Annual report pursuant to Section 13 and 15(d)

Intangible Assets and Goodwill

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Intangible Assets and Goodwill
$ in Thousands
 12 Months Ended
Dec. 31, 2021
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill Intangible Assets and GoodwillPursuant to the applicable accounting pronouncements, we were required to evaluate the recoverability of our indefinite lived intangible assets during the first quarter of 2020 as a result of the effects of the COVID-19 pandemic on our operations and market value. Based on this evaluation, we determined the carrying value of the goodwill related to our franchised dealership reporting unit was greater than the fair value of the reporting unit. Accordingly, we recorded a non-cash goodwill impairment charge of $268.0 million and a corresponding income tax benefit of $51.3 million to reduce the carrying value to fair value as of March 31, 2020. We utilized the DCF method, using unobservable inputs (Level 3) to estimate Sonic’s enterprise value as of March 31, 2020 and reconciled the discounted cash flows to Sonic’s market capitalization, using quoted market price inputs (Level 1). The significant assumptions in our DCF model include projected earnings, a discount rate (and estimates in the discount rate inputs), control premium factors and residual growth rates. Based on the improvement in our business operations and market value during the second, third and fourth quarters of 2020, our future forecast expectations, and
the results of our qualitative test, it was determined to be more likely than not that the fair value of our reporting units exceeded the carrying value.
The changes in the carrying amount of franchise assets and goodwill for 2021 and 2020 were as follows:
 
Franchise
Assets
Net
Goodwill
  
(In millions)
Balance at December 31, 2019 $ 64.3  $ 475.8  (1)
Additions through current year acquisitions —  6.7 
Reductions from dispositions —  (0.5)
Reductions from impairment —  (268.0)
Balance at December 31, 2020 $ 64.3  $ 214.0  (2)
Additions through current year acquisitions 415.9  204.0  (3)
Reductions from dispositions —  (0.2)
Prior year acquisition allocations —  (1.4)
Balance at December 31, 2021 $ 480.2  $ 416.4  (2)
(1)Net of accumulated impairment losses of $796.7 million.
(2)Net of accumulated impairment losses of $1.1 billion.
Acquired RFJ Goodwill Allocated to EchoPark $ 120,600
Acquired RFJ Goodwill Allocated to Franchise $ 55,400