Sonic Automotive, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements
$ in Thousands

9 Months Ended

Sep. 30, 2023

USD ($)

Fair Value Disclosures [Abstract]

Fair Value Measurements

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 were as follows:


	Fair Value Based on Significant Other Observable Inputs (Level 2)
	September 30, 2023		December 31, 2022
	(In millions)
Assets:
Cash surrender value of life insurance policies (1)	$	41.3	$	38.2
Interest rate caps designated as hedges (2)	2.9		—
Total assets	$	44.2	$	38.2

Liabilities:


Deferred compensation plan (3)	$	24.5	$	21.1
Total liabilities	$	24.5	$	21.1

(1)Included in other assets in the accompanying unaudited condensed consolidated balance sheets.

(2)As of September 30, 2023, approximately $2.1 million and $0.8 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 second quarter of 2023 and the subsequent $4.8 million charge recorded in the third quarter of 2023 related to our decisions 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 $5.7 million of adjustments during the second quarter of 2023, 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. There were no instances during the three months ended September 30, 2023 that required a fair value measurement of assets ordinarily measured at fair value on a non-recurring basis.

As of September 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 September 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:


	September 30, 2023				December 31, 2022
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In millions)

4.875% Notes (1)	$	397.5	$	500.0	$	390.3	$	500.0
4.625% Notes (1)	$	536.3	$	650.0	$	519.5	$	650.0
Mortgage Notes (2)	$	159.0	$	166.3	$	174.0	$	186.6

(1)As determined by market quotations from similar securities as of September 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.

Real Estate, Fair Value

$ 55,500

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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