2023Q2FALSE0001043509--12-3130020028.025.5zerozero52.3zerozero0.0 millionone0.0 million14.74.33.41.15.956.1253.517.031.52.92.502.25P1Y0.40.30.40.35.06.1250.0 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, 2022. 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, 2022.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, 2022. 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, 2022.
10. Subsequent Events
Subsequent to June 30, 2023, we repurchased an additional [ ] shares of Class A Common Stock at an average price of [ ], resulting in current remaining share repurchase authorization of approximately [ ] million.
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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, 2023
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 July 25, 2023, there were 23,412,610 shares of the registrant’s Class A Common Stock, par value $0.01 per share, and 12,029,375 shares of the registrant’s Class B Common Stock, par value $0.01 per share, 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, 2022 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 subsidiaries;
•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, including supply shortages that could be caused by 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 recent or future acquisitions;
•the significant control that our principal stockholders exercise over us and our business matters; and
•the rate and timing of overall economic expansion or contraction.

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 SIX MONTHS ENDED JUNE 30, 2023

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,
2023202220232022
(Dollars and shares in millions, except per share amounts)
Revenues:
Retail new vehicles$1,608.2 $1,344.3 $3,051.0 $2,695.6 
Fleet new vehicles28.3 19.8 47.1 38.0 
Total new vehicles1,636.5 1,364.1 3,098.1 2,733.6 
Used vehicles1,305.9 1,448.3 2,650.8 2,818.4 
Wholesale vehicles91.5 121.4 177.0 290.2 
Total vehicles3,033.9 2,933.8 5,925.9 5,842.2 
Parts, service and collision repair443.7 399.2 874.2 780.5 
Finance, insurance and other, net175.3 173.2 344.0 339.7 
Total revenues3,652.9 3,506.2 7,144.1 6,962.4 
Cost of sales:
Retail new vehicles(1,466.8)(1,176.0)(2,771.5)(2,359.6)
Fleet new vehicles(27.0)(18.9)(45.0)(36.2)
Total new vehicles(1,493.8)(1,194.9)(2,816.5)(2,395.8)
Used vehicles(1,274.4)(1,401.7)(2,589.3)(2,724.0)
Wholesale vehicles(92.5)(120.2)(174.9)(287.6)
Total vehicles(2,860.7)(2,716.8)(5,580.7)(5,407.4)
Parts, service and collision repair(223.3)(200.6)(440.9)(394.9)
Total cost of sales(3,084.0)(2,917.4)(6,021.6)(5,802.3)
Gross profit568.9 588.8 1,122.5 1,160.1 
Selling, general and administrative expenses(391.9)(402.8)(804.7)(789.8)
Impairment charges(62.6)— (62.6)— 
Depreciation and amortization(36.1)(31.2)(70.5)(61.1)
Operating income78.3 154.8 184.7 309.2 
Other income (expense):
Interest expense, floor plan(17.0)(6.1)(31.5)(11.1)
Interest expense, other, net(28.9)(21.3)(57.3)(42.1)
Other income (expense), net0.1 (0.2)0.2 0.1 
Total other income (expense)(45.8)(27.6)(88.6)(53.1)
Income before taxes32.5 127.2 96.1 256.1 
Provision for income taxes - benefit (expense)(9.1)(32.4)(25.0)(64.0)
Net income$23.4 $94.8 $71.1 $192.1 
Basic earnings per common share:
Earnings per common share$0.66 $2.40 $2.00 $4.81 
Weighted-average common shares outstanding35.3 39.5 35.6 40.0 
Diluted earnings per common share:
Earnings per common share$0.65 $2.34 $1.95 $4.67 
Weighted-average common shares outstanding36.0 40.5 36.5 41.2 
    



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,
2023202220232022
(Dollars in millions)
Net income$23.4 $94.8 $71.1 $192.1 
Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements1.3 0.4 1.2 0.7 
Total other comprehensive income (loss) before taxes1.3 0.4 1.2 0.7 
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)(0.3)(0.1)(0.3)(0.2)
Other comprehensive income (loss)1.0 0.3 0.9 0.5 
Comprehensive income$24.4 $95.1 $72.0 $192.6 





See notes to unaudited condensed consolidated financial statements.


2

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2023December 31, 2022
(Dollars in millions, except per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents$119.7 $229.2 
Receivables, net400.6 462.4 
Inventories1,448.8 1,216.8 
Other current assets328.2 297.9 
Total current assets2,297.3 2,206.3 
Property and Equipment, net1,559.4 1,561.7 
Goodwill242.5 231.0 
Other Intangible Assets, net417.4 396.7 
Operating Right-of-Use Lease Assets203.6 260.7 
Finance Right-of-Use Lease Assets261.7 224.1 
Other Assets99.7 97.8 
Total Assets$5,081.6 $4,978.3 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade$124.4 $114.9 
Notes payable - floor plan - non-trade1,285.6 1,112.7 
Trade accounts payable131.1 138.4 
Operating short-term lease liabilities32.5 36.4 
Finance short-term lease liabilities15.0 11.1 
Other accrued liabilities355.0 352.4 
Current maturities of long-term debt60.8 79.5 
Total current liabilities2,004.4 1,845.4 
Long-Term Debt1,629.5 1,672.2 
Other Long-Term Liabilities109.8 105.5 
Operating Long-Term Lease Liabilities188.6 231.4 
Finance Long-Term Lease Liabilities272.6 228.6 
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; 68,422,889 shares issued and 23,407,137 shares outstanding at June 30, 2023; 67,574,922 shares issued and 24,204,324 shares outstanding at December 31, 2022
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 June 30, 2023 and December 31, 2022
0.1 0.1 
Paid-in capital839.8 819.4 
Retained earnings1,151.2 1,100.3 
Accumulated other comprehensive income (loss)2.5 1.6 
Treasury stock, at cost; 45,015,752 Class A Common Stock shares held at June 30, 2023 and 43,370,598 Class A Common Stock shares held at December 31, 2022
(1,117.6)(1,026.9)
Total Stockholders’ Equity876.7 895.2 
Total Liabilities and Stockholders’ Equity$5,081.6 $4,978.3 



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 March 31, 202267.0 $0.7 (38.5)$(798.7)12.0 $0.1 $795.1 $1,138.9 $(1.1)$1,135.0 
Shares awarded under stock compensation plans0.1 — — — — — 0.9 — — 0.9 
Purchases of treasury stock— — (1.4)(59.4)— — — — — (59.4)
Effect of cash flow hedge instruments, net of tax expense of $0.1
— — — — — — — — 0.3 0.3 
Stock compensation expense— — — — — — 8.6 — — 8.6 
Net income— — — — — — — 94.8 — 94.8 
Class A dividends declared ($0.25 per share)
— — — — — — — (7.2)— (7.2)
Class B dividends declared ($0.25
per share)
— — — — — — — (3.0)— (3.0)
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 

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 March 31, 202368.3 $0.7 (45.0)$(1,117.6)12.0 $0.1 $832.0 $1,138.1 $1.5 $854.8 
Shares awarded under stock compensation plans0.1 — — — — — 2.4 — — 2.4 
Effect of cash flow hedge instruments, net of tax expense of $0.3
— — — — — — — — 1.0 1.0 
Stock compensation expense— — — — — — 5.4 — — 5.4 
Net income— — — — — — — 23.4 — 23.4 
Class A dividends declared ($0.29 per share)
— — — — — — — (6.8)— (6.8)
Class B dividends declared ($0.29
per share)
— — — — — — — (3.5)— (3.5)
Balance at June 30, 202368.4 $0.7 (45.0)$(1,117.6)12.0 $0.1 $839.8 $1,151.2 $2.5 $876.7 






See notes to unaudited condensed consolidated financial statements.


4


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 plans0.6 — — — — — 1.3 — — 1.3 
Purchases of treasury stock— — (2.1)(93.1)— — — — — (93.1)
Effect of cash flow hedge instruments, net of tax expense of $0.2
— — — — — — — — 0.5 0.5 
Stock compensation expense— — — — — — 13.1 — — 13.1 
Net income— — — — — — — 192.1 — 192.1 
Class A dividends declared ($0.37 per share)
— — — — — — — (14.3)— (14.3)
Class B dividends declared ($0.37 per share)
— — — — — — — (6.0)— (6.0)
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 
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, 202267.6 $0.7 (43.4)$(1,026.9)12.0 $0.1 $819.4 $1,100.3 $1.6 $895.2 
Shares awarded under stock compensation plans0.8 — — — — — 10.0 — — 10.0 
Purchases of treasury stock— — (1.6)(90.7)— — — — — (90.7)
Effect of cash flow hedge instruments, net of tax expense of $0.3
— — — — — — — — 0.9 0.9 
Stock compensation expense— — — — — — 10.4 — — 10.4 
Net income— — — — — — — 71.1 — 71.1 
Class A dividends declared ($0.57 per share)
— — — — — — — (13.3)— (13.3)
Class B dividends declared ($0.57 per share)
— — — — — — — (6.9)— (6.9)
Balance at June 30, 202368.4 $0.7 (45.0)$(1,117.6)12.0 $0.1 $839.8 $1,151.2 $2.5 $876.7 



See notes to unaudited condensed consolidated financial statements.


5

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
20232022
(Dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$71.1 $192.1 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment61.3 55.2 
Debt issuance cost amortization3.2 2.3 
Stock-based compensation expense10.4 13.1 
Deferred income taxes(6.7)(7.4)
Asset impairment charges62.6 — 
Gain on disposal of dealerships and property and equipment(20.2)(1.2)
Other0.8 0.7 
Changes in assets and liabilities that relate to operations:
Receivables62.4 58.8 
Inventories(245.7)29.8 
Other assets(16.2)1.6 
Notes payable - floor plan – trade9.5 (12.3)
Trade accounts payable and other liabilities(11.4)(26.4)
Total adjustments(90.0)114.2 
Net cash (used in) provided by operating activities(18.9)306.3 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired(75.1)(28.4)
Purchases of land, property and equipment(75.5)(100.4)
Proceeds from sales of property and equipment5.1 10.0 
Proceeds from sales of dealerships52.3 — 
Net cash used in investing activities(93.2)(118.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on notes payable - floor plan - non-trade172.9 (24.9)
Debt issuance costs(1.6)(0.3)
Principal payments of long-term debt(63.1)(24.7)
Principal payments of long-term lease liabilities(4.7)(3.1)
Purchases of treasury stock(90.7)(93.1)
Issuance of shares under stock compensation plans10.0 1.3 
Dividends paid(20.2)(15.0)
Net cash provided by (used in) financing activities2.6 (159.8)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(109.5)27.7 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR229.2 299.4 
CASH AND CASH EQUIVALENTS, END OF PERIOD$119.7 $327.1 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, including amounts capitalized$84.2 $52.6 
Income taxes$46.5 $59.0 




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 six months ended June 30, 2023 and 2022 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (the “U.S.”) (“GAAP”) for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all material normal, recurring adjustments necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2022.
Recent Accounting Pronouncements – Please refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion of recent accounting pronouncements.
Change in Accounting Principle – During the first quarter of 2023, Sonic voluntarily changed the date of its annual goodwill impairment test and other intangible assets impairment test from October 1 to April 30. This change is preferable under the circumstances as it provides Sonic with better alignment of the annual impairment test with the availability of final approved prospective financial information for use in projecting future cash flows in our impairment models. We intend to utilize the same valuation approach and do not expect the change in valuation date to produce different impairment results. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require the application of significant estimates and assumptions with the use of hindsight. Accordingly, the change was applied prospectively, beginning with the April 30, 2023 impairment test date.
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. Certain amounts and percentages may not compute due to rounding.
Revenue Recognition – Revenue is recognized when a customer obtains control of promised goods or services and in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. We do not include the cost of obtaining contracts within the related revenue streams since we elected the practical expedient to expense the costs to obtain a contract when incurred.
Management has evaluated our established business processes, revenue transaction streams and accounting policies, and identified our material revenue streams to be: (1) the sale of new vehicles; (2) the sale of used vehicles to retail customers; (3) the sale of wholesale used vehicles at third-party auctions; (4) the arrangement of third-party vehicle financing and the sale of third-party service, warranty and other insurance contracts; and (5) the performance of vehicle maintenance and repair services and the sale of related parts and accessories. Generally, performance obligations are satisfied when the associated vehicle is delivered to a customer and customer acceptance has occurred, over time as the maintenance and repair services are performed, or at the time of wholesale and retail parts sales. We do not have any revenue streams with significant financing components as payments are typically received within a short period of time following completion of the performance obligation(s).
Retrospective finance and insurance revenues (“F&I retro revenues”) are recognized when the product contract has been executed with the end customer and the transaction price is estimated each reporting period based on the expected value method using historical and projected data. F&I retro revenues can vary based on a variety of factors, including number of contracts and history of cancellations and claims. Accordingly, we utilize this historical and projected data to constrain the consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
We record revenue when vehicles are delivered to customers, as vehicle service work is performed and when parts are delivered. Conditions for completing a sale include having an agreement with the customer, including pricing, and it being probable that the proceeds from the sale will be collected.
The accompanying unaudited condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 include approximately $27.0 million and $38.7 million, respectively, related to contract assets from F&I retro revenues recognition,
7
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
which are recorded in receivables, net. Changes in contract assets from December 31, 2022 to June 30, 2023 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, 2022 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 and stock options granted under Sonic’s stock compensation plans (and any non-forfeitable dividends paid on such awards), in addition to Class A Common Stock purchase warrants.

2. Business Acquisitions and Dispositions
During the six months ended June 30, 2023, we acquired one business (consisting of five locations) in our Powersports Segment (as defined below) for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $75.1 million. The preliminary allocation of the approximately $75.1 million aggregate gross purchase price included inventory of approximately $11.6 million, property and equipment of approximately $0.7 million, franchise assets of approximately $22.6 million, goodwill of approximately $11.4 million, real estate of approximately $29.0 million, other assets of approximately $0.1 million, and other liabilities of approximately $0.3 million.
During the six months ended June 30, 2022, we acquired two business in our Franchised Dealerships Segment (as defined below) for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $28.4 million, including the impact of a $14.7 million post-close adjustment related to the acquisition of RFJ Auto Partners, Inc. and its subsidiaries completed in December 2021 (the “RFJ Acquisition”). The allocation of the approximately $13.7 million aggregate gross purchase price (excluding the $14.7 million post-close adjustment related to the RFJ Acquisition) included inventory of approximately $4.9 million, property and equipment of approximately $0.1 million, franchise assets of approximately $6.4 million, goodwill of approximately $1.3 million, other assets of approximately $1.1 million, and liabilities of approximately $0.1 million.
During the six months ended June 30, 2023, we disposed of one luxury franchised dealership, one domestic franchised dealership, and one mid-line import franchised dealership that generated net cash of approximately $52.3 million. We did not dispose of any stores during the six months ended June 30, 2022.
Revenues and other activities associated with disposed franchised dealerships that remain in continuing operations were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Income (loss) from operations$(0.9)$2.1 $0.8 $3.8 
Gain (loss) on disposal20.7 (0.1)20.7 (0.1)
Pre-tax income (loss)19.8 2.0 21.5 3.7 
Total Revenues$27.4 $40.6 $70.1 $80.4 
On June 22, 2023, we announced a plan to indefinitely suspend operations at eight EchoPark locations and 14 related delivery/buy centers. Subsequent to June 30, 2023, we closed three Northwest Motorsport pre-owned locations within the EchoPark Segment (as defined below) (collectively, these 25 locations represent the "closed EchoPark stores"). This decision was made to better align the EchoPark Segment operations with current pre-owned vehicle market conditions that continue to be negatively impacted by lower production of new vehicles over the past three years and historically low lease penetration rates. These conditions have resulted in lower availability of used vehicles and higher wholesale vehicle prices. In connection with this decision, Sonic recorded a charge totaling approximately $75.2 million. This charge included impairments of $32.5 million related to fixed assets, $16.0 million related to right-of-use assets and $14.1 million related to cease-use accruals; $0.4 million related to lease exit charges; $10.0 million of inventory valuation adjustments (of which $5.8 million relates to stores with ongoing operations at EchoPark locations and $1.9 million relates to ongoing operations of Northwest Motorsport locations); and $2.2 million related to severance. The locations within our EchoPark Segment with indefinitely suspended operations or that were closed are not considered disposed and therefore are not included in the above table disclosing the effect of disposed dealerships on continued operations.


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Inventories
Inventories consist of the following:
June 30, 2023December 31, 2022
(In millions)
New vehicles$621.0 $449.3 
Used vehicles563.2 534.0 
Service loaners162.1 143.8 
Parts, accessories and other102.5 89.7 
Inventories$1,448.8 $1,216.8 

4. Property and Equipment
Property and equipment, net consists of the following:
June 30, 2023December 31, 2022
(In millions)
Land$482.5 $478.2 
Buildings and improvements1,401.5 1,365.3 
Furniture, fixtures and equipment 518.1 504.1 
Construction in progress48.4 57.0 
Total, at cost2,450.5 2,404.6 
Less accumulated depreciation(886.4)(842.9)
Subtotal 1,564.1 1,561.7 
Less assets held for sale (1)(4.7)— 
Property and equipment, net$1,559.4 $1,561.7 
(1)Classified in other current assets in the accompanying unaudited condensed consolidated balance sheets.
In the three and six months ended June 30, 2023, capital expenditures were approximately $38.3 million and $75.5 million, respectively, and in the three and six months ended June 30, 2022, capital expenditures were approximately $41.6 million and $100.4 million, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions, construction of new franchised dealerships and EchoPark and powersports stores, building improvements and equipment purchased for use in our franchised dealerships and EchoPark and powersports stores.
Fixed asset impairment charges for the three and six months ended June 30, 2023 were approximately $32.5 million, the majority of which relate to our decision to indefinitely suspend operations at certain locations with our EchoPark Segment and to close certain Northwest Motorsport stores. There were no fixed asset impairment charges for the three and six months ended June 30, 2022.
5. Goodwill and Intangible Assets
In accordance with ASC Topic 350, “Intangibles - Goodwill and Other,” we test goodwill for impairment at least annually (as of April 30 of each year) or more frequently if indications of impairment exist. The ASC also states that if an entity determines, based on an assessment of certain qualitative factors, that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative goodwill impairment test is unnecessary.
In performing a quantitative test for impairment of goodwill, we primarily use the income approach method of valuation that includes the discounted cash flow (“DCF”) method that utilizes inputs, including, projected revenues, margin, terminal growth rates, discount rates and a market capitalization reconciliation.

We have completed our impairment testing as of April 30, 2023 and have determined there was no impairment.

In evaluating the recoverability of our indefinite lived franchise assets, we utilized a multi-period excess earnings method (“MPEEM”) model using unobservable inputs (Level 3) to estimate the fair value of the franchise assets for each of our franchises with recorded franchise assets. The significant assumptions in our MPEEM model include projected revenue,
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
projected operating margins, a discount rate (and estimates in the discount rate inputs) and residual growth rates. We have completed our impairment testing as of April 30, 2023 and have determined there was no impairment.
The changes in the carrying amount of goodwill for June 30, 2023 and December 31, 2022 were as follows:
Franchised
Dealerships
Segment		EchoPark SegmentPowersports SegmentTotal
(In millions)
Balance at December 31, 2021 (1)$251.2 $165.2 $— $416.4 
Additions through current year acquisitions5.1 — 9.2 14.3 
Reductions from impairment— (202.9)— (202.9)
Prior year acquisition allocations(34.5)37.7 — 3.2 
Balance at December 31, 2022 (2)$221.8 $— $9.2 $231.0 
Additions through current year acquisitions— — 11.9 11.9 
Reductions from dispositions(1.8)— — (1.8)
Prior year acquisition allocations— — 1.4 1.4 
Balance at June 30, 2023 (2)$220.0 $— $22.5 $242.5 
(1)Net of accumulated impairment losses of $1.1 billion related to the Franchised Dealerships Segment.
(2)Net of accumulated impairment losses of $1.1 billion and $202.9 million related to the Franchised Dealerships Segment and the EchoPark Segment, respectively.
The carrying amount of indefinite lived franchise assets was approximately $417.4 million and $396.7 million as of June 30, 2023 and December 31, 2022, respectively. We did not record any impairment charges as of six months ended June 30, 2023 or December 31, 2022.
6. Long-Term Debt
Long-term debt consists of the following:
June 30, 2023December 31, 2022
(In millions)
2021 Revolving Credit Facility (1)$— $— 
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)319.0 327.0 
Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%169.5 186.6 
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR or SOFR77.9 116.0 
Subtotal$1,716.4 $1,779.6 
Debt issuance costs(26.1)(27.9)
Total debt1,690.3 1,751.7 
Less current maturities(60.8)(79.5)
Long-term debt$1,629.5 $1,672.2 
(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was 135 basis points above one-month Term SOFR (as defined below) at June 30, 2023 and 110 basis points above one-month Term SOFR at December 31, 2022.
(2)The interest rate on the 2019 Mortgage Facility (as defined below) was 160 basis points above one-month Term SOFR (as defined below) at June 30, 2023 and 135 basis points above one-month Term SOFR at December 31, 2022.
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 credit facilities (the “2021 Floor Plan Facilities” and, together with the 2021 Revolving Credit Facility, the “2021 Credit Facilities”). The amendment and restatement
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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’ London InterBank Offered Rate (“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) (the conversion of the interest rate benchmark from LIBOR to one-month Term SOFR included a 10-basis point credit spread adjustment); (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 June 30, 2023, the 2021 Revolving Borrowing Base was approximately $301.1 million based on balances as of such date. As of June 30, 2023, we had no outstanding borrowings and approximately $12.1 million in outstanding letters of credit under the 2021 Revolving Credit Facility, resulting in $289.0 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 replaced LIBOR with 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 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 $0.12 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. Additional dividends are permitted subject to the limitations on restricted payments set forth in 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, along with the net proceeds of the 4.875% 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 domestic operating subsidiaries. The parent company has no independent assets or operations. 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%
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2022.

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, along with the net proceeds of the 4.625% 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 domestic operating subsidiaries. The parent company has no independent assets or operations. 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, 2022.

2019 Mortgage Facility
On November 22, 2019, we entered into a delayed draw-term loan credit agreement, which was 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 consummation of the RFJ Acquisition and the issuance of the 4.625% Notes and the 4.875% Notes. On November 17, 2022, we entered into an amendment to the 2019 Mortgage Facility to, among other things, extend the scheduled maturity date to November 17, 2027.

On November 17, 2022, in connection with the closing of the amendment, the Company incurred a term loan under the 2019 Mortgage Facility with a principal amount of $320.0 million, with a portion of the proceeds used to repay the entire $77.6 million principal amount of the prior term loan. The $320.0 million borrowing amortizes on a fixed schedule through the maturity date. In addition, the lenders under the 2019 Mortgage Facility committed to providing, upon the terms set forth in the amendment and upon the pledging of sufficient collateral by the Company, delayed draw-term loans in an aggregate principal amount up to $78.0 million (the “Delayed Draw Credit Facility”), and revolving loans in an aggregate principal amount not to exceed $95.0 million outstanding. On November 18, 2022, the Company incurred a term loan under the Delayed Draw Credit Facility with a principal amount of $7.0 million. The aggregate commitments of the lenders under the 2019 Mortgage Facility equal a total of $500.0 million, upon satisfaction of the conditions set forth in the 2019 Mortgage Facility, including the appraisal and pledging of collateral of a specified value. The amendment also amended the 2019 Mortgage Facility to, among other things: (1) replace the 2019 Mortgage Facility’s LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one-month Term SOFR (as defined in the 2019 Mortgage Facility); and (2) make changes to the pricing grid for loans incurred under the 2019 Mortgage Facility, which price is based on an incremental interest margin calculated based on the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the 2019 Mortgage Facility).
Under the 2019 Mortgage Facility, Sonic has a maximum borrowing limit of $500.0 million, which varies based on the appraised value of the collateral underlying the 2019 Mortgage Facility. Based on balances as of June 30, 2023, we had approximately $319.0 million of outstanding borrowings under the 2019 Mortgage Facility.
Amounts outstanding under the 2019 Mortgage Facility bear interest at: (1) a specified rate above one-month Term SOFR, ranging from 1.25% to 2.25% per annum according to a performance-based pricing grid determined by the Company’s Consolidated Total Lease Adjusted Leverage Ratio 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 0.25% to 1.25% per annum according to the Performance Grid. Interest on the 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 to the Performance Grid. Scheduled repayment of outstanding principal is paid quarterly commencing on March 31, 2023 through December 31, 2024 at a rate of 1.25% of the aggregate initial principal amount, and increases to 1.875% in March 2025 until
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
the maturity date at November 17, 2027. A balloon payment of the remaining balance will be due at the November 17, 2027 maturity date. Prior to the November 17, 2027 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. Additional dividends are permitted subject to the limitations on restricted payments set forth in the 2021 Credit Facilities.
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, 2022.
Mortgage Notes to Finance Companies
As of June 30, 2023, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was 5.16% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately $247.4 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 from 2024 to 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 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 June 30, 2023. 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 ratio1.051.205.75
June 30, 2023 actual1.301.622.72
The 2021 Credit Facilities and the 2019 Mortgage 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 2021 Credit Facilities and the 2019 Mortgage Facility.
After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of June 30, 2023, we had approximately $300.6 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 June 30, 2023.
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 2021 Credit Facilities and the 2019 Mortgage Facility with the exception of one additional financial 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 June 30, 2023, the ratio was 12.40 to 1.00.
7. Commitments and Contingencies
Guarantees and Indemnification Obligations
In accordance with the terms of our operating lease agreements, our dealership subsidiaries, acting as lessees, generally agree to indemnify the lessor from certain exposure arising as a result of the use of the leased premises, including environmental exposure and repairs to leased property upon termination of the lease. In addition, we have generally agreed to indemnify the lessor in the event of a breach of the lease by the lessee.
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships. In general, the subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to leased property upon termination of the lease, to the extent that the assignee or the sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, Sonic remains liable for such obligations.
In accordance with the terms of agreements entered into for the 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 is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately $8.0 million as of June 30, 2023 and there was not any material exposure with respect to these indemnifications at December 31, 2022. 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 June 30, 2023.
We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee at both June 30, 2023 and December 31, 2022 was approximately $4.3 million.
Legal Matters
Sonic is involved, and expects to continue to be involved, in various legal and administrative proceedings arising out of the conduct of its business, including regulatory investigations and private civil actions brought by plaintiffs purporting to represent a potential class or for which a class has been certified. Although Sonic is unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, Sonic does not believe it is reasonably possible that its current and threatened legal proceedings will have a material adverse effect on Sonic’s business, financial position or consolidated results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on Sonic’s financial results.

There were no significant liabilities recorded related to legal matters as of June 30, 2023 and December 31, 2022.
8. Fair Value Measurements
Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 were as follows:
Fair Value Based on Significant Other Observable Inputs (Level 2)
June 30, 2023December 31, 2022
(In millions)
Assets:
Cash surrender value of life insurance policies (1)$40.1 $38.2 
Interest rate caps designated as hedges (2)2.9 — 
Total assets$43.0 $38.2 
Liabilities:
Deferred compensation plan (3)$23.0 $21.1 
Total liabilities$23.0 $21.1 
(1)Included in other assets in the accompanying unaudited condensed consolidated balance sheets.
(2)As of June 30, 2023, approximately $1.9 million and $1.0 million were included in other current assets and other assets, respectively, in the accompanying unaudited condensed consolidated balance sheets.
(3)Included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

In conjunction with the approximately $75.2 million charge recorded during the three and six months ended June 30, 2023 related to the decision to indefinitely suspend operations at certain EchoPark locations and to close certain Northwest Motorsport stores discussed above, Sonic was required to adjust certain real estate assets to fair value on a non-recurring basis. After adjustments of $5.7 million, the recorded balances were $55.5 million at June 30, 2023. The book value of such assets may be reevaluated as changes in circumstances require.
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2023 and December 31, 2022, 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.
As of June 30, 2023 and December 31, 2022, the fair value and the carrying value of Sonic’s significant fixed rate long-term debt were as follows:
June 30, 2023December 31, 2022
Fair ValueCarrying ValueFair ValueCarrying Value
(In millions)
4.875% Notes (1)$408.8 $500.0 $390.3 $500.0 
4.625% Notes (1)$544.4 $650.0 $519.5 $650.0 
Mortgage Notes (2)$161.8 $169.5 $174.0 $186.6 
(1)As determined by market quotations from similar securities as of June 30, 2023 and December 31, 2022, respectively (Level 2).
(2)As determined by the DCF method (Level 2)
For further discussion of Sonic’s fair value measurements, see Note 11, “Fair Value Measurements,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2022.
9. Segment Information
As of June 30, 2023, Sonic had three operating segments: (1) retail automotive franchises that sell new vehicles and buy and sell used vehicles, sell replacement parts, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Franchised Dealerships Segment”); (2) pre-owned vehicle specialty retail locations that provide 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”); and (3) retail locations that sell new and used powersports vehicles, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Powersports 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 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.

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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Reportable segment financial information for the three and six months ended June 30, 2023 and 2022 were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(In millions)
Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles$1,583.3 $1,341.7 $3,004.3 $2,687.4 
Fleet new vehicles28.3 19.9 47.1 38.0 
Total new vehicles1,611.6 1,361.6 3,051.4 2,725.4 
Used vehicles774.5 871.9 1,542.0 1,725.7 
Wholesale vehicles55.6 79.2 114.0 185.5 
Parts, service and collision repair433.4 398.1 857.2 778.7 
Finance, insurance and other, net132.2 129.8 249.4 256.2 
Franchised Dealerships Segment revenues$3,007.3 $2,840.6 $5,814.0 $5,671.5 
EchoPark Segment revenues:
Retail new vehicles$— $1.3 $1.0 $5.7 
Used vehicles524.0 574.51,096.5 1,089.8 
Wholesale vehicles35.5 42.0 62.5 104.5 
Finance, insurance and other, net41.1 43.1 91.1 83.0 
EchoPark Segment revenues$600.6 $660.9 $1,251.1 $1,283.0 
Powersports Segment revenues:
Retail new vehicles$24.9 $1.2 $45.7 $2.5 
Used vehicles7.4 1.9 12.3 2.9 
Wholesale vehicles0.4 0.2 0.5 0.2 
Parts, service and collision repair10.3 1.1 17.0 1.8 
Finance, insurance and other, net2.0 0.3 3.5 0.5 
Powersports Segment revenues$45.0 $4.7 $79.0 $7.9 
Total consolidated revenues$3,652.9 $3,506.2 $7,144.1 $6,962.4 

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(In millions)
Segment Income (Loss) (1):
Franchised Dealerships Segment$145.9 $162.1 $255.8 $326.0 
EchoPark Segment(52.8)(34.2)(99.7)(69.6)
Powersports Segment2.0 (0.7)2.6 (0.3)
Income before taxes$32.5 $127.2 $96.1 $256.1 
(1)Segment income (loss) for each segment is defined as income (loss) before taxes and impairment charges.

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(In millions)
Depreciation and Amortization:
Franchised Dealerships Segment$27.9 $25.3 $54.5 $50.0 
EchoPark Segment7.4 5.8 14.4 10.9 
Powersports Segment0.8 0.1 1.6 0.2 
Total depreciation and amortization$36.1 $31.2 $70.5 $61.1 

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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(In millions)
Floor Plan Interest Expense:
Franchised Dealerships Segment (1)$11.9 $3.9 $21.8 $7.2 
EchoPark Segment4.8 2.2 9.3 3.9 
Powersports Segment0.3 — 0.4 — 
Total floor plan interest expense$17.0 $6.1 $31.5 $11.1 
(1)Amount is net of interest earned on the floor plan deposit balance of $4.6 million and $0.8 million in the three months ended June 30, 2023 and 2022, respectively, and $8.7 million and $1.4 million in the six months ended June 30, 2023 and 2022, respectively.

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(In millions)
Interest Expense, Other, Net:
Franchised Dealerships Segment$27.5 $20.2 $54.4 $40.3 
EchoPark Segment0.9 1.1 1.8 1.8 
Powersports Segment0.5 — 1.1 — 
Total interest expense, other, net$28.9 $21.3 $57.3 $42.1 
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(In millions)
Capital Expenditures:
Franchised Dealerships Segment$34.4 $21.9 $65.4 $52.0 
EchoPark Segment2.8 19.7 8.5 48.4 
Powersports Segment1.1 — 1.6 — 
Total capital expenditures$38.3 $41.6 $75.5 $100.4 
June 30, 2023December 31, 2022
(In millions)
Assets:
Franchised Dealerships Segment$4,439.3 $4,091.7 
EchoPark Segment28.1 267.6 
Powersports Segment207.5 117.8 
Corporate and other:
Cash and cash equivalents119.7 229.2 
Floor plan deposit balance287.0 272.0 
Total assets$5,081.6 $4,978.3 

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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 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” included in our Annual Report on Form 10-K for the year ended December 31, 2022.
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. Certain amounts and percentages may not compute due to rounding.
Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, respectively. 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. The following discussion of EchoPark segment used vehicles, wholesale vehicles, and finance, insurance, and other, net is on a reported basis, except where otherwise noted. 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. The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a reported basis, except where otherwise noted.
Overview
We are one of the largest automotive retailers in the U.S. (as measured by reported total revenue). As a result of the way we manage our business, we had three reportable segments as of June 30, 2023: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of July 27, 2023, we operated 108 stores in the Franchised Dealerships Segment, 25 stores in the EchoPark Segment and 13 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 134 new vehicle franchises (representing 28 different brands of cars and light trucks) and 16 collision repair centers in 18 states. As of July 27, 2023, we operated 25 EchoPark stores in 11 states, including 7 Northwest Motorsport pre-owned vehicle stores acquired in the RFJ Acquisition in December 2021 that are included in the EchoPark Segment.
The Franchised Dealerships Segment provides comprehensive sales and 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 third-party financing, extended warranties, service contracts, insurance and other aftermarket products (collectively, “F&I”) for our guests. The EchoPark Segment sells used cars and light trucks and arranges third-party F&I product sales for our guests in pre-owned vehicle specialty retail locations, and does not offer customer-facing Fixed Operations services. The Powersports Segment offers guests: (1) sales of both new and used powersports vehicles (such as motorcycles, personal watercraft and all-terrain vehicles); (2) Fixed Operations activities; and (3) F&I services. All three segments generally operate independently of one another with the exception of certain shared back-office functions and corporate overhead costs.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
Retail Automotive Industry Performance
The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) unit sales volume increased 16% and 11%, to approximately 15.6 million and 15.4 million vehicles for the three and six months ended June 30, 2023, respectively, compared to approximately 13.5 million and 13.9 million vehicles for the three and six months ended June 30, 2022, respectively, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the 2023 new vehicle industry volume will be between 15.0 million vehicles (an increase of 9.5% compared to 2022) and 16.0 million vehicles (an increase of 16.8% compared to 2022). The ongoing effects of supply chain disruptions as a result of the COVID-19 pandemic, availability of new and used vehicle inventory, interest rates, changes in consumer confidence, availability of consumer financing, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, or timing of consumer demand as a result of natural disasters or other unforeseen circumstances could cause the actual 2023 new vehicle industry volume to vary from expectations. 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. Our new vehicle sales strategy focuses on our retail new vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the industry retail new vehicle unit sales volume (which excludes fleet new vehicle sales). According to PIN from J.D. Power, industry retail new vehicle unit sales volume increased 10% and 5%, to approximately 12.8 million and 12.7 million vehicles for the three and six months ended June 30, 2023, respectively, from approximately 11.6 million and 12.1 million vehicles for the three and six months ended June 30, 2022.
Impact of COVID-19 and Supply Chain Disruptions
The global automotive supply chain has been significantly disrupted since the onset of the COVID-19 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 have led to low new and used vehicle inventory and a volatile new and used vehicle pricing environment. New vehicle and certain parts production levels have improved; however, there is a risk that higher production levels and new vehicle inventory on hand may not result in incremental retail new vehicle sales volume, which could cause actual 2023 new vehicle industry volume to vary from our expectations.
Franchised Dealerships Segment
As a result of the acquisition, disposition, termination or closure of franchised dealership stores since the first quarter of 2022, the change in reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores.
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. Unless otherwise noted, all comparisons are to the prior year period.
Retail new vehicle revenue increased 18% and 11% during the three and six months ended June 30, 2023, respectively, primarily driven by a 12% and 6% increase in retail new vehicle unit sales volume, respectively, and a 5% and 6% increase in retail new vehicle average selling prices, respectively. Retail new vehicle gross profit decreased 16% and 17% during the three and six months ended June 30, 2023, respectively, due primarily to higher inventory invoice costs and increased price competition as a result of higher levels of available inventory, which drove lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $1,700 per unit, or 25%, to $4,986 per unit during the three months ended June 30, 2023, and decreased $1,409 per unit, or 21%, to $5,215 per unit during the six months ended June 30, 2023. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 31 and 21 days as of June 30, 2023 and 2022, respectively.
Retail used vehicle revenue decreased 11% during both the three and six months ended June 30, 2023, driven primarily by a 10% and 9% decrease in retail used vehicle unit sales volume, respectively. Retail used vehicle gross profit decreased 13% and 16% during the three and six months ended June 30, 2023, respectively, due to lower retail used vehicle gross profit per unit and a decrease in retail used vehicle unit sales volume. Retail used vehicle gross profit per unit decreased $45 per unit, or 3%, to $1,618 per unit during the three months ended June 30, 2023, and decreased $125 per unit, or 7%, to $1,593 per unit during the six months ended June 30, 2023, due primarily to higher inventory acquisition costs and lower retail used vehicle
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
average selling prices. Wholesale vehicle gross profit decreased by approximately $0.3 million and $2.3 million in the three and six months ended June 30, 2023, respectively, due primarily to a $43 per unit, or 41%, decrease in wholesale vehicle gross profit per unit during the three months ended June 30, 2023 and a $203 per unit, or 282%, increase in wholesale vehicle gross profit per unit during the six months ended June 30, 2023. We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was a