Sonic Automotive, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Intangible Assets and Goodwill

Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2015

Goodwill And Intangible Assets Disclosure [Abstract]

5. Intangible Assets and Goodwill

The changes in the carrying amount of franchise assets and goodwill for the years ended December 31, 2015 and 2014 were as follows:

	Franchise Assets			Net Goodwill
	(In thousands)
Balance, December 31, 2013	$	79,535		$	476,315		(1)
Additions through current year acquisitions		7,500			10,176
Prior year acquisition allocations		-			(3	)
Reductions from dispositions		(7,735	)		(10,559	)
Reductions from impairment		(2,200	)		-
Balance at December 31, 2014	$	77,100		$	475,929		(1)
Prior year acquisition allocations		1,100			(870	)
Reductions from dispositions		-			(1,121	)
Reductions from impairment		(3,300	)		(2,445	)
Balance at December 31, 2015	$	74,900		$	471,493		(1)

(1) Net of accumulated impairment losses of $796,725.

Goodwill

Pursuant to applicable accounting pronouncements, Sonic tests goodwill for impairment annually (as of October 1) or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. If Sonic determines that the amount of its goodwill is impaired at any point in time, Sonic is required to reduce goodwill on its balance sheet. See the discussion under the heading “Goodwill” in Note 1, “Description of Business and Summary of Significant Accounting Policies,” for discussion of Sonic’s annual goodwill impairment evaluation. Sonic impaired approximately $2.4 million of goodwill in the year ended December 31, 2015 related to the disposition of a franchise that was acquired in 2014 and disposed of in 2015.

Other Intangible Assets

Other intangible assets consist of franchise assets and definite life intangible assets, and are presented net of accumulated amortization on the accompanying Consolidated Balance Sheets. Pursuant to applicable accounting pronouncements, Sonic evaluates its franchise assets and definite life intangible assets for impairment annually (as of October 1) or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount. Franchise asset impairment charges of $0.9 million, $2.2 million and $0.6 million were recorded in continuing operations for the years ended December 31, 2015, 2014 and 2013, respectively, based on the impairment evaluations performed as of October 1, 2015, 2014 and 2013, respectively. In addition, Sonic impaired $2.4 million of franchise assets in the year ended December 31, 2015 related to the disposition of a dealership that was acquired in 2014 and disposed of in 2015. There were no definite life intangible asset impairment charges in the years ended December 31, 2015, 2014 and 2013.

Definite life intangible assets consist of the following:

	December 31, 2015			December 31, 2014
	(In thousands)
Favorable lease agreements	$	17,318		$	17,318
Less accumulated amortization		(11,342	)		(10,698	)
Definite life intangibles, net	$	5,976		$	6,620

Amortization expense for definite life intangible assets was approximately $0.6 million, $1.2 million and $1.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. The initial weighted average amortization period for lease agreements and definite life intangible assets outstanding at December 31, 2015 was 17 years. Expiration dates for these lease agreements range between 2020 and 2027.

Future amortization expense is as follows:

Year Ending December 31,	(In thousands)
2016	$	644
2017		644
2018		644
2019		644
2020		614
Thereafter		2,786
Total	$	5,976

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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