##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)6415 Idlewild Road, Suite 109, Charlotte, North Carolina
    
    28212(Address of principal executive offices)
    
    (Zip Code)
 (704) 566-2400
(Registrants telephone number, including area code)
 
 þ o
 o o
  Large Accelerated Filer o
Accelerated Filer þ
Non-Accelerated Filer o(Do not check if a smaller reporting company)
Smaller Reporting Company o o þ




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##### 



INDEX TO FORM 10-Q
 PagePART I  FINANCIAL INFORMATION
    
    
    3ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Statements of Income  Third Quarter and Nine-month period ended September 30, 2008 and September 30, 2009
    
    
    3Condensed Consolidated Balance Sheets  December 31, 2008 and September 30, 2009
    
    
    4Condensed Consolidated Statement of Stockholders Equity  Nine-month period ended September 30, 2009
    
    
    5Condensed Consolidated Statements of Cash Flows  Nine-month period ended September 30, 2008 and September 30, 2009
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    47ITEM 4. Controls and Procedures
    
    
    48PART II  OTHER INFORMATION
    
    
    49ITEM 1. Legal Proceedings
    
    
    49ITEM 1A. Risk Factors
    
    
    50ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    65ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    66ITEM 6. Exhibits
    
    
    67SIGNATURES
    
    
    70EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1: Condensed Consolidated Financial Statements.
 
 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
 Third Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Revenues:New vehicles
    
    $
    942,471
    
    
    $
    825,367
    
    
    $
    2,978,886
    
    
    $
    2,169,646Used vehicles
    
    
    308,158
    
    
    
    365,501
    
    
    
    994,906
    
    
    
    1,034,444Wholesale vehicles
    
    
    64,995
    
    
    
    33,220
    
    
    
    216,378
    
    
    
    97,478Total vehicles
    
    
    1,315,624
    
    
    
    1,224,088
    
    
    
    4,190,170
    
    
    
    3,301,568Parts, service and collision repair
    
    
    256,867
    
    
    
    255,372
    
    
    
    787,928
    
    
    
    768,003Finance, insurance and other
    
    
    43,259
    
    
    
    41,302
    
    
    
    139,355
    
    
    
    110,663Total revenues
    
    
    1,615,750
    
    
    
    1,520,762
    
    
    
    5,117,453
    
    
    
    4,180,234Cost of Sales:New vehicles
    
    
    (878,485
    )
    
    
    (765,116
    )
    
    
    (2,777,201
    )
    
    
    (2,017,510
    )Used vehicles
    
    
    (282,275
    )
    
    
    (336,949
    )
    
    
    (906,709
    )
    
    
    (948,463
    )Wholesale vehicles
    
    
    (66,249
    )
    
    
    (35,003
    )
    
    
    (220,417
    )
    
    
    (100,741
    )Total vehicles
    
    
    (1,227,009
    )
    
    
    (1,137,068
    )
    
    
    (3,904,327
    )
    
    
    (3,066,714
    )Parts, service and collision repair
    
    
    (129,381
    )
    
    
    (126,226
    )
    
    
    (396,778
    )
    
    
    (383,793
    )Total cost of sales
    
    
    (1,356,390
    )
    
    
    (1,263,294
    )
    
    
    (4,301,105
    )
    
    
    (3,450,507
    )Gross profit
    
    
    259,360
    
    
    
    257,468
    
    
    
    816,348
    
    
    
    729,727Selling, general and administrative expenses
    
    
    (220,413
    )
    
    
    (203,694
    )
    
    
    (656,799
    )
    
    
    (588,834
    )Impairment charges
    
    
    (25,476
    )
    
    
    (339
    )
    
    
    (25,809
    )
    
    
    (4,164
    )Depreciation and amortization
    
    
    (8,286
    )
    
    
    (8,080
    )
    
    
    (23,562
    )
    
    
    (24,523
    )Operating income
    
    
    5,185
    
    
    
    45,355
    
    
    
    110,178
    
    
    
    112,206Other income (expense):Interest expense, floor plan
    
    
    (8,987
    )
    
    
    (4,324
    )
    
    
    (31,591
    )
    
    
    (14,368
    )Non-cash interest expense, convertible debt
    
    
    (2,696
    )
    
    
    7,818
    
    
    
    (7,991
    )
    
    
    1,556Interest expense, other, net
    
    
    (15,859
    )
    
    
    (19,305
    )
    
    
    (40,803
    )
    
    
    (57,496
    )Other income (expense), net
    
    
    (9
    )
    
    
    2,442
    
    
    
    88
    
    
    
    2,504Total other expense
    
    
    (27,551
    )
    
    
    (13,369
    )
    
    
    (80,297
    )
    
    
    (67,804
    )Income from continuing operations before taxes
    
    
    (22,366
    )
    
    
    31,986
    
    
    
    29,881
    
    
    
    44,402Income tax provision
    
    
    7,301
    
    
    
    (13,506
    )
    
    
    (13,598
    )
    
    
    (19,093
    )Income from continuing operations
    
    
    (15,065
    )
    
    
    18,480
    
    
    
    16,283
    
    
    
    25,309Discontinued operations:Loss from operations and the sale of discontinued franchises
    
    
    (17,878
    )
    
    
    (3,848
    )
    
    
    (30,581
    )
    
    
    (10,681
    )Income tax (provision) benefit
    
    
    5,977
    
    
    
    962
    
    
    
    9,174
    
    
    
    2,670Loss from discontinued operations
    
    
    (11,901
    )
    
    
    (2,886
    )
    
    
    (21,407
    )
    
    
    (8,011
    )Net income
    
    $
    (26,966
    )
    
    $
    15,594
    
    
    $
    (5,124
    )
    
    $
    17,298Basic earnings per share:Earning (loss) per share from continuing operations
    
    $
    (0.38
    )
    
    $
    0.43
    
    
    $
    0.40
    
    
    $
    0.61Loss per share from discontinued operations
    
    
    (0.29
    )
    
    
    (0.06
    )
    
    
    (0.53
    )
    
    
    (0.19
    )Earning (loss) per share
    
    $
    (0.67
    )
    
    $
    0.37
    
    
    $
    (0.13
    )
    
    $
    0.42Weighted average common shares outstanding
    
    
    40,138
    
    
    
    42,305
    
    
    
    40,447
    
    
    
    41,130Diluted earnings per share:Earnings (loss) per share from continuing operations
    
    $
    (0.38
    )
    
    $
    0.22
    
    
    $
    0.40
    
    
    $
    0.42Loss per share from discontinued operations
    
    
    (0.29
    )
    
    
    (0.05
    )
    
    
    (0.53
    )
    
    
    (0.16
    )Earnings (loss) per share
    
    $
    (0.67
    )
    
    $
    0.17
    
    
    $
    (0.13
    )
    
    $
    0.26Weighted average common shares outstanding
    
    
    40,138
    
    
    
    63,195
    
    
    
    40,626
    
    
    
    52,529Dividends declared per common share
    
    $
    0.12
    
    
    $
    
    
    
    $
    0.36
    
    
    $
    
  3




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 December 31,
    
    
    September 30,2008 (1)
    
    
    2009ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    6,971
    
    
    $
    614Restricted cash
    
    
    
    
    
    
    106,913Receivables, net
    
    
    247,025
    
    
    
    163,161Inventories
    
    
    916,837
    
    
    
    657,475Assets held for sale
    
    
    406,576
    
    
    
    176,128Other current assets
    
    
    16,822
    
    
    
    16,900Total Current Assets
    
    
    1,594,231
    
    
    
    1,121,191Property and Equipment, net
    
    
    369,892
    
    
    
    378,170Goodwill
    
    
    327,007
    
    
    
    403,048Other Intangible Assets, net
    
    
    82,328
    
    
    
    79,685Other Assets
    
    
    32,087
    
    
    
    22,674Total Assets
    
    $
    2,405,545
    
    
    $
    2,004,768LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Notes payable  floor plan  trade
    
    $
    208,438
    
    
    $
    156,743Notes payable  floor plan  non-trade
    
    
    712,585
    
    
    
    448,316Trade accounts payable
    
    
    53,215
    
    
    
    51,977Accrued interest
    
    
    17,096
    
    
    
    9,456Other accrued liabilities
    
    
    207,627
    
    
    
    162,944Liabilities associated with assets held for sale  trade
    
    
    65,405
    
    
    
    24,503Liabilities associated with assets held for sale  non-trade
    
    
    134,077
    
    
    
    28,620Current maturities of long-term debt
    
    
    738,447
    
    
    
    105,750Total Current Liabilities
    
    
    2,136,890
    
    
    
    988,309Long-Term Debt
    
    
    
    
    
    
    556,243Other Long-Term Liabilities
    
    
    71,132
    
    
    
    109,562Commitments and ContingenciesStockholders Equity:Class A convertible preferred stock, none issued
    
    
    
    
    
    
    Class A common stock, $.01 par value; 100,000,000 shares authorized;
42,922,557 shares issued and 28,063,141 shares outstanding at December
31, 2008; 54,986,875 shares issued and 40,099,559 shares outstanding at
September 30, 2009
    
    
    429
    
    
    
    550Class B common stock; $.01 par value; 30,000,000 shares authorized;
12,400,000 shares issued and 12,029,375 shares outstanding at
December 31, 2008 and September 30, 2009
    
    
    121
    
    
    
    121Paid-in capital
    
    
    537,022
    
    
    
    662,895Accumulated deficit
    
    
    (66,900
    )
    
    
    (49,430
    )Accumulated other comprehensive income
    
    
    (36,635
    )
    
    
    (26,907
    )Treasury stock, at cost (14,859,416 Class A shares held at December 31,
2008 and 14,887,317 Class A shares held at September 30, 2009)
    
    
    (236,514
    )
    
    
    (236,575
    )Total Stockholders Equity
    
    
    197,523
    
    
    
    350,654Total Liabilities and Stockholders Equity
    
    $
    2,405,545
    
    
    $
    2,004,768
 
 (1)
    
    Restated for the adoption effects of ASC 470, Debt.  4




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Dollars and shares in thousands)
(Unaudited)
 AccumulatedClass A
    
    
    Class B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Total
    
    
    Compre-Common Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Treasury
    
    
    Comprehensive
    
    
    Stockholders
    
    
    hensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    Income
    
    
    Equity
    
    
    IncomeBALANCE AT DECEMBER 31, 2008
    
    
    42,923
    
    
    $
    429
    
    
    
    12,029
    
    
    $
    121
    
    
    $
    502,985
    
    
    $
    (40,597
    )
    
    $
    (236,514
    )
    
    $
    (36,635
    )
    
    $
    189,789ASC 470 adoption
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,037
    
    
    
    (26,303
    )
    
    
    
    
    
    
    
    
    
    
    7,734BALANCE AT DECEMBER 31, 2008 (1)
    
    
    42,923
    
    
    
    429
    
    
    
    12,029
    
    
    
    121
    
    
    
    537,022
    
    
    
    (66,900
    )
    
    
    (236,514
    )
    
    
    (36,635
    )
    
    
    197,523Shares awarded under stock compensation plans
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61
    )
    
    
    
    
    
    
    (61
    )
    
    
    Income tax benefit associated with convertible note hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,442
    
    
    
    Fair value of interest rate swap agreements, net of tax
expense of $5,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,728
    
    
    
    9,728
    
    
    
    9,728Issuance of Common Stock
    
    
    11,699
    
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    105,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,759
    
    
    
    ASC 470
derecognition  4.25% Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,500
    )
    
    
    ASC 470  5.0% Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,235
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,235
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    437
    
    
    
    Restricted stock amortization, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,620
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,298
    
    
    
    
    
    
    
    
    
    
    
    17,298
    
    
    
    17,298Other
    
    
    261
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    173
    
    
    
    BALANCE AT SEPTEMBER 30, 2009
    
    
    54,987
    
    
    $
    550
    
    
    
    12,029
    
    
    $
    121
    
    
    $
    662,895
    
    
    $
    (49,430
    )
    
    $
    (236,575
    )
    
    $
    (26,907
    )
    
    $
    350,654
    
    
    $
    27,026
 
 (1)
    
    Restated for the adoption effects of ASC 470, Debt.  5




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2008 (1)
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    (5,124
    )
    
    $
    17,298Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property, plant and equipment
    
    
    26,418
    
    
    
    24,905Provision for bad debt expense
    
    
    2,072
    
    
    
    1,255Other amortization
    
    
    966
    
    
    
    1,242Debt issuance cost amortization
    
    
    909
    
    
    
    9,909Debt discount amortization, net of premium amortization
    
    
    8,710
    
    
    
    9,957Stock  based compensation expense
    
    
    2,102
    
    
    
    437Amortization of restricted stock
    
    
    4,206
    
    
    
    1,802Restricted stock forfeiture
    
    
    (106
    )
    
    
    (182
    )Deferred income taxes
    
    
    (23,728
    )
    
    
    (2,390
    )Equity interest in earnings of investees
    
    
    (279
    )
    
    
    (501
    )Asset impairment charges
    
    
    41,721
    
    
    
    9,116(Gain) Loss on disposal of franchises and property and equipment
    
    
    2,579
    
    
    
    (226
    )Gain on retirement of debt
    
    
    
    
    
    
    (2,095
    )Loss on exit of leased dealerships
    
    
    16,440
    
    
    
    7,511Derivative liability  6.0% Convertible Notes, fair value adjustments
    
    
    
    
    
    
    (11,300
    )Changes in assets and liabilities that relate to operations:Receivables
    
    
    130,612
    
    
    
    68,535Inventories
    
    
    54,156
    
    
    
    383,205Other assets
    
    
    2,325
    
    
    
    (24,362
    )Notes payable  floor plan  trade
    
    
    (77,668
    )
    
    
    (92,597
    )Trade accounts payable and other liabilities
    
    
    (27,964
    )
    
    
    41,207Total adjustments
    
    
    163,471
    
    
    
    425,428Net cash provided by operating activities
    
    
    158,347
    
    
    
    442,726CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of businesses, net of cash acquired
    
    
    (22,929
    )
    
    
    Purchases of property and equipment
    
    
    (122,312
    )
    
    
    (36,048
    )Proceeds from sales of property and equipment
    
    
    2,156
    
    
    
    1,797Proceeds from sale of franchises
    
    
    23,851
    
    
    
    22,839Distributions from equity investees
    
    
    600
    
    
    
    300Net cash used in investing activities
    
    
    (118,634
    )
    
    
    (11,112
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net borrowings on notes payable floor plan  non-trade
    
    
    (62,095
    )
    
    
    (369,726
    )Borrowings on revolving credit facilities
    
    
    703,132
    
    
    
    534,585Repayments on revolving credit facilities
    
    
    (703,961
    )
    
    
    (584,854
    )Proceeds from long-term debt
    
    
    56,913
    
    
    
    167,039Payments on long-term debt
    
    
    (7,807
    )
    
    
    (162,948
    )Increase in restricted cash
    
    
    
    
    
    
    (106,913
    )Settlement of cash flow swaps
    
    
    
    
    
    
    (16,454
    )Purchases of treasury stock
    
    
    (28,636
    )
    
    
    (61
    )Income tax benefit associated with stock compensation plans
    
    
    1,195
    
    
    
    Income tax benefit associated with convertible hedge
    
    
    1,625
    
    
    
    4,442Issuance of shares under stock compensation plans
    
    
    5,147
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    101,812Dividends paid
    
    
    (14,399
    )
    
    
    (4,893
    )Net cash provided used in financing activities
    
    
    (48,886
    )
    
    
    (437,971
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (9,173
    )
    
    
    (6,357
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    16,514
    
    
    
    6,971CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    7,341
    
    
    $
    614SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:Change in fair value of cash flow hedging instruments (net of tax (benefit) / expense
of $216 and $5,859 for the nine month period ended September 30, 2008 and 2009,
respectively)
    
    $
    (352
    )
    
    $
    9,728Issuance of shares related to debt refinance
    
    $
    
    
    
    $
    3,947SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid (received) during the year for:Interest, net of amount capitalized
    
    $
    87,590
    
    
    $
    90,116Income taxes
    
    $
    12,804
    
    
    $
    (21,229
    )
 
 (1)
    
    Restated for the adoption effects of ASC 470, Debt.  6




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Basis of Presentation
 Recent Developments 
  
    
    The termination of the franchise agreement no earlier than January 1, 2010 and no later than October 31, 2010;
    
    The assignment and assumption of the franchise agreement by the new General Motors Company;
    
    The payment of financial assistance to the franchisee in installments
in connection with the orderly winding down of the franchise
operations;
    
    The waiver of any other termination assistance of any kind that may
have been required under the franchise agreement;
    
    The release of claims against Motors Liquidation Company or the new
General Motors Company and their related parties;
    
    The continuation of franchise operations pursuant to the franchise
agreement, as supplemented by the termination
 7




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 agreement, through the
effective date of termination of the franchise agreement, except that
Sonic shall not be entitled to order any new vehicles from Motors
Liquidation Company or the new General Motors Company; and
    
    A restriction on Sonics ability to transfer the franchise agreement to another party.
        Reclassifications
 8




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Recent Accounting Pronouncements
    (dollars in thousands)
    
    (dollars in thousands)(dollars in thousands)
    
    Third Quarter Ended
    
    Nine Month Period EndedTwelve Months Ended December 31,
    
    September 30,
    
    September 30,2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008
    
    2009
    
    2008
    
    2009Increase in
Interest Expense
    
    
    (2,108
    )
    
    
    (3,530
    )
    
    
    (3,899
    )
    
    
    (4,656
    )
    
    
    (9,044
    )
    
    
    (9,898
    )
    
    
    (10,704
    )
    
    
    (2,696
    )
    
    
    (1,379
    )
    
    
    (7,991
    )
    
    
    (6,115
    )Tax Benefit
    
    
    843
    
    
    
    1,412
    
    
    
    1,560
    
    
    
    1,862
    
    
    
    3,617
    
    
    
    3,959
    
    
    
    4,282
    
    
    
    1,078
    
    
    
    552
    
    
    
    3,196
    
    
    
    2,446Effect on Net Income
    
    
    (1,265
    )
    
    
    (2,118
    )
    
    
    (2,339
    )
    
    
    (2,794
    )
    
    
    (5,427
    )
    
    
    (5,939
    )
    
    
    (6,422
    )
    
    
    (1,618
    )
    
    
    (827
    )
    
    
    (4,795
    )
    
    
    (3,669
    )
   9




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    Restricted Cash 
 Derivative Instruments and Hedging Activities 
  Notional
    
    Pay Rate
    
    Receive Rate (1)
    
    Maturing Date(in millions)$
    200.0
    
    
    
    4.935
    %
    
    one-month LIBOR
    
    May 1, 2012$
    100.0
    
    
    
    5.265
    %
    
    one-month LIBOR
    
    June 1, 2012$
    3.9
    
    
    
    7.100
    %
    
    one-month LIBOR
    
    July 10, 2017$
    25.0
    
    
    
    5.160
    %
    
    one-month LIBOR
    
    September 1, 2012$
    15.0
    
    
    
    4.965
    %
    
    one-month LIBOR
    
    September 1, 2012$
    25.0
    
    
    
    4.885
    %
    
    one-month LIBOR
    
    October 1, 2012$
    12.1
    
    
    
    4.655
    %
    
    one-month LIBOR
    
    December 10, 2017$
    9.0
    
    
    
    6.860
    %
    
    one-month LIBOR
    
    August 1, 2017$
    7.4
    
    
    
    4.330
    %
    
    one-month LIBOR
    
    July 1, 2013
 
 (1)
    
    One-month LIBOR was 0.246% at September 30, 2009.  10




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     Operating Lease Accruals 
 (dollars inthousands)Balance, December 31, 2008
    
    $
    19,882Lease exit expense
    
    
    7,511Payments
    
    
    (3,759
    )Balance, September 30, 2009
    
    $
    23,634
 Income Tax Expense 
  Dispositions
 11




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (dollars in thousands)December 31,
    
    
    September 30,2008
    
    
    2009Inventories
    
    $
    207,308
    
    
    $
    68,543Property and equipment, net
    
    
    39,094
    
    
    
    32,769Goodwill
    
    
    154,940
    
    
    
    71,082Franchise assets
    
    
    5,234
    
    
    
    3,734Assets held for sale
    
    $
    406,576
    
    
    $
    176,128
  (dollars in thousands)Third Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Income from operations
    
    $
    528
    
    
    $
    1,707
    
    
    $
    543
    
    
    $
    1,593Loss on disposal of franchises
    
    
    (137
    )
    
    
    (103
    )
    
    
    (3,080
    )
    
    
    (572
    )Lease exit charges
    
    
    (10,927
    )
    
    
    (5,171
    )
    
    
    (12,444
    )
    
    
    (6,751
    )Property impairment charges
    
    
    (4,842
    )
    
    
    (74
    )
    
    
    (6,897
    )
    
    
    (2,271
    )Goodwill impairment charges
    
    
    
    
    
    
    (207
    )
    
    
    
    
    
    
    (2,680
    )Franchise agreement and other
impairments
    
    
    (2,500
    )
    
    
    
    
    
    
    (6,800
    )
    
    
    Favorable lease asset
impairment charges
    
    
    
    
    
    
    
    
    
    
    (1,903
    )
    
    
    Pre-tax loss
    
    $
    (17,878
    )
    
    $
    (3,848
    )
    
    $
    (30,581
    )
    
    $
    (10,681
    )Total Revenues
    
    $
    244,947
    
    
    $
    183,153
    
    
    $
    845,569
    
    
    $
    544,357
   Inventories
  (dollars in thousands)December 31,
    
    
    September 30,2008
    
    
    2009New vehicles
    
    $
    910,462
    
    
    $
    457,882Used vehicles
    
    
    87,895
    
    
    
    161,710Parts and accessories
    
    
    57,057
    
    
    
    52,104Other
    
    
    68,731
    
    
    
    54,322$
    1,124,145
    
    
    $
    726,018Less inventories classified as assets held for sale
    
    
    (207,308
    )
    
    
    (68,543
    )Inventories
    
    $
    916,837
    
    
    $
    657,475
 12




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Property and Equipment
  (dollars in thousands)December 31,
    
    
    September 30,2008
    
    
    2009Land
    
    $
    63,153
    
    
    $
    62,162Building and improvements
    
    
    308,530
    
    
    
    318,608Office equipment and fixtures
    
    
    68,054
    
    
    
    75,107Parts and service equipment
    
    
    54,577
    
    
    
    55,063Company vehicles
    
    
    8,700
    
    
    
    8,358Construction in progress
    
    
    30,989
    
    
    
    37,977Total, at cost
    
    
    534,003
    
    
    
    557,275Less accumulated depreciation
    
    
    (125,017
    )
    
    
    (146,336
    )Subtotal
    
    
    408,986
    
    
    
    410,939Less assets held for sale
    
    
    (39,094
    )
    
    
    (32,769
    )Property and equipment, net
    
    $
    369,892
    
    
    $
    378,170
    Goodwill And Intangible Assets
 13




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (dollars in thousands)FranchiseAgreements
    
    
    GoodwillBalance, December 31, 2008
    
    $
    64,701
    
    
    $
    327,007Impairment of import dealerships
    
    
    
    
    
    
    (1,751
    )Impairment of domestic dealerships
    
    
    (2,100
    )
    
    
    (929
    )Reductions from sales of franchises
    
    
    (800
    )
    
    
    (5,137
    )Reclassification from assets held
for sale, net
    
    
    1,500
    
    
    
    83,858Balance, September 30, 2009
    
    $
    63,301
    
    
    $
    403,048
     6.
    
    Long-Term Debt
  14




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (dollars in thousands)December 31,
    
    
    September 30,2008
    
    
    20092006 Revolving Credit Sub-Facility (1)
    
    $
    70,842
    
    
    $
    20,573Senior Subordinated Notes bearing interest at 8.625%
    
    
    275,000
    
    
    
    275,000Senior Secured Second Lien Convertible Notes bearing interest at 6.0%
    
    
    
    
    
    
    85,627Convertible Senior Subordinated Notes bearing interest at 5.25%
    
    
    105,250
    
    
    
    Convertible Senior Notes bearing interest at 5.0%
    
    
    
    
    
    
    172,500Convertible Senior Subordinated Notes bearing interest at 4.25%
    
    
    160,000
    
    
    
    17,045Notes payable to a finance company bearing interest from 9.52% to 10.52% (with
a weighted average of 10.19%)
    
    
    19,726
    
    
    
    18,285Mortgage notes to finance companies-fixed rate, bearing interest from 5.80% to 7.03%
    
    
    80,622
    
    
    
    78,990Mortgage notes to finance companies-variable rate, bearing interest at 1.25 to 2.65 percentage
points above one-month LIBOR
    
    
    33,505
    
    
    
    32,384Total debt discount/premium/associated derivative liabilities (2)
    
    
    (13,127
    )
    
    
    (44,919
    )Other
    
    
    6,629
    
    
    
    6,508$
    738,447
    
    
    $
    661,993Less current maturities (3)
    
    
    (738,447
    )
    
    
    (105,750
    )Long-term debt
    
    $
    
    
    
    $
    556,243
 
 (1)
    
    Interest rate on the revolving credit sub-facility was 2.00%
above LIBOR at December 31, 2008 and 3.50% above LIBOR at September 30, 2009.(2)
    
    September 30, 2009 includes $37.5 million associated with the 5.0%
Convertible Notes.(3)
    
    At December 31, 2008, as a result of the uncertainty related to
Sonics compliance with the covenants under its 2006 Credit Facility for the
fiscal year 2009, Sonic classified all its indebtedness as current in the
accompanying Condensed Consolidated Balance Sheets due to cross default
provisions governing its other indebtedness. At September 30, 2009, current
maturities include amounts outstanding related to the 2006 Revolving Credit
Sub-Facility and the 6.0% Convertible Notes as a result of these obligations
maturing or expected to be extinguished within one year of the balance sheet
date.  2006 Credit Facility
   15




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     5.0% Convertible Notes
    16




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   6.0% Convertible Notes
   4.25% Convertible Notes
   17




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Third Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(dollars in millions)
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009Interest Expense, OtherRevolver
    
    $
    1.1
    
    
    $
    0.5
    
    
    $
    3.7
    
    
    $
    1.78.625% Convertible Notes
    
    
    6.2
    
    
    
    5.9
    
    
    
    18.0
    
    
    
    18.06.0% Convertible Notes
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    2.15.25% Convertible Notes
    
    
    1.8
    
    
    
    
    
    
    
    5.6
    
    
    
    2.14.25% Convertible Notes
    
    
    1.9
    
    
    
    1.8
    
    
    
    5.8
    
    
    
    5.6Interest Rate Swaps
    
    
    4.7
    
    
    
    6.6
    
    
    
    8.2
    
    
    
    19.5Mortgage Interest
    
    
    1.0
    
    
    
    1.5
    
    
    
    2.6
    
    
    
    4.3Deferred Loan Cost  Revolver
    
    
    0.3
    
    
    
    1.9
    
    
    
    0.7
    
    
    
    4.1Deferred Loan Cost  Other
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    5.5Other (1)
    
    
    (1.2
    )
    
    
    (0.7
    )
    
    
    (4.0
    )
    
    
    (5.4
    )Total Interest Expense, Other
    
    $
    15.9
    
    
    $
    19.3
    
    
    $
    40.8
    
    
    $
    57.5Non-Cash Interest Expense, Convertible Debt6.0% Convertible Notes, Discount Amortization
    
    $
    
    
    
    $
    2.0
    
    
    $
    
    
    
    $
    3.46.0% Convertible Notes, Derivative Mark-to-Market
    
    
    
    
    
    
    (11.4
    )
    
    
    
    
    
    
    (11.3
    )5.25% Convertible Notes, Discount Amortization
    
    
    1.4
    
    
    
    
    
    
    
    4.3
    
    
    
    2.14.25% Convertible Notes, Discount Amortization
    
    
    1.3
    
    
    
    1.4
    
    
    
    3.7
    
    
    
    4.04.25% Convertible Notes, Deferred Loan Cost
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Total Non-Cash Interest Expense, Convertible Debt
    
    $
    2.7
    
    
    $
    (7.8
    )
    
    $
    8.0
    
    
    $
    (1.6
    )
 
 (1)
    
    Primarily consists of interest expense allocated to discontinued operations.  18




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2009Covenant
    
    Required
    
    ActualConsolidated liquidity ratio
    
    ≥ 1.10
    
    
    1.37Consolidated fixed charge coverage ratio
    
    ≥ 1.15
    
    
    1.40Consolidated total senior secured debt to EBITDA ratio
    
    ≦ 2.25
    
    
    1.18EBTDAR to rent ratio
    
    ≥ 1.50
    
    
    1.61
   Stock-Based Compensation
  Weighted AverageOptions
    
    
    Exercise Price
    
    
    Weighted Average
    
    
    Remaining
    
    
    AggregateOutstanding
    
    
    Per Share
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    Intrinsic  Value(in thousands)
    
    
    
    
    
    
    
    
    
    
    (in years)
    
    
    (in thousands)Balance  December 31, 2008
    
    
    3,339
    
    
    $
    7.80 - 37.50
    
    
    $
    21.90
    
    
    
    4.6
    
    
    $
    Granted
    
    
    1,398
    
    
    $
    1.81 - $2.99
    
    
    
    1.81Forfeited
    
    
    (602
    )
    
    $
    1.81 - $37.50
    
    
    
    19.32Balance  September 30, 2009
    
    
    4,135
    
    
    $
    1.81 - $37.50
    
    
    $
    15.49
    
    
    
    6.0
    
    
    $
    12,558Exercisable
    
    
    2,711
    
    
    $
    7.80 - $37.50
    
    
    $
    22.33
    
    
    
    4.2
    
    
    $
    492
 Nine Months Ended(dollars in thousands, except per option amounts)
    
    September 30, 2009Weighted Average Grant-Date Fair Value Per Option of Options Granted
    
    $
    0.99Fair Value of Options Vested
    
    $
    132
  19




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 2009Stock Option PlansDividend yield
    
    
    0.00
    %Risk free interest rate
    
    
    1.67 - 1.87
    %Expected life
    
    5 yearsVolatility
    
    
    64.13
    %
    Unvested RestrictedStock and
    
    
    Weighted AverageRestricted Stock
    
    
    Grant Date FairUnits
    
    
    Value(in thousands)Balance  December 31, 2008
    
    
    348
    
    
    $
    22.99Granted
    
    
    79
    
    
    
    7.24Forfeited
    
    
    (10
    )
    
    
    21.44Vested
    
    
    (104
    )
    
    
    27.60Balance  September 30, 2009
    
    
    313
    
    
    $
    17.45
  Per Share Data And Stockholders Equity
  20




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the Third Quarter Ended September 30, 2009Income
    
    
    LossFrom Continuing
    
    
    From DiscontinuedOperations
    
    
    Operations
    
    
    Net IncomePer Common
    
    
    
    
    
    
    Per Common
    
    
    
    
    
    
    Per CommonShares
    
    
    Amount
    
    
    Share Amount
    
    
    Amount
    
    
    Share Amount
    
    
    Amount
    
    
    Share Amount(dollars in thousands except per share amounts)Earnings (Loss) and Shares
    
    
    42,305
    
    
    $
    18,480
    
    
    
    
    
    
    $
    (2,886
    )
    
    
    
    
    
    $
    15,594Effect of Participating Securities:Unvested Restricted Stock and Stock Units
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136
    )Basic Earnings (Loss) Per Share
    
    
    42,305
    
    
    $
    18,344
    
    
    $
    0.43
    
    
    $
    (2,886
    )
    
    $
    (0.06
    )
    
    $
    15,458
    
    
    $
    0.37Effect of Dilutive Securities:Contingently ConvertibleDebt (2009 6.0% Convertibles)
    
    
    19,004
    
    
    
    (4,223
    )
    
    
    
    
    
    
    (693
    )
    
    
    
    
    
    
    (4,916
    )Contingently ConvertibleDebt (2009 5.0% Convertibles)
    
    
    981
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock Plans
    
    
    905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted Earnings (Loss) Per Share
    
    
    63,195
    
    
    $
    14,121
    
    
    $
    0.22
    
    
    $
    (3,579
    )
    
    $
    (0.05
    )
    
    $
    10,542
    
    
    $
    0.17
 For Nine Months Ended September 30, 2008Income
    
    
    LossFrom Continuing
    
    
    From DiscontinuedOperations
    
    
    Operations
    
    
    Net IncomePer Common
    
    
    
    
    
    
    Per Common
    
    
    
    
    
    
    Per CommonShares
    
    
    Amount
    
    
    Share Amount
    
    
    Amount
    
    
    Share Amount
    
    
    Amount
    
    
    Share Amount(amounts in thousands except per share amounts)Earnings (Loss) and Shares
    
    
    40,447
    
    
    $
    16,283
    
    
    
    
    
    
    $
    (21,407
    )
    
    
    
    
    
    $
    (5,124
    )Effect of Participating Securities:Unvested Restricted Stock and Stock Units
    
    
    
    
    
    
    (230
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )Basic Earnings (Loss) Per Share
    
    
    40,447
    
    
    $
    16,053
    
    
    $
    0.40
    
    
    $
    (21,407
    )
    
    $
    (0.53
    )
    
    $
    (5,354
    )
    
    $
    (0.13
    )Effect of Dilutive Securities:Stock Plans
    
    
    179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted Earnings (Loss) Per Share
    
    
    40,626
    
    
    $
    16,053
    
    
    $
    0.40
    
    
    $
    (21,407
    )
    
    $
    (0.53
    )
    
    $
    (5,354
    )
    
    $
    (0.13
    )
 For Nine Months Ended September 30, 2009Income
    
    
    LossFrom Continuing
    
    
    From DiscontinuedOperations
    
    
    Operations
    
    

Net
IncomePer Common
    
    
    
    
    
    
    Per Common
    
    
    
    
    
    
    Per CommonShares
    
    
    Amount
    
    
    Share Amount
    
    
    Amount
    
    
    Share Amount
    
    
    Amount
    
    
    Share Amount(amounts in thousands except per share amounts)Earnings (Loss) and Shares
    
    
    41,130
    
    
    $
    25,309
    
    
    
    
    
    
    $
    (8,011
    )
    
    
    
    
    
    $
    17,298Effect of Participating Securities:Unvested Restricted Stock and Stock Units
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191
    )Basic Earnings (Loss) Per Share
    
    
    41,130
    
    
    $
    25,118
    
    
    $
    0.61
    
    
    $
    (8,011
    )
    
    $
    (0.19
    )
    
    $
    17,107
    
    
    $
    0.42Effect of Dilutive Securities:Contingently ConvertibleDebt (2009 6.0% Convertibles)
    
    
    10,473
    
    
    
    (3,088
    )
    
    
    
    
    
    
    (501
    )
    
    
    
    
    
    
    (3,589
    )Contingently ConvertibleDebt (2009 5.0% Convertibles)
    
    
    331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock Plans
    
    
    595
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted Earnings (Loss) Per Share
    
    
    52,529
    
    
    $
    22,030
    
    
    $
    0.42
    
    
    $
    (8,512
    )
    
    $
    (0.16
    )
    
    $
    13,518
    
    
    $
    0.26
   21




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Contingencies
 Legal and Other Proceedings:
    Guarantees and Indemnifications:
  Fair Value Measurements
  22




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        Fair Value at Reporting Date Using:SignificantQuoted Prices in
    
    
    Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs(dollars in millions)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash Flow Swaps (1)
    
    
    (33.5
    )
    
    
    
    
    
    
    (33.5
    )
    
    
    Total
    
    $
    (33.5
    )
    
    $
    
    
    
    $
    (33.5
    )
    
    $
    
 
 (1)
    
     Included net of taxes of $12.3 million in accumulated other comprehensive income in the
accompanying balance sheet 23




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (dollars in millions)December 31, 2008
    
    $
    Initial Issuance / Recognition (1)
    
    
    11.3Change in Fair Value (2)
    
    
    (11.3
    )September 30, 2009
    
    $
    
 
 (1)
    
    Embedded derivatives related to the 6.0% Convertible Notes(2)
    
    Included in non-cash interest expense, convertible debt (see Note 6)     24




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (dollars in thousands)December 31, 2008
    
    September 30, 2009Fair Value
    
    Carrying Value
    
    Fair Value
    
    Carrying Value8.625% Senior
Subordinated Notes (1)
    
    $
    104,500
    
    
    $
    273,116
    
    
    $
    262,969
    
    
    $
    273,3666.0% Senior Secured
Convertible Notes (2)
    
    $
    
    
    
    $
    
    
    
    $
    85,627
    
    
    $
    77,6885.25% Convertible Senior
Subordinated Notes (1) (3)
    
    $
    97,883
    
    
    $
    102,990
    
    
    $
    
    
    
    $
    5.0% Convertible Senior
Notes (1) (3)
    
    $
    
    
    
    $
    
    
    
    $
    185,006
    
    
    $
    134,9814.25% Convertible Senior
Subordinated Notes (1) (3)
    
    $
    53,600
    
    
    $
    147,538
    
    
    $
    18,317
    
    
    $
    16,310Mortgage Notes
    
    $
    80,530
    
    
    $
    80,622
    
    
    $
    78,900
    
    
    $
    78,990Notes Payable to a
Finance Company (4)
    
    $
    18,629
    
    
    $
    22,946
    
    
    $
    18,372
    
    
    $
    20,946
 
 (1)
    
    As determined by market quotations.(2)
    
    As determined by expected near-term repayment amount.(3)
    
    Adjusted for effect of ASC 470, Debt (See Note 1).(4)
    
    As determined by discounted cash flows. Subsequent
Events
  25




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
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.
  Overview
  Economic Conditions
    
    
    The termination of the franchise agreement no earlier than January 1, 2010 and no later than October 31, 2010;
    
    The assignment and assumption of the franchise agreement by the new General Motors Company;
    
    The payment of financial assistance to the franchisee in installments
in connection with the orderly winding down of the franchise
operations;
 26




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
    
    The waiver of any other termination assistance of any kind that may
have been required under the franchise agreement;
    
    The release of claims against Motors Liquidation Company or the new
General Motors Company and their related parties;
    
    The continuation of franchise operations pursuant to the franchise
agreement, as supplemented by the termination agreement, through the
effective date of termination of the franchise agreement, except that
we shall not be entitled to order any new vehicles from Motors
Liquidation Company or the new General Motors Company; and
    
    A restriction on our ability to transfer the franchise agreement to another party.
        27




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Percentage of New Vehicle Revenue
    
    Percentage of New Vehicle RevenueThird Quarter Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2009
    
    2008
    
    2009Brand (1)BMW
    
    
    21.1
    %
    
    
    17.5
    %
    
    
    19.6
    %
    
    
    18.5
    %Honda
    
    
    13.2
    %
    
    
    13.5
    %
    
    
    13.0
    %
    
    
    12.9
    %Toyota
    
    
    11.6
    %
    
    
    13.2
    %
    
    
    12.1
    %
    
    
    12.3
    %Ford
    
    
    7.2
    %
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    10.0
    %General Motors (2)
    
    
    9.2
    %
    
    
    7.6
    %
    
    
    8.7
    %
    
    
    7.9
    %Mercedes
    
    
    8.6
    %
    
    
    7.2
    %
    
    
    8.5
    %
    
    
    7.2
    %Lexus
    
    
    6.6
    %
    
    
    6.9
    %
    
    
    6.4
    %
    
    
    6.4
    %Other (3)
    
    
    3.8
    %
    
    
    5.0
    %
    
    
    3.6
    %
    
    
    4.5
    %Cadillac
    
    
    5.3
    %
    
    
    3.8
    %
    
    
    5.5
    %
    
    
    4.1
    %Audi
    
    
    1.7
    %
    
    
    2.8
    %
    
    
    1.7
    %
    
    
    2.8
    %Volkswagen
    
    
    2.0
    %
    
    
    2.3
    %
    
    
    1.8
    %
    
    
    2.4
    %Hyundai
    
    
    1.7
    %
    
    
    2.4
    %
    
    
    1.5
    %
    
    
    2.2
    %Land Rover
    
    
    1.2
    %
    
    
    2.0
    %
    
    
    1.4
    %
    
    
    1.9
    %Volvo
    
    
    1.2
    %
    
    
    1.8
    %
    
    
    1.6
    %
    
    
    1.7
    %Porsche
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    1.6
    %Other Luxury (4)
    
    
    1.1
    %
    
    
    1.1
    %
    
    
    1.2
    %
    
    
    1.2
    %Acura
    
    
    1.2
    %
    
    
    0.7
    %
    
    
    1.2
    %
    
    
    0.8
    %Nissan
    
    
    0.7
    %
    
    
    0.8
    %
    
    
    0.7
    %
    
    
    0.7
    %Infiniti
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    0.6
    %
    
    
    0.5
    %Chrysler (5)
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.4
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    In accordance with the provisions of ASC 205, Presentation of Financial Statements, prior years income
statement data reflect reclassifications to exclude franchises sold, identified for sale, or terminated
subsequent
to September 30, 2008 which had not been previously included in discontinued operations. See Notes
1 and 2 to our accompanying unaudited Consolidated Financial Statements which discusses these and
other factors that affect the comparability of the information for the periods presented.(2)
    
    Includes Buick, Chevrolet and Saturn.(3)
    
    Includes Isuzu, KIA, Mini, Mitsubishi and Subaru.(4)
    
    Includes Hummer, Jaguar, and Saab.(5)
    
    Includes Chrysler, Dodge and Jeep. 28




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Results of Operations
  New Vehicles
  SAAR (in millions of vehicles)2008
    
    2009
    
    % ChangeThird Quarter Ended September 30,
    
    
    13.0
    
    
    
    11.5
    
    
    
    (11.5
    %)Nine Months Ended September 30,
    
    
    14.1
    
    
    
    10.2
    
    
    
    (27.7
    %)
  29




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    942,471
    
    
    $
    825,367
    
    
    $
    (117,104
    )
    
    
    (12.4
    %)Gross profit
    
    $
    63,986
    
    
    $
    60,251
    
    
    $
    (3,735
    )
    
    
    (5.8
    %)Unit sales
    
    
    28,797
    
    
    
    26,276
    
    
    
    (2,521
    )
    
    
    (8.8
    %)Revenue per Unit
    
    $
    32,728
    
    
    $
    31,411
    
    
    $
    (1,317
    )
    
    
    (4.0
    %)Gross profit per unit
    
    $
    2,222
    
    
    $
    2,293
    
    
    $
    71
    
    
    
    3.2
    %Gross profit as a % of revenue
    
    
    6.8
    %
    
    
    7.3
    %
    
    
    50
    bps
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    2,978,886
    
    
    $
    2,169,646
    
    
    $
    (809,240
    )
    
    
    (27.2
    %)Gross profit
    
    $
    201,685
    
    
    $
    152,136
    
    
    $
    (49,549
    )
    
    
    (24.6
    %)Unit sales
    
    
    91,977
    
    
    
    67,798
    
    
    
    (24,179
    )
    
    
    (26.3
    %)Revenue per Unit
    
    $
    32,387
    
    
    $
    32,002
    
    
    $
    (385
    )
    
    
    (1.2
    %)Gross profit per unit
    
    $
    2,193
    
    
    $
    2,244
    
    
    $
    51
    
    
    
    2.3
    %Gross profit as a % of revenue
    
    
    6.8
    %
    
    
    7.0
    %
    
    
    20
    bps
 Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    942,471
    
    
    $
    825,367
    
    
    $
    (117,104
    )
    
    
    (12.4
    %)Gross profit
    
    $
    63,403
    
    
    $
    58,867
    
    
    $
    (4,536
    )
    
    
    (7.2
    %)Unit sales
    
    
    28,797
    
    
    
    26,276
    
    
    
    (2,521
    )
    
    
    (8.8
    %)Revenue per unit
    
    $
    32,728
    
    
    $
    31,411
    
    
    $
    (1,317
    )
    
    
    (4.0
    %)Gross profit per unit
    
    $
    2,202
    
    
    $
    2,240
    
    
    $
    38
    
    
    
    1.7
    %Gross profit as a % of revenue
    
    
    6.7
    %
    
    
    7.1
    %
    
    
    40
    bps
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    2,978,886
    
    
    $
    2,166,449
    
    
    $
    (812,437
    )
    
    
    (27.3
    %)Gross profit
    
    $
    201,538
    
    
    $
    149,000
    
    
    $
    (52,538
    )
    
    
    (26.1
    %)Unit sales
    
    
    91,977
    
    
    
    67,745
    
    
    
    (24,232
    )
    
    
    (26.3
    %)Revenue per unit
    
    $
    32,387
    
    
    $
    31,979
    
    
    $
    (408
    )
    
    
    (1.3
    %)Gross profit per unit
    
    $
    2,191
    
    
    $
    2,199
    
    
    $
    8
    
    
    
    0.4
    %Gross profit as a % of revenue
    
    
    6.8
    %
    
    
    6.9
    %
    
    
    10
    bps
   30




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
      Used Vehicles
  31




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    308,158
    
    
    $
    365,501
    
    
    $
    57,343
    
    
    
    18.6
    %Gross profit
    
    $
    25,883
    
    
    $
    28,552
    
    
    $
    2,669
    
    
    
    10.3
    %Unit sales
    
    
    15,444
    
    
    
    19,360
    
    
    
    3,916
    
    
    
    25.4
    %Revenue per Unit
    
    $
    19,953
    
    
    $
    18,879
    
    
    $
    (1,074
    )
    
    
    (5.4
    %)Gross profit per unit
    
    $
    1,676
    
    
    $
    1,475
    
    
    $
    (201
    )
    
    
    (12.0
    %)Gross profit as a % of revenue
    
    
    8.4
    %
    
    
    7.8
    %
    
    
    (60
    )bpsCPO revenue
    
    $
    164,935
    
    
    $
    172,357
    
    
    $
    7,422
    
    
    
    4.5
    %CPO unit sales
    
    
    6,425
    
    
    
    6,583
    
    
    
    158
    
    
    
    2.5
    %
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    994,906
    
    
    $
    1,034,444
    
    
    $
    39,538
    
    
    
    4.0
    %Gross profit
    
    $
    88,197
    
    
    $
    85,981
    
    
    $
    (2,216
    )
    
    
    (2.5
    %)Unit sales
    
    
    49,617
    
    
    
    55,062
    
    
    
    5,445
    
    
    
    11.0
    %Revenue per Unit
    
    $
    20,052
    
    
    $
    18,787
    
    
    $
    (1,265
    )
    
    
    (6.3
    %)Gross profit per unit
    
    $
    1,778
    
    
    $
    1,562
    
    
    $
    (216
    )
    
    
    (12.1
    %)Gross profit as a % of revenue
    
    
    8.9
    %
    
    
    8.3
    %
    
    
    (60
    )bpsCPO revenue
    
    $
    517,855
    
    
    $
    528,665
    
    
    $
    10,810
    
    
    
    2.1
    %CPO unit sales
    
    
    20,139
    
    
    
    20,822
    
    
    
    683
    
    
    
    3.4
    %
 Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    308,158
    
    
    $
    365,501
    
    
    $
    57,343
    
    
    
    18.6
    %Gross profit
    
    $
    25,830
    
    
    $
    28,585
    
    
    $
    2,755
    
    
    
    10.7
    %Unit sales
    
    
    15,444
    
    
    
    19,360
    
    
    
    3,916
    
    
    
    25.4
    %Revenue per unit
    
    $
    19,953
    
    
    $
    18,879
    
    
    $
    (1,074
    )
    
    
    (5.4
    %)Gross profit per unit
    
    $
    1,673
    
    
    $
    1,477
    
    
    
    (196
    )
    
    
    (11.7
    %)Gross profit as a % of revenue
    
    
    8.4
    %
    
    
    7.8
    %
    
    
    (60
    )bpsCPO revenue
    
    $
    164,935
    
    
    $
    172,357
    
    
    $
    7,422
    
    
    
    4.5
    %CPO unit sales
    
    
    6,425
    
    
    
    6,583
    
    
    
    158
    
    
    
    2.5
    %
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    994,906
    
    
    $
    1,033,492
    
    
    $
    38,586
    
    
    
    3.9
    %Gross profit
    
    $
    87,310
    
    
    $
    87,000
    
    
    $
    (310
    )
    
    
    (0.4
    %)Unit sales
    
    
    49,617
    
    
    
    55,017
    
    
    
    5,400
    
    
    
    10.9
    %Revenue per unit
    
    $
    20,052
    
    
    $
    18,785
    
    
    $
    (1,267
    )
    
    
    (6.3
    %)Gross profit per unit
    
    $
    1,760
    
    
    $
    1,581
    
    
    
    (179
    )
    
    
    (10.2
    %)Gross profit as a % of revenue
    
    
    8.8
    %
    
    
    8.4
    %
    
    
    (40
    )bpsCPO revenue
    
    $
    517,855
    
    
    $
    528,266
    
    
    $
    10,411
    
    
    
    2.0
    %CPO unit sales
    
    
    20,139
    
    
    
    20,806
    
    
    
    667
    
    
    
    3.3
    %
  32




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
   Wholesale Vehicles
  Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    64,995
    
    
    $
    33,220
    
    
    $
    (31,775
    )
    
    
    (48.9
    %)Gross profit
    
    $
    (1,254
    )
    
    $
    (1,783
    )
    
    $
    (529
    )
    
    
    (42.2
    %)Unit sales
    
    
    8,636
    
    
    
    6,612
    
    
    
    (2,024
    )
    
    
    (23.4
    %)Revenue per Unit
    
    $
    7,526
    
    
    $
    5,024
    
    
    $
    (2,502
    )
    
    
    (33.2
    %)Gross profit per unit
    
    $
    (145
    )
    
    $
    (270
    )
    
    $
    (125
    )
    
    
    (86.2
    %)Gross profit as a % of revenue
    
    
    (1.9
    %)
    
    
    (5.4
    %)
    
    
    (350
    )bps
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    216,378
    
    
    $
    97,478
    
    
    $
    (118,900
    )
    
    
    (55.0
    %)Gross profit
    
    $
    (4,039
    )
    
    $
    (3,263
    )
    
    $
    776
    
    
    
    19.2
    %Unit sales
    
    
    27,559
    
    
    
    17,414
    
    
    
    (10,145
    )
    
    
    (36.8
    %)Revenue per Unit
    
    $
    7,851
    
    
    $
    5,598
    
    
    $
    (2,253
    )
    
    
    (28.7
    %)Gross profit per unit
    
    $
    (147
    )
    
    $
    (187
    )
    
    $
    (40
    )
    
    
    (27.2
    %)Gross profit as a % of revenue
    
    
    (1.9
    %)
    
    
    (3.3
    %)
    
    
    (140
    )bps
 Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    64,995
    
    
    $
    33,220
    
    
    $
    (31,775
    )
    
    
    (48.9
    %)Gross profit
    
    $
    (1,254
    )
    
    $
    (1,783
    )
    
    $
    (529
    )
    
    
    (42.2
    %)Unit sales
    
    
    8,636
    
    
    
    6,612
    
    
    
    (2,024
    )
    
    
    (23.4
    %)Revenue per unit
    
    $
    7,526
    
    
    $
    5,024
    
    
    $
    (2,502
    )
    
    
    (33.2
    %)Gross profit per unit
    
    $
    (145
    )
    
    $
    (270
    )
    
    $
    (125
    )
    
    
    (86.2
    %)Gross profit as a % of revenue
    
    
    (1.9
    %)
    
    
    (5.4
    %)
    
    
    (350
    )bps
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except units and per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    216,378
    
    
    $
    97,460
    
    
    $
    (118,918
    )
    
    
    (55.0
    %)Gross profit
    
    $
    (4,039
    )
    
    $
    (3,264
    )
    
    $
    775
    
    
    
    19.2
    %Unit sales
    
    
    27,559
    
    
    
    17,412
    
    
    
    (10,147
    )
    
    
    (36.8
    %)Revenue per unit
    
    $
    7,851
    
    
    $
    5,597
    
    
    $
    (2,254
    )
    
    
    (28.7
    %)Gross profit per unit
    
    $
    (147
    )
    
    $
    (187
    )
    
    $
    (40
    )
    
    
    (27.2
    %)Gross profit as a % of revenue
    
    
    (1.9
    %)
    
    
    (3.3
    %)
    
    
    (140
    )bps
 33




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
   Parts, Service and Collision Repair (Fixed Operations)
  34




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Third Quarter Ended September 30,
    
    
    Better / (Worse)(in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    % ChangeReported:RevenueParts
    
    $
    138,708
    
    
    $
    137,417
    
    
    $
    (1,291
    )
    
    
    (0.9
    %)Service
    
    
    105,109
    
    
    
    105,943
    
    
    
    834
    
    
    
    0.8
    %Collision Repair
    
    
    13,050
    
    
    
    12,012
    
    
    
    (1,038
    )
    
    
    (8.0
    %)Total
    
    $
    256,867
    
    
    $
    255,372
    
    
    $
    (1,495
    )
    
    
    (0.6
    %)Gross profitParts
    
    $
    47,647
    
    
    $
    47,955
    
    
    $
    308
    
    
    
    0.6
    %Service
    
    
    72,595
    
    
    
    74,425
    
    
    
    1,830
    
    
    
    2.5
    %Collision Repair
    
    
    7,244
    
    
    
    6,766
    
    
    
    (478
    )
    
    
    (6.6
    %)Total
    
    $
    127,486
    
    
    $
    129,146
    
    
    $
    1,660
    
    
    
    1.3
    %Gross profit as a % of revenueParts
    
    
    34.4
    %
    
    
    34.9
    %
    
    
    50
    bpsService
    
    
    69.1
    %
    
    
    70.3
    %
    
    
    120
    bpsCollision Repair
    
    
    55.5
    %
    
    
    56.3
    %
    
    
    80
    bpsTotal
    
    
    49.6
    %
    
    
    50.6
    %
    
    
    100
    bps
 Nine Months Ended September 30,
    
    
    Better / (Worse)(in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    % ChangeReported:RevenueParts
    
    $
    424,132
    
    
    $
    416,960
    
    
    $
    (7,172
    )
    
    
    (1.7
    %)Service
    
    
    322,174
    
    
    
    313,436
    
    
    
    (8,738
    )
    
    
    (2.7
    %)Collision Repair
    
    
    41,622
    
    
    
    37,607
    
    
    
    (4,015
    )
    
    
    (9.6
    %)Total
    
    $
    787,928
    
    
    $
    768,003
    
    
    $
    (19,925
    )
    
    
    (2.5
    %)Gross profitParts
    
    $
    145,199
    
    
    $
    142,342
    
    
    $
    (2,857
    )
    
    
    (2.0
    %)Service
    
    
    222,740
    
    
    
    220,716
    
    
    
    (2,024
    )
    
    
    (0.9
    %)Collision Repair
    
    
    23,211
    
    
    
    21,152
    
    
    
    (2,059
    )
    
    
    (8.9
    %)Total
    
    $
    391,150
    
    
    $
    384,210
    
    
    $
    (6,940
    )
    
    
    (1.8
    %)Gross profit as a % of revenueParts
    
    
    34.2
    %
    
    
    34.1
    %
    
    (10
    )bpsService
    
    
    69.1
    %
    
    
    70.4
    %
    
    130
    bpsCollision Repair
    
    
    55.8
    %
    
    
    56.2
    %
    
    40
    bpsTotal
    
    
    49.6
    %
    
    
    50.0
    %
    
    40
    bps
 35




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Third Quarter Ended September 30,
    
    
    Better / (Worse)(in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    % ChangeSame Store:RevenueParts
    
    $
    139,056
    
    
    $
    137,417
    
    
    $
    (1,639
    )
    
    
    (1.2
    %)Service
    
    
    105,109
    
    
    
    105,943
    
    
    
    834
    
    
    
    0.8
    %Collision Repair
    
    
    13,050
    
    
    
    12,012
    
    
    
    (1,038
    )
    
    
    (8.0
    %)Total
    
    $
    257,215
    
    
    $
    255,372
    
    
    $
    (1,843
    )
    
    
    (0.7
    %)Gross profitParts
    
    $
    47,995
    
    
    $
    47,955
    
    
    $
    (40
    )
    
    
    (0.1
    %)Service
    
    
    72,595
    
    
    
    74,425
    
    
    
    1,830
    
    
    
    2.5
    %Collision Repair
    
    
    7,243
    
    
    
    6,766
    
    
    
    (477
    )
    
    
    (6.6
    %)Total
    
    $
    127,833
    
    
    $
    129,146
    
    
    $
    1,313
    
    
    
    1.0
    %Gross profit as a %
of revenueParts
    
    
    34.5
    %
    
    
    34.9
    %
    
    
    40
    bpsService
    
    
    69.1
    %
    
    
    70.3
    %
    
    
    120
    bpsCollision Repair
    
    
    55.5
    %
    
    
    56.3
    %
    
    
    80
    bpsTotal
    
    
    49.7
    %
    
    
    50.6
    %
    
    
    90
    bps
 Nine Months Ended September 30,
    
    
    Better / (Worse)(in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    % ChangeSame Store:RevenueParts
    
    $
    424,132
    
    
    $
    416,024
    
    
    $
    (8,108
    )
    
    
    (1.9
    %)Service
    
    
    322,174
    
    
    
    312,734
    
    
    
    (9,440
    )
    
    
    (2.9
    %)Collision Repair
    
    
    41,622
    
    
    
    37,606
    
    
    
    (4,016
    )
    
    
    (9.6
    %)Total
    
    $
    787,928
    
    
    $
    766,364
    
    
    $
    (21,564
    )
    
    
    (2.7
    %)Gross profitParts
    
    $
    145,199
    
    
    $
    141,973
    
    
    $
    (3,226
    )
    
    
    (2.2
    %)Service
    
    
    222,740
    
    
    
    220,219
    
    
    
    (2,521
    )
    
    
    (1.1
    %)Collision Repair
    
    
    23,211
    
    
    
    21,151
    
    
    
    (2,060
    )
    
    
    (8.9
    %)Total
    
    $
    391,150
    
    
    $
    383,343
    
    
    $
    (7,807
    )
    
    
    (2.0
    %)Gross profit as a %
of revenueParts
    
    
    34.2
    %
    
    
    34.1
    %
    
    
    (10
    ) bpsService
    
    
    69.1
    %
    
    
    70.4
    %
    
    
    130
    bpsCollision Repair
    
    
    55.8
    %
    
    
    56.2
    %
    
    
    40
    bpsTotal
    
    
    49.6
    %
    
    
    50.0
    %
    
    
    40
    bps
   36




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
   Finance, Insurance and Other (F&I)
  Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    43,259
    
    
    $
    41,302
    
    
    $
    (1,957
    )
    
    
    (4.5
    %)Gross profit per retail unit
(excluding fleet)
    
    $
    1,043
    
    
    $
    946
    
    
    $
    (97
    )
    
    
    (9.3
    %)
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeReported:Revenue
    
    $
    139,355
    
    
    $
    110,663
    
    
    $
    (28,692
    )
    
    
    (20.6
    %)Gross profit per retail unit
(excluding fleet)
    
    $
    1,072
    
    
    $
    954
    
    
    $
    (118
    )
    
    
    (11.0
    %)
 Third Quarter Ended September 30,
    
    Better / (Worse)(in thousands except per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    42,299
    
    
    $
    40,680
    
    
    $
    (1,619
    )
    
    
    (3.8
    %)Gross profit per retail unit
(excluding fleet)
    
    $
    1,020
    
    
    $
    932
    
    
    $
    (88
    )
    
    
    (8.6
    %)
 Nine Months Ended September 30,
    
    Better / (Worse)(in thousands except per unit data)
    
    2008
    
    2009
    
    Change
    
    % ChangeSame Store:Revenue
    
    $
    136,223
    
    
    $
    108,661
    
    
    $
    (27,562
    )
    
    
    (20.2
    %)Gross profit per retail unit
(excluding fleet)
    
    $
    1,048
    
    
    $
    937
    
    
    $
    (111
    )
    
    
    (10.6
    %)
  Selling, General and Administrative Expenses (SG&A)
  37




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Third Quarter Ended September 30,
    
    
    Better / (Worse)(in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    % ChangeReported Expense:Compensation
    
    $
    116,949
    
    
    $
    118,345
    
    
    $
    (1,396
    )
    
    
    (1.2
    %)Advertising
    
    
    12,817
    
    
    
    10,734
    
    
    
    2,083
    
    
    
    16.3
    %Rent and Rent Related
    
    
    38,461
    
    
    
    34,398
    
    
    
    4,063
    
    
    
    10.6
    %Other
    
    
    52,186
    
    
    
    40,217
    
    
    
    11,969
    
    
    
    22.9
    %Total
    
    $
    220,413
    
    
    $
    203,694
    
    
    $
    16,719
    
    
    
    7.6
    %SG&A as a % of grossCompensation
    
    
    45.1
    %
    
    
    45.9
    %
    
    
    (80
    ) bpsAdvertising
    
    
    4.9
    %
    
    
    4.2
    %
    
    
    70
    bpsRent and Rent Related
    
    
    14.8
    %
    
    
    13.4
    %
    
    
    140
    bpsOther
    
    
    20.2
    %
    
    
    15.6
    %
    
    
    460
    bpsTotal
    
    
    85.0
    %
    
    
    79.1
    %
    
    
    590
    bps
 Nine Months Ended September 30,
    
    
    Better / (Worse)(in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    % ChangeReported Expense:Compensation
    
    $
    365,618
    
    
    $
    337,737
    
    
    $
    27,881
    
    
    
    7.6
    %Advertising
    
    
    42,405
    
    
    
    31,333
    
    
    
    11,072
    
    
    
    26.1
    %Rent and Rent Related
    
    
    101,081
    
    
    
    100,418
    
    
    
    663
    
    
    
    0.7
    %Other
    
    
    147,695
    
    
    
    119,346
    
    
    
    28,349
    
    
    
    19.2
    %Total
    
    $
    656,799
    
    
    $
    588,834
    
    
    $
    67,965
    
    
    
    10.3
    %SG&A as a % of grossCompensation
    
    
    44.7
    %
    
    
    46.3
    %
    
    
    (160
    ) bpsAdvertising
    
    
    5.2
    %
    
    
    4.3
    %
    
    
    90
    bpsRent and Rent Related
    
    
    12.4
    %
    
    
    13.7
    %
    
    
    (130
    ) bpsOther
    
    
    18.2
    %
    
    
    16.4
    %
    
    
    180
    bpsTotal
    
    
    80.5
    %
    
    
    80.7
    %
    
    
    (20
    ) bps
     38




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Impairment Charges
  Depreciation and Amortization
  Interest Expense, Floor Plan
   Non-Cash Interest Expense, Convertible Debt
  39




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Interest Expense, Other
  Increase / (Decrease) in Interest Expense, OtherThird Quarter Ended
    
    
    Nine Months Ended(dollars in millions)
    
    September 30, 2009
    
    
    September 30, 2009Interest Rates  Decrease in interest rates
    
    $
    (0.3
    )
    
    $
    (1.3
    )Debt balances  Decrease in debt balances
    
    
    (0.8
    )
    
    
    (0.5
    )Other factors  Decrease in capitalized interest
    
    
    0.3
    
    
    
    0.5 Incremental interest expense related to variable to
fixed rate swaps
    
    
    1.7
    
    
    
    10.3 Incremental interest expense related to fixed to
variable rate swaps
    
    
    0.2
    
    
    
    0.9 Higher deferred loan cost amortization
    
    
    2.1
    
    
    
    8.7 Higher interest allocation to discontinued operations
    
    
    (0.4
    )
    
    
    (3.7
    ) Other
    
    
    0.6
    
    
    
    1.8$
    3.4
    
    
    $
    16.7
 Other Income (Expense), Net
   Income Taxes
  40




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Discontinued Operations
  (dollars in thousands)Third Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Income from operations
    
    $
    528
    
    
    $
    1,707
    
    
    $
    543
    
    
    $
    1,593Loss on disposal of franchises
    
    
    (137
    )
    
    
    (103
    )
    
    
    (3,080
    )
    
    
    (572
    )Lease exit charges
    
    
    (10,927
    )
    
    
    (5,171
    )
    
    
    (12,444
    )
    
    
    (6,751
    )Property impairment charges
    
    
    (4,842
    )
    
    
    (74
    )
    
    
    (6,897
    )
    
    
    (2,271
    )Goodwill impairment charges
    
    
    
    
    
    
    (207
    )
    
    
    
    
    
    
    (2,680
    )Franchise agreement and other impairments
    
    
    (2,500
    )
    
    
    
    
    
    
    (6,800
    )
    
    
    Favorable lease asset impairment charges
    
    
    
    
    
    
    
    
    
    
    (1,903
    )
    
    
    Pre-tax loss
    
    $
    (17,878
    )
    
    $
    (3,848
    )
    
    $
    (30,581
    )
    
    $
    (10,681
    )Total Revenues
    
    $
    244,947
    
    
    $
    183,153
    
    
    $
    845,569
    
    
    $
    544,357
  Liquidity and Capital Resources
   41




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Floor Plan Facilities
    Long-Term Debt and Credit Facilities
  42




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Dealership Acquisitions and Dispositions
  Capital Expenditures
   Stock Repurchase Program
  Dividends
  Cash Flows
    43




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Guarantees and Indemnifications
  Future Liquidity Outlook
      44




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##### Table of Contents



SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 (Amounts in thousands)Q4 2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    TotalFloor Plan Facilities (1)
    
    $
    658,182
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    658,182Long-Term Debt (2)
    
    
    108,242
    
    
    
    23,321
    
    
    
    6,706
    
    
    
    7,163
    
    
    
    288,421
    
    
    
    273,059
    
    
    
    706,912Letters of Credit
    
    
    76,971
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,971Estimated Interest Payments on
Floor Plan Facilities (3)
    
    
    2,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,857Estimated Interest Payments on
Long-Term Debt (4)
    
    
    10,967
    
    
    
    41,941
    
    
    
    40,784
    
    
    
    40,261
    
    
    
    30,585
    
    
    
    65,546
    
    
    
    230,084Operating
Leases (Net of Sublease Rentals)
    
    
    29,583
    
    
    
    109,684
    
    
    
    100,465
    
    
    
    97,246
    
    
    
    91,238
    
    
    
    515,945
    
    
    
    944,161Construction Contracts
    
    
    41,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,500Other Purchase Obligations
(5)
    
    
    2,856
    
    
    
    12,725
    
    
    
    11,225
    
    
    
    3,960
    
    
    
    2,640
    
    
    
    
    
    
    
    33,406ASC 470 Liability (6)
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,745
    
    
    
    23,245Total
    
    $
    931,658
    
    
    $
    187,671
    
    
    $
    159,180
    
    
    $
    148,630
    
    
    $
    412,884
    
    
    $
    877,295
    
    
    $
    2,717,318
 
 (1)
    
    Floor plan facilities include amounts classified as liabilities associated with assets held
for sale.(2)
    
    Long-Term Debt consists of contractual principal payments only. Maturities are presented as
the earliest date we may be required to repay
amounts owed and do not assume any forced conversions.(3)
    
    Floor plan facilities balances (including amounts classified as liabilities associated with
assets held for sale) are correlated with
the amount of vehicle inventory and are generally due at the time that a vehicle is sold.
Estimated interest payments were
calculated using the September 30, 2009 floor plan facilities balance, the weighted average
interest rate for the third quarter
of 2009 of 2.64% and the assumption that floor plan facilities balances at September 30, 2009
would be relieved within sixty
days in connection with the sale of the associated vehicle inventory.(4)
    
    Based on schedule of contractual maturities discussed in (2) above.(5)
    
    Other Purchase Obligations include contracts for office supplies, utilities, and various other
items or services.(6)
    
    Amount represents recorded liability, including interest and
penalties, related to ASC 470. 45




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Off-Balance Sheet Arrangements
  Seasonality
  46




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
 
 Item 3: Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
     Notional
    
    Pay Rate
    
    Receive Rate (1)
    
    Maturing Date(in millions)$
    200.0
    
    
    
    4.935
    %
    
    one-month LIBOR
    
    May 1, 2012$
    100.0
    
    
    
    5.265
    %
    
    one-month LIBOR
    
    June 1, 2012$
    3.9
    
    
    
    7.100
    %
    
    one-month LIBOR
    
    July 10, 2017$
    25.0
    
    
    
    5.160
    %
    
    one-month LIBOR
    
    September 1, 2012$
    15.0
    
    
    
    4.965
    %
    
    one-month LIBOR
    
    September 1, 2012$
    25.0
    
    
    
    4.885
    %
    
    one-month LIBOR
    
    October 1, 2012$
    12.1
    
    
    
    4.655
    %
    
    one-month LIBOR
    
    December 10, 2017$
    9.0
    
    
    
    6.860
    %
    
    one-month LIBOR
    
    August 1, 2017$
    7.4
    
    
    
    4.330
    %
    
    one-month LIBOR
    
    July 1, 2013
 
 (1)
    
    One-month LIBOR was 0.246% at September 30, 2009.  Foreign Currency Risk
  47




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
 
 Item 4: Controls and Procedures.
  48




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 Item 1: Legal Proceedings.
    49




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
 
 Item 1A: Risk Factors
 Risks Related to Our Sources of Financing and Liquidity
 Our significant indebtedness could materially adversely affect our financial health, limit our
ability to finance future acquisitions and capital expenditures and prevent us from fulfilling our
financial obligations.
  
    
    $20.6 million under the 2006 Revolving Credit Sub-Facility (as defined below),
classified as current;
    
    $658.2 million under the secured new and used inventory floor plan facilities,
including $53.1 million classified as liabilities associated with assets held for sale;
    
    $135.0 million in 5.0% Convertible Notes representing $172.5 million in aggregate
principal amount outstanding less unamortized discount of approximately $37.5 million;
    
    $77.7 million in 6.0% Convertible Notes, classified as current, representing $85.6
million in aggregate principal amount outstanding less unamortized discount of
approximately $7.9 million;
    
    $16.3 million in 4.25% Convertible Notes, representing $17.0 million in aggregate
principal amount outstanding less unamortized discount of approximately $0.7 million;
    
    $273.4 million in 8.625% Notes, representing $275.0 million in aggregate principal
amount outstanding less unamortized net discount of approximately $1.6 million;
    
    $111.6 million of mortgage notes, representing $111.4 million in aggregate principal
amount plus unamortized premium of approximately $0.2 million, due from June, 2013 to
September, 2028, with a weighted average interest rate of 5.2%; and
    
    $27.5 million of other secured debt, representing $24.8 million in aggregate
principal amount plus unamortized premium of approximately $2.7 million.
    50




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
   
    
    our ability to obtain additional financing for acquisitions, capital expenditures,
working capital or general corporate purposes or to refinance existing indebtedness may be
limited in the future;
    
    a substantial portion of our current cash flow from operations must be dedicated to
the payment of principal and interest on our indebtedness and rents under long-term
operating leases, thereby reducing the funds available to us for our operations and other
purposes;
    
    some of our borrowings and facility leases are and will continue to be at variable
rates of interest, which exposes us to the risk of increasing interest rates;
    
    future interest rates may be higher than those currently applicable to our
outstanding debt;
    
    the indebtedness outstanding under our 2006 Credit Facility and other floor plan
facilities and the indenture governing our 6.0% Convertible Notes are secured by a pledge
of substantially all the assets of our dealerships, which may limit our ability to borrow
money from other sources; and
    
    we may be substantially more leveraged than some of our competitors, which may place
us at a relative competitive disadvantage and make us more vulnerable to changing market
conditions and regulations.
  An acceleration of our obligation to repay all or a substantial portion of our outstanding
indebtedness or lease obligations would have a material adverse effect on our business, financial
condition or results of operations.
  Our ability to make interest and principal payments when due to holders of our debt securities
depends upon our future performance.
  51




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
 Our ability to make interest and principal payments when due to holders of our debt securities
depends upon the receipt of sufficient funds from our subsidiaries.
  We depend on the performance of sublessees to offset costs related to certain of our lease
agreements.
  Our use of hedging transactions could limit our gains and result in financial losses.
 Derivative Instruments and Hedging Activities
  
    
    counterparty credit risk;
    
    available interest rate hedging may not correspond directly with the interest rate
risk for which we seek protection;
    
    the duration of the amount of the hedge may not match the duration or amount of the
related liability;
    
    the credit quality of the party owing money on the hedge may be downgraded to such an
extent that it impairs our ability to sell or assign our side of the hedging transaction;
and
    
    the value of derivatives used for hedging may be adjusted from time to time in
accordance with accounting rules to reflect changes in fair-value. Downward adjustments,
or mark-to-market losses, would reduce our stockholders equity.
  Risks Related to Our Relationships with Vehicle Manufacturers
 52




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
 Our operations may be adversely affected if one or more of our manufacturer franchise agreements is
terminated or not renewed.
    Our sales volume and profit margin on each sale may be materially adversely affected if
manufacturers discontinue or change their incentive programs.
  
    
    customer rebates or below market financing on new vehicles;
    
    employee pricing;
    
    dealer incentives on new vehicles;
    
    manufacturer floor plan interest and advertising assistance;
    
    warranties on new and used vehicles; and
    
    sponsorship of used vehicle sales by authorized new vehicle dealers.
  Our sales volume may be materially adversely affected if manufacturer captives change their
customer financing programs or are unable to provide floor plan financing.
  Our parts and service sales volume and profitability are dependent on manufacturer warranty
programs.
  53




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
 We depend on manufacturers to supply us with sufficient numbers of popular and profitable new
models.
  Adverse conditions affecting one or more key manufacturers may negatively impact our profitability.
  
    
    financial condition;
    
    marketing;
    
    vehicle design;
    
    publicity concerning a particular manufacturer or vehicle model;
    
    production capabilities;
    
    management;
    
    reputation; and
    
    labor relations.
   
    
    The termination of the franchise agreement no earlier than January 1, 2010 and no later than October 31, 2010;
    
    The assignment and assumption of the franchise agreement by the purchaser of General Motors assets;
    
    The payment of financial assistance to the franchisee in installments
in connection with the orderly winding down of the franchise
operations;
    
    The waiver of any other termination assistance of any kind that may
have been required under the franchise agreement;
    
    The release of claims against General Motors or the purchaser of
General Motors assets and their related parties;
    
    The continuation of franchise operations pursuant to the franchise
agreement, as supplemented by the termination agreement, through the
effective date of termination of the franchise agreement, except that
we shall not be entitled to order any new vehicles from General Motors
or the purchaser of General Motors assets; and
    
    A restriction on our ability to transfer the franchise agreement to another party.
    54




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
      (dollars in millions)September 30,2009General MotorsNew Vehicle Inventory
    
    $
    82.3Parts Inventory
    
    
    10.2Factory Receivables
    
    
    7.6Property and Equipment, net
    
    
    20.6Franchise Assets
    
    
    15.9Ford (including Volvo)New Vehicle Inventory
    
    
    50.7Parts Inventory
    
    
    3.9Factory Receivables
    
    
    4.2Property and Equipment, net
    
    
    8.9Franchise Assets
    
    
    2.2ChryslerNew Vehicle Inventory
    
    
    1.0Parts Inventory
    
    
    1.1Factory Receivables
    
    
    0.1Property and Equipment, net
    
    
    1.5Franchise Assets
    
    
    
   Manufacturer stock ownership restrictions may impair our ability to maintain or renew franchise
agreements or issue additional equity.
 55




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
   Our dealers depend upon vehicle sales and, therefore, their success depends in large part upon
customer demand for the particular vehicles they carry.
  Our failure to meet a manufacturers customer satisfaction, financial and sales performance and
facility requirements may adversely affect our ability to acquire new dealerships and our
profitability.
   If state dealer laws are repealed or weakened, our dealerships will be more susceptible to
termination, non-renewal or renegotiation of their franchise agreements.
   56




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
  Risks Related to Our Acquisition Strategy
 Pursuant to the terms of the most recent amendment to the 2006 Credit Facility, our ability to make
acquisitions is restricted.
  We may not be able to capitalize on acquisition opportunities because our ability to obtain capital
to fund these acquisitions is limited.
    Manufacturers restrictions on acquisitions could limit our future growth.
    57




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
 Failure to effectively integrate acquired dealerships with our existing operations could adversely
affect our future operating results.
   
    
    the difficulties of managing operations located in geographic areas where we have not
previously operated;
    
    the management time and attention required to integrate and manage newly acquired
dealerships;
    
    the difficulties of assimilating and retaining employees;
    
    the challenges of keeping customers; and
    
    the challenge of retaining or attracting appropriate dealership management personnel.
  We may not adequately anticipate all of the demands that growth through acquisitions will impose.
  
    
    incurring significantly higher capital expenditures and operating expenses;
    
    failing to assimilate the operations and personnel of acquired dealerships;
    
    entering new markets with which we are unfamiliar;
    
    potential undiscovered liabilities and operational difficulties at acquired
dealerships;
    
    disrupting our ongoing business;
    
    diverting our management resources;
    
    failing to maintain uniform standards, controls and policies;
    
    impairing relationships with employees, manufacturers and customers as a result of
changes in management;
    
    increased expenses for accounting and computer systems, as well as integration
difficulties;
    
    failure to obtain a manufacturers consent to the acquisition of one or more of its
dealership franchises or renew the franchise agreement on terms acceptable to us; and
    
    incorrectly valuing entities to be acquired.
  We may not be able to reinstitute our acquisition strategy without the costs of future acquisitions
escalating.
  
    
    the availability of suitable acquisition candidates;
    
    competition with other dealer groups for suitable acquisitions;
    
    the negotiation of acceptable terms with the seller and with the manufacturer;
    
    our financial capabilities and ability to obtain financing on acceptable terms;
    
    our stock price; and
    
    the availability of skilled employees to manage the acquired companies.
 58




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
 We may not be able to determine the actual financial condition of dealerships we acquire until
after we complete the acquisition and take control of the dealerships.
  Although O. Bruton Smith, our chairman and chief executive officer, and his affiliates have
previously assisted us with obtaining financing, we cannot assure you that he or they will be
willing or able to do so in the future.
   Risks Related to the Automotive Retail Industry
 Increasing competition among automotive retailers reduces our profit margins on vehicle sales and
related businesses. Further, the use of the Internet in the car purchasing process could materially
adversely affect us.
      Our business will be harmed if overall consumer demand continues to suffer from a severe or
sustained downturn.
  59




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
   A decline of available financing in the lending market has, and may continue to, adversely affect
our vehicle sales volume.
  Our business may be adversely affected by import product restrictions and foreign trade risks
that may impair our ability to sell foreign vehicles profitably.
  The seasonality of our business magnifies the importance of second and third quarter operating
results.
  General Risks Related to Investing in Our Securities
 Concentration of voting power and anti-takeover provisions of our charter, bylaws, Delaware law and
our dealer agreements may reduce the likelihood of any potential change of control.
  
    
    going private transaction;
    
    disposition of substantially all of our assets;
    
    transfer resulting in a change in the nature of our business; or
    
    merger or consolidation in which current holders of common stock would own less than
50% of the common stock following such transaction.
  60




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
   The outcome of legal and administrative proceedings we are or may become involved in could have an
adverse effect on our business, results of operations and profitability.
    Galura, et al. v. Sonic Automotive, Inc.
 Our business may be adversely affected by claims alleging violations of laws and regulations in our
advertising, sales and finance and insurance activities.
  61




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
  Our business may be adversely affected by unfavorable conditions in our local markets, even if
those conditions are not prominent nationally.
  The loss of key personnel and limited management and personnel resources could adversely
affect our operations and growth.
   Governmental regulation and environmental regulation compliance costs may adversely affect our
profitability.
   Potential conflicts of interest between us and our officers or directors could adversely affect our
future performance.
  62




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
  We may be subject to substantial withdrawal liability assessments in the future related to a
multi-employer pension plan to which certain of our dealerships make contributions pursuant to
collective bargaining agreements.
  A change in historical experience and/or assumptions used to estimate reserves could have a
material impact on our earnings.
  A further impairment of our goodwill could have a material adverse impact on our earnings.
  63




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
RISK FACTORS
  64




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
 
 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Repurchases of Equity Securities
  ( in thousands, except price per share amounts)Total Number of
    
    Approximate DollarShares Purchased
    
    Value of Shares ThatAverage
    
    as Part of Publicly
    
    May Yet Be PurchasedTotal Number of
    
    Price Paid
    
    Announced Plans
    
    Under the Plans orShares Purchased (1)
    
    per Share
    
    or Programs (2)
    
    ProgramsJuly 2009
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    $
    44,624August 2009
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    $
    44,624September 2009
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    $
    44,624Total
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    $
    44,264
 
 (1)
    
    Shares repurchased were a result of the delivery of shares by employees and officers in satisfaction of
withholding tax obligations upon vesting of restricted stock and restricted stock units.(2)
    
    Our publicly announced Class A Common Stock repurchase authorizations occurred as follows: ( in thousands)November 1999
    
    $
    25,000February 2000
    
    
    25,000December 2000
    
    
    25,000May 2001
    
    
    25,000August 2002
    
    
    25,000February 2003
    
    
    20,000December 2003
    
    
    20,000July 2004
    
    
    20,000July 2007
    
    
    30,000October 2007
    
    
    40,000April 2008
    
    
    40,000Total
    
    $
    295,000
  65




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Item 4: Submission of Matters to a Vote of Security Holders
  Votes For
    
    Votes Against
    
    Votes AbstainedApproval of the
issuance of shares of
Class A common stock
upon conversion of our
6.0% senior secured
convertible notes due
2012 at the conversion
price
    
    
    139,783,541
    
    
    
    59,256
    
    
    
    21,713
 66




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
 
 Item 6: Exhibits.
 (a) Exhibits:
 Exhibit No.
    
    Description1.1
    
    Underwriting Agreement (Class A common stock) dated as of
September 17, 2009 by and among Sonic Automotive, Inc. and
J.P. Morgan Securities, Inc. and Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, as representatives of the several
underwriters named therein (incorporated by reference to
Exhibit 1.1 to the September 17, 2009 Form 8-K).1.2
    
    Underwriting Agreement (convertible senior notes) dated as of
September 17, 2009 by and among Sonic Automotive, Inc. and
J.P. Morgan Securities, Inc. and Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, as representatives of the several
underwriters named therein (incorporated by reference to
Exhibit 1.2 to the September 17, 2009 Form 8-K).4.1
    
    Form of 5.0% Convertible Senior Note due October 2029
(incorporated by reference to Exhibit 4.2 to the September
2009 Form 8-K (Reg. No. 333-1691519)).4.2
    
    Indenture dated as of September 23, 2009 by and among Sonic
Automotive, Inc, the guarantors named therein, and U.S. Bank
National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the September 2009 Form 8-K).4.3
    
    First Supplemental Indenture dated as of September 23, 2009 to
the Base Indenture between Sonic and the Trustee (the
Supplemental Indenture and together with the Base Indenture,
the Indenture) (incorporated by reference to Exhibit 4.2 to
the September 2009 Form 8-K).10.1
    
    Amendment No. 6 to Credit Agreement dated September 11, 2009.10.2
    
    Notes Purchase Agreement
 67




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Exhibit No.
    
    Description31.1
    
    Certification of Mr. David P. Cosper pursuant to rule 13a-14(a)31.2
    
    Certification of Mr. O. Bruton Smith pursuant to rule 13a-14(a)32.1
    
    Certification of Mr. David P. Cosper pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Mr. O. Bruton Smith pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 (1)
    
    Indicates a management contract or compensatory plan or arrangement. 68




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
 Forward Looking Statements
  
    
    future acquisitions or dispositions;
    
    industry trends;
    
    future liquidity trends or needs;
    
    general economic trends, including employment rates and consumer confidence levels;
    
    vehicle sales rates and same store sales growth;
    
    future covenant compliance;
    
    our financing plans and our ability to repay or refinance existing debt when due; and
    
    our business and growth strategies.
  
    
    the number of new and used cars sold in the United States generally, and as compared
to our expectations and the expectations of the market;
    
    our ability to generate sufficient cash flows or obtain additional financing to
refinance existing debt and to fund acquisitions, capital expenditures, our share
repurchase program, dividends on our Common Stock and general operating activities;
    
    the reputation and financial condition of vehicle manufacturers whose brands we
represent, the terms of any bailout of any such manufacturer by the U.S. government or
other government and the success or failure of such a bailout, the financial incentives
vehicle manufacturers offer and their ability to design, manufacture, deliver and market
their vehicles successfully;
    
    our relationships with manufacturers, which may affect our ability to complete
additional acquisitions;
    
    changes in laws and regulations governing the operation of automobile franchises,
accounting standards, taxation requirements, and environmental laws;
    
    general economic conditions in the markets in which we operate, including
fluctuations in interest rates, employment levels, the level of consumer spending and
consumer credit availability;
    
    the terms of any refinancing of our existing indebtedness;
    
    high competition in the automotive retailing industry, which not only creates pricing
pressures on the products and services we offer, but on businesses we seek to acquire;
    
    the timing of and our ability to generate liquidity through asset dispositions, as
well as the timing of our ability to successfully integrate recent and potential future
acquisitions; and
    
    the rate and timing of overall economic recovery or additional decline.
 69




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
 
 SIGNATURES
  SONIC AUTOMOTIVE, INC.Date: October 30, 2009
    By:
    /s/ O. BRUTON SMITHO. Bruton SmithChairman and Chief Executive OfficerDate: October 30, 2009
    By:
    /s/ DAVID P. COSPERDavid P. CosperVice Chairman and Chief Financial Officer
(Principal Financial Officer) 70




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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
  Exhibit No.
    
    Description1.1
    
    Underwriting Agreement (Class A common stock) dated as of
September 17, 2009 by and among Sonic Automotive, Inc. and
J.P. Morgan Securities, Inc. and Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, as representatives of the several
underwriters named therein (incorporated by reference to
Exhibit 1.1 to the September 17, 2009 Form 8-K).1.2
    
    Underwriting Agreement (convertible senior notes) dated as of
September 17, 2009 by and among Sonic Automotive, Inc. and
J.P. Morgan Securities, Inc. and Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, as representatives of the several
underwriters named therein (incorporated by reference to
Exhibit 1.2 to the September 17, 2009 Form 8-K).4.1
    
    Form of 5.0% Convertible Senior Note due October 2029
(incorporated by reference to Exhibit 4.2 to the September
2009 Form 8-K (Reg. No. 333-1691519)).4.2
    
    Indenture dated as of September 23, 2009 by and among Sonic
Automotive, Inc, the guarantors named therein, and U.S. Bank
National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the September 2009 Form 8-K).4.3
    
    First Supplemental Indenture dated as of September 23, 2009 to
the Base Indenture between Sonic and the Trustee (the
Supplemental Indenture and together with the Base Indenture,
the Indenture) (incorporated by reference to Exhibit 4.2 to
the September 2009 Form 8-K).10.1
    
    Amendment No. 6 to Credit Agreement dated September 11, 2009.10.2
    
    Notes Purchase Agreement
 71




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##### Table of Contents



Exhibit No.
    
    Description31.1
    
    Certification of Mr. David P. Cosper pursuant to rule 13a-14(a)31.2
    
    Certification of Mr. O. Bruton Smith pursuant to rule 13a-14(a)32.1
    
    Certification of Mr. David P. Cosper pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Mr. O. Bruton Smith pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 (1)
    
    Indicates a management contract or compensatory plan or arrangement. 72