2022Q3FALSE0001043509--12-3120033425.024.6onezero— millionzerozero3.956.1253.517.031.52.92.502.25P1Y5.06.1250.0 million0.0 millionAccumulated Other Comprehensive Income (Loss)For further discussion of Sonic’s 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, 2021. 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, 2021.For further discussion of Sonic’s 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, 2021. 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, 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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, 2022
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 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 October 25, 2022, there were 24,548,426 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 report 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, 2021 and elsewhere in this report, 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 vehicle 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, including any change in laws or regulations in response to the COVID–19 pandemic;
•changes in vehicle and parts import quotas, duties, tariffs or other restrictions, including supply shortages that could be caused by the COVID-19 pandemic, global political and economic factors, 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, inflation, vehicle valuations, 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 RFJ Auto (as defined herein) and future acquisitions;
•the significant control that our principal stockholders exercise 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 “next wave” of the pandemic as a result of new variants of the virus or otherwise.
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 U.S. Securities and Exchange Commission.



SONIC AUTOMOTIVE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

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 September 30,Nine Months Ended September 30,
2022202120222021
(Dollars and shares in millions, except per share amounts)
Revenues:
Retail new vehicles$1,373.1 $1,128.0 $4,068.7 $3,715.2 
Fleet new vehicles32.0 18.9 70.0 50.9 
Total new vehicles1,405.1 1,146.9 4,138.7 3,766.1 
Used vehicles1,358.0 1,324.8 4,178.3 3,708.9 
Wholesale vehicles114.7 97.1 404.8 256.7 
Total vehicles2,877.8 2,568.8 8,721.8 7,731.7 
Parts, service and collision repair404.7 339.9 1,183.4 994.1 
Finance, insurance and other, net165.6 164.1 505.3 486.1 
Total revenues3,448.1 3,072.8 10,410.5 9,211.9 
Cost of sales:
Retail new vehicles(1,209.6)(1,012.9)(3,569.2)(3,412.8)
Fleet new vehicles(30.7)(18.6)(66.9)(50.0)
Total new vehicles(1,240.3)(1,031.5)(3,636.1)(3,462.8)
Used vehicles(1,306.6)(1,304.6)(4,031.6)(3,623.1)
Wholesale vehicles(116.8)(95.9)(404.2)(250.1)
Total vehicles(2,663.7)(2,432.0)(8,071.9)(7,336.0)
Parts, service and collision repair(203.7)(168.8)(597.7)(492.2)
Total cost of sales(2,867.4)(2,600.8)(8,669.6)(7,828.2)
Gross profit580.7 472.0 1,740.9 1,383.7 
Selling, general and administrative expenses(399.0)(321.4)(1,188.8)(931.3)
Depreciation and amortization(32.8)(25.2)(94.0)(73.7)
Operating income148.9 125.4 458.1 378.7 
Other income (expense):
Interest expense, floor plan(9.6)(3.3)(20.6)(12.8)
Interest expense, other, net(22.9)(9.8)(65.1)(30.2)
Other income (expense), net— (0.1)0.1 0.1 
Total other income (expense)(32.5)(13.2)(85.6)(42.9)
Income from continuing operations before taxes116.4 112.2 372.5 335.8 
Provision for income taxes for continuing operations - benefit (expense)(29.1)(27.5)(93.1)(83.4)
Income from continuing operations87.3 84.7 279.4 252.4 
Discontinued operations:
Income (loss) from discontinued operations before taxes— (0.3)— 0.2 
Provision for income taxes for discontinued operations - benefit (expense)— 0.1 — — 
Income (loss) from discontinued operations— (0.2)— 0.2 
Net income$87.3 $84.5 $279.4 $252.6 
Basic earnings per common share:
Earnings per share from continuing operations$2.28 $2.04 $7.09 $6.07 
Earnings per share from discontinued operations— (0.01)— 0.01 
Earnings per common share$2.28 $2.03 $7.09 $6.08 
Weighted-average common shares outstanding38.3 41.6 39.4 41.6 
Diluted earnings per common share:
Earnings per share from continuing operations$2.23 $1.96 $6.90 $5.81 
Earnings per share from discontinued operations— (0.01)— 0.01 
Earnings per common share$2.23 $1.95 $6.90 $5.82 
Weighted-average common shares outstanding39.2 43.3 40.5 43.4 



See notes to unaudited condensed consolidated financial statements.


1

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in millions)
Net income$87.3 $84.5 $279.4 $252.6 
Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements— 0.3 0.7 1.2 
Total other comprehensive income (loss) before taxes— 0.3 0.7 1.2 
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)— (0.1)(0.2)(0.4)
Other comprehensive income (loss)— 0.2 0.5 0.8 
Comprehensive income$87.3 $84.7 $279.9 $253.4 





See notes to unaudited condensed consolidated financial statements.


2

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2022December 31, 2021
(Dollars in millions, except per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents$139.0 $299.4 
Receivables, net360.6 401.1 
Inventories1,197.1 1,261.2 
Other current assets60.3 122.4 
Total current assets1,757.0 2,084.1 
Property and Equipment, net1,555.7 1,458.8 
Goodwill436.5 416.4 
Other Intangible Assets, net513.4 480.2 
Operating Right-of-Use Lease Assets267.1 293.2 
Finance Right-of-Use Lease Assets231.4 179.9 
Other Assets67.2 62.5 
Total Assets$4,828.3 $4,975.1 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade$95.1 $89.8 
Notes payable - floor plan - non-trade959.8 1,178.6 
Trade accounts payable139.1 133.3 
Operating short-term lease liabilities36.1 36.2 
Finance short-term lease liabilities15.8 52.7 
Other accrued liabilities392.6 350.5 
Current maturities of long-term debt80.0 50.6 
Total current liabilities1,718.5 1,891.7 
Long-Term Debt1,442.4 1,510.7 
Other Long-Term Liabilities93.2 96.0 
Operating Long-Term Lease Liabilities238.2 264.8 
Finance Long-Term Lease Liabilities229.1 135.5 
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; 67,566,172 shares issued and 24,548,426 shares outstanding at September 30, 2022; 66,501,072 shares issued and 28,692,532 shares outstanding at December 31, 2021
0.7 0.7 
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at September 30, 2022 and December 31, 2021
0.1 0.1 
Paid-in capital815.6 790.2 
Retained earnings1,301.5 1,051.7 
Accumulated other comprehensive income (loss)(0.8)(1.3)
Treasury stock, at cost; 43,017,746 Class A Common Stock shares held at September 30, 2022 and 37,808,540 Class A Common Stock shares held at December 31, 2021
(1,010.2)(765.0)
Total Stockholders’ Equity1,106.9 1,076.4 
Total Liabilities and Stockholders’ Equity$4,828.3 $4,975.1 



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 millions, except per share amounts)
Balance at June 30, 202166.4 $0.7 (36.8)$(713.9)12.0 $0.1 $781.8 $880.7 $(3.0)$946.4 
Shares awarded under stock compensation plans0.1 — — — — — 0.7 — — 0.7 
Purchases of treasury stock— — (0.5)(24.8)— — — — — (24.8)
Effect of cash flow hedge instruments, net of tax expense of $0.1
— — — — — — — — 0.2 0.2 
Restricted stock amortization and stock option amortization— — — — — — 3.7 — — 3.7 
Net income— — — — — — — 84.5 — 84.5 
Class A dividends declared ($0.12 per share)
— — — — — — — (3.5)— (3.5)
Class B dividends declared ($0.12
per share)
— — — — — — — (1.4)— (1.4)
Balance at September 30, 202166.5 $0.7 (37.3)$(738.7)12.0 $0.1 $786.2 $960.3 $(2.8)$1,005.8 

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 millions, except per share amounts)
Balance at June 30, 202267.1 $0.7 (39.9)$(858.1)12.0 $0.1 $804.6 $1,223.5 $(0.8)$1,170.0 
Shares awarded under stock compensation plans0.5 — — — — — 7.2 — — 7.2 
Purchases of treasury stock— — (3.1)(152.1)— — — — — (152.1)
Restricted stock amortization and stock option amortization— — — — — — 3.8 — — 3.8 
Net income— — — — — — — 87.3 — 87.3 
Class A dividends declared ($0.25 per share)
— — — — — — — (6.3)— (6.3)
Class B dividends declared ($0.25
per share)
— — — — — — — (3.0)— (3.0)
Balance at September 30, 202267.6 $0.7 (43.0)$(1,010.2)12.0 $0.1 $815.6 $1,301.5 $(0.8)$1,106.9 













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 millions, except per share amounts)
Balance at December 31, 202065.6 $0.7 (35.8)$(671.7)12.0 $0.1 $767.5 $721.8 $(3.6)$814.8 
Shares awarded under stock compensation plans0.9 — — — — — 7.5 — — 7.5 
Purchases of treasury stock— — (1.5)(67.0)— — — — — (67.0)
Effect of cash flow hedge instruments, net of tax expense of $0.3
— — — — — — — — 0.8 0.8 
Restricted stock amortization and stock option amortization— — — — — — 11.2 — — 11.2 
Net income— — — — — — — 252.6 — 252.6 
Class A dividends declared ($0.34 per share)
— — — — — — — (10.0)— (10.0)
Class B dividends declared ($0.34 per share)
— — — — — — — (4.1)— (4.1)
Balance at September 30, 202166.5 $0.7 (37.3)$(738.7)12.0 $0.1 $786.2 $960.3 $(2.8)$1,005.8 
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 millions, except per share amounts)
Balance at December 31, 202166.5 $0.7 (37.8)$(765.0)12.0 $0.1 $790.2 $1,051.7 $(1.3)$1,076.4 
Shares awarded under stock compensation plans1.1 — — — — — 8.5 — — 8.5 
Purchases of treasury stock— — (5.2)(245.2)— — — — — (245.2)
Effect of cash flow hedge instruments, net of tax expense of $0.2
— — — — — — — — 0.5 0.5 
Restricted stock amortization and stock option amortization— — — — — — 16.9 — — 16.9 
Net income— — — — — — — 279.4 — 279.4 
Class A dividends declared ($0.62 per share)
— — — — — — — (22.1)— (22.1)
Class B dividends declared ($0.62 per share)
— — — — — — — (7.5)— (7.5)
Balance at September 30, 202267.6 $0.7 (43.0)$(1,010.2)12.0 $0.1 $815.6 $1,301.5 $(0.8)$1,106.9 




See notes to unaudited condensed consolidated financial statements.


5

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
20222021
(Dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$279.4 $252.6 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment84.2 69.1 
Debt issuance cost amortization3.8 2.3 
Stock-based compensation expense16.9 11.2 
Deferred income taxes(10.4)(8.9)
Other1.0 (1.2)
Changes in assets and liabilities that relate to operations:
Receivables43.5 93.2 
Inventories101.1 419.8 
Other assets107.5 (2.7)
Notes payable - floor plan – trade5.3 (556.6)
Trade accounts payable and other liabilities13.1 (12.4)
Total adjustments366.0 13.8 
Net cash provided by operating activities645.4 266.4 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired(94.2)(66.1)
Purchases of land, property and equipment(197.6)(181.5)
Proceeds from sales of property and equipment15.7 6.2 
Proceeds from sales of dealerships— 3.9 
Net cash used in investing activities(276.1)(237.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade(218.8)128.1 
Borrowings on revolving credit facilities— 4.9 
Repayments on revolving credit facilities— (4.9)
Proceeds from issuance of long-term debt— 16.5 
Debt issuance costs(0.5)(4.8)
Principal payments of long-term debt(42.1)(43.0)
Principal payments of long-term lease liabilities(6.4)(3.1)
Purchases of treasury stock(245.2)(67.0)
Issuance of shares under stock compensation plans8.5 7.5 
Dividends paid(25.2)(13.3)
Net cash provided by (used in) financing activities(529.7)20.9 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(160.4)49.8 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR299.4 170.3 
CASH AND CASH EQUIVALENTS, END OF PERIOD$139.0 $220.1 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, including amount capitalized$68.7 $46.0 
Income taxes$95.2 $85.8 




See notes to unaudited condensed consolidated financial statements.


6
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 and nine months ended September 30, 2022 and 2021 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (the “U.S.”) (“GAAP”) for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by 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 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, 2021.
COVID-19 – The COVID-19 pandemic negatively impacted the global economy beginning in the first quarter of 2020 and continues to affect the global economy and supply chain. The impact on the economy has affected both consumer demand and the supply of manufactured goods, both of which continue to impact our business. The global automotive supply chain has been significantly disrupted since the onset of the pandemic, primarily related to the production of semiconductors and other components that are used in many modern automobiles, in addition to workforce-related production delays and stoppages. As a result, automobile manufacturing has operated for multiple years at lower than usual production levels, reducing the amount of new vehicle inventory and certain parts inventory available to our dealerships. These inventory constraints, coupled with strong consumer demand and elevated levels of consumer savings, have led to low new and used vehicle inventory and a high new and used vehicle pricing environment, which drove retail new vehicle unit sales volumes lower across the industry.
Recent Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Accounting Standards Codification (“ASC”) Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional guidance for a limited period of time to ease the 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 amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in ASU 2020-04 could be adopted beginning January 1, 2020 and are effective through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, which clarifies that certain optional expedients and exceptions in ASC Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. In October 2022, Sonic entered into Amendment No. 2 to Fifth Amended, Restated and Consolidated Credit Agreement (the “Second Credit Agreement Amendment”) which amended the Credit Agreement to, among other things: (i) replace the Credit Agreement’s LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one month Term SOFR (as defined in the Credit Agreement); (ii) amend the provisions relating to the basis for inclusion of real property owned by the Company or certain of its subsidiaries in the borrowing base for the Revolving Credit Facility; (iii) amend the minimum amount for commitments under the Revolving Credit Facility and the proportion that such commitments under the Revolving Credit Facility may compose of the total commitments made by the lenders; and (iv) adjust aspects of the offset account used for voluntary reductions to loans under the Floor Plan Facilities.
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. 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 obligations are satisfied when the associated vehicle is either delivered to a customer and customer acceptance has occurred, over time as the maintenance and repair services are performed, or at the
7
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
time of wholesale and retail parts sales. We do not have any revenue streams with significant financing components as payments are typically received within a short period of time following completion of the performance obligation(s).
Retrospective finance and insurance revenues (“F&I retro revenues”) are recognized when the product contract has been executed with the end customer and the transaction price is estimated each reporting period based on the expected value method using historical and projected data. F&I retro revenues can vary based on a variety of factors, including number of contracts and history of cancellations and claims. Accordingly, we utilize this historical and projected data to constrain the consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
We record revenue when vehicles are delivered to customers, as vehicle service work is performed and when parts are delivered. Conditions for completing a sale include having an agreement with the customer, including pricing, and it being probable that the proceeds from the sale will be collected.
The accompanying unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 include approximately $31.3 million and $34.9 million, respectively, related to contract assets from F&I retro revenues recognition, which are recorded in receivables, net. Changes in contract assets from December 31, 2021 to September 30, 2022 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, 2021 for further discussion of our revenue recognition policies and processes.
Earnings Per Share – The calculation of diluted earnings per share considers the potential dilutive effect of 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
During the nine months ended September 30, 2022, we recognized a $14.7 million impact of a post-close adjustment related to the acquisition of RFJ Auto Partners, Inc. and its subsidiaries (collectively, “RFJ Auto”) completed in December 2021. See, “RFJ Acquisition,” for further discussion. We acquired two franchised dealership locations and one business to be included in our EchoPark Segment during the nine months ended September 30, 2022 for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $79.5 million. The allocation of the $79.5 million aggregate gross purchase price for the acquisitions completed during the nine months ended September 30, 2022 included inventory of approximately $31.0 million, property and equipment of approximately $0.5 million, franchise assets of approximately $33.2 million, goodwill of approximately $14.1 million, other assets of $1.1 million, and liabilities of $0.4 million. We acquired three businesses to be included in our EchoPark segment and two franchised dealership locations during the nine months ended September 30, 2021 for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $66.1 million.
We did not dispose of any businesses during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, we disposed of one luxury franchised dealership, which generated net cash from dispositions of approximately $3.9 million.
RFJ Acquisition
On December 6, 2021 (the “Closing Date”), Sonic completed the acquisition of RFJ Auto. On the Closing Date, RFJ Auto became a direct, wholly owned subsidiary of Sonic (the “RFJ Acquisition”). The aggregate consideration for the RFJ Acquisition purchase price was approximately $964.9 million, including a customary post-close adjustment of $14.7 million recognized during the nine months ended September 30, 2022. The post-close adjustment in March 2022 consisted of additional acquired inventory of $4.3 million, other assets of $3.4 million, goodwill of $1.1 million, and a reduction in other liabilities of $5.9 million.
For further discussion of the RFJ Acquisition, see Note 2, “Business Acquisitions and Dispositions,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
8
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Inventories
Inventories consist of the following:
September 30, 2022December 31, 2021
(In millions)
New vehicles$300.6 $273.1 
Used vehicles675.8 807.2 
Service loaners132.5 106.3 
Parts, accessories and other88.2 74.6 
Inventories$1,197.1 $1,261.2 

4. Property and Equipment
Property and equipment, net consists of the following:
September 30, 2022December 31, 2021
(In millions)
Land$481.1 $447.4 
Buildings and improvements1,353.5 1,240.5 
Furniture, fixtures and equipment 498.9 451.2 
Construction in progress45.8 68.1 
Total, at cost2,379.3 2,207.2 
Less accumulated depreciation(820.2)(746.2)
Subtotal 1,559.1 1,461.0 
Less assets held for sale (1)(3.4)(2.2)
Property and equipment, net$1,555.7 $1,458.8 
(1)Classified in other current assets in the accompanying unaudited condensed consolidated balance sheets.
In the three and nine months ended September 30, 2022, capital expenditures were approximately $97.3 million and $197.6 million, respectively, and in the three and nine months ended September 30, 2021, capital expenditures were approximately $76.5 million and $181.5 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 September 30, 2022 and December 31, 2021 consisted of real property not currently used in operations that we expect to dispose of in the next 12 months.
There were no fixed asset impairment charges for the nine months ended September 30, 2022 and 2021.
5. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for September 30, 2022 and December 31, 2021 were as follows:
September 30, 2022December 31, 2021
(In millions)
Carrying Amount of Goodwill:
Franchised Dealerships Segment$224.4 $251.2 
EchoPark Segment212.1165.2
Total goodwill (1)$436.5 $416.4 
(1)Net of accumulated impairment losses of $1.1 billion.
The carrying amount of indefinite lived franchise assets was approximately $513.4 million and $480.2 million as of September 30, 2022 and December 31, 2021, respectively. We did not record any impairment charges as of September 30, 2022 or December 31, 2021.
9
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Long-Term Debt
Long-term debt consists of the following:
September 30, 2022December 31, 2021
(In millions)
2021 Revolving Credit Facility (1)$— $— 
4.625% Senior Notes due 2029 (the “4.625% Notes”)650.0 650.0 
4.875% Senior Notes due 2031 (the “4.875% Notes”)500.0 500.0 
2019 Mortgage Facility (2)81.8 90.0 
Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%190.4 213.4 
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR121.7 132.8 
Subtotal$1,543.9 $1,586.2 
Debt issuance costs(21.5)(24.9)
Total debt1,522.4 1,561.3 
Less current maturities(80.0)(50.6)
Long-term debt$1,442.4 $1,510.7 
(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was 100 basis points above LIBOR at both September 30, 2022 and December 31, 2021.
(2)The interest rate on the 2019 Mortgage Facility (as defined below) was 150 basis points above LIBOR at both September 30, 2022 and December 31, 2021.
2021 Credit Facilities
On April 14, 2021, we entered into an amended and restated syndicated revolving credit facility (the “2021 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan facilities (the “2021 Floor Plan Facilities” and, together with the 2021 Revolving Credit Facility, the “2021 Credit Facilities”). The amendment and restatement of the 2021 Credit Facilities extended the scheduled maturity dates to April 14, 2025. On October 8, 2021, we entered into an amendment to the 2021 Credit Facilities (the “Credit Facility Amendment”) to, among other things: (1) increase the aggregate commitments under the 2021 Revolving Credit Facility to the lesser of $350.0 million (which may be increased at the Company’s option up to $400.0 million upon satisfaction of certain conditions) and the applicable revolving borrowing base, and the 2021 Floor Plan Facilities to $2.6 billion (which, under certain conditions, may be increased at the Company’s option up to $2.9 billion that may be allocated between the new vehicle revolving floor plan facility and the used vehicle revolving floor plan facility that comprise the 2021 Floor Plan Facilities as the Company requests, with no more than 40% of the aggregate commitments allocated to the commitments under the used vehicle revolving floor plan facility); and (2) permit the issuance of the 4.625% Notes and the 4.875% Notes. On October 7, 2022, we entered into an amendment to the 2021 Credit Facilities (the “Second Credit Facility Amendment”) to, among other things: (i) replace the 2021 Credit Facilities’ LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one month Term SOFR (as defined in the 2021 Credit Facilities); (ii) amend the provisions relating to the basis for inclusion of real property owned by the Company or certain of its subsidiaries in the borrowing base for the 2021 Revolving Credit Facility; (iii) amend the minimum amount for commitments under the 2021 Revolving Credit Facility and the proportion that such commitments under the 2021 Revolving Credit Facility may compose of the total commitments made by the lenders; and (iv) adjust aspects of the offset account used for voluntary reductions to loans under the 2021 Floor Plan Facilities.

As amended, availability under the 2021 Revolving Credit Facility is calculated as the lesser of $350.0 million or a borrowing base calculated based on certain eligible assets, less the aggregate face amount of any outstanding letters of credit under the 2021 Revolving Credit Facility (the “2021 Revolving Borrowing Base”). The 2021 Revolving Credit Facility may be increased at our option up to $400.0 million upon satisfaction of certain conditions. As of September 30, 2022, the 2021 Revolving Borrowing Base was approximately $293.4 million based on balances as of such date. As of September 30, 2022, we had no outstanding borrowings and approximately $12.4 million in outstanding letters of credit under the 2021 Revolving Credit Facility, resulting in $281.0 million remaining borrowing availability under the 2021 Revolving Credit Facility.

Our obligations under the 2021 Credit 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. As of the dates presented in the accompanying unaudited condensed consolidated financial statements, the amounts outstanding under the 2021 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR (subsequent to September 30, 2022, the Second Credit Facility Amendment
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
replaced LIBOR with the one-month term SOFR). We have agreed under the 2021 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 2021 Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities 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. Specifically, the 2021 Credit Facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to $0.25 per share so long as no Event of Default (as defined in the 2021 Credit Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2021 Credit Facilities.

4.625% Notes
On October 27, 2021, we issued $650.0 million in aggregate principal amount of 4.625% Notes, which will mature on November 15, 2029. Sonic used the net proceeds from the issuance of the 4.625% Notes to fund the RFJ Acquisition and to repay existing debt.

The 4.625% Notes were issued under an Indenture, dated as of October 27, 2021 (the “2029 Indenture”), by and among the Company, certain subsidiary guarantors named therein (collectively, the “Guarantors”) and U.S. Bank National Association, as trustee (the “trustee”). The 4.625% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company’s operating domestic subsidiaries. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2029 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2029 Indenture) may be released. The 2029 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the EchoPark Business. The 2029 Indenture provides that interest on the 4.625% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2029 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.625% Notes are redeemable by the Company under certain circumstances. For further discussion of the 4.625% Notes, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2021.

4.875% Notes

On October 27, 2021, we issued $500.0 million in aggregate principal amount of 4.875% Notes, which will mature on November 15, 2031. Sonic used the net proceeds from the issuance of the 4.875% Notes to fund the RFJ Acquisition and to repay existing debt.

The 4.875% Notes were issued under an Indenture, dated as of October 27, 2021 (the “2031 Indenture”), by and among the Company, the Guarantors and the trustee. The 4.875% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company’s operating domestic subsidiaries. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2031 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2031 Indenture) may be released. The 2031 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the Echo-Park Business. The 2031 Indenture provides that interest on the 4.875% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2031 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.875% Notes are redeemable by the Company under certain circumstances. For further discussion of the 4.875% Notes, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2021.

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”). On October 11, 2021, we entered into an amendment to the 2019 Mortgage Facility to permit the issuance of the 4.625% Notes and the 4.875% Notes.

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 appraised value of certain eligible real estate designated by Sonic and owned by certain of our subsidiaries. Based on balances as of September 30, 2022, we had approximately $81.8 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately $30.4 million under the 2019 Mortgage Facility.
11
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 (as defined in the 2019 Mortgage Facility), ranging from 0.50% to 1.75% per annum according to the Performance Grid.
For further discussion of the 2019 Mortgage Facility, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2021.
Mortgage Notes to Finance Companies
As of September 30, 2022, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was 4.67% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately $312.1 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 2022 and 2033.
Covenants

We have agreed under the 2021 Credit Facilities and the 2019 Mortgage Facility not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2021 Credit Facilities and the 2019 Mortgage Facility), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities and the 2019 Mortgage 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 2021 Credit Facilities and the 2019 Mortgage Facility as of September 30, 2022. Financial covenants include required specified ratios (as each is defined in the 2021 Credit Facilities and the 2019 Mortgage Facility) of:
Covenant
Minimum Consolidated Liquidity RatioMinimum Consolidated Fixed Charge Coverage RatioMaximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratio1.05