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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 June 30, 2020
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 July 29, 2020, there were 30,582,890 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 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 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;
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 governmental authorities, businesses or consumers in response to 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 AND SIX MONTHS ENDED JUNE 30, 2020

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 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(Dollars and shares in thousands, except per share amounts)
Revenues:
New vehicles$900,003  $1,204,754  $1,859,492  $2,271,088  
Used vehicles808,877  885,627  1,658,930  1,705,992  
Wholesale vehicles33,175  50,039  81,718  104,810  
Total vehicles1,742,055  2,140,420  3,600,140  4,081,890  
Parts, service and collision repair259,058  355,312  593,738  696,742  
Finance, insurance and other, net110,773  118,349  226,064  224,587  
Total revenues2,111,886  2,614,081  4,419,942  5,003,219  
Cost of Sales:
New vehicles(854,617) (1,148,354) (1,768,690) (2,160,892) 
Used vehicles(781,506) (848,898) (1,599,428) (1,632,256) 
Wholesale vehicles(33,601) (50,752) (82,303) (106,789) 
Total vehicles(1,669,724) (2,048,004) (3,450,421) (3,899,937) 
Parts, service and collision repair(134,779) (184,766) (311,560) (362,960) 
Total cost of sales(1,804,503) (2,232,770) (3,761,981) (4,262,897) 
Gross profit307,383  381,311  657,961  740,322  
Selling, general and administrative expenses(230,359) (294,532) (512,515) (541,626) 
Impairment charges(833)   (268,833) (1,952) 
Depreciation and amortization(22,647) (23,806) (44,944) (46,456) 
Operating income (loss)53,544  62,973  (168,331) 150,288  
Other income (expense):
Interest expense, floor plan(6,314) (12,518) (16,822) (25,744) 
Interest expense, other, net(9,797) (13,628) (20,762) (26,481) 
Other income (expense), net  (5) 100  95  
Total other income (expense)(16,111) (26,151) (37,484) (52,130) 
Income (loss) from continuing operations before taxes37,433  36,822  (205,815) 98,158  
Provision for income taxes for continuing operations - benefit (expense)(6,437) (10,071) 37,680  (29,058) 
Income (loss) from continuing operations30,996  26,751  (168,135) 69,100  
Discontinued operations:
Income (loss) from discontinued operations before taxes(289) (213) (573) (393) 
Provision for income taxes for discontinued operations - benefit (expense)84  61  166  114  
Income (loss) from discontinued operations(205) (152) (407) (279) 
Net income (loss)$30,791  $26,599  $(168,542) $68,821  
Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations$0.72  $0.62  $(3.93) $1.61  
Earnings (loss) per share from discontinued operations    (0.01) (0.01) 
Earnings (loss) per common share$0.72  $0.62  $(3.94) $1.60  
Weighted-average common shares outstanding42,940  43,066  42,779  42,953  
Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations$0.71  $0.62  $(3.93) $1.60  
Earnings (loss) per share from discontinued operations  (0.01) (0.01)   
Earnings (loss) per common share$0.71  $0.61  $(3.94) $1.60  
Weighted-average common shares outstanding43,575  43,230  42,779  43,060  




See notes to unaudited condensed consolidated financial statements.


1


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

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(Dollars in thousands)
Net income (loss)$30,791  $26,599  $(168,542) $68,821  
Other comprehensive income (loss) before taxes:
Change in fair value of interest rate swap and interest rate cap agreements419  (1,400) 780  (3,748) 
Amortization of terminated interest rate swap agreements(835) (632) (1,632) (921) 
Total other comprehensive income (loss) before taxes(416) (2,032) (852) (4,669) 
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)161  620  325  1,396  
Other comprehensive income (loss)(255) (1,412) (527) (3,273) 
Comprehensive income (loss)$30,536  $25,187  $(169,069) $65,548  






See notes to unaudited condensed consolidated financial statements.


2


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

June 30, 2020December 31, 2019
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents$115,724  $29,103  
Receivables, net322,703  432,742  
Inventories1,176,506  1,517,875  
Other current assets124,170  37,890  
Total current assets1,739,103  2,017,610  
Property and Equipment, net1,112,873  1,097,247  
Goodwill207,791  475,791  
Other Intangible Assets, net64,300  64,300  
Operating Right-of-Use Lease Assets341,410  337,842  
Finance Right-of-Use Lease Assets38,513  34,691  
Other Assets91,435  43,554  
Total Assets$3,595,425  $4,071,035  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade$603,211  $860,871  
Notes payable - floor plan - non-trade614,102  678,223  
Trade accounts payable105,784  135,217  
Operating short-term lease liabilities44,739  43,332  
Finance short-term lease liabilities1,243  1,564  
Accrued interest13,341  10,830  
Other accrued liabilities293,714  266,211  
Current maturities of long-term debt72,043  69,908  
Total current liabilities1,748,177  2,066,156  
Long-Term Debt677,488  636,978  
Other Long-Term Liabilities75,344  73,746  
Operating Long-Term Lease Liabilities307,528  304,151  
Finance Long-Term Lease Liabilities40,274  36,313  
Deferred Income Taxes1,912  8,927  
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; 65,603,746 shares issued and 30,965,255 shares outstanding at June 30, 2020; 64,733,667 shares issued and 31,105,000 shares outstanding at December 31, 2019
656  647  
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at June 30, 2020 and December 31, 2019
121  121  
Paid-in capital761,293  755,904  
Retained earnings613,033  790,158  
Accumulated other comprehensive income (loss)(2,589) (2,062) 
Treasury stock, at cost; 34,638,491 Class A Common Stock shares held at June 30, 2020 and 33,628,667 Class A Common Stock shares held at December 31, 2019
(627,812) (600,004) 
Total Stockholders’ Equity744,702  944,764  
Total Liabilities and Stockholders’ Equity$3,595,425  $4,071,035  




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 March 31, 201964,677  $647  (33,625) $(599,956) 12,029  $121  $747,920  $701,182  $2,372  $852,286  
Shares awarded under stock compensation plans51    —  —  —  —    —  —    
Purchases of treasury stock—  —  (4) (48) —  —  —  —  —  (48) 
Effect of cash flow hedge instruments, net of tax benefit of $620—  —  —  —  —  —  —  —  (1,412) (1,412) 
Restricted stock amortization—  —  —  —  —  —  2,612  —  —  2,612  
Net income (loss)—  —  —  —  —  —  —  26,599  —  26,599  
Class A dividends declared ($0.10)
—  —  —  —  —  —  —  (3,109) —  (3,109) 
Class B dividends declared ($0.10)
—  —  —  —  —  —  —  (1,203) —  (1,203) 
Balance at June 30, 201964,728  $647  (33,629) $(600,004) 12,029  $121  $750,532  $723,469  $960  $875,725  



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 March 31, 202065,199  $652  (34,364) $(621,290) 12,029  $121  $758,327  $586,511  $(2,334) $721,987  
Shares awarded under stock compensation plans405  4  —  —  —  —  (5) —  —  (1) 
Purchases of treasury stock—  —  (274) (6,522) —  —  —  —  —  (6,522) 
Effect of cash flow hedge instruments, net of tax benefit of $161—  —  —  —  —  —  —  —  (255) (255) 
Restricted stock and option amortization—  —  —  —  —  —  2,971  —  —  2,971  
Net income (loss)—  —  —  —  —  —  —  30,791  —  30,791  
Class A dividends declared ($0.10)
—  —  —  —  —  —  —  (3,066) —  (3,066) 
Class B dividends declared ($0.10)
—  —  —  —  —  —  —  (1,203) —  (1,203) 
Balance at June 30, 202065,604  $656  (34,638) $(627,812) 12,029  $121  $761,293  $613,033  $(2,589) $744,702  















SONIC AUTOMOTIVE, INC.



See notes to unaudited condensed consolidated financial statements.


4


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, 201864,197  $642  (33,476) $(597,623) 12,029  $121  $745,052  $670,691  $4,233  $823,116  
Shares awarded under stock compensation plans531  5  —  —  —  —  54  —  —  59  
Purchases of treasury stock—  —  (153) (2,381) —  —  —  —  —  (2,381) 
Effect of cash flow hedge instruments, net of tax benefit of $1,396—  —  —  —  —  —  —  —  (3,273) (3,273) 
Restricted stock amortization—  —  —  —  —  —  5,426  —  —  5,426  
Net income (loss)—  —  —  —  —  —  —  68,821  —  68,821  
Cumulative effect of change in accounting principle (1)—  —  —  —  —  —  —  (7,428) —  (7,428) 
Class A dividends declared ($0.20)—  —  —  —  —  —  —  (6,209) —  (6,209) 
Class B dividends declared ($0.20)—  —  —  —  —  —  —  (2,406) —  (2,406) 
Balance at June 30, 201964,728  $647  (33,629) $(600,004) 12,029  $121  $750,532  $723,469  $960  $875,725  

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, 201964,734  $647  (33,629) $(600,004) 12,029  $121  $755,904  $790,158  $(2,062) $944,764  
Shares awarded under stock compensation plans870  9  —  —  —  —  (8) —  —  1  
Purchases of treasury stock—  —  (1,009) (27,808) —  —  —  —  —  (27,808) 
Effect of cash flow hedge instruments, net of tax benefit of $325—  —  —  —  —  —  —  —  (527) (527) 
Restricted stock and option amortization—  —  —  —  —  —  5,397  —  —  5,397  
Net income (loss)—  —  —  —  —  —  —  (168,542) —  (168,542) 
Class A dividends declared ($0.20)—  —  —  —  —  —  —  (6,177) —  (6,177) 
Class B dividends declared ($0.20)—  —  —  —  —  —  —  (2,406) —  (2,406) 
Balance at June 30, 202065,604  $656  (34,638) $(627,812) 12,029  $121  $