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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 1-13395
______________________________________
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
______________________________________
Delaware
56-2010790
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

4401 Colwick Road
28211
Charlotte,North Carolina
(Address of principal executive offices)(Zip Code)
(704) 566-2400
(Registrant’s telephone number, including area code)
______________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01 per shareSAHNew 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 filerAccelerated filer
Non-accelerated filer☐  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  
As of October 21, 2019, there were 31,105,000 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,” “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, 2018 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;
changes in vehicle and parts import quotas, duties, tariffs or other restrictions;
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 competition in the retail automotive industry, which not only creates 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; and
the rate and timing of overall economic recovery or decline.
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.




PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATE D STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(Dollars and shares in thousands, except per share amounts)
Revenues:
New vehicles$1,258,018  $1,235,094  $3,529,106  $3,654,510  
Used vehicles914,272  745,998  2,620,264  2,217,616  
Wholesale vehicles51,542  48,578  156,351  167,726  
Total vehicles2,223,832  2,029,670  6,305,721  6,039,852  
Parts, service and collision repair352,047  343,118  1,048,789  1,041,630  
Finance, insurance and other, net126,841  98,061  351,429  295,890  
Total revenues2,702,720  2,470,849  7,705,939  7,377,372  
Cost of Sales:
New vehicles(1,202,710) (1,173,453) (3,363,603) (3,478,802) 
Used vehicles(877,444) (710,681) (2,509,699) (2,108,219) 
Wholesale vehicles(52,648) (49,877) (159,437) (176,806) 
Total vehicles(2,132,802) (1,934,011) (6,032,739) (5,763,827) 
Parts, service and collision repair(183,107) (176,302) (546,067) (538,135) 
Total cost of sales(2,315,909) (2,110,313) (6,578,806) (6,301,962) 
Gross profit386,811  360,536  1,127,133  1,075,410  
Selling, general and administrative expenses(296,826) (289,022) (838,453) (871,410) 
Impairment charges(1,124)   (3,076) (13,961) 
Depreciation and amortization(23,665) (23,377) (70,120) (71,067) 
Operating income (loss)65,196  48,137  215,484  118,972  
Other income (expense):
Interest expense, floor plan(11,638) (12,192) (37,382) (34,815) 
Interest expense, other, net(13,013) (13,313) (39,494) (40,144) 
Other income (expense), net(5)   90  107  
Total other income (expense)(24,656) (25,505) (76,786) (74,852) 
Income (loss) from continuing operations before taxes40,540  22,632  138,698  44,120  
Provision for income taxes for continuing operations - benefit (expense)(11,372) (7,331) (40,430) (13,711) 
Income (loss) from continuing operations29,168  15,301  98,268  30,409  
Discontinued operations:
Income (loss) from discontinued operations before taxes(223) (252) (616) (797) 
Provision for income taxes for discontinued operations - benefit (expense)65  69  179  218  
Income (loss) from discontinued operations(158) (183) (437) (579) 
Net income (loss)$29,010  $15,118  $97,831  $29,830  
Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations$0.68  $0.36  $2.28  $0.71  
Earnings (loss) per share from discontinued operations(0.01) (0.01) (0.01) (0.01) 
Earnings (loss) per common share$0.67  $0.35  $2.27  $0.70  
Weighted-average common shares outstanding43,078  42,673  42,995  42,708  
Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations$0.66  $0.36  $2.26  $0.71  
Earnings (loss) per share from discontinued operations  (0.01) (0.01) (0.02) 
Earnings (loss) per common share$0.66  $0.35  $2.25  $0.69  
Weighted-average common shares outstanding44,203  42,994  43,456  42,964  




See notes to unaudited condensed consolidated financial statements.


1


SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(Dollars in thousands)
Net income (loss)$29,010  $15,118  $97,831  $29,830  
Other comprehensive income (loss) before taxes:
Change in fair value of interest rate swap and interest rate cap agreements(223) 533  (3,971) 5,736  
Amortization of terminated interest rate swap agreements(786)   (1,707)   
Total other comprehensive income (loss) before taxes(1,009) 533  (5,678) 5,736  
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)330  (145) 1,726  (1,563) 
Other comprehensive income (loss)(679) 388  (3,952) 4,173  
Comprehensive income (loss)$28,331  $15,506  $93,879  $34,003  






See notes to unaudited condensed consolidated financial statements.


2


SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

September 30, 2019December 31, 2018
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents$2,401  $5,854  
Receivables, net365,005  438,186  
Inventories1,528,667  1,528,461  
Other current assets126,388  20,886  
Total current assets2,022,461  1,993,387  
Property and Equipment, net1,136,213  1,178,489  
Goodwill487,306  509,592  
Other Intangible Assets, net64,300  69,705  
Operating Right-of-Use Lease Assets328,850    
Finance Right-of-Use Lease Assets35,322    
Other Assets43,440  45,634  
Total Assets$4,117,892  $3,796,807  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade$742,520  $821,074  
Notes payable - floor plan - non-trade704,238  712,966  
Trade accounts payable119,790  114,263  
Operating short-term lease liabilities43,692    
Finance short-term lease liabilities1,515    
Accrued interest11,872  13,417  
Other accrued liabilities259,467  257,823  
Current maturities of long-term debt62,854  26,304  
Total current liabilities1,945,948  1,945,847  
Long-Term Debt846,222  918,779  
Other Long-Term Liabilities71,133  75,887  
Operating Long-Term Lease Liabilities295,005    
Finance Long-Term Lease Liabilities36,646    
Deferred Income Taxes20,513  33,178  
Commitments and Contingencies
Stockholders’ Equity:
Class A Convertible Preferred Stock, none issued    
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 64,733,667 shares issued and 31,105,000 shares outstanding at September 30, 2019; 64,197,385 shares issued and 30,721,226 shares outstanding at December 31, 2018647  642  
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at September 30, 2019 and December 31, 2018121  121  
Paid-in capital753,214  745,052  
Retained earnings748,166  670,691  
Accumulated other comprehensive income (loss)281  4,233  
Treasury stock, at cost; 33,628,667 Class A Common Stock shares held at September 30, 2019 and 33,476,159 Class A Common Stock shares held at December 31, 2018(600,004) (597,623) 
Total Stockholders’ Equity902,425  823,116  
Total Liabilities and Stockholders’ Equity$4,117,892  $3,796,807  




See notes to unaudited condensed consolidated financial statements.


3


SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)


Class A
Common Stock
Class A
Treasury Stock
Class B
Common Stock
Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at June 30, 201864,126  $641  (33,444) $(596,981) 12,029  $121  $739,212  $638,895  $5,092  $786,980  
Shares awarded under stock compensation plans71  1  —  —  —  —  (2) —  —  (1) 
Purchases of treasury stock—  —  (32) (642) —  —  —  —  —  (642) 
Effect of cash flow hedge instruments, net of tax expense of $145—  —  —  —  —  —  —  —  388  388  
Restricted stock amortization—  —  —  —  —  —  4,578  —  —  4,578  
Net income (loss)—  —  —  —  —  —  —  15,118  —  15,118  
Class A dividends declared ($0.06)—  —  —  —  —  —  —  (1,987) —  (1,987) 
Class B dividends declared ($0.06)—  —  —  —  —  —  —  (590) —  (590) 
Balance at September 30, 201864,197  $642  (33,476) $(597,623) 12,029  $121  $743,788  $651,436  $5,480  $803,844  



Class A
Common Stock
Class A
Treasury Stock
Class B
Common Stock
Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at June 30, 201964,728  $647  (33,629) $(600,004) 12,029  $121  $750,532  $723,469  $960  $875,725  
Shares awarded under stock compensation plans6    —  —  —  —    —  —    
Purchases of treasury stock—  —      —  —  —  —  —    
Effect of cash flow hedge instruments, net of tax benefit of $330—  —  —  —  —  —  —  —  (679) (679) 
Restricted stock amortization—  —  —  —  —  —  2,682  —  —  2,682  
Net income (loss)—  —  —  —  —  —  —  29,010  —  29,010  
Class A dividends declared ($0.10)—  —  —  —  —  —  —  (3,110) —  (3,110) 
Class B dividends declared ($0.10)—  —  —  —  —  —  —  (1,203) —  (1,203) 
Balance at September 30, 201964,734  $647  (33,629) $(600,004) 12,029  $121  $753,214  $748,166  $281  $902,425  



















See notes to unaudited condensed consolidated financial statements.


4


SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

Class A
Common Stock
Class A
Treasury Stock
Class B
Common Stock
Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 201763,457  $635  (32,290) $(573,513) 12,029  $121  $732,854  $625,356  $1,307  $786,760  
Shares awarded under stock compensation plans740  7  —  —  —  —  345  —  —  352  
Purchases of treasury stock—  —  (1,186) (24,110) —  —  —  —  —  (24,110) 
Effect of cash flow hedge instruments, net of tax expense of $1,563—  —  —  —  —  —  —  —  4,173  4,173  
Restricted stock amortization—  —  —  —  —  —  10,589  —  —  10,589  
Net income (loss)—  —  —  —  —  —  —  29,830  —  29,830  
Cumulative effect of change in accounting principle (1)—  —  —  —  —  —  —  3,918  —  3,918  
Class A dividends declared ($0.18)—  —  —  —  —  —  —  (6,224) —  (6,224) 
Class B dividends declared ($0.18)—  —  —  —  —  —  —  (1,444) —  (1,444) 
Balance at September 30, 201864,197  $642  (33,476) $(597,623) 12,029  $121  $743,788  $651,436  $5,480  $803,844  

Class A
Common Stock
Class A
Treasury Stock
Class B
Common Stock
Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 201864,197  $642  (33,476) $(597,623) 12,029  $121  $745,052  $670,691  $4,233  $823,116  
Shares awarded under stock compensation plans537  5  —  —  —  —  55  —  —  60  
Purchases of treasury stock—  —  (153) (2,381) —  —  —  —  —  (2,381) 
Effect of cash flow hedge instruments, net of tax benefit of $1,726—  —  —  —  —  —  —  —  (3,952) (3,952) 
Restricted stock amortization—  —  —  —  —  —  8,107  —  —  8,107  
Net income (loss)—  —  —  —  —  —  —  97,831  —  97,831  
Cumulative effect of change in accounting principle (1)—  —  —  —  —  —  —  (7,428) —  (7,428) 
Class A dividends declared ($0.30)—  —  —  —  —  —  —  (9,319) —  (9,319) 
Class B dividends declared ($0.30)—  —  —  —  —  —  —  (3,609) —  (3,609) 
Balance at September 30, 201964,734  $647  (33,629) $(600,004) 12,029  $121  $753,214  $748,166  $281  $902,425  
(1) See Note 1, “Summary of Significant Accounting Policies,” for further discussion.



See notes to unaudited condensed consolidated financial statements.


5


SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
20192018
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$97,831  $29,830  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment67,670  71,063  
Provision for bad debt expense277