gross profit per unit at our BMW, Land Rover~~manufacturer supply chain and ~~Porsche dealerships.~~production delays as a result of the COVID-19 pandemic, which have generally increased the average selling price of such vehicles.

Used Vehicles – Franchised Dealerships Segment

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for retail used vehicles:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit data)															(In thousands, except unit data)
Total used vehicle revenue:	Total used vehicle revenue:									Total used vehicle revenue:
Same store	Same store	$	566,889	$	577,043	$	(10,154)	(1.8)	%	Same store	$	661,534	$	560,796	$	100,738	18.0	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	(1)		26,906		(26,907)		NM		Acquisitions, open points and dispositions	—		6,092		(6,092)		NM
Total as reported	Total as reported	$	566,888	$	603,949	$	(37,061)	(6.1)	%	Total as reported	$	661,534	$	566,888	$	94,646	16.7	%

Total used vehicle gross profit:	Total used vehicle gross profit:									Total used vehicle gross profit:
Same store	Same store	$	32,288	$	32,608	$	(320)	(1.0)	%	Same store	$	30,273	$	32,141	$	(1,868)	(5.8)	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	26		4,130		(4,104)		NM		Acquisitions, open points and dispositions	1,723		173		1,550		NM
Total as reported	Total as reported	$	32,314	$	36,738	$	(4,424)	(12.0)	%	Total as reported	$	31,996	$	32,314	$	(318)	(1.0)	%

Total used vehicle unit sales:	Total used vehicle unit sales:									Total used vehicle unit sales:
Same store	Same store	26,038		25,641		397		1.5	%	Same store	27,236		25,635		1,601		6.2	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	—		1,771		(1,771)		NM		Acquisitions, open points and dispositions	—		403		(403)		NM
Total as reported	Total as reported	26,038		27,412		(1,374)		(5.0)	%	Total as reported	27,236		26,038		1,198		4.6	%

NM = Not Meaningful

Our Franchised Dealerships Segment reported retail used vehicle results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Reported used vehicle:	Reported used vehicle:											Reported used vehicle:
Revenue	Revenue	$	566,888		$	603,949		$	(37,061)	(6.1)	%	Revenue	$	661,534		$	566,888		$	94,646	16.7	%
Gross profit	Gross profit	$	32,314		$	36,738		$	(4,424)	(12.0)	%	Gross profit	$	31,996		$	32,314		$	(318)	(1.0)	%
Unit sales	Unit sales	26,038			27,412			(1,374)		(5.0)	%	Unit sales	27,236			26,038			1,198		4.6	%
Revenue per unit	Revenue per unit	$	21,772		$	22,032		$	(260)	(1.2)	%	Revenue per unit	$	24,289		$	21,772		$	2,517	11.6	%
Gross profit per unit	Gross profit per unit	$	1,241		$	1,340		$	(99)	(7.4)	%	Gross profit per unit	$	1,175		$	1,241		$	(66)	(5.3)	%
Gross profit as a % of revenue	Gross profit as a % of revenue	5.7		%	6.1		%	(40)		bps		Gross profit as a % of revenue	4.8		%	5.7		%	(90)		bps

3425

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Franchised Dealerships Segment same store retail used vehicle results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Same store used vehicle:	Same store used vehicle:											Same store used vehicle:
Revenue	Revenue	$	566,889		$	577,043		$	(10,154)	(1.8)	%	Revenue	$	661,534		$	560,796		$	100,738	18.0	%
Gross profit	Gross profit	$	32,288		$	32,608		$	(320)	(1.0)	%	Gross profit	$	30,273		$	32,141		$	(1,868)	(5.8)	%
Unit sales	Unit sales	26,038			25,641			397		1.5	%	Unit sales	27,236			25,635			1,601		6.2	%
Revenue per unit	Revenue per unit	$	21,772		$	22,505		$	(733)	(3.3)	%	Revenue per unit	$	24,289		$	21,876		$	2,413	11.0	%
Gross profit per unit	Gross profit per unit	$	1,240		$	1,272		$	(32)	(2.5)	%	Gross profit per unit	$	1,112		$	1,254		$	(142)	(11.3)	%
Gross profit as a % of revenue	Gross profit as a % of revenue	5.7		%	5.7		%	—		bps		Gross profit as a % of revenue	4.6		%	5.7		%	(110)		bps

Same Store Franchised Dealerships Segment Used Vehicles – Three Months Ended March 31, ~~2020~~2021 Compared to Three Months Ended March 31, ~~2019~~2020

Retail used vehicle revenue ~~decreased 1.8%~~increased 18.0% and retail used vehicle unit sales volume increased ~~1.5% in spite~~6.2%. Retail used vehicle revenue per unit increased 11.0% as a result of ~~governmental orders restricting vehicle sales activity for most~~recovering consumer demand as the impact of the ~~second half of March 2020 due~~COVID-19 pandemic begins to ~~COVID-19.~~subside and higher industry used vehicle prices. Retail used vehicle gross profit decreased approximately ~~$0.3~~$1.9 million, or ~~1.0%~~5.8%, driven primarily by a 11.3%, or $142 per unit, decrease in retail used vehicle gross profit per unit as a result of ~~approximately $32 per unit, or 2.5%.~~

higher cost of inventory due in part to increased demand in the wholesale auction market as a result of new vehicle inventory shortages.

Wholesale Vehicles – Franchised Dealerships Segment

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for wholesale vehicles:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit data)															(In thousands, except unit data)
Total wholesale vehicle revenue:	Total wholesale vehicle revenue:									Total wholesale vehicle revenue:
Same store	Same store	$	42,440	$	49,767	$	(7,327)	(14.7)	%	Same store	$	56,204	$	42,103	$	14,101	33.5	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	—		2,766		(2,766)		NM		Acquisitions, open points and dispositions	—		337		(337)		NM
Total as reported	Total as reported	$	42,440	$	52,533	$	(10,093)	(19.2)	%	Total as reported	$	56,204	$	42,440	$	13,764	32.4	%

Total wholesale vehicle gross profit (loss):	Total wholesale vehicle gross profit (loss):									Total wholesale vehicle gross profit (loss):
Same store	Same store	$	(83)	$	(1,020)	$	937	91.9	%	Same store	$	736	$	(49)	$	785	1,602.0	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	—		(184)		184		NM		Acquisitions, open points and dispositions	—		(34)		34		NM
Total as reported	Total as reported	$	(83)	$	(1,204)	$	1,121	93.1	%	Total as reported	$	736	$	(83)	$	819	986.7	%

Total wholesale vehicle unit sales:	Total wholesale vehicle unit sales:									Total wholesale vehicle unit sales:
Same store	Same store	6,910		7,473		(563)		(7.5)	%	Same store	6,832		6,838		(6)		(0.1)	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	—		675		(675)		NM		Acquisitions, open points and dispositions	—		72		(72)		NM
Total as reported	Total as reported	6,910		8,148		(1,238)		(15.2)	%	Total as reported	6,832		6,910		(78)		(1.1)	%

NM = Not Meaningful

3526

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Franchised Dealerships Segment reported wholesale vehicle results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Reported wholesale vehicle:	Reported wholesale vehicle:											Reported wholesale vehicle:
Revenue	Revenue	$	42,440		$	52,533		$	(10,093)	(19.2)	%	Revenue	$	56,204		$	42,440		$	13,764	32.4	%
Gross profit (loss)	Gross profit (loss)	$	(83)		$	(1,204)		$	1,121	93.1	%	Gross profit (loss)	$	736		$	(83)		$	819	986.7	%
Unit sales	Unit sales	6,910			8,148			(1,238)		(15.2)	%	Unit sales	6,832			6,910			(78)		(1.1)	%
Revenue per unit	Revenue per unit	$	6,142		$	6,447		$	(305)	(4.7)	%	Revenue per unit	$	8,227		$	6,142		$	2,085	33.9	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(12)		$	(148)		$	136	91.9	%	Gross profit (loss) per unit	$	108		$	(12)		$	120	1,000.0	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(0.2)		%	(2.3)		%	210		bps		Gross profit (loss) as a % of revenue	1.3		%	(0.2)		%	150		bps

Our Franchised Dealerships Segment same store wholesale vehicle results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Same store wholesale vehicle:	Same store wholesale vehicle:											Same store wholesale vehicle:
Revenue	Revenue	$	42,440		$	49,767		$	(7,327)	(14.7)	%	Revenue	$	56,204		$	42,103		$	14,101	33.5	%
Gross profit (loss)	Gross profit (loss)	$	(83)		$	(1,020)		$	937	91.9	%	Gross profit (loss)	$	736		$	(49)		$	785	1,602.0	%
Unit sales	Unit sales	6,910			7,473			(563)		(7.5)	%	Unit sales	6,832			6,838			(6)		(0.1)	%
Revenue per unit	Revenue per unit	$	6,142		$	6,660		$	(518)	(7.8)	%	Revenue per unit	$	8,227		$	6,157		$	2,070	33.6	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(12)		$	(136)		$	124	91.2	%	Gross profit (loss) per unit	$	108		$	(7)		$	115	1,642.9	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(0.2)		%	(2.0)		%	180		bps		Gross profit (loss) as a % of revenue	1.3		%	(0.1)		%	140		bps

We generally focus on maintaining used vehicle inventory days’ supply in the 30- to ~~35- day~~35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. ~~Our~~On a trailing quarter vehicle cost of sales basis, our reported franchised dealerships used vehicle inventory days’ supply was approximately 2927 and 2729 days as of March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Wholesale vehicle revenue and wholesale vehicle unit sales volume fluctuations are typically a result of retail new and used vehicle unit sales volumes that generate additional trade-in vehicle volume that we are not always able to sell as retail used vehicles and choose to sell at auction. Whenever possible, we prefer to sell a used vehicle through retail channels rather than wholesaling the vehicle at auction due to the opportunity to sell F&I products and to avoid auction and transportation fees.Wholesale vehicle gross profit improved by approximately $0.8 million in the three months ended March 31, 2021, due primarily to a 33.6% increase in average wholesale revenue per unit.

Same Store Franchised Dealerships Segment Wholesale Vehicles – Three Months Ended March 31, ~~2020~~2021 Compared to Three Months Ended March 31, ~~2019~~2020

Wholesale vehicle revenue ~~decreased 14.7%~~increased 33.5%, driven primarily by ~~a 7.5% decrease in wholesale vehicle unit sales volume, as well as a 7.8% decrease~~an 33.6% increase in wholesale vehicle revenue per ~~unit. The decrease~~unit as a result of increased demand in ~~wholesale vehicle revenue is due in part to a reduction in~~the wholesale auction ~~activity due to the economic shutdown caused by the outbreak~~market as a result of ~~COVID-19.~~new vehicle inventory shortages. Wholesale vehicle gross ~~loss and gross loss per unit decreased 91.9% and 91.2%, respectively,~~profit increased primarily due to a ~~prior year initiative to tighten a policy of wholesaling aged or undesirable units at auction~~$115 per unit increase in ~~a more timely manner, thereby achieving a better~~ wholesale vehicle gross ~~loss~~profit per ~~unit and improved inventory levels and quality.~~

unit.

~~Fixed Operations~~
– ~~Franchised Dealerships Segment~~

Parts, service and collision repair revenues consist of customer pay repairs, warranty repairs, wholesale parts and internal, sublet and other. Parts and service revenue is driven by the mix of warranty repairs versus customer pay repairs, available service capacity, vehicle quality, manufacturer recalls, customer loyalty and prepaid or manufacturer-paid maintenance programs. Internal, sublet and other primarily relates to preparation and reconditioning work performed on vehicles that are later sold to customers. When that work is performed by one of our dealerships, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet.

We believe that, over time, vehicle quality will continue to improve, but vehicle complexity and the associated demand for repairs by qualified technicians at franchised dealerships will offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to add service capacity at our dealerships to further

3627

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~increase~~ Fixed Operations revenues. Manufacturers continue to extend new vehicle warranty periods and have also begun to include regular maintenance items in the warranty or complimentary maintenance program coverage. These factors, over the long term, combined with the extended manufacturer warranties on certified pre-owned vehicles, should facilitate long-term growth in our parts and service business. Barriers to long-term growth may include reductions in the rate paid by manufacturers to dealers for warranty work performed, as well as the improved quality of vehicles that may affect the level and frequency of future customer pay or warranty-related revenues.– Franchised Dealerships Segment

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for Fixed Operations:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands)															(In thousands)
Total Fixed Operations revenue:	Total Fixed Operations revenue:									Total Fixed Operations revenue:
Same store	Same store	$	327,151	$	322,358	$	4,793	1.5	%	Same store	$	306,190	$	321,295	$	(15,105)	(4.7)	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	(2,650)		13,867		(16,517)		NM		Acquisitions, open points and dispositions	1,887		3,206		(1,319)		NM
Total as reported	Total as reported	$	324,501	$	336,225	$	(11,724)	(3.5)	%	Total as reported	$	308,077	$	324,501	$	(16,424)	(5.1)	%

Total Fixed Operations gross profit:	Total Fixed Operations gross profit:									Total Fixed Operations gross profit:
Same store	Same store	$	159,213	$	156,060	$	3,153	2.0	%	Same store	$	153,682	$	156,465	$	(2,783)	(1.8)	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	(1,117)		7,386		(8,503)		NM		Acquisitions, open points and dispositions	1,583		1,631		(48)		NM
Total as reported	Total as reported	$	158,096	$	163,446	$	(5,350)	(3.3)	%	Total as reported	$	155,265	$	158,096	$	(2,831)	(1.8)	%

NM = Not Meaningful

Our Franchised Dealerships Segment reported Fixed Operations results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,					Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change			% Change
		(In thousands)																				(In thousands)
Reported Fixed Operations:	Reported Fixed Operations:																				Reported Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	134,798		$	137,569		$	(2,771)	(2.0)	%	Customer pay	$	133,285		$	134,798		$	(1,513)		(1.1)	%
Warranty	Warranty	60,760			68,973			(8,213)		(11.9)	%	Warranty	53,131			60,760			(7,629)			(12.6)	%
Wholesale parts	Wholesale parts	38,706			39,297			(591)		(1.5)	%	Wholesale parts	34,689			38,706			(4,017)			(10.4)	%
Internal, sublet and other	Internal, sublet and other	90,237			90,386			(149)		(0.2)	%	Internal, sublet and other	86,972			90,237			(3,265)			(3.6)	%
Total revenue	Total revenue	$	324,501		$	336,225		$	(11,724)	(3.5)	%	Total revenue	$	308,077		$	324,501		$	(16,424)		(5.1)	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	74,593		$	74,324		$	269	0.4	%	Customer pay	$	75,968		$	74,593		$	1,375		1.8	%
Warranty	Warranty	33,746			38,407			(4,661)		(12.1)	%	Warranty	30,928			33,746			(2,818)			(8.4)	%
Wholesale parts	Wholesale parts	6,667			6,796			(129)		(1.9)	%	Wholesale parts	6,105			6,667			(562)			(8.4)	%
Internal, sublet and other	Internal, sublet and other	43,090			43,919			(829)		(1.9)	%	Internal, sublet and other	42,264			43,090			(826)			(1.9)	%
Total gross profit	Total gross profit	$	158,096		$	163,446		$	(5,350)	(3.3)	%	Total gross profit	$	155,265		$	158,096		$	(2,831)		(1.8)	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	55.3		%	54.0		%	130		bps		Customer pay	57.0		%	55.3		%	170			bps
Warranty	Warranty	55.5		%	55.7		%	(20)		bps		Warranty	58.2		%	55.5		%	270			bps
Wholesale parts	Wholesale parts	17.2		%	17.3		%	(10)		bps		Wholesale parts	17.6		%	17.2		%	40			bps
Internal, sublet and other	Internal, sublet and other	47.8		%	48.6		%	(80)		bps		Internal, sublet and other	48.6		%	47.8		%	80			bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	48.7		%	48.6		%	10		bps		Total gross profit as a % of revenue	50.4		%	48.7		%	170			bps

3728

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Franchised Dealerships Segment same store Fixed Operations results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,					Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change			% Change
		(In thousands)																				(In thousands)
Same store Fixed Operations:	Same store Fixed Operations:																				Same store Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	136,913		$	133,081		$	3,832	2.9	%	Customer pay	$	131,932		$	133,490		$	(1,558)		(1.2)	%
Warranty	Warranty	61,313			65,474			(4,161)		(6.4)	%	Warranty	52,629			60,837			(8,208)			(13.5)	%
Wholesale parts	Wholesale parts	38,706			38,157			549		1.4	%	Wholesale parts	34,689			38,518			(3,829)			(9.9)	%
Internal, sublet and other	Internal, sublet and other	90,219			85,646			4,573		5.3	%	Internal, sublet and other	86,940			88,450			(1,510)			(1.7)	%
Total revenue	Total revenue	$	327,151		$	322,358		$	4,793	1.5	%	Total revenue	$	306,190		$	321,295		$	(15,105)		(4.7)	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	75,728		$	71,926		$	3,802	5.3	%	Customer pay	$	75,291		$	74,092		$	1,199		1.6	%
Warranty	Warranty	33,907			36,525			(2,618)		(7.2)	%	Warranty	30,621			33,673			(3,052)			(9.1)	%
Wholesale parts	Wholesale parts	6,667			6,565			102		1.6	%	Wholesale parts	6,105			6,637			(532)			(8.0)	%
Internal, sublet and other	Internal, sublet and other	42,911			41,044			1,867		4.5	%	Internal, sublet and other	41,665			42,063			(398)			(0.9)	%
Total gross profit	Total gross profit	$	159,213		$	156,060		$	3,153	2.0	%	Total gross profit	$	153,682		$	156,465		$	(2,783)		(1.8)	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	55.3		%	54.0		%	130		bps		Customer pay	57.1		%	55.5		%	160			bps
Warranty	Warranty	55.3		%	55.8		%	(50)		bps		Warranty	58.2		%	55.3		%	290			bps
Wholesale parts	Wholesale parts	17.2		%	17.2		%	—		bps		Wholesale parts	17.6		%	17.2		%	40			bps
Internal, sublet and other	Internal, sublet and other	47.6		%	47.9		%	(30)		bps		Internal, sublet and other	47.9		%	47.6		%	30			bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	48.7		%	48.4		%	30		bps		Total gross profit as a % of revenue	50.2		%	48.7		%	150			bps

Same Store Franchised Dealerships Segment Fixed Operations – Three Months Ended March 31, ~~2020~~2021 Compared to Three Months Ended March 31, ~~2019~~2020

Fixed Operations revenue ~~increased~~decreased approximately ~~$4.8~~$15.1 million, or ~~1.5%~~4.7%, and Fixed Operations gross profit ~~increased~~decreased approximately ~~$3.2~~$2.8 million, or ~~2.0%~~1.8%, driven primarily by ~~an increase in customer~~lower levels of warranty repair activity. Customer pay gross profit ofincreased approximately ~~$3.8~~$1.2 million, or ~~5.3%~~1.6%, ~~as a result of a strategic emphasis on maximizing growth opportunities in the customer pay business. In addition,~~ warranty gross profit decreased approximately ~~$2.6~~$3.1 million, or ~~7.2%~~9.1%, wholesale parts gross profit ~~increased~~decreased approximately ~~$0.1~~$0.5 million, or ~~1.6%~~8.0%, and internal, sublet and other gross profit ~~increased~~decreased approximately ~~$1.9~~$0.4 million, or ~~4.5%~~0.9%. While our Fixed Operations business iswas not specifically restricted by state and local shelter-in-place or stay-at-home orders, consumer behavior ~~has temporarily changed~~was disrupted by such orders beginning in March 2020. We expect consumer activity to continue to improve as we proceed through 2021, and anticipate a ~~result of COVID-19 and we experienced a decrease~~continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) toward pre-pandemic levels in the ~~second~~latter half of ~~March 2020.~~2021.

F&I – Franchised Dealerships Segment

Finance, insurance and other, net revenues include commissions for arranging vehicle financing and insurance, sales of third-party extended warranties and service contracts for vehicles, and sales of other aftermarket products. In connection with vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and used vehicle unit sales, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives and our F&I penetration rate. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

3829

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for F&I:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit and per unit data)															(In thousands, except unit and per unit data)
Total F&I revenue:	Total F&I revenue:									Total F&I revenue:
Same store	Same store	$	78,830	$	73,737	$	5,093	6.9	%	Same store	$	92,246	$	77,692	$	14,554	18.7	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	4,199		6,784		(2,585)		NM		Acquisitions, open points and dispositions	5,279		5,337		(58)		NM
Total as reported	Total as reported	$	83,029	$	80,521	$	2,508	3.1	%	Total as reported	$	97,525	$	83,029	$	14,496	17.5	%

Total F&I gross profit per retail unit (excludes fleet):	Total F&I gross profit per retail unit (excludes fleet):									Total F&I gross profit per retail unit (excludes fleet):
Same store	Same store	$	1,671	$	1,521	$	150	9.9	%	Same store	$	1,807	$	1,672	$	135	8.1	%
Reported	Reported	$	1,760	$	1,539	$	221	14.4	%	Reported	$	1,910	$	1,760	$	150	8.5	%

Total combined new and used retail unit sales:	Total combined new and used retail unit sales:									Total combined new and used retail unit sales:
Same store	Same store	47,177		48,495		(1,318)		(2.7)	%	Same store	51,053		46,460		4,593		9.9	%
Acquisitions, open points and dispositions	Acquisitions, open points and dispositions	—		3,835		(3,835)		NM		Acquisitions, open points and dispositions	—		717		(717)		NM
Total as reported	Total as reported	47,177		52,330		(5,153)		(9.8)	%	Total as reported	51,053		47,177		3,876		8.2	%

NM = Not Meaningful

Our ~~consolidated~~Franchised Dealerships Segment reported F&I results ~~are~~were as follows:

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 83,029 $ 80,521 $ 2,508 3.1 %
Unit sales 47,177 52,330 (5,153) (9.8) %
Gross profit per retail unit (excludes fleet) $ 1,760 $ 1,539 $ 221 14.4 %


	Three Months Ended March 31,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Reported F&I:
Revenue	$	97,525	$	83,029	$	14,496	17.5	%
Unit sales	51,053		47,177		3,876		8.2	%
Gross profit per retail unit (excludes fleet)	$	1,910	$	1,760	$	150	8.5	%

Our ~~consolidated~~Franchised Dealerships Segment same store F&I results ~~are~~were as follows:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit and per unit data)															(In thousands, except unit and per unit data)
Same store F&I:	Same store F&I:									Same store F&I:
Revenue	Revenue	$	78,830	$	73,737	$	5,093	6.9	%	Revenue	$	92,246	$	77,692	$	14,554	18.7	%
Unit sales	Unit sales	47,177		48,495		(1,318)		(2.7)	%	Unit sales	51,053		46,460		4,593		9.9	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	1,671	$	1,521	$	150	9.9	%	Gross profit per retail unit (excludes fleet)	$	1,807	$	1,672	$	135	8.1	%

~~Same Store Franchised Dealerships Segment F&I~~ – ~~Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019~~

Same Store Franchised Dealerships Segment F&I – Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

F&I revenues increased approximately ~~$5.1~~$14.6 million, or ~~6.9%~~18.7%, due to a 9.9% increase in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased ~~$150~~$135 per unit, or ~~9.9%~~8.1%, to ~~$1,671~~$1,807 per ~~unit. The growth in F&I revenues and F&I gross profit per retail~~ unit, ~~was~~ primarily due to ~~an increase~~increases in ~~retail used vehicle unit sales volume combined with an increase in gross profit per finance contract.~~the service contract and other aftermarket contract penetration rates.

Finance contract revenue increased ~~3.6%~~21.5%, primarily due to a ~~7.5%~~11.1% increase ~~in gross profit per finance contract, partially offset by a 3.6% decrease~~ in finance contract volume as a result of ~~lower~~higher retail new and used vehicle unit sales volume, as well as a 9.4% increase in gross profit per finance contract and ~~a 70-basis~~an 80-basis point ~~decrease~~increase in the finance contract penetration rate. Service contract revenue increased ~~4.1%~~20.8%, primarily due to a ~~5.5%~~14.6% increase in service contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 5.5% increase in gross profit per service contract and a ~~280-basis~~150-basis point increase in the service contract penetration ~~rate, partially offset by a 1.3% decrease in gross profit per service contract.~~rate. Other aftermarket contract revenue ~~remained flat~~increased 20.0%, primarily due to a ~~2.1%~~14.1% increase in other aftermarket contact volume, ~~offset by a 2.0% decrease in gross profit per other aftermarket contract. The other aftermarket contract penetration rate increased 670-basis points. Consistent with~~as well as

3930

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~other revenue and~~a 5.2% increase in gross profit ~~streams, F&I revenue~~per other aftermarket contract and ~~gross profit were adversely impacted by the effect on lower new and used vehicle sales of the COVID-19 pandemic~~a 550-basis point increase in the ~~second half of March 2020.~~other aftermarket contract penetration rate.

Results of Operations – EchoPark Segment

Unless otherwise noted, all discussion of increases or decreases are for the three months ended March 31, 2020 and are compared to the same prior year period. The following discussion of used vehicles and F&I, wholesale vehicles, and parts, service and collision repair are on a same store basis, except where otherwise noted. All currently operating stores are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.

The EchoPark Segment same store results consist of the results of eight EchoPark stores, four in Texas, three in Colorado and one in North Carolina, for the three months ended March 31, 2020 compared to the same prior year period, as applicable. Due to the ongoing expansion of our EchoPark Segment, same store results may vary significantly from reported results due to stores that began operations in the last 12 months.

Used Vehicles and F&I – EchoPark Segment

Based on the way we manage the EchoPark Segment, our operating strategy focuses on maximizing total ~~used-related~~used vehicle-related gross profit (based on a combination of retail used vehicle unit sales volume, front-end retail used vehicle gross profit per unit and F&I gross profit per unit) rather than realizing traditional levels of front-end retail used vehicle gross profit per unit. As such, we believe the best per unit measure of gross profit performance at our EchoPark stores is a combined total gross profit per unit, which includes both front-end retail used vehicle gross profit and F&I gross profit per unit sold.

See the discussion inunder the heading “Results of Operations - Franchised Dealerships ~~Segment Results of Operations~~Segment” for aadditional discussion of the macro drivers of used vehicle revenues and F&I revenues.

The following table provides a reconciliation of EchoPark Segment reported basis, same market basis and ~~same store~~new market basis for retail used vehicles:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit data)															(In thousands, except unit data)
Total used vehicle revenue:	Total used vehicle revenue:									Total used vehicle revenue:
Same store		$	265,301	$	216,417	$	48,884	22.6	%
Acquisitions, open points and closures		17,863		—		17,863		NM
Same market										Same market	$	333,577	$	283,164	$	50,413	17.8	%
New markets										New markets	94,986		—		94,986		NM
Total as reported	Total as reported	$	283,164	$	216,417	$	66,747	30.8	%	Total as reported	$	428,563	$	283,164	$	145,399	51.3	%

Total used vehicle gross profit (loss):	Total used vehicle gross profit (loss):									Total used vehicle gross profit (loss):
Same store		$	(1,844)	$	(257)	$	(1,587)	(617.5)	%
Acquisitions, open points and closures		1,660		527		1,133		NM
Same market										Same market	$	(1,485)	$	(184)	$	(1,301)	(707.1)	%
New markets										New markets	357		—		357		NM
Total as reported	Total as reported	$	(184)	$	270	$	(454)	(168.1)	%	Total as reported	$	(1,128)	$	(184)	$	(944)	(513.0)	%

Total used vehicle unit sales:	Total used vehicle unit sales:									Total used vehicle unit sales:
Same store		13,067		11,051		2,016		18.2	%
Acquisitions, open points and closures		919		—		919		NM
Same market										Same market	15,128		13,986		1,142		8.2	%
New markets										New markets	4,542		—		4,542		NM
Total as reported	Total as reported	13,986		11,051		2,935		26.6	%	Total as reported	19,670		13,986		5,684		40.6	%

NM = Not Meaningful

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The following table provides a reconciliation of EchoPark Segment reported basis, same market basis and ~~same store~~new market basis for F&I:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands)															(In thousands)
Total F&I revenue:	Total F&I revenue:									Total F&I revenue:
Same store		$	30,224	$	25,647	$	4,577	17.8	%
Acquisitions, open points and closures		2,039		70		1,969		NM
Same market										Same market	$	36,823	$	32,263	$	4,560	14.1	%
New markets										New markets	10,313		—		10,313		NM
Total as reported	Total as reported	$	32,263	$	25,717	$	6,546	25.5	%	Total as reported	$	47,136	$	32,263	$	14,873	46.1	%

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our EchoPark Segment reported retail used vehicle and F&I results were as follows:


	Three Months Ended March 31,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue	$	428,563	$	283,164	$	145,399	51.3	%
Used vehicle gross profit (loss)	$	(1,128)	$	(184)	$	(944)	(513.0)	%
Used vehicle unit sales	19,670		13,986		5,684		40.6	%
Used vehicle revenue per unit	$	21,788	$	20,246	$	1,542	7.6	%
F&I revenue	$	47,136	$	32,263	$	14,873	46.1	%
Combined used vehicle gross profit and F&I revenue	$	46,008	$	32,079	$	13,929	43.4	%
Total used vehicle and F&I gross profit per unit	$	2,339	$	2,294	$	45	2.0	%

~~Our EchoPark Segment reported retail used vehicle and F&I results are as follows:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 283,164 $ 216,417 $ 66,747 30.8 %
Used vehicle gross profit (loss) $ (184) $ 270 $ (454) (168.1) %
Used vehicle unit sales 13,986 11,051 2,935 26.6 %
Used vehicle revenue per unit $ 20,246 $ 19,583 $ 663 3.4 %
F&I revenue $ 32,263 $ 25,717 $ 6,546 25.5 %
Combined used vehicle gross profit and F&I revenue $ 32,079 $ 25,987 $ 6,092 23.4 %
Total used vehicle and F&I gross profit per unit $ 2,294 $ 2,352 $ (58) (2.5) %

Our EchoPark Segment same ~~store~~market retail used vehicle and F&I results ~~are~~were as follows:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit and per unit data)															(In thousands, except unit and per unit data)
Same store used vehicle and F&I:
Same market used vehicle and F&I:										Same market used vehicle and F&I:
Used vehicle revenue	Used vehicle revenue	$	265,301	$	216,417	$	48,884	22.6	%	Used vehicle revenue	$	333,577	$	283,164	$	50,413	17.8	%
Used vehicle gross profit (loss)	Used vehicle gross profit (loss)	$	(1,844)	$	(257)	$	(1,587)	(617.5)	%	Used vehicle gross profit (loss)	$	(1,485)	$	(184)	$	(1,301)	(707.1)	%
Used vehicle unit sales	Used vehicle unit sales	13,067		11,051		2,016		18.2	%	Used vehicle unit sales	15,128		13,986		1,142		8.2	%
Used vehicle revenue per unit	Used vehicle revenue per unit	$	20,303	$	19,583	$	720	3.7	%	Used vehicle revenue per unit	$	22,050	$	20,246	$	1,804	8.9	%
F&I revenue	F&I revenue	$	30,224	$	25,647	$	4,577	17.8	%	F&I revenue	$	36,823	$	32,263	$	4,560	14.1	%
Combined used vehicle gross profit and F&I revenue	Combined used vehicle gross profit and F&I revenue	$	28,380	$	25,390	$	2,990	11.8	%	Combined used vehicle gross profit and F&I revenue	$	35,338	$	32,079	$	3,259	10.2	%
Total used vehicle and F&I gross profit per unit	Total used vehicle and F&I gross profit per unit	$	2,172	$	2,298	$	(126)	(5.5)	%	Total used vehicle and F&I gross profit per unit	$	2,336	$	2,294	$	42	1.8	%

Same ~~Store~~Market EchoPark Segment Used Vehicles and F&I – Three Months Ended March 31, ~~2020~~2021 Compared to Three Months Ended March 31, ~~2019~~2020

Because our EchoPark stores do not provide customer-facing vehicle repair services, in certain markets, EchoPark has not been deemed an essential business under state and local restrictive orders. As such, EchoPark retail used vehicle unit sales volume has been negatively impacted by COVID-19 and related shelter-in-place or stay-at-home orders. However, we are permitted to complete online vehicle sales transactions with no-contact home deliveries in such markets.

Retail used vehicle revenue increased approximately ~~$48.9~~$50.4 million, or ~~22.6%~~17.8%, driven primarily by a $1,804 per unit, or 8.9%, increase in retail used vehicle revenue per unit as well as an ~~18.2%~~8.2% increase in retail used vehicle unit sales volume ~~and~~due to increased consumer demand as a ~~3.7% increase in retail used vehicle revenue per unit. Retail used vehicle gross loss increased approximately $1.6 million, or 617.5%, offset partially by an increase in F&I revenue~~result of ~~approximately $4.6 million, and an 11.8% increase in combined~~improving economic conditions. Combined used vehicle gross profit and F&I revenue increased approximately $3.3 million, or 10.2%, driven ~~primarily~~ by higher retail used vehicle unit sales ~~volume.~~volume and a $4.6 million, or 14.1% increase in F&I revenue. Total used vehicle and F&I gross profit per unit increased $42 per unit, or 1.8%, to $2,336 per unit as our stores continue to mature and improve their F&I sales effectiveness. Finance contract gross profit increased approximately $0.7 million, or 8.2%, due to a 8.7% increase in total finance contracts and a 40-basis point increase in the finance contract penetration rate. Service contract gross profit increased ~~7.6%~~approximately $1.6 million, or 20.6%, due ~~primarily~~ to an 18.0% increase in total service contracts, as well as a ~~240-basis~~500-basis point increase in the service contract penetration rate. Other aftermarket product gross profit increased approximately $0.5 million, or 10.9%, due to a 12.3% increase in total other aftermarket contracts and a 350-basis point increase in the aftermarket product penetration rate.

Wholesale Vehicles – EchoPark Segment

See the discussion under the heading "Results of Operations - Franchised Dealerships Segment" for additional discussion of the macro drivers of wholesale vehicle revenues.

4132

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

contract penetration rate. Other aftermarket contract gross profit increased 4.8%, driven primarily by a 750-basis point increase in the other aftermarket contract penetration rate. F&I penetration rates are generally higher in our EchoPark Segment than for used vehicle sales in our Franchised Dealerships Segment. Overall gross profit from front-end sales and F&I were negatively impacted by the reduction in sales that occurred in the second half of March 2020 that was precipitated by the impact of the COVID-19 pandemic.

~~Wholesale Vehicles~~ – ~~EchoPark Segment~~

~~See the discussion in Franchised Dealerships Segment Results of Operations for a discussion of the macro drivers of wholesale vehicle revenues.~~

The following table provides a reconciliation of EchoPark Segment reported basis, same market basis and ~~same store~~new market basis for wholesale vehicles:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit data)															(In thousands, except unit data)
Total wholesale vehicle revenue:	Total wholesale vehicle revenue:									Total wholesale vehicle revenue:
Same store		$	5,873	$	2,237	$	3,636	162.5	%
Acquisitions, open points and closures		230		—		230		NM
Same market										Same market	$	15,555	$	6,103	$	9,452	154.9	%
New markets										New markets	3,050		—		3,050		NM
Total as reported	Total as reported	$	6,103	$	2,237	$	3,866	172.8	%	Total as reported	$	18,605	$	6,103	$	12,502	204.9	%

Total wholesale vehicle gross profit (loss):	Total wholesale vehicle gross profit (loss):									Total wholesale vehicle gross profit (loss):
Same store		$	(71)	$	(63)	$	(8)	(12.7)	%
Acquisitions, open points and closures		(3)		—		(3)		NM
Same market										Same market	$	122	$	(74)	$	196	264.9	%
New markets										New markets	(9)		—		(9)		NM
Total as reported	Total as reported	$	(74)	$	(63)	$	(11)	(17.5)	%	Total as reported	$	113	$	(74)	$	187	252.7	%

Total wholesale vehicle unit sales:	Total wholesale vehicle unit sales:									Total wholesale vehicle unit sales:
Same store		1,676		499		1,177		235.9	%
Acquisitions, open points and closures		89		—		89		NM
Same market										Same market	2,230		1,765		465		26.3	%
New markets										New markets	631		—		631		NM
Total as reported	Total as reported	1,765		499		1,266		253.7	%	Total as reported	2,861		1,765		1,096		62.1	%

NM = Not Meaningful

Our EchoPark Segment reported wholesale vehicle results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Reported wholesale vehicle:	Reported wholesale vehicle:											Reported wholesale vehicle:
Revenue	Revenue	$	6,103		$	2,237		$	3,866	172.8	%	Revenue	$	18,605		$	6,103		$	12,502	204.9	%
Gross profit (loss)	Gross profit (loss)	$	(74)		$	(63)		$	(11)	(17.5)	%	Gross profit (loss)	$	113		$	(74)		$	187	252.7	%
Unit sales	Unit sales	1,765			499			1,266		253.7	%	Unit sales	2,861			1,765			1,096		62.1	%
Revenue per unit	Revenue per unit	$	3,458		$	4,483		$	(1,025)	(22.9)	%	Revenue per unit	$	6,503		$	3,458		$	3,045	88.1	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(42)		$	(126)		$	84	66.7	%	Gross profit (loss) per unit	$	39		$	(42)		$	81	192.9	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(1.2)		%	(2.8)		%	160		bps		Gross profit (loss) as a % of revenue	0.6		%	(1.2)		%	180		bps

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our EchoPark Segment same ~~store~~market wholesale vehicle results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)																			(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Same market wholesale vehicle:												Same market wholesale vehicle:
Revenue	Revenue	$	5,873		$	2,237		$	3,636	162.5	%	Revenue	$	15,555		$	6,103		$	9,452	154.9	%
Gross profit (loss)	Gross profit (loss)	$	(71)		$	(63)		$	(8)	(12.7)	%	Gross profit (loss)	$	122		$	(74)		$	196	264.9	%
Unit sales	Unit sales	1,676			499			1,177		235.9	%	Unit sales	2,230			1,765			465		26.3	%
Revenue per unit	Revenue per unit	$	3,504		$	4,483		$	(979)	(21.8)	%	Revenue per unit	$	6,975		$	3,458		$	3,517	101.7	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(42)		$	(126)		$	84	66.7	%	Gross profit (loss) per unit	$	55		$	(42)		$	97	231.0	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(1.2)		%	(2.8)		%	160		bps		Gross profit (loss) as a % of revenue	0.8		%	(1.2)		%	200		bps

Same Market EchoPark Segment Wholesale Vehicles – Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Same market wholesale vehicle revenue increased 154.9% and wholesale vehicle gross profit improved by 264.9%, due primarily to new store openings, which drove a 26.3% increase in wholesale vehicle unit sales volume and a 231.0% increase in

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

wholesale vehicle gross profit per unit. Given EchoPark’s retail inventory mix, the majority of vehicles acquired from customers on trade-ins cannot be sold as retail at our EchoPark stores and are subsequently sold at auction or transferred to one of our franchised dealerships to be sold as a retail used vehicle. However, a successful acquisition of a customer’s trade-in vehicle often facilitates a retail used vehicle sale transaction that otherwise may not have occurred, driving higher overall gross profit. Our overall EchoPark inventory acquisition and pricing strategy reduces the risk of aged inventory that must be sold at auction (which would typically have a higher wholesale vehicle gross loss per unit) and increases the volume of trade-ins that we obtain from guests.

Fixed Operations – EchoPark Segment

Parts, service and collision repair revenues consist of internal, sublet and other work related to preparation and reconditioning performed on vehicles in inventory that are later sold to a third party. When that work is performed by one of our stores, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet. Our EchoPark stores do not currently perform warranty or customer pay repairs or maintenance work.

The following table provides a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for Fixed Operations:


	Three Months Ended March 31,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Total Fixed Operations revenue:
Same market	$	10,103	$	10,145	$	(42)	(0.4)	%
New markets	2,734		34		2,700		NM
Total as reported	$	12,837	$	10,179	$	2,658	26.1	%

Total Fixed Operations gross profit (loss):
Same market	$	7	$	(197)	$	204	103.6	%
New markets	(222)		(1)		(221)		NM
Total as reported	$	(215)	$	(198)	$	(17)	(8.6)	%

NM = Not Meaningful

~~Same Store EchoPark Segment Wholesale Vehicles~~ – ~~Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019~~

Wholesale vehicle revenue increased due to increased wholesale vehicle unit sales volume, partially offset by a decrease in wholesale vehicle revenue per unit. Wholesale vehicle gross loss was flat. Given EchoPark’s retail inventory mix, the majority of vehicles acquired from customers on trade-ins cannot be sold as retail at our EchoPark stores and are subsequently sold at auction, affecting our wholesale gross profit (loss). However, a successful acquisition of a customer’s trade-in vehicle often facilitates a retail used vehicle sale transaction that otherwise may not have occurred, driving higher overall gross profit. Our overall EchoPark inventory acquisition and pricing strategy reduces the risk of aged inventory that must be sold at auction (which would typically have a higher gross loss per unit) and increases the volume of trade-ins that we obtain from customers. We generally focus on maintaining used vehicle inventory days’ supply in the 30- to 35-day range, which may fluctuate seasonally, in order to limit out exposure to market pricing volatility. Our used vehicle days’ supply at our EchoPark stores was approximately 34 and 29 days as of March 31, 2020 and 2019, respectively.

~~Fixed Operations~~ – ~~EchoPark Segment~~

Parts, service and collision repair revenues primarily consist of internal, sublet and other work related to inventory preparation and reconditioning performed on vehicles that are later sold to customers. When that work is performed by one of our stores, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet. Our EchoPark stores do not currently perform warranty or customer pay repairs or maintenance work.

~~The following table provides a reconciliation of EchoPark Segment reported basis and same store basis for Fixed Operations:~~

Three Months Ended March 31, Better / (Worse)
2020 2019 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same store $ 9,574 $ 5,204 $ 4,370 84.0 %
Acquisitions, open points and closures 605 1 604 NM
Total as reported $ 10,179 $ 5,205 $ 4,974 95.6 %
Total Fixed Operations gross profit (loss):
Same store $ (158) $ (209) $ 51 24.4 %
Acquisitions, open points and closures (40) (1) (39) NM
Total as reported $ (198) $ (210) $ 12 5.7 %

~~NM = Not Meaningful~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our EchoPark Segment reported Fixed Operations results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,					Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change			% Change
		(In thousands)																				(In thousands)
Total reported Fixed Operations:	Total reported Fixed Operations:																				Total reported Fixed Operations:
Revenue	Revenue	$	10,179		$	5,205		$	4,974	95.6	%	Revenue	$	12,837		$	10,179		$	2,658		26.1	%
Gross profit (loss)	Gross profit (loss)	$	(198)		$	(210)		$	12	5.7	%	Gross profit (loss)	$	(215)		$	(198)		$	(17)		(8.6)	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(1.9)		%	(4.0)		%	210		bps		Gross profit (loss) as a % of revenue	(1.7)		%	(1.9)		%	20			bps

Our EchoPark Segment same ~~store~~market Fixed Operations results ~~are~~were as follows:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands)																			(In thousands)
Total same store Fixed Operations:
Total same market Fixed Operations:												Total same market Fixed Operations:
Revenue	Revenue	$	9,574		$	5,204		$	4,370	84.0	%	Revenue	$	10,103		$	10,145		$	(42)	(0.4)	%
Gross profit (loss)	Gross profit (loss)	$	(158)		$	(209)		$	51	24.4	%	Gross profit (loss)	$	7		$	(197)		$	204	103.6	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(1.7)		%	(4.0)		%	230		bps		Gross profit (loss) as a % of revenue	0.1		%	(1.9)		%	200		bps

~~Same Store EchoPark Segment Fixed Operations~~ – ~~Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019~~

~~Fixed Operations revenue increased approximately $4.4 million, or 84.0%, primarily due to higher vehicle unit sales volume (and resulting inventory reconditioning requirements).~~

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Same Market EchoPark Segment Fixed Operations – Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Same market Fixed Operations revenue was flat primarily due to lower levels of inventory reconditioning cost per unit, offset partially by an 8.2% increase in retail used vehicle unit sales volume.

Segment Results Summary

In the following table of financial data, total segment income of the reportable segments is reconciled to consolidated income (loss) from continuing operations before taxes and impairment charges. See above for tables and discussion of results by reportable segment.


											Three Months Ended March 31,				Better / (Worse)
		Three Months Ended March 31,						Better / Worse							2021			2020		Change	% Change
		2020		2019		Change		% Change			(In thousands, except unit data)
Segment Revenues:	Segment Revenues:	(In thousands, except unit data)															Segment Revenues:
Franchised Dealerships Segment revenues:	Franchised Dealerships Segment revenues:									Franchised Dealerships Segment revenues:
New vehicles	New vehicles	$	959,489	$	1,066,334	$	(106,845)	(10.0)	%	New vehicles	$	1,156,317	$	959,489	$	196,828		20.5	%
Used vehicles	Used vehicles	566,888		603,949		(37,061)		(6.1)	%	Used vehicles	661,534		566,888		94,646			16.7	%
Wholesale vehicles	Wholesale vehicles	42,440		52,533		(10,093)		(19.2)	%	Wholesale vehicles	56,204		42,440		13,764			32.4	%
Parts, service and collision repair	Parts, service and collision repair	324,501		336,225		(11,724)		(3.5)	%	Parts, service and collision repair	308,077		324,501		(16,424)			(5.1)	%
Finance, insurance and other, net	Finance, insurance and other, net	83,029		80,521		2,508		3.1	%	Finance, insurance and other, net	97,525		83,029		14,496			17.5	%
Franchised Dealerships Segment revenues	Franchised Dealerships Segment revenues	$	1,976,347	$	2,139,562	$	(163,215)	(7.6)	%	Franchised Dealerships Segment revenues	$	2,279,657	$	1,976,347	$	303,310		15.3	%

EchoPark Segment revenues:	EchoPark Segment revenues:									EchoPark Segment revenues:
Used vehicles	Used vehicles	$	283,164	$	216,417	$	66,747	30.8	%	Used vehicles	$	428,563	$	283,164	$	145,399		51.3	%
Wholesale vehicles	Wholesale vehicles	6,103		2,237		3,866		172.8	%	Wholesale vehicles	18,605		6,103		12,502			204.9	%
Parts, service and collision repair	Parts, service and collision repair	10,179		5,205		4,974		95.6	%	Parts, service and collision repair	12,837		10,179		2,658			26.1	%
Finance, insurance and other, net	Finance, insurance and other, net	32,263		25,717		6,546		25.5	%	Finance, insurance and other, net	47,136		32,263		14,873			46.1	%
EchoPark Segment revenues	EchoPark Segment revenues	$	331,709	$	249,576	$	82,133	32.9	%	EchoPark Segment revenues	$	507,141	$	331,709	$	175,432		52.9	%

Total consolidated revenues	Total consolidated revenues	$	2,308,056	$	2,389,138	$	(81,082)	(3.4)	%	Total consolidated revenues	$	2,786,798	$	2,308,056	$	478,742		20.7	%


Segment Income (Loss) (1):	Segment Income (Loss) (1):									Segment Income (Loss) (1):
Franchised Dealerships Segment (2)		$	22,656	$	61,182	$	(38,526)	(63.0)	%
Franchised Dealerships Segment										Franchised Dealerships Segment	$	70,543	$	22,656	$	47,887		211.4	%
EchoPark Segment	EchoPark Segment	2,096		2,106		(10)		(0.5)	%	EchoPark Segment	2,010		2,096		(86)			(4.1)	%
Total segment income (loss)	Total segment income (loss)	$	24,752	$	63,288	$	(38,536)	(60.9)	%	Total segment income (loss)	$	72,553	$	24,752	$	47,801		193.1	%
Impairment charges (3)		(268,000)		(1,952)		(266,048)		(13629.5)	%
Impairment charges (2)										Impairment charges (2)	—		(268,000)		268,000			100.0	%
Income (loss) from continuing operations before taxes	Income (loss) from continuing operations before taxes	$	(243,248)	$	61,336	$	(304,584)	(496.6)	%	Income (loss) from continuing operations before taxes	$	72,553	$	(243,248)	$	315,801		129.8	%

Retail New and Used Vehicle Unit Sales Volume:	Retail New and Used Vehicle Unit Sales Volume:									Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment	Franchised Dealerships Segment	47,762		52,609		(4,847)		(9.2)	%	Franchised Dealerships Segment	51,594		47,762		3,832			8.0	%
EchoPark Segment	EchoPark Segment	13,986		11,051		2,935		26.6	%	EchoPark Segment	19,670		13,986		5,684			40.6	%
Total retail new and used vehicle unit sales volume	Total retail new and used vehicle unit sales volume	61,748		63,660		(1,912)		(3.0)	%	Total retail new and used vehicle unit sales volume	71,264		61,748		9,516			15.4	%

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

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Selling, General and Administrative (“SG&A”) Expenses – Consolidated

Consolidated SG&A expenses are comprised of four major groups: compensation expense, advertising expense, rent expense and other expense. Compensation expense primarily relates to store personnel who are paid a commission or a salary plus commission and support personnel who are paid a fixed salary. Commissions paid to store personnel typically vary depending on gross profits realized and sales volume objectives. Due to the salary component for certain store and corporate personnel, gross profits and compensation expense do not change in direct proportion to one another. Advertising expense and other expense vary based on the level of actual or anticipated business activity and the number of dealerships in operation. Rent expense typically varies with the number of store locations owned, investments made for facility improvements and interest rates. Other expense includes various fixed and variable expenses, including gain on disposal of franchises, certain customer-related costs such as gasoline and service loaners, and insurance, training, legal and IT expenses, which may not change in proportion to gross profit levels.

The following ~~tables set~~table sets forth information related to our consolidated reported SG&A expenses:


		Three Months Ended March 31,								Better / (Worse)									Three Months Ended March 31,				Better / (Worse)
		2020			2019			Change		% Change			2021			2020			Change		% Change
		(In thousands)																			(In thousands)
SG&A expenses:	SG&A expenses:											SG&A expenses:
Compensation	Compensation	$	174,422		$	184,185		$	9,763	5.3	%	Compensation	$	188,492		$	174,422		$	(14,070)	(8.1)	%
Advertising	Advertising	14,135			15,050			915		6.1	%	Advertising	12,169			14,135			1,966		13.9	%
Rent	Rent	13,865			15,250			1,385		9.1	%	Rent	13,744			13,865			121		0.9	%
Other	Other	79,734			32,610			(47,124)		(144.5)	%	Other	74,951			79,734			4,783		6.0	%
Total SG&A expenses	Total SG&A expenses	$	282,156		$	247,095		$	(35,061)	(14.2)	%	Total SG&A expenses	$	289,356		$	282,156		$	(7,200)	(2.6)	%

SG&A expenses as a % of gross profit:	SG&A expenses as a % of gross profit:											SG&A expenses as a % of gross profit:
Compensation	Compensation	49.8		%	51.3		%	150		bps		Compensation	47.0		%	49.8		%	280		bps
Advertising	Advertising	4.0		%	4.2		%	20		bps		Advertising	3.0		%	4.0		%	100		bps
Rent	Rent	4.0		%	4.2		%	20		bps		Rent	3.4		%	4.0		%	60		bps
Other	Other	22.7		%	9.1		%	(1,360)		bps		Other	18.8		%	22.7		%	390		bps
Total SG&A expenses as a % of gross profit	Total SG&A expenses as a % of gross profit	80.5		%	68.8		%	(1,170)		bps		Total SG&A expenses as a % of gross profit	72.2		%	80.5		%	830		bps

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Overall SG&A expenses increased ~~both~~ in dollar amount ~~and~~but decreased as a percentage of gross profit, primarily due to ~~an increase~~higher gross profit levels and higher variable compensation expenses in ~~variable other SG&A expense, offset partially by a decrease in fixed compensation expense.~~2021. Compensation expense ~~decreased both~~increased in dollar amount ~~and~~but decreased as a percentage of gross profit, primarily due to ~~a lower level of variable compensation expense due to lower levels of~~increased sales ~~activity and related~~associate productivity during 2021 as well as higher gross ~~profit.~~profit levels. Advertising expense decreased both in dollar amount and as a percentage of gross profit, due primarily to ~~decreased~~a focused effort on centralizing and reducing marketing ~~needs as a result~~spend in order to get the most efficient use of ~~lower vehicle sales volume due to COVID-19.~~our advertising dollars. Rent expense ~~decreased both in dollar amount and~~was flat as ~~a percentage of gross profit, primarily due~~compared to the ~~disposal of several franchised dealerships year-over-year.~~prior year period. Other SG&A expenses ~~increased~~decreased both in dollar amount and as a percentage of gross profit, due primarily to a ~~net benefit from~~decrease in customer-related costs and other fixed costs as we focused on reducing loaner vehicle expense and other discretionary spending during the gain on disposal of franchised dealerships in the prior year. For the three months ended March 31, 2019, SG&A expenses include a net gain on the disposal of franchised dealerships of approximately $46.7 million, offset partially by approximately $6.3 million of executive transition costs.pandemic.

Impairment Charges – Consolidated

Impairment charges ~~increased~~decreased approximately ~~$266.0~~$268.0 million during the three months ended March 31, ~~2020. Impairment~~2021, due to the absence of fair value adjustments to goodwill included in the previous period. We did not record any impairment charges for the three months ended March 31, ~~2020~~2021. Impairment charges were ~~related to fair value adjustments to goodwill. Impairment charges~~approximately $268.0 million for the three months ended March 31, ~~2019 are~~2020, related to adjustments in fair value ~~adjustments~~ of ~~real estate at former EchoPark locations classified~~goodwill for the Franchised Dealerships Segment as ~~held for sale.~~

~~Depreciation~~a result of the effects of the COVID-19 pandemic on our operations and ~~Amortization~~ – ~~Consolidated~~

~~Depreciation expense decreased approximately $0.4 million, or 1.6% during the three months ended March 31, 2020, due primarily to the disposition and aging of assets.~~market value.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Depreciation and Amortization – Consolidated

Depreciation expense increased approximately $1.4 million, or 6.2% during the three months ended March 31, 2021, due primarily to higher inventory associated with the opening or acquisition of additional EchoPark stores and construction projects completed and placed in service in our Franchised Dealerships Segment.

Interest Expense, Floor Plan – Consolidated

Interest expense, floor plan for new vehicles decreased approximately ~~$2.8~~$5.5 million, or ~~23.8%~~61.9%. ~~The average new vehicle floor plan notes payable balance increased approximately $0.3 million, which did not significantly impact new vehicle floor plan interest expense.~~ The average new vehicle floor plan interest rate was ~~2.58%~~1.18%, down from ~~3.39%~~2.58% in the three months ended March 31, ~~2019,~~2020, resulting in a decrease in new vehicle floor plan interest expense of approximately ~~$2.8~~$4.2 million. The average new vehicle floor plan notes payable balance decreased approximately $223.0 million, which decreased new vehicle floor plan interest expense by approximately $1.3 million.

Interest expense, floor plan for used vehicles increased approximately $0.1 million, or ~~4.5%~~8.8%. The average used vehicle floor plan interest rate was 1.83%, down from 2.73% in the three months ended March 31, 2020, resulting in a decrease in used vehicle floor plan interest expense of approximately $0.9 million. The average used vehicle floor plan notes payable balance increased approximately ~~$34.6~~$147.2 million, ~~resulting in an decrease in~~which increased used vehicle floor plan interest expense ofby approximately $0.3 million. The average used vehicle floor plan interest rate was 2.73%, down from 3.07% in the three months ended March 31, 2019, resulting in an decrease in used vehicle floor plan interest expense of approximately $0.2$1.0 million.

Interest Expense, Other, Net – Consolidated

Interest expense, other, net is summarized in the tables below:


		Three Months Ended March 31,						Better / (Worse)							Three Months Ended March 31,				Better / (Worse)
		2020		2019		Change		% Change			2021		2020		Change		% Change
		(In thousands)															(In thousands)
Stated/coupon interest	Stated/coupon interest	$	9,214	$	12,439	$	3,225	25.9	%	Stated/coupon interest	$	7,647	$	9,214	$	1,567	17.0	%

Discount/premium amortization										Discount/premium amortization	—		—		—		—	%
Deferred loan cost amortization	Deferred loan cost amortization	557		591		34		5.8	%	Deferred loan cost amortization	823		557		(266)		(47.8)	%
Interest rate hedge expense (benefit)	Interest rate hedge expense (benefit)	(427)		(597)		(170)		(28.5)	%	Interest rate hedge expense (benefit)	411		(427)		(838)		(196.3)	%
Capitalized interest	Capitalized interest	(420)		(679)		(259)		(38.1)	%	Capitalized interest	(411)		(420)		(9)		(2.1)	%
Interest on finance lease liabilities	Interest on finance lease liabilities	1,344		1,176		(168)		(14.3)	%	Interest on finance lease liabilities	1,656		1,344		(312)		(23.2)	%
Other interest	Other interest	697		(77)		(774)		(1,005.2)	%	Other interest	159		697		538		77.2	%
Total interest expense, other, net	Total interest expense, other, net	$	10,965	$	12,853	$	1,888	14.7	%	Total interest expense, other, net	$	10,285	$	10,965	$	680	6.2	%

Interest expense, other, net decreased approximately ~~$1.9~~$0.7 million during the three months ended March 31, ~~2020,~~2021, primarily due to ~~lower stated/coupon~~a decrease in variable interest on mortgage debt and a decrease in interest expense related to borrowings on the ~~repurchase of the remaining 5.0% Senior Subordinated Notes due 2023 (the "5.0% Notes") on December 30, 2019,~~2016 Revolving Credit Facility, offset partially by an increase in ~~other~~ interest rate hedge expense under our interest rate cap agreements and ~~capitalized interest.~~interest on finance lease liabilities.

Income Taxes

The overall effective tax rate from continuing operations was 26.0% for the three months ended March 31, 2021, and 18.2% for the three months ended March 31, ~~2020, and 31.0%~~2020. Income tax expense for the three months ended March 31, ~~2019.~~2021 includes a $1.5 million discrete benefit related to vested or exercised stock compensation awards. Income tax ~~expense~~benefit for the three months ended March 31, 2020 includes a $51.3 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge ~~and~~recognized in such quarter, a $0.5 million discrete benefit related to vested or exercised stock compensation awards, offset partially by a $0.1 million discrete charge related to changes in uncertain tax positions. Income tax expense for the three months ended March 31, 2019 includes a $1.5 million discrete charge for non-deductible executive officer compensation related to executive transition costs, a $0.2 million discrete charge related to changes in uncertain tax positions, and a $0.2 million discrete charge related to vested or exercised stock compensation awards. Sonic’s effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

Liquidity and Capital Resources

We require cash to fund debt service, lease obligations, working capital requirements, facility improvements and other capital improvements, and dividends on our common stock and to finance acquisitions and otherwise invest in our business. We rely on cash flows from operations, borrowings under our revolving credit and floor plan borrowing arrangements, real estate mortgage financing, asset sales and offerings of debt and equity securities to meet these requirements. We were in compliance with all restrictive covenants under our debt agreements as of March 31, ~~2020~~2021 and expect to be in compliance for at least the

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

next ~~twelve~~12 months. We closely monitor our available liquidity and projected future operating results in order to remain in compliance with the restrictive covenants under the ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility, the 2020 Line of Credit Facility, the indenture governing the 6.125% Notes and our other debt obligations and lease arrangements. However, our liquidity could be negatively affected if we fail to comply with the financial covenants in our existing debt obligations or lease arrangements. After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of March 31, ~~2020,~~2021, we had approximately ~~$274.1~~$290.0 million of net income and retained earnings free of such restrictions. Cash flows provided by our franchised dealerships and EchoPark stores are derived from various sources. The primary sources include individual consumers, automobile manufacturers, automobile manufacturers’

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

captive finance subsidiaries and other financial institutions. Disruptions in these cash flows could have a material adverse impact on our operations and overall liquidity.

Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and our ability to service our obligations depend to a substantial degree on the results of operations of these subsidiaries and their ability to provide us with cash.

We had the following liquidity resources available as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(In thousands)							(In thousands)
Cash and cash equivalents	Cash and cash equivalents	$	181,780	$	29,103	Cash and cash equivalents	$	77,233	$	170,313
Availability under the 2016 Revolving Credit Facility	Availability under the 2016 Revolving Credit Facility	—		230,689		Availability under the 2016 Revolving Credit Facility	218,796		214,672
Availability under our used vehicle floor plan facilities(1)	Availability under our used vehicle floor plan facilities(1)	26,613		17,090		Availability under our used vehicle floor plan facilities(1)	—		—
Availability under the 2019 Mortgage Facility	Availability under the 2019 Mortgage Facility	3,090		3,090		Availability under the 2019 Mortgage Facility	13,999		11,272
Availability under the 2020 Line of Credit Facility						Availability under the 2020 Line of Credit Facility	54,141		56,973
Floor plan deposit balance	Floor plan deposit balance	100,000		—		Floor plan deposit balance	70,788		73,180
Total available liquidity resources	Total available liquidity resources	$	311,483	$	279,972	Total available liquidity resources	$	434,957	$	526,410

(1) As of March 31, 2021, there was approximately $19.2 million of availability under the VIN-specific amendment discussed in Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements.

We participate in a program with two of our manufacturer-affiliated finance companies wherein we maintain a deposit balance (included in the table above) with the lender that earns interest based on the agreed upon ~~rate.~~rate, effectively reducing the net floor plan interest expense with the lender. This deposit balance is not designated as a prepayment of notes payable – floor plan, nor is it our intent to use this amount to offset principal amounts owed under notes payable – floor plan in the future, although we have the right and ability to do so. The deposit ~~balance~~balances of approximately ~~$100.0~~$70.8 million and $73.2 million as of March 31, 2021 and December 31, 2020, isrespectively, are classified in other current assets in the accompanying unaudited condensed consolidated balance ~~sheet~~sheets as of March 31, ~~2020. There was no deposit balance as of~~2021 and December 31, ~~2019.~~2020, respectively.

Floor Plan Facilities

We finance our new and certain of our used vehicle inventory through standardized floor plan facilities with manufacturer captive finance companies and a syndicate of manufacturer-affiliated finance companies and commercial banks. These floor plan facilities are due on demand and bear interest at variable rates based on ~~either~~ LIBOR or ~~the~~ prime ~~rate.~~plus an additional spread, as applicable. The weighted-average interest rate for our ~~combined~~ new and used vehicle floor plan facilities was ~~2.60%~~1.34% and ~~3.38%~~2.60% in the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

We receive floor plan assistance in the form of direct payments or credits from certain manufacturers. Floor plan assistance received is capitalized in inventory and ~~charged against~~recorded as a reduction of cost of sales when the associated inventory is sold. We received approximately $~~10.0~~10.9 million and ~~$9.3~~$10.0 million in ~~floor plan~~manufacturer assistance in the three months ended March 31, 2021 and 2020, respectively, and ~~2019, respectively. We~~ recognized in cost of sales approximately $11.4 million and $9.0 million in manufacturer ~~floor plan~~ assistance in ~~both~~ the three months ended March 31, 2021 and 2020, ~~and 2019.~~respectively. Interest payments under each of our floor plan facilities are due monthly and we are generally ~~are~~ not required to make principal repayments prior to the sale of the associated vehicles.

Long-Term Debt and Credit Facilities

See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a discussion of our long-term debt and credit facilities and compliance with debt covenants.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Capital Expenditures

Our capital expenditures include the purchase of land and buildings, the construction of new franchised dealerships, EchoPark stores and collision repair centers, building improvements and equipment purchased for use in our franchised dealerships and EchoPark stores. We selectively construct new or improve existing dealership facilities to maintain compliance with manufacturers’ image requirements. We typically finance these projects through cash flows from operations, new mortgages or our credit facilities.

Capital expenditures in the three months ended March 31, ~~2020~~2021 were approximately ~~$19.8~~$67.7 million, including approximately ~~$17.2~~$46.2 million related to our Franchised Dealerships Segment and approximately ~~$2.6~~$21.5 million related to our EchoPark ~~Segment, all of which was funded through cash flows from operations.~~Segment. Of this amount, approximately ~~$14.9~~$31.7 million was related to facility construction projects, ~~while~~$5.6 million was related to real estate acquisitions and $30.4 million was for other fixed assets utilized in our store ~~operations accounted for~~operations.

Of the ~~remaining $4.9 million.~~$67.7 million in gross capital expenditures in the three months ended March 31, 2021, nearly all was funded through cash from operations. As of March 31, ~~2020,~~2021, commitments for facility construction projects totaled approximately ~~$25.4 million.~~$49.3 million, nearly all of which is expected to be completed in the next 12 months. We expect investments related to capital expenditures to be partly dependent upon our overall liquidity position and the availability of mortgage financing to fund significant capital projects.

Share Repurchase Program

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our Board of Directors has authorized us to repurchase shares of our Class A Common Stock. Historically, we have used our share repurchase authorization to offset dilution caused by the exercise of stock options or the vesting of equity compensation awards and to maintain our desired capital structure. During the three months ended March 31, ~~2020,~~2021, we repurchased approximately ~~0.7~~1.0 million shares of our Class A Common Stock for approximately ~~$21.3~~$42.2 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. As of March 31, ~~2020,~~2021, our total remaining repurchase authorization was approximately ~~$59.9~~$27.3 million. Subsequent to March 31, 2021, our Board of Directors increased our share repurchase authorization by $250.0 million. After giving effect to such increase, we had $277.3 million available under our authorized share repurchase program. Under the ~~2016~~2021 Credit ~~Facilities,~~Agreement, share repurchases are permitted to the extent that no ~~event~~Event of ~~default~~Default exists, and we do not exceed the restrictions set forth in our debt agreements. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of March 31, ~~2020,~~2021, we had approximately ~~$274.1~~$290.0 million of net income and retained earnings free of such restrictions.

Our share repurchase activity is subject to the business judgment of our Board of Directors and management, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements and covenant compliance, the current economic environment and other factors considered relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors and management determine our share repurchase policy in the future.

Dividends

During the three months ended March 31, ~~2020,~~2021, our Board of Directors approved a cash dividend of $0.10 per share on all outstanding shares of Class A and Class B Common Stock as of March ~~13, 2020,~~15, 2021, which was paid on April 15, ~~2020.~~2021. Subsequent to March 31, ~~2020,~~2021, our Board of Directors approved a cash dividend of ~~$0.10~~$0.12 per share on all outstanding shares of Class A and Class B Common Stock as of June 15, ~~2020~~2021 to be paid on July 15, ~~2020.~~2021. Under the ~~2016~~2021 Credit ~~Facilities,~~Agreement, dividends are permitted to the extent that no event of default exists and we are in compliance with the financial covenants contained therein. The indenture governing the 6.125% Notes also ~~contain~~contains restrictions on our ability to pay dividends. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of March 31, ~~2020,~~2021, we had approximately ~~$274.1~~$290.0 million of net income and retained earnings free of such restrictions. The payment of any future dividend is subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance and share repurchases, the current economic environment and other factors considered relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors determines our future dividend policy. There is no guarantee that additional dividends will be declared and paid at any time in the future. See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a description of restrictions on the payment of dividends.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash Flows

Net cash ~~used in~~provided by operating activities in the three months ended March 31, 2021 was approximately $90.2 million. This provision of cash was comprised primarily of net income (less non-cash items), an increase in trade accounts payable and other liabilities and a decrease in inventories, offset partially by an decrease in notes payable – floor plan – trade. In the three months ended March 31, 2020, net cash used in operating activities was approximately $47.2 million. This use of cash was comprised primarily of an increase in other assets and an increase in receivables, offset partially by increases in notes payable – floor plan – trade and inventories and a decrease in cash inflows related to operating profits. In

Net cash used in investing activities in the three months ended March 31, ~~2019, net cash used in operating activities~~2021 was approximately ~~$94.3~~$75.6 million. This use of cash was comprised primarily of ~~an increase in other assets~~purchases of land, property and ~~a decrease in notes payable – floor plan – trade, offset partially by decreases in receivables and cash inflows related to operating profits.~~

equipment. Net cash used in investing activities in the three months ended March 31, 2020 was approximately $19.6 million. This use of cash was comprised primarily of purchases of land, property and equipment, offset partially by proceeds from sales of property and equipment.

Net cash ~~provided by investing~~used in financing activities in the three months ended March 31, ~~2019~~2021 was approximately ~~$92.2~~$107.7 million. This ~~provision~~use of cash was comprised primarily of ~~proceeds from the sale~~net repayments of ~~franchised dealerships~~notes payable – floor plan – non-trade and ~~property and equipment, offset partially by~~ purchases of ~~land, property and equipment.~~

treasury stock. Net cash provided by financing activities in the three months ended March 31, 2020 was approximately $219.5 million. This provision of cash was comprised primarily of proceeds from net borrowings on revolving credit facilities and net ~~borrowings~~borrowing of notes payable – floor plan – non-trade, offset partially by purchases of treasury stock and payments on long-term debt. Net cash used in financing activities in the three months ended March 31, 2019 was approximately $1.0 million. This use of cash was comprised primarily of net borrowings of notes payable – floor plan – non-trade, offset partially by payments on long-term debt and purchases of treasury stock.

We arrange our inventory floor plan financing through both manufacturer captive finance companies and a syndicate of manufacturer-affiliated finance companies and commercial banks. Our floor plan financed with manufacturer captives is recorded as trade floor plan liabilities (with the resulting change being reflected as operating cash flows). Our dealerships that obtain floor plan financing from a syndicate of manufacturer-affiliated finance companies and commercial banks record their obligation as non-trade floor plan liabilities (with the resulting change being reflected as financing cash flows). Due to the presentation differences for changes in trade floor plan financing and non-trade floor plan financing in the accompanying

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

unaudited condensed consolidated statements of cash flows, decisions made by us to move dealership floor plan financing arrangements from one finance source to another may cause significant variations in operating and financing cash flows without affecting our overall liquidity, working capital or cash flows. Net cash ~~provided by~~used in combined trade and non-trade floor plan financing ~~used~~was approximately $97.9 million in the three months ended March 31, 2021. Net cash provided by combined trade and non-trade floor plan financing was approximately $7.6 million in the three months ended March 31, 2020. ~~Net cash used in combined trade and non-trade floor plan financing was approximately $48.1 million in the three months ended March 31, 2019.~~ Accordingly, if all changes in floor plan notes payable were classified as an operating activity, the result would have been net cash ~~used in~~provided by operating activities of approximately ~~$6.0 million and $84.5~~$38.8 million in the three months ended March 31, ~~2020~~2021 and ~~2019, respectively.~~net cash used in operating activities $6.0 million in the three months ended March 31, 2020.

One factor that management uses to measure cash flow generation or use is Adjusted EBITDA, a non-GAAP financial measure, for each of the Company’s reportable segments. That measure is provided and reconciled to the nearest comparable GAAP financial measure in the ~~table~~tables below:


		Three Months Ended March 31, 2020														Three Months Ended March 31, 2019															Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total			Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total
		(In thousands)																															(In thousands)
Net income (loss)	Net income (loss)							$	(199,333)							$	42,221	Net income (loss)							$	54,222							$	(199,333)
Provision for income taxes	Provision for income taxes							(44,200)								18,935		Provision for income taxes							19,051								(44,200)
Income (loss) before taxes	Income (loss) before taxes	$	(245,344)	$	2,096	$	(285)	$	(243,533)	$	61,156	$	180	$	(180)	$	61,156	Income (loss) before taxes	$	70,543	$	2,010	$	720	$	73,273	$	(245,344)	$	2,096	$	(285)	$	(243,533)
Non-floor plan interest (1)	Non-floor plan interest (1)	10,043		365		—		10,408		11,829		433		—		12,262		Non-floor plan interest (1)	9,127		334		—		9,461		10,043		365		—		10,408
Depreciation & amortization (2)	Depreciation & amortization (2)	20,144		2,708		—		22,852		20,824		2,418		—		23,242		Depreciation & amortization (2)	21,206		3,304		—		24,510		20,144		2,708		—		22,852
Stock-based compensation expense	Stock-based compensation expense	2,427		—		—		2,427		2,814		—		—		2,814		Stock-based compensation expense	3,485		—		—		3,485		2,427		—		—		2,427
Loss (gain) on exit of leased dealerships		—		—		—		—		(170)		—		—		(170)

Asset impairment charges	Asset impairment charges	268,000		—		—		268,000		26		1,926		—		1,952		Asset impairment charges	—		—		—		—		268,000		—		—		268,000

Loss (gain) on franchise disposals		—		—		—		—		(46,750)		—		—		(46,750)
Long-term compensation charges																		Long-term compensation charges	—		500		—		500		—		—		—		—
Loss (gain) on franchise and real estate disposals																		Loss (gain) on franchise and real estate disposals	(21)		14		—		(7)		—		—		—		—
Adjusted EBITDA (3)	Adjusted EBITDA (3)	$	55,270	$	5,169	$	(285)	$	60,154	$	49,729	$	4,957	$	(180)	$	54,506	Adjusted EBITDA (3)	$	104,340	$	6,162	$	720	$	111,222	$	55,270	$	5,169	$	(285)	$	60,154

(1)Includes the following line items from the accompanying unaudited condensed consolidated statements of ~~income,~~operations, net of any amortization of debt issuance costs or net debt discount/premium included in footnote (2) below: interest expense, other, net; interest expense, non-cash, convertible debt; and interest expense/amortization, non-cash, cash flow swaps.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(2)Includes the following line items from the accompanying unaudited condensed consolidated statements of cash flows: depreciation and amortization of property and equipment; debt issuance cost amortization; and net debt discount/premium amortization and other amortization.

(3)Adjusted EBITDA is a non-GAAP financial measure.

Future Liquidity Outlook

We believe our best sources of liquidity for operations and debt service remain cash flows generated from operations combined with the availability of borrowings under our floor plan facilities (or any replacements thereof), the 2016 Credit Facilities (which were amended, restated and consolidated subsequent to March 31, 2021 - see Note 11, “Subsequent Events,” to the accompanying unaudited condensed consolidated financial statements for further discussion), the 2019 Mortgage Facility (or any replacements thereof), the ~~2019 Mortgage~~2020 Line of Credit Facility (or any replacements thereof), real estate mortgage financing, selected dealership and other asset sales and our ability to raise funds in the capital markets through offerings of debt or equity securities. Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and our ability to service our obligations depend to a substantial degree on the results of operations of these subsidiaries, their contractual obligations and capital requirements, and their ability to provide us with cash.

WeCurrently, we do note believe the second quarter of 2020 will be challenging from an operational standpoint due to the anticipated lower level of sales activity resulting from the COVID-19 pandemic. We have taken actions to increase overall liquidity by ensuring all vehicles that are available for flooring are floored, negotiating with landlords and other vendors for payment abatements or deferrals, reviewing our portfolio of unencumbered owned real estate for mortgage opportunities, taking advantage of certain federal and state programs for the deferral of payment of certain types of taxes (income, payroll, sales, withholding and property), seeking amendments to our outstanding credit facilities and exploring sources of liquidity provided through various governmental programs.

~~Currently,~~ the effects of the COVID-19 pandemic have ~~not~~materially affected our cost of or access to capital and funding ~~sources.~~sources, but this could change if the pandemic and its impact on our business worsens. We do not currently anticipate any materially negative changes to our cost of or access to capital over the ~~near~~next 12 months or ~~longer term other than~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~the expectation that operating results for the second quarter of 2020 will be significantly less than those from the prior year period.~~after.

Off-Balance Sheet Arrangements

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.~~dealerships or facilities. 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 sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, we remain liable for such obligations.

In accordance with the terms of agreements entered into for the sale of our dealerships, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of sale, including environmental exposure and exposure resulting from the breach of representations or warranties made in accordance with the agreements. While our exposure with respect to environmental remediation and repairs is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately ~~$43.3 million and $46.5~~$25.0 million at both March 31, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020. These indemnifications typically expire within a period of one to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at March 31, ~~2020.~~2021.

We also guarantee the floor plan commitments of our 50%-owned joint venture, the amount of which was approximately $4.3 million at both March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

See Note 7, “Commitments and Contingencies,” to the accompanying unaudited condensed consolidated financial statements and Note ~~12,~~11, “Commitments and Contingencies,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for further discussion regarding these guarantees and indemnification obligations.

Seasonality

Our operations are subject to seasonal variations. The first quarter historically has contributed less operating profit than the second and third quarters, while the fourth quarter historically has contributed the highest operating profit of any quarter. Weather conditions, the timing of manufacturer incentive programs and model changeovers cause seasonality and may adversely affect vehicle demand and, consequently, our profitability. Comparatively, parts and service demand ~~remains~~has historically remained stable throughout the year.

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SONIC AUTOMOTIVE, INC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Our variable rate floor plan facilities, the 2016 Revolving Credit Facility, the 2019 Mortgage Facility, the 2020 Line of Credit Facility and our other variable rate notes expose us to risks caused by fluctuations in the applicable interest rates. The total outstanding balance of such variable instruments, after considering the effect of our interest rate caps (see below), was approximately ~~$1.5~~$1.1 billion at March 31, ~~2020.~~2021. An increase in interest rates of 100 basis points would have caused a change in interest expense of approximately ~~$5.0~~$8.6 million in the three months ended March 31, ~~2020~~.2021. Of the total change in interest expense, approximately ~~$4.0~~$8.0 million would have resulted from our floor plan facilities.

In addition to our variable rate debt, certain of our dealership lease facilities have monthly lease payments that fluctuate based on LIBOR interest rates. An increase in interest rates of 100 basis points would not have had a significant impact on rent expense in the three months ended March 31, ~~2020~~2021 due to the leases containing LIBOR floors which were above the LIBOR rate during the three months ended March 31, ~~2020.~~2021.

We also have interest rate cap agreements designated as hedging instruments to limit our exposure to increases in LIBOR rates above certain levels. Under the terms of these interest rate caps, interest rates reset monthly. The fair value of the outstanding interest rate cap positions at March 31, ~~2020~~2021 was ~~an asset of approximately $0.1 million, included in other assets in~~not material to the accompanying unaudited condensed consolidated balance sheet as of such date. During 2018, we terminated all of our previously outstanding interest rate cash flow swap agreements for net cash proceeds of approximately $4.8 million, which is being amortized into income as a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income on a ratable basis over the original term of the agreements (through July 1, 2020). The fair value of the outstanding interest rate cap positions at December 31, ~~2019~~2020 was ~~a net asset of approximately $0.1 million, included in other assets in~~not material to the accompanying unaudited condensed consolidated balance sheet as of such date. See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a discussion of our outstanding interest rate instruments.

Foreign Currency Risk

We purchase certain of our new vehicle and parts inventories from foreign manufacturers. Although we purchase our inventories in U.S. Dollars, our business is subject to foreign exchange rate risk that may influence automobile manufacturers’ ability to provide their products at competitive prices in the ~~United States.~~U.S. To the extent that we cannot recapture this exchange rate volatility in prices charged to customers or if this volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.

5242

SONIC AUTOMOTIVE, INC.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures – Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, ~~2020.~~2021. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, ~~2020.~~2021.

Changes in Internal Control over Financial Reporting – There ~~has been~~were no ~~change~~changes in our internal control over financial reporting during the ~~three months~~quarter ended March 31, ~~2020,~~2021, that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. In addition, any evaluation of the effectiveness of internal control over financial reporting in future periods is subject to risk that those internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

5343

SONIC AUTOMOTIVE, INC.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~We are involved,~~For information regarding legal proceedings, see the discussion under the heading “Legal and ~~expect~~Other Proceedings” in Note 7. “Commitments and Contingencies” to continue to be involved, in various legal and administrative proceedings arising out of the conduct of our 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 we vigorously defend ourselves in all legal and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of our 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 our business, financial condition, results of operations, cash flows or prospects.

~~Included in other accrued liabilities and other long-term liabilities in~~ the accompanying unaudited condensed consolidated balance sheet as of March 31, 2020 was approximately $0.4 million and $0.2 million, respectively, in reserves that we were holding for pending proceedings. Except as reflected in such reserves, we are currently unable to estimate a range of reasonably possible loss, or a range of reasonably possible loss in excess of the amount accrued, for pending proceedings.financial statements.

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SONIC AUTOMOTIVE, INC.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019, except as noted below.~~

~~Our business could be adversely affected by the effects of widespread public health epidemics.~~2020.

The automotive manufacturing supply chain spans the globe. As such, supply chain disruptions resulting from natural disasters, adverse weather and other events may affect the flow of inventory or parts to us or our manufacturing partners. For example, in early 2020, the worldwide spread of COVID~~-19~~ led to widespread disruptions to travel and economic activity, including automobile manufacturing and supply chain shut-downs. The extent to which COVID-19 may continue to adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effects. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition and cash flows. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets.

5545

SONIC AUTOMOTIVE, INC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~See Note 6, “Long-Term Debt,” to~~The following table sets forth information about the ~~accompanying unaudited condensed consolidated financial statements for a description~~shares of ~~restrictions on~~Class A Common Stock we repurchased during the ~~payment of dividends.~~three months ended March 31, 2021.


Issuer Purchases of Equity Securities
	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
	(In thousands, except per share data)
January 2021	—	$	—	—	$	—
February 2021	575,832	$	41.87	575,832	$	45,307
March 2021	381,471	$	47.10	381,471	$	27,307
Total	957,303			957,303

(1)

On February 13, 2017 and July 31, 2020, we announced that our Board of Directors had increased the dollar amount authorized for us to repurchase shares of our Class A Common Stock pursuant to our share repurchase program. Our share repurchase program does not have an expiration date and current remaining availability under the program is as follows:


	(In thousands)
February 2017 authorization	$	100,000
July 2020 authorization	60,000
Total active program repurchases prior to March 31, 2021	(132,693)
Current remaining availability as of March 31, 2021	$	27,307

See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional

discussion of restrictions on share repurchases and payment of dividends.

Subsequent to March 31, 2021, our Board of Directors increased our share repurchase authorization by $250.0 million. After giving effect to such increase, we had $277.3 million available under our authorized share repurchase program.

SONIC AUTOMOTIVE, INC.

Item 6. Exhibits.


Exhibit No.	Description

3.1		Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated August 7, 1997 (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).

3.2	Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock, dated March 20, 1998 (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).

3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated June 16, 1999 (incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).

3.4	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated April 18, 2017 (incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).

3.5	Amended and Restated Bylaws of Sonic Automotive, Inc., dated ~~July 27, 2017 (incorporated~~February 10, 2021 (incorporated by reference to Exhibit ~~3.5~~3.1 to the ~~Quarterly~~ Current Report on Form ~~10-Q for the quarter ended June 30, 2017 (File~~8-K filed February 12, 2021 (File No. 001-13395)).




10.1*10.1	~~Amendment No. 1 to Third~~Fifth Amended, Restated and ~~Restated Syndicated New and Used Vehicle Floorplan~~Consolidated Credit Agreement, dated as of ~~March 31, 2020~~,April 14, 2021, among Sonic Automotive, Inc.; the subsidiaries of Sonic Automotive, Inc. named therein; each lender a party thereto; Bank of America, N.A., as administrative agent, revolving swing line lender, new vehicle swing line lender, ~~and~~ used vehicle swing line ~~lender;~~lender and an l/c issuer. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
10.2	Form of Promissory Note, dated April 14, 2021, executed by Sonic Automotive, Inc., as borrower, in favor of each of the lenders to the Fifth Amended, Restated and Consolidated Credit Agreement. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
10.3	Fourth Amended and Restated Company Guaranty Agreement, dated as of April 14, 2021, by Sonic Automotive, Inc. to Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
10.4	Fifth Amended, Restated and Consolidated Subsidiary Guaranty Agreement, dated as of April 14, 2021, by the subsidiaries of Sonic Automotive, Inc. named therein, as guarantors, to Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
10.5	Fifth Amended and Restated Securities Pledge Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as ~~revolving~~ administrative ~~agent.~~agent for the lenders. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
10.6	Fifth Amended and Restated Escrow and Security Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
10.7	Fifth Amended and Restated Security Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
31.1*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	Inline XBRL Instance Document.

101.SCH*	Inline XBRL Taxonomy Extension Schema Document.

101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Furnished herewith.

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SONIC AUTOMOTIVE, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SONIC AUTOMOTIVE, INC.

~~May 11, 2020~~April 29, 2021	By:	/s/ DAVID BRUTON SMITH
		David Bruton Smith
		Chief Executive Officer

~~May 11, 2020~~April 29, 2021	By:	/s/ HEATH R. BYRD
		Heath R. Byrd
		Executive Vice President and Chief Financial Officer

5848


			Page
PART I – FINANCIAL INFORMATION			1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of ~~Income~~Operations	1
	Condensed Consolidated Statements of Comprehensive ~~Income~~Operations	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2217
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5242
Item 4.	Controls and Procedures	5343
PART II – OTHER INFORMATION			5444
Item 1.	Legal Proceedings	5444
Item 1A.	Risk Factors	5545
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5646
Item 6.	Exhibits	5747
SIGNATURES			5848


Notional Amount		Cap Rate (1)	Receive Rate (1) (2)	Start Date	End Date
(In millions)
$	312.5	2.000%	one-month LIBOR	July 1, 2019	June 30, 2020
$	250.0	3.000%	one-month LIBOR	July 1, 2019	June 30, 2020
$	225.0	3.000%	one-month LIBOR	July 1, 2020	June 30, 2021
$	150.0	2.000%	one-month LIBOR	July 1, 2020	July 1, 2021
$	250.0	3.000%	one-month LIBOR	July 1, 2021	July 1, 2022


	Gains and (Losses) on Cash Flow Hedges		Defined Benefit Pension Plan		Total Accumulated Other Comprehensive Income (Loss)
	(In thousands)
Balance at December 31, 2019	$	(1,326)	$	(736)	$	(2,062)
Other comprehensive income (loss) before reclassifications (1)	294		—		294
Amounts reclassified out of accumulated other comprehensive income (loss) (2)	(566)		—		(566)
Net current-period other comprehensive income (loss)	(272)		—		(272)
Balance at March 31, 2020	$	(1,598)	$	(736)	$	(2,334)


	As Reported December 31, 2019		New Leases		Modifications (1)		Reduction / Amortization		As Reported March 31, 2020
	(In thousands)
ROU Assets:
Finance Leases	$	34,691	$	—	$	16,763	$	(756)	$	50,698
Operating Leases	337,842		—		17,191		(10,885)		344,148
Total ROU Assets	$	372,533	$	—	$	33,954	$	(11,641)	$	394,846

Current Lease Liabilities:
Finance Leases	$	1,564	$	—	$	18,588	$	73	$	20,225
Operating Leases	43,332		—		402		(595)		43,139
Total Current Lease Liabilities	$	44,896	$	—	$	18,990	$	(522)	$	63,364

Long-Term Lease Liabilities:
Finance Leases	$	36,313	$	—	$	(2,687)	$	(410)	$	33,216
Operating Leases	304,151		—		17,651		(10,431)		311,371
Total Long-Term Lease Liabilities	$	340,464	$	—	$	14,964	$	(10,841)	$	344,587


	March 31, 2020		March 31, 2019
Other Information:
Weighted-average remaining lease term (in years)
Finance leases	7.8		11.4
Operating leases	9.6		9.8
Weighted-average discount rate
Finance leases	16.52	%	18.31	%
Operating leases	6.56	%	6.86	%


	Undiscounted Lease Cash Flows Under ASC 842 as of March 31, 2020
	Finance		Operating		Receipts from Subleases
Year Ending December 31,	(In thousands)
Remainder of 2020	$	23,572	$	48,808	$	(8,343)
2021	6,075		60,674		(8,228)
2022	6,083		54,358		(6,103)
2023	6,144		52,687		(6,103)
2024	6,263		47,219		(5,042)
Thereafter	43,103		223,118		(4,270)
Total	$	91,240	$	486,864	$	(38,089)

Less: Present value discount	(37,799)		(132,354)
Lease liabilities	$	53,441	$	354,510